Selling online: an overview of the rules

Introduction

There has been a steady growth in the variety and volume of goods and services which are available on-line to both businesses and consumers, and on-line selling is increasingly seen as a major way for all businesses to save costs. Almost inevitably, as the practice of on-line selling proliferates so does the amount of legislation governing it. This article provides an overview of the law governing on-line sales in the UK and an analysis of the issues that a business should consider before setting up an on-line sales process.

The law governing online sales

There are two distinct types of legislation that affect on-line retailers. Firstly, traditional consumer protection regulations apply to all consumer sales made on-line. These regulations are well established, but it is important to remember that they apply to on-line retailers as much as they do to traditional ones. Secondly, there are regulations designed specifically to deal with problems and issues facing retailers on-line.

Traditional consumer protection regulations

These protect purchasers and consumers whether they are buying the goods over the counter of a shop or over the internet. For instance the Sale of Goods Act gives certain rights to purchasers about the quality of the goods they receive, and their rights if the goods fail to live up to these standards. The Consumer Credit Act protects consumers' rights when they enter into an agreement for someone to provide them with loans or credit facilities including circumstances where they buy goods or services using a credit card. The Unfair Terms in Consumer Contract Regulations protect consumers' rights where they enter into agreements with retailers who try to impose unfair terms in the agreement. There are also numerous other pieces of legislation, many of which will apply to different contract and product types.

Online regulations

These regulations are new, and were brought into force largely to protect consumers' rights when they buy products either over the internet or by telephone. They largely derive from EU Directives, and include the E-commerce Regulations , the Distance Selling Regulations and the Electronic Signatures Regulations . These are the regulations that control the actual on-line sales process and they provide the starting block from which we can consider the practical business requirements of on-line retailers.

Although the traditional consumer regulations are important for all sales processes, this article focuses on the on-line regulations and how they affect the various stages of the on-line sales process. The next five sections take you through what the regulations require including information that must be provided to a purchaser, the use of electronic signatures, contract formation issues and ensuring your contract is legal.

Information that must be supplied

The various regulations share a central theme: companies should not hide themselves from purchasers, and should provide as much information to purchasers as possible.

Company information that must be supplied under the E-Commerce Regulations

The E-Commerce Regulations require that all commercial web sites make the following information directly and permanently available to consumers via the website:

• the company's name, postal address (and registered office address if this is different) and email address;
• the company's registration number;
• any Trade or Professional Association memberships;
• the company's VAT number.

All of this applies regardlessof whether the site sells on-line. In addition, any commercial communication – that is any email or even SMS text message – used in providing an "Information Society Service" must display this information.

The E-Commerce Regulations also require that all prices must be clear and unambiguous, and web sites must state whether the prices are inclusive of taxes and delivery costs.

Contractual information that must be supplied under the E-Commerce Regulations

When it comes to actually going through the contractual process the requirements for information increase once again and the consumers must be told:

• the steps involved in completing the contract on-line;
• whether the contract will be stored by the retailer and/or permanently accessible;
• the technical means the site uses to allow consumers to spot and correct errors made while inputting their details prior to the order being placed;
• the languages offered to conclude the contract;

The website must also provide links to any relevant Codes of Conduct to which the retailer subscribes and set out the retailer's Terms and Conditions, in a way which allows users to save and print them.

All of this information must be provided before the purchaser selects the product and starts the contractual process and it is possible to convey it early on in the sale, without deterring users with an unwieldy sales process. The most common route is to bundle as many of these details into the terms and conditions as possible, and ensure that consumers are appropriately directed to read them.

Information that must be supplied under the Distance Selling Regulations

These Regulations set out the information which must be provided to a consumer prior to the conclusion of the contract.

The information must be provided in a clear and comprehensible manner which is appropriate to the means of distance communication used. This means that the information can be set out on a web page, provided that the information is brought to the attention of the consumers before the contract is entered into. The information to be provided includes all of the information which a supplier should, in any event, wish to provide in relation to:

• the identity of the supplier;
• the main characteristics of the goods or services;
• their price;
• arrangements for payment and delivery; and
• the existence of the right of cancellation created under the Distance Selling Regulations.

Information that should be set out in the terms and conditions

The terms and conditions should:

• make it clear who is selling the product, together with the geographical and email address;
• describe clearly what the customer is getting and what it will cost, including all taxes and delivery costs; and
• identify the arrangements for delivery of the product.

