Abstract:
The profound impact of Information Communication Technology (ICT) on our world cannot be overstated. It has significantly expanded global connectivity, transforming nations into interconnected entities and turning the world into a unified marketplace. However, in Nigeria, the positive effects of ICT and electronic commerce have encountered legal hurdles, particularly concerning the validity and enforceability of electronic contracts.
This article delves into the traditional principles of contract formation to explore their applicability to electronic contracts. It scrutinizes key questions such as the identity of the offeror in an electronic contract, the timing and location of the offer and acceptance, and methods for authenticating electronic contracts.
Introduction:
The advent of electronic technology and the internet has revolutionized our methods of communication, learning, work, and commerce. It has significantly reduced the barriers of time and space, fostering closer connections among people worldwide. Businesses now operate more efficiently, engaging seamlessly with suppliers and consumers. Consumers, in turn, enjoy unparalleled convenience and choice, being able to shop from anywhere, be it their homes, offices, or while on the move, accessing a vast array of products from sellers across the globe. The traditional confines of national markets no longer restrict the marketability of products; with a few clicks, transactions can occur across borders, with goods delivered directly to the buyer’s doorstep.
Unsurprisingly, this swift and convenient mode of commerce, known as electronic commerce (e-commerce), has evolved into a global phenomenon in this age of instantaneous and cross-border communications. In Nigeria, while e-commerce is still burgeoning, it has gained significant traction, evidenced by the rise of platforms like Jumia, Konga, Dealdey, Gidimall, and effritin.com, alongside governmental efforts to establish a regulatory framework for electronic transactions. However, a notable portion of businesses and consumers remain hesitant about extensive online transactions due to concerns about the inherent risks, the absence of a robust legal framework governing electronic transactions in Nigeria, and uncertainties regarding the validity and enforceability of contracts formed via digital communication.
To foster the growth of e-commerce in Nigeria, it is imperative to address these foundational issues. The unique nature of electronic transactions necessitates a reassessment of traditional contract law principles to determine their applicability to the formation of electronic contracts. Questions arise regarding the determination of offerors in click-wrap contracts, the timing and efficacy of acceptance, among others.
While many jurisdictions have addressed some of these concerns through new legislation, international bodies such as the United Nations (UN) and the European Union (EU) have also provided guidance through model provisions and directives. However, certain unresolved issues may require the application of traditional contract law principles to find resolution.
This article is structured into five parts: Part II elucidates the concept of electronic commerce and various modes of electronic contractual relations, while Part III delves into the intricacies of electronic contract formation, with a focus on issues surrounding offer, acceptance, and consideration. Part IV examines the authentication of contracts formed via the Internet, and finally, Part V concludes the discussion.
Electronic Commerce and Technological Concepts
While there isn’t a universally agreed upon definition of e-commerce, it typically encompasses the exchange of information, goods, and services through the internet or other computer networks, regardless of physical proximity. Electronic transactions can occur between parties within the same jurisdiction or across different jurisdictions, involving interactions between businesses, businesses and consumers, private entities and the public sector, or solely among consumers.
Electronic contracts represent legally binding agreements established, either wholly or partially, through communications conducted over the Internet or other computer networks. Various methods exist for executing electronic contracts, but this article concentrates on the most prevalent ones, including:
- Electronic Mail System (email)
- Website Trading (Clickwrap)
- Electronic Data Interchange (EDI)
Electronic Mail System:
Email, or Electronic Mail, facilitates the exchange of various forms of communication such as messages, letters, images, audio, and videos between an author and one or more recipients via the internet or other computer networks. It can be likened to the digital counterpart of traditional mail, where the sender composes a message, attaches any relevant documents, and the entire package is digitally packaged and dispatched to the recipient. However, unlike traditional postal services, the recipient receives an identical copy of the content rather than the original mail authored by the sender.
Contracts formed via email bear similarities to traditional contracts. For example, party A may send an email proposing a contract to party B, who, after reviewing the offer, unconditionally accepts it. In such cases, contract terms are negotiated through email exchanges until mutual agreement is reached. In email-based contracts, the exchanged emails may serve as the contract itself, or alternatively, a separate electronic document containing all agreed-upon terms may be prepared and signed by the parties.
