Contract can be defined as an obligatory but mutual agreement

No doubt Technology has expanded the scope of communication globally, but will always be ahead of governing laws and regulations; such seems to be the case of the internet. The internet has made life so much easier with the introduction of e-banking, E-Shopping and E-Learning among others, but has also posed great challenges most especially in the areas of internet regulation, E- Security, E-Contract, laying more emphasis in areas of unequal bargaining power of the parties involved, fairness in commercial practices, lack of proper dissemination of information and most importantly consumer protection among others. There have been great concerns and arguments raised regarding regulation and enforcement of distance contract in a virtual space where its generative nature encourages freedom and anonymity which is detrimental to the security and protection of consumers transacting business online. [1] Surveys have shown that more people are now enjoying online shopping from the comfort of their homes, but it is also important to know the security risk involved and how to better protect your rights.

This essay will attempt to briefly discuss the background of E- contract (distance selling) It will further discuss and analyze the structure of electronic contracts and its validity, the fundamental requirements for E- contract and the scope of applicable laws, laying more emphasis on the rights of the consumer in cross border contract. This essay will then identify and discuss in details the issues arising from the transaction between Mr. John and the online suppliers, the position of the Law on the issue and the remedies available. This essay will further analyse the current green paper proposal and the prospect of its objectives and conclude by recommending changes to further protect online consumers in future.

BACKGROUND

Contract can be defined as an obligatory but mutual agreement by way of writing or orally between two parties, both with intention to enter into such agreement to perform some specific act(s) for an agreed lawful consideration [2] . And this has been the tradition long before the advent of the internet, introducing a new form of contract known as electronic/ distance contract.

Distance contract has been clearly defined as “any contract concerning goods or services concluded between a supplier and a consumer under an organized distance sales or service- provision scheme run by the supplier, who, for the purpose of the contract, makes exclusive use of one or more means of “distance communication” up to and including the moment at which the contract is concluded” [3] .

Simmons & Simmons in their book “E-Commerce Law: doing business online” further defined “distance communication” to mean using any means of electronic communication without the physical presence of the supplier and the consumer to conclude a contract between the two parties. Without the physical presence of the supplier and the consumer, there must be a service provider, whose sole responsibility is to provide services for commercial communications which includes buying and selling of various goods and services and hosting of information provided by a recipient of the service among others. [4]

Ged O’Neill and Jonathan Moore, in their book “E-Commerce: a Guide to the law of Electronic Business” identified the service providers as the “Information Society Service” (ISS) providers. The authors laying emphasis on article 2(a) of the European Directives defines Information Society Service as any service provided at a distance via electronic equipment process, to compress and store data for a price and at the request of any individual to provide such service [5] .

So from the above definitions, it would be reasonable to deduce “distance selling/contract to mean an agreement of buying and selling of goods and services via an electronic service without the physical presence of the supplier and the consumer.

The next question would be “how is contract formed electronically? When is the contract concluded? And how is it enforced on parties?

VALIDITY AND STRUCTURE OF ELECTRONIC CONTRACT

M. Butler and R. Wegenek in their contribution in the book “E- Commerce: A Guide to the Law of Electronic Business” are of the view that a precise time or place when a contract is formed is not an issue; it only becomes a problem when one party wishes to withdraw or breaches the terms, and at this point the validity of the contract is first considered [6] The basic requirements for a valid contract in the traditional system are: offer, acceptance, consideration and intention to create legal relations and going by the general rule, once an offer is accepted then the contract is concluded which is known as the “postal rule doctrine” [7] . But with the introduction of electronic contract, the issue of “invitation to treat” has become of utmost importance, whereby the supplier displays his goods and services online inviting consumers to buy, the consumer offers to buy and the supplier accepts the offer by way of acknowledgement of receipt also known as the “receipt rule” [8] . This has posed a considerable challenge in determining when online contract has been formed.

