Commercial
Transactions
Module 8
Electronic Commerce & Banking
Summer Session 2006-07
In this module, we will look at e-commerce in a general
way; reflecting on how the type of transactions we have
already looked at are affected by this medium.
Contract formation
Sale of goods
Provision of services
Banking, finance and payment methods
As many commercial arrangements and transactions now
occur using electronic commerce, students are expected
to deal with issues arising in either a physical or virtual
business transaction.
Electronic Commerce
We can look at Electronic Commerce in many ways
including:
- from a communications perspective
- from a business process perspective
- from a service perspective
- from an online perspective
- from a transaction perspective
- from a legal perspective
- from a business-to-business and business-to-consumer
perspective.
Communications Perspective
From a communications perspective,
electronic commerce is the delivery of
information, products / services, or
payments via telephone lines, computer
networks or any other means.
When looking at the arrangements in
place, we normally look to contract law. It
can also be a service and s. 74 TPA can
be relevant.
Business Process Perspective
From a business process perspective,
electronic commerce is the application of
technology towards the automation of business
transactions and work flows.
In order to analyse the process, we need to
understand what is being achieved, the steps
and the relationships.
If a new way of doing something, it may be IP,
protected by Copyright or be entitled to a
Patent. E.g. Amazon.com ordering system.
Service Perspective
From a service perspective, electronic
commerce is a tool that addresses the desire of
firms, consumers and management to cut
service costs while improving the quality of
goods and increasing the speed of service
delivery.
Online Perspective
From an online perspective, electronic commerce provides
the capability of buying and selling products and information
on the internet and other online services.
This can save businesses from having the costs and
inconvenience associated with physical premises and permit
them to have a much wider reach. By use of logistical
services….transport and storage…that need not be
theirs….they can have large operations and cover wide
areas more easily than formerly. They can also sometimes
do things which were not possible /very difficult before-e.g.
online auctions.
Legal Perspective
From a legal perspective, we can consider the
need for a signature and whether an electronic
signature suffices.
Also Evidentiary Matters
- Elements of contract formation.
- Attribution of electronic conduct.
- Intellectual property issues.
- Consumer protection in relation to business-toconsumer transactions or business-to-business
(small business) transactions.
E-Commerce - Contract Formation
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Ways of forming contracts
Exchange of written correspondence by post, fax
Oral in person or by telephone
Written formal agreement or Exchange of emails
Acceptance of an offer by conduct
Types of Contracts
Sale/supply of physical goods
Licences (e.g. software,music,film)
Supply of services…banking, shares, advice.
Combination contracts
E-commerce
Is there a valid Contract?
Valid offer?
 Wording and display?. Limits? Systems?Interactive or active site?
 Automated interactive sites? Vending machines…offer made when
proprietor holds it out as being ready to receive money. Contract formed
when consumer places money into the slot and selects item.
Acceptance?
 Effective at the time communicated to offeror. When is it communicated?
Email?Instantaneous? Press Send, goes to ISP, goes via a number of
servers and received when recipient logs on and downloads. May go
around the world to get to the next building. Is it similar to the postal
system? Difficulties with certainty in time of communication.EDI is
instantaneous. Fax? What if noone there to receive it?
Intention to create legal relations? Capacity?
Consideration?
Terms are certain?
EcommerceSubject to the same laws as physical transactions
The Electronic Transactions Act 1999 commenced March 15, 2000
and is based on the United Nations Commission on International
Trade Law (UNCITRAL) Model Law on Electronic Commerce. States
are required to enact complementary law. NSW, Victoria and ACT have,
but the others not yet.
The legislation is based on principles of functional equivalence
…paper based and electronic transactions should be treated equally by
the law and technology neutrality
…the law will not discriminate between different forms of technology.
Note:The local version is not exactly the same as the model law.
E-commerce-Communication and Receipt
UNCITRAL Model law article 15
Unless otherwise agreed between the originator and the addressee, the
time of receipt of a data message is determined as follows:
(a)If the addressee has designated an information system for the purpose
of receiving data messages receipt occurs:
(i) At the time when the data message enters the designated
information system; or
(ii)If the data message is sent to an information system of the addressee
that is not the designated information system, at the time when the data
message is retrieved by the addressee;
(b)If the addressee has not designated an information system, receipt
occurs when the data message enters an information system of the
addressee.
Electronic Transactions Act 1999 (Cth)
Signatures
S.10 of the ETA provides that if the signature of a person is required, that
requirement is taken to be met in relation to an electronic communication
if:
a method is used to identify a person and to indicate the persons
approval of the information communicated
the method was as reliable as was appropriate for the purposes for
which the information was communicated
if the recipient is a commonwealth entity any applicable IT requirements
have been complied with; and
if the recipient is not a commonwealth entity, the person consents to the
method of signature used.
