UK: The Internet: Friend Or Foe

Not so long ago, buying products using the internet was akin to a trip into the Wild West - a dangerous lawless territory only for the bold or foolhardy. That may never have been correct, but the law in the UK and Europe is now turning its attention to internet sales. It is more important than ever for those who buy or sell using the internet to keep up to date regarding the legal requirements which now exist. This will assist sellers to control their legal exposures and enable buyers to understand their rights and the potential pitfalls.

Two factors are driving change:

1. The EU sees the internet as a global marketplace, and wishes to create, at least in the EU, a common approach to internet sales which addresses the particular problems of internet commerce. The objectives (which clearly have the potential to conflict) are to provide better protection for consumers and to encourage commerce.
2. Many of the major UK high street retailers now sell through websites. They cannot afford to compromise the quality of service they offer through internet sales, consumers rely on this and this helps the push towards a common standards.

Some of the issues relevant in relation to internet sales are examined below.

Creating an internet contract is, under English law, a matter of applying the tried and tested ‘offer and acceptance’ rules developed by judges more than a century ago. These rules have adapted to cope with the conclusion of contracts beyond the initial face to face discussion between buyer and seller, for example the ‘postal rule’, fax transmissions, telegrams, and so on. To date no English court has decided the precise moment at which a contract is made through a website. Many articles have been written about this, but until the issue has been decided by the courts there will continue to be uncertainty.

A well-publicised example of the potential problems with internet sales arose in September 1999. Argos’ on-line store mistakenly priced televisions at £2.99 each instead of £299.00. Before the mistake was spotted by Argos, many orders were received, including an order for 1300 sets. Argos refused to supply the television at the price indicated, but probably came to some arrangement with the purchasers as an alternative to litigation. The seller should always ensure that its website terms and conditions, for the avoidance of doubt, state that the goods shown on the website are displayed to invite offers to purchase the goods, an ‘invitation to treat’ in legal terms. Goods displayed in a real shop window, or on the shelves inside a shop are ‘invitations to treat’ – the consumer makes the offer to purchase when taking the goods to the checkout and the offer is accepted when the retailer charges the customer for the goods. A website can quite sensibly be seen as the electronic equivalent of a shop window.

Unlike a shop, the consumer relies upon any picture of the goods and other information provided by the seller. This means that problems can arise if the goods delivered are not what the consumer expected to receive, based on the information available on the website. It was partly to deal with this problem that the EU introduced the Distance Selling Directive (97/7/EC), the UK implementation of which is described below.

Although not relevant only to internet transactions, the Consumer Protection (Distance Selling) Regulations 2000 (SI 2000 No 2334) ("the Regulations") are directly relevant to internet sales. The Regulations provide important new rights to consumers (not businesses) and specify the information which must be given to consumers buying on the internet.

The Regulations require that the consumer be informed "in good time prior to the conclusion of the contract" of the supplier’s name and (in the event of advance payment) address, the price (including VAT and delivery), the description of the main characteristics of the goods or services, the arrangements for payment, delivery or performance, the period for which the offer price is available and notification of the right to cancel.

The information provided to the consumer prior to making the contract must include the minimum duration of the contract if it involves the supply of goods or services to be performed permanently or recurrently.

Where the supplier reserves the right to provide substitute goods or services, it must disclose this and state that where substitute goods are provided, the consumer may cancel the contract without incurring any charge for returning the substitute goods.

This information must be given "in a clear and comprehensible manner" and "with due regard in particular to the principles of good faith in commercial transactions". Furthermore, prior to delivery, the supplier must provide the consumer with confirmation of most of the above information "in writing, or in another durable medium". It would seem that an e-mail confirmation is a durable medium for this purpose. The written confirmation must also cover the conditions and procedures for exercising the right to cancel, provide a business address to which complaints may be addressed, and cover any after-sales services and guarantees. This additional information need not be provided prior to making the contract, but must be provided "in good time" and not later than the delivery of the goods or completion of the services.