Website Trading (Clickwrap)
Website Trading, commonly known as click-wrap agreements, represents the prevailing method of electronic contracting. Here’s how it typically works: Products available for purchase are showcased on a website (referred to as webvertisement), and when a buyer selects an item they wish to purchase, along with their preferred mode of payment and delivery, they proceed to click on corresponding icons. Subsequently, the buyer is presented with a standardized contract detailing the rights and responsibilities of both parties.
The buyer has the opportunity to review this agreement and can either ‘Agree’ or ‘Disagree’ with the standard terms and conditions by clicking the appropriate icon. If the buyer agrees, the transaction can proceed; however, if they disagree, the transaction is automatically terminated. It’s important to note that in click-wrap transactions, the buyer interacts not directly with the vendor but with the vendor’s computer system (software), giving rise to the concept of electronic agency.
While many jurisdictions have addressed certain aspects of click-wrap contracts and acknowledged their ability to create legal obligations, certain issues remain unresolved, particularly in Nigeria. Questions persist regarding the precise moment when a click-wrap agreement is formed and what constitutes an offer and acceptance in this context.
Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is a system that facilitates the exchange of business documents electronically between different organizations in a standardized format. Instead of relying on paper-based documents or manual data entry, EDI allows for the seamless transmission of information directly between computer systems.
In an EDI system, various types of business documents, such as purchase orders, invoices, shipping notices, and inventory updates, are encoded into a standardized electronic format. This format ensures that the information is structured in a consistent manner that can be easily interpreted by both sending and receiving systems, regardless of the software or hardware used by each party.
The transmission of EDI documents typically occurs over secure communication channels, such as Value-Added Networks (VANs) or the Internet, using protocols like AS2 (Applicability Statement 2) or FTP (File Transfer Protocol). Once received, the EDI documents are automatically processed by the recipient’s system, eliminating the need for manual intervention and reducing the risk of errors associated with manual data entry.
One of the key benefits of EDI is its ability to streamline business processes and improve efficiency. By automating the exchange of documents, EDI helps organizations reduce processing times, minimize paperwork, and lower operational costs. It also enhances accuracy and data quality by eliminating the potential for human errors that can occur during manual data entry.
Additionally, EDI facilitates closer collaboration and integration between trading partners, enabling them to synchronize their supply chain activities more effectively. By sharing real-time information electronically, businesses can respond more quickly to changes in demand, track shipments more accurately, and improve overall customer service.
Overall, Electronic Data Interchange (EDI) plays a crucial role in modern business operations, enabling organizations to exchange information quickly, securely, and efficiently with their trading partners, ultimately driving greater productivity and competitiveness.
Formation of Electronic Contracts
A contract represents an agreement that establishes rights and obligations enforceable under the law. According to common law principles, a contract is not bound by any specific format and can be formed expressly or implicitly through various means, including correspondence via mail, telex, or fax; oral communication, whether in person or by phone; or completion of a formal document or receipt, provided that all essential elements of a valid contract are present. Consequently, the formation of electronic contracts shares similarities with contracts formed via fax, mail, or telex. Hence, an electronic contract can be legally valid as long as it meets all the requirements of a valid contract.
Article 11 of the UNCITRAL Model Law on Electronic Commerce stipulates that offers and their acceptance can be expressed through data messages in the context of contract formation. Moreover, the use of data messages for contract formation cannot invalidate or render unenforceable the resulting contract solely on that basis. Similar provisions are also present in Section 3 of the draft Electronic Transaction Bill 2011.
In many jurisdictions, such provisions might seem self-evident and thus redundant. However, they hold critical importance in Nigeria, where skepticism and uncertainty still surround the recognition of the validity of electronic records. Notably, the UNCITRAL Model Law on E-commerce does not specify when or where an offer and acceptance become effective. The Commission’s rationale for this omission is to avoid potential conflicts with national laws governing contract formation. However, the absence of explicit provisions regarding the timing and location of electronic contract formation contributes to uncertainties. The author suggests that the Model Law should have included such provisions to promote harmonization and alleviate doubts surrounding electronic contract formation. Furthermore, since the Model Law serves as a reference for states considering enacting or revising their laws on electronic commerce, states retain the discretion to disregard any provisions that conflict with their existing legislation.
