Sri Lanka: Forming Contracts online - Why it is necessary understand the law on Electronic Transactions

Last Updated: 29 October 2012

By Mr Dinesh Munasinha


In order for an electronic transaction to be recognized by law it has to fulfill the elements of a contract. However, the traditional principals of contract law cannot be used blindly, and certain modifications are necessary for it to be used in electronic transactions. As per the newly enacted Electronic Transactions Act No. 19 of 2006 (ETA), a contract in electronic form is legally valid and enforceable whether formed between persons or automated systems, or between persons and automated systems.

One of the basic requisites of a legally enforceable contract is agreement or meeting of minds. Agreement is reached by an offer followed by an unequivocal acceptance. The ETA stipulates that an offer and acceptance of an offer may be expressed in electronic form.

It is a well established principle that goods displayed in shops does not amount to an offer. These are termed as an invitation to treat as opposed to an offer. Similarly products advertised on websites, or e-mail catalogues are only considered as invitations to treat.

The customer thereafter can make an offer by placing the products they hope to buy on a virtual shopping basket or by making a request via e-mail.

Thereafter the acceptance can be made by either;

  • Displaying a report implying acceptance or
  • Sending an e-mail confirming the order or
  • By actual performance (eg:- if you purchase mp3 songs via a website, the song will start to download to your computer, this is acceptance by performance)

Guidelines when creating a website
Although the presumption is that products placed on the web site are an invitation to treat, care should be taken when designing the web site to make sure that they do not constitute an offer to the world at large1. Words such as "the company has the sole right to accept or reject the offer" could be displayed on the website to eliminate any doubts

The word communication has a specific meaning attached to it in terms of the ETA. The person sending the message is called the originator and the person to whom it is addressed to is called the addressee.

Accordingly, the Electronic Communications shall be deemed to be that of the person who has sent or generated the message, if it was sent by,

  • the originator himself
  • a person who had authority to act for the originator
  • an automated information system programmed on or on behalf of the originator

The person who receives the communication (the addressee) is to regard an Electronic Communication as being that of the originator if the addressee has no reason to doubt the authenticity of the communication.

When forming a contract both offeror and offeree enters into a line of correspondence and the exact time of communication is of paramount importance. Under the ETA the sending of the message is called dispatchment of electronic communication.

Accordingly, the dispatch of Electronic Communications occurs

  • when it enters the information system outside the control of the originator
  • If the message, document, record has not left an information system, the time when it is received.
  • Unless otherwise agreed between the originator and the addressee.

If the addressee has designated an information system, receipt occurs

  • when the Electronic Communications enters the designated system
  • if it is sent to an information system of the addressee which is not the designated information system, when it is retrieved by the addressee

If the addressee has not designated an information system, receipt occurs the when Electronic Communications enters an information system of the addressee.

How to incorporate standard terms into an e-contract

If the company sells their products via its website very little room is left for negotiation with regard to the terms of the contact. Therefore, unlike in the case of over the counter sales one must take extra precautions to make sure that the terms are made available to the buyer before entering into the contract.

Since there is minimal negotiation, the website is likely to have a standard set of terms and conditions which apply. Therefore the customer cannot negotiate on these terms. The website may incorporate these terms in the following manner;

Option 1- as a hyperlink displayed in the web page (in the following illustration, the agreement cannot be found on the face of it, but you have to click the link "End User Licensed Agreement" which leads you to a different web page)

Option 2- As a "click wrap" where you need to scroll down in order for you to click the "I Accept" button/box. This method gives the user better exposure to the terms and conditions of the Agreement, as it can be seen on the face of it.

The second Option of a "click wrap" is considered by Courts as a better method to incorporate standard terms of the Contract.

Implied terms of Contract

Under the Sri Lankan Law certain terms of contract are generated by statute. These are called implied terms of contract. Even where there is an electronic transaction, the force of these implied terms prevail.
For instance the Sale of Goods Ordinance stipulates certain provisions with regard to the quality and marketability of the products and the Unfair Contract Terms Act stipulates the guidelines to take into consideration when incorporating an exclusion clause in the contract. These statutory provisions strictly apply even for an electronic transaction.

Evidence of a Contract

Any information contained in an Electronic Communication is admissible in any Court proceedings. However, Evidence (special provisions) Act of 1995 is not applicable to Electronic Communications to which this Act is applicable.

Admissibility of Evidence

If information is contained in an Electronic Communication made by a person, who is

  • Dead
  • Unfit to attend as a witness
  • Outside Sri Lanka and cannot be found
  • Who does not wish to give oral evidence through fear
  • Who is prevented from giving evidence

Evidence relating to such information is admissible if available.

Presumption of truth

Unless the contrary is proven, the Court will presume the truth of information contained in an Electronic Communication and the genuineness of any electronic signature.

Requirement of being in writing

Certain contracts need to be in writing if they are to be accepted in law as an enforceable contract. But the requirement is deemed to be satisfied by a data message, electronic document, record or other electronic communication if the information contained therein is accessible for future reference.

Guidelines when creating a website

  • Therefore it is important for the Company to have an audit trail.
  • If any correspondences have been made by the customer to accept the order such correspondence must be recorded.
  • It is also important to save the old web pages when updating, as contracts might have been entered into based on them.

Electronic Signature

One of the main factors which curtails the success of online transactions is the lack of security. An electronic signature can be used in order to provide authenticity for the parties dealing in such transactions, and it will be considered to be an equivalent to the affixing of the signature on a document.

Electronic Signature may take any form such as letters, numbers, symbols, images, characters or any combination thereof in electronic form.

Jurisdiction and Governing Law

Through the internet, transactions can take place between parties from different geographic locations. And also the law governing the transaction as well as the forum of Courts where a dispute is to be contested is of paramount importance.

E.g.: In a situation where an Australian Company through its website sells clothes manufactured in India to a company based in England, and if the clothes turn out to be defective and the England Company is unable to send them, in the absence of a jurisdiction clause the Courts of all three countries may have the jurisdiction to hear such claims brought by a buyer against the seller and the manufacturer.

Guidelines when creating a website

Jurisdiction Clause- To avoid any confusion it is better for parties to specifically stipulate the Courts in which any dispute is to be contested.
Governing Law Clause- A governing law can be stipulated for contracts and this may differ from the place of jurisdiction.

Under the present Act if the parties have not stipulated a jurisdiction clause the following rules shall apply;

  • If the originator or addressee has more than one place of business, the principle of business shall be the place of business
  • Where the originator or the addressee does not have a place of business, his usual place of residence shall be the place of business.

When deciding the Jurisdiction Clause, another important issue to consider is, the enforceability of the award. Once a judgment is made against a party and if that party does not have assets in that jurisdiction, it should be enforced in jurisdiction where he has assets. The Courts in that jurisdiction has the sole discretion to decide whether to enforce the judgment or not.

Legal recognition

The ETA stipulates that, "All the data messages2 , electronic documents3 , electronic records4 or other communication are legally valid and enforceable, unless otherwise agreed by the parties." However there are several exemptions to which the Act does not apply, for instance;

  • A Last will
  • A Telecommunications license
  • A Bill of Exchange
  • A power of Attorney
  • A trust (excluding constructive trusts)
  • A contract for sale or conveyance of immovable property
  • Any other document specified by regulations

Footnotes

1In law of contract advertisements with a reward are considered as an offer.
2Information generated, sent, received or stored by electronic, magnetic, optical or other similar means
3Documents, records, information, communications or transactions in electronic form
4A written document, or other record created, stored, generated, received, or communicated by electronic means

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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