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Contract Conundrum

In the rush to gear up for e-commerce and the challenges it poses for the supply chain, one key area seems to have been neglected: the law and how it deals with the number of service contracts that ar...

In the rush to gear up for e-commerce and the challenges it poses for the supply chain, one key area seems to have been neglected: the law and how it deals with the number of service contracts that are a regular part of procurement, shipping and outsourcing activities of any organization.

The future of the paper-based service contract is clearly a digital one but for now the move to electronic deal making is raising questions transportation professionals would be well advised to consider.

“The electronic contract will become the standard, rather than the exception, as time goes on, so treatment of this must be examined. Over a period of time there will be a standard understood by everyone,” says Dean Saul, a transportation law expert with Gowling Lafleur Henderson LLP. In a seminar for shippers and carriers at the Canadian Industrial Transportation Association’s annual conference, Saul addressed issues that both groups would have to consider as the push for electronic interaction becomes more urgent.

In the country’s manufacturing heartland and technological centre, the Ontario government’s Electronic Commerce Act (ECA) received Royal Assent in October of 2000, and essentially removed legal barriers to e-commerce, ensuring that electronic contracts, documents and signatures have the same legal effect as they do on paper. But the Act notwithstanding, electronic contracting raises several important questions about this method of conducting business.

While such developments as encrypted electronic signatures will help ensure that documents can’t be altered, electronic contracting, Saul says, will mean a greater degree of danger for what is known as “invitation to treat.” Proposals and quotations going back and forth electronically may not constitute actual offers, just as an oral conversation off the cuff would not mean that numbers bandied about were signed, sealed and delivered. But when does an e-mail “verbal agreement” become contractual? This will be an important issue to consider.

Also, says Saul, in an e-mail, an offer sent out without an ‘until’ date (offer good until…) can theoretically be sitting in cyberspace for the longest time, without getting cancelled. So something like a self-cancelling e-mail option may have to come into play.

The question of jurisdiction in this area of international, “borderless” e-commerce will also play a role in what exactly constitutes acceptance, and where and when exactly a contract originates.

The Ontario Electronic Commerce Act stipulates that when information enters the system and it is capable of being retrieved and processed, it can be considered to be a valid legal document. If a document can’t be retrieved after it has come in, it is not considered acceptable or viable for the purposes of electronic commerce. The document also has to be accessible by the other person, and retainable, to be usable for subsequent reference by that person.

Section 23 of the Act provides rules for transactions that relate to contracts for the carriage of goods, and states that “electronic documents may be used for these transactions if the rights granted by the documents are reliably given only to the person entitled to them.”

In business to consumer transactions, says Saul, electronic contracts and conditions under which they are made are more prevalent and better laid out. For example, click wrap or web wrap agreements will disclose the terms of the contract. Under business to business transactions, he says, there is also not much of a problem, because the parties agree more at the outset on a standard trading agreement.

But in the transportation industry, he says, it may be necessary, for the time being, to retain a paper transaction for some aspects of an order, where parties are not willing, or cannot, transact electronically.

“Some parties are saying, with respect to certain aspects of the order, there will be a paper transaction, aside from an electronic bill of lading and a contract of carriage,” he says.

In the meantime, keep in mind that electronic contracting will not get rid of legal obligations. So careful attention will have to be paid to how details are communicated.

“If you don’t tell (the electronic recipient) about any restrictions you won’t be able to enforce them,” says Saul.

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