The rap on click-wrap - Can Government contracts be made electronically?

Key Point:

Although click-wrap and similar contracts can be legally effective, they raise a number of legal and Government-specific issues that will need to be managed by agencies before such contracts are entered into.

Anyone whose work or leisure makes use of technology in the age of the internet will have come across a click-wrap, browse-wrap or shrink-wrap contract. Government agencies, as major users of technology, should note how easily these contracts can arise as Government employees may be inadvertently entering into them. In this article, we briefly consider how click-wrap contracts can arise, the principles of contract law that apply to them, and how contracting using these non-traditional means affects Government agencies.

How click-wrap and similar contracts arise

Click-wrap, shrink-wrap and browse-wrap contracts are (typically) presented to the user of a website or CD for acceptance without the need for the familiar 'signing on the dotted line'. Instead, the user is asked to read certain terms or conditions (or referred to these in another location) and is asked to:

• click an 'I Accept' or 'I Agree' button that pops up on screen where the contract terms and conditions are clearly visible (click-wrap)
• break the plastic packaging or seal, for example, around a CD (shrink-wrap)
• browse through to the next page or another part of a website (browse-wrap).

Particular scenarios where this could occur are where an agency:

• purchases ICT hardware or commercial off the shelf software using an online transaction
• receives a software CD which requires a seal to be broken or which brings up a pop-up window asking the user to accept its terms when first used.

Is a click-wrap contract a 'real' contract?

The short answer is yes. The following actions may lead to the creation of a binding contract:

• an offer (for example, to supply a software product or access to a website to a user on terms) that is communicated to a prospective user
• acceptance of the offer by the user, and communication of acceptance to the person making the offer (which can be as simple as clicking 'I Accept')
• exchange of something of value between the parties (for example, a promise by the user to pay a fee for the software or for access to the website).

Importantly, contract law does not require writing on paper, or that the parties sign documents, for a contract to arise. An automated process (for example, involving accepting a ticket from a parking machine) can be enough to establish a contract. When discussing click-wrap and similar cases, courts have applied this reasoning to find that click-wrap contracts were enforceable.

If a click-wrap or similar contract is validly made, it can be enforced against the user; for example, if the user subsequently fails to pay the fee that they promised to pay by clicking the 'I Accept' button, they can be sued and required to pay damages.

Should agencies enter into click-wrap contracts?

Although click-wrap and similar contracts can be legally effective they raise a number of legal issues. The two that crop up most often are that:

• click-wrap and similar contracts may not be legally effective where the full terms of the contract have not been properly communicated to, or are not easily accessible by, the user at the time that the contract is formed (for example, if the user has to follow numerous links to access them at the time the 'I Accept' button is displayed)
• click-wrap and similar contracts may not be legally effective where the user's acceptance of the contract is found not to have been adequately communicated, or where it is not clear (for example) from the structure of a website whether an offer was made to, and accepted by, the user.

Whether a click-wrap or similar contract will be legally effective will depend on the specific facts of each case, including whether the website or click-wrap transaction was structured so that it was clear that an offer had been made and accepted. This will not always be obvious. Accordingly, agencies should generally be wary of entering into such contracts without obtaining legal advice.

There are further, Australian Government-specific, requirements that apply. Among other things, agencies should ensure that:

• procurement policy has been considered, because a click-wrap procurement is still a procurement to which the CPGs apply
• the terms of the click-wrap or similar contract are terms acceptable to agencies, noting that obligations in such contracts are often inconsistent with a Government policy (for example, the agency may be asked to give an indemnity or warranty, or privacy, confidentiality, audit and record-keeping obligations may be missing or inadequate)
• the person clicking the 'I Accept' button, or peeling off the shrink-wrap, has the appropriate delegation, consistently with financial management legislation, to enter into the contract and is aware of the significance of the action they are taking.

Should agencies offer click-wrap contracts?

There is a difference in risk between circumstances where an agency accepts a click-wrap or similar contract, and where it offers such a contract as part of sensible e-commerce arrangements. As the proposer of a click-wrap contract, an agency is more likely to have the opportunity to:

• draft terms which address its policy and legislative requirements
• ensure that the contracts are approved by an approver with appropriate authorisation consistent with financial management legislation, and
• make and keep records of its contracting activity.

In the right circumstances, and provided that issues like those outlined in this article are managed, agencies should consider implementing click-wrap or similar contract arrangements. It may in fact save agencies time and money to administer simple contracts electronically.