Contracting via Electronic Communications

Last updated on May 19, 2017

Electronic communication is now ubiquitous and has been integrated into all aspects of life, including commerce. Consequently, a pressing issue is whether electronic correspondence can give rise to enforceable contracts. This is an especially relevant concern for businessmen who commonly negotiate and transact via emails or text messaging, such as WhatsApp.

This article aims to provide a summary of the law on these pertinent issues, as well as some pointers that businessmen should take note of when concluding deals via electronic communication to ensure that they have not unknowingly entered into a legally-binding agreement.

Validity of Contracts Formed by Means of Electronic Communications

Can electronic communication form legally-binding and enforceable contracts in Singapore? The answer is yes – the mere usage of electronic communication in the formation of a contract does not deny the contract of its validity.

What this means is that the form of the agreement, i.e. electronic communication as opposed to the conventional pen and paper form, is not conclusive of its validity. Instead, what determines the validity of an agreement is still broadly subject to the same requirements that govern a conventional pen and paper contract.

Furthermore, the Electronic Transactions Act also clarifies that offer and acceptance may be made by way of electronic communication. In short, what this means for businessmen is that they could generally be made to honour what they have written in their emails and text messages if what they have said can be regarded as a contractual offer or acceptance.

Timing of offer and acceptance

Generally, for electronic communications, the time of despatch is taken as the time when the information was sent out, while the time of receipt is the time where the electronic communication is capable of being retrieved by the addressee at his designated electronic address.

For example, a WhatsApp message sent out at 1:00p.m., received at 1:01p.m. and only read by the addressee at 2:00p.m. will be taken to have been despatched and received at 1:00p.m. and 1:01p.m., respectively.

Nevertheless, when the message was sent to the recipient at an electronic address that was not designated by the recipient, the time of receipt is taken as the time when the message is capable of being retrieved at that address and when the recipient knows that the message has been sent to that address. To this end, it is presumed under the law that such a message is capable of being retrieved when it reaches the electronic address of the addressee.

Effectively, this means that a recipient’s delay in opening the message because of his forgetting the password to his account, for example, will not delay the relevant time of receipt.

Location of offer and acceptance

While the location of contracting is easily determinable in pen and paper contracts, it is less clear when electronically-communicated contracts are involved. The Electronic Transactions Act circumvents this difficulty by presuming the location of despatch and receipt as the places of business of the sender and addressee, respectively.

The location of the contractual offer is critical where parties are located in different jurisdictions, as it may result in a different governing law to apply to the contract. In other words, a contract concluded overseas may be subject to the laws of another jurisdiction.

Automated Messaging Systems

What about automated messaging systems? The avid online shoppers amongst us would have come across the familiar “thank you for your order!” messages in our email inboxes, and, indeed, many online businesses do use such automated messaging systems to indicate receipt of new orders. But what is the legal significance of such automated messages, if any, in the formation of contracts?

First, the law assumes that a message sent by a party’s automated messaging system originates from the party himself. Thus, if the automated message suffices as a contractual offer or acceptance, the business will be accordingly bound.

Further, the law provides that any contract formed as a result of such automated messages cannot be denied validity or enforceability simply because no natural person reviewed or intervened in each of the individual actions carried out by the automated message system or the resulting contract. Therefore, depending on the specific wording of the automated message, it is capable of being read as a contractual offer or acceptance that legally binds the business.

For example, it was held in a case that the caption of the auto-generated emails being “Successful Purchase Confirmation” went towards showing unequivocal acceptance on the business’ part.

What if there was an error in the automated message?

Despite automated message systems being, as the name suggests, automated for the most part, it is conceivable that the system might also require human input to operate properly, e.g. inputting details such as price, quantity of stocks available, payment mode, etc. What if an input error is made and, consequently, an erroneous message is sent out? Will the business be therefore bound by the error?

In the limited situation that such a human input error occurs, and where the automated message system does not provide the person an opportunity to correct the error, section 16 of the Electronic Transactions Act allows the person to withdraw the erroneous portion of the electronic communication.

Nevertheless, it is important to note that such a right will only arise if the sender notifies the recipients of the erroneous message as soon as possible after having learnt of the error to indicate that he had made an error and that the sender has not used or received any material benefit or value from the goods and services, if any, received from the recipient.

Electronic Signatures

If a signature is required, would an electronic signature suffice? Generally yes – an electronic signature would suffice if a method is used to identify the person and to indicate the person’s intention in respect of the information contained in the electronic record. This is provided for under section 8 of the Electronic Transactions Act.

What amounts to an electronic signature?

In determining whether something amounts to a signature, generally, the court will look at whether the method of signature used fulfils the authenticating function of a signature, rather than whether the form of signature used is one which is commonly recognised. In one case, the court held that the typed names of the signatories in the e-mails sent out were sufficient to be regarded as signatures since the authenticating intention of the signatories had been clearly demonstrated.

What is a “secure electronic signature”?

An electronic signature can be made “secure” under section 18 of the Electronic Transactions Act. A secured electronic signature is presumed to be authentic under section 19(1) of the Electronic Transactions Act.

To make an electronic signature “secure”, parties must either apply a specific security procedure or an agreed form of security procedure.This may be in the form of having two-factor authentication, or having an electronic signature pad to capture signatures.

Pertinently, the procedure must be able to verify that an electronic signature was, at the time that it was made:

  1. Unique to the person using it;
  2. Capable of identifying such a person;
  3. Created in a manner or using a means under the sole control of the person using it; and
  4. Linked to the electronic record to which it relates in a manner such that if the record was changed the electronic signature would be invalidated

Matters that Cannot be Concluded or Signed Electronically

Despite the prevalence and utility of contracts concluded via electronic means as well as electronic signatures, there are certain matters that cannot be so concluded or signed. Such matters have been excluded from the scope of operation of the Electronic Transactions Act, which include:

  • The creation or execution of a will
  • Negotiable instruments, documents of title, bills of exchange, promissory notes, consignment notes, bills of lading, warehouse receipts or any transferable document or instrument that entitles the bearer or beneficiary to claim the delivery of goods or the payment of a sum of money
  • The creation, performance or enforcement of an indenture, declaration of trust or power of attorney, with the exception of implied, constructive and resulting trusts
  • Any contract for the sale or other disposition of immovable property, or any interest in such property
  • The conveyance of immovable property or the transfer of any interest in immovable property

What should Businesses Take Note of When Contracting through Electronic Communications?

First, if parties were to contract via electronic means, parties must be careful to ensure that they expressly provide for issues dealing with choice of law, jurisdiction, and other essential terms such as those relating to payment and warranties. In the absence of express terms, a contract with a foreign customer may be found to be governed by foreign law, depending on how the court construes the timing of offer and acceptance.

Second, parties may wish to exclude the use of electronic communications and electronic signatures from their contract and reduce the agreement to a written one. This is permissible under section 5(2)(a) of the Electronic Transactions Act.

If parties wish to rely on an electronic contract, they may choose to exclude electronic signatures, which are susceptible to hacking and impersonation. Alternatively, the use of electronic signatures should be with additional forms of security such as two-factor authentication and electronic signing pads.

Finally, parties may wish to provide certainty by placing the agreement within the four walls of the contractual document. This prevents the problem of piecing together a contractual agreement from disparate sets of electronic communication. Parties who do not wish to be bound until the signing of an official document may do so by including a “subject to contract” endorsement in their electronic correspondences.