Imagine this common scenario: a mail order catalogue invites orders by e-mail, and gives an e-mail address to send them to. An order for shirts is placed by e-mail to the given address. Time passes but the shirts are not delivered. The customer phones the mail order company to complain that the shirts which he ordered by e-mail haven’t arrived. The vendor has no record of receiving the order, apologises, and takes the order again over the phone. The shirts are delivered the following day.
Ignoring arguments about whether the catalogue was merely an invitation to treat, the question arises whether the e-mailed order created a binding contract between the customer and the supplier. On any common-sense view, there was no contract between them: the supplier had no idea that the customer had asked for anything, so how could he be expected to supply it? However, the application of the so-called “postal rule” would have given rise to a binding contract, and a surprising number of leading practitioners and academics have suggested that the rule might apply in this situation. There has not yet been a decided case in England, and the matter is ripe for decision. Whilst, with the development of Web site shopping and ‘click wrap’ agreements, consumer contracts made by e-mail are probably becoming less frequent, commercial contracts or contracts made between individuals might be made by e-mail, perhaps involving parties in different jurisdictions, and consequently give rise to difficult questions of when and where1 the contract has been made.
Development of the postal rule
The postal rule emerged during the 19th century, when communication by post was the chief available means to communicate across distances. Roughly put, it states that, in cases where it is reasonable to communicate by post, a binding contract is achieved when the acceptor commits his acceptance to the post.2 A reading of the cases suggests that the judges were at pains to achieve a fair result in each case, rather than a strictly logical or consistent one: for example, in Adams v Lindsell,3 decided in 1818, the defendant wrote to the plaintiff, who lived in Bromsgrove, Worcestershire, offering to sell the plaintiff a quantity of wool, and asked the plaintiff to reply by post. The defendant misdirected his offer to Bromsgrove in Leicestershire and it eventually arrived with the plaintiff much later than it should have. As the defendant did not receive a reply as soon as he expected, he sold the wool to someone else. In fact, the plaintiff had replied by return, accepting the offer of the wool. He was entitled to judgment for non-delivery, since it was the defendant’s own fault that his offer was delayed and that must be taken against him. The court4 said that: “. The Defendants must be considered in law as making, during every instant of the time that their letter was travelling, the same identical offer to the Plaintiffs; and then the contract is completed by the acceptance of it by the letter. Then as to the delay in notifying the acceptance, that arises entirely from the mistake of the defendants, and it therefore must be taken as against them, that the plaintiff’s answer was received in course of post.” A similar result was achieved in the Scottish case of Dunlop v Higgins,5 decided in 1848. In that case, Dunlop in Glasgow offered to sell pig iron to Higgins in Liverpool. The critical offer was sent on 28th January 1845, and replied to on the 30th, accepting, but the acceptance, which would have been expected to arrive in Glasgow on 31st, had not been received in Glasgow by 1st February 1845. In the circumstances, Dunlop believed that Higgins did not wish to buy his pig iron, and sold it elsewhere. The price had risen dramatically, and Higgins sued for damages. No reason was offered for the delay and it was assumed to be due to the workings of the Post Office. Higgins won; he had done all he could to accept the offer by placing his acceptance in the hands of the Post Office and was not expected to take the risk of a blunder by them.6 Further, with the advent of the Post Office, it is possible to discern special treatment in cases where the medium of communication used can be described as a ‘mutual agent’ For example, in Hebb’s Case,7 decided in 1867, a prospective purchaser of shares had applied for the shares in 1857 by post. His offer to purchase reached the company, which sent him a notice of allotment. Prior to receipt of the notice of allotment, which had been sent by the company to its own agent in Lincoln to be passed onto Hebb, but which the agent failed to do in time, Hebb wrote to the company withdrawing his offer to purchase. Eventually, he succeeded in persuading the company to return his deposit, but the company failed to remove his name from the register of shareholders. Nearly eight years later, the company was wound up, and a contribution was sought from Hebb. Lord Romilly MR8 distinguished Dunlop v Higgins9 on the grounds that in that case the Post Office had been the mutual agent of the parties, and therefore authorised to receive the acceptance on behalf of the offeror, whereas Hebb had not authorised the Lincoln agent to receive his notice of allotment.10
