Cyberlaw@SA - Chapter 6


Marco van der Merwe BLC LLB Spoor and Fisher, Pretoria The section on Offer and Acceptance and International Uniformity contributed by Francois Janse van Vuuren BCom LLB Spoor and Fisher, Pretoria

1. Introduction

Countries that do not take time now to create appropriate infrastructures to support the Internet will find their economies plummeting in a matter of years; countries that embrace the Internet will reap the benefits. These infrastructures include telecommunications and education (and even legislation). This warning comes from John Chambers, the president of Cisco Systems Inc., a company whose revenue in 1998 exceeded $3,2 billion in e-commerce and which expects an income of between $15 billion and $20 billion by the year 2000. Chambers compared the Internet revolution with the Industrial Revolution: the Internet version brings people and information together in global or virtual communities, while the industrial version brought people and machines together in factories. Countries that do not train their young people in the intricacies of the Internet will experience an economic backlash resembling that experienced by countries which were reluctant to take on new technologies in the nineteenth century.

Recent developments in the Internet and conducting online business (which combine “telecommunications law” with “computer law”) can be compared to technological developments at the turn of the century in the motorised transport industry. For some time after cars became quite affordable, there were no specific rules of the road; this may explain why, in some countries, you drive on the left-hand side of the road and in others on the right-hand side. Similarly, there are at present only informal rules on the “information superhighway”.

The solutions at the turn of the century were not only legal but often technological. Thus, cars became safe, speed could be measured scientifically, and the evidence of this could be used in courts, road surfaces were improved, and so on. Similarly, legal and technological principles will be used in developing rules of law applicable to the Internet. Two examples are the creation of blocking software denying children access to pornography, and of password-controlled debiting functions enabling the user to order goods on the Internet.

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If international uniformity cannot be achieved in relation to the Internet, some countries will insist that you “drive” on the left-hand side and others that you “drive” on the right-hand side of the “information superhighway”.

For the moment at least, this topic – law in its primal state – may be interesting to lawyers and anthropologists, and even amusing: they can observe events when there are no lawyers and no specific laws operating in this legal jungle. Technological development has simply outstripped legal development, creating an acute problem in law. Somehow, though, the law always catches up.

There are many other areas of the law that will be affected by the Internet and electronic commerce. Not the least of these are complications as to the ownership of intellectual property, and the judiciary’s self-confessed inability to understand the underlying technology. A judge of our Supreme Court of Appeal, for example, has been quoted as saying that computer literacy is not to be presumed in persons over 50 (the minimum age of most judges). The Internet is a technical subject requiring a high level of understanding from litigants, lawyers, and judges.

The Internet is used as a medium for conducting negotiations in the pre-contractual stage and also for conducting a wide variety of (one hopes) binding contracts with online electronic agents. Although e-commerce is a new concept, electronic payments have been with us for years, first in the form of credit cards and inter-bank wire transfers, and then cash machines and electronic debits with direct access to our bank accounts. So one might think that everything is in place for a totally digital, paperless economy. Unfortunately, no Internet law exists to cater specifically for e-commerce transactions. This new form of technology has established a new way of conducting business. At this stage the basic rules of the law of contract (based on Roman-Dutch law with influences from Anglo-American law) are applied to contracts created electronically. Set out below is a brief overview of the main principles.

2. Legal and practical aspects of contracting online

A contract has been defined as “an agreement (arising from either true or quasi mutual assent) which is, or is intended to be, enforceable at law”.¹

2.1 The general (basic) requirements

Contractual capacity: The law presumes that every person has
contractual capacity. In some categories of people, however, the capacity to conclude valid contracts is either lacking or limited minors, the insane, insolvent persons, prodigals, and those intoxicated by drink or drugs.
Possibility of performance: If the performance to which a contracting party agrees is impossible when he/she enters into the contract, no obligation arises. The “contract” is void.
Lawfulness: If a contract is illegal it is void, and no binding obligations come into existence.
Formalities: The validity of a contract does not generally depend on compliance with any formalities. As exceptions, some types of contracts are required by law to be recorded in writing, registered, or notarially executed, such as the sale of land, and assignment of copyright and suretyships.

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2.2 Typical online contracts

Contracts formed over the Internet usually fall into three broad categories:

contracts for the sale of goods
contracts for the supply of digitised products
contracts for the supply of services and facilities

At present most are formed between businesses and consumers, rather than between businesses themselves.

Most common Internet-based transactions are simple retail purchases made through “cyber shopping malls”. Banks and insurance companies e-commerce on a large scale. For the moment, it seems unlikely that major deals will be concluded online; complex mergers and acquisitions of companies will probably still be recorded in the form of traditional contracts for some time to come. Although negotiating and sending drafts by e-mail can certainly speed up the process of concluding transactions, in complex transactions one should supplement online commercial transactions with a final written contract.

Get an example of a cyber shopping mall at

http://www.mall.mweb.co.za/

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As with other contracts, there may be occasions when the existence and terms of a contract formed over the Internet must be established in court. The most likely situation is a dispute about the terms of the contract and the parties’ compliance with them. Sometimes it is possible that a party may even deny being the one who concluded the contract. Such problems of identity are particularly important with regard to the Internet, because the parties are unlikely to have any other form of personal contact. In this respect the following issues should be addressed in online contracts:

Contract formation: The contract terms should state the method and procedure for accepting the offer, as well as the duration of the offer and any conditions relating to it.
Delivery: The method and timing of delivery of the relevant goods should be specified, as well as any variations of these aspects depending on the method of payment, the availability of stock, or the jurisdiction of the recipient.
Risk and insurance: Where physical goods are to be despatched, the question of risk of damage or loss and the responsibility for insurance should be stated.
Price, currency and payment: The contract should state the price clearly (including any applicable taxes and insurance), the currency and acceptable means of payment. Where payment is to be made by physical means, such as the sending of a money order, the seller will no doubt wish to have the right to delay delivery until the relevant form of payment is received.
Subject matter: This is relevant where there is a grant of rights in digitised material. In that case, the extent of the licence should be clearly specified.
Geographical limitations: Where goods or services are available only in certain countries, or advice can be given only in or in respect of certain jurisdictions, this fact should be stated.
Limitations and exclusions of liability: To the extent permitted by the relevant legal systems, the supplier will wish to limit its liability and to exclude implied terms.
Confirmation: If the contract must be enforced in South Africa, a hard copy of it, duly signed by the parties, could be retained and used as evidence of the relationship.

To prepare well for the future, South Africa should take the time now to set up an appropriate legal infrastructure. The law is not ready for a paperless transition but somehow it always catches up. If no legal rule exists, similar rules will be used by the courts for reaching their decisions. In the drafting of new laws and regulations, care should be taken to accommodate international developments.

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3. Offer and acceptance

3.1 Introduction

Offer and acceptance on the Internet is by no means a simple matter. There are two main reasons for this complexity. First, the rules pertaining to offer and acceptance for defined contracts are complicated. Second, the rules applicable to existing contracts originated in a time when modern forms of contracting were a far-off glimmer on the horizon. Accordingly, these rules have to be adapted to accommodate newer forms of communication. Set out below is a brief exposition of the rules relating to offer and acceptance.

A contract in South African law is an agreement between two or more persons, that is intended by them to create and define, or vary, or extinguish, a right or rights in personam (the correlative being an obligation or obligations) between the parties to the agreement, such right or rights pertaining to the giving or doing of, or the refraining from doing something.²

Consensus forms the basis of contracts in South Africa. A iusta causa is not a prerequisite for the formation of a contract. Parties usually knowingly communicate and work with each other and so form a mutual declaration of will to be bound on the same terms. These communications usually take place in their negotiations and lead to an offer and acceptance. The law takes cognisance of that outer declaration of will. Consensus is normally evidenced by offer and acceptance.³

An advertisement by a tradesman of prices for goods or services is not a valid offer in our law, but merely an intention to sell at the prices stated. Only by responding to such “intention to sell” (for example, by placing the goods on a counter with the clear intention that they are to be purchased) is an offer made that may be accepted or refused by the tradesman.

