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In what circumstances will a binding contract be formed electronically?

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Posted by Justin Byrne on 06 March 2014

Justin Byrne - Commercial Litigator
Justin Byrne Consultant

The courts accept that electronic communication is a vital part of modern day business. Recent decisions recognising binding contractual guarantees within email chains emphasise the modernised view the judiciary is taking in response to social and technological developments.

Electronic signatures and binding electronic guarantees

Golden Ocean Group Ltd v Salgaocar Mining Industries OVT Ltd [2011]

  • An email chain and electronic signature are sufficient to create a binding contractual guarantee.
  • Section 4 of the Statute of Frauds 1677 states that a guarantee cannot be acted upon unless the agreement is in writing and signed by the parties.
  • The Court of Appeal held that this statute must “be construed in a manner which accommodates accepted contemporary business practice”.
  • The agreement in this case was found within a sequence of emails.
  • An electronic signature was sufficient.  Indeed a first name, initials or perhaps even a nickname could be sufficient.
  • The guarantor in this case put his name on the email, thus indicating his authority and that he took responsibility for its contents.

It would appear that it is now common ground that an electronic signature within an email can be sufficient to bind a party in straightforward contractual matters, provided the terms of the contract have been made clear within the emails.

Sale of land by email

  • Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, states that a contract for the sale or disposition of land can only be made in writing, by incorporating all the terms expressly agreed by the parties in one document, and that the document must be signed by each party.
  • It has been held in a recent case that first names within emails can constitute signatures, and that an email and subsequent reply can be held to be a single document.  
  • It would seem that, if an email contains all the express terms of the sale contract, the parties show intention to be bound by the agreement and the emails have the electronic signatures of both parties, then a contract of sale could be completed by an exchange of email correspondence.
  • Section 8 of the Electronic Communications Act 2000 specifically allows the modification of legislation for the purpose of authorising or facilitating the use of electronic communications. It is a real possibility that, in the not too distant future, the Law of Property (Miscellaneous Provisions) Act 1989 could be amended to enable real estate transactions by electronic means.

Conclusion

It would seem that it is now possible to form binding contractual agreements through the use of electronic communication.  For additional comfort, parties may wish to consider including a provision within their electronic agreement stating that such agreement is deemed to be in writing. 

About the author

Justin Byrne

Consultant

Justin Byrne is a seasoned litigator and specialises in commercial disputes, with particular emphasis on IT.

Justin Byrne

Justin Byrne is a seasoned litigator and specialises in commercial disputes, with particular emphasis on IT.

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