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Whether the terms and conditions of a website are legally binding

Terms and conditions

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This article is written by Jasmine Sharma who is pursuing a Diploma in Cyber Law, FinTech Regulations and Technology Contracts from LawSikho.

Introduction

Are you skeptical of the pop-ups and permission messages that appear often while we are working/scrolling/surfing on the websites? This generally happens on News websites, payment management websites, bank websites and the list go on. Do you think twice before clicking on the “Yes, I agree” button? So, for what purposes do they require our consent? What’s their legal enforceability? To answer most of these issues we need to start from the basics.

World of the internet is fluid and one should be ready to adapt himself/herself to it. Long gone the days of transacting between the locals and indulging in the physical contracts. Now we have potential and opportunities across the world waiting for us to sign a new deal, sell or purchase any goods or simply make friends online. With power comes responsibility and with responsibility it comes liability. One must be conscious of the actions he/she is performing online especially when someone is giving consent to the website to use personal data such as contact number, address, photo id etc. By giving permission we are exposing ourselves to be sued in future for any breach of terms and conditions of the contract which we explicitly or impliedly entered into. Let’s dive into the internet jurisdiction, theory of minimum contact, forum shopping and national legal statutes applicable to e-contracts.

Internet Jurisdiction

The internet does not know any boundary which has its own advantages and disadvantages. In cases of e-contracts it is challenging to determine the appropriate forum to approach. The Code of Civil Procedure states that the trial of the suit could be done either (a) where the defendant resides or (b) place where cause of action arises. In cases of traditional contracts there is understanding about the trial of the suit because physical contracts contain the execution date and place which makes the court of that jurisdiction competent to try the case. However, e-contracts are concluded virtually, territorial jurisdiction then won’t work on them.   

The place of registration is crucial to determine as the registered company will be bound by those laws. Since the laws vary a lot in different countries it becomes difficult to enforce these e-contracts. The websites registered in India are governed by the Information Technology Act, 2000; Code of Civil Procedure, 1908; Indian Contract Act, 1872 and other statutes applicable to electronic contracts. Civil and Criminal infringements are also dealt with different statues. The updated IT Rules, 2000 defines that websites operating in India are intermediaries which imposes the responsibility of due diligence of cyber law upon them.

Information Technology Act, 2000 (IT Act) gives statutory recognition to electronic contracts. In the landmark case of Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Ltd. ( (2010) 3 SCC 1) the apex court recognized that contracts through email communication would constitute valid contracts which satisfied the essential requirements of Indian Contract Act. Section 13 of the IT Act governs the provisions relating to time and place of dispatch and receipt of an electronic record, and addresses the issue of deemed jurisdiction in electronic contracts.

Forms of E-Contracts

  1. Click-Wrap Agreements:  Agreements asking consent through “I Agree” or “I Disagree” buttons. These are instant contracts made over online. 
  2. Shrink-Wrap Agreements: These are popular as the conditions which are mentioned on the products (e.g. CD’s) cover. So, when a user opens the product he/she accepts that condition automatically. If the terms and conditions are not of the users liking then he/she has the right to return it. This right has been given by Section 13(2) of IT Act, 2000, which states that communication of an offer or acceptance in the web-click mode is complete when the addressee is in receipt of the electronic record.
  3. The Electronic Data Interchange (EDI): These are used in trade transactions enabling transfer of data between computers in such a way that every transaction in the trading cycle is processed completely online with virtually no paperwork. This is the transaction between two computers and not an individual and computer unlike the above-mentioned methods. 

Theory of Minimum Contacts

Suit in cases of online contracts are governed by ‘Minimum Contact Theory’. This theory allows the state to try the parties to the suits who are non-residents of a particular local jurisdiction. This theory comes into picture when either or both the parties seem to be from outside the territorial jurisdiction of court. In India, with the help of wide and liberal interpretation to section 20(c) of the Code of Civil Procedure, 1860 the minimum contact theory has been incorporated. The courts are competent to try suits which come under their jurisdiction: territorial, pecuniary or subject matter. E-contracts are difficult to be placed in certain jurisdictions because the internet does not have any boundary to it. For e.g. If the website’s head office is in Delhi and the breach of contract is done in Chennai. Then to which court should the aggrieved party approach. 

When E-agreements are upheld the users will be deemed to be bound by terms and conditions in the same way if they had entered into physical agreement, so long as there was an adequate opportunity to do so.

When are E-Agreements binding?

  1. The court will not consider the terms if they are not legible, if they are difficult to locate on the webpage.
  2. Court will also take note whether the user was made reasonably aware that he/she is entering into a binding contract? Websites using buttons like “submit” or “continue” for contracts will have great probability to lose the trial as the court also accepts the contract which is consciously entered into by the user by clicking on “Yes” or “I Agree” buttons.
  3. Illegal provisions like usurious finance charges are void and against public policy hence they are not enforceable.
  4. Unfair trade practices clauses in terms and conditions are also not binding and they may also incur penalties for the website owners.
  5. Court also looks at the adequate opportunity given to the user to review the terms and conditions before they are considered to be bound by them.

Implementation of national contract laws on the internet

Whenever there is professional exchange of information, service or product there exists contractual obligation between the parties. Indian Contract Act,1872  lays down certain essentials for this contractual relationship: (a) offer and acceptance, (b) lawful consideration, (c) free consent between the parties, (d) object should be lawful, (e) parties must be competent to enter into contract, (f) intention to enter into legal relationship and (h) compliance with the formalities under all the laws of governing the contract.