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Applying this rule to electronic commerce, for example, if Dell Computers advertises a modem for sale on its web page, no contract will be concluded by placing an order. The contract will be concluded when such order is received and accepted. The acceptance of the order will often be manifested merely by the dispatch of the goods to the purchaser. No legal relationship exists between the parties before the acceptance, and an offer may be revoked at any time before then.

An offer is the communication by a person (the offeror) of the terms on which he/she is prepared to be bound by the acceptance of the terms by the person to whom the communication is addressed (the offeree), who on his/her signification of the acceptance of the terms becomes the acceptor, with a contract emerging.⁴ For an offer to be valid the following rules apply:

Only the offeree may accept and only by acting knowingly on the offer. The offeree must know of the offer and performs the act with the intention of accepting the offer.⁵
An offer must produce certain, definite and unambiguous terms.⁶
The essentialia and incidentalia which the offeror is prepared to
contract on must be in the offer.
The offer may be made by conduct or words.

Acceptance is an unqualified declaration of will from the offeree that the terms of contract, as set out in the offer, are accepted without them being subject to any reservations, so that consensus is reached.

For an acceptance to be valid the following rules apply:

As a general rule the acceptance must be communicated to the offeror. The acceptance must reach the mind of the offeror to have legal effect.⁷
Acceptance must be certain, definite and in unambiguous terms.⁸
Acceptance must be absolute, unconditional and must correspond with the terms of the offer.⁹
The acceptance may be made by conduct or words.
The offeree must have the intention to create a legal obligation through the acceptance.

Sometimes the offeror will prescribe the mandatory means of acceptance. For example he/she tells the offeree: “If you want to buy these goods, you must place an order via registered mail”. The offeree is obliged to use this means of communication, even if there are other quicker means available. So in the case of Eliason v Henshaw (1819) 4 Wheaton 225 (US), the offeror had requested acceptance by wagon, and the offeree accepted by another means (post) that he believed more expedient. The court held that postal acceptance was not valid here, and no contract had arisen.

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Unless the offeror has prescribed an exclusive mode of acceptance, the
offeree is normally free to use whatever means considered appropriate for this acceptance. In other words, if the offer is sent by post, it would indicate that the offeror expects acceptance by post, but acceptance by telephone will
normally be perfectly valid.

The general rule is that a contract is not formed until the acceptance is communicated by the offeree to the offeror.¹⁰ The acceptance must come to the mind of the offeror. This is known as the information theory. An example could be the use of a telephone.¹¹ The contract will be formed where and when the parties have reached consensus. The same theory applies to determine where and when a contract is concluded.¹²

The information theory does not apply where a true postal contract is concluded. Where an offer and acceptance is made by post, acceptance is deemed effective at the moment the communication is sent. In the case of a letter it is deemed that the offeror indicates that the acceptance shall be communicated by letter.¹³ Where a letter is delivered to the post office and it is correctly addressed the existence of consensus between the parties is assumed. Thus if a letter never reaches the offeror, the contract still comes into existence.¹⁴ In South Africa this position is applied ex lege where a true postal contract is concluded.

The offeree is advantaged above the offeror because the risk inherent in concluding a contract by post is placed on the offeror. The origin of the postal rule can be found in English law.

A further theory, namely the reception theory, may be relevant. When the acceptance of the offeree has reached the offeror, for example his/her place of business or home address, the acceptance is deemed to have been received by the offeror. Even where this acceptance is not read and only arrives at the offeror, a contract comes into being.

3.2 The suitability of the general principles of offer and acceptance for contracting online

Contracting online must be measured against the general principles of offer and acceptance as briefly expounded supra. When one speaks of an electronic or online contract what is meant? An online contract would be defined as a contract created wholly or in part through communications over computer networks,¹⁵ by e-mail, through web sites, via electronic data interchange and other electronic combinations.

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The nature of such a contract is unclear. In South Africa contracts can be concluded by written or oral agreement. An online contract has been described as an oral contract evidenced by written terms.¹⁶ Arguing by analogy, there is no reason to believe that an electronically concluded contract should be any less effective than an oral or written contract.¹⁷ Proving the existence and the terms of an online contract will probably be easier in a court of law than proving the same for an oral contract, as it will be evidenced by electronic terms, which can be reduced to a tangible form.

Online contracts can be divided into two general categories, namely where there was a contract concluded with human intervention, and without human intervention.

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The person making an offer on the Internet may choose to make an offer to a specific person or group of persons or the whole Internet community. For example, an e-mail message containing an offer may be sent to thousands of different recipients. Where the offeror makes an offer to a specific person on a web site, it should be held to be a legally valid offer and only the specified person should be able to accept the offer.

The acceptance should merely be a question of fact. A court should be able to decide whether the acceptance was absolute, unconditional and corresponds with the terms of the offer.

To constitute an offer, the offeree must know of the offer. Thus where an e-mail is unread no offer is constituted. What constitutes an offer on a web site is a matter of fact. Careful consideration should be given as to how a web site is structured. The site should among other things contain the terms and conditions of the offer and specify an applicable legal system.

The offer must appear to the reasonable person to be intended to create a contract. This rule contains an objective and subjective part. The objective part of this test applicable to the offeror can be ascertained by looking at the terms of the offer, be it by e-mail or a web site and surrounding circumstances. The subjective part of the test can be ascertained by the ipse dixit of the offeree, as well as the response of the offeree, for example orally or electronically.

Where uncertainty as to the intention of the parties exists, the terms of the
contract usually prove conclusive. The terms of an electronic contract can be reduced to a tangible form, and proving the intention should not be more difficult than in the case of any other contract. If the terms of an electronic contract cannot be made tangible the contract could be treated as an oral contract. The intention may then be difficult to prove.

The offer and acceptance must be made either in words, in writing or orally, or by conduct. There is no clear indication as to what would be construed as writing for purposes of online contracts. As mentioned, it may be possible to reduce any electronic writing to tangible form.

The offeror cannot be certain that the terms of the offer made were not changed by a third party or damaged while “travelling” to the offeree. An offer must in addition create certain and unambiguous terms. Technological developments are facilitating the secure transferral of information on the Internet. Codes and cyphers are used to encrypt messages and to render it impossible to alter the message. The identity of the originator of the message is also revealed by the use of a specific key. Electronic signatures have been developed that may replace traditional signatures (refer elsewhere in this chapter). The efficacy and enforceability of these technological developments have not been investigated by the South African courts. See further chapter 5.

The determination of whether all the essentialia of the contract are incorporated in the offer should be a question of fact, being readily ascertainable from the terms of the offer. The terms can, in addition, be made tangible and accordingly more ascertainable.

The acceptance must reach the mind of the offeror for a contract to be concluded. As a general rule the information theory is applicable to determine the time and place of contracts concluded. However, it is worth investigating whether another theory, such as the reception theory or the expedition theory, would not be more appropriate depending on the circumstances. This question will now be investigated in more detail.

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3.3 The time and place of an online contact

The place a contract is formed is mainly of interest in international transactions where the parties have not agreed to a specific jurisdiction or where there is no applicable international convention to determine the jurisdiction. Private international law may then have to be applied. Nationally, in a country where different provinces or states might have differing law, it is important to determine which court has jurisdiction.