Electronic Transactions Act 1999 (Cth)
Documents in Electronic Form
S.11 of the ETA provides that a requirement to produce a document is
taken to have been met if the document is produced in electronic form,
provided that;
the method of generating the electronic form of the document provides a
reliable means of maintaining the integrity of the information contained in
the document
at the time the communication was sent it was reasonable to expect that
the information in the electronic form of the document would be readily
accessible so as to be useable for subsequent reference
if the recipient is a commonwealth entity, any applicable IT requirements
have been complied with; and
if the recipient is not a commonwealth entity, the recipient consents to the
method of signature used.
NOTE that the ETA will not apply to formalities required by the parties as
opposed to formalities required by legislation.
COMMUNICATION METHODS
Insurance Contracts Act
The Insurance Contracts Act specifies that some communications must
be in writing. Most provisions impose obligations on the insurer to advise
the insured of something in writing (ss.22,35,37,39,40,44,49,58,62,68
and 74).s,69 permits oral information, provided later given in writing.
The ETA 1999 provides that in general where a commonwealth law
requires a notice in writing, it may be given by electronic means provided
that the recipient consents. However, the ET regulations exclude the ICA
from the scope of these provisions!
Because of the seriousness of some of these notices e.g. cancellation, in
a Treasury review of the ICA in 2004, a recommendation was made that
E communications be possible with consent and provided a record could
be printed.
E-commerce-communication of receipt
US Uniform Computer Information Transactions Act 1999
 §215 provides for electronic messages to be effective at the time of
receipt, regardless of whether any individual is aware of receipt.
 Receipt is defined as:
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In the case of an electronic notice…coming into existence in an
information processing system or at an address in that system in
a form capable of being processed by or perceived from a
system of that type by a recipient, if the recipient uses, or
otherwise has designated or holds out, that place or system for
receipt of notices of the kind t be given and the sender does not
know that the notice cannot be accessed from that place.
E-commerce-communication of receipt
The Electronic Transactions Act 1999 prefers:
s.14 Time of receipt
(3) For the purposes of a law of the Commonwealth, if the addressee of an
electronic communication has designated an information system for the
purpose of receiving electronic communications, then, unless otherwise
agreed between the originator and the addressee of the electronic
communication, the time of receipt of the electronic communication is
the time when the electronic communication enters that information
system.
(4) For the purposes of a law of the Commonwealth, if the addressee of
an electronic communication has not designated an information system
for the purpose o receiving electronic communications, then, unless
otherwise agreed between the originator and the addressee of the
electronic communication, the time of receipt of the electronic
communication is the time when the electronic communication comes to
the attention of the addressee.
Good rap for browsewrap in USA:
Register.com Inc v Verio Inc
Authors: Leaellyn Rich and Irene Zeitler of Freehills
Agreement to terms and conditions?
Decision affirming the enforceability of browsewrap
licences, the U S Court of Appeal for the Second
Circuit has upheld a preliminary injunction issued
against Verio Inc. (Verio), a website developer and
hosting firm, for breaching the browsewrap-style
terms of use for the services of the plaintiff,
Register.com (Register): Register.com Inc v Verio
Inc . 356 F. 3d 393 (2d Cir. N.Y. 2004), 2004 U.S.
App. LEXIS 1074.
Facts in Verio
Register, a provider of domain name registration services, had agreement with
Internet Corporation for Assigned Names and Numbers (ICANN). Register was
required to maintain and update a publicly available 'WHOIS' database of
registrants' contact information, was not to impose restrictions on use of this data,
except re electronic spamming. Register established a WHOIS database, which it
updated on a daily basis, and provided a free public inquiry service for the
information contained therein. Register's responses to WHOIS queries were
captioned by a 'legend' stating that by submitting a query, the user agreed to
refrain from using the data to conduct mass solicitations of business by email,
direct mail or telephone (a more stringent restriction than that envisaged under the
ICANN Agreement, which was only in relation to the restriction of mass solicitation
by email).Verio developed automated software program or 'robot' (Robot) to
access WHOIS database and compile massive lists of new registrants whom Verio
then subjected to a barrage of unsolicited marketing by email, direct mail and
telephone.Register demanded Verio stop, but Verio only partially complied,
ceasing email solicitations, but continued direct mail and telephone. Register sued
for breach terms.Verio argued not contractually because it never received legally
enforceable notice of Register's conditions as the restrictive legend did not appear
until after Verio had submitted the query and received the WHOIS data.
