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Validity and requirements of digital contracts

Malcolm Campbell ||
Co-authored by Michael Kinsella

The world of business has embraced the digital-age and shifted towards the use of technology for electronic contracts and signatures. Whilst it may seem simple, the law of e-commerce remains new and ever changing. Thus, it is important to understand the legal framework of digital contracts and signatures for both personal and professional enterprise in NSW. In this blog post, we will provide an overview of NSW digital contract law and discuss the validity of electronic signatures across jurisdictions.

Digital Contracts

A digital contract is an agreement that is formed and executed electronically, without the requisite paper documents. Under the Electronic Transactions Act 2000 (NSW) (‘The Act’), digital contracts are recognised as legally valid and enforceable, subject to certain additional conditions.

As with any contract, there must be a valid offer, acceptance, consideration, intention and relevant privity to be enforceable. Privity is the concept that states a third party, not privy not the original contract, may not enforce the contract nor incur any obligations under it. However, under the Act parties must additionally agree to conduct the transaction electronically – this agreement may be expressed or implied. For example, if a business sends a customer an email containing an offer for goods or services and the customer responds by email, this can be deemed an implied agreement to conduct the transaction electronically.

Secondly, the information in the digital contract must be retainable in a form that is usable by all relevant parties for subsequent reference. This means that parties must be able to access and retrieve the digital contract in its original form at any later time – this can be contained on a secure server or the cloud, so long as it can be accessed freely.

Finally, the digital contract must be authenticated by involved parties with a unique linkage to the signatory that is capable of identification. ‘Unique linkage’ refers to the digital signature’s connection to the signatory, that can not be easily replicated or forged – this is often achieved by biometric authentication (think of the face-ID on your iPhone). It is essential in all digital contracts that the identity of parties are validated which can be achieved by a combination of factors including a username/password requirement prior to acceptance or an E-Signature.

Regarding this, E-signatures are methods used to authenticate a person and to indicate their intention in respect of the information contained in a message; this includes any electronic sound, symbol, or process attached to or associated with the message. Under the Act, an electronic signature is deemed to have the same legal affect as a handwritten signature – so long as it can be identified with the signatory and is reliable for the purpose which the signature is required. The Act also specifies that the signature must be created in a manner that allows the signatory to maintain the integrity of the information signed and the signature itself – for example, providing an option to withdraw if key terms of the agreement change.

Jurisdictional Issues with Digital Contracting

While the Act applies to digital transactions in NSW, it is important to note that electronic contracts and signatures may not be recognised as valid in other jurisdictions – nationally or internationally. This poses a problem for global businesses and may lead to contractual disputes or the nullification of an agreement as a whole. For example, if a NSW-based company enters into a contract with a company in Victoria, the contract may be subject to the Electronic Transactions Act 2000 (VIC). It has similar provisions to the NSW Act, but there are major differences relating to the definitions, protections and scope of the legislation. This issue is compounded when international e-contracts are formed, as enforcement can be difficult across two separate legal jurisdictions.

In these situations, the parties should consider including a ‘choice of law clause’ in the digital contract. This clause would specify which law will take effect in the event of a contractual dispute – aiding in the understanding and uniformity of the agreement. However, parties may not choose a law which would be contrary to the mandatory provisions of the contract or the law of the country in which it is formed. In addition to the choice of law clause, parties may opt to include a jurisdiction clause into the contract. This specifies which court or tribunal will have jurisdiction to hear contractual disputes. These clauses may aid in easing jurisdictional tensions to ensure the continued validity of an e-contract should a simple or complex dispute arise. However, it is important to get formal legal advice on a specific contract in order to achieve the best, and most fair, outcome for each party.

Ultimately, digital contracts are subject to additional conditions in order to be legally valid; including agreement to contract digitally, retention and free access of information granted to involved parties and authentication of identities. Parties must always consider jurisdictional differences in the event of interstate or international contractual formation – consideration of the legal and jurisdictional clauses prior to the formalisation of a contract can save both time and money in the event of a dispute.

How we can help

If you have questions or require assistance with the preparation, protection or enforcement of a contract (digital or otherwise), please contact Coleman Greig’s Commercial Advice team.

 

This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.

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