How the internet revolution has changed the legal contracts’ world

Internet & contracts

Alessia Frisina – Senior Corporate Counsel, EMEAR SPafrisina@cisco.com

Released: October 6, 2015

The internet of Everything

1. The Internet of Everything (IoE) is the network of "things" embedded with electronics, software, sensors, and connectivity to enable objects to collect and exchange data.

2. Where do we see IoE in our everyday life?

• It impacts on education, communication, business, healthcare

• Everyday objects around us will collect large amounts of data that will be stored in cloud platforms and communicated to other devices and to other parties

• IoE’s projects are wide ranging and may relate to, among other things, smart cities, transport systems, buildings, eHealth and telemedicine, wearable technologies, homes, automobiles, industry and energy

• IoE’s regulations and rules are still being established

How is the IoE changing our lives?

• Uber does not own taxis

• Amazon does not own retail space - well, not physical, anyway

• Airbnb does not own hotel rooms

By 2020, we predict that there will be 50 billion ‘smart objects’ connected to the internet

Pace of change?

• Many forms of transactions are now conducted by various type of e-communications (websites, mobile apps, etc.)

• Even if we do not realise it, most of the times we are entering into a contract

• How do we make sure that that transaction conducted through a mobile app is legally binding? How do we enforce it, if things go wrong?

• There a range of methods through which a legal relationship can be

“e-created” …

you may have heard, for instance, of cryptographic systems which include or associate data with a message to confirm its integrity and authenticity

E-contracts

• English law is very flexible and contracts may be made informally: we do not need to put anything in writing to have a potentially binding contract

• There are some exceptions … this is why we need lawyers … !

• We can say that if a contract can be concluded by shaking hands, it can also be concluded by clicking on a mobile app

Can we e-contract? - Part I

• We know that the basic elements to create a contract are:

1. offer and acceptance

2. consideration

3. intention to create legal relations

4. certainty of terms

• The above elements have very little to do with which piece of paper (or technology) we use

• Also (and again … some exceptions saved), the general rule under English law is that a contract does not need to be in any particular form in order to be legally binding

Can we e-contract? - Part II

• Some legal transactions may need the execution of a contract in the form of a deed

• It must be clear from the face of the instrument that it is intended to take effect as a deed

• The instrument must be validly executed as a deed

• A deed must be delivered

• A deed must be in writing

E-contract and deeds – Part I

• Delivered … To enable transactions to be completed without the need for a physical meeting or the circulation of hard copy documents for execution, it is common practice “virtual execution” of deeds

• Practice involves delivery of executed deed by electronic means at closing (usually sending PDFs by email), but the signature pages to the deed will be printed and executed by the parties using manual signatures

• It is widely accepted that a binding deed can be created using a virtual closing mechanism

• Deed are to be in writing … we will talk of e-communications later on – let’s determine whether “in writing” works for deeds (I can tell you … it would be difficult to see any reason why this would not be the case)

E-contract and deeds – Part II

• What is “in writing”?

• The Interpretation Act 1978 (IA) contains a number of provisions concerning the meaning of words, including “writing”:

“includes typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form”

• Does electronic data constitute “writing”?

• Electronic data does not form a “visible representation of words” but once represented on-screen, it does become visible … therefore it constitutes “writing”

E-communications – Part I

• The law is developing and it’s trying to keep up …

• There seems to be a general trend towards accepting the principle that e-communications are capable of satisfying the same requirements as traditional paper transactions do

• Including the world of guarantees seems to be heading towards that direction. In recent decisions, English courts have held that an email containing the essential terms of an offer of a personal guarantee and which had been accepted orally and unconditionally by the other party would constitute an agreement (J Pereira Fernandes SA v Mehta [2006] EWHC 813)

E-communications – Part II

• The current legal framework is a result of the E-Signature Directive (1999/93/EC) (E-Directive)

• The E-Directive has been implemented in the UK by the Electronic Communications Act 2000 (ECA), and then followed by the Electronic Signatures Regulations 2002 (E-Regulations)

• The current regime will change soon …

E-signature – Part I

• For different reasons, the E-Directive and the E-Regulations have not worked out as the European Commission had hoped

• The new regime which will come into force next year is aimed at increasing the harmonization of legislation in this area between member states and encourage the use of e-signature

• The current regime has been perceived as not supportive of the use of e-signature. However, there is no clear evidence (or statistics) to give evidence of the use and level of confidence of users in online transactions and e-signatures …

• If you want to know more about the new regulation (Electronic Identification Regulation - EIR):

• http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2014.257.01.0073.01.ENG

E-signature – Part II

• ECA defines electronic signature as to comprise anything in electronic form which is incorporated into or logically associated with an electronic communication or electronic data and which purports to be used for the purposes of establishing the authenticity and integrity of the communication or data

• As with hand-writing, an e-signature can take a variety of forms. Some examples:

- clicking on an icon on a website

- scanned manuscript signature

- typing the signatory’s name into an electronic document

E-signature – Part III

• To be effective, an e-signature must demonstrate an authentication intention, i.e. that the signatory intended to be bound by the terms he/she has signed for

• This is subject to interpretation … some Courts have held that the insertion of a person’s email after a document would not be a signature, some others have said that the simple addition of the party’s name to a header constituted a signature

E-signature – Part IV

• The EIR has direct effect in the UK and will come into force on 1st July 2016

• It will not, however, automatically, repeal the UK legislation … you may need a lawyer again …!

• A few changes will be introduced although the EIR maintains the position established by the E-Directive: an e-signature should not be denied legal effect and admissibility as evidence in legal proceedings just because it is electronic and fails to meet the requirements for a qualified electronic signature

• A qualified signature being an advanced electronic signature that is created by a qualified electronic signature creation device: uniquely linked to the signatory, capable of identifying the signatory, created using e-signature creation data that the signatory can use under his/her sole control, linked to the data signed therewith in such a way that any subsequent change in the data is detectable

E-signature – Part V