Decision in Verio
Court upheld the preliminary injunction, concluding that online contracts do not
always require formal acceptance by the offeree. In the circumstances, Register's
browsewrap-type terms of use, combined with Verio's actions in repeatedly
accessing the WHOIS database constituted a valid offer and acceptance, thereby
resulting in a legally enforceable contract.Court distinguished case Specht. Court
also disagreed with the Ticketmaster, expressly rejecting that terms were
unenforceable because user had not clicked an 'I agree' icon:
'[w]e recognize that contract offers on the Internet often require the offeree to
click on an "I agree" icon … no doubt in many circumstances, such a statement
is essential to the formation of a contract. But not in all circumstances...It is
standard contract doctrine that when a benefit is offered subject to stated
conditions, and the offeree makes a decision to take the benefit with knowledge
of the terms of the offer, the taking constitutes an acceptance of the terms,
which accordingly become binding on the offeree.'
Particular significance was attached to the fact that Verio was a commercial entity
that was making numerous, successive inquiries of Register's database, as a
result of which it had become well aware of the terms exacted by Register.
Implications of VERIO US decision
As electronic commerce has developed, courts have been confronted
with the task of applying age-old principles of contract law to various
online permutations of the classic idea of agreement between parties.
While, in recent years, courts have become comfortable with enforcing
agreements supported by 'clickwrap' procedures, Verio is an authority in
relation to the enforceability of 'browsewrap' or 'Web wrap' agreements.
This case helps to elucidate contract principles as they apply to
browsewrap agreements and, in particular, clarifies the circumstances in
which the provisions of browsewrap agreements will be held to be
enforceable. Although Australian courts are not bound by American case
law, the decision in Verio provides a useful guide as to how an
Australian court might deal with the issue.
Specht v Netscape Communications
Corp., 306 F.3d 17 (2d Cir. 2002),
The Court declined to enforce terms specified by Netscape
against a user of Netscape's software due to insufficient
evidence that the user had seen the terms when
downloading the software. The terms of Netscape's offer of
software were posted on the website from which the user
downloaded the software. However, the user would not
have seen them without scrolling down their computer
screen, and there was no reason for them to do this.
Ticketmaster Corp. v Tickets.com Inc.,
No. CV99-7654, 2000 U.S. Dist. LEXIS 12987, 2000 WL 1887522
The Court, noting that the taker of the information was not
provided with an 'I agree' icon to click (although fully
aware of the terms on which information was offered on
Ticketmaster's site), concluded that there was insufficient
proof of agreement to support a preliminary injunction.
The Court Verio commented that '[u]nder the
circumstances of Ticketmaster, we see no reason why the
enforceability of the offeror's terms should depend on
whether the taker states (or clicks), "I agree".'
June, 2004
S.52TPA and e-commerce
A corporation shall not in trade or commerce engage in conduct
that is misleading or deceptive or is likely to mislead or deceive
Consider also ancillary liability (s75B aids, induces, conspires, knowingly concerned)
The conduct must have taken place in Australia. Where were the
representations made?..relevant conduct not the state of mind.
No need for an active representation. Can be silence e.g. incomplete
information, changes not noted or where reasonable expectation of
information.
Examples of possible problem areas:
Advertising
Website design, logos, product description,Domain names
Metatags and cyberstuffing-keywords to attract search engines
Linking and framing
Distributing software without permission
Contract terms
Misleading and deceptive conduct
Taco Bell Inc. v. Taco Bell P/L (1982) 42 ALR 177
4 step approach to whether conduct is misleading and deceptive in all
the circumstances
(1) Identify relevant section of public who may be mislead/deceived.
(2) What is effect of conduct on all those within that section…would a
reasonable member of that section be mislead?
(3) Evidence that consumers are in fact suffering from a misconception
may be persuasive but is not essential
(4) It must be established that the misconception has arisen as a result
of conduct complained of and not some other factor
NOTE that intent of defendant not relevant and not enough to cause
mere confusion. Conduct must actually mislead or deceive or be likely
to…different to passing off action where confusion enough.
Sales of goods over the internetterms and conditions
Results of a survey of on line retail sites by ACCC 2004
Terms and conditions compulsory viewing
Require positive consent before completion
Written contract easy to find
Clause attempting to disclaim warranties in breach TPA
Clause attempting to limit liability
Clause attempting to limit responsibility for inaccuracy
Clause stating that use of site is agreement to T&C
Both clauses attempting disclaimer warranties
and limits to liability
70% of online sites surveyed raised concerns for ACCC
14.7%
32.80%
17.4%
50.9%
66.00%
54.3%
48.7%
43.8%
Foreign web scheme banned
Peter James and Andrew North of Allens Arthur Robinson
ACCC case against US based SkyBiz.com Inc, illustrating that web-based
activities can be subject to laws where information accessed, not just the law of
home country operations. Example also of ACCC and FTC co-operation.
