dissertation.the end.5.2013

100147 Law Research Project BU311 100147

Retail Online Contracting – Are English contract law principles

transportable to internet retail transactions?

100147

Business Law Programme

School of Management and Social Sciences

St. Mary’s University College

22.04.2013

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1.0 Abstract

Why would a consumer in the United Kingdom, leave the comfort of their living room

to drag their weekly shopping home, when at the click of a few buttons, all the goods

could be delivered to their door. Online shopping has boomed over the last ten

years, with companies frequently offering cheaper deals on their websites, as well as

next day delivery options. However, shopping online still means a consumer is

entering into a contract. The contractual implications of internet transactions test the

boundaries of traditional contract law principles.

This dissertation will consider the issues that have arisen from online contracting and

will attempt to identify the need, if any, for reform of contract law. The first chapter

critically assesses the implications of the Electronic Commerce Directive on English

contract law and how effective the Distance Selling Directives are in protecting

consumers. Consideration is also given to the new Consumer Rights Directive

coming into force later this year. Chapter two looks extensively at the legal status of

advertisements found on a website. Chapter three is an in depth study of the

incorporation of the terms and conditions into an online contract and considers

issues concerning enforceability. This chapter also briefly explores the technology

involved in the creation of websites and exposes areas that may need greater

consideration from a legal point of view.

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1.1 Acknowledgements

I gratefully acknowledge the invaluable assistance of Vanessa Beever of St Mary’s

University College, who acted as my supervisor for this dissertation.

A special thank you must be given to Nabil Rafiq, my academic tutor, and to Sabina

Nardell, our course co-ordinator.

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1.2 Abbreviations

ADR...............................................................................Alternative Dispute Resolution

Art........................................................................................................................Article

B2B..............................................................................................Business to Business

B2C............................................................................................Business to Consumer

CA.........................................................................................................Court of Appeal

CA 2006.......................................................................................Companies Act 2006

CRD...........................................................................Consumer Rights Directive 2013

CUECIC...........Convention on the Use of Electronic Communications in International

Contracts

DSD.............................................................................Distance Selling Directive 2000

ECA.....................................................................Electronic Communications Act 2000

E-Commerce Directive........................................Electronic Commerce Directive 2000

EDI....................................................................................Electronic Data Interchange

EECD...........................................................European Electronic Commerce Directive

EU.......................................................................................................European Union

HL..........................................................................................................House of Lords

M&S..............................................................................................Marks and Spencers

MCA 2005.............................................................................Mental Capacity Act 2005

QBD.........................................................................................Queen’s Bench Division

r..............................................................................................................................Rule

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Reg.............................................................................................................Regulations

s.........................................................................................................................Section

SC.........................................................................................................Supreme Court

SoGA 1979............................................................................Sales of Goods Act 1979

UCTA 1977.................................................................Unfair Contract Terms Act 1977

UK........................................................................................................United Kingdom

UN..........................................................................................................United Nations

U.S.........................................................................................United States of America

W3C................................................................................World Wide Web Consortium

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1.3 Table of Contents

Page

1.0 Abstract 21.1 Acknowledgements 3 1.2 Abbreviations 4 1.3 Table of Contents 6 1.4 List of Figures and Table 81.5 Introduction 101.6 Research Hypothesis 111.7 Methodology 111.8 Literature Review 12

___________________________________________________________________

2.0 Chapter One – EU Directives 182.1 Electronic Commerce Directive 2000 182.2 Distance Selling Directive 2000 202.3 Consumer Rights Directive (To be introduced by 13th Dec 2013) 21

___________________________________________________________________

3.0 Chapter Two – Offer versus Invitation to Treat 243.1 Contract law principles for contract formation 243.2 Offer versus invitation to treat 253.3 Virtual shop 273.4 Risk of pricing errors 283.5The vending machine analogy 29

___________________________________________________________________

4.0 Chapter Three – The Terms and Conditions Incorporated 314.1Contract law principles for terms and conditions 314.2 Click-wrap agreements 334.3 Browse-wrap agreements 354.4 HTML files compatibility with browser types 37

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___________________________________________________________________

5.0 Conclusion 39___________________________________________________________________

6.0 Bibliography 42

___________________________________________________________________

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1.4 List of Figures and Table

Table of Statutes

Companies Act 2006

Consumer Protection (Distance Selling) Regulations 2000

Electronic Commerce (EC Directive) Regulations 2002

Electronic Communications Act 2000

Electronic Communications Privacy Act 1986

Pharmacy and Poisons Act 1933

Restriction of Offensive Weapons Act 1959

Sales of Goods Act 1979

Unfair Contract Terms Act 1977

Table of Cases

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Fisher v Bell [1961] 1 QB 394

Grainger and Son v Gough (Surveyor of Taxes) [1896] AC 325

Great Northern Railway Co v Witham (1873) LR 9 CP 16

Hartog v Colin and Shields [1939] 3 All ER 566

Hyde v Wrench [1840] 49 ER 132

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125

Olley v Malborough Court Ltd [1949] 1 KB 532

Parker v South Eastern Railway (1877) 2 CPD 416

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Patridge v Crittenden [1968] I WLR 1204

Spurling (J) Ltd v Bradshaw [1956] 1 WLR 561

Tamplin v. James (1880) 15 Ch D 215, 211

Thornton v Shoe Lane Parking [1971] 2 QB 163

Table of EU Legislation

Consumer Rights Directive 2011/83/EU (Coming into force in13 December 2013)

Distance Selling Directive 97/7/EC

Electronic Commerce Directive 2000/31/EC

Electronic Signatures Directive 1999/93/EC

Table of International Cases

Capsi, Rudder v Microsoft Corp[1999] O.J. No. 3778

Chwee Kin Keorg v Digilandmall.com Pte Ltd [2004] SLR 594

Forrest v Verizon Communications

805 A.2d 1007 (D.C. App. 2002)

Hotmail Corp v Van Money Pie, Inc (1998) WL 388389 (N.D.Cal)

Lefkowitz v Great Minneapolis Surplus Stores Inc86 NW2d 689 (1957)

Reardon v Morley Ford Pty Ltd (1980)49 FLR 401

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1.5 Introduction

Although the process may be different, purchasing goods online still means that a

consumer is entering into a contract1. Electronic contracts have existed since the

early 1970’s in the form of Electronic Data Interchange2 (EDI)3. The 1990’s saw

many more one-off transactions between businesses and consumers concluded over

the internet, where online retailers could “dictate the method of contract formation

and impose their own standard terms and conditions”4. Today’s concern is that if

strict regulations are not implemented to standardise the way in which online

contracts are made and enforced, the implications would be disastrous for both seller

and buyer.

The European Union (EU) has been keen to promote the development of European

business over the internet.5 The European Electronic Commerce Directive was

passed with the intention of laying down the specific formalities6 which need to be

followed for an online contract to be binding.7 Article 9 of the Directive requires that

all member states ensure that their legal system include provisions for contracts to

be concluded by electronic means.8 The Directive was “brought into force in the

United Kingdom by the Electronic Commerce (EC Directive) Regulations 2002”9.

Under English law online contracts are currently governed by the general principles

of contract law. The new medium does not change the applicability of contract law

rules, but that is not to say that there are no limits to its application.10 There are three

1 A contract is a legally binding agreement between two or more parties.2Typically used to handle the electronic exchange of documents between business entities where there is a continuing relationship between the parties. EDIs were something of a legal success as the details and explicit coverage of the contracts reduced the need for litigation.3Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13 Computer and Telecommunications Law Review 223 p.2234Ibid5 Elliott, C., and Quinn, F., Contract Law, (2009), p.856 Article 10 - European Electronic Commerce Directive 2000 – Online retailers must give a clear account of the steps that must be fulfilled before a contract online can be concluded. 7 Elliott, C., and Quinn, F., Contract Law, (2009), p.858 Article 9 - European Electronic Commerce Directive 20009 Elliott, C., and Quinn, F., Contract Law, (2009), p.8510 Squires, A., ‘Some Contract Issues Arising from Online Business-Consumer Agreements’ (2000) 5 Deakin Law Review p.95

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ways a contract can be constructed: in writing, verbally or by conduct. However the

process to create a contract has moved from a dialogue with the seller to a series of

interactions with a website. With the use of a website however, there are several

factors to take into consideration when applying general contract law principles.

