Electronic Commerce Law
The Internet is a world wide public access network of computers. It has no owner, though of course each of the individual pieces of hardware on which it runs has an owner. It relies for its operation on mutual comprehensibility between those various pieces of hardware. This is achieved by voluntary adherence to a single protocol- to use a human metaphor, the various machines all speak the same language. The use of the internet for buying and selling, which is simply known as e-commerce is gaining its place in the commercial market. Many believe the Internet to be full of natural anarchy, so that a system of law and regulation for the Internet seems contradictory.
However, cyberspace is, in fact, governed by a system of law and regulation called internet law. There is no single exhaustive definition of the term internet law. One broadly accepted definition of Internet law is a generic term that refers to all the legal and regulatory aspects of Internet and the World Wide Web. Anything concerned with or related to or emanating from any legal aspects or issues concerning any activity of people in cyberspace comes within the domain of internet law. The first use of the term cyberspace was in 1984 by author William Gibson in his science fiction novel Neuromancer. It described the virtual world of computers. Today, cyberspace is how most people describe the world of the Internet. Though far from the immersive virtual reality of the fictional version, and often regarded as an overused buzzword, cyberspace has become synonymous with the Internet. However, cyberspace is not the World Wide Web alone. Internet Law has been an achievement of promoting a new perspective on law in general. While at its beginnings Internet Law was suspiciously regarded as yet another example of law as a barrier to growth, it became clear very soon that technological changes (i.e. the sum of technical, economic, social and political change or - equally potent - the expectation of such changes) were creating anxieties and uncertainties, if only conceptual ones, so that in order to achieve acceptance trust had to be created and maintained, and the best way to do this was to use law as an infrastructural tool to master change. Such an approach was particularly important for the European Union; having defined itself primarily as a "community of law" it could prove its ability to act when challenged and it could do so by what it knew best: by passing regulations.
English Law of Offer and Acceptance
English law recognizes two rules as to when an acceptance will become binding. Firstly being the receipt rule, or better known as the general rule; and the postal rule. In English law certain elements must be present for contracts to be legally binding. These elements are an offer, an acceptance, consideration and an intention to create legal relations. Although trading over the Internet is often seen as a more informal way of doing business, the same rules apply as with the formation of other types of contract.
The General Rule
Under English law, a contract is formed when an offer is made by party which is accepted by another party (offeree). There must also be consideration, which is value passing from the offerree to the offeror and the parties must intend to create a legal relationship. This applies to instantaneous forms of communications such as telephone, fax and telex. This general rule of English law is that an offer may be withdrawn at any time before it is accepted. To be effective, the withdrawal must be communicated to the offeree. Additionally, an offer which expressly states that it will last for a specified period of time cannot be accepted after that time has elapsed. With regard to acceptances transmitted through telephones, telexs and faxes, the general rule(the receipt rule) is that the acceptance will be binding at the point that it is received.
There has been no settled case in English law as to when an acceptance, communicated electronically, will be treated as binding, although it is thought that the receipt rule will apply. If this is the case, it is likely that an acceptance will be treated as binding at the point that it is received by the computer system under the control of the recipient. It should be noted that these general rules can be varied by express contract terms which specify in what form, and at what time, an acceptance will be binding on the offeror. For instance, John offered to pay Photographer $500 to use Photographer’s photo in John’s e-commerce Web site. Photographer said, “Let me think about it.” John, assuming that Photographer would accept the offer, used the photo. Photographer then rejected John’s offer. Unless fair use applies, John has infringed Photographer’s reproduction and public display rights by using the photograph. John should not have assumed that he would be granted a license (a form of contract) by Photographer. On the other hand, the offerror must be informed of the acceptance-either expressly or by implication. The issue as to the point at which an acceptance becomes binding when transmitted over the internet has not been settled, at the time of writing, in English law. This being the case, existing English contract law rules are being applied to internet contracting. Acceptance of an offer is normally communicated, but can also be inferred by the conduct of the parties, which may amount to performance (for example, carrying out the service requested or paying the price for the relevant item). So it is also important that the seller makes it clear which acts (if any) will amount to acceptance.
The Postal Rule
The 1st rule is the postal rule. The postal rule was first established in the case of Adams v Lindsell. This rule states that acceptance by post take effect when they are posted, rather than when they are communicated. Lord Herschell defined the rule as follows:
- Where the circumstances are such that it must have been within the contemplation of the parties that ... the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.
This rule applies to most postal communications, provides that a posted acceptance will become binding the moment it is posted, regardless of whether it is ever received by the offeror. The basic assumptions are therefore that:
There will be a substantial delay in delivery of the letter, depending on where the letter is to be sent.
