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ON-LINE CONTRACTING - AN UPDATE Paul E. Brace 905.415.6703 Eamonn J. Flaherty 905.415.6795

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Presentation on theme: "ON-LINE CONTRACTING - AN UPDATE Paul E. Brace 905.415.6703 Eamonn J. Flaherty 905.415.6795"— Presentation transcript:

1 ON-LINE CONTRACTING - AN UPDATE Paul E. Brace Eamonn J. Flaherty

2 Topics 1.Contract formation 2.Unilateral contract amendments 3.Whose law governs in cyberspace? 4.Impact of Consumer Protection Act, 2002 (Ontario)

3 Contract Formation Contract formation on the Internet is governed by basic contract law principles: intention to create legal relationships offer and acceptance requirement for consideration need for certainty of terms legal capacity of parties

4 Contract Formation (cont’d) electronic commerce legislation has been adopted in almost all Canadian jurisdictions and in many other developed countries Electronic Commerce Act, 2000 (Ontario) confirms validity of electronic contracts any rule of law requiring document to be in writing or a notice to be in writing or requiring documents to be signed or in original form can be satisfied electronically

5 Contract Formation (cont’d) so-called “click wrap” agreements (borrowed from the term “shrink-wrap” agreements) have been found to be enforceable in both Canada and the U.S.

6 Rudder v. Microsoft (1999), 2 C.P.R. (4th) 474 (Ont. S.C.J.) –plaintiffs brought action against Microsoft in Ontario under Class Proceedings Act –plaintiffs argued that requirement for disputes to be litigated in the State of Washington was not enforceable –plaintiffs argued that jurisdiction clause was not visible without scrolling through agreement –court disagreed with plaintiffs and found forum selection clause to be enforceable –subscriber clicked an “I agree” button –court found that requirement to scroll through agreement was analogous to flipping pages of written agreement Contract Formation (cont’d)

7 the Rudder v. Microsoft principle is confirmed in the Electronic Commerce Act, 2000 (Ontario) which states that an offer and the acceptance of an offer may be expressed by “touching or clicking on an appropriate icon…on a computer screen” “web-wrap” and “browse-wrap” agreements are more problematic

8 Contract Formation (cont’d) some companies state that use of a web site constitutes acceptance of certain terms and conditions unlikely that a web-wrap agreement will be enforced unless the user takes an action clearly manifesting consent to the terms of the agreement

9 Contract Formation (cont’d) Ticketmaster Corp. v. Tickets.com, Inc., 2000 U.S. Dist. Lexis 4553 (C.D. Cal. 2000) – California District Court decision is illustrative –Ticketmaster claimed that Tickets.com’s practice of “deep-linking”, i.e. linking directly to web pages within Ticketmaster’s web site, violated Ticketmaster’s terms and conditions of use –Judge granted Tickets.com’s motion to dismiss –Judge noted that while the home page contained “terms and conditions”, the user did not need to view the terms and conditions to proceed to the event page of interest to him or her

10 Contract Formation (cont’d) “web-wrap” agreement was found enforceable by Quebec court in Canadian Real Estate Association v. Sutton (Quebec) Real Estate Services Inc., (2003), 2003 Carswell Que. 682 (S.C.) –Court granted injunction preventing Sutton from downloading listings from the CREA web site and re-posting the information on Sutton’s web site –Court found respondent’s actions violated the terms of use agreement on CREA’s web site –Sutton argued that there was no requirement to accept the terms of use on the web site –Court declined to rule expressly on this issue but was influenced by the fact that Sutton was clearly aware of the applicable terms of use and had posted web-wrap terms on its own web site

11 Unilateral Contract Amendments some internet service providers have attempted to unilaterally amend agreements with users Kanitz v. Rogers Cable Inc. (2002), 58 O.R. (3d) 299 (S.C.J.) is a case which allowed unilateral amendments –this case concerns agreement with subscribers to the Service –the subscriber agreement allowed Rogers to change or modify the agreement at any time –agreement simply required Rogers to post notice of the change on the web site or send notice by or postal mail to the customer

12 Unilateral Contract Amendments (cont’d) –customer had opportunity to stop using the service if they disagreed with the change –Rogers posted a change requiring customers to submit any disputes to arbitration –Rogers had posted the change on the customer support web site –Court found in favour of Rogers and said that amendment provision of contract placed an obligation on the customer to check the web site from time to time

13 Unilateral Contract Amendments (cont’d) contrary decision was reached in a January, 2005 decision of the Quebec court: Aspencer 1.com Inc. v. Paysystems Corporation, Cour du Quebec 2005 IIJCan 6494 (Q.C. C.Q.) –in this case the home page of Paysystems Corporation included the following statement: “Your continued use of MyPaysystems Services is subject to the current version of the MyPaysystems Agreement. This Agreement was last updated December 18, Please click here to review”

14 Unilateral Contract Amendments (cont’d) –Court refused to uphold amendment requiring arbitration due to absence of proof that plaintiff had clearly and unequivocally accepted the change. –in the context of consumer (B2C) transactions, the new Consumer Protection Act, 2002 (Ontario) which comes into force on July 30, 2005 will effectively prohibit unilateral amendments and provisions requiring arbitration [to be discussed later]