Such factors include the way the website is displayed, how a consumer will interact

with the site, the nature of a standard set of terms and conditions and how they are

incorporated into the agreement. Contract law may neglect to address some of the

unique attributes created by online transactions. Both the increase in the use of

electronic contracts and the impact of their potential problems present a compelling

justification for the study of this relatively new area of law.

1.6 Research Hypothesis

I hypothesise that English contract law principles can encompass internet

transactions. The application of the law, however, must be implemented in a

consistent manner and online retailers should be required to operate a standard set

of processes. For a contract to exist online it must be able to satisfy four key

elements: an offer, an acceptance, an intention to create legal relations and

consideration. If the agreement is to be enforceable, sufficient notice of the terms

and conditions must also be provided.

1.7 Methodology

The purpose of this dissertation is to expound and analyse current contract law by

the extensive investigation of primary and secondary sources. The project is based

solely on doctrinal research and will rigorously study the opinions of legal scholars as

expressed in the literature. The dissertation will assess the provisions under the:

Electronic Commerce (EC Directive) Regulations 2002, Distance Selling Directive

2000 and the Consumer Rights Directive 2013 (to be introduced later this year). The

document also explores arguments documented in legal journal articles. Finally,

references will be made to legal practitioner and academic text books to provide a

comprehensive understanding of the topic area.

The primary sources consist of English case law however, sources will also be taken

from international cases. The dependence on international case law is a result of the

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relative newness of e-commerce. It is believed that “the status of a website has so

far not been considered by the English courts.”11

1.8 Literature Review

The literature review is based on academic texts books, websites, journals and

articles. The research has been compiled from this literature to reiterate what has

been said by the different scholars and to put forward the various arguments.

Additionally, the literature review will highlight gaps in the research and show where

this dissertation fits in.

Chapter one

Roach12 focuses on the EU legislation which was created to “harmonise and facilitate

e-commerce”13. However, he stresses that e-commerce has created problems

regarding the formality of a contract which the Electronic Commerce Directive has

failed to address. In particular, he raises two critical issues with the legislation as it

currently stands. The first problem he identifies is that the legislation does not

indicate the point at which the online contract is actually made. Secondly, Roach14

argues that the Electronic Commerce Directive fails to specify the legal status of

display of goods on a website. Fundamentally these two issues are at the heart of e-

commerce contracting.

Contrary to Roach15, Jones et al16 argues that these directives were designed to

stimulate economic growth and to enhance the competitiveness of the EU

economy17, not to revise contract law. The text provides an overview of the three EU

Directives that govern online contracting and selling: the Electronic Commerce

Directive18 (E-Commerce Directive), the Distance Selling Directive19 (DSD) and the

11Kadir, R., ‘Rules of advertisement in an electronic age’, (2013) Interntational Journal of Law and Management p.4512 Roach, L., Business Law, (2009), Chapter 5 & 613Ibid14Ibid15 Roach, L., Business Law, (2009), Chapter 5 & 616 Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.403-40617Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.40218 2000/31/EC 19 97/9/EC

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Electronic Signature Directive20 (E-Signature Directive). Most importantly however,

the authors introduce a principle known as ‘country of origin’, which has arguably

been very effective in boosting e-commerce.21 This principle states that e-businesses

only need to obey the laws of the member of which they are established and not by

the laws of the country in which their services are received.22

Chapter one also benefits from the works of Rowe, who looked broadly at the

proposed rules under the DSD in 1998. The author explains the effects and the aims

of the DSD, suggesting that the DSD would be very beneficial to consumers.

However, in 2002 Henderson and Poulter23 produced an article discussing the DSD

with an aim to identify areas for future revision. As the DSD does not directly link to

the question, the dissertation does not cover this area in great detail; instead it looks

at the newly proposed CRD.

Pinsent Masons24 and Greek25 draw comparisons between the DSD and the new

CRD. The authors both highlight that the originally proposed CRD was too “far-

reaching”26 and was too onerous on online retailers. The new CRD however, is

proven to make significant changes to the rights of the consumer, particularly with

rights to withdrawal. Though the two authors do list the differences between the

current DSD and the CRD, there are limitations in the literature because the

Directive has not yet been enacted. For this reason it is difficult to critically analyse

whether the CRD really is an improvement on the DSD.

20 1999/93/EC21Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.40322Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.40323Henderson, K.., and Poulter, A., ‘The Distance Selling Directive: Points for Future Revision’, (2002) 16 International Review of Law Computers & Technology 289 p.289-30024Pinsent Masons., The new Consumer Rights Directive (Apr. 2013) http://www.Pinsent Masons.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/25Greek, D., What the changes to the Consumer Rights Directive mean for shoppers (Sep. 2011) http://www.computeractive.co.uk/ca/consumer-rights/2097709/changes-consumer-rights-directive-mean-shoppers26Pinsent Masons., The new Consumer Rights Directive (Apr. 2013) http://www.Pinsent Masons.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/

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http://www.out-law.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/


http://www.computeractive.co.uk/ca/consumer-rights/2097709/changes-consumer-rights-directive-mean-shoppers





Chapter two

Chapter two looks extensively at the legal status of an advert on a website. This

chapter relies on the work of Furmston et al27 who explains there is no need for

major revision of contract law in order to accommodate the new medium of a

website. The text draws analogies between paper advertisements, vending

machines and self-service shop display to define the legal status of a website. The

writers conclude that an advert will be deemed either an invitation to treat or an offer

depending purely on the intent of the parties.28 The work also looks at the specific

technological implications when constructing a contract through a website. Most

significantly, Furmston et al29 unlike many other academics, does not see the need to

protect online retailer by deeming all websites as invitations to treat. Instead he

argues that websites have the technology to avoid entering into disadvantageous

contracts.30

Furmston et al31 claims that websites can often be more closely likened to a vending

machine as opposed to a shop display. Vending machines are typically considered

to be offers as it is the customer who makes the final decision to contract. If the

transaction can be executed in its entirety and the final choice rests with the

consumer, then clearly the website is similar to a vending machine and therefore will

constitute an offer.32Furmston et al disagrees with Article 11 under the United

Nations Convention on the Use of Electronic Communication in International

Contracts, which states that a universal rule should be made to determine the legal

status of an advert on a website.33 Instead Furmston et al puts great emphasis on

establishing whether the “maker of the statement intended it to be binding”34.

Woodroffe35argues against Furmston et al claiming that case law supports the notion

that distance contracts, including online contracts, between a supplier and a

consumer are invitations to treat rather than offers.36

27Furmston, M., et al., Contract Formation, (2010), Chapter 628Furmston, M., et al., Contract Formation, (2010), p.168-16929 Furmston, M., et al., Contract Formation, (2010), Chapter 630Ibid31 Ibid32Furmston, M., et al., Contract Formation, (2010), p.16933Furmston, M., et al., Contract Formation, (2010), p.168-16934Furmston, M., et al., Contract Formation, (2010), p.16935Woodroffe, G., and Lowe, R., Consumer Law and Practice, (2007)36Woodroffe, G., and Lowe, R., Consumer Law and Practice, (2007), p.85

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Though Roach37 and Woodroffe concluded that many websites will be deemed

merely as an invitation to treat, such clarification is now a legal requirement under

the Electronic Commerce (EC Directive) Regulations 2002, reg. 9 (1). A website’s

status should be clearly expressed in the terms and conditions or in another

noticeable place on the site.