- (ii) There is a small risk that due to difficulties the message may be delayed further, or not reach its destination at all.
Also, once the acceptance is posted, the offeree loses control over the risks of miscommunication or non-delivery. Thus, the law minimises the risk for the offeree by default, but the offeror is well positioned to change it.
According to Lindley J in Byrne v Van Tienhoven :
“It may be taken as now settled that where an offer is made and accepted by letters sent through the post, the contract is completed the moment t the letter accepting the offer is posted, even though it never reaches its destination.”
Other have suggested that the usual receipt rule should apply because the sender is ultimately in a position to know if the email has or has not been sent. It follows from the reasoning in The Brimnes that, viewed in this way, the acceptance should become binding when it reaches the offeror’s business premises or the place of their internet service provider during normal officer hours.
The crux of the matter is that someone must take a risk by being in limbo for a short while, not knowing whether the contract has been formed or not. This is unavoidable. The question is whether it is the offeror or the offeree that must take this risk; but the matter must be settled for future reference and a consistent rule must be adhered to.
Acceptance in E-Commerce Dealings
With the online business process being automated there may be confusion as to when an offer is accepted. The basic rule is that for acceptance to be effective it must be communicated. However, as the law currently stands it is not clear when an online acceptance is communicated. For example, if the seller processes the customer's order through the website, but acceptance is made by email, is it communicated when the seller presses the 'Send' button, when it leaves the seller's email system, when it leaves the seller's ISP's mail server, when it hits the buyer's ISP's mail server, when it enters the buyer's email system or when the buyer reads it (or indeed any stage in between)? There are a number of initiatives which are intended to address this position – see our guide on EU and UK Regulations – but the safest course is to state, in the terms and conditions themselves, when acceptance will be deemed to have taken place.
One point to consider with an automated e-commerce process is the use of an automated receipt of order. Where there are a limited number of goods or where a serious pricing error has occurred, an automated acceptance could be disastrous, potentially binding the seller to contracts it cannot fulfill. In order to protect the seller any automated receipt should make it clear that it is simply a receipt of order and not an acceptance. The receipt should make it clear that the acceptance will follow later (when the seller has had a chance to check the order).The manner in which the content is formed and the point at which acceptance of order occurring should be made clear in the terms and conditions of sale. However, English law does not recognize the concept of statements of intent with regard to the formation of contracts. The issue can be confused by the fact that in e-commerce the trader and customer are never face-to-face and are sometimes in different countries. Recent e-commerce regulations are intended to ensure that electronic contracts are binding and enforceable throughout Europe.
How postal rule is applied to e-mails in e-commerce transactions
The key difference between the two mediums is that while the post takes about a week to get to London, and two further days to be delivered by local mail, the internet performs its process in about five seconds. Other striking things about e-mail that make it unique include that:
(i) Despite operating instantaneously, it does not go directly to its destination. This is unlike other instantaneous forms of communication such as fax or telex. As a result, one cannot say that the sender has any control over the message or the message actually reaching its destination host, or in some cases, any way of actually knowing that it ever reached the destination host at all, just like normal mail. The postal rule should therefore apply to this scenario.
(ii) It proceeds in incremental steps towards its destination. Yet when it works properly, it occurs instantaneously. This is unlike the other mode of communication that uses this method of delivery, that is, the post. As a result, one cannot say that there is a delay that would result in either party to a contract bearing a risk during the transit time of the acceptance. This suggests that the postal rule should therefore not apply to this scenario.
The principal case before 1983 was Entores Ltd v Miles Far East Corp. That case examined whether the postal rule should be applied to a telex. This was held to be instantaneous communication, along with most modern means of communication. However, the case was distinguished in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH. Lord Wilberforce in Brinkibon saw that methods of communication were becoming more and more varied as time went on and he set out guidelines for it:
The message may not reach, or be intended to reach, the designated recipient immediately: Messages may be sent out of office hours, or at night, with the intention, or upon the assumption, that they will be read at a later time. There may be some error or default at the recipient's end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variations may occur. No universal rule can cover all such cases.
EU`s E-Commerce Directive
Whether your business is trading on-line or not, it is almost certainly affected by the E-Commerce Regulations which came into force in the UK on 21st August 2002. They cover more than just e-commerce. The Regulations, properly called the Electronic Commerce (EC Directive) Regulations 2002, implement the EU's E-commerce Directive into UK law. The Directive was introduced to clarify and harmonize the rules of on-line business throughout Europe with the aim of boosting consumer confidence. The Directive was passed in June 2000. The UK missed its implementation deadline by over eight months.
