II. Canada: Contract Formation through Text Messages
A. Background
In a recently issued decision, the King’s Bench Court of Saskatchewan not only confirmed the formation of a contract for the sale of goods through an exchange of text messages, it also found that a “thumbs-up” emoji (👍) constituted a valid signature.
The plaintiff, South West Terminal Ltd. (SWT), brought a summary judgement application against the defendant, Achter Land & Cattle Ltd. (Achter), for breach of contract and damages of C$83,200.21. According to SWT, the parties entered into an agreement for the purchase and delivery of a flax shipment, with delivery to take place sometime during the month of November 2021 (Flax Contract). SWT drafted the Flax Contract, to which its representative applied his signature in wet ink before texting a photograph of the signature page to a representative of Achter, requesting that he “please confirm flax contract.” In response, Mr. Achter texted back a “thumbs-up” emoji. Ultimately, the price of flax rose quite significantly and Achter failed to deliver the shipment within the specified period, presumably opting to sell its flax at a higher price to another buyer. In its defence, Achter argued that the “thumbs-up” emoji meant that its representative “confirmed that [he] received the Flax contract” and that it was not a “confirmation that [he] agreed with the terms of the Flax Contract.”
While the court dealt with other issues, this article focuses on the contract formation issue argued by the parties, namely whether a valid contract was formed between SWT and Achter to deliver the flax. In its analysis, the court sought to determine whether there was consensus ad idem, commonly referred to as a “meeting of the minds,” and whether there was sufficient certainty around contractual terms for a binding agreement to exist. In reaching an affirmative answer on both points, the court relied heavily on the past dealings between the two parties since the beginning of their business relationship in 2015.
B. Analysis
First, the court considered the principles of contract formation at common law, and in particular, the concept that “a contract is only formed where there is an offer by one party that is accepted by the other party with the intention of creating a legal relationship, supported by consideration.” In determining whether the parties were ad idem on the Flax Contract, the court applied an objective test that asks “how each party’s conduct would appear to a reasonable person in the position of the other party,” rather than a subjective test that asks what each party had in mind at the time. Quoting a leading decision of the Supreme Court of Canada, the court stated that in arriving at a conclusion on the existence of an enforceable contract, courts are not restricted to the principles of contract formation; they may also consider the surrounding circumstances of the case or what is referred to in Canadian jurisprudence as the “factual matrix.”
As the plaintiff was seeking summary judgement, the court had to limit its factual enquiry to the various documents on the record, namely affidavits and cross-examinations of the plaintiff, defendants and its agents, which evidenced the parties’ pattern of entering into what they both knew and accepted to be valid and binding delivery contracts. Specifically, four contracts had been previously executed by Achter via text messages, and in three of these, Achter signalled its acceptance of the terms by simply stating “looks good,” “ok,” and “yup.” The court reasoned that the use of a thumbs-up emoji was akin to how contracts had previously been entered into (and fulfilled) by Achter, therefore a contract had been effectively formed. In its view, a reasonable bystander with knowledge of the parties’ previous conduct would come to the objective understanding that the parties had reached a consensus ad idem.
The court then turned to the provincial statute governing electronic documents and found that a “thumbs up” emoji is an “action in electronic form” that can be used to express acceptance as contemplated by section 18(1) of the Electronic Information and Documents Act (EIDA), which states:
18 (1) Unless the parties agree otherwise, an offer or the acceptance of an offer, or any other matter that is material to the formation or operation of a contract, may be expressed:
(a) by means of information or a document in an electronic form; or
(b) by an action in an electronic form, including touching or clicking on an appropriately designated icon or place on a computer screen or otherwise communicating electronically in a manner that is intended to express the offer, acceptance or other matter.
(2) A contract shall not be denied legal effect or enforceability solely by reason that information or a document in an electronic form was used in its formation.
In Quilichini v. Wilson’s Greenhouse & Garden Centre Ltd., Justice Scherman (also of the King’s Bench Court of Saskatchewan) referred to the above provision and opined that it is irrelevant that a contract could have been executed by hard copy but was not, and that using only one of many options available to execute a contract does not lead to the conclusion that no agreement exists. While Achter argued against this interpretation by asserting that an actual signature in its classic presentation is essential to confirm the signatory’s identity, and thus acceptance of the terms being offered, the court had no trouble finding that EIDA clearly provides otherwise and does not prevent the use of a modern day emoji to express acceptance. Moreover, the court dismissed Achter’s argument that allowing a “thumbs-up” emoji would inundate the court system with cases involving all kinds of emojis; in its view, courts should be prepared to meet the new realities of Canadian society that arise from technology and common usage.
