Few can be in doubt that COVID 19 has changed the business landscape forever, though whether these changes will be for the better or worse remains to be seen. One key aspect of business life that has almost certainly been fundamentally altered is the manner in which commercial contracts will be negotiated and concluded. No doubt face-to-face meetings will resume in some form when social distancing guidance allows, but it is hard to imagine a return to anything remotely similar to pre-COVID interactions.
Commercial agreements are enforceable where they adhere to the following fundamentals of contract law, all of which apply to communications in any form, including those conducted over through electronic means:
We can expect big technological advances in the field of online negotiation and execution in the near future, be they in the form of more advance video conferencing systems, better cybersecurity implementations or virtual execution software improvements. With that in mind, this article outlines some of the essential practicalities to consider. Planning ahead will be an indispensable step in a business’s ability to commercially contract remotely.
In face-to-face situations privacy would have rarely been an issue. However, with the greater reliance on video conferencing equipment, businesses will need to assess the impact this has on their requirements as data controllers and or processors. Should you wish to record a meeting to reflect on at a later stage or as an alternative to taking contemporaneous notes, consent by the other parties to the call must not be assumed but rather actively sought.
Under the General Data Protection Regulations (GDPR), a clear explanation must be provided as to why the call is being recorded, how the call is being recorded, and the legal basis for recording the call. Where recordings take place, data retention rules, rights of access, and rights to be forgotten will all have to be considered and managed. Indeed, the penalties for non-compliance are dear: up to 4% of annual turnover or 20 million EUR, whichever is greater.
Consider too the confidential nature of negotiations and the overwhelming value that places on discussions. Parties that no longer communicate across meeting room desks will lose the natural privacy that comes with isolation in a four walled room. Analysing how best to protect these conversations should be another priority.
Whether or not there is a binding contract between two parties depends on a consideration of what was communicated between the parties by word or conduct. In the event of a disagreement, an objective test is used to determine whether the parties intended to create legal relations and had agreed on terms that are essential for the formation of a legally binding contract.
Case law dictates that even where some terms have not been finalised, a binding agreement can still be formed (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co). In this instance, the Supreme Court held that there was a contract between the parties even though no written contract was ever signed. Making it clear from the outset as to how the parties expect the agreement to be formed and executed will be vital to avoiding these issues. A formal written agreement is key and should not be forgone in the pursuit of expediency.
Businesses should be conscious of how the above example may affect their email exchanges. There have been recorded instances where binding contracts have been entered into following an initial email exchange that detailed little more than an offer and purported acceptance. However, it’s important to remember that the more important the terms not yet agreed are, the more likely the contract is unworkable or void for uncertainty.
Having navigated through the complex virtual negotiation, substantiating the key terms of your commercial agreement in a written format, valid execution will be your next step. Even if businesses can put social-distancing measures in place, virtual execution utilising e-signatures is still likely to become the norm. This is not a new phenomenon and electronic signatures can now come in a variety of formats including:
All are valid under English law. Practically, businesses will need to decide which format is most appropriate to for their needs. Where there is a cross border element, a qualified electronic signature may be required under EU legislation. Alternatively, a jpeg image may be sufficient where comparing against a specimen signature list.
Regardless of the format you choose, the underlying caveat to their validity is that the person signing must intend to authenticate the document. In other words, they must intend to be bound by the document. This raises a number of issues including authority (is the signatory authorised to electronically sign?) and corporate capacity (for example, whether they have any restrictions in their articles prohibiting virtual execution). Additionally, businesses could have certain risk policies in place that implement more stringent conditions where e-signatures are required.
Throughout the negotiations, detailed records will need to be kept of how the parties intend to sign and the signing process itself.