ACCC alleged in Federal Court that SkyBiz.com Inc contravened TPA 61 through
its operation of a pyramid selling scheme and had engaged in misleading and
deceptive conduct and referral selling, prohibited by ss. 52, 59 and 57.SkyBiz.
consented to orders that:The Skybiz scheme was a pyramid selling scheme.
Skybiz represented the scheme could be used to engage in ecommerce when it
could not; SkyBiz attempted to induce people to take part by representing that
those who joined would later receive money if they introduced new consumers,
contingent on those new consumers recruiting further consumers, thereby
engaging in referral selling.SkyBiz represented the scheme would be a profitable
business for all persons who took part and could be carried on at/ from, their
home, when in fact this was not the case, thereby making false or misleading
representations and SkyBiz attempted to induce persons to take part by
representing that those who joined would later receive payments.
Sales of goods over the Internet
Same as physical sales plus some
Goods to correspond with description
Do the goods delivered correspond with
description, picture?
Important to check pictures and descriptions to
make sure they match those delivered.
Any tendency to vary should be clearly noted on
site so as to be clear to the customer prior to the
decision to purchase being made.
Sale of Goods over the Internet
Fitness for Purpose
Has the customer made known, expressly or
impliedly, the purpose to the Vendor?
Expressly
Ordered by description?
Surrounding negotiations?
Impliedly
One purpose only?
Advertised as being appropriate for particular
purpose?
Sale of Goods over the Internet
Merchantable Quality
As people do not see goods before they
buy when bought over the Internet,it will
be particularly important to point out any
defects.
Note Grays auction site. When they sell
factory seconds, they list some or all of
the faults, a note that they have not been
properly assessed, no warranty etc.
Sale of Goods over the Internet
Capacity
Normally there is a presumption at common law, that a person who
enters a contract has full capacity to do so. Some exceptions for those
under a disability-might include minors (under 18), mentally disable,
drunkards, bankrupts.
It is impossible to be sure of identity of Internet Customer.
Consider the situation with Minors:A contract made by a minor is “voidable”, at the minor’s option. One
exception involves “Necessities”-food, clothing, education or
goods/services fit to maintain them in station of life in which they
move. Even so, unenforceable if contains harsh, unreasonable terms
or price is unreasonable.
Burden of proof with supplier.
What is the situation with “Luxury items”? CDs, computer games?
Sale of Goods over the Internet
Purchase by a minor
The minor uses their own debit card
The account would be debited before goods received. Therefore, once,
goods received, minor would have to litigate to recover the money.
However, if they changed their mind prior to delivery and informed
supplier they wished to withdraw, the supplier would not be able to rely
on contract terms and conditions. Minor would be entitled to a full refund.
The minor uses adult debit/credit card without permission
Should be treated same as if card stolen. When adult becomes aware,
might choose to ratify; in which case contract would be with adult and
fully enforceable. If they denied validity, child could be prosecuted for
theft. Credit company would most likely seek to recover the money and
the supplier would lose out.
The minor might be obliged to pay after receipt of goods
Seller could not enforce contract to recover money. Unless fraud, they
could not recover the goods either.
Sale of Goods over the Internet
Sale by a minor
In NSW law has altered CL position and is different to that in the other
States.
See the Minors (Property and Contracts Act) 1970.
 If for their benefit, it is presumptively binding
 The Supreme Court can make an order granting them capacity
 A minor cannot enforce a contract that is not presumptively binding
 On reaching 18, minor can affirm an act they participated in during
minority
 On repudiation, courts have wide discretion to produce a fair result.
 Where a disposition of property occurs and minor receives at least part
of consideration, it is presumptively binding.
Credit Cards & Electronic Banking
Contract between Banker and Customer
Students are expected to have a good working
knowledge of the terms and conditions of a bank
customer contract for electronic banking, credit
cards, internet banking, the application of sections 5
and 10 of the Electronic Funds Code of Conduct to
them and be able to work through and resolve a
problem with such services.
The EFT Code of Conduct is available on the ASIC
website. Note that there are calls for submissions on
a Review of the EFT Code in January 2007.
Useful summaries and copies of policy guidelines for
the Banking Ombudsman are available on their
website.
CREDIT CARDS and ELECTRONIC BANKING
Contract between Banker and Customer
Contract may consist of more than one set of
terms and conditions and terms may be implied by other instruments or
by Statute.