Additionally, Achter’s defence included the proposition that the Flax Contract was void for uncertainty for two reasons, namely that the photograph provided by SWT did not include the general terms and conditions of the contract, and secondly, the photograph of the Flax Contract stated the delivery period as “Nov.,” which Achter argued was impermissibly vague. The court rejected both arguments. As previously stated, Canadian courts consider the factual matrix of a contract at the time of its formation, including the facts that were known or reasonably capable of being known by the parties when they enter into an agreement. Through its assessment of the factual matrix, the court ascertained that Achter would have already known the contract’s terms and conditions from past agreements because they were “boiler plate” and had never changed. Without expressly saying so, the court seem prepared to accept that the general terms and conditions were therefore implicitly agreed to. Moreover, the court held that the agreement conveyed sufficient clarity on the essential terms, as none of these were missing or unascertainable, with the parties, property, and price all being “crystal clear.” Consequently, the contract could not be invalidated for uncertainty. Finally, based on previous dealings and in the context of the discussions surrounding the Flax Contract, the only logical interpretation of the abbreviation “Nov.” was that it referred to the month of November 2021.
C. Commentary
A decision rendered by the Superior Court of Ontario this year has similarly addressed the extent to which individuals can circumvent legal traditions of formality through technology yet also how courts continue to enforce the long-standing principle of certainty of terms. In Lithium Royalty Corporation v. Orion Resource Partners, two parties had entered negotiations to sell a royalty interest in a Nevada lithium mine. The plaintiff sent a contractual offer to the defendant by email, to which the defendant responded with “OK, sounds good.” The court in that case found that the defendant’s omission to sign the term sheet that had been circulated was inconsequential because the essential terms were set out in the email correspondence, inclusive of the email in which the defendant had confirmed its acceptance.
The two Canadian judgements briefly examined in this article demonstrate that parties engaged in contractual dealings, and notably foreign parties with Canadian representatives that engage in contractual negotiations with Canadian entities via informal messaging applications (such as WhatsApp or WeChat), should ensure that their representatives are aware of how their messages may be interpreted should a contractual dispute arise in Canadian courts. Fortunately, while the court in the South West Terminal case found that a “thumbs-up” emoji constituted a valid acceptance of a contractual offer, the court’s approach highlights the relevance of the parties’ pattern of contracting over the course of several years. In doing so, the Saskatchewan court has left the door open for a different outcome in future cases where acceptance is not communicated in a formal manner. Nevertheless, Canadian courts remain reluctant to interfere with commercial relations between contractual parties, and for this reason they are likely to continue to analyze the factual matrix of a contract’s formation on a case-by-case basis.
III. Sweden: Foreign Direct Investment Act
On December 1, 2023, a new law on foreign investments entitled the “Foreign Direct Investment Act” (FDI Act) became effective in Sweden. Foreign investments are an important part of the Swedish business sector’s development. At the same time, strategic acquisitions are one of the methods used by foreign powers to obtain advantages over other states.
The FDI Act introduces a screening regime for direct investments in Swedish companies that conduct sensitive operations, such as vital public services or activities that are of importance to national security interests.= The FDI Act applies to investments in undertakings domiciled in Sweden, including indirect transfers of shares and transfers of shares in listed companies. Certain thresholds relating to ownership or influence determine whether the obligation to report is triggered. The FDI Act thus applies to investments resulting in the investor acquiring (directly or indirectly) voting rights equal to or exceeding ten, twenty, thirty, fifty, sixty-five or ninety percent in a target company performing activities eligible for protection, influence over the management of such target company through other means, or assets or business eligible for protection. No turnover or deal value thresholds apply.
Specific thresholds apply to investments in other legal entities (e.g., limited partnerships or trusts). In addition, certain types of issuances of new shares are exempted.
Investments by investors from all countries are covered by the screening regime (including investors from Sweden and other EU Member States). However, only investments made by an investor from a country outside the EU may be subject to a substantive examination by the screening authority and a decision to prohibit the investment or to impose conditions. It is the investor who is responsible for notifying the screening authority. There is no filing fee. A target company that is subject to an investment that falls within the screening regime must, subject to certain exemptions for listed companies, inform the investor that the investment falls within the scope of the FDI Act.
