Validity of Electronic Contracts in the UK

CHAPTER 4: REGULATIONS AND CASE ANALYSIS ON THE VALIDITY OF ELECTRONIC CONTRACTS IN UNITED KINGDOM

  1. The validity of Electronic Contracts in United Kingdom
  1. Legal background of UK legislations on Electronic contracts

In the late 1990s, the lack of a legal foundation for e-commerce has caused many European countries to separately enact electronic signature law.Such a trend has raised a concern to the EU as a whole for the differences there might be.In addressing the issue, the EU has come up with the Directive on a Community Framework for Electronic Signatures (“EU E-Signatures Directive”).The Directive requires implementation by all member states by July 19, 2001.The Directive mainly deals with, inter alia, the recognition of electronic signature, technological neutrality, and international harmonization.

As a result, the Electronic Communications Act 2000 (“ECA”) and the Electronic Signatures Regulations 2002 (“ESR) are the implementation of the EU Directive.

  1. Electronic Communications Act 2000

During the history of English contract law, it has addressed and reconciled the validity issue of signature on the basis of their forms. Several forms of signatures were given legal validity such as initials, marks, seals or printed name. When it comes to electronic signatures, UK maintained their perspective as to relying on the function performed by the signature method in determining its legality; this approach is called the technology neutral approach. The ECA heavily inherits of this technology neutral approach.

The ECA focuses on three main issues: (i) the validity of electronic signatures, (ii) the validity of electronic records in transactions, and (iii) the legality of public key cryptography.

Section 8 and 9 of the ECA removes the barrier between electronic documents and their paper counterparts. As such, electronic records are given legal validity on a case-by-case basis. The act also authorizes the Secretary of State to enact secondary legislations.

  1. Electronic Signatures Regulations 2002

The ESR came into force on March 8, 2002.The main focus of the ESR is to implement certain provision of the EU E-Signatures Directive, especially the one concerning Cryptography Service Providers, including liability and data protection.

The ESR and the EU E-Signatures Directive share the same definition for “electronic signature”. Under the ESR, a legal person can be a signatory. The two legislations also share the same two types of signature, which is basic and advanced signature. Since UK contract law does not distinguish the notion of “handwritten” signature, there’s no need for the ESR to specifically recognize the validity of an electronic signature as an alternative for the handwritten ones. However, “various [U.K.] legislative acts have generally recognized [sic] that an e-signature is a valid form of signature in the specific context concerned.”

  1. Data messages under UK legislations
    1. Definition of data messages under UK legislations

Under English legislation, data messages was addressed under the name of “electronic communication”. Section 15 of the Electronic Communication Act 2000 defines “electronic communication” as follows:

A communication transmitted (whether from one person to another, from one device to another or from a person to a device or vice versa)-

  1. By means of a telecommunication system (within the meaning of the Telecommunication Act 1984); or
  2. By other means but while in an electronic form

This broad definition covers all kinds of communication transmitted through a device to a telecommunication network, including a telephone, fax, computer or laptop. Regarding electronic contracting, the EDI might be the oldest form of computer-based electronic contracting.

  1. Origin of data messages under UK legislations

In England and Wales, it is also difficult to determine “when” and “where” the electronic communications are sent from. English legislation requires some physical manifestation of the subject matter, or the parties’ intent. It’s not much important to search for the time of place where the electronic communication generated, but several legal aspects relied on these two factors.

Electronic communications, in their nature, are intangible to the outer world, unless stored of physically manifested by electronic equipment. Even if the electronic data is stored in the device, it can be easily deleted or modified without leaving any trace of the interference. This is a major issue of evidential value of electronic data, for example, as to the existence of a contract or a contractual term.

  1. Evidential validity of data messages under UK legislations

Electronic evidence has been subjected to special legislation in England for many years. The admissibility of data message in England was governed by a lot of rules, much more than those of traditional paper evidence.

Section 5 of the Civil Evidence Act 1968 provides that a computer-produced document shall be admissible as evidence, provided that the proponent can demonstrate its authenticity. The person who wishes to submit electronic evidence must establish that:

  1. The document was prepared during a period over which the computer regularly stored or processed information;
  2. Over the relevant period of time, information of this type was regularly supplied to the computer;
  3. The computer was operating properly; and
  4. The information contained in the statement reproduces information supplied to the computer.

Without any of the above conditions, the electronic evidence would not be admissible.

On the part of the proponent, not only he must prove the authenticity of the evidence, but also its reliability, often times by acquiring a certificate signed by a person responsible for the operation of the computer.

  1. Time and place of data messages under UK legislations
    1. Time of data message under UK legislations

In England and Wales, as well as many other countries, the courts face with a difficult issue of which rule between the “dispatch rule” and the “receipt rule” should be apply in certain cases. In fact, the solution for a previous case does not necessarily solve the problem in a new situation.