See: Electronic Banking Conditions of Use / Terms and Conditions
Note that there are frequent variations from time to time for both
Code of Banking Practice (disclosure mostly)
Electronic Funds Transfer Code of Conduct (especially 5 & 10)
See also:
ASIC Act-misleading and deceptive conduct
Contract Review-harsh/unconscionable
Tort
Negligence
Misrepresentation
Dispute Resolution Methods
Internal-See Terms&Conditions of Contract and Codes of Conduct
External-See Banking Ombudsman
Court
Other
EFT Code
What information do you have to be given and when?
You are entitled to a copy of the contract (Terms and Conditions).
The account institution must give you the contract at the time of or before
you use a new way of accessing your account.
Your account institution must give you certain information about your new
card or PIN and include information about fees, restrictions, accounts that
can be accessed, how to report loss, theft or unauthorised use, and how to
make a complaint.
If the account institution changes the rules, they have to tell you about it at
least 20 days before they take effect.
If you deposit, withdraw or transfer money electronically, the account
institution must offer you a receipt showing the date of the transaction, the
type, accounts and amounts involved and location of the transaction.
EFT Code cont.
What happens if there is an unauthorised transaction
on your account?
- There is an obligation to check your statements.
- Contact your account institution as soon as possible.
- There will be some instances where you will be liable for
them, and others where you will not be, and some in
between; where you will be liable to a limited extent.
EFT Code cont.
When will you get your money back for authorised transactions?
When:
- there is fraudulent or negligent conduct by employees or agents of the
account institution;
- a forged, faulty, expired card, PIN or password was used;
- the transaction took place before your received your card, PIN,password;
- a merchant incorrectly debited your account more than once;
- the transaction took place after you told your account institution your card
had been stolen or lost, or someone else may know your PIN or password;
- no PIN or password was required to conduct the transaction;
- it is clear you have not contributed to the loss;
- the account institution expressly authorises the conduct.
EFT Code cont.
When you will not get your money back?
Where the account institution can prove: -
- you contributed to the loss by acting fraudulently, or not
keeping your PIN or password secret;
- you unreasonably delayed before telling your account
institution that your card had been misused, lost or stolen or
that someone else might know your PIN or password.
EFT Code cont.
What is the extent of my liability?
Where the account institution can show that the account holder acted
fraudulently or unreasonably denied advice, they will be responsible to
the extent of the daily transaction limit and the balance of the account.
When will liability be split between the account institution and the
customer?
If a PIN or password was needed to perform the unauthorised
transaction and it cannot be proven that the customer contributed to the
loss, the customer will only be responsible for the lowest of
- $150.00;
- the balance of the account; and
- the amount of money that had gone out of the account before the
account institution was informed.
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines
Access methods (which include devices and codes) comprise the keys to
your account. You and any other user must take reasonable card to
ensure that access methods and any record of access methods are not
misused, lost or stolen.
These are Guidelines only. They summarise how you can maintain the
security of your access methods and help to avoid losses to you or us.
Your liability for any loss will be determined in accordance with the
Electronic Funds Transfer (EFT) Code of Conduct, the provisions of
which are reflected in the relevant Conditions of Use. For full details on
how to protect your access methods (which includes a card, PIN and
Password) please refer to your copy of the Electronic Banking Terms and
Conditions or Credit Cards Conditions of Use, as appropriate.
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
Devices (for example, a card)
You must make sure that:
 devices (if they are cards) are signed immediately upon receipt;
 devices are kept secure and (if they are cards) carried by you
whenever possible;
 you regularly check that devices are still in your possession.
Codes (for example, a PIN or password)
Try to memorise your code as soon as you receive it. If you are unable to
memorise your code and need to make a record of it, please ensure you
have made a reasonable attempt to disguise your code in the record that is, scramble the details so that no one else is able to work out what
your code is. We are not liable to reimburse you if an unauthorised
transaction occurs on your account and you or any other user have not
made a reasonable attempt to disguise a code or to prevent unauthorised
access to the code record.
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
For example, we will not consider that a reasonable attempt has been made
to disguise a code if you or any other user only:
 recorded the code in reverse order;
 recorded the code as a ‘phone’ number where no other ‘phone’ numbers
are recorded;
 recorded the code as a four digit number, prefixed by a telephone area
code;
 recorded the code as a series of numbers or words with any of them
marked, circled or in some way highlighted to indicate the code;
 recorded the code disguised as a date (e.g. 9/6/63) where no other dates
are recorded;
 recorded the code in an easily understood code, e.g. A=1, B=2; or
 self-selected a code which is an obvious word or number or one that can
be found in a purse or wallet or can be easily guessed by someone else
(such as a date of birth, middle name, family member’s name or driver’s
licence number).