The designated screening authority is a governmental agency, the Inspectorate for Strategic Products, (Sw. Inspektionen för strategiska produkter). In addition to reviewing reported investments, the agency may initiate its own examination of an investment that is not covered by a notification obligation if there is reason to believe that the investment may harm national security, public order, or public safety. Once a complete notification of an investment has been made to the screening authority, it shall within twenty-five days decide either to take no further action or to initiate an examination. In the event that an examination is initiated the screening authority shall make a final decision within three months. This deadline may be extended to six months under special circumstances.
In making a substantive assessment, the screening authority will make a case-by-case assessment of the risks associated with the investment, taking into account the nature and extent of the activities of the target company and various circumstances related to the investor. The screening authority also considers whether the investor is controlled by the government of a country outside the EU. Another relevant factor is if the investor has previously been involved in activities that have or could have adversely affected Sweden’s security or public order or security in another EU Member State. Whether there are other circumstances pertaining to the investor that could pose a risk to Sweden’s national security or public order or security in Sweden will also be relevant.
An investment that falls within the scope of the FDI Act may only be implemented if it has been approved or a decision has been made by the screening authority not to take further action. Hence, a transaction that falls within the scope of the FDI Act cannot be closed prior to such decision being made.
The screening authority may prohibit a foreign investment if necessary to protect Sweden’s national security, public order, or public safety. Such prohibition will render the investment null and void. Where the investment is made in a listed company or in real estate, a prohibition will be combined with an injunction to divest the relevant undertaking or real estate. The screening authority may also approve an investment subject to conditions. Such conditions could relate to, inter alia, the activities of the target company, the management and control of the target company and circumstances relating to the investor and can be combined with a penalty.
The screening authority may impose administrative fines for infringements of the FDI Act amounting up to SEK 100 million. Fines can be imposed for a variety of breaches of the provisions of the FDI Act, such as failure to report an investment, providing false or misleading information, closing a transaction prior to, or contrary to, a final decision, or violating the conditions decided by the screening authority. Decisions by the screening authority to prohibit an investment or to impose conditions may be appealed to the Swedish Government. Injunctions and administrative fines may be appealed to the Stockholm Administrative Court.
The FDI Act also applies to the screening system under the Protective Security Act (the latter has a narrow scope of application). The same transaction may thus trigger filing obligations under both the FDI Act and the Protective Security Act.
IV. Italy: 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgements
The 2019 Hague Convention on the recognition and enforcement of foreign judgments in civil and commercial matters (the Convention) dated July 2, 2019, has finally become effective. Although it has been signed by various countries, including Israel, Montenegro, Russia, the United States and Uruguay, it only applies to the European Union and Ukraine for the time being. It became effective on September 1, 2023. Pursuant to Article 28, the Convention “shall enter into force on the first day of the month following the expiration of the period during which a notification may be made in accordance with Article 29(2) with respect to the second State that has deposited its instrument of ratification, acceptance, approval or accession referred to in Article 24.”
The European Union has exclusive external competence in this area and expressed its consent to be bound by the Convention in August 2022 pursuant to art. 216, par. 2 of the Treaty on the Functioning of the European Union. With the entry into force for the European Union, the Convention binds the individual Member States and with Italy due its ratification of the Treaty on the Functioning of the European Union with Law no. 130 dated August 2008.
The Convention generally applies to the recognition and enforcement of judgments in civil or commercial matters, including consumer and individual employment contracts. However, certain matters are expressly excluded from its application, including those on the status and legal capacity of natural persons, family law matters, insolvency, privacy, intellectual property, arbitration and related proceedings, and provisional remedies. Finally, pursuant to Article 18(1) of the Convention, contracting states may also decide and declare in their ratification documents that the Convention does not apply to other specific matters.