Article 5 of the E- Commerce directive provides a general information requirements established for member states to ensure that an information service provider shall make available easy, direct and permanent accessibility to the recipient of the service and competent authorities the following information: (a) the name of the service provider; (b) the geographic address at which the service provider is established; (c) the details of the service provider, including his electronic mail address, which allow him to be contacted rapidly and communicated with in a direct and effective manner [9]

Article 11 of the E-Commerce Directive also provides the principles to be applied in the formation of online contract. This provision mandates the service provider to acknowledge the consumers order without undue delay and by an electronic means at this point the order and the acknowledgement would be deemed to be received once the supplier and the consumer have accessed their respective messages [10] . More importantly Article 10 (1) (a) of the Directive [11] mandates the service provider to notify the consumer prior to entering into a contract, the various steps to be taken in order to conclude the contract, what is important at this stage is an adequate prove of agreement between both parties.

There are existing laws that seek to protect consumers involve in distant contracts, even though some have argued that these laws are obsolete compared to the trend of technological advancement in the virtual world. [12] These laws provide basic requirements needed for the formation of distant contracts. For instance article 4 of Directive 97/7/EC [13] states that, in “good time” before wrapping up any distance contract, the supplier must provide the consumer with the following information: the supplier’s identity, his geographical location and contact address; the features and quality of the goods or services; the price of the goods or services, payment/ delivery method, and where appropriate; supplier must provide revocation period and most importantly the existence of a right of withdrawal, and the exceptions to such rights [14] . The Directive further states that the information must be clear and precise, there must be a written confirmation of the information and the supplier must state the home approval period (cooling off period). Article 7 categorically states that except the parties have reached an agreement, the supplier must deliver the goods or services within a maximum of 30 days from the day the consumer placed his order, laying emphasis on the fact that the supplier must notify the consumer if the goods are not available and must refund the full amount paid as soon as possible or the supplier must provide alternative goods of same quality and price as substitutes [15] . Where the supplier fails to perform his obligations, the consumer has the right to withdraw from the contract as provided for under Article 6, the consumer can withdraw within 7 working days from the day of receipt of goods without penalty, he would only bear the cost of returning the goods and in the case of services, from the day of conclusion of the contract provided that this does not exceed a period of three months. If the consumer exercises his right of withdrawal, the supplier must refund the full amount paid [16] .

The provisions of the E-Commerce regulation, the Distance Selling Regulations and the Electronic Signatures Regulations are quite new to law of contract, and were brought into force mainly to protect consumers’ rights when they buy products via an electronic means. They regulate the conduct of on-line sale and provide guidelines which are considered to be the practical business requirements for on-line contract [17] .

With a clear understanding of the nature and structure of online contract, this essay will discuss in details the issues raised in Mr. John’s transaction with the online supplier in relation to the provisions of the regulations stated above.

LEGAL ISSUES AND AVAILABLE REMEDIES

Firstly, there is no evidence to show that an acknowledgement was sent to john to put him on notice that his order has been accepted and processed along with the contract terms and conditions in accordance with the directive.

Secondly, the supplier did not comply with the provisions of article 4 (1) (a) (e) (f) of Directive 97/7 EC on Consumer Protection and Distance Contract. The supplier did not provide his identity, address/ geographical location, the delivery method/time or performance, and there is no indication that John was provided with information about the existence of his right of withdrawal and the period which the contract remains valid. These are fundamental requirements for a valid electronic contract. Article 5 (1)(a-c) lay emphasis on the identity, details and location of the supplier, including his electronic mail address, which will allow rapid and direct communication with the supplier in an effective manner. In the case of Bundesverband der Verbraucherzentralen et al. v. Deutsche Internet Versicherung AG [18] , the court gave a strict interpretation for the terms “including” and “rapid, direct and effective”. The European Court of Justice interpreted “including” to mean beyond just an email address for contact details. Effective communication was interpreted to mean not necessarily immediate, but rather requires sufficient information to be disclosed to the consumer within a reasonable time. The ECJ did not directly interpret “rapid” but was of the opinion that 30 to 60 minutes was sufficiently rapid to meet the requirement. Again the supplier contravened the above provision because providing e mail address is not sufficient contact information, that is to say, the supplier had to provide other means of contact not necessarily a telephone number, but some order additional information to effectively satisfy the condition of being “rapid and effective” as John is waiting few days to get a response to e-mails he has sent demanding redress.

