Contracts formed online are legally binding and enforceable. But there are more issues to consider when buying and selling online. For example: When is a contract actually formed? What are the essential terms? What consumer protection legislation affects online contracts and how do you comply with the Distance Selling Regulations? What other issues should you consider and how can you resolve disputes when different countries are involved?
Formation of online contracts
If you allow customers to place orders online, you should ensure that the terms and conditions of the contract are set out on the website and can be downloaded. Even if you just use the website as an advertising tool, it is still advisable to clearly set out your terms and conditions. Recent e-commerce regulations mean that electronic contracts are binding and enforceable throughout Europe and, as with any other contract; you should take professional legal advice.
Contracts that are formed via the internet are legally binding and enforceable providing that, in UK, certain elements are present for the contracts to be legally binding. The elements are:
- Offer – one party must contract with the other, e.g. offer to buy goods
- Acceptance – the other party must expressly accept the offer
- Intention to create legal relations – both parties to the contract must intend the contract to be legally binding
- Consideration – in England and Northern Ireland there should be some consideration being exchanged between the parties, e.g. money paid for goods
- There is no general requirement for contracts to be in writing or for the parties to actually sign a contract.
When is the contract formed?
A contract would be formed once a customer makes an offer by placing an order and the supplier accepts this offer. An advertisement on a website will not generally constitute a formal offer to contract (but take care designing the advertisement).
The terms and conditions about when the contract is formed should be clear – for example when the supplier sends back a confirmation email (this is important, and will help to avoid situations where you are unable to meet the customer’s expectations for any reason, if commercial circumstances change). But to avoid confusion about when the contract is formed ensure that you word them in such a way that they are not legally an acceptance of a customer’s offer.
Essential terms of a contract
Any terms and conditions that you use should be tailored to the needs of your business. Generally any contract for goods or services should address:
- The description of goods or services being supplied
- The price and payment structure
- The delivery details, including the time, place and who is responsible for delivery
- The rights of either party to terminate the contract
- Limitation of liability provisions
- Confidentiality provisions, particularly if the contract is of a sensitive nature
- Confirmation of which country’s laws applies to the contract.
Consumer protection legislation
Consumer protection legislation, including the Unfair Terms and Consumer Contracts Regulations 1999 and the Consumer Protection Act 1987, extends to cover goods sold over the internet.
Under the Consumer Protection Act 1987, it’s an offence to give consumers misleading price information about goods, services, accommodation or facilities.
Limitation of liability clauses
Clauses limiting one or both parties’ liability are usually the most contentious. There are restrictions on the ability of businesses to limit their liability. Generally, clauses limiting liability need to be reasonable in order to be enforceable.
There are stricter rules for businesses dealing with consumers, so that it is more difficult for businesses to impose exclusion of liability clauses.
For some businesses dealing with both consumers and other business customers, it is usually better to have two sets of terms and conditions – one to use in connection with sales to consumers and the other for dealing with other businesses.
Issues to consider when selling online
The rules for selling online are designed to protect the purchasers’ rights and to make it clear when a contract between buyer and seller becomes binding.
- Contract formation – ensure that terms and conditions are incorporated at the time the contract is concluded. Click-wrap agreements – made by pointing and clicking online to indicate acceptance – are a very useful tool.
- Distance Selling Regulations – covers all contracts conducted online with consumers.
- Data Protection Act – imposes conditions on both data processors and controllers.
- Intellectual property – issues such as copyright and trademarks should be considered, not just for items displayed on your site, but also within any metatags.
- Consumer protection legislation – legislation such as the Unfair Contract Terms Act 1977, the Unfair Terms and Consumer Contracts Regulations 1999 and the Consumer Protection Act 1987 apply equally to goods sold over the Internet. Some of this protection is also extended to business purchasers.
- Security – be aware that selling online will necessitate the passing of sensitive data and payment instructions. An online vendor could be liable for breaches of security on their site.
- Exclusions on restricted goods – some types of goods which are legal to sell in one jurisdiction may be prohibited in other jurisdictions.