Offer and Invitation to Treat
Before delving into the intricacies of electronic contract formation, it is essential to first examine the components of an offer and an invitation to treat in traditional paper-based contracts. An offer represents a commitment made by one party to another, expressing the intention for the promise to be legally binding upon acceptance by the party to whom it is directed. For an offer to be valid, it must be clear, definite, and unambiguous, and it becomes effective upon reaching the intended recipient. Offers can be directed to individuals, groups, or even the general public. However, if it is evident that there is no intention to be bound by the terms of the offer, it may be construed as an invitation to treat rather than a binding offer.
Acceptance of an offer results in the formation of a contract (electronic contracts included), whereas acceptance of an invitation to treat merely constitutes an offer in return. In the realm of electronic transactions, which is still evolving within the legal landscape of Nigeria, there have been no definitive legal precedents regarding whether a webvertisement should be classified as an offer or an invitation to treat. This distinction is crucial because an offer can be revoked at any time before acceptance, and once accepted, the contract is typically considered binding. Therefore, disputes may arise regarding the validity of a contract revocation, highlighting the significance of clarifying the nature of webvertisements in electronic commerce.
Offer – Website Trading
The presentation of goods with attached prices on a website can be compared to either showcasing items in a physical store or publishing an advertisement. The legal principles governing these scenarios differ, highlighting the importance of identifying the party making the offer and the party accepting it.
When goods displayed on a website are akin to those exhibited in a shop window or on shelves, this presentation is regarded as an invitation to treat. In such cases, the buyer initiates the offer by selecting the goods and presenting them to the sales clerk, who then has the discretion to accept or decline the offer and process payment. This approach prevents sellers from being obligated to an unforeseeable number of acceptances. However, this rationale may not directly apply to service provision or the sale of intangible products.
The regulation surrounding advertisements is more nuanced than that of shop invitations. Some jurisdictions, such as Brazil and Canada, consider a seller’s advertisement on a website as a binding offer for a reasonable duration. In common law jurisdictions like the United Kingdom and Nigeria, advertisements are categorized into bilateral and unilateral contracts. In a bilateral contract, the advertisement is considered an invitation to treat, whereas in a unilateral contract, it is seen as a direct offer. The determination of whether a webadvertisement constitutes a bilateral or unilateral contract hinges on the language used in the advertisement and the underlying intention.
In cases where a website is non-interactive, merely displaying goods and providing information, the contract is typically finalized through alternative means or in person, treating the display of goods as an advertisement.
For the seller’s benefit, it is advantageous to regard the display of goods on the website as akin to a physical store display or a bilateral contract. In both scenarios, the seller retains the discretion to accept or decline the buyer’s order, safeguarding against automatic obligations to all visitors regardless of their location. This approach also shields the seller from errors in pricing or stock depletion. However, it’s advisable for sellers to explicitly state in their terms and conditions that the display of goods constitutes an invitation to treat, and consequently, an order from the buyer constitutes an offer that the seller may accept or reject.
In a notable example from the United Kingdom, the online retailer Argos mistakenly advertised televisions for sale on their website at £2.99 instead of £299. They received numerous orders from customers across the UK. If the advertisement were deemed an offer and the orders as acceptances, the retailer would have been obliged to sell the items at a significantly lower price. Conversely, treating the offer as an invitation to treat and the customers’ orders as offers would have allowed the retailer to reject the offers upon realizing the error.
Offer – Electronic Mail (Email)
Contracts formed via email closely resemble traditional paper-based contracts, as parties typically negotiate terms and conditions by exchanging emails. Consequently, it is often straightforward to determine which party made the offer and which party accepted it by reviewing the email correspondence.
However, if an email solely provides information about goods and their prices, leaving the interested party to finalize the contract through other means such as telephone, fax, or face-to-face interaction, then such a contract may be perceived as an advertisement. In such instances, the email from the seller could be interpreted as either an offer or an invitation to treat, depending on the language used and the underlying intention conveyed in the email.
Acceptance under Electronic Contracts
Determining the timing and location of acceptance holds significant importance in the formation of contracts, as it not only establishes the legality of the contract but also determines the jurisdiction in which the contract was established. This becomes particularly crucial in e-commerce, where transactions frequently transcend geographical boundaries, involving parties from different jurisdictions.