Subject to the exceptions noted below, a consumer has an automatic right to cancel a purchase made over the internet within seven working days commencing on the day after the goods are received. The right to cancel arises from the moment the contract is made and if validly given means that the contract shall be treated as if it had not been made. The notice must be given in writing or another durable medium. The cancellation period may be longer in certain circumstances, but cannot last longer than three months and seven days from receipt of the goods. This is described as a ‘cooling off’ period, but is perhaps more logically an opportunity to check that the goods delivered are really what the buyer wanted. The right to cancel is not dependent upon the consumer establishing some fault with the product, or any non-conformity with its description.

The exceptions to the right to cancel include:

• Where goods are made to the consumer’s specifications or are personalised
• Where goods are perishable or liable to deteriorate rapidly
• Where audio or video records or computer software have been unsealed by the consumer
• Contracts for newspapers, periodicals or magazines
• Where the price is dependent on fluctuations in financial markets but cannot be controlled by the supplier (although the meaning of "financial market" is unclear).

If the right of cancellation is validly exercised, any advance payment by the consumer must be returned in full within 30 days of cancellation. Unless the consumer returns the goods, the supplier may make a charge for recovering them, but this may not exceed the direct costs of recovery. This charge may be deducted from any advance payment. The consumer must take reasonable care of the goods pending their return or their collection by the seller.

If a consumer is entitled to reject the goods because of a defect or fault or some other valid reason (excluding the right to cancel given in the Regulations) the supplier may not charge for the recovery of the goods.

There are some inevitable differences in the application of the Regulations as they apply to contracts for services as opposed to goods. Prior to the conclusion of a contract for the supply of services, the supplier must inform the consumer in writing (or some other durable medium) that unless otherwise agreed, the right of cancellation will be lost once the performance of the services has, with the consumer’s agreement, begun. Prior to commencement of the services, the cancellation arrangements described above in relation to contracts for the sale of goods will apply, except that the cancellation period ends on the expiry of seven days after the day on which the contract was made. This assumes that there is no agreement extending the right to cancel beyond commencement of the work.

Unless otherwise agreed, the supplier must perform the contract within 30 days of the consumer’s order. If the contract is not performed within the agreed period, or the 30 day default period, the contract is treated as if it had never been made, although the consumer’s rights and remedies for non-performance are preserved.

Where a contract is terminated, any related credit agreement is automatically cancelled. Immediately on receiving notice of cancellation, the supplier must inform the creditor that this notice has been given.

The Regulations simplify and expand the existing provisions of the Unsolicited Goods and Services Act 1971. Any unsolicited goods sent for non-business use become an unconditional gift to the recipient immediately on receipt rather than after six months, and there are additional criminal sanctions if any demand for payment or threat of legal proceedings is made in relation to unsolicited goods in order to obtain payment.

Finally, there is a provision making void any contractual term attempting to contract out of the Regulations. Enforcement of the Regulations is the responsibility of the Director-General of Fair Trading and Trading Standards departments. An injunction may be sought to secure compliance with the Regulations.

The Government is a keen supporter of e-commerce, and to lend weight to these credentials has speedily enacted the Electronic Communications Act 2000, which implements the EU Directive on Electronic Signatures (99/93/EC). The Act provides for the admissibility of electronic signatures in legal proceedings and empowers the Secretary of State to modify existing legislation to facilitate electronic communications.

The EU has issued proposals to modify the 1968 Brussels (and Lugano) Conventions dealing with the Jurisdiction and Enforcement issues between those domiciled in EU (and some other European) States. Businesses and business organisations affected by the proposals lobbied against the proposed changes, principally out of concern that suppliers would be subject to the jurisdiction and consumer laws of any EU Member State in which their websites were available. This proposal may be less dramatic than it seems in relation to consumer sales. Under existing rules, if the contract was preceded by advertising or a specific invitation to the consumer in State A, who took the steps necessary for the conclusion of the contract in State A, any proceedings in relation to the contract would ordinarily be through the courts of State ‘A’, rather than State ‘B’. This was specifically provided for in the Brussels Convention to assist consumers by allowing them to sue (or be sued) in the courts of their domicile. The measure preceded the development of internet sales however, and it is not entirely clear that internet sales are within the language of this rule.

