Problems relating to the formation of online contracts: A comparative perspective

• Citation: (2022) 139 SALJ 32
• Author: van Deventer, S.
• DOI: https://doi.org/10.47348/SALJ/v139/i1a2
• Published date: 23 February 2022
• Date: 23 February 2022
• Pages: 32-77

32

https ://doi.org /10.4734 8/SALJ /v139/i1a2

PROBLEMS RELATING TO THE FORMATION

OF ONLINE CONTRACTS: A COMPARATIVE

PERSPECTIVE*

SANMARIE VAN DEVENTER†

Consolidoc Fellow in Pr ivate Law, Stellenbosch Unive rsity

The formati on of online contrac ts has enjoyed con siderable judici al and academi c

attention in Amer ican law. Generally, America n courts are of the view tha t the rise of

online contract s has not nece ssitated any chang es to the fundame ntal princ iples of the

law of contract, a lthough commenta tors argue that th e enforcement of o nline contract s

has stretched th e requirement of mutual assent b eyond recognition. This ar ticle engages

in a comparative evalu ation of these arguments, as w ell as some proposals contained in

the America n Law Institut e’s Draft Restateme nt of the Law, Consum er Contracts.

Ultimately, the aim is to ide ntify whether t he principl es regarding the form ation of

contracts in So uth African l aw ought to be adapted o r supplemented to a ccommodate

online contract s. It is found that both lega l systems subscrib e to fairly lenient

formation require ments. The poss ibility of recognis ing more stringent a ssent-related

requirements, suc h as imposing spec ic disclosure re quirements, is inve stigated. It is

concluded that th ere is little to be gained by insistin g on stricter formation re quirements

for online contrac ts in general, bec ause consumer s rationally choose not to re ad these

contracts. Inste ad, recognising th ese concer ns may provide the im petus for increa sed

reliance on othe r forms of control, most notably regul ating the use of certain pro blematic

standard terms.

Contract – for mation – online cont racts – compa rative law

I IN TRODUC TION

Standard-form contracts have formed a n essentia l part of com mercial

practice for a long time and are used in bill ions of tran sactions ever y

year.1 Yet, they remain controversial, mainly due to the general absence of

consensus and t he fact that they are open to abuse by the draft ing party.2

* Thi s article is base d on research undert aken in ful lment of the requir ements

for the LLD deg ree in the Facu lty of Law, Univer sity of Stel lenbosch. I am

gratef ul for the n ancial a ssista nce received in t his rega rd from the Ste llenbosch

Law Facult y. I further ex tend my gra titude to Pr ofessor J E du Ples sis for his

insight s and gu idance in the c ompletion of thi s artic le, and to Dr F E Mybur gh

for her valued input .

† BCom LLB LLM LLD (Stel lenbosch).

1 Yannis Bakos , Florencia Marott a-Wur gler & David R Trossen ‘Does anyone

read the ne pr int? Consu mer attent ion to standa rd-form cont racts’ (2014) 43

J Leg Stud 1 at 1.

2 Dale Hut chison ‘The natu re and basis of contr act’ in Dale Hutchi son & Chris

Pretorius (ed s) The Law of C ontract in South Af rica 3 ed (2017) 26; P J Aron stam

Consumer Prot ection, Freedom of C ontract and the L aw (1979) 20; Kevin Hopk ins

‘Stand ard form cont racts and t he evolving id ea of private l aw justice: A case of

democrati c capital ist justice ver sus natural just ice’ 2003 TSAR 150 at 153.

(2022) 139 SALJ 32

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PROBLEMS RE LATING TO THE FORM ATION OF ONLINE CONT RACTS 33

https ://doi.org /10.4734 8/SALJ /v139/i1a2

It is often unreasonable to expect consumers to read stand ard-form

contracts, because ‘in formi ng oneself is t ypical ly more costly than the

expected losses from not informing oneself and the prospect of min imal

potential i nuence proport ionally adds to thi s negative calculus’.3

The problems created by these contracts have been exacerbated

in the modern technological era, which is characterised by the rise of

electronic a nd online contract conclusion.4 Because onl ine contract s

are general ly lengthier and more ubiquitous than paper-based contracts,

it renders reading even more costly.5 Thi s aggravates the formation pro-

blem associat ed with standard-te rm contracts, because it not on ly decreases

the likeli hood of true consensus being attained, but also plays a role in the

determi nation of whether the suppl ier could reasonably r ely on the existence

of consent. The formation problem is further aected by the impact that

the electronic nature of these contracts has on consumer perceptions:6

consumers usually have less transactional awareness when contr acting

online than when concluding an oine tr ansact ion.7 Therefore, it can

be questioned whether cl icking or continued browsi ng — actions general ly

required for ind icating assent to onl ine contract s — may be constr ued as

acceptance of contractual terms.8

The enforceabil ity of onl ine agreements has received ex tensive judici al

attention in A merica, and many of the se decisions have attrac ted criticism.9

Analysing these decisions as well as their consequences may provide

valuable gu idance to South A frica n courts when f aced with similar legal

problems. The form ation of online contracts i n the South African contex t

3 Stefan Grund mann ‘A modern st andard co ntract ter ms law fr om reasonable

assent to en hanced fa irness c ontrol’ (2019) 15 ERC L 148 at167. Also see O mri

Ben-Sha har ‘The my th of the “opport unity to r ead” in cont ract law’ (20 09) 5

ERCL 1 a t 6.

