Electronic Contracting: Legal Aspects and Risk Management - UTS:LAW

This essay delves into the legal aspects of electronic contracting, examining the complexities introduced by globalization, e-commerce, and technological advancements. It emphasizes the importance of understanding the legal framework governing electronic contracts, particularly the Electronic Transactions Act, and how it applies to online sales, imports, and exports. The essay outlines the e-contracting process, highlighting potential legal and security risks at various stages, including negotiation, administration, and storage of records. It discusses the essential elements of a valid electronic contract and the significance of the UNCITRAL Model Law and corresponding Australian legislation. Furthermore, the essay explores key security principles like confidentiality, integrity, authenticity, and availability, as well as the concept of cryptographic non-repudiation. It analyzes specific risks, such as determining the time and place of contract formation, attribution of electronic communications, consideration, and electronic notices, providing practical recommendations for risk management. The essay underscores the need for parties to adopt due diligence measures, incorporate clear contractual provisions, and utilize digital time stamping to mitigate uncertainties and protect their interests in electronic transactions.

Legal aspects of contract administration

LEGAL ASPECTS OF CONTRACTING 1
Over the past few decades, by the virtue of the globalization, growing e commerce
transactions and the developments in the information and communication
technologies, increasing number of documents are being prepared and executed
electronically. However, it must be noted that the electronic contracts are governed
by the regulatory gaps in the form of a number of risks and compliances of the
respective information technology legislation and other applicable laws (Mik, 2011).
The issues of the contract law are further complicated in the electronic contracts.
Accordingly, consistent efforts are being made at both at the national and
international level for the regulation of the electronic contracts. The following work is
aimed at exploring the various facets of the electronic contract concerning the
Electronic Transaction Act. The work would comprehensively analyse the various
issues that arise in the event of the electronic contracting in context of the online
sales and purchase contracts in case of imports and exports. Further, the work
would also shed light on the risk management means available to the managers,
which will serve as a guidance to them while drafting the drafting electronic
contracts, as well as will prepare them against the issues arising from the new
information technologies.
The following segment would describe the issues that may arise out of the electronic
contracts. In order to understand the issues, it is first vital to understand the
eContracting process. The process is comprised of the one or more of the activities
that take place within a decently electronic surroundings (Boykin, 2012). The
activities may be one or more of the following listed. Firstly, it includes the activity of
negotiation where the proposed parties negotiate the terms of the contracts by the
utilisation of the electronic communication method (Cooperative Research Centre for
Construction Innovation, 2013). Secondly, it includes the administration and the
management of the contract through the electronic systems. The said administration
may be using an online collaboration system, which can aid in the various stages of
the contracts formation such as the agreement to contractual terms, to facilitate the
delivery of the contractual notices, and others. Third activity includes the storage of
the relevant records and communication after the execution of the contract using the
electronic storage medium. The above list is not exhaustive. Hence, it is evident that
there are a varied range of activities, which can involve a number of legal and
security risks, owing to the volatile business environment. While mostly all of the

LEGAL ASPECTS OF CONTRACTING 2
sectors are presently driven by the use of modern communication technologies for
the conduct of the business, it is crucial that the participants of the contracts are
aware of the legal and security risks linked with eContracting.
At general level, a contract is referred to as the agreement between parties that is
enforceable at a court. An electronic contract denotes a contract that is formed
utilising the means of the electronic communications (Tasneem, 2015). As in case of
the general law for contract, five essential conditions that are listed as follows must
also be present in the electronic contracts. These conditions are existence of an
offer, acceptance of the offer, certainty in terms and objectives of the contract,
intention to create legal relationships between the parties and the adequate
consideration (Latimer, 2016). A number of judicial decisions pronounced have
accorded the significance of each of the elements listed above. In addition, the
judicial pronouncements have clearly stated that these essential terms must be
present regardless of contract is entered in written form, oral form or electronic
forms. Thus, in order to address the issues related to the application of the traditional
contract principles with the use of the technology and resolution of the uncertainties,
the United Nations Commission on International Trade Law (UNCITRAL) adopted
the UNCITRAL Model Law on Electronic Commerce in the year 1996. The said
adoption was aimed at promoting the synchronization and unification of international
trade law. On lines of the above, the country Australia also enacted state wise
legislations namely the Electronic Transactions (Queensland) Act 2001 (Qld),
Electronic Transactions Act 1999 (Cth), Electronic Transactions Act 2000 (NSW).
These acts are applicable in the respective states. Thus, it is essential for the parties
entering into the electronic contracts to be considerate of both the general law
contractual principles and the respective state act for electronic transaction.
Further, in addition to the above, the parties must ensure that the e contracts are
complying the basic minimum security goals e-commerce and e-business as have
been generally explored over the years in various sectors and industries ( SANS
Institute, 2019). The basic security principles are explained as follows. First key goal
is to ensure the confidentiality. The parties to the contracts must ensure that there is
adequate protection of electronic records as against the exposure towards the
unauthorised disclosure or use. The second preliminary requirement is to ensure the
integrity of electronic records and thus preventing them against the duplication,