New methods of communication
Each of these cases concerned a transaction affected by delay or loss in the post, where the affected party had no quick or effective means to check whether his communication had been received. With the advent of much faster methods of communication, such as telex, fax and e-mail, it is less likely that commercial contracts will be affected by similar periods of delay, and, obviously, it is now possible for the sender to confirm receipt quickly. In these circumstances, serious thought should be given to whether (as is often suggested) the postal rule should be applied by analogy to new methods of communication. The English courts have been reluctant to apply the postal rule to ‘new’ methods of communication, and have described it as ‘artificial’11 and as a rule of convenience or commercial expedience.12 In Brinkibon v Stahag Stahl GmBH,13 a case concerning telexes, Lord Brandon stated:14 “The cases on acceptance by letter and telegram constitute an exception to the general principle of the law of contract stated above. The reason for the exception is commercial expediency: see, for example, Imperial Land Co. of Marseilles, In re (Harris’s Case) (1872) L.R. 7 Ch.App. 587, 692 per Mellish L.J. That reason of commercial expediency applies to cases where there is bound to be a substantial interval between the time when the acceptance is sent and the time when it is received. In such cases the exception to the general rule is more convenient, and makes on the whole for greater fairness, than the general rule itself would do. In my opinion, however, that reason of commercial expediency does not have any application when the means of communication employed between the offeror and the offeree is instantaneous in nature, as is the case when either the telephone or telex is used. In such cases the general principle relating to the formation of contracts remains applicable, with the result that the contract is made where and when the telex of acceptance is received by the offeror.” Consideration of the rule has taken place piece-meal with the development of technology.15 In Brinkibon, Lord Wilberforce16 foresaw that this would be the case: “Since 1955 the use of telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or upon the assumption, that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variations may occur. No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie.” There does not appear to be an English case concerning the use of fax to communicate acceptance. In the case of Eastern Power Ltd v Azienda Communale Energia, decided in Ontario, the Court of Appeal, in reliance upon the passage from Lord Brandon’s speech in Brinkibon set out above, has held that the postal rule does not apply to communication by fax.17 MacPherson JA was influenced by the fact that, in the case of acceptance by fax, the acceptor could quite easily telephone the offeror to check that his transmission had been received. The Court in Eastern Power did not consider the possibility that the fax might arrive, but be interrupted or illegible. However, it might be inferred from MacPherson JA’s express reference to the fact that the acceptor could check whether his acceptance had been received that he would have held that a garbled fax was not a valid acceptance. The editors of Chitty on Contracts18 suggest that, on the contrary, a garbled fax might well constitute acceptance, since the sender would not necessarily know the condition that his fax arrived in. They go further, and suggest that other forms of communication, including e-mail, should be judged by whether the sender knows (or has any means of knowing) of any failure in communication. This is a strange and subjective solution although it was suggested by Lord Denning MR in Entores v Miles.19 Is there any logical basis for imposing criteria which depend upon whether the sender of the message bothers to find out whether his message has been received? The answer should be no; surely, the contract is either made when the message is sent (if the postal rule applies) or when it is actually received (as is normally the case) and should not depend, as suggested, on whether the offeror indicates to the sender that he cannot fathom the acceptance. If the formation of the contract depends upon the knowledge of the acceptor, how long does the ‘limbo’ period last during which the offeror can put things right? When does the offeror know that he is bound? In an age of mass communication, there must be a strong case for suggesting that the party who bears the risk of non-communication is the sender rather than the receiver. If the sender does not bother to check if his message has got home (as our colleague failed to do when he tried to buy his shirts), why should he obtain a benefit which the offeror does not even know that he is bound to supply?
Alternative Solutions?