The conditions upon which a judgment may be recognized pursuant to the Convention are set forth in Article 5.1. and namely:
(a) the person against whom recognition or enforcement is sought was habitually resident in the State of origin at the time that person became a party to the proceedings in the court of origin;
(b) the natural person against whom recognition or enforcement is sought had their principal place of business in the State of origin at the time that person became a party to the proceedings in the court of origin and the claim on which the judgment is based arose out of the activities of that business;
(c) the person against whom recognition or enforcement is sought is the person that brought the claim, other than a counterclaim, on which the judgment is based;
(d) the defendant maintained a branch, agency, or other establishment without separate legal personality in the State of origin at the time that person became a party to the proceedings in the court of origin, and the claim on which the judgment is based arose out of the activities of that branch, agency, or establishment;
(e) the defendant expressly consented to the jurisdiction of the court of origin in the course of the proceedings in which the judgment was given;
(f) the defendant argued on the merits before the court of origin without contesting jurisdiction within the timeframe provided in the law of the State of origin, unless it is evident that an objection to jurisdiction or to the exercise of jurisdiction would not have succeeded under that law;
(g) the judgment ruled on a contractual obligation and it was given by a court of the State in which performance of that obligation took place, or should have taken place, in accordance with (i) the agreement of the parties, or (ii) the law applicable to the contract, in the absence of an agreed place of performance, unless the activities of the defendant in relation to the transaction clearly did not constitute a purposeful and substantial connection to that State;
(h) the judgment ruled on a lease of immovable property (tenancy) and it was given by a court of the State in which the property is situated;
(i) the judgment ruled against the defendant on a contractual obligation secured by a right in rem in immovable property located in the State of origin, if the contractual claim was brought together with a claim against the same defendant relating to that right in rem;
(j) the judgment ruled on a non-contractual obligation arising from death, physical injury, damage to or loss of tangible property, and the act or omission directly causing such harm occurred in the State of origin, irrespective of where that harm occurred;
(k) the judgment concerns the validity, construction, effects, administration or variation of a trust created voluntarily and evidenced in writing, and – (i) at the time the proceedings were instituted, the State of origin was designated in the trust instrument as a State in the courts of which disputes about such matters are to be determined;
or (ii) at the time the proceedings were instituted, the State of origin was expressly or impliedly designated in the trust instrument as the State in which the principal place of administration of the trust is situated. This sub-paragraph only applies to judgments regarding internal aspects of a trust between persons who are or were within the trust relationship;
(l) the judgment ruled on a counterclaim – (i) to the extent that it was in favour of the counterclaimant, provided that the counterclaim arose out of the same transaction or occurrence as the claim; or (ii) to the extent that it was against the counterclaimant, unless the law of the State of origin required the counterclaim to be filed in order to avoid preclusion;
(m) the judgment was given by a court designated in an agreement concluded or documented in writing or by any other means of communication which renders information accessible so as to be usable for subsequent reference, other than an exclusive choice of court agreement.
It is clear the conditions for the recognition and enforcement of the judgments are quite numerous and detailed. However, it should be noted that notwithstanding the provisions of Article 5.1 mentioned above, a judgment ruling “on rights in rem in immovable property (real property) shall be recognised and enforced if and only if the property is situated in the State of origin.” In short, it applies the worldwide rule that cases on real property can only be decided by the courts located where the property is situated.
The grounds upon which the recognition and enforcement of the judgment are limited are commonplace since they basically align with the grounds upon which most states now refuse recognition and enforcement (e.g., public policy, fraud, lack, or improper of service of documents) and specifically:
(a) the document which instituted the proceedings or an equivalent document, including a statement of the essential elements of the claim—(i) was not notified to the defendant in sufficient time and in such a way as to enable them to arrange for their defence, unless the defendant entered an appearance and presented their case without contesting notification in the court of origin, provided that the law of the State of origin permitted notification to be contested; or (ii) was notified to the defendant in the requested State in a manner that is incompatible with fundamental principles of the requested State concerning service of documents;
(b) the judgment was obtained by fraud;
(c) recognition or enforcement would be manifestly incompatible with the public policy of the requested State, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State and situations involving infringements of security or sovereignty of that State;
(d) the proceedings in the court of origin were contrary to an agreement, or a designation in a trust instrument, under which the dispute in question was to be determined in a court of a State other than the State of origin;
(e) the judgment is inconsistent with a judgment given by a court of the requested State in a dispute between the same parties; or
(f) the judgment is inconsistent with an earlier judgment given by a court of another State between the same parties on the same subject matter, provided that the earlier judgment fulfils the conditions necessary for its recognition in the requested State.
It should be further noted that the above grounds for refusal are not mandatory, allowing courts to exercise discretion in their judgments.
In short, a judgment may be recognized and enforced under the Convention if any of the criteria set forth in Article 5.1. are met, with the sole exception, in certain cases, of real property. Judgments in this matter, are recognized if, and only if, the real property is situated in the state from which the judgment was issued.
Another important feature of the Convention is that it provides minimum requirements for recognition and enforcement and does not prevent or limit the recognition and enforcement of judgments under national law, bilateral, regional or other international treaties, with the exception of real property as regulated by Article 6 of the Convention. As it has been noted, the Convention provides a “floor” rather than a “ceiling” in the recognition and enforcement of foreign judgments.
