Online and on guard
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31 May 1999
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29 March 1999
The exciting bit of setting up an online business appears not to lie in the drafting of appropriate trading terms and conditions. This is at least one explanation why some online traders and internet service providers continue to make basic mistakes, both in the structure of their websites and the content and positioning of their terms and conditions. The frustrating thing is that many of the mistakes could easily be corrected. This article details some practice examples and suggests solutions.
It is no good drafting good trading terms if they are not effectively incorporated into contracts concluded online. Yet this remains a serious issue in many sites. The main problems are:
Important terms and conditions are often buried in frequently asked questions (FAQs) or (in the case of internet service providers) acceptable use policy (AUP). References across to the FAQs or AUP are usually unclear and it is unlikely, in many cases, that a court will regard these important provisions - often dealing with rights of termination, data protection and the like - as being effectively incorporated into contracts concluded online.
Failure to adopt best practice in ensuring the clarity required to prove that your customer has read and accepted the terms and conditions. Best practice is to ensure that the customer is forced to scroll through the terms and conditions and is required to type in appropriate words such as 'I agree'. The next best alternative is to require the customer to click on an "I agree" button. Many sites simply have a hyperlink at the bottom of the page entitled 'Terms and Conditions'. This is not good enough.
These issues most frequently arise where, say, a major US corporation is establishing an online European trading presence. The standard terms and conditions used for sale within Europe may be identical to the terms and conditions used for US-based sales. The terms and conditions, no doubt effective in the US, may seek to impose the laws and jurisdiction of an appropriate US state without regard to European consumer protection legislation. The effect is a false sense of security and an unjustified belief that the terms and conditions will be as effective within Europe or elsewhere as they are for trade in the US.
A related problem is uncertainty over the identity of the contracting party - is it the European subsidiary of the US corporation or is the contract intended to be with the US parent? The uncertainty arises from the way the US-derived terms and conditions are drafted to refer to the US parent.
These points give rise to a number of serious problems.
In most cases, European consumer legislation will be unavoidable and the European consumer will have the right to sue in its home state. The protection afforded by the terms and conditions may be wholly inapplicable and indeed inappropriate - and in extreme cases even illegal - in Europe.
The 1999 Unfair Terms in Consumer Contract Regulations apply the Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts and reflect closely the wording of the directive. The regulations apply, with certain exceptions, to unfair terms in contracts concluded between a consumer and a seller or supplier and provide that a contract term is unfair if it has not been individually negotiated and which, contrary to the requirement of good faith, causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer. Unfair contract terms are not binding on the consumer.
Distance selling issues
The Consumer Protection (Distance Selling) Regulations 2000 provide consumers with greater protection when purchasing goods over the internet. The regulations give effect to the Distance Selling Directive, which is part of Europe's attempt to harmonise consumer protection laws.
Too often, however, website terms and conditions seem to have been drafted without the specifics of the regulations in mind. In particular, these regulations require clear information about goods and services to be provided to the consumer before a contract is concluded.
Information must be confirmed in writing or some other appropriate "durable medium accessible to him". Moreover, the regulations establish a cooling-off period of at least seven working days in which the consumer can withdraw from the contract. If the contract is cancelled within this period, then any money paid must be refunded. These rights do not apply to certain contracts, but many online traders will be covered by the regulations.
Some standard terms and conditions do not fully comply with these regulations. There is an urgent need for online traders who conduct business with consumers to review their practices - and this covers not only web sites but also contracts concluded by telephone or mail order, which are also distance contracts.
Future-proofing terms and conditions
The trend towards further and additional consumer protection is clearly established in the Distance Selling Directive and the draft Financial Services Distance Selling Directive, the latter being of particular concern to the financial services industry. The latest information from Brussels is that this draft directive is likely to be finalised towards the end of this year. It may then be some time before it is given effect in national legislation, but sensibly designed and drafted terms and conditions will take account of the regulations from the outset.
In the UK, the Data Protection Act 1998, which gives effect to the Data Protection Directive, came into force in March 2000. Yet many data protection clauses do not go far enough to protect not just the consumer but the party collecting data from consumers. By taking a few precautions and redrafting data protection clauses, online businesses can protect themselves against the possibility of infringing the act.
If you are a data controller you carry the burden of primary compliance under the act.
Data controllers should obtain the explicit consent of those with whom they deal to the collection and use of data. Think ahead: build into your request for consent any possible use that you may have for the data in the future, otherwise you will need to obtain new consent for any new purpose for which you may want to use the data. The key to compliance with the act is consent. The key to consent is a carefully worded data protection clause to which the consumer has given their explicit consent.
Internet service providers (ISPs)
ISPs are a special case; following the decision in Godfrey Demon Internet, once they are told that information has been published that is potentially defamatory on a usenet news group, bulletin board or web site hosted by the provider, they are exposed to potential liability unless the information is removed. The problem is that some providers' standard terms and conditions are structured such that important rights are buried within the AUP, including the right to take down defamatory web sites or remove information from news groups.
The law on defamation is a mess and conflicts with the alternative approach adopted in some US states and promoted by the new e-commerce directive that ISPs ought to be treated as conduits not liable for content published by their customers.
Quentin Bargate is a partner at Simmons & Simmons
| This checklist applies equally to web traders and ISPs. |
Do draw customers' attention to your terms - use advanced 'clipwrap' techniques to ensure explicit consent from your customers.
Do use plain English and put key terms in the terms and conditions, don't bury them in FAQs or AUP.
Include an up-to-date data protection clause.
Develop a policy to deal with complaints and stick to it.
Provide appropriate take-down powers in your terms.
Comply with current and upcoming distance selling requirements and monitor developments.
Obtain advice in the jurisdictions in which you want to do business but with which you are unfamiliar (particularly important where consumer legislation is concerned).
These are the broad-brush points that, if taken on board, can avoid many of the problems to which web traders and ISPs may potentially expose themselves. There are, of course, many more detailed issues and complex points that are beyond the scope of this article. This is all the more reason why you need to take your terms and conditions seriously and take advice at the appropriate time.