Because of the borderless nature of the Internet, more often than not, when a contract is concluded, it will be an international transaction. This international element is complicated in cases involving corporate transactions. In such cases the computer of the offering company that first receives a reply may be located in one jurisdiction. That message may then be transmitted automatically to a subsidiary or holding company located in a different jurisdiction. Is the contract formed where the acceptance is sent, where it is received at the place of re-transmittance, where it is received at its last destination, or where it reaches the mind of the offeror?¹⁸

In written contracts the intention of parties is readily discernible. It is usually not difficult to determine where and when a contract was concluded. Online contracts may not afford one that luxury. Contracts may be concluded by various means of communication at different places and times. It is submitted that all acceptances in contracts can be evaluated using four factors, namely whether the communication was instantaneous, non-instantaneous, inter praesentes or inter absentes. The state of English and South African law is reviewed below.

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3.3.1 English law

The information theory is applicable to contracts concluded inter praesentes and inter absentes if the acceptance is instantaneous. Examples of instantaneous communication are a telephone and telex. The expedition theory is applicable to contracts concluded inter absentes and where the communication is non-instantaneous, examples of non-instantaneous communications being via post and telegram. Where the communication of acceptance is inter absentes and non-instantaneous a choice of theories is permissible, taking into account certain factors named in the Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft case.¹⁹

3.3.2 South African law

It is submitted that an analysis of case law suggests two possible approaches to determine what theory should apply to acceptances. The one approach is set out in Hawkins v Contract Design Centre (Pty) Ltd,²⁰ the other approach can be dubbed the inter praesentes approach.

3.3.2.1 The Hawkins case approach

The Hawkins case approach recognises the information theory as being applicable inter praesentes and inter absentes. There must be a sufficient factual basis for reaching the conclusion that a contrary intention prevails.²¹ The emphasis is placed on there being a contrary intention. Where it is realised by the parties that the contract will be concluded inter absentes, no indication as to the mode of acceptance is yet created, except with true postal contracts.²²

Where no contrary intention is discernible, the information theory will apply ex lege.²³ The information theory will be applicable to acceptances inter absentes, be they instantaneous or non-instantaneous. Where the acceptance was made by post, the expedition theory applies, but where the communication was made by means of other non-instantaneous means, the information theory applies.²⁴

This rigid approach may lead to unfortunate consequences. For example where time is of the essence to a contract and a party duly delivers its acceptance to the company of the offeror, if the acceptance is lost in the corporate mailroom the offeree suffers a loss. A flexible approach may lead to more equitable consequences.

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3.3.2.2 The inter praesentes approach

The inter praesentes approach makes a distinction between instantaneous and non-instantaneous communications. Subject to the intention of the parties, where the acceptance is instantaneous, be that inter praesentes or inter absentes, the information theory applies. This seems to be the approach favoured in the recent Appellate Division case of S v Henkert.²⁵ Why should this approach be followed?

Jennett J P stated in the Tel Peda²⁶ case that the very object of the parties using an instrument that facilitates instantaneous communications (in this case a telephone) is because of the direct communication that it affords. They are virtually in the same position as if they are inter praesentes.²⁷ The same reasoning was followed in the unreported judgment of Roux J in Solas Products (Pty) Ltd v Armament Corporation of South Africa²⁸ where it was concluded that telex communication places “the parties in a position as if they were sitting at a table exchanging proposals to conclude a contract”. The information theory is thus applied.²⁹

Where the parties are inter praesentes the information theory applies. A general assumption could be that where parties contract inter absentes and with no contrary intention ascertainable, the information theory should apply where the parties are in a position analogous to being inter praesentes. This will usually be the case where the communication is instantaneous. In the Henkert case the Appellate Division approved the reasoning followed in the Tel Peda case.

Where the parties are inter absentes and the communication is non-instantaneous, an offer and acceptance by post will be regulated by the expedition theory. What theory should be applied where the contract is concluded inter absentes and by means of non-instantaneous communication that is not post? Instead of applying the information theory ex lege as in the Hawkins case, it is submitted that a different approach could be followed where applicable theories have to be found for modern forms of communications. This approach was followed in the Brinkibon case. In English law³⁰ would it be permissible to deviate from the information theory?

In the Tel Peda case Jennett J.P. said: “there exists no good reason to differ from the general rule that the acceptance must be received, where the communication was virtually instantaneous.”³¹ This statement begs the question of what a “good reason” will be.

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It is submitted that a “good reason” could be where the consensus of the parties to the contract is in jeopardy. Generally where acceptance is instantaneous or inter praesentes and a term is unclear or something is not understood, it is natural to ask for it to be repeated immediately. The risk of not reaching consensus in these contracts is small. Unfortunately the same does not apply to inter absentes and non-instantaneous acceptances.

Christie³² suggests that in considering what rule to apply to contracts by telex, fax, e-mail or other electronic means of communication, attention must be focused not on the type of machine employed but on its effect. Thus the question should be whether the parties were in a conversational situation.³³ It has also been stated that the question should be whether the parties were in actual contact though separated by space and could in effect respond to each other immediately.³⁴ It has also been stated that an offeror who expressly or by implication invites the offeree to reply by any method that does not put them in “virtually the same position as if they are inter praesentes” may be creating a situation analogous to the postal cases.³⁵

In the USA the following test is used to determine what theory should be applied to inter absentes contracting:

“Acceptance given by telephone or other mediums of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.”³⁶

This test requires that a method of communication be substantially instantaneous and two-way for it to be treated the same way as instantaneous communications. This test captures the essence of the suggested inter praesentes approach for South African law. The transmission must be substantially or virtually instantaneous.³⁷

Does South African law allow for choosing between theories? In Smeiman v Volkersz³⁸ in an obiter dictum mention was made of the possible application of the reception theory to a temporary delivery of a letter of acceptance to the offeror’s address. This obiter remark can be an indication that where the communication was non-instantaneous a choice of theory could be exercised in certain circumstances.

Factors mentioned in the Brinkibon case such as the intentions of the parties, sound business practice and sometimes a judgement where the risk should lie, can be used to determine the applicable theory. The relevant theory may also be found by “proceeding on practical grounds”.³⁹

Further confirmation of the inter praesentes approach can be found in the UNIDROIT General Principles of International Commercial Contracts issued in 1994 (hereafter “the principles”).⁴⁰ The principles determine that where confirmation is received orally the information theory applies and the reception theory will apply to where it is delivered. Delivery would take place in for example a facsimile transmission or e-mail message.

Get the UNIDROIT Principles at

http://www.unidroit.org/english/principles/pr-main.htms

It is submitted that the reception theory could be a suitable choice for Internet contracting. The reception theory places the risk on the offeree. The offeree has to take precautions to see that the acceptance will not be lost.⁴¹ The reception theory has the advantage that where the message has been delivered to the offeror, no further action is needed for a contract to be concluded.

Potential problems that may be encountered with modern communications may be avoided, for example where a machine is to receive a message. The reception theory eliminates the need for the offeree to be human and therefore a contract could be concluded with the offeree not fitting the definition of an agent.

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3.4 Application to the Internet

Acceptances via the Internet will in most cases be inter absentes except in respect of so-called “chat rooms” where the parties are in real time communication. Where no contrary intention is discernible it is submitted that the first distinction that should be drawn is whether the communication was instantaneous or not. Where the communication is instantaneous,⁴² and the parties to the contract are in a position similar to being inter praesentes, the information theory should apply.

It is uncertain whether non-instantaneous communications via the Internet will be dealt with in the same way as with post. As submitted above the question to be answered is whether the parties were in a position analogous to being inter praesentes. Where the communication is instantaneous the parties will usually be in such a position and the information theory will apply. If the answer is negative, a choice of theories would have to be made. As stated, the final decision should be made after reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie. The theory may be determined by practical considerations.