The terms and conditions of the site are very important, and will vary for every retailer. It is important that the terms and conditions are properly drafted, as poorly drafted terms and conditions will expose the retailer to unnecessary risk.

Electronic signatures

The Electronic Signature Regulations apply to any contract and not just those entered into with consumers. In order for there to be a binding contract the following essential elements of a contract must be present:

• an unconditional offer;
• an unconditional acceptance of that offer;
• consideration passing from both parties other than in Scotland where consideration is not a requirement; and
• an intention to create legal relations, i.e. the parties must intend to enter into a legally binding contract.

There must also be certainty as to the terms, parties and subject matter of the contract. For the majority of contracts there is no legal requirement for a signature.

Whenever a person buys or sells something he or she is entering into a contract, no matter how small the purchase. In the newsagents, when a person buys a newspaper he or she contracts with the newsagent for the purchase. The newsagent makes an 'Invitation to Treat' by placing the publication on sale. The person offers to purchase it from the newsagent, proffering money, and the offer is accepted (concluding the contract) by taking the money. This is still a contract, although not a word needs to be said, and nothing is written down. However, the essentials of a contract have been formed: an offer (to buy, or sell), an acceptance of that offer, and (everywhere except Scotland) consideration (whether money being paid, or some other form of consideration) for the sale. The various stages of the contractual process will be discussed in more detail later, as it is important to distinguish between who is making the offer and who is accepting it.

Signatures are not actually necessary for the conclusion of every contract (your visit to the paper shop could become a chore), but they can have three essential functions when we consider on-line contracts:

• To identify the person who has bought the product;
• To indicate a personal involvement, or trustworthiness; and
• To indicate an intention to be bound to the contract.

The principal, and simple effect of the Electronic Signature Regulations is to make electronic signatures legally valid. Most of the discussion, and further interpretation of electronic signatures actually comes from a report published in December 2001 by the Law Commission entitled "Electronic Commerce: Formal requirements in Commercial Transactions", and in subsequent guidance from the DTI.

Depending on exactly what is being sold the method of collecting the electronic signature will vary. In most cases, the function required of the electronic signature is the third one listed above – indicating that the purchaser is making an offer to contract. However, for more complex products being sold on-line, for instance financial services products, the role of the signature may become more important for one or both of the first two reasons.

Depending on the value and/or importance of the transaction the parties may want a greater degree of certainty as to reliability of the signature. This may involve the use of public key infrastructure, for example.

Contract formation issues

The main issues considered in this section are how, when and where the contract is formed. This involves an analysis of the contract formation procedure based on the principle of offer and acceptance and the significance of the "country of origin" principle.

The offer and acceptance procedure online

Step 1: Establishing the offer and acceptance procedure

This is where the E-commerce Regulations can be used to the seller's advantage. It is possible to sell on-line and take payment by credit card without concluding the contract on-line. The solution is to provide that the customer is making an offer on the site and that the contract will be formed only if the customer's order is accepted – and that taking payment from the customer's credit card does not indicate cceptance.

On-line merchant accounts provide for making refunds to a customer's credit card. Therefore, the terms should explain that, while the customer's card may be debited before the contract is formed, if the customer's order is ultimately rejected, a refund will be made immediately.

Step 2: Completing the order form

The customer is taken to the order form where he completes the quantity of goods and his delivery details. It would be good practice to offer three buttons: submit, clear and cancel. The "clear" button is needed because the E-Commerce Regulations require a means for the customer to correct any errors.

Step 3: Incorporating the terms and conditions

At the bottom of the terms and conditions page the purchaser should, ideally, be required to check a box to indicate that he or she has read, understood and accepted the terms and conditions, before clicking the "Accept" button. The "Accept" button should not work until the box has been checked. Equally the page should be designed in such a way that the consumer cannot check the box and click "Accept" until the page has fully loaded onto the screen. By doing this, you improve your position in the event that a purchaser claims there was no opportunity to read your terms.

While there is no responsibility on the retailer to ensure that the consumer has in fact read them, following this procedure will demonstrate that reasonable efforts have been made to bring them to purchasers' attention. The terms and conditions should be in a format that can be printed or saved – therefore avoid pop-up windows and ensure that they fit within the width of the page and are presented in a way that they will print properly.

It is wise to also include a term like the following:

"By clicking the 'Accept' button you agree to these terms and conditions. By completing and submitting the following electronic order form you are making an offer to purchase goods which, if accepted by us, will result in a binding contract."

