On 3 December 2001 the Law Commission published its paper ‘Electronic Commerce: Formal Requirements in Commercial Transactions’. The purpose of this paper was to consider the legal obstacles to electronic commerce in the UK, including statutory form requirements for ‘writing’ or a ‘signature’, and whether these need reform. The Law Commission’s conclusion was that there is no need for general reform and that context-specific reform could be conducted using the powers in section 8 of the Electronic Communications Act 2000.

In coming to this conclusion, the Law Commission agreed with those that consider that emails and website documents are properly ‘writing’ (although Electronic Data Interface (EDI) is not) and concluded that digital signatures, scanned signatures, the insertion of a name into an email and clicking on a website button are all ‘signatures’ for statutory purposes. The Courts have yet to determine the meaning of these words in relation to e-commerce but there is every reason to think that the Courts will take the same view on these questions.

Writing

In determining the meaning of ‘writing’, the Law Commission referred to the test laid out in the Interpretation Act 1978 which defines writing as including: ‘typing, printing, lithography, photography, and other modes of representing or reproducing words in a visible form’.

By analogy with telex and fax communications, the Commission found that emails and website trading may be visible and, provided they are available to be read, will fall within the category of ‘other modes of representing or reproducing words in a visible form’. EDI however falls outside the definition because of the impossibility of viewing the information in readable form. The Commission therefore argued that an email document could constitute notice in writing provided the recipient is able to open and read the email, notwithstanding that the recipient may not actually have done so.

The report notes that there may be transactions capable of being effected electronically where it may nonetheless be desirable, as a matter of public policy, to impose formal requirements, such as in the case of wills or guarantees. In these types of transactions the Commission acknowledges that it may be desirable to restrict the validity of electronically created and executed documents to achieve other policy ends. There are also related issues over the time at which documents are received by a recipient, the absence in the case of email of a statutory presumption as to delivery, service or the perfection of the contract, whether consent should be required before statutory notice may be served electronically, to which address email documents should be sent for service and what steps a reasonable recipient should take to enable an email or attachment to be opened or read. These are however not fully considered in the report.

Signature

On the statutory requirements of signatures, the Commission noted the trend in the law relating to manuscript and other forms of signature used for hard copy documents towards an approach based on the function performed by the signature: to provide evidence of the signatory’s intention to authenticate the document. For example, a manuscript ‘X’ has been found to be a valid signature, as may be initials, a stamped, printed or typewritten name or a fax copy of a signature scanned in electronically (see Re a Debtor (No 2021 of 1995)) as these fulfill this function. On this basis the Commission accepted electronic forms, including inserting a name into an email and clicking on a website button, as signatures.

Contractual variations and notices by email

The Law Commission’s report is directed to the meaning of statutory references to ‘writing’ and ‘signature’. However the effects of its findings are likely to be adopted by the Courts in construing the meaning of these words in other contexts, most notably, in the context of construing references to ‘writing’, ‘written’, ‘signature’ and ‘signed’ in contracts. These words are commonly used in boilerplate provisions to ensure amongst other things that the terms are not susceptible to oral variation and that notices come to the attention of the proper parties. These provisions rest on the assumption that parties are more careful in committing matters to writing than they may be orally and that there is written evidence of variations and notices to minimise disputes over what was agreed.

However, the formality and care taken in the use of email often means it resembles oral conversation more than written correspondence. This should cause concern for those drafting such boilerplate terms, as these standard clauses often do not exclude communication by email or contain stipulations about the use of paper or post. Such standard boilerplate terms may be ineffective in ensuring that contractual terms are certain and variations properly documented, given the widespread use of email to communicate with business partners at all levels within businesses. Such informal correspondence is rarely marked ‘subject to contract’, although it is often capable of varying contractual terms. By way of an example, a business suing on a contract without a properly drafted variation clause precluding email variation would be at risk of facing a defence that the terms of the contract were varied by a poorly drafted and informal exchange of emails between those administering the contract day to day. In such cases, even where such a defence is unfounded, it may raise sufficient issues to prevent the claiming party from obtaining summary judgment or proceeding on a statutory demand, or could entail protracted and extensive disclosure of email correspondence. Each of these may have the effect of denying or delaying the claimant in obtaining redress.

Authenticity and integrity of electronic records

A further question for e-commerce which was considered by the Financial Law Panel in its report in November 2000 is the question of how contracts made by email or website trading are to be proven in Court.

The current rules of evidence present no obstacle to e-commerce - the effect of the cases of Grant v Southwestern and County Properties Ltd [1975] Ch 185 and Derby v Weldon No 9 [1991] 1WLR 652 and the Civil Evidence Act 1995 section 13 is that information stored on computer is now clearly disclosable and admissible as evidence in Court. At issue instead is the weight to be attached to this evidence which requires consideration of the integrity and authenticity of the document in question. In most situations electronic evidence will be admitted into evidence by admission and where the authenticity of the evidence is disputed the Court can have regard to standards on storing information such as the ‘Code of Practice for Legal Admissibility an Evidential Weight of Information Stored Electronically’ and consider whatever expert evidence is necessary, in the same way as with a paper document, to rule on a challenge to the veracity of a document. However, although there is no doubt that the Court has the ability to investigate and determine the issues of authenticity and contractual intention which email may throw up, resolution of these issues may require full investigation at trial with oral evidence or full disclosure and could in some cases preclude the availability of summary Court procedures and remedies.

Therefore, although there may be no legal bar to reliance upon email in contracting (and having email evidence of a contract is preferable to an entirely oral agreement), the effect of email’s informality and flexibility should be considered. This character increases the likelihood of ambiguous drafting, may allow for easy amendment by an unscrupulous party and may undermine the value of the contemporaneous document as reliable evidence of the terms of an agreement. For this reason it is suggested that email may carry less evidential weight than a paper document and it may not be suitable as a matter of business or legal practice to the task of evidencing contractual terms.

Conclusion

The Law Commission’s conclusion, that the general law on ‘formalities’ is ready for e-commerce, is to be welcomed. The embrace by business of e-commerce has resulted in some business practices becoming increasingly informal. Existing legal concepts and practices must adapt to these new ways of doing business. However, lawyers should be aware of how these developments affect the underlying assumptions of business and practice in order to ensure that the informality of electronic communication does not come at the expense of legal and evidential certainty.