Also, Article 4 (1) (e) [19] states that the supplier must provide information on payment method, delivery or performance. The supplier did not provide information on delivery method and date; this is a problem for John because there is no guaranteed date for delivery of other items which means the items could be delivered after his son’s birthday. Even though there was no agreed date for delivery, Article 7 (1) provides that the supplier must deliver the goods within 30 days from the day John forwarded his order. Most importantly subsection (2) state that “where a supplier fails to perform his side of the contract on the grounds that the goods or services ordered are unavailable, the consumer must be informed of this situation…” [20] . The supplier did not inform John on the availability or delivery status of the other items and there was no form of communication from the supplier. This essay is of the opinion that the supplier failed to perform his duties to deliver part of the goods ordered. In essence, the contract is part performed and John can only be entitled to performance remedy if the terms and conditions of their contract do not supersede the above provision because there is no provision for specific remedies in the directives.

After all has been said the next question is, can john exercise his right of withdrawal?

Article 6 (1) of Directive 97/7/EC states that the consumer shall have a home approval period of seven working days in which to withdraw from the contract without incurring charges except the cost of returning the goods. The home approval period for goods shall begin from the day the goods were received by the consumer. For services, from the day the contract is concluded provided the period does not exceeds three months. Significant arguments have been raised as to who would bear the cost of returning the items. In the case of Handelsgesellschaft Heinrich Heine GmbH v Verbraucherzentrale Nordrhein-Westfalen eV [21] , the same question arose during trial between a German company and a consumer, the terms of the contract clearly stated that the consumer will pay a non-refundable delivery charge and the consumer was granted an injunction preventing the company from imposing the charge on the consumer, on appeal based on German law, the German government agreed to the fact that the Directive did not enforce the delivery charge in the event of withdrawal on the consumer. Rather article 6 (2) [22] enforces the right of withdrawal of consumer by imposing an obligation on the supplier to reimburse the “amount paid” by the consumer without compensation, stating clearly that such reimbursement must be carried out as soon as possible and in any case within 30 days. The German court gave a strict interpretation to the term “amount paid” to mean the cost of the goods including the delivery charge reiterating the fact that the consumer only bears the cost of returning the goods [23] .

For John to be able to exercise his rights of withdrawal, the supplier must have given him prior information that such rights exist and such rights do not fall under the exceptions because for every general rule, there is an exception and this principle also applies to the consumer’s right of withdrawal. These exceptions are contained in Article 6 (3) [24] . The right of withdrawal cannot be exercised in the following contract: for the provision of services if performance has begun, with the consumer’s consent, before the end of the seven working day period. For the supply of goods or services that are not stable and cannot be controlled but rather depend on market price fluctuation. For personalized or custom made goods and services or perishable goods that cannot be returned. For the supply of audio or video recordings or computer software which were unsealed by the consumer and the supply of games and lottery service.

In this case john ordered for: an IPod engraved with his son’s name, game console with games, Tricycle, E book with a compatible e reader, CD’s and Box of chocolates.

John ordered for an iPod engraved with his child’s name, which is a personalized order exclusive for his son. He has no right to withdraw from the contract and so cannot return the iPod.

He also ordered for music CDs and games which are audio recordings and compressed data and falls under the exceptions. However, he can only exercise his right of withdrawal if the goods have not been ‘unsealed and if there is an agreement to that effect. Therefore once he unseals the items he is precluded from exercising his right of withdrawal. But this has raised remarkable arguments on how “shrink – wrapped” goods can be assessed without unsealing them, hence limiting the consumers ability to inspect the goods and ensure they meet the consumer’s requirements. [25]

From the provisions of article (2) (a) [26] it would be reasonable to rightly suggest that the e – book falls under a service provided for a fee, at a distance, by means of electronic equipment. John personally requested for the service and his computer is the electronic equipment that would be used to receive the e book software. So he cannot exercise his right of withdraw.

