Creating a contract online: which method is best?

Contracting basics

To form a valid contract under English law: (i) one party must make an offer with specific terms; (ii) the counterparty must accept the offer; and (iii) each party must exchange something of value.

You have to be able to demonstrate that these three elements are present to have a valid contract.

The application of these concepts in the online world has been somewhat problematic, as the existence of the three elements is not always immediately obvious. This has led many businesses to consider their method for contracting online, in search of a method which is both certain and streamlined.

Online contracting methods: which is best?

There are three common methods of online contracting which are worth considering:

A. Browse-wrap

While browsing on a webpage, customers are provided with T&Cs, usually via a hyperlink, but are not required to read them or indicate that they have read them.

Under the browse-wrap method, the continued use of the website, or purchase of goods or services is stated to show the user agreeing to be bound by the T&Cs.

The main issue with the browse-wrap method is the lack of evidence of a user’s acceptance of the terms, which exposes businesses to the risk that their online T&Cs may not form part of their contract with their customers, and therefore their T&Cs will be unenforceable. For example, the customer may say they never followed the hyperlink.

To put your business in the best position to argue that terms were accepted when using this method, T&Cs should be clearly visible by using bold words and colouring or should appear to customers via a standalone communication such as a pop-up.

B. Click-wrap

In this case the customer clicks to show their acceptance of the T&Cs, usually by clicking an “agree” or “accept” button, often in a dialog box. Courts tend to prefer this method over the browse-wrap method because it generates better evidence of an agreement to accept the T&Cs. Despite this, the particularities of each individual click-wrap mechanism will ultimately guide a court’s decision when deciding whether particular click-wrap T&Cs are binding.

To maximise the enforceability of any click-wrap T&Cs, they should be printable and easy to access and read (with a large font size). The customer should also be required to scroll through the terms to accept. Any businesses looking to rely on their click-wrap T&Cs should record information about when each user accepted the terms, in case it is needed as evidence.

C. Digital signature

From an enforceability perspective, using digital signatures fits neatly into the general principles of contract formation – an offer is made on the terms set out in the contract and it is accepted by way of digital signature.

While implementing a digital signature process with each of your customers can be a time-consuming and cumbersome process, it creates more certainty about the validity and enforceability of the T&Cs. Electronic signatures are admissible as evidence of acceptance of a contract under English law and have become a common form of signing contracts in the UK.

Key takeaways

Whilst click-wrap and digital signature methods provide businesses with higher levels of certainty when it comes to the incorporation of online T&Cs, it is important that businesses undertake a proper analysis of the risks and benefits associated with the various methods available in the online contracting space, to streamline their processes and bring legal certainty to their online contracts. The drive to get the customer from looking to buying as fast as possible can sometimes come at the cost of not having a contract on your T&Cs.

If you have any concerns relating to online contracting, Bird & Bird’s market leading commercial team will be delighted to assist you.

Written by Simon Shooter, Simi Khagram and Kathryn Parker.