4 Studie s from 2013 indic ate a marked i ncrease i n online t ransac tions in t he

United Ki ngdom — 72 per cent of adu lts in the Un ited Kin gdom purchas ed

goods or ser vices on line (Da suni Wijay asriwa rdena ‘Consent i n online c ontracts

— mindle ss or mind ful?’ Q ueen Mar y Universit y of London, School of L aw

Legal St udies Research Paper no. 234/2016 (2016) 3, available a t https://ssrn.com/

abst rac t=2783793, a ccessed on 12 Aug ust 2020). A lso see Mi ndy Chen-Wishar t

‘Regula ting unfai r terms’ in Louise Gu llifer & Stefa n Vogen auer (eds) English and

European Pers pectives on Contract and Com mercial Law: Essays in Honour of H ugh Beale

(2014) 109; Eliza Mik ‘C ontracts g overnin g the use of website s’ (2016) Singapore

J Leg Stud 70 a t 74.

5 S ee Sanm arie van Deven ter ‘Problems r elating t o the format ion of onli ne

contract s: A South Afr ican perspective’ (2021) 138 SALJ 219 at 225 –7.

6 Na ncy S Kim ‘ The wrap cont ract mora ss’ (2014) 44 Southwestern LR 309

at 316; David A Homan ‘From p romise to for m: How contrac ting onl ine

changes con sumers’ (2016) 91 NYU LR 1595 at 1606–7.

7 Mik op cit note 4 at 79.

8 Van Deventer op cit note 5 at 230.

9 See part II(a) below.

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34 (2022) 139 THE SOU TH AFRICAN L AW JOU RNAL

https ://doi.org /10.4734 8/SALJ /v139/i1a2

has been addressed previously,10 and this art icle will set out the approach

in American law, before engag ing in a comparative evaluation of the two

legal systems. Ult imately, the aim is to identif y whether the pri nciples

regardi ng the formation of contrac ts in South Africa n law must be adapted

or supplemented to accommod ate onli ne contracts.

II THE GENER AL APPROACH TO TH E FORMATION OF

ONLINE CONT RACTS IN A MERICA N LAW

(a) An overview of th e judicial approach

(i) T he development of o nline contracts in Ame rica

The development of the Amer ican approach to the en forcement of onli ne

contracts can be traced back to the treatment of shrink-wrap contracts in

this jur isdiction. Shrin k-wraps — that is, printed standard ter ms which

traditionally accompany computer soft ware sold to a consumer — made

their appearance when suppliers i n the softwa re industr y needed a way

to protect their i ntellectu al propert y in their products.11 This wa s done

by enclosing ter ms underneath the outer packaging of the product,

stating t hat the purcha ser does not become the owner of the software,

but merely a licensee,12 and that these term s become binding when the

product is opened.

Because thi s method means t hat consumer s are only presented with

the standa rd terms d rafted by the supplier after the time of contract

conclusion, it was arg ued that the ter ms of the contract did not form pa rt

of the bargained-for exchange.13 For this reason, A merican courts in itially

refused to en force these term s.14 However, in ProCD Inc v Zeidenb erg,15

Judge Easterbrook introduced a new approach.16 It was determi ned that

all that is required for enforcement of the terms of the shrink-wrap to be

procedural ly fair is ‘[n]otice on the outside, ter ms on the inside, and a rig ht

to return the software for a refund if t he terms are unacceptable’.17

10 See Van Deventer op cit note 5.

11 Batya Go odman ‘Hone y, I shrink-wr apped the consu mer: The shr ink-

wrap ag reement as an a dhesion contr act’ (1999) 21 Cardozo L R 319 at 335;

Nancy S Ki m ‘Wrap contrac ting and t he online e nvironme nt: Causes and c ures’

in John A Rothchi ld (ed) Research Handbook on Elect ronic Commerce Law (2 016) 13.

12 Goodman ibid at 332 .

13 A aron E Ghira rdelli ‘Rule s of engagement in t he conict betwe en businesses

and consumer s in onl ine contrac ts’ (2015) 98 Oregon L R 719 at 724; Goodman

ibid at 337.

14 Ghirardel li ibid at 724; Goodman ibid at 337; Ki m op cit note 11 at 14.

15 86 F 3d 1447 (7th Cir 1996) (‘ProCD’).

16 Ghirardel li op cit note 13 at 725; Goodman op c it note 11 at 34 4.

17 ProCD supra note 15 at 1451.

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