Protecting Your Rights in a Click: Navigating the Legal Maze of Digital Contracts in a Tech-Driven Era
Introduction
Contracts in India have evolved significantly over time. In ancient and mediaeval times, contracts were governed by the Vedas and Dharmashatras. In the Mughal era, it was the Islamic law that gave contracts a structure. The British Colonial Era saw the introduction of the English common law into the system, which culminated in the Indian Contract Act 1872 [“Contract Act”]. It codified and standardised contract law across India. In the post-independence era, the Contract Act remains the cornerstone of contract law, with timely amendments to meet evolving needs.
The Contract Act defines a contract under Section 2(h) as “an agreement enforceable by law.” With the advancement of technology, contracts have also evolved to be included in the virtual realm. As we delve deeper, it is essential to understand the framework that governs them and the various forms digital contracts can take. Of course, this also comes with its set of challenges and liabilities, which will be looked into further.
Technology and Contract Formation
Digital Contracts in India
Digital contracts, or e-contracts, represent a leap forward in how we handle agreements. They are legally binding agreements created and signed electronically. For digital contracts in India, the Information Technology Act, 2000 (“IT Act”) set the stage for these digital agreements. It ensured their validity as long as they met the Act’s requirements. E-contracts bring a host of advantages: they streamline processes with unparalleled speed and convenience, cut down on paper waste, and allow for seamless tracking and management, with all documents stored and accessed digitally.
Yet, they also pose challenges, such as ensuring authenticity and preventing unauthorised alterations. Technologies like blockchain can address these issues by providing immutable records of transactions.
The essentials of a digital contract are the same as a standard contract, i.e., (a) offer; (b) acceptance; (c) consideration; and (d) capacity to contract. Nevertheless, there are several digital-specific elements that play a key role in making digital contracts different from a standard contract. They are:
- E-Signatures have become the cornerstone of any digital contract. This provides a binding way to sign agreements electronically. For digital contracts in India, Section 5 of the IT Act regulates, governs, and recognises the use of e-signatures. They can vary from simple typed names to advanced digital signatures that use cryptographic methods for authentication.
To be legally binding, e-signatures must be authenticated through email verification, SMS codes, or biometric data. This ensures that the e-signature is sent to the intended signatory. It also plays a vital role in maintaining document integrity, ensuring that the document cannot be altered once a digital signature is placed.
- Security Measures can be done by way of locking the document or limiting the audience as to who can view, edit, or sign it.
Types of Digital Contracts
- Clickwrap Contracts: Clickwrap contracts are agreements that require users to click an “I Accept” button to show they agree to the terms and conditions. These contracts are common in software installations, online registrations, e-commerce transactions, and subscription services. Legally, the United States District Court for the Eastern District of Pennsylvania has upheld the enforceability of clickwrap contracts, ruling that advertisements could not be purchased without agreeing to the terms. In India, courts have often viewed such agreements as potentially unfair, given the unequal bargaining power between parties. However, they are increasingly recognising the validity of unregistered and unsigned contracts.
- Browsewrap Contracts: Browsewrap contracts assume consent through the use of a website without requiring an express action from the user to indicate agreement to the terms. These contracts are often tucked away at the bottom of web pages as hyperlinks to terms and conditions or privacy policies, with the assumption that continued use of the site implies consent.However, enforcing these contracts can be tricky. It requires proving that the user had actual or constructive knowledge of the terms and continued to use the site. This clearly implied agreement.
- Shrinkwrap Contract: Shrinkwrap agreements are license agreements for software or products whereby the terms are enclosed within the packaging of the product. When such packaging is broken and opened for use, the user is considered to have accepted the terms of the shrinkwrap contract. These contracts are typically used for physical software products and are less common in the digital realm.
- E-mail Contracts: These are agreements and contracts that are formed by way of e-mail communication. Such agreements and contracts are frequently found in business transactions, negotiations, and informal agreements.
- End User License Agreements (EULA): EULA’s are legal agreements between the software provider and the end user. It outlines how the software can be used and details the rights of both parties.
As we delve deeper into the different types of digital contracts, it’s crucial to understand the implications these agreements have on online commerce platforms. These platforms often raise significant concerns about liability and fairness. This is especially true when users engage with contracts, knowingly or unknowingly.
This brings us to the next important discussion:
Navigating Liabilities in E-Contracts
As online commerce platforms gain momentum and become integral to our fast-paced lives, e-contracts have emerged as the primary link between businesses and customers. These platforms not only offer convenience but also streamline processes efficiently. However, e-contracts often come with challenges, particularly regarding fairness and enforceability. Typically designed to favour platform operators, these contracts are often disguised as clickwrap or browsewrap agreements, leaving users with little to no room for modification or negotiation.