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The application of the inter praesentes approach to inter absentes contracts has the advantage of being flexible, thereby enabling it to deal with the unique problems of contracting over the Internet.

The answer to what theory to apply is complicated by the fact that there are different services offered on the Internet.⁴³ The inter praesentes approach (if used) will have to be applied individually to every service. Different theories may be applicable on a particular service depending on the circumstances. The two main services where contracts may be concluded on the Internet are electronic data interchange (EDI) and e-mail. The general principles can be applied to these services in the following manner:

With EDI where there is an exchange of transacting sets it should be virtually instantaneous. The information theory is at first glance the applicable theory, but it is submitted that this impression can be incorrect. Parties using EDI will usually stipulate their intention in the master agreement, with the contract being concluded at the time and place the master agreement was concluded. Where no contrary intention is discernible the rules as set out in the inter praesentes approach could be applied to the master agreement. Computers cannot form an animus contrahendi and therefore no meeting of minds can take place. This could be the ideal situation in which to apply the reception theory.
The term e-mail seems to suggest that electronic mail is a form of mail and that the expedition theory may be applicable. Many
differences exist between e-mail and traditional post. The biggest difference is to be found in that post is non-instantaneous and
e-mail may be either instantaneous or non-instantaneous.

When data is sent over the Internet by way of e-mail it is probably not strictly an instantaneous communication. Generally when the offeree elects to use the “send” command the message will be deemed to have been “mailed”. The e-mail message travels to the sender’s server. The server acts as a central point for the collection and dispatch of messages from a number of computers, much like a corporate mailroom. The server then sends the message into the Internet much like a corporate mailroom hands a letter over to the postal service. At this point the message is then reassembled by the recipient’s server and placed in the recipient’s mailbox, where it awaits retrieval.⁴⁴

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A distinction can further be drawn between intersystem and intrasytem e-mail. An example of intrasystem e-mail could be where parties communicate on the same computer network. If the message is intrasystem and the addressee is logged onto the system, the communication will mostly be instantaneous⁴⁵ and the parties will then be in a position analogous to being inter praesentes, with the result that the information theory will be applicable. If the message is intrasystem but the addressee is not at his/her terminal, the message will mostly be non-instantaneous, with the acceptance not being communicated to the offeror until he/she has logged into the system. The addressee may choose to log into the system days after the acceptance was sent. The communication of e-mail may also be delayed where there is a “congestion of messages” on the “intranet”. If that is the case the choice of an applicable theory may have to be made.

Where the communication is intersystem, e-mail may arrive immediately, take minutes, hours or even days. The communication will usually be non-instantaneous. Where there is a person attending the recipient’s computer and the message arrives immediately, the information theory may apply. Where not, a choice may have to be made.

4. Proving the terms of online contracts

The definition of an “electronic signature” does not yet exist in South African law. A “signature” in our law means any “mark” created by someone intending it to be considered as one. The British Standard Code of Practice for Information Security Management defines a digital signature as “a special form of message authorisation, usually based on public key cipher techniques”. As in traditional hand-written contracts, a digital signature identifies and authenticates the originator of the electronic contract. See further chapter 5.

In traditional contracts a contracting party will indicate his/her assent to the terms and conditions of the contract by affixing his/her signature to a piece of paper. This conventional method of signature is impossible when doing business on the Internet, and the specific “mark” made in an online transaction should be studied to establish whether it could be legally classified as a mark. As a “mark” in South African law refers to any mark created by someone intending it to be considered a binding signature, it may be argued that if a person clicks on a certain icon in an online agreement in order to indicate acceptance of its terms and conditions, that action of clicking on an icon could be a “signature”. However, should a contracting party deny that clicking the icon, the other party would have an almost impossible task proving the opposite.

The law of evidence is found in the common law and a number of scattered statutory provisions governing various aspects. Two statutes are particularly important:

the Criminal Procedure Act 51 of 1977
the Civil Proceedings Evidence Act 25 of 1965

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Although the law of evidence regulates the proof of facts generally and therefore covers a wider field than bringing forward evidence, the latter is its main concern. Evidence encompasses all the information given in a legal investigation to establish the fact in question.

The general rule is that no evidence of any fact, matter, or thing is admissible if it is immaterial or irrelevant. All facts of sufficient probative force are relevant and admissible unless receipt is prohibited by an exclusionary rule.

Questions of the weight and the admissibility of evidence are distinct and should not be confused. Evidence that has no weight can have no probative value and must be irrelevant. The judicial officer, when initially deciding whether to receive evidence, has a discretion to exclude any fact or thing whose probative force is insufficient to warrant its reception in the light of the practical difficulties that would arise were it to be admitted. Here arise the difficulties in this field of the law. The best evidence rule requires that the original document be tendered; this is almost impossible in e-commerce.

The usual method of proving a document that has not been discovered or admitted by the opponent is through a witness who can testify to its authenticity. A document is authentic if it is what it is alleged to be by the party tendering it. Proof of authenticity is usually supplied by the author, executor or signatory of the document, or by a witness to the making or signing of the document, or by a person who can identify the handwriting or signature of the author. A document that has not been authenticated as requested is inadmissible, and may not be used for cross-examination.

The Computer Evidence Act 57 of 1983 provides for the admission in civil proceedings of an affidavit concerning the authenticity of a computer printout that is tendered in evidence to prove any fact recorded in it, concerning which direct oral evidence would be admissible.

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The Law Commission is, however, investigating the issue and has proposed a solution which would repeal the 1983 Act and turn back the clock to section 221 of the Criminal Procedure Act and the relevant sections of the Civil Proceedings Evidence Act, with expanded definitions to accommodate
computers and computer printouts.

The Criminal Procedure Act now states that the term “document”, for the purposes of proof of entries in accounting records and documentation of banks, includes a recording or transcribed computer printout produced by any mechanical or electronic device and any device by means of which information is recorded or stored. (The definition of “document” in section 221, on the admissibility of certain trade or business records, is similarly worded.)

Computers should be distinguished from calculators, since the latter can be
isolated from human interpretation and intervention and their working may be demonstrated to the court relatively easily.

The programmable nature of a computer and the digital (temporary) nature of its data, which allows its workings and its output to be constantly modified by human intervention, strains the analogy with real evidence. Some kind of demonstrable external standard of computing practice should be complied with by the party wishing to submit printouts to a court as proof of the facts they contain. In dispensing with paper, we have also abandoned almost all guarantees of authenticity and reliability and substitutes have to be found. This is both a legal and a practical problem. The authenticity of documents may be proved, for instance, by the intervention of certification authorities. The American Bar Association has already made representations to the United States government regarding the evidentiary value of such documents. Once these are finalised, our Parliament could adopt similar provisions.

5. The contents of contracts

5.1 Unreasonable terms

The principle of freedom to contract exists in South Africa, and the whole basis of our law of contract is that the courts will enforce agreements despite any perceived unreasonable terms. This contrasts with the approach in the United Kingdom.

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This different approach is illustrated by St Albans City and District Council v International Computers Ltd.⁴⁶ At the end of 1988, ICL agreed to supply the Council with a computer system for administering the community charge. The deal was hastily made because legislation was about to come into force requiring local authorities to keep records. At first ICL supplied Initial Registration System software which created a register of charge payers. In October 1989, the system was replaced by the more sophisticated COMCIS system designed to perform additional functions such as billing. In accordance with standard practice, ICL retained property in the program and licensed its use to the Council. The program was recorded on disk and installed onto the Council’s system by ICL.

The software package was faulty and produced statistical errors, causing the council to overstate the population by 2 966. Owing to this error the community charge figure set in February 1990 was too low, and the Council suffered a loss of £1,3 million.