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
You or any other user must ensure that:
 a code or disguised record of a code is not recorded on an access method;
 devices and codes (including any record of codes) are not kept together such that
if a thief gets hold of the access method, he/she will also find the disguised code: for
example, in a briefcase, bag, wallet or purse (even if in different compartments), in a
car (even if in different areas of the car - in fact access methods should not be left in
a car at all), at home in the one item of furniture, (e.g. different drawers of the same
bedroom dresser) or in any other situation where an access method is not separate
and well apart from a code record;
 no one else is told or finds out your code - not even family or friends;
 transactions are ready to be made when you approach the electronic equipment,
such as an automatic teller machine;
 no one watches a code being entered. Check the location of mirrors, security
cameras or any other means of observing the code being enters, and then shield it
from sight;
 nothing (such as a device, transaction record or cash) is left behind when the
transaction is completed.
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
What to do if your access method is misused, lost or stolen
You must tell us as soon as you become aware (even if you are confident
that the codes are secure) that the access method used by you or any user
is lost or stolen or you suspect that your (or any user’s) code has become
known to someone else because it may help us detect fraud and reduce the
need for us to conduct a lengthy enquiry because of extended misuse of the
account.
Otherwise, you will be liable for the unauthorised transactions that occur on
your account or any account linked to the card if it can be shown that you or
any user unreasonably delayed telling us of the access method or code
loss, theft or misuse.
You can tell us by calling 13 2221 at any time (24 hours a day, 7 days a
week) or visiting your nearest branch during business hours)
Notice to Commonwealth Bank Customers
- Safeguarding Other Types of Payment
Instruments, such as Cheques and Passbooks
You must do everything you reasonably can to make sure that other
payment instruments such as cheques and passbooks are not misused or
lost or stolen. Not only must you take care to guard against theft, you
must always ensure that you draw cheques in a way that does not
facilitate fraud.
It is important that you tell us as soon as you become aware that a
payment instrument has been lost or stolen. You may be liable for the
unauthorised transactions that occur on your account if it can be shown
that you unreasonably delayed telling us of the loss, theft or misuse of the
payment instrument. If you have a cheque facility you should also check
your statements for unauthorised transactions and report them to the
Bank as soon as possible.
Even if you are confident that the payment instruments are secure, you
must tell us as soon as you become aware of the loss or theft of a
payment instrument or of any unauthorised access to your account(s).
LIABILITY FOR UNAUTHORISED TRANSACTIONS
SECTION 5
Electronic Funds Transfer Code of Conduct
No liability for:
1. Losses caused by fraudulent, negligent conduct of employees or agents
of bank or networks or merchants
2. Losses relating to component of access method that are forged, faulty,
expired or cancelled
3. Losses that arise from transactions using device or code prior to issue
4. Double debits
5. Unauthorised transactions occurring after notification
6. Where it is clear that user has not contributed to the loss
Liable where:
 Where bank can prove on balance of probability that user contributed
to losses through their fraud, contravention of security guidelines
 Where bank can prove on balance of probability that user has
contributed to losses by unreasonably delaying notification
See 5.6 for security guidelines
COMPLAINT INVESTIGATION / DISPUTE RESOLUTION
INTERNAL SCHEME EFT Code of Conduct s. 10
Internal Complaint handling procedures to comply with AS4269-1995 or other as
approved by ASIC
Customers to be advised of procedure in T&C
Decision to be based on all relevant established facts and not unsupported
inferences
Information to be obtained.
If equipment malfunction complained of, institution must investigate whether one
occurred.
Within 21 days, institution to complete investigation and advise user of outcome
with reasons or advise customer of need for more time.
Unless exceptional circumstances, investigation completed 45 days. If longer, must
inform customer of reasons, provide monthly updates, estimated decision date
Where customer liable, institution to make available copies of documents etc.
Where institution does not observe procedure external dispute resolution body may
make institution liable to compensate for effects of decision or delay
Records of complaints to be kept.
NOTE: 28% EFT complaints (30,375) April 99-March 2000 concerned
unauthorised transactions ATM and EFTPOS transactions. Majority resolved in
favour card issuer; most common reason being cardholder negligence with their
PIN.
INTERNAL COMPLAINT PROCEDURE
INFORMATION TO BE OBTAINED FROM USERS
1. Account type, number, type of access method
used
2. Name and address of user
3. Other users authorised
4. Whether device signed
5. Whether device lost or stolen or security of codes breached Date
and time of loss, theft or security breach
 Time of report to account institution
 Time, date, method of reporting to police or other authority
6. Code details
 Was record of code made? How? Where kept Was record of
code lost or stolen? Date? Time? Code disclosed to anyone?
