Caveat e-vendor: The legal framework surrounding e-commerce

Whilst businesses, continue to be optimistic about future growth potential through the web, vendors should be aware of the special risks which are associated with this business operating model. 

The separate legal regime for e-commerce means that special considerations apply to online selling as opposed to traditional over-the-counter retail transactions. Jonathan Edwards and Stephanie Bailey, part of the commercial contracts team at the law firm Berrymans Lace Mawer, have pu together this pragmatic guide to e-commerce law and highlights some of the key requirements and best practice in this emergent retail medium, 

It is important to recognise that on issues of contractual interpretation and consumer protection, broadly the same contract law principles apply. Including, but not limited to, the consumer protection afforded by the Sale of Goods Act 1979 the prohibition of “unfair” contractual terms and commercial practices.

Essentially, goods sold over the internet must correspond to their description, be of satisfactory quality and fit for purpose.  Equally services must be completed within a reasonable time, for a reasonable charge and provided with reasonable care and skill.

The list of potentially unfair practices is ever-growing, and problems may arise, for instance, if the terms and conditions are not written in plain and intelligible language, or irrevocably bind the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract.

This is likely to capture terms and conditions presented in an unreadable font size. E-vendors should be aware that where there is doubt as to what a term means, the meaning most favourable to the consumer will apply.

Any commercial website, whether or not it allows for the direct sale of goods or services, is regulated to ensure transparency of the status of its provider.

The website must display, in a way which is “easily, directly and permanently accessible” the name of its provider, their geographic address and email address, the details of any applicable trade registration, supervisory authorities or professional regulatory body, as well as its VAT identification number.

In particular, if the website includes reference to any prices, these must be indicated clearly and unambiguously, and must state whether they are inclusive of tax and delivery costs.

It is standard practice for this information to be provided, along with the website’s terms of use, at the bottom of every web page. If the website provider fails to ensure the transparency requirements are met, they could be liable to pay damages to a consumer, even in circumstances where the goods or services were provided by a separate company.

Under the Electronic Commerce (EC Directive) Regulations 2002, websites that allow consumers to purchase goods or services directly, will need to provide consumers with additional information prior to the commencement of the contractual process, including:

• the steps that must be followed to conclude the contract;
• whether the service provider will file/store the contract, and whether it will be accessible to the consumer;
• how the consumer may identify and correct any input errors prior to placing an order;
• which languages are available for conclusion of the contract.

Additionally, the consumer must be able to store and reproduce any applicable terms and conditions. Best practice is to direct consumers to the relevant terms of purchase early on in the transaction lifecycle, usually by way of a mandatory check box consent indicator. An important step in the e-contractual process will be the vendor’s electronic acknowledgment of placement of the order, which should promptly follow.

Further rules governing e-commerce can be found in the Consumer Protection (Distance Selling) Regulations 2000, which require e-vendors to provide details of the main characteristics of the goods or services, the identity of the vendor, and notification of the consumers right of cancellation created under the Regulations. 

In the case of goods sold online, the right of cancellation is that the purchaser generally has seven clear working days (the “cooling off period”) after delivery in which to inform the vendor that they wish to return the goods. The European Court of Justice recently determined that it was unlawful for online vendors to charge purchasers for the cost of delivery, when the right to cancellation had been exercised, although the cost of returning the goods could be borne by the consumer.

With all this information required, the design of a streamlined sales interface that encapsulates all of the legal requirements without deterring consumers is challenging.

Nevertheless, the trend towards e-commerce demonstrates that these consumer-friendly regulatory requirements are unlikely to hamper growth as businesses become more and more astute at “packaging” up the requirements into clear and comprehensive contractual terms in order to limit their future risks exposure as far as possible.

In another respect the regulations are distinctly “light-touch”. They do not prescribe the steps behind binding e-contract formation, instead leaving this for online retailers to determine, on the proviso that the information pertaining to contract formation has been provided early on in the transaction lifecycle.

When a consumer places an online order this can constitute an “offer”, which is open for the vendor to accept or reject. However, to strengthen their contractual position, e-vendors should make it clear in their terms and conditions that neither the placing of an order, nor the receipt of money, creates a binding contract.

Unless the vendor specifies otherwise, it is generally thought that the acknowledgement screen or email, when received, constitutes acceptance. As such, vendors should instead confirm that the order has been received and that the order is being “processed”. This distinction allows vendors to refuse an order and return funds received without further obligations. 

Therefore in order to protect against the potential risk of being legally required to supply goods which are no longer obtainable or mistakenly advertised at below-cost price, vendors should specify that “acceptance”, and therefore binding contract formation, occurs upon dispatch of the purchased goods.

The E-Commerce Directive and Regulations promote online sales between member states of the European Union by providing that a vendor need only comply with the laws of the country within which the vendor is located.

There are, however, important exceptions to this rule, most significant is the applicability of the consumer contract law of other member states to which online sales are made. Therefore, e-vendors must check that their own online terms and conditions comply with the consumer contract laws of every EU member state to which they sell their goods. 

Breaches of privacy, data protection and libel laws are further potential pitfalls against which e-vendors will need to protect
themselves. Unsolicited commercial messages (or “spam”) must not be sent to individual consumers or other members of the public without their consent.

Online vendors should therefore give users of their websites an option to opt-in or out of e-marketing communications and update their preferences at their discretion. In terms of data protection, an exemption exists for the benefit of commercial websites, but only for very limited purposes. Businesses wishing to trade online should undertake periodic legal checks of their websites data protection policy, including its caching of information.

If a website provides an interactive medium where users can publish their own messages and materials, there is a risk that this privilege might be abused.

The regulations protect e-businesses by excluding liability for damages to a third party for defamation, or religious or racially aggravated hate speech, where the web provider has no knowledge of any unlawful material hosted on their site, or where they can demonstrate they acted promptly to remove or disable access to such material as soon as becoming aware of it.

Where for example a customer review function exists on a commercial website, it is essential that an equivalent function is in place that allows other users to report inappropriate material, and policies are in place for the swift removal of unlawful material.

E-commerce represents an exciting growth opportunity. Nevertheless, vendors should exercise a degree of caution when developing their e-commerce operating model. Ensuring transparency of the contracting parties and the point at which a binding contract is formed are just some of the key requirements where compliance is mandatory.

In order to leverage the inherent flexibility within the regulations, e-vendors should limit their risks exposure by considering the legal position at each stage of the transaction lifecycle, as well as testing the robustness and enforceability of any existing terms and conditions.

With consumers becoming increasingly reliant on the internet as their preferred sales medium, additional legal and commercial risks look set to emerge, particularly as consumer protection continues to remain at the forefront of legislators’ minds.