Consumer protection regulations in the UK give those acting in a private capacity the ability to cancel a contract without liability in certain circumstances. With regard to Article 11 of the E-Commerce Directive, the UK government has not, at the time of writing, issued draft regulations to indicate how it will implement Article 11(1).
However, the impact on contract formation from an English law point of view of Article 11(1) is likely to be that the point of which an acceptance is binding will be clarified. Having said this, Article 11 of the E-Commerce Directive allows businesses dealing with other businesses to ‘contract-out’ of this requirement and it is likely that this distinction between business-to-business contracts and business-to-consumers contracts will be carried through into English law. Assuming that the receipt rule applies to internet contracting under English law, a failure of an acceptance communicated electronically to be received by the offeror would allow the offeror to argue that no contract has been formed. With regard to acceptance being received late, whether this will constitute a valid acceptance will depend on any terms of the contract agreed between the parties. For example, the offeror may stipulate that the offer must be accepted within a specified period of time such that, a failure of the acceptance to be received within the specified period of time would allow the offeror to argue that no contract had been concluded.
In the absence of any express terms relating to the time period within which an offer must be accepted, the general rule of English law is that an offer will come to an end after a reasonable period of time has elapsed. What will amount to a reasonable period of time depends on all the circumstances, for example, the nature of the subject matter of the contract and also the means used to communicate the offer. The period which would normally constitute a reasonable time for acceptance may be extended if the conduct of the cofferee within that period of time indicated an intention to accept and this is known to the offeror.
Other contractual rules and laws
There are a number of other general rules of English law which will allow a contract to be avoided in certain circumstances, for example, if the contract is incomplete with regard to some fundamental points or if the contract terms are so vague or uncertain that it cannot give rise to a binding contract or where the contract is illegal or against public policy.
In addition, some specific consumer protection laws allow a contract to be avoided. For example, in the event that the requirements of the Consumer Protections (Distance Selling) Regulations 2000 are not complied with. As stated above, in the absence of any express terms relating to the time period within which an offer must be accepted, the general rule of English law is that an offer will come to an end after a reasonable time has elapsed. What will amount to a reasonable period of time depends on all the circumstances, for example, the nature of the subject matter and also the means used to communicate the offer.
The Law of Acceptance is from a practical point of view. Electronic Commerce should be structured in a way to allow itself the maximum possible latitude. It should be made clear that, when the customer submits his or her order, this is an offer to purchase the goods or service from the institution, which it can then accept or reject. The contract should not be accepted immediately as this could bind the institution to something which it cannot or does not wish to honour. For instance, the particular publication may be out of print or the site may contain a pricing error. Anyhow, whether your business is trading on-line or not, it is almost certainly affected by the E-Commerce Regulations which came into force in the UK on 21st August 2002. They cover more than just e-commerce. The Regulations, properly called the Electronic Commerce (EC Directive) Regulations 2002, implement the EU's E-commerce Directive into UK law. The Directive was introduced to clarify and harmonize the rules of on-line business throughout Europe with the aim of boosting consumer confidence. The Directive was passed in June 2000. Therefore, European Union’s directives in the coming years and decades would be crucial for the betterment of e-commerce contracts.
Fuller, K. E-Commerce Dealings, Universal Law Publishing, (2005)
Furmston, M, Law of Contract , Oxford University Press, (2007)
Gerald R. Cyberlaw, (2001)
Lessig, L. Code and Other Laws of Cyberspace. New York: Basic Books (1999)
Lewis, D. K. Conventions: A Philosophical Study. Cambridge (Mass):
Harvard University Press (1969)
Lloyd, J, I. Information Technology Law, Oxford International Press (2004)
Nozick, R. Anarchy, State and Utopia. Oxford: Blackwell (1974)
Reed, C. Internet Law Text & Materials, Oxford University Press, (2003)
Rifkin, J. The Age of Access. London: Penguin. (2002)
Castells, M. The Internet Galaxy Law Journal. Oxford: Oxford University Press (2001)
Christopher,W,P. Comparative U.S & EU approaches to E-commerce regulation: Jurisdiction, electronic contracts, electronic signatures and taxation, Denver Journal of International Law and policy vol.31 (2002)
Walden, I. Regulating electronic commerce: Europe in the global Economy.E.L.Rev. (2001)
Sookman, B. Legal framework for E-commerce transactions, Computer and Telecommunications Law Review, 7(4) (2001)
Przemyslaw, P. A new approach to regulating Internet commerce: custom as a source of electronic commerce law, 9 Electronic Communication Law Review (2000)