Where an Electronic Contract Is Formed May Decide Where You Can Sue

A Kenyan company subscribes to a software platform operated from Dublin. A Nairobi importer agrees by email to buy equipment from a supplier in Dubai. A Mombasa hotel accepts a booking platform's partner terms with a single click. Months later, something goes wrong and the Kenyan party wants to sue. The foreign company has no office, no assets and no employees in Kenya, and its lawyers say that a Kenyan court has no business hearing the dispute.

The answer may turn on a question that most people never think to ask when they click ‘accept’ or reply ‘agreed’: where was the contract made? For a contract concluded online, that question is surprisingly hard to answer, and the answer can decide whether the case is heard in Nairobi at all.

Why the place of formation matters

A Kenyan court cannot simply summon a foreign company to appear before it. Where the defendant is outside Kenya, the claimant must first obtain the court's leave to serve the summons abroad, and leave may be granted only on the grounds set out in Order 5 rule 21 of the Civil Procedure Rules. In contract disputes, the principal ground is that the contract was made in Kenya, was made through an agent trading in Kenya, is governed by Kenyan law, or was breached in Kenya.¹ The application must be supported by evidence that the case is a proper one for service out of Kenya.²

The Court of Appeal has held that the High Court assumes jurisdiction over a foreign defendant in a contractual dispute only by granting leave on one of those grounds,³ and that jurisdiction is assumed only once the summons has been served pursuant to that leave.⁴ Where the contract contains no Kenyan choice of law and was performed abroad, the place where it was made may be the only door into a Kenyan court.

The traditional rules on formation

The common law locates a contract where the acceptance takes effect, but the rule depends on how the acceptance is communicated. Under the postal rule, an acceptance sent by post takes effect when it is posted, so the contract is made where the letter is dropped into the post box.⁵ For instantaneous communication, the English Court of Appeal held in Entores Ltd v Miles Far East Corporation that an acceptance by telex takes effect only when it is received, so the contract is made where the acceptance arrives.⁶

The House of Lords affirmed that approach in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH, holding that a contract concluded by a telex sent from London to Vienna was made in Vienna, so that the English courts could not assume jurisdiction on the basis that the contract was made in England.⁷ Lord Wilberforce cautioned, however, that no universal rule can cover every case, and that the answer may depend on the intentions of the parties, sound business practice and a judgment about where the risks should lie.

Those cases concerned telex machines. Neither the Kenyan courts nor the English courts have authoritatively settled whether an email, an online form or a click on a website follows the postal rule or the receipt rule, although the logic of Entores points strongly towards receipt for any communication that arrives almost instantly.

What Kenyan statute adds

Kenyan law has addressed electronic contracts directly. The Kenya Information and Communications Act provides that, unless the parties agree otherwise, an offer and its acceptance may be expressed by electronic messages, and a contract formed in that way is not to be denied validity or enforceability solely because an electronic message was used.⁸ The validity of an online contract is therefore not in doubt. Its location is the harder question.

On that question, the Act supplies a default rule. Unless the originator and the addressee agree otherwise, an electronic record is deemed to be dispatched at the place where the originator has its place of business, and to be received at the place where the addressee has its place of business, even where the computer system that actually sends or receives it is located somewhere else.⁹ Read together with the receipt rule in Entores, the provision suggests that an online contract is made at the place of business of the party who receives the final acceptance. The location of the servers is irrelevant.

Who sent the last message?

That conclusion produces a result that many litigants do not anticipate: the place of formation depends on which party made the final move.

If a foreign supplier emails its acceptance of a Kenyan company's order to that company's Nairobi office, the acceptance is received in Kenya and the contract is, on this analysis, made in Kenya. If the Kenyan company is the one that accepts, by clicking ‘accept’ on the foreign company's terms or replying to its quotation, the acceptance is received at the foreign company's place of business and the contract is made abroad. The same commercial relationship can therefore fall on either side of the jurisdictional line depending on who sent the last message.

The online terms of many platforms complicate matters further. Some provide that the customer's order is merely an offer and that the contract is formed only when the platform sends an order confirmation. Under that structure, the platform's confirmation is the acceptance, and if it is received by a Kenyan business at its Kenyan place of business, the contract may well have been made in Kenya, whatever the platform intended.

Two further uncertainties remain. First, the statutory default speaks of a place of business and does not, on its face, say where a consumer who has no place of business sends or receives an electronic message. The UNCITRAL Model Law on Electronic Commerce, on which provisions of this kind are commonly modelled, fills that gap by referring to the person's habitual residence,¹⁰ and a Kenyan court may well adopt the same approach. Secondly, the default applies only unless the parties agree otherwise, and well-drafted platform terms often deem the contract to be made in the platform's home jurisdiction. Whether a Kenyan court will give effect to such a deeming clause in a contract of adhesion, particularly against a consumer, has not been decided.

Courts often avoid the question

Because the place of formation is so uncertain, Kenyan courts sometimes decide jurisdiction on a different footing altogether. In Hakken Consulting Ltd v Seven Seas Technologies Ltd, the parties disputed whether the relevant contract had been executed in Kenya or in Nigeria. The High Court found it unnecessary to resolve that dispute, because the Nigerian defendant was a necessary or proper party to a suit properly brought against a defendant duly served in Kenya, which is a separate ground for service out under Order 5 rule 21.¹¹

The lesson for claimants is that the place of formation should rarely be the only ground pleaded. Where the facts allow, an application for leave should also rely on breach within Kenya, on Kenyan governing law, or on the presence of a Kenyan co-defendant, so that the case does not stand or fall on a contested question about where an email was opened.

What this means for businesses

For a Kenyan business that may one day need to sue a foreign counterparty at home, the time to think about jurisdiction is when the contract is concluded, not when it fails. Wherever possible, the foreign party should be the one that sends the final acceptance to the Kenyan office, and the business should keep a clear record of the full exchange, including the times, the senders and the recipients of each message. Those records will form the evidence on which an application for leave to serve out is decided.

For a foreign company dealing with Kenyan customers or suppliers, the safest course is to address formation expressly. Terms that state how and where the contract is concluded, and that the parties agree to that location, displace the statutory default and reduce the risk of being sued in a forum the company did not expect. A clear choice of law and forum clause adds a further layer of protection, although, as earlier articles in this series explain, Kenyan courts do not treat such clauses as absolute.

An online contract has no ink and no signing table, but it still has a birthplace. In Kenya, finding it may be the key to the courtroom door.

Benson Odiwuor is a Nairobi-based dispute resolution lawyer and researcher in internet jurisdiction, who handles dispute resolution in cross-border digital, data protection and online reputation matters. He is also the editor of The BOLD, a legal newsletter focusing on dispute strategies and legal developments in the regulated industries of Kenya. Subscribe to The BOLD here.

For inquiries, contact the author at  info@bensonodiwuor.com.