ICL was held liable for the full loss. Although ICL had sought to rely on a clause in the contract limiting its liability to £100 000, the court found the clause unenforceable. As the parties had dealt on ICL’s written standard terms, the clause had to be reasonable under the Unfair Contract Terms Act 1977 before ICL could rely on it. The court held the limitation clause to be unreasonable because:

The bargaining position between ICL and the Council was in favour of ICL.
ICL had enough resources to meet the potential liability.
ICL had world-wide insurance cover of £5 million which bore no
relation to the £100 000 limit in the contract.
St Albans received no inducement to accept the limitation and had no opportunity of concluding a better contract with other suppliers, because ICL’s competitors operated on largely the same terms and conditions.
The practical consequences meant that it was better that the loss fell on a rich international company than the community charge
payers of St Albans.
ICL had failed to provide any positive justification for the limitation clause.

No suggestions were given as to what limit (if any) would have been reasonable in the circumstances.

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The court also pointed out that in the absence of any express terms as to quality or fitness for purpose, or of any term to the contrary, “a contract for the transfer of a program into a computer intended by both parties to instruct or enable the computer to achieve specified functions is subject to an implied term that the program will be reasonably fit for achieving the intended purpose”.

The court’s approach is unlikely to be followed by South African courts. No
legislation resembling the Unfair Contract Terms Act exists in South Africa. Reasonableness and fairness are not in themselves requirements for a contract to be valid and enforceable in South African law.

In South Africa no cases dealing specifically with information technology have been reported. A few general principles may, however, be taken from the following cases. In Wells v South African Alumenite Company⁴⁷ 1927 AD 69 at 73 it was said: “No doubt the condition is hard and onerous; but if people sign such conditions they must, in the absence of fraud, be held to them”. The court confirmed the sanctity and enforceability of a contract freely concluded.

Public policy demands full freedom of contract. People should have the right to bind themselves in respect of all legitimate matters (Law Union and Rock Insurance Co. Ltd v Carmichael’s Executor⁴⁸). Our law will not release a contracting party from the consequences of an agreement duly entered into, merely because the agreement, or a specific clause, seems to be unfair (Burger v Central South African Railways⁴⁹).

In Agricultural Supply Association v Olivier,⁵⁰ it had been agreed that the defendant seller would supply certain tomato seed to the plaintiff buyer. The buyer sued the seller for supplying seed different from that ordered. The seller had included a non-warranty clause in its invoice and also in its catalogue, stating that “we give no warranty, express or implied, as to the description, name and/or character of any seeds... and we will not be in any way responsible for the results.” On appeal this non-warranty clause was held to be clear and unambiguous. The seller was therefore not liable for damages.

5.2 Implied terms

An express term in a contract is a term that is stated orally or in writing and included in a contract. By contrast, an implied term is a term which, though not expressed in a contract, was intended by the parties to form part of their contract. There are two types of implied terms:

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those imposed by law unless excluded by the parties
those tacit ones implied from the facts

An implied term imposed by law is read into the contract unless excluded by the parties. The term may derive from the common law, trade usage, or statute. An example is the warranty against latent defects in the law of sale (Alfred McAlpine & Sons (Pty) Ltd v Tvl Provincial Administration⁵¹). Only certain terms imposed by the law can be varied by the parties. For example, the parties to a contract of sale may not in their contract provide for a method of transfer of ownership not recognised by the law.

Tacit terms implied from the facts were described by Corbett AJA in Alfred McAlpine & Sons (Pty) Ltd v Tvl Provincial Administration:⁵² “an unexpressed provision of the contract which derives from the common intention of the
parties, as inferred by the court from the express terms of the contract and
surrounding circumstances”.

This tacit term is governed by the ordinary rules pertaining to the parties’ true intention. If it is clear that the parties intended a term to be incorporated into their contract, it no longer matters how they reached unanimity. This tacit term has the same legal effect as an express term, and so the consequences resulting from the breach of either type of term will be the same.

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Terms are implied if, without them, the aims of the contract will be totally
frustrated or if they are necessary to give business efficacy to the contract. Before a term can be implied, it must be clear that the parties would not have contracted otherwise than on the basis of that term.

The test applied by the courts to establish whether a term is an implied term of the contract is the “innocent bystander test”. The test asks what the parties would have answered if, when the contract was negotiated, a bystander had asked them what would happen if a certain situation should arise. If they both would have responded spontaneously that a certain consequence which they found too obvious to express in words should ensue, that consequence is deemed to have been intended by the parties.

It must be determined from the facts of each case whether a term can be implied, but it can be implied only if it is capable of being formulated substantially in one way only. The courts are slow to imply a term that the parties did not include in their contract. If there is any difficulty in formulating the term or doubt as to its ambit, the courts will not imply a term, because it is not their function to make contracts for the parties.

It is therefore essential that agreements be as detailed as possible, failing which the court may read implied terms into the agreement.

5.3 Enforcing and policing contracts

A party to a contract commits breach of contract if he/she either does not perform his/her contractual obligations at all, or else performs them late or in the wrong way. There are three forms of breach of contract.

5.3.1 Negative malperformance
Negative malperformance is the culpable failure to do something on time in a case where performance does not become impossible as a result of the failure. When the breach is committed by the debtor it is referred to as mora debitoris. On the other hand, if the breach is committed by the creditor it is named mora creditoris. Examples would be an Internet service provider (ISP) that undertakes to provide access by a certain date and fails to meet the deadline, or a client that fails to pay for such access on time.

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5.3.2 Positive malperformance

Positive malperformance is conduct that does not comply with the content of one’s contractual duty. It can take the form of doing something that one is bound not to do, or performing in an inadequate or defective way. If the content of a contractual duty and the time of its performance are so closely linked that performance becomes impossible if it is not rendered on time, then the failure to perform on time amounts to positive malperformance, not negative malperformance. It would be committed, for example, where an ISP undertakes to create a web site by a date coinciding with the international launch of a new product, and the launch has to be cancelled.

5.3.3 Anticipatory breach

Anticipatory breach consists either of repudiation (renunciation) of the contract or else of prevention of its performance (rendering performance impossible). Anticipatory breach can be committed by either the debtor or the creditor. It occurs, for example, if the ISP undertakes to provide access but simply fails to do so and then “cancels” the contract.

5.4 Remedies for breach of contact

There are various remedies for breach of contract.

5.4.1 Specific performance

As a general rule the innocent party in the case of breach of contract is entitled to enforce performance of the contract precisely as it was agreed between the parties in the contract (Benson v SA Mutual Life Assurance Society).⁵³ In principle, every party to a binding agreement which is ready to carry out its own obligation under it has the right to demand from the other party, so far as is possible, a performance of that party’s undertaking in terms of the contract (Farmers’ Co-operative Society (Reg) v Berry).⁵⁴ The court, which retains a discretion to grant or to refuse the claim for specific performance, may order the defendant to perform a specific act or acts, render services, pay money, or deliver something.

Specific performance will not be granted where performance has become absolutely or relatively impossible; for example, where the subject matter of a contract does not exist anymore or has been disposed of to a bona fide third party. Nor will it be granted if it would affect the defendant harshly or produce injustice (Haynes v King William’s Town Municipality).⁵⁵ The remedy will be refused if the obligations are imprecise and the likely result will be a lengthy dispute over whether the order has been effected. And in relation to contracts for personal services, an order for specific performance of an employment contract, though obtainable in the appropriate circumstances, will seldom be granted. So, in Seloadi & others v Sun International (Bophuthatswana) Ltd⁵⁶ the court refused to grant an order that the hotel should re-employ workers whom it had summarily dismissed.