7. How loss occurred (e.g. housebreaking, stolen)
8. Where loss of device occurred e.g. office, home
9. Details of transaction to be investigated
 Description date time, amount Type and location of electronic
equipment used
10. Details of any circumstances surrounding the loss, theft, security
breach, or reporting or steps taken to ensure security of device
or codes which user considers relevant to their liability
11. Details of last valid transaction.
External Dispute Resolution - Banking and Financial
Services Ombudsman
See www.bfso.org.au
JURISDICTION
 The complaint must be about a specific “banking
service” (NOT commercial judgements, policies, fees,
branch closures) a bank has provided to complainant
 The person complaining must be able to say that the
banks action have directly caused them a financial loss.
 The amount of financial loss must be less than
$250,000.
 The person complaining must be an individual and/or a
small business (15 full time employees or less, annual
turnover of $1m or less and independently owned and
managed). Some corporations-those which are also a
charity, trustee or statutory authority-excluded.
Banking Ombudsman
Information to supply when making a complaint
In a letter setting out particulars of the complaint,
name address and telephone number,
bank name,
name of contact person of bank and contact number,
account number, and
copies of documents if about a loan or cheque.
Banking Ombudsman
Procedure when handling a complaint
Ombudsman examines letter
Decides whether in a position to consider it
Allocates a case number
And perhaps an investigator (who liases with the bank)
Sends details to bank
After 30 days bank should have provided O with response. If it asks for
longer, has to explain
If complainant receives a recommendation, they may accept or reject. If
they reject, the O will not be able to assist further.If complainant
accepts and bank does too, case resolved.If complainant accepts but
bank does not, the O can issue an award which binds the bank.
When seeking to look at likely outcome of complaint, important to
consider terms of reference, guidelines and policies.
Banking Ombudsman Policies
- Bank Cheques
When considering a complaint about the stopping or dishonouring of
bank cheques, O has regard to the guidelines of ABA and Law Society of
NSW. Banks will only dishonour bank cheques in limited circumstances:
 Forged or counterfeit instruments
 Materially altered bank cheques
 Bank cheques reported lost or stolen
 A court order restraining payment
 Failure of consideration for issue of a bank cheque
NOTE a complaint by payee/holder falls outside terms of reference
because drawing bank did not provide a banking service to payee.
Banking Ombudsman Policies
- Cheques
Payment and collection of cheques
The Drawer receives a “banking service” from the paying bank
The Payee receives a “banking service” from the collecting bank
If the Drawer wishes to complain about the collecting bank, they would
not be able to do so to O even though the collecting bank has certain
statutory obligations under the Cheques Act, because collecting bank not
providing “banking service” to Drawer.
Banking Ombudsman Policies
- Third Party Cheques
A third party cheque is a cheque deposited for payment into
an account operated by someone other than the Payee.
In these circumstances, the collecting bank is providing a
“banking service” to the person who presents the cheque for
payment.
The O does not, however, have power to investigate a
complaint by the Payee or a person otherwise claiming to be
the true owner because the collecting bank did not provide a
“banking service” them.
Banking Ombudsman Policies
- Late Dishonours
Sometimes, banks advise a customer that a cheque has
been dishonoured outside 3 day clearing period but still
within clearance rules within banks customers may not have
been provided with clear information about steps involved in
cheque clearance.
May not be aware of notation on account permitting release
of uncleared funds or a commercial decision has been made
to permit them access to uncleared funds.
In these situations, O may consider whether bank actions
are misleading, deceptive.
Banking Ombudsman Policies
Mistake and change of position in good faith
O takes the view that where uncleared funds have been released to
customer because of human or system error, bank is entitled to recover the
money paid under mistake except where customer, in reliance on the
payment, changed their position in good faith.
Bank must establish it made a mistake of fact or law, it acted on the mistake
in releasing the funds and the recipient has been unjustly enriched.
Customer must establish they acted in good faith (actual belief in the
security of the receipt), they relied on the mistake and they changed their
position. A person can still be foolish, but honest.
Customer must act to their detriment on faith of receipt. Mere expenditure
not sufficient-must appear they would have acted differently had they not
mistakenly believed they were richer than they were.e.g. not enough to
simply spend the money on ordinary living expenses. Must be a genuine
change of condition. E.g. making a bad investment that would not otherwise
have been made, lending money to a third party that is irrecoverable, taking
overseas trip that would not otherwise have been taken.
SAMPLE A BIO 2002
A Hasty Return
Mr and Mrs S went to Europe for their honeymoon. They intended to stay
for 1 month, but after 2 days, their credit card stopped working. They cut
short their holiday and returned to Australia.
They lodged a dispute with ABIO, claiming that the bank should
compensate them for their loss of enjoyment of their holiday.