Lastly, with reference to the provision of Article 6(3), it would be reasonable to suggest that chocolate is a perishable beverage and is likely to expire or deteriorate easily and so cannot be returned.

John can only exercise his right of withdrawal for the tricycle and the game console because they do not fall under the exceptions.

The next legal issue to consider is the remedies available to john and how they can be enforced.

The online supplier has breached the basic requirements of a valid contract by failing to providing prior information for the 7 days cooling off period and also to perform part of his duties to deliver other goods. John can certainly withdraw from the contract within a period of 3 months depending on the EU member state he is domiciled in and the applicable law in that jurisdiction.

John took the first step of contacting the supplier but there was no reply. Article 11 provides consumers with judicial or administrative redress, thus john can make a formal complaint to the Office of Fair Trade or to the Local Authority Trading Standard Service. They are the enforcement agencies responsible for online contract and consumer protection [27] . He can also make a complaint to any advocacy bureau for example the European Consumer Centres Network (ECC-Net) [28] or alternatively, john can bring an action for damages or to render the contract null and void for missing prior information,. In the case of Martin Martin v EDP Editores SL [29] , the ECJ annulled a distant contact on the grounds that the supplier did not provide the consumer with information on her right to cancel, making a significant claim that the right of withdrawal is a fundamental piece of information that must be provided prior to the conclusion of the contract. In accordance with the laws in Spain, the court had the responsibility to intervene positively to protect the consumer’s rights and enforce the provision of the Directive and so annulling the contract was justified. Similarly, in the case of Pia Messner v Firma Stefan Kruger [30] , the German court found that the claimant exercised her right of withdrawal within the time permitted, given that the defendant did not properly inform the claimant of her right to withdraw before the end of the contract. In a preliminary ruling, the ECJ reiterated the fact that the consumer will bear only the direct cost of returning the goods and so should not compensate the supplier for the use of the goods. The ruling states that the only charge on the consumer will be the direct cost of returning the goods and no consumer should be made to compensate the supplier for the use of the goods pursuant to the fact that ms Pia Messner was not given prior information as to the existence of her right to withdrawal.

Without a doubt the E Commerce directive and the distance selling directives have increased confidence and assurance in distance contract within the domestic market, though it has been argued that these directives have not been successful in regulating cross border transactions. [31] This essay is also of the view that the EC Directives do not have sufficient provisions for the remedies available to the consumer and also methods of enforcement in relation to cross border transaction and for that reason there has been growing concerns in this area because the consumer’s rights are not adequately protected [32] . After the OECD Conference on Empowering E-Consumers in 2009, the report suggested the lack of consumer confidence compared to the new market growth and the fear that it would affect E-commerce globally. Government and other enforcement authorities are finding ways to amend the existing Laws to further protect the rights of consumers in future [33] . Take for instance in 2010, a consultation was launched to find lasting solutions to the slow takeoff of E Commerce and to assess the implementation process of the various directives in cross border online contracts and to create online dispute resolution mechanisms [34] .

PROSPECTS OF THE PROPOSAL AND RECOMMENDATION

Proposals have been put in place to tackle these issues from reoccurring in future. The EU’s proposal on consumer rights review created the green paper on consumer acquis which was adopted October 2008. [35] To protect consumers and boost their confidence and erase the fear of engaging in cross border transactions. The fear was attributed to the fact that suppliers delayed in delivering goods requested for and in most cases do not deliver the goods at all. This was as a result of conflicting consumer protection regulations in different member states and the non fulfilment on the part of the suppliers in accordance with the directive. Consumers were not convinced of the remedies available when trading across borders, and the disintegration of consumer protection rules in different member states made it difficult for consumers to comprehend their rights and thereby degrade alternative out of court settlement provisions contained in the directives.

