Source: https://blog.cipit.org/2017/11/01/e-commerce-and-the-law-in-kenya-electronic-contracting/
Timestamp: 2019-04-26 02:22:30+00:00

Document:
This semester, we kick off a brand new course for final year undergraduate law students on e-commerce and the law. This course aims at explaining the legal challenges that are posed by electronic commerce. We shall also contextualise and problematise on-going legal/policy developments in Kenya to regulate electronic commerce. In this blogpost, we highlight some of the issues that arise in the context of the law of contract.
This approach is also espoused in the most recent e-commerce convention adopted by UNCITRAL – the UN Convention on the Use of Electronic Communications in International Contracts, 2007 (the UN Convention). For our purposes, electronic contracts include the sale or purchase of goods or services, whether between businesses, households, individuals, governments, and other public or private organizations, wholly or partially conducted over electronic networks. (e.g. email, sms, websites). They may be negotiated and concluded by natural persons (as principals or agents) or by electronic agents (automated transactions).
The UNCITRAL Model Law on Electronic Commerce states that ‘an offer and the acceptance of an offer may be expressed by means of data messages. Where a data message is used in the formation of a contract, that contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose.’ In the EU, the EC Directive on Electronic Commerce contains three provisions on electronic contracts, the most important of which is the obligation on Member States to ensure that their legal system allows for contracts to be concluded electronically. It can be found in Article 9(1), which in effect requires Member States to screen their national legislation to eliminate provisions which might hinder the electronic conclusion of contracts.
As stated in our previous blogpost, Kenya Information and Communications Act (KICA) contains some general provisions on regulation of electronic transactions despite lacking definitions of e-commerce and electronic transactions. However a specific provision relating to e-commerce may be found in section 83B of KICA which states that the following transactions may not be concluded electronically: (a) the creation or execution of a will; (b) negotiable instruments; and (c) documents of title.
From a contract law perspective, a valid contract requires offer and acceptance thereby signifying a meeting of minds/consensus between parties.
The requirements for a valid offer are as follows: The offer must be definite and complete; The offer must contemplate acceptance and (a) resultant obligation(s); The offer must come to the attention of the offeree (addressee); An offer must as a rule be directed at (a) definite person(s), although it may also be directed at undefined persons; and The offer must comply with any formalities set by law. When one examines the validity of an Internet contract, the first question is whether the contents of a website or electronic mail constitute an on-line “offer” or merely “an invitation to do business”. It is important to note that a true offer must be made with the intention to form a binding contract. An advertisement is therefore usually regarded as a mere invitation to do business, and not as an offer. A commercial website may serve both as “shop displays” and as “shop sellers”, and may constitute a fusion of advertising and selling. An advertisement or digital image of products for sale on a website is generally directed “to the world”, and may, depending on its wording, constitute an offer. However, it may also be only an invitation to the world at large to do business in that the electronic order by a prospective client is regarded as an offer subject to acceptance by the Internet trader. The exact intention should be clearly stipulated in the standard terms of the Internet merchant. From the point of view of the Internet trader it is usually preferable to structure the Internet site in such a way that orders by customers are regarded as offers rather than acceptances.
The requirements for a valid acceptance are the following: The acceptance must be unconditional and unequivocal; The offer must be accepted by the person to whom it was addressed. Usually, an offer on the Internet is made to the public in general, and any member of the public may accept it. If the offer is made by e-mail, however, it is usually directed at a specific person, and only that person will be able to validly accept the offer; The acceptance must be a reaction to the offer Ð a person cannot accept an offer of which he is not aware; The acceptance must comply with any formalities set by law or by the offeror. A binding contract is created upon the acceptance of an offer. The acceptance must be manifested through some unequivocal act from which acceptance can logically be inferred. The acceptance must also be communicated to the offeror that is, it must come to the attention of the offeror. The offeror may expressly dispense with communication of the acceptance. The need to communicate the acceptance of the offer may also be waived impliedly, by requiring the offeree to signify his or her acceptance by some specified act.
In the case of electronic contracts, the traditional model of offer and acceptance becomes questionable in view of the modern technology that is now being used. In most cases, the Internet trader will set up its cyber-trade site from which business will be conducted. In most cases of Internet trade, it will be difficult to tell whether knowledge of the acceptance ever reached the attention of the offeror or, if it is a company, came to the knowledge of a person authorised to contract on behalf of the company. Conversely, if the site works with the model that it only invites business and that the order by the client constitutes an offer, the contract will come into existence only once the client receives subjective notice of the acceptance by the cyber trader. The trading site should therefore be able to confirm the order to the client. However, there is a danger that the client may never receive notice of the confirmation, in which event no contract will have come into existence.