Roach38 argues that where a retailer may be subject to overexposure, for example in

a pricing error, the court will not assist buyers who are aware of such errors and who

attempt to achieve a bargain. This argument proposed by Roach is in accordance

with the Convention on the Use of Electronic Communications in International

Contracts (CUECIC) Article 11.

Pinsent Masons illustrates that online contracting is the same as offline contracting

by looking at the requirements that must be fulfilled for a contract to exist. Similarly to

Poole39, Roach40, and Pinsent Masons believe that websites are merely invitations to

treat. Though Koffman and MacDonald41 appreciate the need to protect online

sellers, the writers seem hesitant to suggest website adverts are invitations to treat.

They do however, explain that it is “unlikely that suppliers would intend to be

contractually bound to any potential customer”42.

Poole looks at several case studies in which consumers have tried to purchase

goods at the incorrect price. The author insists that, even if a consumer has received

an electronic confirmation email and their card has been accepted, there are still two

key legal hurdles remaining before the consumer can claim a breach of contract.

Firstly, the customer needs to prove that the pricing error was not one that a

reasonable person would have obviously considered to be a mistake. Secondly, the

consumer needs to prove valid acceptance.43 Therefore Poole explores the role of an

electronic confirmation email. With these two hurdles in mind case law has

announced, that where a customer is seeking to snap up a bargain, no contract

exists.

37 Roach, L., Business Law, (2009), Chapter 5 & 638 Ibid39 Poole, J., Textbook on Contract Law, (2010), Chapter 240 Roach, L., Business Law, (2009), Chapter 5 & 641Koffman, L., and Macdonald, E., The Law of Contract, (2010), Chapter 242Koffman, L., and Macdonald, E., The Law of Contract, (2010), p.2243 Poole, J., Textbook on Contract Law, (2010), p.40-41

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Chapter three

In chapter three we look at the way terms and conditions are included in online

contracts and the issues around this area. The chapter explores the ways in which

terms and conditions should be incorporated into electronic contracts, with particular

consideration of the guidance given by the Office of Fair Trading (OTF). Pinsent

Masons strongly argues that simply having the terms and conditions on a website is

not enough. Site providers must also ensure customers read and agree to the

seller’s terms. Without clicking an “I agree” button, customers should not be able to

proceed with the transaction.

Robertson44 talks at length about the way in which terms and conditions are

incorporated into websites. Robertson describes and distinguishes between click-

wrap and browse-wrap agreements45. In the case of browse-wrap agreements

consumers can enter a website and by downloading software will automatically be

bound by the terms and conditions of the site. The problem here is that many

customers are not given sufficient notice of such terms. Robertson expresses that

the courts are now beginning to accept browse-wrap agreements in some

jurisdictions. She accepts that courts must be flexible to accommodate freedom of

contract, but believes “browse-wrap agreements stray too far from the basic

contractual notice and assent”46.

Woodroffe47 also writes about and criticises the way online terms and conditions are

displayed. He particularly draws attention to the challenges and difficulties customers

face when trying to access and understand such terms.48

Furthermore consideration is given to issues caused by the consumer’s browser type

and how the technology may hinder the validity of an electronic contract. Furmston et

al proclaim that normally the author of a traditional contract can control the layout of

the document and shop owners control the display of goods. However, on a web

page customers can view and jump from page to page without following any pre-

44As discussed in Robertson, M., ‘Is assent still a prerequisite for contract formation in today’s e-conomy?’, (2003) 78 Washington Law Review45 Discussed in Chapter Two – The Four Key Elements to Online Contracting46 Robertson, M., ‘Is assent still a prerequisite for contract formation in today’s e-conomy?’, (2003) 78 Washington Law Review p. 26547Woodroffe, G., and Robert, L., Consumer Law and Practice, (2007) Chapter 648Woodroffe, G., and Robert, L., Consumer Law and Practice, (2007) p. 85

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defined order. Consumers could therefore neglect to, or miss reading the agreement

and continue to conclude the contract.49 Moreover he considers the problem with

using different browsers and even comments on the nature of smartphones and their

screen sizes. In the case of smartphones “the displayed content is even more

limited”50 potentially causing customers to miss critical information. The arguments

created in the text are supported heavily by Niederst51.

Finally Elliott and Quinn52provide a clear understanding of the basic contractual

principles throughout all three chapters.

This literature review has highlighted that where statute has offered guidance on this

new method of contracting, many critics still feel there is ambiguity and a lack of

clarity in key areas. Particularly when trying to establish whether a website should be

deemed as an offer or a merely invitation to treat. Furthermore, there is ongoing

debate over how acceptance should be made and what should constitute

acceptance. There are additional matters that require greater consideration such as

the terms and conditions and what is considered to be fair incorporation.

49Furmston, M., et al., Contract Formation, (2010), p.16450Furmston, M., et al., Contract Formation, (2010), p.16651Niederst, J., Web Design in a Nutshell, (2006), p.5-2252 Elliott, C., and Quinn, F., Contract Law, (2009), Chapters 1, 6 and 7.

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2.0 EU Directives

The EU has been keen to promote e-commerce and for this reason, there are now

three EU Directives that currently govern online contracting and selling: the

Electronic Commerce Directive53 (E-Commerce Directive), the Distance Selling

Directive54 (DSD) and the Electronic Signature Directive55 (E-Signature Directive). A

signature is not normally required when a consumer buys goods from a website thus

the E-Signature Directive goes beyond the scope of this project. This dissertation will

cover in detail the E-Commerce Directive and the DSD. Additionally, consideration is

given to the newly proposed Consumer Rights Directive56 (CRD).

Within the European Union (EU) the basic rules regulating contract formation are

subject to the laws of the individual member states.57 However, for an online contract

to be binding, it must comply with the specific formalities imposed by the E-

Commerce Directive.58To understand the extent to which traditional contract law

principles are transportable to internet transactions, consideration must first be given

to the EU Directives that govern online contracting and selling.

2.1 Electronic Commerce Directive 2002

The E-Commerce Directive was introduced into the UK by the Electronic Commerce

(EC Directive) Regulations 2002. The Directive was designed with two main

purposes, firstly to “clarify and harmonise the rules of online business”59, secondly, to

“ensure free movement of information society services”60. Under Article 2(a)

information society services are defined as “services normally provided for

remuneration, at a distance, by means of electronic equipment for the processing

and storage of data, and at the individual request of a recipient of a service”61. The

53 2000/31/EC 54 97/9/EC55 1999/93/EC56 2011/83/EU57 Jones, R., et al., Chance, C., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.40258 Elliott, C., and Quinn, F., Contract Law, (2009), p.8559Pinsent Masons., The UK’s E-Commerce Regulations (Apr. 2013) http://www.Pinsent Masons.com/page-43160 Department of Trade and Industry, Industries and sectors eCommunications: The Electronic Commerce Directive (00/31/EC) & The Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 No. 2013) (Apr. 2013) http://webarchive.nationalarchives.gov.uk/+/http://www.dti.gov.uk/industries/ecommunications/electronic_commerce_directive_0031ec.html61 Article 2(a) – Electronic Commerce Directive 2000/31/EC

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http://webarchive.nationalarchives.gov.uk/+/http://www.dti.gov.uk/industries/ecommunications/electronic_commerce_directive_0031ec.html

http://webarchive.nationalarchives.gov.uk/+/http://www.dti.gov.uk/industries/ecommunications/electronic_commerce_directive_0031ec.html

http://www.out-law.com/page-431



definition includes services giving rise to online contracting. Jones et al62 argue that

the definition is so broad it suggests that “all commercial website offerings will fall

under the E-Commerce Directive”63.

