Electronic Transactions Act (Contract Formation) Amendment Bill

A Bill to confirm that standard offer-and-acceptance principles applies to electronic contract formation has been drawn from the Members’ Ballot. It is the Electronic Transactions Act (Contract Formation) Amendment Bill, in the name of National MP Paul Goldsmith. The operative provision of the Bill reads:

“32A Contract formation

An offer that can be accepted by electronic communication is deemed to be accepted at the time of receipt of the acceptance by the offeror.”

Which simply confirms the general law that is presumed to apply anyway. The only exception is the old postal acceptance rule, which says that a contract is formed as soon as acceptance is posted in the mail (which could be several days before the offeror hears about the acceptance). There has been occasional talk over the years about whether the postal acceptance rule should extend to online scenarios – it’s good law school fodder – but the prevailing view is it should not. The issue was briefly considered in a 2009 Australian Federal Court case, Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] FCA 522, in which the judge concluded in effect that the postal acceptance rule should not apply to acceptance by email.

So it will be perhaps somewhat nice to have this confirmed, but having such an anodyne and relatively trifling Bill in the Members’ Ballot does raise the prospect of (smart) “ballot stuffing” by Government MPs, to reduce the chances of more controversial bills, such as same-sex marriage or euthanasia bills, being drawn!

Law reform for online auctions

The Ministry of Consumer Affairs has released a discussion document on the proposed reform of New Zealand’s consumer law. One of the areas to be addressed is online auctions. Issues include whether online auctions should be regulated in some form, and whether the Consumer Guarantees Act should apply to goods and services bought via online auctions.

Regulation of online auction

A preliminary (and, lets be honest, entirely academic…) issue raised in the document is whether online auctions are presently subject to the Auctioneers Act. The document says no, on the basis that the Act only applies to auctions “by outcry”, which is defined as 6 people being physically present:

The reference to “outcry” in the beginning of the definition [of “auction”] applies to the various different auction methods referred to in the definition.

Based on that conclusion the documents goes on to say “the Auctioneers Act definition of auction only applies to auctions where it is possible for the bidders to be physically present with the auctioneer”. I take a different view from the good people at the Ministry. As I wrote previously, in my view “outcry” is not a necessary part of the definition:

there does not appear to be any reason … why the words “by outcry” must apply to the entire definition [of auction] while the other sub-clauses of the definition are read as alternates. Furthermore, to do so would limit the final key words “or where there is a competition for the purchase of any property in any way commonly known and understood to be by way of auction.” These final words are clearly a catch-all intended to prevent anything “commonly understood to be an auction” from being inadvertently excluded by the definition.

So my view is that online auctions are currently covered by the Auctioneers Act (which, as I said, is entirely academic). However, I also noted the craziness that online auctions should be “subjected to rules formulated decades ago and premised on a traditional, physical auction process”.

The fact is that specific regulation of online auctions is not currently enforced. Nor is it not necessary. Practical enforcement would be difficult. The UK, New South Wales and Victoria (among others), get by quite well without special legislation covering online auction providers. Hopefully, our new law will clearly exempt online auctions and other forms of e-commerce from unnecessary red tape.

Consumer Guarantees Act

The reform will also address the perennial issue of whether the Consumer Guarantees Act (or whatever its replacement will be) should apply to online auctions. There is no doubt that, generally, the same rules should apply for online “buy now” sales as for bricks-and-mortar sales. But what about online auctions?

The document says that whether online auctions are presently covered by the Consumer Guarantees Act is a “grey area”. But in my view there has never been much doubt: online auctions, if they are in fact conducted as an “auction” with bids etc, are not covered by the Consumer Guarantees Act (Trade Me probably wisely leaves it open for now). However the document gives a strong indication (for a discussion paper) of the preferred view:

There would appear to be justification, accordingly, to clarify that Trade Me style auctions should not be exempted from the Consumer Guarantees Act.

That would be a very sensible proposal, and my bet is this will be an outcome of the review. There will likely be some push-back from Trade Me-exclusive dealers, but most medium/large retailers (who also operate bricks-and-mortar shops) will support it. They already have full consumer obligations for all goods and services sold in their stores and online (non-auction style). So does every corner dairy and most small mum-and-dad shops. There are too many stories of shonky internet-only dealers who are only too happy that they are exempt from the consumer protection obligations that all these other retailers have. Trade Me does a great job in helping out where it can, but the answer is simple: close this unintended loophole. And it doesn’t create more red tape – it simply levels the playing field between dealers and simplifies the consumer protection regime.

Note that the proposal is not to extend the CGA to private online sellers and auctions. As per the current law, it will only apply to sellers “in trade” – i.e. shops, retailers and dealers.