- Specific regulation – specific industries may be regulated e.g. premium-rate Internet sites or those aimed at children. There may also be implications as a consequence of competition law.
- Access agreement – it is important to have terms and conditions governing the use of your website. These must be set out prior to the customer proceeding to purchase – commonly the customer must click on an “I agree” button to proceed, indicating acceptance of the terms and conditions.
Protecting consumers
The EU has established a minimum level of consumer protection for the purchase of goods in the single market.
This legislation stipulates that the supplier must sell goods that comply with their description, match the quality of samples or models, have the same quality and performance characteristics of such goods, and are fit for any purpose accepted by the supplier. The consumer has two years from the delivery date to seek redress for faults demonstrably present at the time of delivery, in goods which should have lasted for this length of time.
Distance selling
Distance Selling Regulations apply to contracts concluded when the supplier and purchaser are not physically present in the same place at the same time. This covers email and Internet contracts, as well as contracts resulting from press advertisements, mail order catalogues or those made by telephone. The legislation gives the consumer a cooling-off period of seven working days to cancel the contract.
Financial services
Retail financial services sold at a distance are regulated by the Distance Selling Directive for Financial Services (banking, insurance, investment or payment services).
Consumer purchasers must receive information about the service and have a cooling off period of up to 30 days, depending upon the individual member state’s laws, according to the financial service. But the right of withdrawal does not extend to financial services which could involve speculation, such as foreign exchange, collective investment schemes, transferable securities, futures, options, and exchange and interest rate instruments.
Complying with the distance selling regulations
To comply with the Distance Selling Regulations you must provide consumers with the following information before they enter the contract:
- Supplier name and, where payment is required in advance, the supplier’s address
- A description of the main characteristics of the goods or services
- The price – including all taxes
- Delivery costs, where applicable
- Arrangements for payment, delivery and performance
- The right to cancel within a certain time period
- How long the offer or price remain valid
- The minimum duration of the contract, where the contract is to be performed permanently or recurrently
- Whether the supplier will provide substitute goods and services if the ordered goods are unavailable, and if the consumer then cancels, whether the supplier will pay for the return of the substitute goods
- Regulation 8 of the Distance Selling Regulations also requires certain information to be provided to the customer either before the conclusion of the contract or, “thereafter, in good time and in any event – (i) during the performance of the contract in the case of services and (ii) at the latest at the time of delivery where goods not for delivery to third parties are concerned.”
The customer must also be provided with:
- Information about the conditions and procedures for cancelling the order
- The address of the supplier to whom the customer may address complaints
- Information about any after-sales service and guarantees
- The conditions for exercising the contractual right to cancel a contract when the contract is indefinite or lasts for longer than one year
Resolving legal disputes
Once an online contract is made disagreements can arise. You should seek legal advice immediately if you are involved in a dispute. Because traders and customers may be in different countries you must determine what law applies and which country’s courts have jurisdiction. There are significant exceptions in favour of consumers.
EU jurisdiction
In the European Economic Area, parties can choose the governing law and the forum for dispute resolution – e.g. courts of a particular country, arbitration etc. The Rome Convention rules decide which law applies, although certain mandatory rules in a purchaser’s country will always apply, for example for financial services or consumer protection.
Similarly, in the European Union jurisdiction of disputes is determined by the Brussels Regulation. If the parties have not agreed jurisdiction, the basic rule is that a defendant may be sued where they live, or where the contractual obligation was performed.
Consumer protection laws
Consumers may invoke consumer protection laws either in their home jurisdiction or the supplier’s jurisdiction, but almost always may only be sued in their home jurisdiction. Therefore online businesses dealing with consumers must be prepared to comply with consumer protection regulations in each market to which they sell.
To reduce uncertainty in the event of a dispute, e-commerce providers should specify in their terms and conditions the governing law and jurisdiction for disputes. English law is the popular choice for international trade and is often chosen by parties with no other connection to the UK.