When ABIO referred the dispute to the bank for its consideration, it offered
an ex-gratia payment of $3,000. Mr and Mrs S did not accept this offer, and
it was subsequently withdrawn by the bank.
Investigation
The information provided by the bank did not establish why the credit card
had stopped working. However, it was the case manager's view that as the
bank represents to customers that the particular type of card can be used
in most countries, the bank would be potentially liable for losses resulting
from the failure of the card to work.
A Hasty Return Cont.
The case manager then investigated whether, according to the
Ombudsman's guidelines for assessing non-financial loss, Mr and Mrs S
were entitled to any compensation from the bank.
The case manager noted that:
 Mr and Mrs S did not contact the bank to try to rectify the problem with
the credit card; and
 Whilst the credit card did not work, they could still have accessed
alternative funds by using Mr S's Keycard. This would have allowed them
to make EFTPOS purchases and ATM withdrawals of up to $A800 per day,
which appeared to be more than adequate for their travelling needs.
Resolution
The case manager concluded that Mr and Mrs S acted with extreme haste.
As they had not given the bank an opportunity to resolve the matter, and
did not take any reasonable steps to minimise the inconvenience they
were suffering, the case manager found that it was not reasonable for Mr
and Mrs S to expect to be compensated by the bank.
SAMPLE A BIO 2002
Disputed ATM Withdrawals
Mr B and Ms C disputed a large number of ATM withdrawals, totalling
$27,000, made from their line-of-credit account over a three-year period
with their debit cards. They acknowledged receiving monthly
statements, but said they were only concerned with the closing balance.
They only made a detailed check when they noticed that the home loan
was not reducing as quickly as expected. They provided a detailed list
of disputed transactions, but conceded that some of the withdrawals
would have been their own. They claimed that access to their account
could have been gained internally by the bank, or via a hacker on the
internet.
The bank declined to make any refund. It said it was not clear why some
transactions were disputed and others were not. It also noted that Mr B
and Ms C had not disputed any transactions on their credit card
account, yet on some days, valid credit card purchases occurred in the
same suburb as disputed debit card withdrawals.
Disputed ATM Withdrawals cont.
Facts that came up during the investigation included that: both debit cards
were used, but most of the disputed withdrawals were made with Mr B's
card; both cards had bank-generated PINs; on two occasions it seemed
that disputed ATM withdrawals had been used to make payments to the
credit card account; on one occasion a disputed withdrawal was followed
by a valid withdrawal only one minute later; and on at least one occasion
there was a disputed cash withdrawal using a debit card on the same day
that one of the disputants used a credit card to purchase goods in the
same shopping centre.
The case manager found nothing to support the contention that access
was gained internally by the bank or via an internet hacker. There was also
no information to support a possibility that an unauthorised third party had
gained access to the cards and PINs. On the weight of information, the
case manager concluded that the most probable explanation for the
disputed transactions was that they had been made by the disputants
themselves. The bank was not asked to compensate the disputants.
Merchant EFTPOS Facility
Disputant partnership selling giftware. 1 partner in business since inception. 1
bought share from partner who retired. All documentation signed by retired partner.
A customer frequently telephoned over 5 weeks to order gift hampers. To process,
disputants keyed customer card number into EFTPOS terminal. Did not swipe card
or obtain signature, nor did customer ever come into shop. By keying “off Line”,
disputants by-passed electronic system which prevented transactions over $100
limit if cardholder’s account did not have sufficient funds.
Bank attempted to levy chargebacks because transactions not authorised.
Case manager reviewed merchant agreement. Bank entitled to charge back
transactions if not valid or not processed in accordance with relevant procedures.
Found that disputants had contravened procedures by processing “off line” at a
time when electronic system functioning, failing to seek authorisation and failing to
take reasonable care to detect unauthorised use of the card…given the size,
frequency and nature of transactions.
Disputants argued they were not bound because neither had signed. However,
after review of partnerhip agreements and partnership legislation, found original
partner bound continuing partner and new partner had assumed equal liability.
Finding was that bank could rely on merchant agreement and charge back all of
the transactions.
Limits where compensation sought
Ombudsman does not award punitive damages or
compensation for time spent on the complaint
An illustration of this was where Y sold investment property
with settlement planned for 22 Nov. On 11 Nov, his bank
informed him that they had lost the deeds. There followed
several anxious days of calls and complaints, an
application for a new CT, before the old one was found and
settlement effected on 22 Nov as planned. Y claimed his
expenses and $15,000 punitive damages for all the stress.
The bank offered $300 in compensation. The O policy was
that a person must be moderately robust in the way they
deal with unexpected problems. O does not award punitive
damages and does not award compensation for time spent
pursuing a complaint.