If you have ever purchased an item on the Internet or signed up for a service online, you have formed an electronic contract on the Internet. A contract is simply an agreement that would be enforceable under the law.
Contracts need not necessarily be in writing. An oral contract is legally recognised and enforceable, although proving its existence is another matter altogether.
An electronic contract is basically a type of contract formed by electronic means rather than traditional media – such as the exchange of signed written documents.
Contracts formed through electronic means (such as over the Internet) are legally recognised as valid and enforceable contracts in Malaysia under the Electronic Commerce Act 2006 (“ECA”).
Only certain types of contract – such as contracts that involve disposition of lands or wills – are specifically required to be in writing and in physical copy as required by specific legislation. For other types of contract, where any law requires the information to be in writing, the ECA states that the requirement of the law is fulfilled if the information is contained in an electronic message that is accessible and intelligible so as to be usable for subsequent reference. \
It further states that where any law requires a signature of a person on a document, the requirement of the law is fulfilled, if the document is in the form of an electronic message, by an electronic signature which:
is attached to or is logically associated with the electronic message;
adequately identifies the person and adequately indicates the person’s approval of the information to which the signature relates; and
is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required.
An electronic signature is as reliable as is appropriate if:
The means of creating the electronic signature is linked to and under the control of that person only;
Any alteration made to the electronic signature after the time of signing is detectable;
Any alteration made to that document after the time of signing is detectable.
Offer and an invitation to treat
Contracts are formed when the following elements are present, namely, offer, acceptance, consideration and intention to enter into legal relations. There is also a distinction between an offer and an invitation to treat in the eyes of law.
Traditionally, case law has decided that the display of an item in a shop window is NOT an offer to sell that item, but rather it is an invitation to treat i.e. an indication by the seller that he may be prepared to sell the item to the buyer. The offer is ONLY MADE when the buyer picks up the item and approaches the counter saying that he would like to buy the item, and it is then up to the seller to accept the offer and close the deal.
While this position has not been tested in our local courts, using the same analogy, the display of an item on a website will likely be treated as an invitation to treat, and a deal is only closed when the online seller accepts the buyer’s offer.
This distinction is important because if the item displayed in the shop window or on the website is treated as an offer, then the moment the buyer accepts it, the seller would be bound by it and must perform the contract. This would be disastrous to the seller if, for example, there are only a limited number of items for sale, and the orders outnumber the items, which means the seller will be bound by contracts which he cannot fulfill.
Online sellers should therefore ensure their terms and conditions state very clearly that the display of items for sale on a website is only an invitation to treat. If not, they must ensure that they have enough stocks to fulfil the orders.
Acceptance and consideration
Traditionally, the basic rule is that for acceptance to be effective, it must be communicated to the buyer.
However, most of the online transactions nowadays are being processed automatically. This has blurred the line as to when an offer is accepted – is it when the seller presses the “Send” button, or when the credit card payment is accepted?
The ECA states that unless otherwise agreed between the originator and the addressee, an electronic message is deemed sent when it enters an information processing system outside the control of the originator. An electronic message is deemed received:
(a) where the addressee has designated an information processing system for the purpose of receiving electronic messages, when the electronic message enters the designated information processing system; or
(b) where the addressee has not designated an information processing system for the purpose of receiving electronic messages when the electronic message comes to the knowledge of the addressee.
That said, it would be prudent for the online sellers to state in the terms and conditions, the manner in which the contract is formed and the point at which acceptance takes place.
Under Malaysian law, there must be a consideration for a contract to be valid and enforceable.
Consideration simply means that each party must receive a benefit from the contract (regardless of whether it has monetary value). This is hardly an issue as the buyer receives the goods or services and the seller receives the payment. Intention to enter into legal relations is usually imputed unless proven otherwise.
Incorporation of terms
The terms and conditions on which the parties are contracting MUST BE agreed by both parties and incorporated into the contract.
It may not be permissible to simply place the terms and conditions on a website or place a link to the page which contains the terms and conditions because the law requires that the terms and conditions must be shown to the customer and agreed by him before or at the same time when they are entering into the contract.
It would be a good practice to require the customer to acknowledge that he has read, understood and agreed to the terms and conditions (for example, by requiring him to scroll through the terms and conditions and click the “Agree” button) before proceeding to place an order.
In addition, the terms and conditions must not be procedurally or substantially unfair, otherwise, the terms and conditions may be declared as unenforceable or void under the Consumer Protection Act 1999.
It would also be prudent to include a choice of law and jurisdiction clause into the contract so as to give certainty as to which law will apply in the event of a dispute. Parties are free to choose which law will apply to their contract, as long as it is expressed with reasonable certainty.
In the absence of any choice of law, the contract will be governed by the law of the country with which it is most closely associated.
Contracts made online are also subject to the same laws as contracts made offline.
Contracts which are unenforceable offline, for example, certain types of contract with children below the age of 18, or contracts which are illegal, immoral or against public policy, will similarly be unenforceable online.
Even if there is a clear choice of law and jurisdiction clause, this may not necessarily prevent courts in other jurisdictions from hearing the dispute if they feel that their customers are being targeted by the online seller’s website. As such, the good practice would be to ensure that the online seller complies with the laws of countries where he carries on business or to exclude orders from countries which he does not carry on business.
About the author:
This article was first published in CHIP Magazine Malaysia.
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.