Similar concept is applied in transactions happening online in the form of E-Contract. It is a contract formed over e-commerce by the interaction of two or more individuals using electronic means. Practical examples are: contracts over mail, interaction of individuals with electronic agents or interaction of two or more electronic agents which can validate and recognize the existence of a contract. E-contracts are to be governed according to the Indian Contract Act. 1872 and other statutes applicable to electronic contracts. 

Issues with E-contracts

  1. Competence: It is challenging to determine who has accepted the terms and conditions of the websites since it just requires a click on ‘I Agree/Accept’ button. It is very much observed that by maintaining anonymity minors also participate in contracts which legally makes it void and unenforceable. Service providers effort of putting the parental consent disclaimer also goes unattended. 
  2. Jurisdiction: Internet is fluid and knows no boundaries. It is difficult to ascertain the exact place where the contractual relationship was established, which jurisdiction to apply. Determining the exact time of receipt and communication of acceptance is tricky when parties are basing their arguments on the time.
  3. Forum: Jurisdiction of choice to try the suit according to the interests of either party. Websites generally unilaterally insert this clause in terms and conditions and users then have to face the brunt. 
  4. Electronic Authentication: Article 7 of UNCITRAL validates the legality of electronic signature. Some principles which should be kept in mind while dealing with this is: signature should follow the laws associated with it, certifying authorities should be licensed to do so and they should be successfully verified. 
  5. Non-Negotiable terms: Some websites give the option of either accepting their one-sided terms or the user is not able to access any service/data. So basically, this is forced upon the users or else they wouldn’t be able to have that service which they happily could if the terms can be negotiated. 

Forum Shopping for Dispute Resolution 

Forum shopping is the most favorable alternative for choosing the most desired jurisdiction to enforce an e-contract. This is divided into Domestic forum shopping and Transnational forum shopping. As the name suggests, in domestic forum shopping the plaintiff chooses between courts within one country’s legal system whereas in transnational forum shopping is the decision to choose the court jurisdiction between two or more countries’ legal systems. In the landmark case of Division Bench of Delhi High Court in Banyan Tree Holding (P) Ltd. vs. Murali Krishna Reddy & Anr court observed the following points in Para 58:

  1. “Plaintiff would have to be prima facie shown that the nature of the activity indulged in by the Defendant by the use of the website was with an intention to conclude a commercial transaction with the website user and that the specific targeting of the forum state by the Defendant resulted in an injury or harm to the Plaintiff within the forum state.
  2. For the purposes of Section 20 (c) CPC, in order to show that some part of the cause of action has arisen in the forum state by the use of the internet by the Defendant the Plaintiff will have to show prima facie that the said website, whether euphemistically termed as “passive plus” or “interactive”, was specifically targeted at viewers in the forum state for commercial transactions. The Plaintiff would have to plead this and produce material to prima facie show that some commercial transaction using the website was entered into by the Defendant with a user of its website within the forum state resulting in an injury or harm to the Plaintiff within the forum state.
  3. The commercial transaction entered into by the Defendant with an internet user located within the jurisdiction of the forum court cannot possibly be a solitary trap transaction since that would not be an instance of “purposeful” availment by the Defendant. It would have to be a real commercial transaction that the Defendant has with someone not set up by the Plaintiff itself. If the only evidence is in the form of a series of trap transactions, they have to be shown as having been obtained using fair means. The Plaintiff seeking to establish jurisdiction on the basis of such trap transactions would have to aver unambiguously in the plaint, and also place along with it supporting material, to prima facie show that the trap transactions relied upon satisfy the above test.”

In the other case taken up by the Delhi High Court observed that “availability of transactions through the website at a particular place is virtually the same thing as a seller having shops in that place in the physical world. Let us assume for the sake of argument that the appellant/ Plaintiff had a shop in Delhi from where it sold its various goods and services. In that case, it could not be denied that the Plaintiff carried on business in Delhi. This is apart from the fact that the appellant/ Plaintiff may also have been regarded as having voluntarily resided in Delhi. When the shop in the physical sense’ is replaced by the virtual’ shop because of the advancement of technology, in our view, it cannot be said that the appellant/ Plaintiff would not carry on business in Delhi. 

Conclusion

The issue of e-contracts is still developing in India. Some challenges like determination of competency to contract, electronic authentication and disputes about the choice of forum are still debated. This area of law demands amalgamation and understanding of different statues in order to come to a solution. The existing status like Indian Contract Act, 1872, IT act, 2000 and the like have to be updated while considering the exponential growth of E-contracts. Protection of data and theft of identity is also a concern while entering into e-contracts. Recent cyber-attacks have made people conscious of their online behavior. Little to no negotiation power available to users is also concerning.

The basic online etiquette and consumer protection should be informed to the public. Consumer courts should be well-ept with the experts in this growing field. As the contracts and injuries online happen instantly the redressal system should be quick and in line with the number of complaints that we are receiving currently. This sector indeed has a lot of potential to grow but as said very well by Stan Lee that with great power comes great responsibilities hence the current statutes relating to e-contracts and user’s behavior should also be evolved to meet the demands of the 21st century. 


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