  1. Time of dispatch

Some argued that the “dispatch rule” (originated from the “postal rule”) should be applied in those cases dealing with e-mail communication, but not to online transactions.

The reason for this is because they observed that e-mail communications share many feature with the old-time postal communication, for example, after the sender hit the sending button, he or she has very little control over what would happen to the message, or not at all. In other words, he did all he could in messaging the other party. Of course there might be some delay or problem as the two parties often do not communicate simultaneously. It was suggested that a modified “postal rule” should be used to deal with the formation of nowadays electronic communications.

  1. Time of receipt

Should the court apply the “receipt rule” for contractual formation, the crucial issue would be the time of receipt of that piece of communication. In fact, one would find a lot of identifiable point along the communication process that would fit the “receipt” category.

The Electronic Commerce Directive of UK does not deal with the contractual acceptance but it does shed light on the time of “receipt” of a message. Article 11 of the Directive provides for the situation where an order was placed with a service provider and that service provider must acknowledge the receipt of that order.

The order and acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them.

The phrase “able to access them” was the subject of various debates. It is believed that the phrase was imported directly from regulation 11(2)(a) of the EC Directive and according to the Guidance for Business, when the message is “capable of being accessed” by the recipient it will be deemed received, which doesn’t explain anything as to this interpretation. For instance, if a data message is sent in the middle of the night, it must be deemed “capable of being accessed”, but is it reasonable to require a consumer to check a message in the middle of the night? In most of the case, after dispatching, no one would expect that message to be “received” at that time of the day.

  1. Place of data messages under UK legislations

According to the general rule, the formation place of an electronic contract would the one where acceptance was communicated to the party making the offer. In specific situations, the place of acceptance was the place where the party making the offer received the acceptance. As a matter of facts, courts must look into details of the circumstance to decide which rule should be applied.

  1. Electronic signatures under UK legislations

The ECA broadly defines electronic signature as “so much of anything in electronic form” that “is incorporated into or otherwise logically associated with any electronic communication or electronic data” and “purports to be so incorporated or associated for the purpose of being used in establishing the authenticity of the communication or data, the integrity of the communication or data, or both.”

From the above definition, an electronic signature can be broken into three elements, namely (i) so much of anything in electronic form, (ii) incorporation or logical association, and (iii) purports to be used by the individual creating it to sign.

The first requirement of an electronic contract is the electronic form. This is such a broad provision so as to make sure that new concepts that are yet to be invented would be covered by the definition.

The second requirement of an electronic signature is the incorporation of logical association with an electronic communication or electronic data. The signature could be deemed “incorporated” or “logically associated” by the way it is created. For example, in the process of creating a digital signature, the software could take part of the plaintext and create a message authentication code, which allows a recipient to check whether the message has been altered. As a matter of fact, the authentication code is separated from the message but at the same time incorporated into it. Another instance is where a biometric measurement is attached to a message. In this case, the biometric measurement would only function when it is associated with the message. There are many other ways to produce an electronic signature but the same principle is applied to all of them, even though the function of the electronic signature may vary from case to case.

The third element of an electronic signature is the intent of authenticity by the signatory in creating the electronic signature. There are cases where the person who the signature purports to be was not the one who actually caused it to be affixed to the data. In those instances, the electronic signature failed the third requirement.

In terms of the admissibility of electronic signatures required by the EU E-Signatures Directive, the definition of electronic signature in the ECA is said to be too broad.Understandably, the ECA looks to make room for technological innovation; therefore the definition was intentionally left unspecific.However, the ECA should ensure the analogous binding characteristic of an electronic contract as a handwritten one, i.e. section 7 (3) of the ECA should not allowed authenticity and integrity to be separated by going beyond the interpretation of advanced electronic signatures.It is similar to having a signature on a piece of paper on an unsigned contract and telling that the contract is signed. Moreover, section 7(3) also allows separate the data and the communication, which raise an issue of the non-repudiation characteristic which requires the integrity of both the data and the communication.

  1. Analysis on some significant cases of Electronic Contracts in United Kingdom
  1. Case 1: Golden Ocean Group Limited v. Salgaocar Mining Industries PVT Ltd. and another [2012] EWCA Civ 265

This English case shed some light on the enforceability of a contract of guarantee where a series of documents have been duly authenticated by electronic signature of the guarantor.

  • The facts of the case

The plaintiff of this case, Golden Ocean Group Ltd (“Golden Ocean”), was a shipping company. The defendant was Salgaocar Mining Industries PVT Ltd (“SMI”).

In early 2008, in reply to Golden Ocean’s offer to charter SMI a vessel, SMI nominated Trustworth Shipping Pte Ltd (“Trustworth”), a related company. The negotiations were conducted via email on the basis that “Trustworth fully guaranteed by SMI.”

Golden Ocean later claimed that Trustworth had repudiated the charter and that it was guaranteed by SMI.

The defendants argued that the email chain was insufficient to create a binding guarantee according to the Statute of Frauds.

