E-commerce Law Involving Electronic Contracting

The first issue that needs to be addressed is whether a website advert is an offer or an invitation to treat as on the case that X Co advertisement on their website. Generally speaking, advertisements on websites are regarded as an invitation to treat, but not an offer, [1] for the reason that they cannot sell whatever they do not have. An offer is one promise from the seller to the buyer to create a contract with the intention to be bound by it, whereas an invitation to treat is distinguished by an offer by the lack of this binding intention. However, a test could be applied to ascertain whether there is a further bargain or the statement is fixed to be binding. As a general principle of the Law Commission in Electronic Commerce, when a person clicks on the ‘agree’ button to confirm the order it is their intention to create a legal contract to be bound by. However, the case law favours the supplier side. In the case of Gibson v MCC it was indicated that even displaying price does not constitute an offer; the seller has the choice of advertising their goods without binding them to the intention of creating a contract. Lord Diplock favoured the conventional approach to see whether, on the true construction of the statement, there is an offer and an acceptance. On the other hand, Lord Denning rejected that view and stated that the court should look at the correspondence as a whole and the conduct of the parties to see if they have reached an agreement or not. [2] The case of Grainger v Sough showed that the displayed price was not an offer which gave the seller the freedom of whom he wished to sell his product to and with whom he contracted with. Therefore, what is advertised is merely an invitation to treat until the buyer reaches the seller, as was recognised in the case of Partridge v Crittenden. Similarly, in the case of PC v Boots it was recognised that displays in shops should be treated as an invitation to treat, concluded at the moment the buyer reaches the counter to create the contract.

Hence, advertisements on websites are an invitation to treat as well as adverts displayed in shops, in accordance to the common law [3] . However, with websites many more risks occur. In the cases of Kodak and the case of Amazon.co.uk, both mistakenly advertised a small price instead of the original price. In both cases it was held that such an advertisement was an invitation to treat rather than an offer. An argument took place regarding the fact that websites may be interpreted in a particular way when confirming whether they are an invitation to treat and not an offer which binds the whole world. [4]

Moreover, another issue that is raised is that amongst different jurisdictions there are differences in the law. Certain products may be prohibited in one jurisdiction even though they are not in another [5] . There are widely held views of how the jurisdiction of an online contract should be created. [6] So, the question is raised of which court should take jurisdiction and which law should apply. In resolving this matter, the European Union tried to protect the consumer by making the E-Commerce regulation, but it is not a big enough unit to cover the electronic network. However, there has to be a balance in regulating. Regulating too much may cause an incapability to perform a transaction on the electronic network, which concerns consumer safety. Therefore, the UNCITRAL of the European Union Convention was created in 1996 to be adapted by modern technology and to form legislation which can facilitate internet contracting. [7] However, it is a limited framework as a simple procedure to enable governments to legislate beyond it. On the other hand, where a dispute arises with non-European Union citizens then the English Law applies. [8]

According to what was discussed above in relation to offers on websites, which is unlike a coffee machine that makes an offer, websites are more complicated or may be rejected sometimes, and this depends on other countries’ jurisdiction, unlike with a coffee machine. This issue was looked at by the European Union Convention. The general trends are making it clear that websites are not offers. Article 11 of the European Union Convention states that contracts via electronic communication are generally constructed to be regarded as an invitation to treat and not an offer, which leaves it open to the public to make an offer. Unless the seller clearly states the intention to be bound while accepting the offer, then it will be regarded as an offer.

Having established the validity of electronic contracting via the internet, the second issue that needs to be discussed is whether a contract can be made without human knowledge or intervention. When a contract is made over the web or by email, an individual’s communication could be met by an automated response. [9] This response will be regarded as void in relation to the contract as it is just an operating machine programmed to respond to an order without human knowledge or intervention. The court found it difficult dealing with such an issue like an automated message. Automated message systems are generally the idea of Internet Technology and they are a legal agent. The general rule will apply once a contract is created and when the seller receives the acceptance. Some argued that the general rule of the automated message system should exist. Glatt argues that ‘Even the most sophisticated software does not make autonomous decisions, but operates according to previous programming. The responsibility, therefore, remains with the principal, who decides to use such software with the intention of being bound by its ‘declarations’. The single transaction has to be seen in the context of the established communications system and its purpose.’ [10] On the other hand, Nimmer argues that electronic services are made to make a contract not for itself but on behalf of its owner. Here, the law has confirmed the issue of automated systems’ validity by Article 12 of the European Union Convention, which states that an automated service in responding to a natural person is regarded as valid, even though there was no intervention from the other party, and should not prevent a contract from being made or found. Moreover, section 14(1) (and 2) of the Uniform Electronic Transaction ensured this issue of validity. [11]