LEGAL ASPECTS OF CONTRACTING 3
modification and deletion. The third basic requirement deals with the authenticity of
the parties who are accessing the eContracting system, for which the parties must
ensure to maintain the credentials. The fourth basic requirement is the availability.
The parties must ensure that the relevant systems and records are available to the
parties as and when required. Further, there is also a term namely the Cryptographic
non-repudiation where the parties cannot deny from the responsibility having
performed the actions that are attributed to them.
Some of the risks that may arise at various stages of contract formation, in case of
the e commerce transactions of import, export or likewise are elaborated as follows.
The first risk is in the determination of the specific point in time at which the contract
has come into existence. Thus, there lies an uncertainty in the applicability of the
postal rules for offer and acceptance. It is significant to note that the Electronic
Transactions Acts are devoid of such questions and the same have not been
judicially considered in Australia. It is significant to note that the first instance of the
issue being addressed was during the case of Chwee Kin Keong v Digilandmall.com
Pte Ltd [2004] 2 SLR 594, belonging to the Singapore High Court. However, there is
a general view that the receipt rule shall also apply in the communications by email,
just like the applicability in case of communications through telephones. The
principle was stated in the Entores Ltd v Miles Far Eastern Corp and Brinkibon v
Stahag Stahl und StahlwarenhandelsgesellschaftMbh. In order to resolve the issue
of the time of contract formation, it is advisable to the parties to mention the
alternative terms to determine the time of the dispatch. Further, it is also
recommended the same in case of the receipt of an electronic communication, in the
contract, which is vital for the contractual acceptance. Thus, it can be stated that the
appropriately drafted provisions would lead to the avoidance of the uncertainties
between the parties to the contract. Further, it is imperative that the time and date of
the electronic communications be accurately recorded. The said recording can be
done with the use of the digital time stamping. It must also be noted that the section
14 of the Electronic Transaction Act 1999 governs the provision in this regard.
The second major risk is with regards to place of formation of contract to determine
the court of jurisdiction of the contract for its administration in the event of the dispute
under the contract. The provisions are comprised under the section 14 of the
Electronic Transaction Act, 1999. As per the provisions of the said act the place

LEGAL ASPECTS OF CONTRACTING 4
would be the where the originator has its domicile of business for the purpose of the
dispatch and place of business of the addressee for the objective of the receiving of
the said communication. In order to be clear on the terms, it is recommended to the
parties to encompass clauses where the parties settle to a particular jurisdiction of
the courts of a particular place for the purpose of the management of the contract.
The next set of the risk in the import export business and contracts involved therein
is in the attribution of the electronic communications that is authenticating the
authorities to the contract (Angelov and Grefen, 2008). The section 15 of the
Electronic Transaction Act 1999 includes the matter. It is important to ensure that the
party who enters into the contract through the electronic means is authorised to do
so. It must be noted that the act does not alters the provisions of the Corporations
Act 2001 (Cth) in context of determination of when a person or a company would be
bound by a contract. Thus, if a person sends a an offer or acceptance
communication who has the real or apparent authority to create binding contract for
the ‘purported originator’, the same persons will be assumed to be have such
authority under the Corporations Act 2001 (Cth). As a result, a binding contract
would be created for the purported originator. The resolution to the above risk is that
no matter the sell or purchase contracts are entered in the physical or electronic
environment, the parties must comply with the due diligence measures to establish
the authority of the individuals who are contending to be party to the contract on
behalf of a person or the entity.
The next set of the risk in the export and import contracts may be related to the
consideration element in the contract. Consideration is an important element of the
contractual obligations, as stated in the Dunlop Pnuematic Tyre Company Ltd v
Selfridge & Company. It refers to the price for which the promise of the party to do or
not do something is brought. Generally, the requirement is easily satisfied in the
physical contracts. If a merchant exporter or importer offers to sell or purchase the
goods for cash, then that is the sufficient consideration to support the transaction.
The same issue is not that easy in the electronic environment. For instance, in the
case of online software, the same are provided are often free of charge. In similar
certain circumstances, a contract never comes into existence as there is no
consideration to support the alleged contract (Beale, 2011). Thus, in such cases the
resolution of the issue lies with the offeror itself. If an offeror is desirous of binding