With regard to relations with the Brussels Ibis Regulation, it should be pointed out that the current rules are preserved and fully effective and enforceable, while any subsequent ones, in their field of application, are intended to prevail over the Convention with the sole exception of the provisions of Article 6. Summarily, Brussels Ibis in its current formulation will be applicable and operational to the decisions regulated by it, while any subsequent rule adopted must still guarantee compliance with the provisions of Art. 6 of the Convention concerning actions on real property.
Although the 2019 Hague Convention on the recognition and enforcement of foreign judgments only applies to the EU and Ukraine, it is definitively a useful tool to have judgments circulating abroad. Hopefully more countries will ratify it in the future and be fully part of the same.
V. Israel: The Judicial Reform
The proposed judicial reform in Israel, promoted by the governing coalition, ignited a fierce debate in Israeli society for much of 2023. The reform proposals laid bare strongly divergent views of the role of the executive and judicial branches of the Israeli legal system. While advocates of the reform contend that it will enhance democracy in Israel, opponents express deep concerns that the reform will grant excessive power to the executive branch, compromise principles of checks and balances, and threaten minority rights.
The proposed reform encompasses several key changes, including:
A. The Override Clause
In Israel’s current legal framework, if the Supreme Court invalidates a law enacted by the Knesset (the Israeli parliament), on the grounds that it violates a right established in a Basic Law, the annulment is considered final. However, the proposed reform would grant the Knesset the ability to re-legislate laws that were previously invalidated by the Supreme Court. The reform would make it harder for the Court to invalidate laws in the future, by requiring eighty percent of a full panel of fifteen Supreme Court justices to invalidate a law. Moreover, the reform would prohibit the Supreme Court from reviewing Basic Laws.
B. Restructuring of the Judicial Appointments Committee
The proposed reform would increase the representation of political appointees on the Judicial Appointment Committee, thereby affording the governing coalition’s representatives sufficient voting power on the Committee to appoint judges.
C. Government legal advisors
Under the proposed reform, ministers would be empowered to select and replace government legal advisors, even though such advisors are supposed to be independent parties.
D. Narrowing the reasonableness principle
Perhaps the most significant and controversial part of the reform is a proposed amendment to the Basic Law: Judiciary restricting the Supreme Court’s ability to invalidate executive branch decisions solely on the grounds of “unreasonableness.” In general, the Court’s presumption is that government officials act correctly, lawfully, and with reasonable discretion. Therefore, the Court usually refrains from interfering with decisions of government officials, unless the decision was unreasonable. In the vast majority of cases, the Court adopts the government’s position, or at most returns the decision to the governmental authority for reconsideration. In order to examine such decisions, the Court evaluates whether the interests and considerations that should have been taken into account were adequately considered and given appropriate weight during the decision-making process. The Court has applied this principle to overturn government decisions relatively rarely. For example, in the past the Court ruled that the decision of the Minister of Defense not to build sheltered school classrooms in the city of Sderot in the south of Israel, despite the threat of an attack from the nearby Gaza Strip, was unreasonable.
While the other aspects of the proposed reform law have yet to be considered by the Knesset, on July 23, 2023, the Knesset passed an amendment of the Basic Law regarding the reasonableness principle. The amendment states:
Notwithstanding the provisions of this Basic Law, whoever has jurisdiction by law, including the Supreme Court serving as the High Court of Justice, shall not discuss the reasonableness of the decision of the government, the prime minister or any other minister, and shall not issue an order regarding such matter; In this section, a “decision” – any decision, including regarding matters of appointments or a decision to refrain from exercising any authority.
Several petitions were submitted to the Supreme Court against this amendment after its enactment, contending that the amendment would cause serious damage to fundamental democratic values such as rule of law, incorruptibility, and public trust.
On September 12, 2023, the Supreme Court held a 13-hour discussion on the matter, before all 15 justices. In the hearing, many justices expressed concern about the amendment’s impact on the Supreme Court’s ability to review government decisions. They suggested that under the amendment the government’s obligation to act reasonably cannot be enforced if the Court lacks oversight authority based on the reasonableness principle. Several justices expressed their belief that they lack the authority to strike down the amendment, while others indicated that while they have the authority to do so, they do not consider the amendment sufficiently extreme to warrant nullification. Some justices also explored the possibility of interpreting the amendment in a way that limits its scope, rather than nullifying it entirely.
The Court’s ruling on this matter, which will have significant implications for Israel’s governing principles, is greatly anticipated. The Court’s ruling is expected to be delivered in early 2024 and may well determine the future direction of judicial reform in Israel.
Authros: Martin Aquilina (Section I); Anders Forkman (Sections I & III) and editor; Luigi Pavanello (Section IV); and Ron Lehmann (Section).
