Leaping contract hurdles on the Net
3 November 1997
The Internet has become a hot topic as far as law and commerce are concerned because of the fact that it does not exist as a single, definable entity. Consequently, fundamental legal and practical questions arise. For example what controls can be enforced on entities offering properties on the Internet? Who regulates activities on the Net and who is, or can be, made liable? While the answers to these issues are developing week by week, there remain some ground rules to be established.
The very nature of the Internet confounds legal definition because it is made up of a collection of computer networks which are situated in, and thus subject to, many different legal jurisdictions.
A message sent from New York to Milan on the Internet does not reach only the US and Italy, but could route through computers located in innumerable interim jurisdictions. Thus, the laws of various jurisdictions could apply to the Internet and potentially to any property transaction that takes place over it.
So, if a transaction takes place between computers in different jurisdictions (something which may not always be immediately apparent), which laws will govern it? If the parties enter into a contract, in which jurisdiction was it formed? Was a valid contract entered into at all ? Do the jurisdictions recognise the agreement entered into as a contract that is enforceable in law?
Parties to a transaction may intend to transact only within a set of defined jurisdictions and yet they may still be governed by, and incur liability under, a third jurisdiction outside their original contemplation.
A recent example of problems over which jurisdiction governs a contract agreed on the Internet involved an advertiser who organised a web site through CompuServe in the US. CompuServe is based in Ohio and, although the advertiser had no other contacts in Ohio, it soon found itself subject to the jurisdiction of the courts in that state.
Perhaps the question that needs to be addressed is not one of attempting to eliminate potential liabilities in differing jurisdictions but of limiting them.
The jurisdictional issues are not the only legal hurdles facing Internet transactions. For example, if parties use the Net as the sole means of business communication and dispense with paper-based communications altogether, are they in breach of any statutory requirements to hold or deal in paper-based documentation?
In the US, the frauds statute requires that for property transactions to be legally recognised they have to be concluded on paper, although the evolution of business practices may modify this practice. So do all contracts need to be in writing? And what is the meaning of "writing" within the various jurisdictions?
After the issues of which law(s) apply and whether the agreement itself is binding have been addressed, the issue of electronic payment still remains a problem.
How secure are such transactions? What regulations, if any, must the parties abide by over payments and will these remove or reduce the commercial advantage of carrying out transactions over the Internet?
Might the best solution be to use the Internet only as a marketing tool and still require all payment and contract formation to take place along traditional lines?
There are further practical issues that must be addressed by any party wishing to transact business - property-related or otherwise - on the Net.
In many countries, telecommunication costs are high while data transmissions speeds remain relatively low. So how can parties provide information across the Internet in an attractive format which users can access quickly and efficiently?
Web pages with a high graphical content may look good and may be accessible on a company's local Internet site, but they may also be very slow and cumbersome when accessed by a user thousands of miles away.
Although the many legal and commercial problems associated with the Internet are not insurmountable, there is clearly some way to go before users will be able to rely on it as a satisfactory way of carrying out property transactions.