This article has been written by Somadatta Bandyopadhyay, pursuing the Diploma in Cyber Law, FinTech Regulations and Technology Contracts from LawSikho.
Table of Contents
Introduction
With the internet becoming more and more accessible to people, everything is available just a click away. Transactions can be done with strangers without even having to know or see them in person now. Although it can seemingly be hassle-free for many, contracting online does have its own set of challenges. The essence of offline contracts is the interaction of parties in person so as to avoid any mistake, but the clicking of buttons leading to the conclusion of contracts can bring home certain risks and issues attached to it.
The traditional paper-based contract law has rules that apply to matters such as jurisdiction, validity, the formation of a contract, modifications to contracts. In the world of e-commerce, these are all issues that arise in online contracts and are a challenge to the traditional concepts of contract law.
Although online contracts arose because of the need for efficiency, convenience and speed, contracting online bring up a plethora of newer legal issues as compared to its offline variant that has to be similarly considered. The questions arise mainly along the lines of whether the basics of contract, offer and acceptance, a requirement of a written signature, jurisdiction, non-repudiation, can be accommodated over transactions and businesses carried out over the Internet.
Competence
Electronic contracts or online contracts, much like offline ones, also manifest from mutual consent to consideration and exchange and have to be agreed to by persons competent to contract. Since it is black-letter contract law that the person making the offer in the contract can determine its mode of acceptance, much similarly on the Internet too, the offer can have only one stipulated way of accepting it, by checking on an “I accept” check box and clicking on a button to assert their acceptance, thereby eliminating any scope of ambiguity. But how does the service provider determine who has clicked on the button? Maintaining anonymity on the Internet is very rampant and therefore minors can also participate who by any law is legally incompetent thus making the contract void. Although the service providers can set up disclaimers listing out persons incompetent to contract or asking for parental consent to websites frequented by minors but that would never be enough.
Jurisdiction
The Internet being beyond any spatial boundary brings up questions with regards to the place of formation of a contract or which jurisdictional laws govern the contract. With the rise of eCommerce websites that solicit business, the moot question remains that in case of a dispute or breach of contract which governing state law prevails to decide the matter. Since online contracts are closed in a virtual space, the traditional rules of offline contracts can be a little difficult to apply.
What needs to be looked into is the dispatch and receipt of the electronic contract, and its time and place. When the offer can be deemed to be made when it leaves the sender’s computer from their place of business or principal place of business if they have multiple business places and is deemed to be received by the receiver at the time it enters their computer at their place of business or place of residence. Communication via the Internet is not a one-line or one-way communication. It is a network via which emails are sent broken into chunks when delivering said email. Therefore, determining the exact time of receipt and time of communication of acceptance can be tricky especially when the rights of the parties are to be determined based on the time.
Forum
Based on the place of residence the applicable law would govern the law and the choice of the forum would ensue. It would be reasonable for the parties to defend their lawsuit in one jurisdiction only instead of multiple ones and making it expensive and cumbersome. Therefore the service providers would profit from submitting to one particular forum for dispute resolution and the user by clicking on the “I accept” button accepts the same terms and the same forum.
Authentication
The laws of the contract have always been governed by pen and paper signatures as a way of authenticating them. Online contracts are governed by digital signatures. By law, digital signatures and handwritten signatures are considered equivalent. There are risks attached to the creation of digital signatures:
Certifying Authorities that provide digital signatures should be licensed to do so.
The signature has to be created under lawfully prescribed procedures.
The signature should be successfully verified.
Unconscionable License Terms
Since online contracts don’t conclude in person, there is no room for negotiation. Therefore, even if the terms of the contract are unconscionable and highly one-sided there are only two ways to go about it – to accept it the way it is or reject it. There are very few instances in which the terms because of being so one-sided can be invalidated. In a case, either the terms can be invalidated or the entire contract.
The Scenario in India
Contracts in India are governed by the Indian Contract Act, 1872. But online contracts are a lot more nuanced therefore the provisions of Information Technology Act, 2000 and the Consumer Protection Act, 1986 also apply to some extent to validate and resolve issues pursuant to online contracts.
The basics of contract discussed previously, are competence, jurisdiction, validity etc. The Indian Contract Act states that four categories of people are incompetent to enter into or make a valid contract and they include: a minor, a person of unsound mind, a lunatic and a person in a drunken state of mind.
Also, a person who hasn’t given their consent to the contract they have entered into makes the contract void. Consent flaws can be by way of fraud, misrepresentation and mistake2. Pleading ignorance of foreign law and using it as a shield under mistake cannot be granted in case of online contracts because of the likelihood of it being misused.
Neither can the plea of non-est factum, i.e., absence of consent, be used in case of online contracts. It is assumed that the parties to the contract have agreed to the terms and conditions and are bound by it. With the rising number of misrepresentations in case of online contracts, it would be advisable to fall back on the doctrine of uberrimae fidei, or the doctrine of utmost good faith, as the foundation of online contracts.
In the case of online contracts, the provisions of the Information Technology Act in the context of the use of electronic records, such as attribution, acknowledgement, time and place of dispatch and receipt6. Has to be read along with the Indian Contract Act.
In case of contracts entered into via email, the time and place of dispatch and receipt of such email is very critical. The Information Technology Act with its provisions provides clarity on those aspects. There are also two options in case of the laws of India to personal jurisdiction, i.e., to apply the law of the forum (lex fori), or to apply the law of the site of the transaction, or occurrence that gave rise to the litigation in the first place (lex loci).
Provisions of digital signatures are also governed by the Information Technology Act. Rule 5 of the Information Technology (Certifying Authorities) Rules, 2000, explains the method of verification of the digital signature.
In case of choice of forum for disputes, the disputes can be referred for arbitration. The contract can contain clauses as under:
“In case of any dispute or any difference arising at any time between the parties as to the construction, meaning or effect of this agreement or any clause or thing contained therein or the rights and liabilities of a Party, hereunder that cannot be amicably resolved by the Parties shall be settled in accordance with the process of arbitration, shall be referred to a single arbitrator of Indian nationality, in case the Parties can agree upon one, and failing such agreement, each Party shall appoint one arbitrator of Indian nationality, and the two appointed arbitrators shall appoint the third arbitrator, an Indian national, who shall act as the presiding arbitrator. The arbitration shall be held in English and the decision of the arbitrator(s) shall be final and binding. All such arbitration proceedings shall be in accordance with and subject to the provisions of The Arbitration and Conciliation Act (India), 1996.”
Conclusion
With the entire world going digital, online contracts might just become the new norm. Therefore it is imperative to put in a place a framework for the governance of online contracts alone instead of relying on traditional contract laws and cyber laws to regulate them. Websites that invite acceptance of their offers need to be structured better. Security has to be maintained by introducing sufficient digital signature legislation. Websites need to remove ambiguity and leave no doubt to the user that they are entering into a contract.
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