E-Commerce

1. E-Commerce 1. What is e-Commerce? 2. What is a contract? 3. Elements of an enforceable contract 4. Standard terms of a contract 5. Form and execution of contract 6. Benefits of a written contract 7. Contract issues in the digital environment 8. Jurisdiction 9. When is an e-contract formed? 10. Electronic Transactions Act 1999 (Cth) 11. Electronic payment systems 12. Secure contract formation in a digital environment 13. Identity and capacity to contract 14. Secure storage of electronic records 15. E-commerce best practice 16. EFT Code of Conduct 17. Scams and Swindles 18. UNICITRAL Model

2. Commerce and contracts • 1. What is Electronic Commerce? • 2. What is a contract? • 3. Elements of an enforceable contract • 4. Standard terms of a contract • 5. Form and execution of contract • 6. Benefits of a written contract • 7. Contract issues in the digital environment

3. 1. Electronic Commerce 2. What is Electronic Commerce? Commercial transactions that occur on the Internet. In e-commerce transactions the parties rarely meet each other face to face: Creates obvious trust issues between the parties Makes it difficult to ensure the parties act lawfully, and transaction itself is legal Particular concern: Unequal bargaining power between the parties. Online contracts play an important role in e-commerce as they stipulate the terms and conditions governing a transaction between two or more parties. A body of law has developed to ensure the legality of all aspects of e-commerce and the online contracting process. 2. What is a contract? Legally binding agreement, between two or more people or organisations. The Terms of a contract may be expressed in writing or orally, implied by conduct, industry custom, and law, or by a combination of these things.

4. 3. Elements of an enforceable contract A binding contract is usually formed when the elements below are satisfied: • One party makes an Offer, setting out the terms of the proposed contract to another party or parties. The terms must be sufficiently certain. • An unequivocalAcceptance of the offer is communicated to the party who made the offer. • In ‘common law’ countries (Australia, US, Canada, UK and other countries whose law originated from UK), contract must be supported by Consideration. • Consideration is a ‘promise for a promise’. Consideration presumed to exist if certain formal requirements are followed (for example where contract is executed as a deed). • The parties to the transaction must have an Intention to create legal relations. Courts will not force people into a contract if they did not intend to be legally bound. The following rebuttable presumptions exist: • if the parties are in a commercial (but not domestic) environment, the parties are presumed to have an intention to create legal relations; • if the parties are in a domestic environment (e.g family members or neighbours), the presumption is that the parties did not intend to create legal relations. • All parties to the transaction must have the Legal capacity to effect the transaction. If any one of these elements do not exist or are ‘vitiated’ (e.g due to fraud) there will be no contract between the parties.

5. 4. Standard terms of a contract Subject to exceptions (for example, consumer transactions), the parties are free to choose the terms of their contract. An online contract should at least contain the following terms: a clear identification of the Parties to the transaction; the subject matter of the transaction, including a description of any goods or services to be supplied; the price, delivery and payment terms; warranties, liability, insurance, intellectual property and dispute resolution; how orders are to be placed and accepted including use of electronic agents; record keeping, audit trails and evidence; security, format and authentication of messages; when and where messages are sent and received; responsibility for lost, incomplete or garbled messages; and the law governing the transaction.

6. 5. Form and execution of contract • Some contracts – inc. conveyance of land, or consumer credit transactions – must be in a particularform, or signed a certain way. • Otherwise there is no general requirement under Australian law that a contract be in a particular form, or be executed in a particular manner. (Side of a cow case) • Apart from contracts which must be completed with certain formal requirements, there is no reason in principle that contracts cannot be formed by email exchange, or "click through" agreement, or executed by digital signatures. • In each case, the question will be: whether anything in the formation of the contract might leave either party at risk that the other party will later challenge the enforceability of the contract, for example on the basis that • terms were not brought to their attention, or • that they did not in fact participate in the formation of any contract (perhaps because another person impersonated them). • The legal status of computer-generated evidence is not the same in all jurisdictions. To reduce the risk that a court will reject the evidence on which a party relies to establish a contract, a jurisdiction clause in an online contract should specify a jurisdiction whose laws of evidence accept electronic evidence.