On balance, a website is unlikely to be categorised as ‘advertising’ or as a specific invitation ‘addressed’ to the consumer, in which case the EU proposals would involve a very significant change to the present position. Keith Vaz MP in September 1999, while at the Lord Chancellor’s Department (in reply to a letter from Lord Tordoff as Chairman of the Lords’ Committee on amendments to the Brussels and Lugano Conventions) weighed the balance differently and stated the following:

"In broad terms, Article 13 of the Conventions allows a consumer to bring proceedings before a court in the country and specific jurisdiction of where he lives….if the transaction resulted from an advertisement and the consumer took steps in that state necessary for the conclusion of the contract. It probably covers e-commerce transactions but there is some uncertainty about whether the maintenance of a website constitutes "advertising" for this purpose. There are legal arguments both ways and only a decision from the European Court of Justice would finally decide the matter."

In response to business concerns, the existing proposals were modified such that contracts made through websites would only be subject to the jurisdiction of courts in EU countries where the website was "directed at" consumers in those countries. It remains unclear as to what exactly constitutes "directing" a website at a particular country, and in particular how a site can definitively not be "directed at" countries in which it may be visible. It might be necessary simply not to ship goods to certain countries, which would clearly not promote an open electronic market in the EU.

The policy behind the proposed change to the Brussels Convention on Jurisdiction and Enforcement is to create a single electronic marketplace within the EU. This is unrealistic for so long as the laws of the individual Member States differ, because these differences will affect the rights and remedies available to consumers in different countries. It is worth noting that following the publication in 1999 of a Green Paper on the reform of the Product Liability Directive, the EU earlier this year abandoned any immediate plans for a revised Directive, deciding instead to gather additional information before proposing changes. At the global level, discussions are under way within the Hague Conference regarding jurisdiction and enforcement of judgments in civil and commercial matters.

Questions of the governing law of contracts within the EU are decided in accordance with the Rome Convention. This provides for party choice of law as the pre-eminent principle, so broadly speaking, an express choice of law between commercial entities will be followed by the courts. Courts are empowered to infer a choice of law if it seems that a choice has been made, failing which the court must apply the law of the place where the performance which is characteristic of the contract falls to be performed. In a sale of goods contract, the formal guidance is that this is usually considered to be the seller’s place of business. As with the Brussels Convention, consumers are placed in a rather different position, in that any governing law under the Rome Convention will not oust any mandatory rules of law applicable in the country in which the consumer is habitually resident. This is intended to ensure that consumers do not lose consumer protection rights through a choice of governing law.

Products Causing Injury And Death

If a product causes injury (or even death) the resulting claim could be framed in tort (as well as under the Consumer Protection Act, which implements in the UK the EU Product Liability Directive). In either case, the manufacturer (or potentially a supplier in the supply chain) would expect to be sued in the courts of the injured consumer. The Brussels Convention provides that tort claims may be pursued in the courts of the country where the damage was suffered, and the Consumer Protection Act has been drafted so that it is highly likely that someone who is potentially liable (commencing with the retailer) can be identified and will be subject to the jurisdiction of the English Court. These provisions make it likely that the injured consumer can obtain redress in his or her local courts.

This article has only scratched the surface of some of the many issues which arise in the English context from the developing interface between the internet and the law. The EU institutions have made their presence felt in relation to e-commerce and a framework for e-commerce is beginning to emerge. However, many issues remain to be decided before e-commerce becomes as contractually conventional as high street retailing.