The words, "if accepted by us," are very important.

This approach is the suggested 'best practice' approach for relaying the terms and conditions, and ensuring that the consumer has read them. However, it is not the most consumer friendly approach to present the purchaser with a screen of 'small print' in the middle of what, to the consumer, was an otherwise normal shopping experience. Therefore a number of on-line retailers adopt a second-best approach, which is to include a link to the terms and conditions, and make the consumer tick a box to confirm that they have read and accepted the terms and conditions, before they click the main button to buy the product. This approach, while not as legally secure, is probably acceptable in a number of purchasing models.

Step 4: Taking the consumer's credit card details on-line

At this stage, the user should be taken to the page on a secure server where his credit card details are taken. This page should state: "Your card will be debited with the sum of £X when you click the Submit button. This will be refunded if your offer is refused." Repeat the choice of submit, clear and cancel.

Step 5: Acknowledging receipt of the order

When the card details are validated, the E-Commerce Regulations require that you give the customer an acknowledgement page and send an acknowledgement email. This should not confirm a contract; it should instead confirm that the order has been received and that the order is being "processed". It is helpful to give the customer an order number at this stage so that he or she can chase-up any problems. It is good practice, though not legally required, to ask the user to click a button on a confirmation page to indicate that he has read the confirmation – e.g. a "Continue" button, linking to the homepage of the site.

Step 6: Providing confirmation of the information provided and the right to cancel

The Distance Selling Regulations now require the supplier to provide the consumer in writing or in another durable medium confirmation of the information provided prior to the conclusion of the contract and details of the right of cancellation. Generally a consumer has a period of seven working days within which to cancel the contract and return the goods to the supplier. The only cost to a consumer will be the cost of returning any goods received by it to the supplier.

A consumer will not be entitled to cancel a contract after it has been entered into, where the supplier has commenced the provision of services with the consumer's agreement prior to the end of the cancellation period then the consumer will not have the right to cancel the contract for the provisional services. However, in order to benefit from this exception, the supplier must have advised the consumer that the consumer will not be able to cancel the contract once the performance of the services has begun with the consumer's agreement.

It is not possible to contract out of the Distance Selling Regulations. Any term which attempts to do this will be void to the extent that it is inconsistent with the provisions of the distance Selling Regulations.

Step 7: Delivery

Finally, dispatch the goods. If a typo mislabelled an item costing £200 at £2 and someone ordered 500 of them, the site could politely – and legally – refuse the order. This is because by following the procedure set out above the dispatch of goods is in effect the acceptance of the offer made by the consumer at the start of the process. Until this point there has been no acceptance and only an acknowledgement.

The "country of origin" principle

The E-commerce Regulations apply a "country of origin" principle. In its simplest form, this means that as long as a UK business complies with UK laws, it can "ignore" the laws of other Member States. In general terms this is a definite bonus for on-line retailers. However, recognising that such an approach would be bad news for consumers, this basic rule is qualified.

The E-Commerce Regulations do not apply the country of origin principle to the terms of consumer contracts. In practical terms, this means that a UK-based e-commerce site's terms and conditions should meet the laws of every Member State in which consumers can buy its products, not just UK laws.

As a result of the consumer contract exception, any site selling to French consumers must provide its terms and conditions in French – otherwise they may be considered invalid. If selling into Denmark, consumers must be given a 14 working day cooling-off period during which the consumer can change his or her mind about the purchase and return the goods for a refund. In the UK, the cooling-off period is only seven working days. These are only examples, of course there are many other differences.

Despite this significant qualification, there are still advantages in the Regulations' country of origin principle that can benefit a UK-based business. For example, the UK's retail laws are among the most relaxed in Europe. This can give UK businesses advantages over, say, German competitors. A German e-tailer must comply with any German restrictions on promotional offers; its UK rival escapes such restrictions, even when selling to German consumers.

Ensuring your contract is legal

It is important for e-commerce retailers to ensure that the contract which is formed with the consumer under the process described above is both legally correct and also affords the retailer the maximum protection. There are various ways in which the contracting process can be structured to be legally correct, and it is important to balance absolute best practice, and a more commercial approach which is still legally correct. Equally, it is surprisingly easy to structure the process in a way which is legally incorrect, and which exposes the company to more risk than is necessary.

This is an edited version of a guide for businesses.

For more information contact: john.salmon@pinsentmasons.com