The E-Commerce Directive was never designed to provide specific rules for online

contract formation and was not intended to replace member states contract law

principles. The three provisions under the E-Commerce Directive which relate to

contract formation are Articles 9,10 and11. Article 9(1) of the E-Commerce Directive

demands that all member states should ensure their legal systems allow for contacts

to be concluded by electronic means. Additionally, the legal requirements enabling

the formation of a contract should not create obstacles to the creation of electronic

contracts.64 Article 10 establishes that service providers must give clear and

unambiguous prior information, regarding the steps that need to be followed before a

contract can be concluded. Article 11(1)(a) states that where a consumer has

placed an order electronically the seller must acknowledge the receipt of the order

electronically without undue delay.65

Several critics, most notably Roach66, have argued that in its attempt to harmonise

the rules of online business, the E-Commerce Directive failed to provide sufficient

guidance with relation to online contract formation. However, Kadir67 stresses the

purpose of the E-Commerce Directive was not to define the legal position on

electronic offer and acceptance, but only to provide a general framework to assist

electronic commerce. Therefore the Directive “[does] not elaborate on substantive

principles of contract formations”68.

For business to business (B2B) transactions, instead of creating specific laws to

harmonize the general contract law principles of all the Member States, the E-

Commerce Directive establishes the principle of ‘country of origin’. This principle

insists that the member states apply their own laws when regulating the formation 62 Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402p.402-40663Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.403 64 Article 9(1) – Electronic Commerce Directive 2000/37/EC65 Article 11(1)(a) – Electronic Commerce Directive 2000/37/EC66 Roach, L., Business Law, (2009), Chapter 667Kadir, R., ‘Rules of advertisement in an electronic age’, (2013) 55 International Journal of Law and Management p.42-5068Kadir, R., ‘Rules of advertisement in an electronic age’, (2013) 55 International Journal of Law and Management p.47

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and enforceability of electronic contracts. The principle means that service providers

need only to comply with the laws of the member state in which they are established.

Where the service providers are operating within other member states, the service

provider does not have to concern himself with the laws of the country in which their

services are received.69

The ‘country of origin’ principle is inappropriate when online contracts are concluded

between business entities and consumers. Consumers are considered to be the

weaker party and as a result service providers have to follow the laws of the member

state in which they are established, as well as the laws of the member state their

services are received. For example, a service provider based in France, providing

services for a Spanish consumer, would need to comply with French and Spanish

consumer laws.70

2.2 Distance Selling Directive 2000

Historically consumers have been slow to engage in online contracts due to

concerns regarding the security of the transaction and supplier reliability.71 As a

result, the Distance Selling Directive was brought into UK law in the form of the

Consumer Protection (Distance Selling) Regulations 2000. The primarily role of the

DSD is to provide guidelines for the protection of consumers undertaking distance

transactions, with the aim of reducing consumer concerns. DSD uses four

mechanisms to protect consumers, provision of adequate information, rights to

withdrawal, protection against fraudulent card misuse and prohibiting sellers from

certain activities.72

Article 2 did not provide a definition or an exhaustive list for distance

communications. The Article instead defines distance communication by their

general principles73 as “any means which, without the simultaneous physical

presence of the supplier and the consumer, may be used for the conclusion of a

69 Jones, R., et al., ‘Online selling and contracting: An overview of EU rules’, (2011) 27 Computer Law & Security Review 402 p.40370Ibid71 Henderson, K.., and Poulter, A., ‘The Distance Selling Directive: Points for Future Revision’, (2002) 16 International Review of Law Computers & Technology 289 p.28972 Donnelly, M., et al., ‘The Distance Selling Directives – A Time For Review’, (2005) 56 Northern Ireland Legal Quarterly 200 p.20073 Henderson, K.., and Poulter, A., ‘The Distance Selling Directive: Points for Future Revision’, (2002) 16 International Review of Law Computers & Technology 289 p.290

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contract between those parties”74. Due to the nature of technology a complete list

cannot be assembled. However, it appears that the DSD is no longer sufficient in

protecting consumers who contract over the internet. Therefore a new Directive is

now being introduced later this year to offer a greater range of protection for internet

transactions.

2.3 Consumer Rights Directive

The new CRD to be implemented by the end of this year, expands on the current

DSD by providing additional protection to consumers when shopping online.75 The

CRD is more than a mere expansion on the DSD and Greek76 argues the changes

that are being made will provide significant benefit to consumers in the UK.

Greek77 explains that the first draft of the CRD in 2008 that was designed to

standardise consumer protection laws across Europe was deficient. However, in

countries with little or no protection for consumers, the CRD did in fact strengthen

the laws in this area. Whereas, in countries such as the UK and Finland which

already had strong laws, the CRD offered less protection and conflicted with these

countries’ existing laws.78 In the UK the draft CRD “effectively broke the Sales of

Goods Act”79 and subsequently was discarded by the end of 2009. 80

The new CRD provides further protection in addition to the DSD by giving consumer

new rights where refunds are concerned, providing greater cost transparency, and

further reducing unnecessary costs.

Regulations around refunds will be changing to enhance consumer rights. Where the

seller does not specify that the consumer will bear the costs of shipping the refund,

then the seller will be expected to cover the cost.81 Therefore it is advised that online

retailer explain who will bear the cost of shipping the goods back in the terms and

74 Article 2(4) - Distance Selling Directive 97/9/EC75Pinsent Masons., The new Consumer Rights Directive (Apr. 2013) http://www.Pinsent Masons.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/76 Greek, D., What the changes to the Consumer Rights Directive mean for shoppers (Sep. 2011) http://www.computeractive.co.uk/ca/consumer-rights/2097709/changes-consumer-rights-directive-mean-shoppers77Ibid78Ibid79Ibid80Ibid81Pinsent Masons., The new Consumer Rights Directive (Apr. 2013) http://www.Pinsent Masons.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/

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conditions of their website. Additionally, before the conclusion of the online contract

the seller will be under a new duty to provide customers with a ‘model form’ to be

used by the customer when cancelling the contract.82

The CRD aims to ensure there is complete transparency where costs are concerned.

Online retailers will no longer be able to inflict unnecessary charges on consumers.83

The online retailer will need to disclose the total cost prior to the conclusion of the

agreement, including any what might be termed as hidden charges. If the seller fails

to reveal all information regarding the total cost of the goods or service, the

consumer will not have to pay the extra fees. Finally, if the consumer needs to make

further contact with the seller, he will not have to injure extra surcharges (telephone

calls will be charged at their standard rate).

The CRD seeks to prevent unnecessary costs. One of the important changes begin

made is that the CRD will prohibit sellers from pre-ticking selection options and

adding extra items to transactions. Consumers will need to positively select any add-

ons they want. For example, when purchasing a pair of shoes, the seller will no

longer be able to automatically pre-select and add shoe polish to the transaction.

For the first time the new CRD will allow consumers to cancel a contract for the sale

of digital downloads.84 The EU has never offered protection to consumers purchasing

digital downloads, such as movies, video games, music and software, because such

goods were considered to be intangible.85 Furthermore, online retailers will need to

provide clearer information concerning the download prior to the conclusion of the

contract. In particular, they must provide information regarding the compatibility of

the digital downloads with hardware and software.86

The new CRD allows for the cancellation of the contract, up to the point of download.

It is however still unclear whether stopping the download early will also cancel the

82Pinsent Masons., Consumer Rights Directive to be transposed by 13 December 2013 (Apr. 2013) http://www.out-law.com/en/articles/2011/november/consumer-rights-directive-to-be-transposed-by-13-december-2013/83Ibid84 Greek, D., What the changes to the Consumer Rights Directive mean for shoppers (Sep. 2011) http://www.computeractive.co.uk/ca/consumer-rights/2097709/changes-consumer-rights-directive-mean-shoppers85Ibid86Pinsent Masons., The new Consumer Rights Directive (Apr. 2013) http://www.Pinsent Masons.com/en/topics/commercial/consumer-protection/the-new-consumer-rights-directive/

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http://www.out-law.com/en/articles/2011/november/consumer-rights-directive-to-be-transposed-by-13-december-2013/

http://www.out-law.com/en/articles/2011/november/consumer-rights-directive-to-be-transposed-by-13-december-2013/


contract.87 Greater clarity on this matter is needed and websites should state

whether cancelling the download will also cancel the contract.