  • Legal issue

The issue of this case was whether the email chain constituted a binding guarantee or not.

  • Judgment of the court

The court rendered a judgment for the plaintiff, agreeing that Golden Ocean had a “well arguable case” that the document was in writing and did not contradict the Statute of Frauds. As such, the court set forth the following reasons:

First, the judge rejected the argument that the agreement between the parties was not in writing according to the Statute of Frauds. The phrase “fully guaranteed by [SMI]” can only be interpreted in the way that the charter party was guaranteed by SMI, instead of “to be guaranteed” as the case may be.

Neither did the judge accept the idea that there should be some limitation to the number of documents to be permissible in the case of writing. The court emphasized that it was “highly desirable” that the law gives effect to the communications which are “more than clearly than many negotiations between men of business, the sequence of offer, counter offer, and final acceptance by which, classically, the law determines whether a contract has been made.”

Regarding the signature issue, the court concluded that the contract was signed by way of the electronically printed signature of the person who sent them and it sufficed the test of a valid signature according to the Statute of Frauds.

  1. Case 2: Hall v Cognos Ltd Industrial Tribunal Case No.1803325/97
  • The facts of the case

Hall was employed by Cognos as a sales executive. Under the employment contract, Hall’s expenditures incurred for travel, accommodation and other reasonable cost would be covered by Cognos, under the condition that it would not exceed 6 months. Hall failed to submit the claim within 6 months so he asked Sarah McGoun and Keith Schroeder, his line manager, whether these expired claimed was okay for him to get his recovery. The reply was “Yes, it is OK”. They communicated through a series of emails. Hall later submitted his request but Cognos refused to accept any payment.

  • Legal issue

The issue of this case was whether emails can suffice the writing test and be considered as “signed” once they’re printed out.

  • Judgment of the court

The court rejected the claim for Cognos that because the emails were not in writing and signed, they didn’t have any effect. Instead, the judge concluded that emails were in writing and signed once they were printed out.


In the UK, there are three different legal territories: England and Wales, Scotland and Northern Ireland. For the purpose of this chapter, the UK law or English law represents the law in England and Wales.

Anthony Burke, EU and Irish Internet Law: An Overview, 13 INT’L L. PRACTICUM, Autumn 2000, at 107, 113-15

Mariam A. Parmentier, Electronic Signatures, 6 COLUM. J. EUR. L. 251, 252 (2000)

Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community Framework for Electronic Signatures [1999] OJ L13/12, 19.1.2000.

Id., Art. 13

Jacqueline Klosek, EU Telecom Ministers Approve Electronic Signatures Directive, 4 CYBERSPACE LAW. 12 (2000).

Mincoff, M., An Overview of Electronic and Digital Signature Legislation and Regulation in the United States: Silanis Technology, 1999

Reed, C., What is a Signature?, Journal of Information, Law and Technology,2000

Murray, J., Public Key Infrastructure Digital Signatures and Systematic Risk, Journal of

Information, Law and Technology.2003

Id.

Interdisciplinary Centre for Law & Info. Tech., Katholieke Universiteit Leuven, Study for the European Commission: The Legal and Market Aspects of Electronic Signatures, 215-16 (2003).

Id. at 215

Xxx Interdisciplinary Centre for Law & Info. Tech., Katholieke Universiteit Leuven, Study for the European Commission: The Legal and Market Aspects of Electronic Signatures, 215-16 (2003)

“The most mature form of electronic contracting is electronic data exchange (EDI), which permits trading partners to exchange commercial documents electronically.” Baum, M.S. & Perritt, H., Electronic Contracting, Publishing and EDI Law, Wiley Law Publications: New York, 1991, at 2

Section 5(2) of the Civil Evidence Act

Ibid., Section 5(4)

See Murray, A.D., Entering Into Contracts Electronically: The Real W.W.W., in Edwards, L. & Waelde, C. (eds) Law and the Internet: A Framework for Electronic Commerce 2nd ed. (Hart: Portland, Oregon, 2000) at 26 and Downing, S. & Harrington, J., The Postal Rule in Electronic Commerce: A Reconsideration, (2000) 5 (2) Communications Law 43

For example, the point at which an e-mail arrives at his service provider’s server or the point at which the e-mail is downloaded to the recipient’s computer

Article 11 of the Electronic Commerce Directive

Guidance for Business on the Regulations 5.29 (a)

Section 7 (2) of the ECA

See Stephen Mason, Electronic Signatures in Law, 4th edition, 2016, at 171

Section 15 (2) of the ECA provides for 3 tests to determine the authenticity of a communication or data, which are:

  1. whether the communication or data comes from a particular person or other source;
  2. whether it is accurately timed and dated;
  3. whether it is intended to have legal effect.

Section 7 of the ECA

Section 7 (2) of the ECA

This may be to satisfy Article 5(2) of the Directive that requires that electronic signatures are not denied legal effectiveness and admissibility as evidence.