White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
Sydney Office - GPO Box 2506, SYDNEY New South Wales 2001 Australia
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Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter

Getting on with business electronically

Just as with other forms of communication, even speech, a contract may be formed without a written document being signed by the parties involved. This presents particular problems for employers, who may find themselves bound unintentionally by a contract arising out of email correspondence.

A contract is an agreement that the law will enforce. Can you form a contract by email?

The short answer is - yes, but for a contract to exist there are a number of requirements that must be met.

In summary, for a contract to be formed there must be:

  • An offer, for example to supply specified goods or services at an agreed price.
  • Acceptance of the offer, which must not vary the terms of the original offer, otherwise this becomes a new offer, that the other party must accept.
  • Certainty, in that all parties are clear as to what has been agreed, and the scope of the agreement is sufficiently detailed. For example, there is not sufficient certainty in an agreement to accept an offer to supply “some” PCs over the “next few years”. However, such a statement may give rise to other legal relief.
  • “Consideration”, that is, there must be something of value exchanged for what is being done or not done pursuant to the agreement. For example, the price paid to purchase a PC or the payment made as compensation for a restraint of trade provision.
  • Intention, in that the parties intended their agreement to be legally binding. For example your mother may find it difficult to sue you over a breach of your agreement with her to fix her PC, even if you have already eaten her chocolate cake.

Clearly, an exchange of emails can lead to these requirements being met and it is important that copies of such emails be retained in order to enforce any contract that arises.

But will the Courts always enforce contracts that meet these five criteria?

Contracts will not be enforced when:

  • There is an illegal purpose to the contract. A contract to hack into a bank's website and steal $1,000,000 would not be enforced.
  • The contract lacks the required form, for example, a sale of land or a guarantee cannot be achieved by an exchange of emails as the law requires that such agreements are in writing.
  • There is lack of genuine consent, for example if a misrepresentation has been made by one party or one party enters into the contract under a mistake.
  • The parties lack contractual capacity, for example a minor does not have the legal capacity to enter into a contract.

The issue that some agreements must be in writing is one of the more common complications with forming a contract by email.

In order to assign intellectual property rights, for example the copyright in a software program, there must be an assignment in writing signed by the intellectual property owner.

So to what extent will an agreement by email to assign intellectual property be enforced?

If I agree by email to assign my copyright to you in exchange for $1,000, once you pay me the $1,000 you are able to request that the Court order me to provide a written intellectual property assignment to you, pursuant to the contract.

So our email contract, although not satisfactory in itself to conclude the transaction, gives you the power to obtain all things necessary from me to finalise the contract.

You must also be wary of the terms that a Court will imply into your contract.

In this regard, a contract formed by email is no different to a written agreement.

For example, your contract may have implied terms pursuant to the Trade Practices Act in relation to the repair or resupply of consumer goods and services.

You cannot assume that because your contract does not contain such clauses, that you are not bound by them.

In any contractual negotiations, it is prudent to keep a written record of all pre-contractual representations and these should be confirmed in writing with the other party, wherever possible - often they are incorporated into the tender and response if any.

The more completely you document your contractual negations, whether by email or otherwise, the easier it will be for you to enforce your contract in the case of a dispute arising.

Email can be a useful business tool to both form contracts and record pre-contractual negotiations, but care needs to be taken when litigation arises as the parties are under an obligation to preserve all relevant records, including those only in electronic form.

This may, for example, require your backup media being taken out of circulation and preserved in their pre-litigation condition.

Accordingly, when a dispute is on foot it is prudent to write to the other parties and ask them to take all steps to preserve such evidence.

Email provides an essential part of the glue of electronic commerce and as such, email messages need to be carefully worded and controlled.

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