It has been suggested that the Queensland Attorney General’s office is looking to introduce amendments to the Electronic Transactions Act 2001 (Qld) later this year with the aim of fully incorporating the United Nations Convention on the Use of Electronic Communications in International Contracts Model Law (UN Convention). In May 2010, the State Attorneys General announced they would enact legislation enforcing the convention; however, Queensland remains the only jurisdiction to have not fully implemented the UN Convention.

The amendments will likely aim to increase certainty in contracting arrangements and address the issue of invitations in electronic forums. Despite this, it is unclear how far the Queensland legislation will seek to amend the existing Act. The following article will discuss electronic contracting, and why understanding the potential new legislation is important for those contracting in the 21st century.

What is an electronic contract?

An ‘electronic contract’ is any contract concluded through electronic means. For example, an email, online auction or text messaging are potential forums for the establishment of an online contract. While generally speaking the same legal principles that govern traditional contracts also apply to electronic contracts, the increasing number of electronic exchanges has raised important questions regarding whether these principles are appropriate in the new context.

The amendments: invitations to treat and automatic contracts

One of the more notable amendments to other States’ electronic transactions legislation has been the addition of a provision relating to ‘invitations to treat’. ‘Invitations to treat’ are ‘offers to receive offers.’ In order for a contract to be formed in these situations, a prospective purchaser must make an offer to the other party who then forms a contract by accepting that offer. A common example of this is an advertisement in a catalogue. By characterising these as an ‘offer to receive offers,’ the seller is not bound by the contract (and potentially liable for breach) if they are unable to perform.

The amendment, if passed by the Queensland parliament, may provide that a proposal to form a contract where it is not addressed to any party in particular and is generally accessible to parties making use of the system, is to be considered an invitation to receive offers. This will provide certainty, especially for the online merchants who advertise products on publically accessible websites.

The amendments may also attempt to remove uncertainty surrounding certain online transactions by providing that ‘a contract formed by the interaction of an automated message system and a natural person or the interaction of automated message systems, is not invalid, void or unenforceable on the sole ground that no natural person reviewed or intervened in each of the individual actions’. This prevents parties from attempting to deny contracts of this nature and reflects the views and expectations of modern commercial practice.

Room for improvement?

A fundamental requirement for contract formation is communication of acceptance to the offeror. Although there are provisions in the Electronic Transactions Act 2001 (Qld) relating to the time of dispatch and communications, these do not decide whether acceptance, and thus contract formation, are effective on dispatch or receipt. The amendments are not expected to address this issue and it appears this will remain a matter for the Courts.

Why the ‘when’ in contract formation is important

The time a contract is formed can often be a determinative issue where the negotiations between parties break down. Two common examples include where a defect in communication causes acceptance to be communicated after the closing date of an offer and where the court needs to decide whether an express term is part of the contract.

When acceptance by email can be established

The general rule in contracting is that acceptance must be communicated to the offeror. This rule has often been referred to as the ‘instantaneous communication rule’ and was considered by the Federal Court in the decision of Olivaylle Pty Ltd v Flottweg. The Court found that the contract was formed when and where the acceptance was received: in effect, extending the general rule to electronic contracting.

While this approach could be seen as answering the question, no simple solution exists as to exactly when an acceptance is received. Under this approach, it is still unclear whether acceptance is communicated when the email arrives at the offeror’s server or when the email is read and the individual is actually aware their offer has been accepted.

The second school of thought advocates what is commonly known as the ‘postal acceptance’ rule. This rule holds that where the parties contemplated that acceptance may be communicated via post, then the act of posting an acceptance marks formation.

This rule may, however, be incompatible with modern commercial expectations. Extending the scope of the postal rule to electronic communication may defeat the intentions of certain parties involved in business transactions.

In any event, the proposed amendments to the Electronic Transactions Act 2001 (Qld) help clarify the law in relation to electronic contracting. Although it is highly unlikely the amendments will answer the question of when electronic contracts are formed, the legislation marks the need to address the uncertainty in the law relating to contracts formed by electronic means.

How will your rights be affected?

For businesses that are operating online, the legislation may provide clarity that advertising online does not oblige a business to then sell the goods.

Further, such legislation would increase the likelihood of business’ being bound by automatic contracts. This aspect of the potential legislation may benefit consumers attempting to enforce contracts entered into via email, through websites or over the phone.

The scope of the legislation, if introduced at all, will be determined by the government’s willingness to intervene in a contentious area of law. In the absence of clear judicial or legislative guidance, electronic contracting remains an uncertain area of law.