The proposal is aimed at reducing the ambiguity and complexities in electronic contract and also to complete the existing regulatory framework by fully harmonising existing directives such as 855/577/EEC, 1999/44/EC, 93/13/EEC, 97/7/EC among others into a unified directive to simplify and regulate common areas of contract such as consumer information, the right of withdrawal, unfair contract terms, non conformity of goods, price regulation and injunctions. The aim it seeks to achieve is a favourable and transparent business- to- consumer market environment, making sure there is a balance between the consumer protection and the high level of competition in the market [36] by providing consumers with a high level of protection of their rights in accordance with article 36 and 38 of the Charter of Fundamental Rights of the European Union [37] to meet up with the internal market. If this proposal is implemented, it will not only reduce the complexities but will also boost consumer confidence and will further encourage and increase willingness to enter into cross boarder trading contract this will also strengthen international trade relationships [38] .

The existing laws only empower member states to apply strictness to the applicable laws in their jurisdiction to protect consumers. This is a crucial issue the proposal seeks to address, the inconsistency of existing rules. Paul Todd in his book E-Commerce Law is of the opinion that the provisions for enforcement are weak; claiming that online contractual terms are void in so far as the laws governing the contracts are inconsistent. He lays emphasis on the fact that the existing laws have no provisions for criminal sanctions [39] . This essay is also of the opinion that the existing consumer protection laws are not only weak but obsolete and so cannot meet up with the challenges of technological advancement. But then the proposal intends to apply the principle of mutual recognition by harmonising the rules governing distant contract into a framework directive to provide certainty for consumers. It will promote transparency and efficiency of online contract because it will impose a mandatory duty on suppliers to disclose all material information prior to conclusion of a contract, information on the availability or otherwise of the right to withdraw before the contract begins and which will expire at the start of the service or delivery of goods and this right must be confirmed in writing or by any other durable medium and made available to the customer in “good time”, this will greatly protect consumers in future from cold call supplier who would want to deny them their right to withdraw. The supplier will have to disclose information on the existence of exchange or return policy, thereby awarding them the opportunity to return items that do not meet their specifications and most important for the supplier to disclose information which could be detrimental to the formation process and also to provide information on the availability of alternative dispute resolution [40] .

It will also insert clauses to define unfair terms and prohibit supplier from engaging in misleading commercial practices to lure consumers into buying sub standard goods or services based on advertisement by giving consumers false information as to the true nature of the goods or services, the validity period of the contract and inconsiderate terms and conditions. The directive will prohibit the use of physical force, threat, compulsion or undue influence by taking advantage of a consumer’s situation such as misfortune, debt or knowledge of consumer’s security details to force him into entering a contract. It will also mandate suppliers to make provision for after sales services such as complaint handling/ customer service helpline to handle consumer complaints and general feedback. The directive inserts clauses that will impose sanctions on offenders and provide for injunctions and damages to be granted to curb unfair practices [41] .

It also authorizes a supplier to withhold the full refund until returns have been received or the consumer presents an original certificate of posting to show evidence that the item was returned. This provision also imposes an obligation on the consumer to return the goods before the expiration of the withdrawal period unless there is an agreement with the supplier to bear the cost of returns and arrange courier uplift.

The proposal provides that upon exercise of a consumer’s right of withdrawal any additional contracts shall be terminated.

It further imposes a standard 14 day withdrawal period where the supplier provides prior information of the existence of such rights, and where such information is not provided, the withdrawal period is set at 3 months.

All these amendments will further protect consumers from the risk of internet fraud and unfair commercial practices and will also safeguard the internal market.

So far, this essay has considered extensively the consumer’s rights and how it can be protected. At this point i would like to suggest a system of obligatory identification and certification of online suppliers doing business outside the EU and imposing strict compliance to the EU directives. Secondly, there proposal should review the goods that fall under the exceptions that preclude a consumer from exercising his right of withdrawal, for example there are real life situations whereby a consumer cannot return a cracked or corrupted CD because he has already unsealed it and therefore the consumer bears the loss. Lastly the proposal should also protect