There is debate as to whether online Trade Me style auctions are true auctions of the type intended to be exempted from the Consumer Guarantees Act because they do not meet the definition of auction in the Auctioneers Act. For instance people are not actually physically present for the online auction which is a key component of the “outcry” which is required under the definition of an auction in the Auctioneers Act. As noted, however, the Consumer Guarantees Act does not define auction by reference to the Auctioneers Act, so whether Trade Me style auctions are “auctions” for the purposes of the Consumer Guarantees Act is a grey area, open to interpretation.There is debate as to whether online Trade Me style auctions are true auctions of the type intended to be exempted from the Consumer Guarantees Act because they do not meet the definition of auction in the Auctioneers Act. For instance people are not actually physically present for the online auction which is a key component of the “outcry” which is required under the definition of an auction in the Auctioneers Act. As noted, however, the Consumer Guarantees Act does not define auction by reference to the Auctioneers Act, so whether Trade Me style auctions are “auctions” for the purposes of the Consumer Guarantees Act is a grey area, open to interpretation.

Is software “goods”?

A New South Wales appeals court has ruled that downloaded software is not “goods” under that state’s Sale of Goods Act (not dissimilar to New Zealand’s act of the same name). Case link: Gammasonics v Comrad Medical Sysytems [2010] NSWSC 267. Interestingly, the ruling means that software bought over the counter would be included as “goods” (and be covered by statutory guarantees), but the same software downloaded over the internet would not be.

A while back I discussed the consumer liability of software developers in this country. In essence, New Zealand’s Consumer Guarantees Act has, since 2003, included “software” in the definition of goods, which means that (consumer) software receives the same consumer protections as other consumer goods. One thing I didn’t mention was that software is also “goods” under the Sale of Goods Act 1908. In fact, this change was implemented at the same time that software was expressly included in the Consumer Guarantees Act.

The New South Wales version of that act does not mention software, and the New South Wales Supreme Court ruled that downloaded software – not having any tangible element – could not be “goods” falling within the act. However, software provided on physical media would constitute “goods”, because the necessary tangibility is present.

This does result in an inconsistent and illogical state of affairs, but one which will soon be partially corrected. The Australian consumer protection laws (similar to New Zealand’s Consumer Guarantees Act) is soon to be overhauled, and as part of the update, software will be specifically included as “goods”.

One point of interest is that the New Zealand amendments in 2003 which expressly added “software” to the definition of goods, only added software “to avoid doubt“.  (The phrases “to avoid doubt” and “for the avoidance of doubt” are common in legal documents, although mildly controversial. I have encountered some lawyers who refuse to use it, which is a bit extreme – it’s fine if used sparingly). By adding software to the definition of goods only to “avoid doubt” (i.e. clarify the law – a common use of that phrase in legislation), parliament was saying that it considered software to be already included “goods”.

The judge in this case did acknowledge:

it is productive of injustice if consumers purchasing software in the form of CDs or DVDs, either sold in retail shops or via the internet, are protected by the statutory warranties in the Sale of Goods Act, whereas consumers who download the same software directly from the internet or from a supplier, (as was the case here), would not.

A simple law change in Australia will remedy this situation.

Lex mercatoria and e-commerce: a small step

A court decision has taken a small step – in the right direction – towards recognising customary practices and policy considerations in applying online terms and conditions.

In the case Miller v Facebook (15 January 2010, US District Court, Georgia), the plaintiff claimed that part of Facebook’s terms and conditions did not apply – specifically, the clause requiring any claims to be brought in Facebook’s home state of California (known as a “forum selection” or jurisdiction clause). The court said:

“striking the forum selection clause could wreak havoc on the entire social-networking internet industry. If this court were to determine that the forum selection clause contained in Facebook’s TOU was unenforceable, the company could face litigation in every state in this country and in nations around the globe which would have potential adverse consequences for the users of Facebook’s social-networking site and for other internet companies”

The court therefore upheld Facebook’s forum selection clause.

Common law legal systems (such as New Zealand, the UK, the US and Australia) have long recognised “customs of merchants” (the lex mercatoria) in applying and shaping the law. There are good reasons why the common law has done so, going back many centuries: it provides certainty for commerce, recognised accepted “best practice”, and promoted uniformity conducive to trade. To ignore it would have been to potentially disrupt and destabilise commercial dealings.

For the same reasons, as the common law is continuously evolving, the customs of “e-merchants” should also be taken into account by courts.

This is likely to be relevant to the enforceability of website terms and conditions. There have been a number of cases in the past year involving disputes over whether or not website terms are binding (for example Website disclaimers – yes, they do work). Some have argued that a standard link to a disclaimer is insufficient. There are a number of legal grounds for finding it is sufficient (and a growing number of cases have upheld them – successful challenges are rare).

However, there is good argument that such practice is now also customary. Many websites have a disclaimer link, often at the bottom of the page. It is commonly understood that when you use a website, there may be “Terms of use” or “Disclaimer” link. That is accepted and, today, could be said to be the custom for online business. The common law should not disregard the accepted, reasonable and necessary practices established by modern merchants.

Although the Facebook decision is only a lower-court procedural ruling, it provides an encouraging demonstration of a court’s willingness to consider the new lex mercatoria (and other policy considerations), and the perils of the law ignoring them, relating to e-commerce.