7. 6. Benefits of a written contract Benefits of a written contract include: Risk terms will be implied into the contract by a court is reduced; when signed, the parties are deemed to have read the contract and accepted the written terms, making it difficult for either party to deny the existence of the written contract, except in the case of fraud, mistake, unconscionable conduct or other exceptions recognised by the law; when properly drafted, the parties should know with certainty their respective obligations; identifies the parties to the transaction and the commencement of the commercial arrangement; and a conventional or electronic signature on an original contract provides protection against tampering or repudiation by the signatory.

8. 7. Contract issues in the digital environment The parties to an electronic contract should: • satisfy themselves about the identity and capacity of the other parties to the contract; • determine when a binding contract is formed; • determine the governing law of the contract; • agree on the electronic payment system used; • ensure information exchanges leading up to and including the formation of a contract are secure to prevent later repudiation; • determine by appropriate terms in the contract the consequences of breach, frustration and other factors which may affect the performance of the contract; and • store electronic data relating to or evidencing the contract in a manner that prevents alteration by any agent without detection.

9. Jurisdiction • 8.1. Where is an electronic contract formed? • 8.2. Jurisdiction and online contracts

10. 8. Where formed? ETA The Electronic Transaction Act 1999 (Cth) (ETA), establishes presumptions about when and where a contract is formed over the internet. The presumptions can be displaced by agreement between the communicating parties. In the absence of agreement, default presumptions apply. Default presumptions: Time of Dispatch: the time of dispatch of an electronic communication is as soon as it enters the first information system outside the control of the originator (sender) (ss 14(1) and 14(2)). An Information System is defined as ‘a system for generating, sending, receiving, storing or otherwise processing electronic communications’ (section 5). Note that this definition is so broad as to include anything a standalone internet connection at home, to a large network of computers running its own server. Time of Receipt: the time of receipt of an electronic communication is when it enters into the information system designated for receipt of electronic communications by the addressee (section 14 (3)). Where there is no such delegated information system, then it is the time that it comes to the attention of the addressee (section 14 (4)). Location: Under the ETA, the parties are deemed to be located at their respective place of business, or if they have not place of business, at their residential address (section 14(5)).

11. Electronic aspects • 9. When is an electronic contract formed? • 10. Electronic Transactions Act 1999 (Cth) • 11. Electronic payment systems • 11.1. Types of payment systems • 11.2. Regulation of EPSs • 11.3. Consumer friendly EPS

12. When is an e-contract formed? • The general law rules are that • acceptance must be communicated before a contract will come into existence, and • a contract is formed in the jurisdiction where acceptance is received. • Offer or mere invitation to treat? • Displaying information about a product or service for sale on a website may be construed either as a binding offer, or a mere "invitation to treat". The courts will look at the intention of the alleged offerer, gathered from all the circumstances to determine how the display of information is characterised. • If the seller’s intention shows a willingness to be contractually bound without any further negotiations, the display may be regarded as an offer. • If the trader’s intention falls short of this, the display is likely to be interpreted as a mere "invitation to treat". An "invitation to treat" is invitation to the website visitor to make an offer that the seller may accept or reject. • It may be in a trader’s interests to ensure that information displayed on a website is not characterised as a binding offer, as this will provide an opportunity to review their capacity to supply goods (or other issues, for example, any legal restrictions on entering into contracts with users from particular jurisdictions) before a binding contract is formed. • Assuming a website is an invitation to treat, and the website visitor makes an offer in relation to the goods or services displayed and the seller communicates acceptance of that offer to the purchaser through the website, it is likely that the law may regard the contract as forming in the jurisdiction of the website visitor (that is the place where the offeror received communication of the acceptance). • Timing of acceptance - can be revoked prior • The timing of acceptance is critical, because generally an offer may be revoked at any time before it is accepted.

