Volume 11 Issue 2

Contractual Risk and Internet Commerce

BY DR KATE REID*

This article uses a risk management approach to analyse a number of contractual risks that affect businesses that conduct Internet commerce. Collectively, these contractual risks are referred to in this article as the risk that a business through the course of its Internet commerce dealings may become contractually bound to terms unintentionally (“contractual risk”). This contractual risk arises in five contexts in relation to Internet commerce: (i) Where a business’s marketing and promotional activities (whether through the web or by e-mail) constitutes making an “offer” rather than an “invitation to treat”; (ii) Where a business’s purported withdrawal of an “offer” to a customer is precluded because the business’s “offer” has been accepted by a customer; (iii) Where during the course of negotiating the terms of an Internet transaction a “battle of the forms” situation arises such that a customer’s terms override the business’s; (iv) Where the terms of the contract negotiated between a business and a customer are altered by erroneous transmission; and (v) Where the business’s computer software used for conducting Internet commerce is erroneously programmed or malfunctions so it makes or accepts offers in circumstances unauthorised by the business.

Risk management analysis indicates that the risk is a moderate risk, that is, failure to manage this contractual risk could expose a business to considerable loss. A business conducting Internet commerce, however, can take steps to manage this risk using risk management strategies such as those put forward in this article. At a theoretical level this article demonstrates that it is useful and legitimate to use risk management methodology in the context of legal risk. More specifically, in relation to Internet commerce, this article has practical significance as it analyses and provides risk management strategies for dealing with the one of the contractual risks associated with conducting Internet commerce.