Act clarifies contract formation rules for contracts accepted electronically

The Electronics Transaction Act 2002 (ETA) has been amended by the Electronics Transactions (Contract Formation) Amendment Act 2014 to clarify when a contract is formed online.

Background

The rules of law applying to contract formation - offer, acceptance, and certainty of subject matter - apply equally to the formation of online contracts, except where these rules are varied or supplemented by the ETA or other enactments.

The standard position of contract law is that contracts are formed at the time that the acceptance of the offer is communicated to the party making the offer. However, there is no definitive case law on how the standard contract formation rule would be applied to acceptances communicated online.  Of particular uncertainty is whether the “postal acceptance rule” established in the 1818 case Adams v Lindsell¹ (which held that, when anoffer was accepted by post, the contract was deemed to have been formed from the moment the acceptance was posted) would be extended by the courts to apply to online communications or whether the courts would hold that a contract is completed online when the acceptance is received by the offeror (in keeping with case law relating to instantaneous communications).

As enacted in 2002, the ETA included provisions for determining the time and place of dispatch and receipt of electronic communications, but did not state which event, dispatch or receipt, determined when a contract was formed.

Amended ETA confirms that the contract is formed at the time of receipt of the acceptance

The Electronics Transactions (Contract Formation) Amendment Act 2014 clarifies that the “postal acceptance  rule” does not apply where an acceptance of a contract offer is sent by an electronic communication. Under a new section 13A of the ETA:

“an acceptance by electronic communication of an offer is taken to be communicated to the [party making the offer] at the time determined by section 11 to be the time of receipt for that electronic communication.”

Under section 11 of the ETA, an electronic communication is considered to be received at the time it enters an information system designated by the addressee for that purpose. If no information system has been designated then the communication is considered to be received at the time that it comes to the attention of the addressee.

Default rules only

The rules set out by the ETA regarding acceptance, dispatch and receipt of online contracts are merely default rules. They can be overridden by agreement between the parties to the relevant communication.  The ETA’s default rules will also be overridden if particular legislation sets different rules for contract formation, dispatch and receipt.