Chapter conclusion

The EU Directive does not seek to intervene in the general contract law principles of

the member states. Article 9 was enacted to ensure that all Member States

electronic contracts are as valid as a normal contract concluded offline. The E-

Commerce Directive has enabled member states modifications to their contract law

principles, so that their laws can accommodate contracts concluded via the internet.

Though the DSD has in the past offered protection to consumers, it no longer fully

protected the consumer when contracting over the internet. The new CRD is being

introduced to address areas in internet contracting, not sufficiently covered by the

DSD. It is difficult to fully critique the CRD because it has not yet come into force.

The CRD appears to be an improvement over the DSD, offering more protection to

consumers engaging in internet transactions.

3.0 Offer versus Invitation to Treat

The E-Commerce Directive failed to define the legal status of a display of goods

found on websites.88 For this reason, where disputes arise with relation to online

contract formation, the general principles of English contract law must be applied.

87Ibid88 Roach, L., Business Law, (2009), p.158

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This chapter investigates the applicability of traditional contract law principles in

defining the legal status of a display of goods found on a website. This relates to the

hypothesis specifically focusing on the distinction between an offer and an invitation

to treat.

3.1 Contract law principles for contract formation

Under English contract law there are four fundamental elements for the formation of

a contract. The elements are an offer, an acceptance, an intention to create legal

relations and some form of consideration. An invitation to treat is “simply a request

for others to make an offer”89, for example an advertisement is usually considered to

be an invitation to treat. The invitation to treat originates from the person who wishes

to sell goods or services. Following the invitation to treat, an offer would then be

made by the offeror (the buyer). An offer is considered to be “a clear expression of

contractual content”90 which suggests the offeror’s willingness to enter into an

agreement based on the terms provided. Once an offer is made, the offeree (the

seller) will either accept the offer, present a counter-offer or reject the offer.

Acceptance is “an unconditional positive response to an offer”91 and must be

communicated by the offeree to the offeror. Once acceptance has been

communicated a contract is made and the parties assume all rights and obligations

under the agreement.92 An intention to create legal relations in the context of a

commercial agreement is automatically presumed and this presumption will not be

rebutted unless there is clear contrary evidence.93 Additionally, some form of

consideration is also required that is to say “each party should derive something

beneficial94 from the transaction”95.

3.2 Offer versus invitation to treat

The most problematic area of online contract formation is deciding whether the

website constitutes an offer, or an invitation to treat. This distinction is extremely

89Deveci, Hasan A., ‘Consent in online contracts: old wine in new bottle’ (2007) 13 Computer and Telecommunications Law Review 223 p. 22490Ibid91 Turner, C., Unlocking Contract Law (2010), p.2992Ibid93 Elliott, C., and Quinn, F., Contract Law, (2009), p.6294 For example, the buyer will give the seller money in exchange for the seller’s goods or services. 95Halberstam, S., How to contract online (Nov. 2012) http://www.weblaw.co.uk/2009/09/06/how-to-contract-online/

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http://www.weblaw.co.uk/2009/09/06/how-to-contract-online/

http://www.weblaw.co.uk/2009/09/06/how-to-contract-online/


important because the legal status of a display of goods on a website “has not been

tested by the UK courts”96 and the E-Commerce Directive failed to provide greater

clarity on this issue. It has been suggested that there needs to be a statutory

provision defining website adverts as invitations to treat.97 The conflicting view states

that no universal rule can give guidance on the legal status of a display of goods, the

status depends on the content of the statement and the intention of the parties and

not the method of communication.98

3.3 Virtual shop

Websites are more commonly regarded by legal scholars as the equivalent of a

“virtual shop”99, where shop displays are merely invitations to treat. Instead of

viewing the goods on a shelf, the online buyer navigates through a series of

electronic pages on a computer screen to view the goods.100 As a substitute for a

shopping basket, the buyer drops his selected goods into a virtual basket.101 Finally,

the buyer goes to the checkout and pays for the goods.102 Such a process is

analogous to the self-service shop found in the case of Pharmaceutical Society of

Great Britain v Boots Cash Chemists103. In this case there was a need to decide at

what point the contract was concluded in a self-service shop. The defendants were

accused of breaching section 18(1) of the Pharmacy and Poisons Act 1933, which

states that it is not lawful for a person to sell any poison unless he is authorised to

sell such goods and that the sale is processed by, or under the supervision of, a

registered pharmacist.104 If the priced goods were an offer, the contract would be

concluded as soon as the consumer took the goods off the shelf, thus the

defendants would have been in breach of the statutory provision. However, if the

display was only an invitation and it was the customer who made the offer, then the

plaintiffs were not in breach. Lord Goddard CJ held that in a self-service shop the

customer selected and brought the goods to the shop-keeper. “The contract being

96Pinsent Masons., Online Contract Formation (Feb. 2008) http://www.out-law.com/page-39497 Article 11 – United Nations Convention on the Use of Electronic Communication in International Contracts 98Furmston, M., et al., Contract Formation, (2010),p.16899 Roach, L., Business Law, (2009), p.159100Ibid101 Richards, P., Law of Contract, (2011), p.23102 Roach, L., Business Law, (2009), p.159103 [1953] 1 QB 401104 Section 18(1)(a)(i-iii) – Pharmacy and Poisons Act 1933

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completed if the shop-keeper accepted the customer’s offer to buy”105. The offer

therefore is “an offer to buy, not an offer to sell”106. The case went to the Court of

Appeal where Somervell LJ agreed with the lower court’s decision.

Case law has proved that a display of goods in a shop at a particular price will only

amount to an invitation to treat. In Fisher v Bell107 a shop-keeper displayed a ‘flick

knife’ with a price tag attached and was alleged to be a breach of Section 1(1) of the

Restriction of Offensive Weapons Act 1959. J.A. Cox for the prosecution argued “it

may have been a conditional offer, but if a person entered the shop and asked why it

was in the window the answer must have been: It is for sale”108. Lord Park C.J

reluctantly held “according to the original law of contract the display of an article with

a price on it in a shop window is merely an invitation to treat”109.

Regulation 12 of the E-Commerce (EC Directive) Regulation 2002 states that “[an]

order may be but need not be a contractual offer”110. This suggests that an advert on

a website will typically constitute an invitation to treat, but on occasion could signify

an offer.111 Where disputes about the status of a display of goods on a website arise,

the courts will need to determine the status on a case by case basis, looking at the

individual facts and the intentions of the parties. Thus online retailers must “exercise

great care”112 when designing the website.

To understand whether a display of goods will amount to an offer or merely an

invitation to treat, the courts will need to determine whether the advert is for a

unilateral or bilateral contract. A unilateral contract requires that “only one party

assumes an obligation under the contract”113whereas in a bilateral contract “all

parties assume an obligation”114. In Carlill v Carbolic Smoke Ball Co115 the defendant

manufactured smokeballs and in the advertisement claimed the smokeballs would

prevent the flu. If anyone still caught the flu, the defendant would pay £100

compensation. Mrs Carlill bought and used the product, but still contracted flu. The 105Pharmaceutical Society of Great Britain v Boots Cash Chemists [1952] 2 All ER 458106Ibid107 [1961] 1 QB 394108Fisher v Bell [1961] 1 QB 394 - J.A Cox (Prosecutor)109Fisher v Bell [1961] 1 QB 394 – Lord Parker C.J110 Regulation 12 - Electronic Commerce (EC Directive) Regulations 2002111 Richards, P., Law of Contract, (2011), p. 24112 Richards, P., Law of Contract, (2011), p.23113 Elliot, C., and Quinn, F., Contract Law, (2009), p.12114Ibid115 [1893] 1 QB

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defendant refused to pay claiming that an offer could not be made to the world at

large. The court held that the advertisement could in fact constitute an offer to the

world at large. The offer became a contract when a member of the general public

accepted it. Such contracts are assumed to be unilateral because there is no need

for further negotiation, the person making the advertisement intends to be bound.116

