Electronic agreements without tears

Back in 1999, the Internet was still new enough to be both exciting as to its nascent commercial possibilities and thoroughly disconcerting when it came to the question of how legal aspects might work. The European Union, taking a lead in the international arena, introduced an entire Directive on the single issue of legal enforceability of electronic signatures and much debate took place over whether ‘click-wrap’, the online equivalent of ‘shrink-wrap’ licences for software, would be enforceable.

The Directive on Electronic Signatures arguably did more harm than good, introducing the concept of an e-signature having legal equivalence to a hand-written signature and stipulating a complex and expensive mechanism which could be used to create such a phenomenon. Since in normal commercial practice a large proportion of transactions take place through signature of written contracts, this caused many to assume that electronic contracts now had to be signed using these qualified electronic signatures, in order to be legally enforceable.

In reality, nothing could be further from the truth. On close examination, most countries’ laws do not require most contracts to be either written down or signed at all, let alone signed in any particular way. The exceptions – transfers of land, wills, some consumer contracts and, most famously of all, guarantees – are relative rarities in commercial life. Accordingly, most commercial contracts can legally and enforceably be concluded in electronic form without any signature, and the only novel issues arising relate to the evidential question of how to prove what it was that was agreed. The fluid nature of electronic documents certainly renders them in theory more susceptible to alteration than an agreement written on parchment, and that fact has caused some countries’ courts to question their value as evidence. But this is only a question of establishing what took place by reference to surrounding circumstances, as with any other evidential question. The legality of the agreement as such is not cast into doubt.

But at long last, the Court of Justice has begun to clarify precisely how unnecessary these cumbersome signature mechanisms are, for most purposes, even where requirements of writing apply. In a dispute over an electric car purchased online by a German car dealer, where the seller then cancelled the contract, the would-be buyer attempted to enforce the contract by an action in the German courts. The defendant resisted the action on the ground that the website’s terms and conditions clearly showed that in fact the contracting party was its Belgian parent company, and provided for exclusive jurisdiction in the Belgian courts. The buyer had clicked on a button which indicated acceptance of general terms and conditions, before the sale was completed. But this click did not automatically open the window which actually displayed those conditions; instead, a buyer had to click on a further link if they wanted to read the terms. The would-be buyer therefore argued that these conditions had not been incorporated into the contract.

Since the condition in question was that of which court had jurisdiction, the relevant law is the Brussels I Regulation which provides that parties can agree which court should have jurisdiction provided they do so by an agreement

• In writing, or evidenced in writing; or
• In a form which accords with the parties’ established practices; or
• In a widely known and regularly observed form which accords with a usage of international trade of which the parties are or ought to have been aware.

Article 23(2) goes on to clarify that “writing” for this purpose includes any communication by electronic means which provides a durable record of the agreement.

The Court of Justice agreed with the German court which had raised the question, that this does not require anyone actually to have printed out or saved the terms and conditions; it only requires that it be possible to do so. The claimant’s failure to read, let alone print out, the terms and conditions did not vitiate his expressly given consent to them, and consequently he was bound. The Court pointed out the distinction between this set of facts and those where a consumer buys goods online. In that case, the Distance Selling Directive requires the consumer to receive written confirmation or confirmation in another durable medium. This implies the website actively sending something to the consumer, rather than leaving it up to the consumer whether to access the terms and conditions or not (most likely, not). But since the buyer in this case was a dealer, the Distance Selling Directive did not apply and the contract was binding – “signed” with nothing more than a click. (El Majdoub v CarsOnTheWeb. Deutschland GmbH (Case C-322/14)).

As the Electronic Signatures Directive has been of very limited effect, a new Regulation on electronic identities and trust services has been passed which will come into force in July 2016. This aims to do by force – taking away Member States’ discretion as to how they implement it – what the Directive did not achieve, namely recognition across borders of electronic signatures or identities originating from any Member State. The Regulation still confers legal equivalence to a handwritten signature only on qualified electronic signatures, which continue to require the paraphernalia of public key encryption and third party certification. Chances are, there will be little or no uptake, just as before.