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FAQ: Binding Nature of Electronic Contracts

Q: What is the legal position of a product advertisement posted by a merchant on an electronic storefront ?
A: It is usually regarded as an "invitation to treat", i.e. not as an offer. Thus, an on-line merchant is not bound to sell a buyer the merchandise unless he has accepted the buyer's order without reservation.

Q: How contract between a seller and buyer is made?

A: A contract for sale of a merchandise, for example a CD on the Internet is formed electronically. Either an on-line merchant makes an offer to sell or an on-line buyer makes an offer to buy the merchandise posted on the Internet storefront. A contract is formed upon acceptance of the offer. Depending on the terms of the on-line sales contract, acceptance can arise when an on-line merchant confirms the buyer's order without reservation. A prudent merchant may therefore confirm a buyer's order subject to the availability of the merchandise or until stocks last. That condition can be built in the sales contract and included in the merchant's automatic email confirmation.

Q: What governs the legal validity of an on-line contract?

A: The legal validity first depends on which territory of laws applies when considering the subject contract dispute. If the parties to an on-line sales contract are both in Hong Kong, their dispute will be decided according to Hong Kong laws. Two territories may have the jurisdiction on the same dispute if parties are located in different territories. A prudent on-line merchant may include a term defining what are the "applicable laws" and which courts ("jurisdiction") have the authority over the dispute.

Q: Is an on-line contract binding between the seller and a buyer?

A: Yes. An on-line sales contract is binding subject to very limited number of exceptions, for example real property. Therefore, the sale of chattels (for example, books) or services (for example subscription of information or data on-line) is binding on the parties if the elements of a contract exist: offer, acceptance, consideration and intention of legal relationship.

Q: Is there a legal liability if a party is in breach of a term in an on-line contract?

A: Yes. In B to C sales contract, the price on the merchandise can be of a few hundred dollars. An on-line merchant can sue a buyer at the Small Claims Tribunal (which handles claims not more than HK$50,000.00) for the unpaid price. An on-line merchant who has accepted an order from a buyer may also face a buyer's claim but the loss will be the price the buyer has to additionally pay for buying the same merchandise with another merchant.

Q: Is there any legal authority in Hong Kong having decided on the validity of an on-line contract?

A: No. The legal point of view taken by lawyers is based on case laws analogous to on-line sales contracts. Besides, the courts will throw the world into chaos if a sales contract cannot be binding simply because it is not paper-based. Therefore, it is logical to deduce that the court will not deny the validity of an electronic contract from a very practical point of view.
Lastly, the Electronic Transactions Ordinance has now provided that a contract cannot be denied its validity on the ground that it was made electronically. Thus, an on-line sales contract is a valid as a paper sales contract.

Q: Can electronic records and communications be used as evidence in Court?

A: Yes. According to the Electronic Transactions Ordinance, emails, their attachments and contents of electronic nature, whether they are images, sound files etc can all be admitted as evidence in Court actions.

Q: Will the absence of a written signature make an on-line contract not binding?

A: No. A sales contract of chattels as the merchandise does not necessarily require terms in writing. Nor a signature is required to make it binding. The Electronic Transaction Ordinance gives "digital signature" recognised by the Ordinance the benefit of attribution i.e. that the "digital signature" is presumed to have been used by the owner of the private key. But that does not mean that every electronic contract has to use "digital signature" in order to be valid.

Q: By what procedures I should follow if I want to sue a party in breach of an on-line contract?

A: If the claim is not more than HK$50,000.00, the legal action should be started in the Small Claim Tribunal. The claim form is provided by the Tribunal's Registry.