Furmston et al117 proposed that there should be no universal rule defining the legal

status of an advert on a website. Furmston et al explains that it is the content of the

statement made, not the method by which it is communicated which determines

whether a website acts as an offer or an invitation to treat.118 Under traditional

contract laws an advertisement can be an offer if expressed in a particular manner

that would prove intent to be binding.119

3.4 Risk of pricing errors

One of the main reasons for determining the status of display of goods on a website

is to avoid disputes over pricing errors. Advertising online is advertising to the world

and the impact of a pricing error can therefore be significantly worse for an online

retailer.120 There have been several recent cases where consumers insisted that a

contract be upheld where there was a pricing error on the website. Poole121 cites two

examples: Argos advertised Sony Television sets for £3 instead of £299 in 1999 and

Amazon tendered a pocket PC for £7.32 instead of £274.99 in 2003.122 The Sun

newspaper reported in 2012 that Tesco’s website advertised iPads for £49.99

instead of £659.123 Tesco was able to refuse to honour the orders, because their

website stated that the site was an invitation to treat.124 If a website constitutes an

invitation to treat and the supplier has not accepted the offer, they will not have to

fulfil their obligations under the contract.

Case law established that no contract exists where a customer has tried to take

advantage of an exceptional offer that was the result of an obviouspricing error.125 116 Elliot, C., and Quinn, F., Contract Law, (2009), p.15117Furmston, M., et al., Contract Formation, (2010), Chapter 6118Furmston, M., et al., Contract Formation, (2010), p.168119Carlill v Carbolic Smoke Ball Co [1893] 1 QB120Chwee Kin Keong v Digilandmail.com Pte Ltd [2004] 2 SLR 594121 Poole, J., Textbook on Contract Law, (2012), Chapter 2122 Poole, J., Textbook on Contract Law, (2012), p.40-41123Kinnon, F., ‘Should Tesco perform U-turn over £49.99 iPads?’, The Sun, 15 March 2012124Ibid125 Poole, J., Textbook on Contract Law, (2012), p.41

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The Hartog v Colin Shields126case confirmed that the courts will not assist a buyer

who is aware of a pricing error and who is attempting to exploit the error.127 Singleton

J explained “there really was no contract”128 because the plaintiff knew the offer

“contained a material mistake”129 and the plaintiff “sought to take advantage of it”130.

Such a concept is perhaps better described as “snapping up the offer”131. The

presumption then is that if a consumer is aware of an obvious pricing error on a

website, the online retailer will not be bound by the contract and the law here

appears to be fair.

Whether the purchaser ‘ought to have known’ there was a pricing error is subject to

the reasonable prospective purchaser test.132 In Chwee Kin Keong v

Digilandmall.com Pte Ltd133the High Court of Singapore held, the unusual pricing of

the products in question would encourage a reasonable buyer to research and

compare prices of similar goods on other websites. The comparison would lead the

buyer to conclude that there was a pricing error in the original offer. Although case

law appears to favour the seller in such situations, the outcome may be less clear if a

more modest pricing error was made.134

3.5 The vending machine analogy

In a typical online transaction the customer goes to the website, selects the product

or service, enters their card details, the computer accepts the money and then the

goods or services are delivered. The process resembles closely the one used for

vending machines and as seen in Thornton v Shoe Lane Parking Ltd135, vending

machines are deemed to be an offer136. Thus it is argued that if the transaction can

be completed online in its entirety and the consumer has the final choice to contract

126Hartog v Colin Shields [1939] 3 All ER 566 (KB) 127 Roach, L., Business Law, (2009), p.159128McKendrick, E., Contract Law, (2012), p.33129Ibid130Hartog v Colin Shields [1939] 3 All ER 566 (KB)131Tamplin v. James (1880) 15 Ch D 215, 211132 Poole, J., Textbook on Contract Law, (2012), p. 41133 [2004] SLR 594134 Roach, L., Business Law, (2009), p.159135 [1971] 2 QB 163136Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 – Lord Denning MR said vending machines constitute a standing offer because once the machine was activated there was no possibility of negotiation.

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or not, the website’s display should amount to an offer.137 The type of transactions

where this analogy applies is where the consumer buys digital downloads, such as

computer software, music, video files and computer games. Once the consumer

accepts the agreement by entering their card details, the download automatically

begins and there is no need for further acceptance by the seller. In these

transactions the digital file cannot ‘run out of stock’, therefore it would seem perfectly

acceptable to assume the advert should be deemed an offer.

The Thornton v Shoe Lane Parking Ltd138 case involved the use of a car park ticket

machine.Lord Denning explained “the customer pays his money and gets a ticket.

He cannot refuse it...he was committed at the very moment when he put his money

into the machine”139. In the case of a digital file the buyer receives a file as opposed

to a ticket and cannot revoke the agreement.

Chapter conclusion

No English court has tackled the issue regarding the legal status of a display of

goods on a website. Adverts for the sale of goods on websites can be likened closely

to a display of goods in a ‘real shop’, which will usually constitute an invitation to

treat. However, some adverts and displays of digital goods can also be analogous of

a vending machine, which is deemed to be an offer. English contract law is able to

adapt to the new medium and accommodate any disputes arising from online

contract formation. The courts need to decide the legal status on a case by case

basis. The status will depend on the intention and the content of the statements

made on the website. No universal rule should be made, but it is believed that in

most cases a display of goods on a website is merely an invitation to treat.

137Furmston, M., et al., Contract Formation, (2010), p.169138 [1971] 2 QB 163 139Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

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4.0 Terms and Conditions Incorporated

This chapter will look at the ways in which terms and conditions are incorporated into

online contracts and matters relating to their enforceability. Brief consideration is

given to what impact other technological advances, such as browser types and

HTML files, may have on the terms and conditions. To fully understand how terms

are incorporated and enforced, it is first necessary to review the general contract law

principles.

4.1 Contract law principles for terms and conditions

Under English contract law, the overriding rule for the implementation of terms and

conditions is that parties should be free to make contracts on any terms, a concept

also known as freedom of contract140. The courts make the assumption that nobody

would choose to enter into a contract that would be unfavourable or

disadvantageous. Elliott and Quinn et al141 suggest that the courts merely act as

umpires in holding parties to their promises. It is not the court’s role to ask whether

the bargain made between the parties was fair.142

For an agreement to be binding the terms and conditions must be properly

incorporated. There are two categories of terms, implied and expressed. Implied

terms are incorporated by statute, custom and fact.143 Expressed terms however, are

either written or spoken by the parties. There are three ways to incorporate written

terms: by reasonable notice, signature (assent) and previous course of dealing.144

In trying to establish if the terms and conditions were incorporated into the contract

properly, there must be reasonable notice of the terms. In Parker v South Eastern

Railway145 the facts explains that Parker paid two pence and deposited a bag into the

railway’s cloakroom subsequently receiving a ticket. On the front of the ticket it said

“See back”. On the back was an exclusion clause proclaiming the cloakroom service

excludes all liability “for any package exceeding the value of £10”146. A similar sign 140 Freedom of contract was derived from the doctrine of laissez-faire (parties should be left alone to make their own bargains).141 Elliott, C., and Quinn, F., Contract Law, (2009) 142 Elliott, C., and Quinn, F., Contract Law, (2009), p.4143Treitel – Peel, E., The Law of Contract, (2010), p.222144 Elliott, C., and Quinn, F., Contract Law, (2009), p.125145(1877) 2 CPD 416146Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 Pg. 225

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had also been placed in the cloakroom. The plaintiff argued he had not read the

conditions as he assumed the ticket was merely a receipt. It was held that sufficient

notice had been provided, a decision which was upheld by the Court of Appeal.

