Bread & Kaya: Cautionary tales emphasise that your electronic contracts are enforceable

  • Court decisions on thorny issues of hyperlinked agreements’ enforceability
  • Heavy price to pay for not reading online terms of any commercial agreement

Bread & Kaya: Cautionary tales emphasise that your electronic contracts are enforceable

Bread & Kaya: Cautionary tales emphasise that your electronic contracts are enforceableThese days, many businesses no longer print or provide their entire contract to their customers or suppliers. It is relatively commonplace for businesses to point their contracting partners to the terms contained on a website, i.e. through a hyperlink.

We can see these in application forms, emails, and even in physical or electronic contracts. With the advent of the Covid-19 pandemic, it would be beneficial for businesses to adopt electronic contracts, particularly using hyperlinked contracts or terms, rather than physical contracts.

It creates convenience, not only are they great for easy drafting but it makes editing documents a breeze, it is an attempt to achieve a much more friendly and acceptable clientele experience within business.

However, there are certain issues to be looked at when adopting the use of hyperlinked contracts or terms. One of such situations would be where the contracting parties each have their own terms of engagement with reference to their own hyperlinked contracts or terms. Without a signed contract, this poses a dilemma which contract or terms would apply.

This article addresses the measures businesses may use to incorporate a hyperlink successfully and the current state of law in disputes involving contracts or terms incorporated by reference by way of a hyperlink. Therefore, we will look into the cases below to see how the courts deal with such a dilemma.

 

English Law Position

In tackling the enforceability of whether the electronics terms and conditions form part of the agreement, the English courts critically analyzed whether a party had taken reasonable steps to ensure that its terms and conditions had been brought to the attention of the other side. The two following courts had based their focus on the conspicuousness of the terms.

In Impala Warehousing v Wanxiang Resources [2015] EWHC 25, Impala issued a warehousing certificate in respect of Wanxiang’s goods pledged to a bank as security. The warehouse certificate was then endorsed to Wanxiang after the sum advance by the bank had been paid off. A dispute arose thereof and parties disagreed where the matter ought to be adjudicated. The back of the warehousing certificate contains a term stating that its latest version of its terms and conditions is posted on its official website. The website contains an agreement stating that, among others, the governing law of the matter is English law and the English court shall have exclusive jurisdiction to adjudicate the matter.

In deciding whether the English court has exclusive jurisdiction, the English High Court held that as a matter of English law where terms are incorporated it must be shown that the party seeking to rely on the conditions has done what is reasonably sufficient to give the other party notice of the conditions. The learned Judge found that the first page of the warehouse certificate contains a clause stating that all disputes shall be subject to Impala’s terms and conditions. At the base of the page the reader is invited to refer to the reverse of the page for additional conditions. On the reverse, the reader is referred to Impala's website for its terms and conditions.

Thus, the holder of the warehouse certificate knows that the certificate is subject to Impala's terms and conditions. The High Court held that these steps taken by Impala were reasonably sufficient to give the holder notice of condition.  In this day and age when standard terms are frequently to be found on websites, the High Court considered that reference to the website is a sufficient incorporation of the warehousing terms to be found on the website.

Cockett Marine Oil DMCC v Ing Bank NV & Anor [2019] EWHC 1533, on the other hand, involves a challenge of two arbitration awards on the ground that the arbitral tribunal had no jurisdiction. The tribunal held that it had jurisdiction because the terms of the contract between the parties included a London arbitration clause. The claimants had agreed to purchase bunkers from the defendants in two separate transactions. The defendants, being the sellers, had earlier sent a mass email to their customers enclosing their terms and conditions which contained the London arbitration clause which provides for the jurisdiction of the arbitral tribunal in London in the event of a dispute. The parties had a dispute and the defendants brought the matter to arbitration.

In one of the two transactions, it was done through an exchange of email. The defendant sent a copy of its sales order confirmation which contained the particulars of the sale and purchase. The email also stated that “...The fixed terms and conditions are well known to you and remain in your possession. If this is not the case, the terms can be found under the web address [to the defendant’s terms and conditions]”.

The English High Court held that the defendants’ terms and conditions apply to the contract for the supply of bunkers and therefore the arbitral tribunal has jurisdiction. The High Court found that the claimants were aware of the defendants’ terms and conditions since the defendants had taken steps to inform their customers, including the claimants, regarding the defendants’ terms and conditions by way of the said mass email. In respect of the transaction involving the email exchange and sales confirmation order, the High Court further held that the claimant could access the defendants’ terms and conditions by clicking on the hyperlink in the sales order confirmation.

 

Malaysian Court’s position

Our Court’s approach in assessing whether the hyperlinked contract or terms is similar to the English court’s position. Essentially, there must be a clear and concise notice informing the reader that their hyperlinked contract or terms apply. Therefore, parties who wish their hyperlinked contract or terms to be incorporated must ensure that they provide an avenue for the user to read the terms of the agreement. Simply inserting a hyperlink to the terms and conditions may not be effective in making them form part of the overall contract. The following recent court decisions highlighted the thorny issues of hyperlinked agreements’ enforceability in businesses in whether or not it could be incorporated by reference.

