E-greements – binding or not?

Ever been tempted to dash off a quick email response to a customer, agreeing to do something while you are off to the next job? 

Emails and texts are increasingly used in businesses as a quick and easy means of communication. The problem with our dependence on emails and texts, however, is that often we do not apply the same level of thought to them before we push send as we might do with an official letter. Other times, despite our best efforts, the message may be unclear. Consequently, something you have written and sent within seconds could have lasting implications on your business.

This is what you need to know to avoid your next email getting you in a bind.

Emails and the law

The law treats emails the same as it does any other form of communication. Section 8 of the Electronic Transactions Act 2002 makes it clear that even if a contract is concluded over the internet, rather than on paper or in person, it will still be valid and binding.

Technology has expanded the ways we can enter into contracts. Contracts can be formed by:

• An exchange of emails.
• An exchange of scanned hardcopy documents.
• Online order forms.
• Online auctions (eg on Trademe).
• ‘Clicking’ acceptance of terms displayed on a website.
• Email or hardcopy mail acceptance of terms displayed on a website.
• The conduct of a party in response to an offer on a website (ie if you act as if you have accepted that offer).
• Oral communications (ie without being committed to writing in any form).

E-greements

Contrary to what some people think, a contract does not necessarily have to be in writing or recorded in a signed formal document in order to be binding and enforceable. New Zealand courts have confirmed that a binding contract can be made through the exchange of emails. The courts will apply the same tests of contract formation to email correspondence as they would for other forms of communication.

For a contract to be binding under New Zealand law, the following key elements are required:

• One party to the contract must make an offer.
• That offer must be accepted by the other party.
• Acceptance must be supported by consideration.
• The terms of the contract must be certain.
• There needs to be an intention by both parties to create a legal relationship.

If all of these elements can be ascertained from emails or texts, a binding contract is formed.

Exceptions

Certain contracts are required to be in writing and signed, such as contracts for the sale of land. Although the Electronic Transactions Act 2002 allows for contracts to be written and signed in electronic form, the typical email is unlikely to meet the specific requirements under that Act relating to signatures. These requirements include that an electronic signature must adequately identify who the signatory is and indicate his/her approval of the information to which the signature relates.

On the other hand, the recently introduced consumer protection measures requirements – which stipulate that building contractors must provide a written contract for residential building work costing $30,000 or more (including GST) – could be met by email, provided that the email covers the extensive content requirements under the Building Act regulations. This is because, for residential building contracts, the only ‘form’ requirement under that Act is that they be in writing. Under the Electronic Transactions Act 2002, the requirement for information to be in writing can be met by electronic means if it is readily accessible, so it can be used for subsequent reference (which emails typically are if you don’t delete them).

Lessons to be learned

Email is a desirable means of communication because it is convenient and easily accessible. However, businesses and their personnel should always be aware of the potential implications and consequences of their email correspondence. A quick email or text fired off in response to a client’s question could be binding.

The best approach to prevent issues like this occurring is to implement an email policy for your business that lays out what types of correspondence should not be dealt with in emails. If there is any doubt about what is being discussed or agreed, it may be best to employ the old-fashioned method and pick up the phone or discuss issues face-to-face and then follow up with an email or a letter (or a written contract), which sets out exactly what has been agreed.