Australia: Email contracts – Who, What, When and Where – The formation of binding agreements through email exchanges

Last Updated: 5 October 2015
Article by Kathleen Ready

In recent years, the courts have shown a judicial trend in formally recognising emails as a potential birthplace for contracts. Recent cases such as Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd and Stellard Pty Ltd v North Queensland Fuel Pty Ltd demonstrate situations in which the Courts will recognise email exchanges as constituting an immediate and binding agreement between parties.

Where are email based contracts formed?

In Contract law, a distinction is drawn between communication that is immediate and communication that is inherently delayed (non-instantaneous). This separation has ramifications on the determination of when and where acceptance of an offer to contract is finalised.

Forms of communication that are non-instantaneous are subject to what is known as the Postal Acceptance rule. Under this common law principle, acceptance is deemed to have been made at the time and place the communication is made. For example, acceptance that is made through the mail is deemed to conclude negotiations at the time and place that acceptance is made, irrespective of when the dispatch is received by the offeror.

Where acceptance is made through an instantaneous form of communication (such as telephone conversations), the contract is formed immediately at the place it is received, rather than where it is sent from.

Drawing a distinction between categories of communication is necessary in determining the applicable law that governs the contract (where a 'governing jurisdiction' clause is not present). The determination of the correct jurisdiction is essential where litigation arises in regards to the contract, as bringing forward proceedings in an inappropriate jurisdiction (nationally or internationally) will result in a plea of forum non conveniens (a discretionary power of the courts to dismiss a case on the grounds that the chosen forum is incorrect).

The courts have frequently treated emails and most other standard means of internet-based communications as instantaneous. In accordance with the laws governing all other forms of instantaneous communiqué, the contract is formed immediately at the place the acceptance email is received.

However, specifically where the recipient receives the email is slightly more ambiguous. Within the cases of Olivaylle Pty Ltd v Flottweg GMBH and Co KGAA (No 4) [2009] and Centrebet Pty Ltd v Baasland [2012], the location of receipt was determined to be the place the email was actually sent to, i.e. the location of the recipient's computer.

Conversely, within section 14B(1)(a) of the Electronic Transactions Act 1999 (Cth) (and all State level equivalents), it is stated that;

"the electronic communication is taken to have been received at the place the addressee has its place of business"

Unlike the court's previous findings, this section would indicate that the "place the email is received" is at the place of the recipient's business, regardless of whether the email was actually sent to or received at that location. Section 14B(2)(e) provides that where an individual does not have a place of business, that party's place of business is to be the party's place of "habitual residence".

It is currently undecided what the effect would be were a received email to put these two authorities in conflict with one another.

When will an email constitute a contract?

For an email to constitute an immediate and binding agreement between the parties, the basic contractual requirements of an offer and acceptance must be met. It must also be evident to the courts that through the email exchanges, external conversations and surrounding circumstances, both parties intended to form and be bound by a contract.

In Vantage Systems, it was held a contract can arise as a result of an email exchange where both parties intend for there to be a concluded and binding agreement. Upon the tenant agreeing (through email) to a revised version of their tenancy agreement from the landlord, the parties were immediately bound to that agreement. This 'intention to create contractual relations' requires an objective assessment of the state of affairs and circumstances existing between the parties – previous conversations, email exchanges and surrounding circumstances are all relevant factors in determining whether such an intention exists.

Similarly, in Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd, a binding contract for the sale of land was formed from an email exchange between the two parties. This contract came to be despite the precise wording within the 'acceptance email' stating that the offer was "subject to contract".

Here, the Court looked to the broader email correspondence, previous discussions on the matter as well as the conduct of the parties, and found that the requisite intention to form a contract existed at the time the acceptance email was sent, despite the "subject to contract" phrase. The mere intent to construct a formal written agreement at a later time did not act to invalidate the current informal arrangement agreed upon within the emails.

It was also noted that the statement ""we accept the below offer" that was made in the email exchange was relevant in the determination of intention due to the usage of the classically contractual terminology of "offer" and "accept".

Commercial email exchanges can, and as has been seen quite commonly do, constitute binding and concluding agreements between parties. These latest cases act as a cautionary tale for those who frequently negotiate contract terms through email correspondence. They also highlight the importance of using clear and decisive language to evidence your intention where you wish to or wish not to be bound by the present email exchange.

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Authors
Kathleen Ready
 
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