For an acceptance to be deemed valid, it must constitute an unequivocal and unambiguous expression of agreement to the terms of the offer. This agreement can be conveyed through words or actions. However, it’s essential to note that silence or inactivity does not constitute acceptance.
In cases where the offeror specifies a particular method for communicating acceptance, adherence to that prescribed method is imperative for the acceptance to be considered valid. Failure to comply with the prescribed mode renders the acceptance invalid. However, if the offeror does not explicitly stipulate that acceptance must adhere to the prescribed mode, then any method that is either faster or equally expeditious as the prescribed mode may be utilized.
In instances where no specific method of acceptance is prescribed, the general rule is that acceptance may be conveyed through a method that is as prompt as the one used for making the offer.
In traditional contract law, the effectiveness of acceptance is not solely determined by its communication but by its actual receipt by the offeror. Until the offeror receives acceptance, the offer may be revoked. This rule is grounded in the principle that it could impose undue hardship on the offeror if they were bound by acceptance without being aware of it. However, the ‘postal acceptance rule’ serves as an exception to this general principle.
According to the postal acceptance rule, when acceptance is to be conveyed to the offeror via postal system, it becomes effective upon posting, rather than upon reaching the offeror. As a result, the contract is established upon posting and cannot be revoked. This rule is justified by treating the postal service as a common agent of both parties, making it easier to prove posting than receipt. However, this rationale may seem outdated in modern times, where senders can request acknowledgement of receipt.
Another reason for the postal acceptance rule is business convenience, as without it, contracts by post would be impractical due to the endless cycle of confirmation. Yet, with the advancement of faster and more reliable communication methods, there’s ongoing debate regarding the fairness of this rule. However, the article refrains from taking a stance on this debate.
The postal acceptance rule also extends to telegrams and courier services but not to instantaneous forms of communication such as telephone, faxes, and telexes. In cases of instantaneous communication, the acceptor typically knows if their attempt to communicate was unsuccessful and is responsible for ensuring proper communication.
It remains uncertain which rule of acceptance will be applied to electronic communication of acceptance. Will it be the ‘receipt rule’ treating electronic communications as instantaneous or the ‘postal acceptance rule’?
Acceptance via Electronic Mail (Email)
Arguments have been presented against categorizing email communications as instantaneous communication, primarily because, similar to the postal system, there isn’t a direct connection between the sender and recipient. Instead, email involves the intermediary role of Internet Service Providers (ISPs), whose servers handle the transmission of emails to and from mailboxes, akin to the function of a post office. This intermediary involvement introduces the possibility of delays caused by technical issues, leading to uncertainty regarding when an email may be received. Once an email is transmitted, it is beyond the sender’s control, making them not liable for faults occurring after transmission. Additionally, errors in addressing or delayed reading by the contracting parties themselves can contribute to further delays.
However, applying the postal acceptance rule to email communications solely due to similarities with the postal system is not justified. Many other forms of instantaneous communication, such as telephone and telex, also rely on third-party involvement, like telecommunication network providers, which may cause delays. Moreover, the postal acceptance rule originated when postal communication was the primary means of distant communication. Nowadays, faster and more efficient communication methods are available, rendering the rationale behind the postal acceptance rule obsolete. Furthermore, software capabilities allow senders to track email delivery status, providing transparency in the transmission process. While senders are usually notified of email delivery failure, recipients lack visibility into failed delivery attempts, placing the responsibility on the sender to ensure the offeror receives the acceptance.
Due to the injustices caused by the application of the postal acceptance rule, many countries are already revising their contract laws to limit its scope. Additionally, courts are hesitant to extend the rule to other communication modes like fax unless it’s evident that the parties intended its use in their contract.
Regardless of whether the court opts for the ‘receipt rule’ or the ‘postal rule,’ the question remains: when is an electronic communication considered dispatched and received? Article 12 of the UNCITRAL Model Law on Electronic Commerce addresses this issue by defining the moment of dispatch and receipt. According to this article, electronic communication is dispatched when it enters an information system beyond the control of the sender, and it is received when it enters the designated information system of the recipient or when accessed. Additionally, Section 19 of the Electronic Transactions Bill specifies that if both the sender and receiver utilize the same information system, the electronic communication is deemed sent when it becomes capable of being received and processed by the recipient.