The courts appear to concentrate on whether the offeror used reasonable efforts to

bring the terms to the attention of the offeree.147 This is illustrated in the Olley v

Marlborough Court Ltd148case. The facts of the case were that the plaintiff, a guest at

the defendant’s hotel, locked the hotel room, left the keys at reception and returned

four hours. On return the plaintiff noticed the keys had gone along with some of her

belongings from the room. The defendant argued there was a notice exhibited in the

bedroom that stated “The proprietors will not hold themselves responsible for articles

lost or stolen unless handed to the manageress for safe custody”149. All valuables

should be deposited for safe custody and a receipt should be obtained. It was held

that the terms of the notice had not been properly incorporated into the contract prior

to the agreement. The notice was only visible after the plaintiff had been accepted as

a guest. The lower court held the terms were not clear in exempting the defendant

from all liability and therefore not incorporated. The Court of Appeal upheld this

decision.150

Where there is a signature, the expressed terms will be incorporated into the

contract. In L’Estrange v F Graucob Ltd151the landlady of a café purchased and

signed a contract for an automatic cigarette vending machine. However, the landlady

failed to read the agreement, which contained an exemption clause prior to its

conclusion152. The court held she was still bound by the clause and Scrutton LJ said

“when a document containing contractual terms is signed...the party signing it is

bound”153. Though the rule may appear to be harsh, a party may only be bound by

the agreement where one would reasonably have expected to find contractual

terms.154

147Ibid148 [1949] 1 KB 532149Olley v Marlborough Court Ltd [1949] 1 KB 532150Ibid151 [1934] 2 KB 394152 Exemption clause - Consumer could not rely on defects in the machine as a defence to a claim for part of the price or as entitling her to damages.153L’Estrange v Graucob [1934] 2 KB 394154Treitel - Peel, Edwin., The Law of Contract., (2010), p.238

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Expressed terms can also be incorporated by previous course of dealings. In

Spurling (J) Ltd v Bradshaw155 the defendant contracted to store goods in the

claimant’s warehouse over many years. On one occasion the goods went missing

and when the defendant refused to pay the claimant for the store facility, the

claimant sued. The defendant then counter-claimed, alleging the claimant was

negligent for the loss. The claimant pointed out an exclusion clause for any loss

which was implied by the parties previous course of dealing. The courts agreed the

clause was incorporated as the parties had dealt under the same terms for many

years.156 The courts however, will not accept exception clauses where there has not

been a consistent course of action.157 The judgement is comparable with the

judgement of Parker v South Eastern Railway158.

4.2 Click-wrap agreements

Click-wrap agreements are typically used when purchasing goods such as a sweater

or a cooking appliance. These agreements can be identified when a “user must first

click on an ‘I Accept’, ‘I agree’…button expressing assent”159. A click-wrap agreement

will prohibit the formation of a contract unless the consumer positively assents to the

terms and conditions.160 For a customer to proceed they must at the very least have

acknowledged the terms and therefore cannot argue lack of notice.

Click-wrap agreements provide customers with sufficient notice and demand that the

customer make a clear statement to show their acceptance of the terms and

conditions. For this reason “click-wrap agreements have generally been found to be

enforceable”161. In Hotmail Corp v Van Money Pie, Inc162, Hotmail provided a free

email service to subscribers under the expressed condition that subscribers should

not use “Hotmail to send unsolicited commercial emails”163. The site made the terms

155 [1956] 1 WLR 561156Ibid157 McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125158 (1877) 2 CPD 416159Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p.228160Ibid161Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p.229162(1998) WL 388389 (N.D.Cal)

163Ibid

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available prior to the completion of setting up the account and consent by

subscribers was made by clicking on the ‘I Agree’ button. The defendant sent an

unsolicited commercial mail using a third party email service, but used the Hotmail

service mark in the return address.164 This suggested that the email had been sent

from a Hotmail account. It was held that the defendant had sufficient notice and had

agreed to Hotmail’s terms. In sending unsolicited emails the defendant had breached

the click-wrap contract.165

In Capsi, Rudder v Microsoft Corp166 there was a dispute over a forum selection

clause in Microsoft’s membership agreements. Potential members were warned, “if

you click [the] ‘I agree’ button without reading the member agreement, you are still

agreeing to be bound by all of the terms…without limitation”167. The plaintiff argued

that the user had to scroll down in order to see the agreement in its entirety.168 The

court proclaimed that the “electronic multiscreen display”169 was no “different from a

multi-page written document which requires a party to turn the pages”170. Regardless

of whether the terms are contained in a scroll box the parties will still be bound by

the agreement.171 Where a person has signed a contract, even if he has not read the

terms and conditions he will be bound by the agreement.172 As in L’Estrange v

Graucob173, where the customer is given the opportunity to read the terms prior to

providing consent, it is in their best interest to do so. This is based on the notion of

caveat emptor174.

4.3 Browse-wrap agreements

164Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p. 229165 Ibid166[1999] O.J. No. 377167Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p. 230168Capsi Rudder v Microsoft Corp[1999] O.J. No. 3778169 Ibid170Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p. 230171 Forrest v Verizon Communications 805 A.2d 1007 (D.C. App. 2002)172Treitel - Peel, Edwin., The Law of Contract., 13th Edition, Sweet & Maxwell, p. 238173 [1934] 2 K.B. 394174 Latin for ‘let the buyer be aware’

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A browse-wrap agreement occurs where the “user has an opportunity to view the

online terms but is not required to demonstrate consent”175. These agreements are

typically used when downloading software, music, games or other electronic files.It

has been argued that browse-wrap agreements have been more problematic176 when

compared to their click-wrap counterparts.

The use of browse-wrap agreements carries a significant risk for the online retailer.

This type of agreements do not provide a method of affirmatively accepting the

terms, it can be hard for the site provider to prove consent was actually given. If it

can be proved that consent was demonstrated by conduct, where the user had a

previous course of dealings, the courts may still enforce the agreement.

Perhaps the greatest issue with browse-wrap contacts is that they often do not place

the terms in a prominent position, or highlight them for the attention of the consumer.

If the customer can establish that they were not given reasonable notice of the terms

nor did they provide consent, then the courts may dismiss the contract as being

unenforceable. In Specht v. Netscape Communications Corp177, the plaintiff

purchased a plug-in programme in which he agreed to the terms and conditions.

However, upon download an additional spyware programme was installed thus

breaching the plaintiff’s privacy. The defendant attempted to stay the court

proceedings by arguing that the plaintiff had agreed to an arbitration clause when he

downloaded the software. The United States Court of Appeal found that the plaintiff

was not given sufficient notice of the license terms for spyware, nor had the plaintiff

provided assent to the terms prior to downloading the program.178 It was held the

browse-wrap was unenforceable because it did not require the customer to

affirmatively agree to the conditions. The court held the claimant could not be bound

by contractual provisions of which he was aware.179

Pinsent Masons180 argues where the phrase ‘Terms and conditions’ appears on a

website there needs to be “an obvious link to the terms themselves”181. It is not

175Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p. 228176Ibid177 306 F.3d 17 (2d Cir.2002)178Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir.2002) 179Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p. 231180Pinsent Masons., Online Contract Formation (Feb. 2008) http://www.out-law.com/page-394181Ibid

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acceptable to have the terms and conditions in an inconspicuous place. Where the

agreements do not bring the relevant terms to the attention of the purchaser the

contract cannot be bindingas seen in Olley v Marlborough Court Ltd182. Pinsent

Masons argues that the website “seller must ensure that the ordering process

requires the customers to read and agree to the seller’s terms and conditions”183.

Terms can be incorporated into the agreement by conduct therefore browse-wrap

agreements should be enforceable. “A signature is not always a prerequisite of

traditional contracts”184, so the question raised is, why should a ‘click button’ be a

precondition for an online contract to be enforceable. Many contracts are concluded

through conduct were a signature or affirmative assent is not provided by the user.

Deveci supports this by declaring that the courts “should not write off browse-wrap

agreements as unenforceable”185. However, browse-wrap should only be enforceable

where the parties have had reasonable notice of the terms.

