26 March 2018

Ensure your online contracts tick all the right boxes

We enter into contracts all the time. We enter into contracts when we sign on the dotted line, and we enter into a contract when we buy the weekly shop. Of course, in the last 15 to 20 years or so we have seen a proliferation in the number of contracts being entered into by electronic means. This can be through the click of a button when downloading an app, or where a contract is executed with an electronic signature.

Each business will find the most efficient way of forming its contracts with customers and suppliers and this may vary from case to case.

However, whichever method you use, it is crucial that you ensure that the contract you are entering into is executed in a manner to ensure it becomes effective. If a button remains unticked or an email is left un-replied to, it may call into question the validity of the contract and whether various terms have been incorporated.

Here we offer a few key tips for ensuring you are creating valid, enforceable contracts by electronic means.

Ensuring your website terms are incorporated

A fundamental aspect of ensuring your website terms and conditions are enforceable is ensuring that they are effectively incorporated. In essence, this is about ensuring that you have brought your terms and conditions to the attention of the customer.

This will inevitably entail a balancing act between practicality and ensuring that your website is easy to use, with achieving the necessary certainty around incorporating your terms and conditions into your contract with your customers.

There are a number of ways that you can incorporate your terms and conditions. You can provide a link to your terms and conditions, and state at the point of sale that use of the website is subject to the terms and conditions. Alternatively, you could provide a technical barrier to the customer making a purchase until they have scrolled to the end of your terms and conditions and ticked a button to indicate their acceptance. Of course, not all methods will be deemed effective. Needless to say the latter will have more chance of achieving incorporation than the former.

Don’t ask the office junior…

For many businesses, many of their contracts will be entered into by their sales team. The contracts will be entered into by members of the sales team on behalf of the company, despite those individuals not being directors of the company. This is not a problem, as by virtue of their position they will be considered to have the requisite legal authority to bind the company and enter into contracts on its behalf.

This may not be the case for all employees however. A recent case involved a junior employee accepting service on behalf of his employer of an arbitration notice. It was found that, due to the employee’s junior position, he had no authority to bind the company. Considering the ease and ubiquity of email communications between businesses, this is worth bearing in mind when contracting with other organisations.

A note on electronic signatures

Around the turn of the century, the EU introduced various legislation providing for the validity of an electronic signature. An “electronic signature” was defined as “data in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication”.

While this sounds unnecessarily complicated, it does actually allow for a broad range of electronic signatures, including simply typing a name into an electronic document or scanning a manuscript signature. Of course, each business is unique and will have its own level of security requirements. The definition also incorporates more sophisticated signatures known as “digital signatures”. These incorporate a cryptographic mechanism of demonstrating that a contract has been entered into between two specific parties.

As we see an increasing concern over digital security amongst the business community, together with an increase in the number of reliable products being offered in this space, we are likely to see the use of electronic signatures grow in the coming years.

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About the Author
Ed Kilner, Solicitor
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