LEGAL ASPECTS OF CONTRACTING 5
the offeree with any terms and conditions, they should be entered a licenced
agreement with support of a consideration.
The next set of the risk that may arise in the electronic environment of purchase and
sell may with respect to the electronic notices. It must be noted that some kinds of
contracts include the provisions that administer the sending of notices under the
contract. There is a legal uncertainty surrounding the validity of electronic notices. It
is essential to note that unless the parties have consistently carried out the
obligations in the contract by relying on the electronic notices, one party would suffer
losses if the electronic notices are held invalid. In order to address the risk of
electronic notices being regarded as invalid, it is imperative for the parties to the
contract to devise the contracts with clear cut provisions setting out the parties’
agreement which states out the manner in which the valid notices may be given
under the contract. There needs to be an agreement on the following matters. The
first thing to be stated is whether the parties wish to be bound by the electronic
notices or not. If they wish the opposite, there should be an express exclusion of the
electronic notices in the contract. Further, if the parties are willing to use the
electronic means of communication for the notices, they should state clearly whether
they want to use the same for certain types of say less important communications or
for all. This is applicable when in some cases parties prefer written document form of
communication for important matters. Thus, the contract must clearly pronounce
which notices and communications can be and cannot be sent through electronica
means. Further, the electronic communication method that would be used must be
identified together with the appropriate electronic addresses and specifics of
authorised recipients.
In addition to the above mentioned, the next major risk in the electronic environment
for sale and purchase is the compatibility of the technology used by the parties. It
must be noted that if the parties are using the incompatible technologies to process
the records electronically, there may be difficulty in ensuring the consistency of each
of the parties’ view of the records. For instance, is two parties are using the different
version of the same software, a few or more updates may not be available in the
older version of the software, thereby leading to non-assurance of the integrity of the
electronic record. In addition, there may arise an additional risk with the software
because of the different versions of Windows OS, say 32-bit version or the 64-bit

LEGAL ASPECTS OF CONTRACTING 6
version. The resolution to the above risk is provided as follows. All the collaborating
parties must ensure that the same versions of the software or windows OS is used to
ensure the comparability of the information and efficient exchange. Further, the
entities using the electronic contracting systems must ensure to follow the best
practice as laid down by the authorities in their respective states.
The next risk in the electronic e contracting environment is with respect to the
statutory obligations for the maintenance of the records. It must be noted that
different Commonwealth and state Acts contain diverse requirements for entities to
preserve the records, which is stated as follows. The Income Tax Assessment Act
1997 (Cth) states that records must be mandatorily kept by the parties for a period of
five years. In addition, it has been prescribed that such record must be in way to be
readily accessed and converted into writing in the English language. Further, the
integrity of such electronic records must be ensured at the various stages such as
the capture, storage and reproduction stages, the same must also be demonstrated.
Further, there is a requirement in the Corporations Act 2001 (Cth) in the section 286.
The section makes a mandatory requirement on the companies to store the written
financial records for a period of seven years post the conclusion of the dealings
enclosed by such records. Further, the section 288 of the act also prescribes the
requirement that if records are ‘preserved’ in electronic form, the same must be able
to be converted into hard copy, and such hard copies must be made obtainable
within a rational time. Further, the section 12 of the Electronic Transaction Act states
that following two conditions must be complied with where information, documents,
or communications are required to be retained electronically under a law of the
Commonwealth or the state. These are that the said information must remain
accessible and it must be ensured that the in order to maintain the integrity of the
document, the method used for storing information must be reliable. Thus, the
entities entering into the electronic contracting environment are recommended to
review these applicable legislations with respect to the applicable provisions for
retaining the electronic records in context of time and manner. Some other acts that
govern the record-keeping obligations in case of government agencies are
Information Act 2002 (NT), State Records Act 1998 (NSW), Public Records Act 1973
(Vic), Archives Act 1983 (Cth), State Records Act 1929 (SA) and others.