15 Whose law governs in cyberspace? Two issues: –Selection of jurisdiction –Choice of governing law if the parties have selected the forum (e.g. Rudder v. Microsoft choice of Washington State), the courts will normally accept it unless the “balance of convenience” strongly favours another forum

16 Whose law governs in cyberspace? (cont’d) if parties have not selected the forum, courts will attempt to find a “real and substantial connection” between the subject matter of the action and a particular jurisdiction if parties have failed to select governing law, courts will apply the system that has the closest and most real connection with the transaction and the parties

17 Whose law governs in cyberspace? (cont’d) applicability of these principles to Internet contracts is still unclear in Society of Composers, Authors and Music Publishers of Canada (SOCAN) v. Canadian Association of Internet Providers [2004] 2 R.C.S. 427, the Supreme Court of Canada considered applicability of the Copyright Act provisions requiring royalties to be paid to SOCAN on music files provided over the Internet to Canadian customers

18 Whose law governs in cyberspace? (cont’d) Court indicated that it would have to look at the site of the content provider, the host server, the intermediary and the end user significantly, the Court found that a “real and substantial connection” to Canada could be found even if the server was not located in Canada (e.g. copyright holder, Internet service provider and customer located in Canada)

19 Impact of Consumer Protection, 2002 (Ontario) Consumer Protection Act, 2002 (Ontario) (the “Act”) comes into force July 30, 2005 Regulations contain prescribed requirements Act applies to “consumer” transactions including agreements for goods or services where consumer or supplier in Ontario generally cannot avoid or waive the provisions of the Act by contract

20 Impact of Consumer Protection, 2002 (Ontario) (cont’d) mandatory arbitration provisions in contract invalid – consumer may always commence a court action terms which negate or vary certain conditions or warranties at law void – Act imposes “reasonably acceptable quality” warranty for services and cannot avoid operation of Sale of Goods Act

21 Impact of Consumer Protection Act, 2002 (Ontario) cont’d “Internet agreements” are consumer agreements formed by text-based Internet communications disclosure and cancellation provisions of Act apply if “total potential payment obligation” under consumer agreement exceeds $50 Act requires supplier to provide express opportunity to accept or decline agreement and to correct errors prior to entering into it

22 Impact of Consumer Protection Act, 2002 (Ontario) cont’d supplier must disclose the following information prior to consumer entering into agreement: –supplier’s name, business name, contact details –fair and accurate description of goods or services –itemized prices and additional charges –total amount to be paid and payment method –place and method of delivery or performance of services –currency –trade-in arrangements –additional rights and obligations and other limitations

23 Impact of Consumer Protection Act, 2002 (Ontario) cont’d disclosure must be clear, comprehensible and prominent and in a form which can be retained and printed by consumer supplier must deliver copy of agreement to consumer within fifteen days of consumer entering into it (by , fax or mail) if supplier fails to deliver copy of agreement, consumer may cancel within 30 days of entering into contract

24 Impact of Consumer Protection Act, 2002 (Ontario) cont’d if (a) supplier fails to disclose prescribed information, or (b) supplier fails to provide opportunity to accept or decline or correct errors; before consumer enters into agreement, consumer may cancel at any time up to 7 days after receiving copy of agreement new rules to address supplier’s ability to amend, extend or renew consumer agreements

25 Impact of Consumer Protection Act, 2002 (Ontario) cont’d Internet agreements can be amended, renewed or extended if: –proposal given to consumer; –supplier provides an update of information required under CPA (including elements of proposal); –consumer explicitly agrees to the proposal

26 Impact of Consumer Protection Act, 2002 (Ontario) cont’d An Internet agreement that provides for amendment, renewal or extension may be unilaterally amended, renewed or extended if: –agreement indicates what elements of agreement supplier may propose to amend, renew or extend and when supplier may make such proposals; –agreement provides consumer option to terminate agreement or retain existing agreement unchanged if proposal not acceptable; and –agreement requires supplier to give consumer advance notice of such proposal

27 Impact of Consumer Protection Act, 2002 (Ontario) cont’d Unilateral change without affirmative consent also requires –proposal be provided to consumer between 30 & 90 days before effective date; and –ability of consumer to easily respond to notice at no cost.

28 Impact of Consumer Protection Act, 2002 (Ontario) cont’d any “material change” in goods or services being received on an ongoing or periodic basis will deem such goods or services unsolicited test is whether change or series of changes could reasonably be expected to influence a reasonable person’s decision to enter into the agreement

29 Impact of Consumer Protection Act, 2002 (Ontario) cont’d change not deemed unsolicited if consumer consents orally, in writing or otherwise cancellation rights under the Act include a right of reversal of credit card charges (credit card charge-backs)

30 Impact of Consumer Protection Act, 2002 (Ontario) cont’d charge-back rights apply to payments: a)with respect to consumer agreement that has been cancelled under the Act; b)received in violation of the Act; c)charged in violation of the Act; and d)for unsolicited goods or services for which payment not required under the Act.

31 Impact of Consumer Protection Act, 2002 (Ontario) cont’d an individual (includes officers and directors) convicted of an offence under the Act is liable to a maximum fine of $50,000 or imprisonment for 2 years less a day, or both a corporation convicted of an offence under the Act is liable to a maximum fine of $250,000


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