Attempts to fit the square peg of e-mail into the round hole of the postal rule have centred on the ‘non-instantaneous’ nature ofe-mail,20 and on the fact that ane-mail is not transmitted in one piece, but as fragmented data.21 It has been suggested that the rule should be reformulated for the new era as follows: “where an offer contemplates acceptance by a non-immediate form of communication, that acceptance is effective from the time it leaves the acceptor’s control.” Whilst this restatement is a neat reformulation of the old rule, it is suggested that it fails to take into account the commercial reality of modern communications and trading; in other words, it ignores the three factors set out by Lords Wilberforce and Brandon in Brinkibon; the intentions of the parties, sound business sense, and astute judgment of where the risk should lie. Whilst the academic debate continues, at least two international bodies have reached different conclusions; the Vienna Convention on Contracts for the International Sale of Goods requires actual communication or delivery of the acceptance to the offeror. Similarly, Article 11(1) of the European Directive on Electronic Commerce22 states (so far as relevant to communications by e-mail): “1. Member States shall ensure, except when otherwise agreed by parties who are not consumers, that in cases where the recipient of the service places his order through technological means, the following principles apply: – the order and the acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them.” Article 11 is not as clear as it might be, particularly to common lawyers familiar with the language of offer and acceptance; however, it suggests, on purposive reading, that the contract should not be formed until the offeror receives the message of acceptance (the ‘order’), ie until he is in a position to read it from his or his organisation’s system (if he then chooses not to do so, it is his hard luck). This interpretation is more closely allied to the normal rules of formation of contract and Article 11 is to be welcomed although it was obviously an uncomfortable compromise23 particularly so far as e-mail contracts are concerned.24 Unfortunately, Article 11 fails to provide complete guidance, and, in particular, does not define when a contract is concluded or expressly place the onus on the sender to ensure receipt (although it must mean that the sender cannot rely upon the contract being formed simply by sending; the implication is that the sender should check, even though he is not required to). However, even in its final form, Article 11 must be incompatible with the operation of the postal rule. It remains to be seen how the UK Government tackles the implementation of this legislation.25 The interpretation of Article 11 set out above is broadly consistent with the position adopted by the United States in the Uniform Computer Information Transactions Act 2000 (UCITA) which states:26 “Unless otherwise unambiguously indicated by the language or the circumstances: (1) An offer to make a contract invites acceptance in any manner and by any medium reasonable under the circumstances. (2) An order or other offer to acquire a copy for prompt or current delivery invites acceptance by either a prompt promise to ship or a prompt or current shipment of a conforming or nonconforming copy. However, a shipment of a nonconforming copy is not an acceptance if the licensor reasonably notifies the licensee that the shipment is offered only as an accommodation to the licensee. (3) If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance or performance within a reasonable time may treat the offer as having lapsed before acceptance. (4) If an offer in an electronic message evokes an electronic message accepting the offer, a contract is formed: (A) when an electronic acceptance is received; or (B) if the response consists of beginning performance, full performance, or giving access to information, when the performance is received or the access is enabled and necessary access materials are received.” ‘Receiving’ an electronic communication27 is defined in UCITA as follows:28 “(53) ‘Receipt’ means: (II) in the case of an electronic notice, coming into existence in an information processing system or at an address in that system in a form capable of being processed by or perceived from a system of that type by a recipient, if the recipient uses, or otherwise has designated or holds out, that place or system for receipt of notices of the kind to be given and the sender does not know that the notice cannot be accessed from that place. (54) ‘Receive’ means to take receipt.” Broadly, therefore, the position in the United States would appear to be intended by UCITA to delay formation of the contract until the e-mailed acceptance is available for access. Unfortunately, however, Article 11 of the E-Commerce Directive does not even purport to deal with the question of where the contract is formed and, save in two specific cases, UCITA merely states that the contract is to be governed by the law with which it has its most significant relationship.29 None of these solutions provides a comprehensive answer to these difficult questions. However, in placing emphasis on ‘receipt’ rather than ‘sending’, they recognise the common sense and commercial realities of the situation.30 Countries which have adopted legislation based on the UNCITRAL Model Law on Electronic Commerce,31 such as Australia,32 Canada33 and New Zealand,34 have tended not to address these questions directly by way of legislation, although have introduced ‘deeming’ provisions for the sending and receipt of electronic messages.
Conclusions