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5.4.2 Interdict

An interdict is the appropriate remedy to prevent a breach or threatened breach of contract. It is a court order prohibiting the defendant from doing whatever is specified in the order; disobedience of the order is punishable as contempt of court. The prohibitory interdict and the interdict pending legal proceedings are set out below.

A prohibitory interdict is sought by one party when the other breaches the contract by doing something forbidden by the contract or inconsistent with the obligations imposed by the contract. The innocent party asks the court for an interdict to prohibit the breach. A party is not automatically entitled to an interdict, since the granting of such an order is subject to the court’s discretion.

The plaintiff is not required to prove that he/she would suffer injury or loss if the interdict were refused, but merely that the defendant is committing or threatening to commit a breach of the contract. The party seeking an interdict does not have to prove that he/she has no other remedy, although the inadequacy of damages as a remedy may be relevant in persuading the court to exercise its discretion in favour of granting an interdict.

Thus in Pretoria City Council v Kontinentale Films Bpk & others,⁵⁷ a clause in the lease of property for a drive-in cinema provided that the tenant was not entitled to use the premises for other purposes without the landlord’s written consent. The tenant nevertheless ran a theatre liquor business on the premises. The landlord was granted an interdict restraining the tenant from running the liquor business.

The other kind of interdict is obtainable by a party who approaches the court for an interdict pending the outcome of an action that is imminent or has already been instituted. The applicant’s reason in contract cases is to maintain the status quo by preventing a continuing or threatened breach which, if persisted in, would deprive him/her of the fruits of the action it is about to bring. An interdict would thus prevent the respondent from disposing of the property that is the subject matter of this dispute.

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5.4.3 Cancellation
The following grounds will give rise to the right to cancel:

Where time is of the essence: When the debtor is in default (mora debitoris), the creditor may cancel the contract if time is of the essence of the contract. Likewise, if the creditor is in default (mora creditoris), the debtor may cancel the contract if time is of the essence of the contract. Time is of the essence of the contract if the parties agreed either expressly or tacitly that a party would have the right to cancel the contract if the other party did not perform on time. A party can also make time of the essence of the contract by means of a notice of cancellation to the other party. As a rule, the decision that time is of the essence of a particular contract is based on a consideration of the nature of the contract together with the fact that the contract contains a time clause stipulating the date on which performance is due. However, the fact that no date has been fixed for performance does not necessarily mean that time is not of the essence.
A term of the contract: The parties can arrange in their contract that a party has a right to cancel the contract either according to his/her own choice or if certain events take place. This clause is called a cancellation clause (lex commissoria).
Material breach of the contract: A party is entitled to cancel a
contact if the breach goes to the root of the contract. A breach of contract will go to the root of the contract when the breach is a material term.
Repudiation: A party who does not wish to be a party to a contract any longer may repudiate it. Repudiation by itself does not end the contract; the other party first has to accept the repudiation.
Notice of cancellation: When one party is in default, the other may send him/her a notice of cancellation, informing him of the breach and allowing reasonable time to correct it.

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Unless there is a clause showing a different intention, a notice cancelling a contract must, to be effective, be communicated to the debtor. If there has been no prior notice of cancellation, the serving of a summons may be sufficient notification to the debtor of the intention to end the contract.

When a contract is cancelled, the primary obligations of the parties to perform in terms of their contract are terminated although an arbitration clause remains binding unless it manifests a contrary intention. The innocent party remains entitled to damages necessary to put it in the financial position in which it would have been if there had been proper performance in terms of the contract. Furthermore, cancellation of the contract does not extinguish enforceable rights flowing from a cause of action independent of any executory part of the contract.

If one party has breached the contract, the other has a choice of two courses, either to enforce the contract or to cancel it. Once he/she has made up his/her mind, he is bound by his election as in Segal v Mazzur.⁵⁸

5.4.4 Damages

The purpose of an award for damages for breach of contract is to place the innocent party, so far as money can do so, in the position he/she would have been in if the contract had been performed (so-called “compensatory damages”). Complementary damages are awarded for supplementing incomplete or defective performance.

Because the assessment of recoverable damages is often complicated and may lead to expensive litigation, the parties frequently agree in advance that should one of them commit breach of contract, he/she will become liable to the other party for a fixed sum, or for a sum which can be readily ascertained according to an agreed method, or will forfeit a sum already given to the other party by way of deposit or part payment. The parties may also agree that the plaintiff must prove actual loss, but that damages will be limited to a fixed sum.

The Conventional Penalties Act⁵⁹ renders all penalty clauses in a contract prima facie enforceable, subject to the court’s right to reduce the amount if it appears to be excessive. If the penalty is disproportionate to the harm suffered, the court may reduce the penalty to what it considers fair in the circumstances. The Act prohibits the cumulative recovery of a penalty together with damages. Therefore if a contract contains a penalty clause, the innocent party is not allowed to calculate damages in the normal way, except when the contract expressly allows him/her a choice. In that event he/she may choose to enforce the penalty clause or, alternatively, claim damages in the normal way.

6. International uniformity

6.1 The United Nations Commission on International Trade Law

The United Nations Commission on International Trade Law (UNCITRAL) was established by the General Assembly in 1966 by resolution 2205 (XXI). The General Assembly recognised that disparities in national laws governing international trade created obstacles to the flow of trade. The Commission aims to establish a uniform, transnational commercial trade law.

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UNCITRAL has prepared and adopted a large number of legal texts. Its recent contributions include the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit (1995), UNCITRAL Notes on Organising Arbitral Proceedings (1996) and the UNCITRAL Model Law on Electronic Commerce (1996).

The first major UNCITRAL electronic commerce project was the completion in 1992 of the Model Law on International Credit Transfers, which focused primarily on the movement of electronic funds.

At its 28th session (1995) the Commission recommended the adoption of a draft Model Law on Legal Aspects of Electronic Data Interchange and Other Means of Communication. The model law was adopted on 16 December 1996 by UN General Resolution 51/162.⁶⁰

Whereas the Model Law on International Credit Transfers of 1992 focused primarily on EDI, by 1996 wide uses of open text on open computer networks had become the norm, rather than EDI. The Model Law of 16 December 1996 was broadened and renamed the Model Law on Electronic Commerce.

Get the Model Law on Electronic Commerce at

http://www.mpo.cz/english/f/fna.htm

Work on the Model Law was undertaken with the realisation that in most countries national legislation is either outdated or inadequate. Electronic commerce is either not contemplated in the laws of the country, or is restricted by requirements that do not easily translate into the electronic environment. The Model Law aims to facilitate the use of electronic commerce and to provide equality before the law between users of paper-based and computer-based information⁶¹ by offering national legislators a set of internationally acceptable rules. These rules can help legislators to remove legal obstacles to the communication of legally significant information in the form of paperless messages or to remove uncertainty as to their legal effect or validity. Individual users may also benefit by using the principles in the Model Law when drafting contractual solutions in electronic commerce.⁶²

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At an international level the Model Law may be useful as a tool for interpreting existing international conventions and other international instruments that may create legal obstacles to the use of electronic commerce.⁶³ Between states party to the same international instruments the Model Law might be adopted as a rule of interpretation. The need to negotiate further protocols to an agreement may also be alleviated.⁶⁴

The Model Law was issued with a Guide to Enactment⁶⁵ and should be read in conjunction with it. The Guide was issued mindful of the fact that the Model Law would be a more effective tool for states modernising their legislation if background and information were provided to assist legislators in using the Model Law. The Guide was also issued to be of help to states with a limited familiarity with the type of communication techniques considered, and to help users of electronic means of communication and scholars in that area. The information in the Guide is intended to explain why the provisions in the Model Law are included as essential basic features of a statutory device designed to achieve the objectives of the Model Law.⁶⁶

The text was provided by UNCITRAL as a Model Law, rather than a treaty or a convention. States are under no obligation to accede to it or to make it part of their national law. Resolution 51/162 recommends that in view of the need for uniformity of law, all states give favourable consideration to the Model Law when they enact or revise their laws.