Receiving an automated message does not mean an acceptance. There is an issue of fraud regarding an automated system scheme. In another aspect, these automated message systems can create a contract; whether they do or not depends on a message being sent. Not all actions of electronic agents should lead to a contract; they may be set up to confirm receiving an offer, and it depends on what the electrical agent is set up to do [12] . In the case of Fleetpro, it was held to be liable for making the order of buying cars at a small price and there were a series of fraudulent misrepresentation against Renault. [13] When an order is put in the system and everything is automated it cannot be liable as it was done by machine. Therefore, in terms of misrepresentation there could be no contract made up on an automated system, and as a result it is not treated as an agent. An internet-based scam may be as simple as accepting payment for goods or services and then refusing to deliver. [14] In the case of FTC v Hare it was failure to deliver goods bought at an online auction. [15] In addition, the United States found contracts were made up on the automated system in the case of Cairo v CMS, and it was held that Cairo was bound by the terms because when CMS sent them a letter they were informed of the terms. Hence, dealing with the automated system could result in a contract via the internet; therefore, the question is raised of what happens when there is an error on the price.

The last issue which needs to be addressed is when a contract is made up on an electronic communication and there is a mistake the question is raised of how much this would affect the contract. The growth of electronic communication is sharply increasing. This enormous growth reflects the fact that electronic commerce has a number of advantages over the paper world, particularly in speed and decreasing the cost of engaging in businesses. The basic principle is that a person is bound by what he said or wrote and not excusing his mistakes by saying that reasonable people would understand his mistake, the real intention of the parties is irrelevant. However, in the case of Hartog v Colin and Shield, judge Singleton J. favoured the grounds that there was no contract, because the plaintiff knew that the price he received, in the form of an offer, was a mistake. He realised that and he just wanted to take advantage of it. ‘It is not clear whether for the mistake to be operative it must actually be known to the other party, or whether it is enough that it ought to have been apparent to any reasonable man’. [16] If the buyer has knowledge that there was an error in the pricing on the websites then the contracts created are thereby void under the common law. [17]

Having established these, the next issue which is going to be dealt with is the possible solutions for X Co. Firstly, no answer was given by X Co to Bob’s clicking on the ‘buy’ button, which shows that X Co are not compelled to answer the buyer on the grounds that the advertisement on the website was not an offer but an invitation to treat, and they have the freedom to choose whom they sell their product to.

Secondly, that confirmation was emailed to Bob’s order by X Co and that shows they created a contract and they are bound by it. However, X Co could argue that the advertisement is an invitation to treat and not an offer, and that it was an obvious error on the price, as any reasonable person could realise that a small price for a television was a mistake, and that Bob’s reselling of the other 49 televisions and keeping one indicates that he had knowledge of the mistake in the pricing of the television sets. Accordingly, the response by X Co to Bob shows a clear intention to create a contract which binds them. In addition, section 206 of the Uniform Computer Information Transaction assures issues resulted from mistake. [18] However, Article 11 (1) of the European Convention on E-Commerce imposes requirements on the electronic service for placing an order unless parties who are not consumers have agreed and otherwise confirmed. [19]

The third question is similar to the second one. Confirmation of dispatching to Bob’s order is confirmation of a binding contract as well.

In relation to consider the price is £50, then it is likely to be valid, because it is a small number involved and the financial loss to X Co is reasonable.

Overall, it would seem possible for X Co to rely on the decision made for Kodak where it was held that when confirmation is sent to the buyer it is unlikely to be approval of an order. However, X Co is likely to be liable for the automated message that was emailed to Bob which created a contract.