Whilst lawyers have been searching for ways to apply outmoded legal precedent to electronic contracts, legislators have taken a more imaginative and intuitive approach. It is clear that, in the modern world of mass communication, the postal rule should have no effect – possibly even in relation to postal transactions since every sender now has a way to ensure receipt – the telephone. A rule which was devised when the only method of long-distance communication was the post, and, accordingly, when speedy confirmation was not possible, is no longer useful and should not be artificially applied to new situations. The Government has a chance to resolve the matter in the legislation which implements the E-Commerce Directive and it is to be hoped that it does so clearly and effectively. In the meantime, parties to commercial contracts should be careful to ensure, so far as possible, that the terms of their contracts, including choice of law and jurisdiction clauses, together with the details of the mechanism to be adopted for contract formation (such as the adoption of ‘subject to confirmation by. ‘ clauses) are carefully expressed in their electronic communications. n Copyright Kirsten Houghton and Kate Vaughan-Neil 2001, with thanks to David Blunt QC. Kirsten Houghton and Kate Vaughan-Neil are barristers and members of the I.T. Group at 4 Pump Court, Temple, London, EC4Y 7AN www.4pumpcourt.com. They may be contacted at chambers@4pumpcourt.com or on 020 7842 5555. Endnotes 1. This question is important in England since one of the grounds for establishing jurisdiction is that the contract in question was ‘made’ in England: CPR Part 6.20(5)(a). 2. See eg per Lord Herschell in Henthorn v Fraser [1982] 2 Ch. 27 at 33. 3. 1 B & Ald 681. 4. Unnamed. 5. 1 HLC 381. 6. See eg Stocken v Collen 7 Mee & Wels 515 per Baron Parke. Dunlop v Higgins was not followed by the Court of Appeal in British & American Telegraph Co. v Colson (1871) L.R. 6 Esch.108. The reasoning is unconvincing, but illustrates the approach of the courts to reach a fair result in each case. In its turn, Colson’s case was disapproved of by the Court of Appeal in Harris’s Case Law Rep 7 Ch. App. 587 and not followed by the Court of Appeal in Household Fire v Grant (1879) 4 Ex.D. 216. It is also worth noting Thesiger LJ’s words in Household Fire at 223-224.: “An offerer, if he chooses, may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance. If he trusts to the post he trusts to a means of communication which, as a rule, does not fail, and if no answer to his offer is received by him, and the matter is of importance to him, he can make inquiries of the person to whom his offer was addressed.” In a jurisdiction in which the Post Office is estimated to lose nearly 1,000,000 items of mail every week (Times, 27th June 2001) it is open to doubt whether Thesiger LJ’s reasoning still applies! 7. Law Rep 4 Eq 9. 8. At 12. 9. 1 HLC 381. 10. See also Stocken v Collen 7 Mee & Wels 515 per Baron Parke, holding that the Post Office was more than merely ana gent for delivery. 11. Per Russell LJ in Holwell Securities v Hughes [1974] 1 WLR 155 at 157. 12. Eg per Lord Wilberforce in Brinkibon v Stahag Stahl GmBH [1983] 2 AC 34 at 41. 13. [1983] 2 AC 34. 14. At 48. 15. Eg Entores Ltd. v Miles Far East Corporation [1955] 2 QB 327 concerning telex. 16. At 42; and see per Lord Brandon at 50. 17. 178 DLR (4th) 409, decided in September 1999. 18. 18th Ed. vo. 1 para 2-046. 19. At 333. 20. Surely, in all but the most theoretical minds, almost certain to become a thing of the past – and, in many cases, already so to all intents and purposes, such as, for example, between networks with permanently open connections to the Web. 21. An elegant description appeared in Chapter 6 of the 1st Edition of Law & the Internet, Edwards & Waelde, 1997. 22. Directive 2000/31/EC. 23. The Directive appears to have been drafted with ‘click wrap’ contracts in mind, and the mention of contracts concluded by e-mail only appears in the finally adopted versions. The solutions suggested in the drafts could not practically have been applied to contracts concluded by e-mail: the 1st Draft Directive (COM)1998) 586 final) proposed that a consumer contract would not be effective until the acceptor had received a receipt and then also acknowledged it and the 2nd Draft (COM(1999) final) proposed that the contract would be concluded when receipt of the order was acknowledged, but this had to be done ‘immediately’. 24. In particular, in paragraph (3) it contains a saving for ‘contracts concluded exclusively by exchange of electonic mail or by equivalent individual communications’. 25. The Electronic Communications Act 2000 does not tackle this problem. 26. Section 203 – Offer And Acceptance in General. 27. It is unfortunate that the definition of ‘receiving’ refers to ‘notices’ whilst the definition of ‘sending’ refers to ‘messages’! 28. Section 102. 29. Section 109; which also provides that, in the case of an international contract which does not contain an enforceable choice of law clause, the laws of the foreign state may only apply to the contract if it is the law with the most significant relationship to the contract and if that law contains ‘substantially similar protections and rights to a party not located in that jurisdiction’ as are provided under UCITA. 30. Receipt is also recognised as being significant in the CPR’s treatment of electronic service of proceedings. PD6 para.3.4 of the CPR indicates that whilst service of proceedings may be effected by e-mail (and other electronic means) where the party to be served agrees to such method of service, absence of receipt may be relevant in cases where the use of electronic means is not ‘backed up’ by sending a hard copy; this suggests that, in some cases, service might be deemed effective even if the e-mail was not actually received. This is a curious result in the light of the provisions of the ECHR, Art 6. 31. Resolution 51/162, 16/12/96. 32. Electronic Transactions Act 1999, No. 162, 1999. 33. Uniform Electronic Transactions Act 1999; www.law.ualberta.ca/alri/ulc/current/euecafa.htm as implemented by individual states. 34. Electronic Transactions Bill 2000, currently under consideration www.med.govt.nz/irdev/elcom/transactions/bill/index.html.
