IT'S THE FRIDAY of the May long weekend, and as you have for some 30 years you’re driving yourself and the three other members of your law school study group to your annual retreat at a resort up north for some rest, relaxation and reminiscing. Along the way you notice that a new Go-Kart operation has started up, and you are all game to give it a shot. It’s easily been 40 years since any of you raced around a Go-Kart track. (What is it about Canadian long weekends that makes us nostalgic?)
Given the inherent riskiness of Go-Karting and your three decades in the legal business, you expect a written waiver document to be presented to you to sign before you hit the track. Instead, interestingly, you find yourself before a kiosk with a big electronic screen.
You have to type in various bits of personal information, pay a fee, be photographed, and click “I Agree” to a waiver and release. A copy of the information, and a receipt for your payment, is then printed for you. You’re impressed with the process, but as you put on one of their helmets you wonder, “Is this all as enforceable as the old written release was?”
Three Decades of E-Contracts
The e-kiosk contracting experiencing is nothing new. For about 30 years, electronic mechanisms of contract formation have been augmenting, and in some cases altogether replacing, the analogous paper-based ones. In the late 1980s, electronic data interchange, or EDI as it was known, rapidly became ubiquitous in the business-to-business sector as the preferred means by which goods were ordered by parties in a supply chain. EDI presented some novel legal issues because it enabled direct computer-to-computer communication without any human interaction.
Facsimile, or fax, technology also raised some novel legal issues, particularly because there were variations of technology on the fax theme. The original fax machine was like a photocopier, except that the copy was scanned and then transmitted. But in this initial model there was a paper-based “original” of the document that typically contained a human being’s “wet” signature. As fax technology advanced, the document was sent directly from a computer without a paper version being created. This caused a few legal eyebrows to furrow.
More recently, PDF technologies have come into widespread use, and emails are now used routinely to create contractually intentioned messages. The variations on e-contracting never end. Today, some businesses have worked “recorded voice signatures” into their contract creation workflows, especially with remote customers. And getting back to Go-Kart waivers, the use of e-kiosks is on the rise.
Generally speaking, common-law courts in Canada and other jurisdictions have not denied contractual effect to electronic messages just because they were electronic.
But it’s not correct to say that all electronic messages can create legally effective contracts, because there is much more to any contract than the signature of the parties, whether it be in ink or in electronic form. For instance, there still must be a clear offer followed by a clear acceptance. (Remember Contract Law 101 at law school?) Therefore, a series of back-and-forth communications by email do not pass contractual muster because the court is unable to discern a clear offer or acceptance from the avalanche of (often contradictory) messages, multiple offers and the plethora of counter-offers.
In other circumstances, the factor that can undermine the finding of a legally binding electronic contract is that the purported terms and conditions were not sufficiently brought to the attention of one of the parties. For example, the counterparty may have been simply “invited” to click on the relevant terms, but ultimately did not have to in order to proceed with the online transaction.
In another string of cases, fax machines automatically printed the sender’s name at the top of the fax, but courts found these not to be electronic signatures because they were not placed on the fax with the intent to create a contractual relationship. Again, assent is still a critical requirement in an electronic contracting environment.
So, the common law will uphold electronic contracts where there is clear offer and acceptance, both parties intend to enter into a contract, and there are no counter-indicating circumstances (e.g., duress, mistake, or age-of-majority concerns). But common law did not alleviate all concerns, and so about 20 years ago a wave of law reform was initiated that resulted in each province and territory enacting legislation that helps facilitate e-commerce across a range of electronic contracting models.
The various e-commerce statutes in Canada bolster e-contracting by various means. One provision stipulates that an e-signature is legally enforceable. And the definition of “electronic signature” is very broad, namely any “information in electronic form in, attached to or associated with a document in order to sign it.”
To give you a sense of just how useful this provision in the e-commerce statutes is, the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada have both passed policies that allow their members to communicate electronically with their clients as long as the member obtains a legal opinion to the effect that the process for the client communication utilizes a legally enforceable e-signature.
I have been asked to assist with many of these requests. After working with an individual MFDA or IIROC member to fine-tune their communication and workflow process (typically their e-oriented account opening system), I am able to give the opinion. Many novel e-workflows have been brought on stream this way, gaining important marketing and efficiency gains for the MFDA or IIROC member — and all well supported by the above-noted e-commerce legislation.
The Legality of E-Kiosks
So what about the enforceability of the waiver and release obtained through the e-kiosk process at the Go-Kart track described at the top of this column? Well, just such a fact pattern was at issue in a recent case from western Canada, and the court, on a summary judgement motion, upheld the e-waiver based on several important findings and conclusions.
First, the judge found that the design of the customer experience through the various screens of the kiosk was such that the customer could not participate in a Go-Kart race unless and until he or she clicked “I Agree” to the waiver/release. Moreover, the judge found there was nothing “obscure” in the presentation of the waiver and the release, or the choice of whether or not to accept it.
Therefore, tip number one is: when designing the customer experience of electronic contract terms — whether for a waiver or something else — keep it simple and straightforward. And the “I Agree” step has to be clear and obvious. Ideally the actual terms will appear on a screen, and at the bottom (requiring the customer to scroll down through the terms) there is a clear and unambiguous “I Agree” and, beside it, an “I Decline” button.
In coming to its conclusion in this case, the court usefully cited another section of the relevant e-commerce legislation, namely the provision that holds that an offer, or acceptance, or any other element relevant to the formation (or operation) of a contract may be expressed “by an action in an electronic form, including touching or clicking on an appropriately designated icon or place on a computer screen … ” This is an important finding of the court. It confirms that when we are dealing with an e-contract involving a tablet, a kiosk, or some similar user experience, we should not be looking for an e-signature or something that approximates a traditional paper contract. Rather, this statutory section stands alone, and confirms that what is really important is the intent to express the offer, acceptance or other matter, not the way in which it is memorialized (though presumably the e-system before the court in this case did that as well, including by taking a photo of the customer so that the “I Agree” could be connected to a specific person from an evidentiary perspective).
The second important finding by the court in the case is this: the fact that the customer may not have read the waiver does not detract from the waiver’s legal effect. In this, the court argued, the electronic waiver should not be treated differently than a paper-based one. And in the context of paper, the court cites jurisprudence holding, essentially, that someone who signs a contract is bound by it whether or not they have read it.
This is not to say that anything goes when it comes to the actual words used in an electronic waiver/release, or other provisions in electronic contracts. In fact, even in this case there was a dispute as to whether the specific words of the release covered the particular damages suffered by the customer. Moreover, there have been other cases, particularly in consumer contracts, where judges have found certain provisions unenforceable because of their complexity, the confusion they caused, etc. So besides designing the electronic customer experience carefully from a contract formation perspective, care should be exercised in preparing the substantive terms of these contracts as well.
On balance, though, in this decision we have further support for the legal enforceability of well-designed electronic contracts. In that sense it is useful not only in respect of e-kiosk waivers, but for a range of other e-contracts concluded through media other than paper.
George Takach is a senior partner at McCarthy Tétrault LLP and the author of Computer Law.