Implications of one-sided contracts
One-sided contracts are fundamentally imbalanced due to their “take it-or-leave it” nature. These one-sided clauses often incorporate terms that heavily protect platform operators and impose heavy obligations on the users. Some terms may include:
- Limited Liability Clause: Limited liability clauses are intended to cap the amount of damages or restrict the extent to which compensation can be claimed by the users in the event of a breach or issue. Such a clause often limits the liability to a nominal amount, such as the refund of the purchase price, or excludes the liability for indirect, consequential, or punitive damages. For instance, there may be a clause that states that the platform is liable to pay the amount the user paid for the service, irrespective of the actual harm suffered. Why is this problematic? It’s problematic because, in the event of a substantial financial loss, data breach, or other significant damages, the user may be left without any meaningful recourse. This leaves the user vulnerable, with little to no compensation for the actual harm suffered.
- Arbitration Clauses: It is not uncommon to find arbitration to be the method of dispute resolution adopted. What becomes an issue is that the arbitration clause can specify a seat and venue far beyond the jurisdiction of the user, which would make it all the more difficult and stressful for the user for effective dispute resolution. For example, if the agreement requires the user to arbitrate disputes in a foreign country, it could lead to significant travel and legal costs.
- Jurisdiction Clauses: Jurisdiction in the same sphere and realm of dispute resolution, jurisdiction clauses often favour the platform’s home jurisdiction. If the platform operator is an Indian entity, this issue may not arise. But if the operator is a foreign entity, it can cause significant hindrance and difficulty for the user.
- Unilateral Amendment Clauses: Clauses providing for amendment often lean favouring the platform operator and not the user due to the way it is drafted. This proves to be highly disadvantageous for users, as they may not even be aware of the changes that have taken place. If there is a supposed change or amendment, they would not have the power to bargain or negotiate it. The lack of negotiation or explicit consent undermines the fairness and mutuality that are essential to contractual relationships.
- Termination Clause: Termination clauses are often unilateral and do not give the user any opportunity to have a say or to oppose the termination. There could be instances where the platform operator may terminate an account for unspecified reasons, leaving the user without access to essential services or data. This arbitrary power imbalance undermines the stability and predictability that users rely on in their contractual relationships.
6. Waiver of Legal Rights: This clause requires users to waive certain legal rights, such as the right to participate in class action lawsuits. By agreeing to such terms, users may limit their ability to seek collective redress or benefit from the protections afforded a trial.
How can this be remedied?
- Considering the nature of e-contracts and the dangers they pose, effective contract drafting is crucial. It is important to ensure that agreements and contracts are user-friendly.
- How can users be more careful? They can start by ensuring that they read the contracts in a manner that does not prejudice them or their rights. Remember, neutrality is important. The bargaining power should be balanced between both parties in a contractual relationship.
- Consumer advocacy groups and non-governmental organisations (NGOs) play a vital role in raising awareness about unfair contract terms and advocating for consumer rights. These organisations can provide resources, legal assistance, and platforms for collective action!
- Judicial intervention in such matters is highly critical and crucial. Courts can provide a sort of “safety check” against unfair contract terms by refusing to enforce clauses that are deemed unconscionable or excessively one-sided.
FAQs
Closing Thoughts
In an era where e-contracts underpin countless interactions and transactions and are so much vaster as compared to a standard contract, it is just as vital and important to ensure fairness and balance in these agreements is paramount. The prevalence of one-sided clauses highlights the urgent need for comprehensive remedies that protect users while fostering trust and transparency. Legislative reforms, judicial scrutiny, and alternative dispute resolution mechanisms must be stronger and more effective in order to achieve a balance in the imbalance of power between the platform operator and the user.
Technological advancements and a commitment to ethical contract drafting by platforms can further enhance the fairness of digital agreements. By addressing these issues collectively, we can create a more just digital environment where contractual relationships are equitable, transparent, and respectful, ultimately benefiting both the platform operator and the user.
Amanda Chakravarti
Senior Principal Associate, Dispute Resolution
Amanda is a seasoned lawyer at AKS, specializing in dispute resolution and arbitration. She holds an undergraduate degree from Christ University, a diploma in Criminal Law and Forensic Science from NALSAR, and a Master’s in Law from Jindal Global Law School. Beyond the legal world, Amanda’s creativity flourishes through digital art on Procreate, painting, mimicry and exploring culinary delights. Whether she’s crafting legal arguments or breathing life into a canvas, Amanda is always pushing boundaries and seeking inspiration in the unexpected.
In an era where contracts are just a click away, understanding your rights and the potential pitfalls of digital agreements is crucial. Whether you’re a business navigating online commerce platforms or an individual entering into e-contracts, ensuring fairness and balance is paramount. If you have questions or need expert guidance on protecting your interests in digital contracts, we’re here to help! Reach out to us to navigate the complexities of digital agreements with confidence.
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