13. 11 Types of payment system There are a number of ways payment of goods can be effected through cyberspace. A paramount concern for electronic payment systems is the security of the transaction, including ensuring that payment reaches the vendor, and the customer’s credit card information or the customer’s identifier for some other form of electronic payment is not intercepted and used without the customer’s knowledge. The following are some of the common electronic payment systems (EPS): • Internet banking Current Internet banking only permits cash deposits and withdrawals to be made using existing ‘non-Internet’ methods such as cheques, cash or electronic funds transfer. Future PCs or telephones with smart card readers will permit the transfer of value from an account onto a stored smart card, using the Internet or telephone lines. • Credit cards Credit card details are entered into a merchant’s web form on the Internet. The details may be manually sent by e-mail and verified by the merchant as a mail-order/telephone-order (MOTO) transaction, or encrypted using secure socket layering (SSL) techniques and then automatically processed by the relevant bank. Transactions using SSL are more secure but are also more costly. • Virtual credit card Appearing as an icon on a computer screen, the card is used to purchase products using secure electronic transaction (SET) protocol to authenticate the buyer and seller by use of digital signatures. Under the SET mechanism, it is a third party not the merchant who verifies the credit card details, increasing confidentiality and security. • Digital cash Digital cash is a payment or transfer of value initiated and processed electronically within current inter-bank payment systems. Digital cash is effectively money stored as computer code. The digital cash is essentially a message issued by a bank containing its value, the bank’s identity, the bank’s Internet address and a serial number. The digital cash is securely transferred using data encryption methods. • Stored value cards (SVCs) (including smart cards) SVC is a plastic card that can contain a microprocessor chip (more commonly known as a smart card) or a magnetic strip. The chip stores more information than magnetic strip cards and can perform simple computing operations. The SVC is inserted into a terminal with a read/write mechanism that allows information to pass between the card and the terminal.

14. Secure contracting • 12. Secure contract formation in a digital environment • 12.1. Legal risks in electronic transactions • 12.2. Digital signatures • 12.3. Legal risk with digital signatures • 13. Identity and capacity to contract

15. Secure storage of e-records • 14. Secure storage of electronic records • 14.1. Electronic records and the record keeping requirements of Commonwealth or State law • 14.2. When electronic records must be kept • 14.3. Corporations Act 2001 (Cth) • 14.4. Limitations legislation • 14.5. Retaining electronic contract records

16. Good and bad practice • 15. E-commerce best practice • 16. EFT Code of Conduct • 17. Scams and Swindles • 17.1. Bank Scams – NetBank

17. International • 18. UNICITRAL Model • 18.1. UNCITRAL Model Law on Electronic Commerce • 18.2. UNCITRAL Model Law on Electronic Signatures

18. (end) -

19. Consumer Protection Online 1. Consumers and Technology 2. Trust and Confidence 3. Case Study: Online Financial Services 4. Policy Framework 5. Legislation 6. Australian Codes of Conduct 7. International regimes 8. Conclusion

20. Introduction • 1. Consumers and Technology • 2. Trust and Confidence

21. 3. Case Study: Online Financial Services • 3.1. Complexity of Products • 3.2. Online Calculators • 3.3. Independence • 3.4. Disclosure • 3.5. Identification • 3.6. Complaints • 3.7. Privacy • 3.8. Access and cost • 3.9. Jurisdiction • 3.10. Terms and Conditions

22. 4. Policy Framework • 4.1. Contract • 4.2. Payment • 4.3. Conduct

23. ‘Instruments’ • 5. Legislation • Trade Practices Act/Competition and Consumer Act • 6. Australian Codes of Conduct • 6.1. EFT Code of Conduct • 6.2. Smart Card Code • 6.3. Telecommunications Codes • 6.4. Internet Industry Association Code of Conduct • 6.5. Australian Direct Marketing Association (ADMA) Industry Code of Practice • 6.6. The Model Code

24. Looking further • 7. International regimes • 7.1. EU Directive • 7.2. OECD Guidelines • 8. Conclusion