ON-LINE CONTRACTING
- AN UPDATE
Paul E. Brace
905.415.6703
pbrace@millerthomson.ca
Eamonn J. Flaherty
905.415.6795
eflaherty@millerthomson.ca
Topics
1.
2.
3.
4.
Contract formation
Unilateral contract amendments
Whose law governs in cyberspace?
Impact of Consumer Protection Act, 2002
(Ontario)
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
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
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.
Contract Formation (cont’d)
• 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)
• 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
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
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
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
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
Rogers@Home 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 Rogers@Home web site or send notice
by e-mail or postal mail to the customer
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
Rogers@Home 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
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, 2003.
Please click here to review”
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]
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
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
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
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)
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
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
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
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
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 e-mail, fax or mail)
• if supplier fails to deliver copy of agreement,
consumer may cancel within 30 days of
entering into contract
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
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
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
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.
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
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)
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.
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