Online retailers are instructed by the Office of Fair Trading not to encourage users to

make statements that are untrue when agreeing to the sites terms. Sites should

avoid phrases such as “I have read, understand and accept the terms and

conditions”186. Where for example, a customer has not actually read the terms and

conditions, the site is considered to be encouraging him to make untrue statements.

In order to prevent consumers from making false statements, the OTF suggests sites

should warn consumers of the importance of reading the terms and conditions and

use phrases such as “I accept the terms and conditions”187 beside the acceptance

click button.

4.4 HTML files compatibility with browser types

182[1949] 1 KB 532183Pinsent Masons., Online Contract Formation (Feb. 2008) http://www.out-law.com/page-394184Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 p.234185Ibid186Pinsent Masons., Online Contract Formation (Feb. 2008) http://www.out-law.com/page-394187Ibid

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Websites are made up of a series of HyperTextMarkup Language (HTML) files,

which provide instructions expressing how the contents on the site should be

displayed.188 The way the content is presented on a website however, is dependent

on how the various browsers189 process these instructions. In some cases the

browser may distort the content of the original website so much that parts of the

content may not be displayed at all. Such content could include the hyperlink needed

to redirect the consumer to the terms and conditions.190 Therefore online retailers

cannot control how their website will be displayed to their customers because

different browsers will interpret the HTML files differently.191 The question is, who

should bear the risk if notice of the terms were incorporated, but were not displayed

because the customer’s browser could not support the necessary technology.192

The online retailer must ensure the construction of the website is not distorted by the

various browsers if the terms of the agreement are to be incorporated effectively.

“The visibility or positioning of a hyperlink providing the terms depends on the

specific browser”193. Reasonable notice of the terms ultimately determines whether

the agreement will be enforceable. To protect the online retailer they can create

multiple versions of a site to ensure similar functionality across different browser

types.194

Customers can change the default settings by customising their browsers.195 In this

instance it is hard to determine who should bare the risk. Online retailers will have

limited capabilities in controlling how their websites are laid out and customers may

be unaware of the affect their customizations will have on their ability to view the

terms. It would seem reasonable, however, that where a customer has his altered

the browser settings, he should bare all responsibility and the courts should still insist

on the enforceability of the agreement. The basic presumption is that if a customer

possesses the knowledge to alter the browser the customer should also appreciate

188Niederst, J., Web Design in a Nutshell, (2006), p.114189 Internet Explorer browser will process the instructions differently from that of Safari, Netscape or Firefox. 190Furmston et al, Contract Formation, (2010), p.164191Ibid192Furmston et al, Contract Formation, (2010), p.165193Furmston et al, Contract Formation, (2010), p.164194Niederst, J., Web Design in a Nutshell, (2006), p. 22195Furmston et al, Contract Formation, (2010), p.166

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that any tampering with the default settings could incur a range of problems. Thus

this notion of ‘tamper at your own risk’ should be adopted.

Chapter conclusion

Several issues arise when incorporating the terms into a contract for online

transactions. General contract law principles state terms must be incorporated by

reasonable notice, assent or previous course of dealing. Click-wrap agreements are

enforceable because they satisfy two criteria, reasonable notice and assent by

clicking on the ‘I accept’ or ‘I agree’ button. Browse-wrap agreements present a

dilemma when reasonable notice is not provided and where affirmatively expressed

acceptance is not required. However, if the browse-wrap agreement does provide

reasonable notice of the terms the agreement should still be enforceable.

Technological aspects of a website can induce further complications where browser

types distort the layout of web pages. The question still remains, if a browser affects

the web page to the extent that reasonable notice of the terms is not provide, who

should then bare the risk. Recently the courts have begun to consider the

enforceability of browser-wrap contracts in other jurisdictions.196

196Deveci, H A., ‘Consent in online contracts: old wine in new bottles’, (2007) 13Computer and Telecommunications Law Review 223 Pg. 231

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5.0 Conclusion

The research hypothesis stated that ‘English contract law principles can encompass

internet transactions’. Contract law can accommodate any new medium and

therefore does not require major revision when applied to online contracting.

The EU has created several Directives to help boost e-commerce and to protect

online consumers. Though Roach argues the E-Commerce Directive failed to define

the legal status of an advert on a website, the Directive was not designed to reform

the contract law of the various member states. Instead the Directive intended only to

harmonise the rules and to encourage member states to recognise the validity of

electronic contracts by the enactment of Article 9. Article 9 is extremely important in

that it prohibits the laws of member states from preventing the valid formation of an

electronic contract. The E-Commerce Directive favours e-business and in order to

boost business to business commerce the Directive established the principle of

‘country of origin’.

The DSD has been effective, but in the world of ever changing technology, greater

protection for consumers is needed. For this reason, the new Consumer Rights

Directive will come into force by 2013. Though it is argued that the CRD is only a

mere expansion of the DSD197, however this is not an accurate description. It is true

that the CRD will expand on the DSD, but it intends to go much further than that. For

the first time ever consumers will be given new rights where refunds for digital

content downloads are concerned. Additionally the CRD will prohibit sellers from

adding items to the consumer’s basket by pre-ticking option boxes. As the CRD has

not yet come into force, any in depth critical assessment would be somewhat

superficial. The CRD does however appear to be more effective in protecting online

consumers than the DSD.

Case law has proven that traditional paper adverts can be deemed to be an invitation

to treat, but on some occasions can amount to an offer. If the analogy of a paper

advert can be applied to an online advert, then the website too can fall under both

categories. If the advert on the website is for the display of goods, then the site will

197 Greek, D., What the changes to the Consumer Rights Directive mean for shoppers, (Sep. 2011) http://www.computeractive.co.uk/ca/consumer-rights/2097709/changes-consumer-rights-directive-mean-shoppers

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resemble a self-service shop and will usually constitute an invitation to treat.

However, there are instances when the advert is for a unilateral contract, in which

case the advert will amount to an offer. Additionally, it can be argued that where

there is an advert for a display of digital downloads, the transaction process is more

liken to a vending machine interaction, which is deemed an offer. No universal rule

should be made to define the legal status of an advertisement found on a website.

The courts will need to make a decision on a case by case basis. Applying general

contract law principles to decide whether the contract was bilateral or unilateral will

enable the courts to determine its status.

There are three ways that terms can be incorporated into a contract, by reasonable

notice, signature and previous course of dealings. Click-wrap agreements allow the

incorporation of the terms by providing reasonable notice and by affirmative assent;

and as such are enforceable. However, browse-wrap agreements do not necessarily

bring the terms and conditions to the attention of the consumer and therefore do not

give sufficient notice. Furthermore browse-wrap agreements do not require

consumers to make an affirmative assent and proving assent by previous course of

dealing can be hard to establish. If a consumer has not had previous dealings with

the online retailer, how will the online retainer be able to enforce the terms.

Conversely Deveci states that signatures are not a prerequisite of a normal contract

and for this reason the courts should enforce the terms of the browse-wrap

agreement where previous course of dealings can be proven.

Websites and the internet are significantly complex and there appears to be a real

hesitance within the English legal system to tackle some of the issues in this area.

One critic has even gone as far as to argue that the Judges and academics alike

seem to shun technology.198

Furmston et al raises the challenges the courts may have when dealing with the

complications created by HTML file configurations and browser types variants. In

particular how these can distort the ways the terms and conditions are presented. A

consumer can customise their browser types in which case, who then should bare

the risk. It seems only reasonable that site providers should ensure that their

198Furmston, M., et al., Contract Law, (2010), p.160

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websites are fully functional. Yet the site provider cannot assume all responsibility

when the consumer alters the default settings of their browsers.

Contract law has proven over the years that it is able to absorb technological

change, such as contracts made through fax. However, in order for contract law to

apply to internet transactions there must be a clear understanding of the technology

involved in the construction of website and an appreciation for the way in which the

internet operates.

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