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E-commerce and E-commerce Regulations for Small Businesses

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Peijun Xia, Solicitor of Sykes Anderson LLP’s Company Commercial Department discusses some of the basic legal requirements of the E-Commerce Regulations that businesses selling and advertising on line must be aware of and complied with

Background

E-commerce is transactions conducted via electronic means such as the internet, email and SMS. It is considered to be one of the most important aspects of the internet to appear. As a result, people are able to exchange goods and services immediately regardless of their geographic location and time. More and more businesses conduct transactions on line, with some trading purely on-line thus reducing overheads and administrative costs.

There are two types of e-commerce, direct and indirect. Direct e-commerce is where services or goods can be delivered on line, such as music downloads. Indirect e-commerce is where goods and services ordered on line but delivered off-line, for example by post or courier.

Whether direct or indirect, the potential benefits that e-commerce can bring to businesses and consumers are evident in terms of cost savings and convenience; however it has also brought various challenges and uncertainty to the formation and enforcement of contract and more importantly to the protection of consumer interests.

With a view of protecting consumers thus promoting the development of e-commerce through renewed consumers’ confidence, the EU has adopted an array of Directives including the 1995 Data Protection Directive, the 1997 Distance Contracts Directive, the 1999 Electronic Signatures Directive, the 2000 E-Commerce Directive and the 2002 Privacy and Electronic Communications Directive and so on. UK’s legal framework governing e-commerce is established as a direct result of implementing the numbers of EU Directives.

The main regulations governing e-commerce in the UK

Needless to say, businesses engaging in e-commerce need to comply with the law governing traditional physical world transactions such as the Sale of Goods Act 1979, Supply of Goods and Services Act 1982, The Unfair Contract Terms Act 1977, The Unfair Terms and Consumer Contracts Regulations 1999, The Consumer Protection Act 1987 and so on. In addition, they must ensure that they comply with an array of regulations governing the actual on-line trading process. These are mainly as follows:

• The Consumer Protection (Distance Selling) Regulations 2000 as amended by the Consumer Protection (Distance Selling) (Amendment) Regulations 2005 – commonly known as “Distance Selling Regulations”

• The Electronic Commerce (EC Directive) Regulations 2002 (“E-commerce Regulations”)

• The Electronic Signatures Regulations 2002

This article will focus on the E-commerce Regulations and explain some of its main requirements that businesses trading on-line should meet. The article is not intended to be a comprehensive guidance, in respect of which, please refer to the DTI. It serves only to highlight some of the very basic requirements governing businesses trading on-line.

The E-commerce Regulations (“the Regulations”)

The Regulations were brought into force in the UK in August 2002 as a direct result of the UK government implementing the EU E-Commerce Directive. The Regulations govern the provision of ‘information society service’, which is defined as “any service normally provided for remuneration at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, at the individual request of a recipient of the service”. Thus, the Regulations cover not only on-line selling and advertising services but apply to services carried out by way of email and SMS. It also covers the services of transmitting or storing electronic content or providing access to a telecommunications network.

The Regulations lay down, among other rules, the applicable law, the requirements for minimum information that commercial websites and other providers of ‘information society service’ must provide to the customers, additional information to be provided when businesses contract on-line as well as exemptions for mere conduit, caching and hosting.

Applicable law

The Regulations apply a ‘country of origin’ rule. Put simply, it means that a UK based business needs only to comply with UK laws irrespective of where their customers are based. However, this rule is subject to a number of exceptions. Notably, the rule does not apply to some consumer contracts. These consumer contracts will be governed by the rules contained in ‘Brussels Regulation’ and ‘Rome Convention’ which are beyond the scope of this article.

As the extent to which the consumer contracts exception would apply is still not very clear; businesses wishing to sell on-line to consumers of other EU countries are recommended by DTI to comply with that consumers’ country’s laws. Nevertheless, this rule may lead to an UK based business having advantages over their EU counterparts when selling on-line to businesses of the other EU country, for example, to businesses based in German where they are subject to more stringent laws regulating on-line trading and marketing.

Information that must be provided

Regulation 6 prescribes that all business websites whether or not trading on-line must list the following general information:-

• Business name;

• Business address which must be a geographic address, i.e. street number etc. In other words a PO Box address is not likely to be sufficient; but a registered office address would;

• Other contact details such as email address and phone number;

• Its registration number and registered office address if a company;

• [Its place of registration if a company or a LLP. Please note this is a requirement under new regulations which were brought into force on the 1st January 2007 ]

• VAT number if the business is VAT registered;

• Details of any trade and professional body or scheme with which the business is registered and the registration number if applicable.

The required information does not need to be on every page of the website; however, it must be ‘easily, directly and permanently accessible’. It is therefore advisable for the website to display the information on the ‘About Us’ or ‘Contact Us’ or ‘Disclaimer and Legal Information’ page.

In addition, full prices must be listed on the website and the prices must be clear and indicate whether or not they are inclusive of tax and delivery costs.

The above mentioned information must also be included in any commercial communication that carried out by way of email or SMS text message or interactive TV.

On-line contractual process

The following additional information must be provided to customers prior to on-line orders being placed:

• The technical steps involved in completing the transaction;

• Whether the contract will be stored by the traders and whether it will be permanently accessible;

• The technical means to correct input errors made prior to placing the orders;

• The languages offered to conclude the contract;

• Links to relevant codes of conduct that the businesses subscribe;

• An email acknowledgement should (preferably) be sent without undue delay once a customer places an order electronically; the email should confirm that the order has been received and when it will be processed. Care should be taken to ensure that the order is ‘acknowledged’ not ‘accepted’. This will ensure that you do not become a victim of any pricing errors as no contract is formed until the actual delivery of the order.

• Any terms and conditions should be provided in a way that enables the customers to store and reproduce them.

Although not covered here, there are other information requirements in Distance Selling Regulations which businesses trading on line must be aware of and complied with if they sell to consumers.

Commercial communications

The Regulations require any commercial communication which forms part of the ‘information society service’ must be clearly identifiable in terms of its commercial nature and its origin. This applies directly to unsolicited email marketing. Any such email must state who has sent it and includes any promotional offer.

For example, ‘this example is sent on behalf of ……’ Please be aware that there are special rules applicable to email marketing, which are contained in The Privacy and Electronic Communications (EC Directive) Regulations 2003 (‘The Privacy Regulations’). The Privacy Regulations make it illegal to send an email to an individual subscriber unless his/her consent has been obtained.

Although the Regulations have been in force for a number of years, not every business involved in on-line trading and other information society service is complaint with the requirements. Lack of compliance could result to the non-compliant businesses being subject to enforcement actions through the court, potentially resulting in the websites being closed down. Businesses are therefore urged to carry out a thorough check of their websites to ensure compliance.

Please note that this area of the law is a complex subject and you should not take or refrain from taking any step without full legal advice on your particular circumstances. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.

If you need any advice on this area or any aspect of company commercial laws, please contact company commercial department, Christopher Sykes, Senior Partner, or Peijun Xia, Commercial Solicitor (details below).

Sykes Anderson LLP Solicitors
Bury House
31 Bury Street
London
EC2A 5JJ
www.sykesanderson.com

Posted February 14, 2007