LEGAL ASPECTS OF CONTRACTING 7
The last significant risk is pertaining to the electronic signatures. It must be noted
that there is a prescription under a Commonwealth, state or territory law for the
persons whose signature are required to be provided can be fulfilled by means of an
electronic communication. The same must use a method to ascertain the person and
specify the persons approval in context of the information conversed. Section 10 of
the Electronic Transaction Act governs the matter of signatures.
Thus, the discussions in the previous parts enable us to conclude that the entities
are increasingly using the computer and information technology for the day to day
business activities and are highly dependent on the same by the virtue of the cost
and time efficiencies. However, the electronic environment is governed with its own
set of risk and obligations. The use of ICT in the import export and ecommerce
industry can lead to substantial competences in the supervision, managing and
recording contracts. The work elaborates that the electronic contracts are an efficient
means to enable communications among the diverse parties to contracts, especially
when the parties to the contract are often geographically distant and sometimes not
known beforehand until the contract is entered. Therefore, the use of the information
and communication technologies often leads to doubts, which may be exposed to
serious practical concerns for contracting parties if the same are remaining
unresolved. The work elaborated the differences and the similarities between the
electronic and physical contracts. This report has in addition identified varied range
of the legal and security risks that may arise when electronic sell and purchase
contracts are formed, administered and recorded within an electronic environment.
Further, the report has also provided a set of recommendations for each of the
above set of the identifies risks.

LEGAL ASPECTS OF CONTRACTING 8
References
Angelov, S., and Grefen, P. (2008) Supporting the Diversity of B2B E-Contracting
Processes. International Journal of Electronic Commerce, 12(4), pp. 39-70.
Beale, T. (2011) E- Commerce and Contract Law [online] Available from:
http://www.austlii.edu.au/au/journals/PrecedentAULA/2011/26.pdf [Accessed on:
16/06/2019].
Boykin, D. (2012) Survey of E-Contracting Cases: Browsewrap, Clickwrap, and
Modified Clickwrap Agreements. The Business Lawyer, 68(1), 257-262.
Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft Mbh [1983] 2 AC 34
(HL)
Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR 594
Cooperative Research Centre for Construction Innovation (2013) eContracting –
Security and Legal Issues [online] Available from:
https://sbenrc.com.au/app/uploads/2013/10/13-econtracting-
securityandlegalissues.pdf [Accessed on: 16/06/2019].
Corporations Act 2001 (Cth)
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1, [1915] AC 847
Electronic Transactions Act 1999 (Cth)
Entores Ltd v Miles Far Eastern Corp [1955] 2 QB 327.
Income Tax Assessment Act 1997 (Cth)
Latimer, P. (2016) Australian Business Law 2016. Sydney, NSW: CCH Australia
Limited.
Mik, E. (2011) The importance of being “electronic” or – popular misconceptions
about “Internet contracting”. International Journal of Law and Information
Technology, 19(4), 324-347.
SANS Institute (2019) Electronic Contracting In An Insecure World [online] Available
from: https://www.sans.org/reading-room/whitepapers/legal/electronic-contracting-
insecure-world-2088 [Accessed on: 16/06/2019].

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Tasneem, F. (2015) Enforceability of Electronic Contracts in Australia [online]
Available from: https://researchbank.rmit.edu.au/eserv/rmit:161314/Tasneem.pdf
[Accessed on: 16/06/2019].