Click-wrap Acceptance
In contrast to acceptance conveyed through email, a click-wrap acceptance in website transactions is comparatively simpler. It is often likened to telephone communication but between computers instead of individuals. The interaction is typically automated, facilitated by software overseeing the transactions, enabling the parties involved to ascertain the agreement’s status. Acceptance through an interactive e-commerce platform can be confidently classified as instantaneous communication, thus warranting the application of the ‘receipt rule’ for acceptance.
Consideration under Electronic Contracts
To validate a contract, consideration must be present, alongside other essential elements. Consideration refers to a party’s commitment to perform an action in exchange for the promise made by another party. Both parties must derive a benefit from the contract. In the realm of e-commerce, this aspect is typically straightforward since, akin to traditional paper-based transactions, the buyer typically receives the goods, while the seller receives payment.
Authentication of Electronic Contracts
There are several reasons why certain parties may prefer the traditional paper-based method of contracting over electronic means, with one of the primary reasons being the ability to authenticate the contract.
In paper-based contracts, signatures serve to identify the involved parties, ensuring clarity regarding their personal involvement in the signing process and their intent to endorse the document’s contents. Authentication methods may include handwritten signatures, thumbprints, stamps, or typewritten signatures, all typically associated with paper-based contracts.
Beyond the desire for authentication as a guarantee of authenticity, there are legal scenarios where agreements may need to be signed to be considered valid and enforceable.
Fortunately, advancements in technology now facilitate the authentication of electronic documents. With tools like scanners and PDF formats, identification documents can be electronically accessible.
Regarding the legality of electronic signatures, section 93 of the Evidence Act 2011 stipulates their admissibility. This matter has also been addressed in the UK through legislation such as the Electronic Signatures Regulation 2002 and the Electronic Communication Act 2000, which promote the use of digital signatures and ensure that electronic documents are not deprived of enforceability solely due to their electronic form.
The UNCITRAL Model Law on Electronic Commerce and the UNCITRAL Model Law on Electronic Signatures address electronic communications and signatures within commercial activities. These laws stipulate that electronic signatures carry legal weight when they meet specific criteria. The Model Law on Electronic Commerce adopts a ‘functional equivalent’ approach to electronic signatures and other formal requirements. Essentially, it identifies the core function of a legal form requirement and sets criteria that, when fulfilled by an electronic record, grant it equivalent legal recognition to paper-based documents fulfilling the same function. For instance, regarding signatures, it recognizes their function in paper-based environments as including party identification, ensuring personal involvement in the signing process, and linking individuals to document content. The law mandates that electronic signatures must identify the signer and express their approval of the message’s content, and they must be reliably verifiable in all circumstances. However, the Model Law does not offer specific guidance on how to create electronic signatures meeting these requirements.
Similar to traditional signatures, electronic signatures are not bound to any particular format. They can be generated by typing one’s name and initials, making any mark in a designated area using encryption software, or through a connected fingerprint device, among other methods. Courts retain the authority to assess the reliability and authenticity of both handwritten and electronic signatures.
Conclusion on the Formation of Electronic Contracts
Although our current contract laws are based on traditional paper-based contracts, they have adapted to changes in communication and contract formation, such as the introduction of telephones, faxes, and telex. Therefore, the emergence of electronic communication is not fundamentally different from other communication methods and can also be accommodated within existing contract law.
It is evident that while traditional contract law principles can be applied to modern contract methods, certain issues need specific provisions in the Electronic Transactions Bill. For example, clarifying who makes and accepts offers in electronic commerce and determining when acceptance becomes effective would alleviate uncertainties and facilitate smoother business transactions.
Given that electronic commerce transcends borders, it’s crucial to harmonize laws regulating it. The United Nations has made commendable strides in this direction, but further provisions addressing offer-making, acceptance, and effective acceptance are needed.
Regrettably, Nigeria has been slow in taking decisive actions to facilitate electronic commerce. Although the Electronic Transactions Bill has been pending in the national assembly for an extended period, it currently awaits presidential assent. It’s imperative that this bill is promptly reviewed and approved to enable Nigerian businesses and electronic consumers to leverage the benefits of this efficient means of conducting business.