The efforts focused on electronic commerce have reversed the traditional harmonisation process. Traditionally where areas of private law were in disharmony among nations, impeding commerce, the focus had been to achieve unification. The Model Law seeks to establish agreed norms before disharmony emerges through competing national laws.⁶⁷

Set out below is the “framework” and “functional equivalent” approach as taken from The Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce, section I paragraphs 13 to 18:

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The framework

The Model Law is intended to provide essential procedures and principles for facilitating the use of modern techniques for recording and communicating information in various types of circumstances. However, it is a “framework” law that does not itself set forth all the rules and regulations that may be necessary to implement those techniques in an enacting State. Moreover, the Model Law is not intended to cover every aspect of the use of electronic commerce. Accordingly, an enacting State may wish to issue regulations to fill in the procedural details for procedures authorised by the Model Law and to take account of the specific, possibly changing, circumstances at play in the enacting State, without compromising the objectives of the Model Law. It is recommended that, should it decide to issue such regulation, an enacting State should give particular attention to the need to maintain the beneficial flexibility of the provisions in the Model Law.

It should be noted that the techniques for recording and communicating information considered in the Model Law, beyond raising matters of procedure that may need to be addressed in the implementing technical regulations, may raise certain legal questions the answers to which will not necessarily be found in the Model Law, but rather in other bodies of law. Such other bodies of law may include, for example, the applicable administrative, contract, criminal and judicial-procedure law, which the Model Law is not intended to deal with.

The “functional-equivalent” approach

The Model Law is based on the recognition that legal requirements prescribing the use of the traditional paper-based documentation constitute the main obstacle to the development of modern means of communication. In the preparation of the Model Law, consideration was given to the possibility of dealing with impediments to the use of electronic commerce posed by such requirements in national laws by way of an extension of the scope of such notions as “writing”, “signature” and “original”, with a view to encompassing computer-based techniques. Such an approach is used in a number of existing legal instruments, e.g. article 7 of the UNCITRAL Model Law on International Commercial Arbitration and article 13 of the United Nations Convention on Contracts for the International Sale of Goods. It was observed that the Model Law should permit States to adapt their domestic legislation to developments in communications technology applicable to trade law without necessitating the wholesale removal of paper-based requirements themselves or disturbing the legal concepts and approaches underlying those requirements. At the same time, it was said that the electronic fulfilment of writing requirements might in some cases necessitate the development of new rules. This was due to one of many distinctions between EDI messages and paper-based documents, namely, that the latter were readable by the human eye, while the former were not so readable unless reduced to paper or displayed on a screen.

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The Model Law thus relies on a new approach, sometimes referred to as the “functional-equivalent approach”, which is based on an analysis of the purposes and functions of the traditional paper-based requirement with a view to determining how those purposes or functions could be fulfilled through electronic-commerce techniques. For example, among the functions served by a paper document are the following: to provide that a document would be legible by all; to provide that a document would remain unaltered over time; to allow for the reproduction of a document so that each party would hold a copy of the same data; to allow for the authentication of data by means of a signature; and to provide that a document would be in a form acceptable to public authorities and courts. It should be noted that in respect of all of the abovementioned functions of paper, electronic records can provide the same level of security as paper and, in most cases, a much higher degree of accuracy and speed, especially with respect to the identification of the source and content of the data, provided that a number of technical and legal requirements are met. However, the adoption of the functional-equivalent approach should not result in imposing on users of electronic commerce more stringent standards of security (and the related costs) than in a paper-based environment.

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A data message, in and of itself, cannot be regarded as an equivalent of a paper document in that it is of a different nature and does not necessarily perform all conceivable functions of a paper document. This is why the Model Law adopted a flexible standard, taking into account the various layers of existing requirements in a paper-based environment: when adopting the “functional-equivalent” approach, attention was given to the existing hierarchy of form requirements, which provides distinct levels of reliability, traceability and unalterability with respect to paper-based documents. For example, the requirement that data be presented in written form (which constitutes a “threshold requirement”) is not to be confused with more stringent requirements such as “signed in writing”, “signed original” or “authenticated legal act”.

The Model Law does not attempt to define a computer-based equivalent to any kind of paper document. Instead, it singles out basic functions of paper-based form requirements, with a view to providing criteria which, once they are met by data messages, enable such data messages to enjoy the same level of legal recognition as corresponding paper documents performing the same function. It should be noted that the functional-equivalent approach has been taken in articles 6 to 8 of the Model Law with respect to the concepts of “writing”, “signature” and “original” but not with respect to other legal concepts dealt with in the Model Law. For example, article 10 does not attempt to create a functional equivalent of existing storage requirements.

The Model Law, taking into account the flexible approach and UNCITRAL’s offer of assistance to states wishing to implement it, may be an excellent starting point for South Africa. The South African legislator would be well advised to use it as a starting point in drafting modern, up-to-date yet flexible legislation. However, what is currently the validity or probative value of the Model Law in the South African context?

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The South African Constitution stipulates when an international agreement
will form part of South African municipal law. The relevant sections provide as follows:

231(2) An international agreement binds the Republic only after it has been approved by Resolution in both the National Assembly and the National Council of Provinces, unless it is an agreement referred to in subsection (3).

231(4) Any international agreement becomes law in the Republic when it is enacted into law by national legislation; but a self-executing provision of an agreement that has been approved by Parliament is law in the Republic unless it is inconsistent with the Constitution or an Act of Parliament.

233 When interpreting legislation, every court must prefer any reasonable interpretation of the legislation that is consistent with international law over any alternative interpretation that is inconsistent with international law.

Get the South African Constitution at http://www.polity.org.za/govdocs/constitution/saconst.html

It is clear that the Model Law is not a self-executing treaty.⁶⁸ South Africa is under no obligation to make the Law as a whole or only relevant provisions part of its national law. The provisions of the Model Law may be adopted by the national legislature and thus form part of the law in the Republic.

Section 233 illustrates the importance the writers of the Constitution attached to the harmonisation of our legislation with international law. The entry of South Africa into the international trade arena can be encouraged if our electronic commerce legislation conforms to the international norm.

6.2 European Union E-commerce Directive
The European Commission adopted a proposal that a legal framework should be created to facilitate e-commerce in Europe. The EU E-commerce Directive (hereafter referred to as the “Draft Directive”) has recently been published and addresses the following issues:

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information society service providers
commercial communications
online communications
online contracts
liability of intermediaries
implementation (or enforcement)

The two aims of the Draft Directive are the protection of all EU nationals and the free movement of services and legal certainty for suppliers. The compromise between the needs of business and the interests of consumers is achieved by establishing certain principles and then listing exceptions to them.

In view of the limited scope of this chapter, only the section pertaining to online conclusion of contracts is addressed here.

With regard to the formation of contracts and with certain exceptions, member states are obliged to ensure that their legislation allows contracts to be concluded electronically (Article 9). They must not prevent the effective use of electronic contracts or deprive them of legal effect and validity because they were electronically made. This does not apply to the following:

contracts requiring notarisation
contracts whose validity depends on registration
issues governed by family law
issues governed by the law of succession

The following principles must be introduced into member state legislation in respect of “click-wrap” type contracts, where consent is signified by technological means such as clicking on an icon (Article 11). The contract is concluded when the recipient of the service:

has received acknowledgement of his acceptance
has confirmed such receipt

Both of these are to be effected as quickly as possible. They are deemed to happen when the applicable party can access the acknowledgement or receipt.