The parties to a contract must have contractual capacity. The agreement must be both legally and physically possible. The agreement must comply with any formalities prescribed by law. However this validity may be affected by misrepresentation, mistake or duress. In this connection it is important to note that Section 83J of KICA states that an offer and acceptance of an offer may be expressed by means of electronic messages thus where an electronic message is used in the formation of a contract, the contract shall not be denied validity or enforceability solely on the ground that an electronic message was used for the purpose. Section 2 of KICA states that “electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
The Advisory Council noted for purposes of this provision: ‘An acceptance becomes effective when an electronic indication of assent has entered the offeror’s server, provided that the offeror has consented, expressly or impliedly, to receiving electronic communications of that type, in that format, and to that address.’ That is, the CISG adopts the acceptance rule in determining a valid offer and acceptance in paper-based contracts. It is also notable that the Advisory Council of the CISG applies the same rule to the acknowledgment of a valid electronic offer and acceptance by simply interpreting ‘reach offeree or offeror’ as ‘enter the offeree’s or offeror’s server’ without any clear clarification of the time of dispatch or receipt of an electronic communication.
In general, there are two main ways in which commercial contracts (eg. contracts for sale of goods, contracts for the supply of digitised products and contracts for the supply of services/facilities) can be made electronically, namely e-mail and clickwrap/browsewrap or shrinkwrap.
A common and popular method is through the exchange of electronic mail (e-mail). E-mail can be used to make an offer and communicate an acceptance of that offer. The e-mail containing the offer or acceptance can be sent through the offeror’s (or offeree’s) outbox, the digital equivalent of a postbox, to a server, an Internet Service Provider (ISP), and then forwarded to the offeree’s (offeror’s) inbox/mailbox. There seems to be a clear consensus about the validity of e-mail communications at the international level. For example, in the US, in the case of Rosenfeld v. Zerneck, the Supreme Court of New York recognised that e-mail was a valid form of communications accepting an offer, although the court dismissed plaintiffs’ claim due to the failure of the incorporation of the essential terms in the e-mail. In the UK, in the case of Bernuth Lines Ltd v. High Seas Shipping Ltd (‘The Eastern Navigator’), an e-mail is a valid form in which to communicate the acceptance regardless of being treated as a spam mail by the system. In South Africa, in the case of Jafta v. Ezemvelo KZN Wildlife, the Labour Court of South Africa further concluded that ‘an SMS is as effective a mode of communication as an email or a written document’.
Another common method of online contracting using the World Wide Web is known as a webwrap or clickwrap agreement. Normally, the vendor would provide a display of products on his website and indicate the cost of those products. A customer can scroll through the website previewing the items or products on offer, click on an item for further information and, if interested in the purchase, can place an order by filling in an order form and clicking ‘Submit’, ‘I Accept’ or something similar. Forming a webwrap agreement is like taking the goods to the cashier in a shop, except that the cashier will be an electronic agent (such as a computer or other electronic device) instead of a person. Contracts or agreements displayed on a website requiring a user to click a button to show acceptance are generally non-negotiable, though in theory they should offer the buyer an opportunity to read, view and download them in their entirety before being accepted. The circumstance can raise the issue of what manner of displaying terms and conditions can constitute an informed consent to the buyer and whether there is truly mutual assent by the parties to the terms of the agreement.
In practice, most online retailers, such as Amazon, have procedures combining an e-mail notification after a clickwrap action so as to enhance the validity of the clickwrap agreement. For example, when a customer chooses a product, inputs the quantity, selects a delivery method, clicks a hyperlink to ‘Conditions of Use/Conditions of Sale’ and finally clicks the ‘Place the Order’ button to make payment to purchase a product from Amazon’s online platform, Amazon will send the customer an e-mail confirming receipt of his/her order and containing the details of that order (the ‘Order Confirmation E-mail’). The Order Confirmation E-mail, which specifies the selected products, price, delivery address and estimated delivery date with terms and conditions, is acknowledgement that Amazon has received the customer’s order, but does not confirm acceptance of the customer’s offer to buy the product(s) ordered. Amazon will later send the consumer another e-mail (called the ‘Dispatch Confirmation E-mail’) which confirms acceptance of the customer’s offer and notifies the dispatch of the ordered product with an estimated delivery date. It then concludes the contract of sale for a product ordered by the customer. The deployment of such procedures helps ensure that the customers are given an opportunity to review and revise their orders and print a hard or PDF copy of the terms and conditions.