In Able Food Sdn Bhd v Open Country Dairy Ltd [2021] 7 CLJ 716, the plaintiff, a Malaysian company, sued the defendant, a New Zealand company, for alleged breach of contract(s) in, among others, supplying instant whole milk powder of unmerchantable quality. The plaintiff demanded, among others, special damages and general damages for loss of profit and loss of market.

The defendant challenged the jurisdiction of the High Court in Malaysia to hear the dispute on the ground that the parties had submitted to the exclusive jurisdiction of the courts in New Zealand. In this regard, the parties had entered into seven (7) sales contracts. Each of the sales contracts (except for one) contains an endorsement with a hyperlink to its terms of trade (“Terms of Trade”) and it reads as follows: “http://opencountry.co.nz/termsoftrade

The Terms of Trade form part of this contract for sale and the parties agree to comply with the Terms of Trade in performing their obligation under this contract. Please be advised that OCD has modified its Terms of Trade please consult the attached terms.”

The defendant argued that their “Terms of Trade” were incorporated by reference in each of the sales contracts wherein the parties had agreed that New Zealand law would apply and the parties are subject to the exclusive jurisdiction of the courts in New Zealand (hereinafter referred as the “choice of law and jurisdiction clauses”).

The High Court ([2021] 4 CLJ 614) held that the choice of law and jurisdiction clauses were not incorporated in the contracts because the Terms of Trade were not attached to the sales contracts, among others. 

However, on appeal the Court of Appeal overturned the High Court’s decision and held that the choice of law and jurisdiction clause was, in fact, incorporated into the sales contracts.

In regard to whether the Terms of Trade were incorporated by reference, the Court reiterated the following basic principles of the law of contract:-

1.      To incorporate a binding term, reasonable notice must be given either before or at the time the contract was made (Olley v Marlborough Court Hotel [1949] 1 KB 532 CA).

2.      The terms incorporated should be located in a document where terms are expected to be printed (Chapelton v Barry Urban District Council [1940] 1 KB 532 CA).

3.      Whether or not the parties had read the terms, contractual documents signed by the parties would automatically be considered as binding (L'Estrange v F Graucob Ltd [1934] 2 KB 394).

4.      Reasonable steps must be taken by the party who inserted the term to bring it to the attention of the other party (Parker v South Eastern Railway Company [1877] 2 CPD 416).

The Court of Appeal found that the parties had a course of dealings. In all the sales contracts (issued by the defendant and duly accepted/signed by the plaintiff without any comment, modification, or qualification), it was clearly stated that the Terms of Trade formed part of the contract and that parties agreed to comply with the Terms of Trade in performing their obligations under the contracts. The endorsement in each of the sales contracts referred to a hyperlink, to wit, http://opencountry.co.nz/termsoftrade. The Terms of Trade could be found in the hyperlink. The plaintiff, for whatever reason, did not click on or look up the hyperlink. But that does not mean that the Terms of Trade, which are contained in the hyperlink, do not apply.

The Court of Appeal held that the burden was on the plaintiff to look up the Terms of Trade via the hyperlink. The failure on the plaintiff’s part to do so is akin to a contracting party not bothering to avail themselves of the terms, and to read and understand the same, with the benefit of legal advice or otherwise.

The Court of Appeal further held that the Terms of Trade, which were duly incorporated by reference, will apply regardless of whether the plaintiff had accessed them via the hyperlink provided. If parties had agreed to be bound by a contract which also included a reference to another document, regardless of whether parties took the trouble to read them or not, then these documents and their terms would be binding upon the parties.

The plaintiff argued that the defendant was under a duty or obligation to furnish them with a copy of the Terms of Trade. The Court of Appeal was of the view that there was no such duty or obligation as the Terms of Trade were, as the defendant put it, just a “click away”.

The Court of Appeal found that notice of the Terms of Trade was given at the time when the contract was formed, and it was referred to in a document (Sales Contract) that one would reasonably expect to contain contractual terms. The express notice was given to the plaintiff that the Sales Contracts were subject to the Terms of Trade, which was accessible via a hyperlink provided. There was no ambiguity whatsoever as to where the Terms of Trade were located. Thus, the Court of Appeal was satisfied that the defendant had fulfilled the requirement of having taken reasonable steps to bring the Terms of Trade to the plaintiff’s attention and incorporating it in the Sales Contracts.

Additionally, during product purchase by the plaintiff, it is apparent that there is an exclusive jurisdiction clause. Therefore, the Malaysian Court is obliged to give effect to the exclusive jurisdiction clause unless the plaintiff, as the party sought to avoid the application of the clause, is able to establish that there are exceptional circumstances to justify the contrary. Since there was no convincing evidence to show that the plaintiff has an exceptional circumstance to exclude the express choice of jurisdiction, the most appropriate jurisdiction to hear the dispute would be in New Zealand.

The Court of Appeal further stated that although it would seem unfair in the plaintiff’s perspective to file the action in New Zealand, however, it is what they had agreed upon when they had signed the contract, and so if any inconvenience were to be faced by the plaintiff, it would merely amount to the consequences of their agreement.

 
 
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