Online communication tools such as emails and texts have revolutionised the way we negotiate and enter commercial contracts. But it is important to realise your everyday online ‘conversations’ could potentially lead to legally binding agreements, even without a formal written contract.
CCIWA Commercial Lawyer Stephanie Yii looks at two recent cases concerning acceptance.
The crucial first steps of forming a valid contract involve an offer and acceptance.
What determines acceptance?
Acceptance should be communicated and unambiguous. It must come with an intention to be legally bound by it, which is determined objectively by a court. Although this concept seems simple, there have been many cases where informal online negotiations have resulted in legally binding contracts.
For instance, in the Stellard Pty Ltd v North Queensland Fuel Pty Ltd case, negotiations over the sale of a business took place over email. Despite no formal signed contract, the court considered the email exchange as a valid contract. The key was the clear intention of the parties to be bound by the terms agreed upon in the email.
In another example, a Canadian Court held that a thumbs-up emoji was valid acceptance of a contract in the South West Terminal Ltd v Achter Land and Cattle Ltd case, which involved the purchase and delivery of flax. In March 2021, the buyer’s representative sent a text to the seller’s representative that it was looking to purchase flax. After speaking on the phone, the buyer drafted a contract, signed it and sent a photo to the seller, writing “Please confirm flax contract”. The seller’s representative replied with a thumbs-up emoji. When the seller did not deliver the flax by the agreed date, the buyer sued for breach of contract and damages.
The court confirmed the thumbs- up emoji was a valid acceptance of the contract. The court reached this decision by analysing the parties’ regular conduct in negotiations, which involved texting and confirming contracts with brief responses such as “Ok”, “Yup” and “Looks good”. In this context, the thumbs-up emoji was seen as acceptance, not just an acknowledgement.
The seller was found to have breached the contract and had to pay damages of around $82,200 plus interest and costs.
This case serves as a reminder that businesses should be clear in their online communications, particularly when acknowledging receipt of a contract. It is important to use explicit language to confirm receipt without implying acceptance. Despite being a Canadian case, it is likely to have a similar outcome in an Australian court due to the conduct of the parties.
Best practice
As online communications play an increasingly significant role in modern business, it is essential to exercise caution. Clear and unambiguous language is crucial when negotiating online. Vague and brief messages can lead to misunderstandings and potentially unintended contracts. It is wise to choose your words and actions carefully and avoid leaving room for multiple interpretations.
If you have any questions or need help understanding a contract, our CCIWA Commercial Legal team can assist with reviewing, drafting and negotiating your contracts. Please contact us at [email protected] or call (08) 9365 7560 for further information.
