Electronic contract (“E-Contract”) is a type of contract formed by electronic means rather than exchanging signed written documents.
Contracts formed through electronic means are legally recognised as valid and enforceable contracts in Malaysia under the Electronic Commerce Act 2006 (“ECA”).
Therefore, an E-Contract is as enforceable and valid as a paper contract. Hence, traditional elements on forming contract, namely, offer, acceptance, consideration and intention to create legal relations apply to the formation of E-Contract.
Formation of an E-Contract
An E-Contract would be formed once a customer makes an offer and the seller accepts the offer electronically.
But, it’s important to note that an advertisement on a website will not generally constitute a formal offer.
Therefore, as an online seller, you should ensure that your terms and conditions clearly state that the display of an item for sale on a website is only an invitation to treat. Unless, of course, you can ensure that you have enough stocks to fulfil the orders.
Types of E-Contract
The 2 most common types of E-Contract are “Click-Wrap Agreement” and “Browse-Wrap Agreement”.
Of course, the simplest way of sending an email to place an order and replying it with a confirmation email is also recognised as a valid form of E-Contract.
As the law in this area is still being developed, there are no established legal definitions and rules that dictate how E-Contract should be formed. Thus, traditional legal principles on contract should apply only to the extent where it is practical and possible.
Click-Wrap Agreement
The name “click-wrap” came from the use of the words “shrink-wrap agreement” in boxed software purchases, which contains a notice that “by tearing open the box, the user accepts the Terms of the software”.
In Click-wrap agreements, the terms and conditions (“Terms”) are provided when a purchased software is installed or downloaded, or when a website is accessed or a service is requested on the Internet.
It is usually presented on a separate landing page via a hyperlink next to an “I Accept” or “I Agree” button and are presented on a “take it or leave it” basis. There is no bargaining or negotiation between the parties with respect to the Terms.
In layman’s terms: A click-wrap agreement requires you – as the buyer or user – to explicitly agree to the terms and condition by clicking the button.
Some of the best practices when having a click-wrap agreement are:
- Requiring customers to scroll through all the Terms and then take positive action by clicking “I Agree” button or ticking “I Agree” checkbox (left blank by default) before being allowing them to proceed to the next step. If possible, offer an “I Disagree” button as well.
- Avoid using words like “I have read, understand and accept the Terms” as this can be viewed as encouraging customers to make false undertaking – they might not actually read and understand the Terms. Instead, put a statement like “it is important to read and understand the Terms” before or next to the “I Agree” button.
- Ensuring that the Terms are visibly and conspicuously displayed in a prominent position with reasonable font size and in multiple languages.
- Place the Terms – or a hyperlink to the Terms – on the same screen and near the “I Accept” button.
- Allow customers to read, download and/or print the Terms. They should not be pressured to rush through the Terms by webpage timeouts.
- Retain a copy of all E-Contracts, including evidence of signature/authorization/acceptance of the Terms.
- Copies of E-Contracts must be stored in a form that accurately reflects the information set forth in the agreement agreed by both parties.
- Ensure that the Terms are always published on the website for future and ease of reference.
- Consider offering an easy to read and understandable summary of the Terms.
- Consider highlighting important Terms in a different colour or font size.
- Avoid unreasonable or unfair Terms as those Terms can be struck out by courts.
- Provide adequate notice of the revised Terms and if possible, allow customers to terminate the agreement if they do not agree with the revised Terms.
Browse-Wrap Agreement
Terms in browse-wrap agreements are usually presented on a separate landing page but requiring no positive action by the users to accept the Terms.
The concept is that, by continuing to browse the website or use the service, the users are deemed to have accepted the Terms.
The browse-wrap agreements are more commonly used in non-commercial websites. This is because these websites merely provide information or news, and no commercial transaction or activity takes place on the website.
Some of the best practices when having a browse-wrap agreement are:
- Ensure that the Terms are visibly and conspicuously displayed in a prominent position. They should be in a reasonable font size and in multiple languages (for International user base).
- Terms should be written in a simple and less legalistic language.
- The Terms should state clearly that continued browsing or use of the service would constitute acceptance of the Terms.
- Allow users an opportunity to read, download and/or print the Terms.
- Ensure the Terms are always published on the website for future and ease of reference.
- Consider offering an easy to read and understandable summary of the Terms.
- Avoid unreasonable or unfair Terms as those Terms can be struck out by courts.
- Consider highlighting important Terms in a different colour or font size.
- Provide adequate notice of the revised Terms. And if possible, allow users to terminate the agreement if they do not agree with the revised Terms.
- Try to only use browse-wrap agreements on non-commercial websites. As these type of agreements do not provide the same degree of reasonable notice to the users and does not require affirmative action to show offer and acceptance of the Terms.
Source: FreshBooks
Essential Terms of an E-Contract
The Terms in your E-Contract MUST be tailored to the needs of your business.
There is no “one-size-fits-all” type of Terms and you should refrain from copying and pasting Terms from other websites.
Generally, any contracts for goods or services should address the following essential points:
- Description of goods or services being supplied
- Price and payment method
- Delivery details
- Rights and obligations of both parties
- Exclusion, limitation of liability and indemnification clauses
- The ownership in the content and licenses
- Jurisdiction of which country’s law should apply in the event of a dispute
Overriding Laws
E-Contracts are subject to the same laws as normal traditional pen-and-paper contracts.
Hence, contracts which are unenforceable offline will similarly be unenforceable online. For example, certain types of contract with children below the age of 18. Or contracts which are illegal, immoral or against public policy.
If you (the online seller) collect personal data in the course of transactions, the website should also contain additional features. This includes a privacy policy, privacy statement/notice and consent form that is compliant with the Personal Data Protection Act 2010.
Even if there is a clear choice of law and jurisdiction clause, courts in other jurisdictions might be able to hear disputes if they feel that their customers are being targeted by the online seller’s website.
As such, a smart way of handling things is either complying with the laws of countries where your business is located or excludes orders from countries which your business is not run in.
*****
About the author:
This article was written by Edwin Lee Yong Cieh, Partner of LPP Law – law firm in Kuala Lumpur, Malaysia (+6016 928 6130, [email protected]).
This article was first published in CHIP Magazine Malaysia.
The view expressed in this article is intended to provide a general guide to the subject matter. It does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.
Edwin is a corporate and technology lawyer. He is also the founder and deputy managing partner of Lee & Poh Partnership (LPP Law). Edwin has advised a range of companies from technology startups to multinational corporations on a range of matters. In 2020, Edwin was named as a Malaysian Rising Star by Asian Legal Business, a finalist for the Young Lawyer of the Year at the ALB Malaysia Law Awards as well as a lawyer in the annual ALB publication of Asia 40 under 40.
View his full profile here.