Information pertaining to contracts must also be provided. In this regard, member states are to provide that except where otherwise agreed by professional persons, the manner of formation of a contract by electronic means shall be expressed by the service provider clearly, unequivocally and prior to the conclusion of the contract (Article 10). This shall include the following information:

the steps to be taken to conclude the contract to be set out in a way that ensures informed consent is given
whether the contract is to be filed/accessible
how handling errors are to be corrected
except where otherwise agreed by professional parties, any applicable codes of conduct

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7. Conclusion

The general rules applicable to contracts are in the main also effective for contracts concluded on the Internet. The biggest hurdle is to ascertain where and when a contract is concluded. The information theory, expedition theory or reception theory may be applicable to the Internet given differing circumstances. Parties should accordingly pre-empt any potential uncertainty or problems by encouraging parties to resolve issues in their contract.

It is important to specify which country’s laws will regulate the relationship established over the Internet. If one does not do so, one may end up being subject to foreign laws and disputes regarding choice of law even before one can institute proceedings. In the United Kingdom and the United States, the courts (in criminal cases concerning pornography) have adopted a pragmatic approach and decided that the court in whose area the file server containing the offending material is located will have jurisdiction. The South African courts may, until new legislation pertaining to contracting on the Internet has been passed, elect to apply one of any number of theories pertaining to offer and acceptance. Alternatively, an arbitrary ruling may be forthcoming depending on the facts of each case. As stated before, parties to an Internet-based contract should therefore exercise their right of election in determining the applicable jurisdiction, terms and laws.

Author biographies
Marco van der Merwe was born and educated in Pretoria. After matriculating in 1980, he spent two years in the Air Force and a further three years studying on a full-time basis for the BLC degree at the University of Pretoria. Thereafter he completed the LLB degree and diplomas in computer programming and labour relations on a part time basis, while employed as a computer scientist at UNISA. In 1990 he commenced articles at D M Kisch Inc., and in 1992 joined Spoor and Fisher’s Trademark and IT law department. Marco is also a Fellow of the South African Institute of Intellectual Property Law and the South African correspondent of Computer and Telecommunications Law Review (Sweet & Maxwell). He is currently a director and department head of Spoor and Fisher’s IT department.
Francois Janse van Vuuren was born in Johannesburg and matriculated from Hoërskool Die Wilgers in Pretoria. He obtained BCom (Law) and LLB degrees from the University of Pretoria. The title of his dissertation was “Law to govern offer and acceptance in Internet contracts”. Francois is currently a student of the South African Institute of Intellectual Property Law and started his articles at Spoor and Fisher in 1999.

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Christie, RH The Law of Contract in South Africa (1996) 3 ed
Kahn, E Contract and Mercantile Law (1988) 2 ed
Estate Breet v Peri-Urban Areas Health Board 1955 (3) SA 523 (A)
See Kahn supra
Bloom v American Swiss Watch Company 1915 AD 100; Lee v American Swiss Watch Company 1914 AD 121
Beretta v Beretta 1924 TPD 60
Fern Gold Mining Company v Tobias (1890) 3 SAR 134
Watermeyer v Murray 1911 AD 61; Westinghouse Brake and Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd 1986 (2) SA 555 (A)
Ibid
Fern Gold Mining Company v Tobias (1890) 3 SAR 134; Tel Peda Investigation Bureau (Pty) Ltd v van Zyl 1965 4 SA 475 (E)
See Tel Peda infra
Williston S A treatise on the law of contracts edited by W H E Jaeger, (195776) 3 ed
R v Dembovsky 1918 CPD 230
Central Computer and Telecommunications Agency Legal issues on the Internet Reference Book (1996)
Online Law: The SPA’s legal guide to doing business on the Internet (1996) Edited by Thomas J Smedinghoff
Turner, C & Brennan, S Commercial lawyers guide to the Internet Part 2 (1997) 382386
See Online law supra
Central Computer and Telecommunications Agency, Legal issues on the Internet Reference Book (1996)
Carlill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256, 262; Gardiner, J. The Postal Rule in Contract Law and the Electronic Marvels. Current Commercial Law, 2(2), July: 47. Household Fire and Carriage Accident Ins. Co. v Grant (1879) LR Ex D 216. Entores LTD v Miles Far East Corporation [1955] 2 All ER 493 at 495496. Brinkibon LTD v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 (HL) where mention is made of the condition of simultaneity and at 296 (c-d) of various factors that may prove to be conclusive on whether the information theory should apply
CPD 1983 (4) 296 J
See factors mentioned to ascertain intention at 303 G
Tel Peda Investigation Bureau (Pty) Ltd v van Zyl 1965 4 SA 475 (E) where it is stated that when the telephone [instantaneous communication] is used to make an offer, the offeror is not authorising a method of acceptance which will be binding on him whether or not he is aware of the acceptance
Ibid
Cape Explosives Works Ltd v South African Oil and Fat Industries Ltd 1921 CPD 244
1981 3 SA 445 (A). Although this case applied only to where a contract is made, no distinction in theory is made in our law as to when and where a contract is concluded.
1964 (4) SA475 (E)
At 479 G
TPD Case 2773/85
Radesich The formation of telex contracts (1987)
Supra footnote 18
At 479480
Christie The law of contract in South Africa (1996) 3 ed
Ibid
Olmesdahl Unheralded demise of Wolmer v Rees SALJ 545 (1984)
Christie supra
Restatement (Second) of Contracts section 64. This rule is applicable only to determine where the contract is concluded, not when. See Vorster Waar kom ’n kontrak inter absentes gesluit tot stand? TSAR, 2: 196. (1984)
See the Tel Peda case footnote 22 supra
1954 (4) SA 170 (C)
See the Cape Explosives case
The International Institute for the Unification of Private Law
Bianca & Bonnell Commentary on the International Sales Law (1987)
Instantaneous may be defined as where a message is sent from point A to point B it immediately comes to the mind of the person at point B. This definition is similar to the definition and effect of the information theory and will thus be adopted for the following discussion.
These services include: 1. Electronic mail, 2. Usenet, 3. The World Wide Web, 4. Electronic data interchange (EDI) and 5. The File Transfer protocol (FTP).
Fasciano Internet electronic mail: a last bastion for the mailbox rule (1997)
Ibid
(1997) 95 LGR 592 (CA)
1927 AD 69 at 73
1917 AD 593
1903 TS 571
1952(2) SA 661 (T)
1974(3) SA 506 (A) at 531
Ibid at 531532
1986 (1) SA 776 (A).
1912 AD 343 at 350
1951 (2) SA 371 (A)
1993 (2) SA 174 (BG)
1956 (2) SA 559 (T)
1920 CPD 634 at 644645
Act 15 of 1962
UN General Assembly Resolution 51/162, 16 December, 1996
Australian Report on Electronic Commerce available at http:/au.gov
See UNCITRAL Guide to Electronic Commerce (hereafter referred to as the Guide), paragraph 2.4
For example by prescribing that certain documents or contractual clauses be made in written form
See the Guide, paragraph 5
For a full text of the Guide see The guide to Enactment of the UNCITRAL Model Law on Electronic Commerce. 1997. The EDI Law Review, 4: 113157
See the Guide, paragraph 1
An introductory note by Harold S Burman to the Model Law on Electronic Commerce
Section 231(2) provides not merely for the automatic application of self-executing treaties as a whole, but also for the automatic application of any “self-executing provision” in a treaty. The door is thus wide open for the application of certain provisions of an unincorporated treaty. [See Botha, N. 1997. Treaties after the 1996 Constitution: more questions than answers. SAYIL, 22: 95].