Shrinkwrap contracts refer to contracts such as software licenses printed on paper, placed within the shrink-wrap of the software package itself. The purchaser of such software would be bound by the software license upon opening of packaging. The terms and conditions in a shrinkwrap agreement are usually not visible until users start to install the software. In other words, the terms and conditions of the contract will be only available for review after the purchaser pays for the product. However such contracts may be voidable if buyer’s attention not drawn to terms and conditions. In the leading case of ProCD, Inc. v. Zeidenberg, the plaintiff developed a CD-ROM version of a national telephone directory, containing millions of entries and packaged in a shrink-wrap licence. Pro-CD charged a low price to consumers, and a much higher one to commercial users of the product. The defendant “bought” a consumer package and then, in violation of the licence, sold the information contained over the Internet. Inside the box was a form indicating that the information on the disk was licenced for home use only. Because Zeidenberg could have obtained a refund if he had not liked the terms, and because of the potential for market failure if the licence was not enforced, the court, decided to enforce the shrink-wrap licence and found that Zeidenberg’s loading of the software onto a website constituted a breach of the home-use licence term.
The case shows that when the means of communication being used by parties is almost instantaneous, the acceptance rule should prevail over the postal rule. The House of Lords further approved this decision in Brinkibon Ltd v. Stahag Stahl and Stahlwarenhandelsgesellschaft mbH. On this basis, regarding e-mails or clickwrap contracts as falling into the ‘instantaneous’ category, the acceptance should take place where it was received, rather than where it was sent. However, an e-mail may not be opened as soon as it arrives, and it may be not read until some time after it has been delivered. Thus it is crucial to determine when the acceptance takes effect. It is suggested that, the contract will be formed at the earliest when the acceptance is received by the offeror’s e-mail system and is available to be read. At the latest, it should be regarded as complete after the passing of a reasonable period of time for the acceptance to have been read as expected.
The process of contract negotiation and the formality of forming a contract over the Internet is the same as that in physical reality: invitation to treat, offer and counter-offer, acceptance, consideration and intention to create legal relations. The differences are the speed, devices and methods of processing in the online environment. The distinction between an invitation to treat and an offer is that an invitation to treat is not binding while an offer, met with acceptance, may form a contractual agreement. A promise with consideration is deemed to bind the parties when an offer is accepted. Although the UN Convention is silent on the validity of offer and acceptance, it provides a definition of ‘invitation to make offer’.
Displaying information on products including price, quantity and delivery method is an invitation to make an offer rather than a real offer as the information on the website is available to the public but not to one or more specific persons. This is evidenced by a leading English case Pharmaceutical Society of GB v. Boots Cash Chemists. The Court of Appeal held that the display of products on the shelves was not an offer, but an invitation to negotiate. Boots did not infringe the Pharmacy and Poisons Act 1933 as the sale of products took place at the cash desk. It was the customer that made the offer to buy the goods by putting the goods into the basket. It is up to the pharmacist to accept or reject the offer at the cash desk. Thus, in order to identify an offer, the court may look for different ingredients before it will find an offer that is then capable of acceptance. The ingredients of an offer, which may be in writing, by words, conduct and other electronic means, may include: • a clear display of contractual intent; • on terms that are fixed; • on terms that are certain; • on terms that once accepted automatically bind both parties to their agreement.
In an instantaneous communication environment, there is not much time between ‘the time that the offer/acceptance is sent’ and ‘the time that the offer/acceptance is received’, which may diminish the possibility of revoking an offer and acceptance in time. Thus, taking into account the unique characteristics of electronic communications in comparison with traditional paper-based communications, it would be sensible to apply the acceptance rule to electronic transactions to achieve a certain degree of convenience, consistency, harmony and certainty. That is, the acceptance takes effect when it reaches the offeror.
An important aspect of electronic contracting relates to terms and conditions (T&C). Terms and conditions define the parties’ rights and liabilities in contracts. It is important that the underlying commercial contract terms and conditions clearly reflect the negotiated terms and conditions agreed by both parties. The deployment of appropriate methods of making T&C available is required in order to justify an opportunity provided clearly for the contracting parties to read the terms and conditions so that the consent which the parties may give to the offer can constitute an informed consent of incorporating those T&C into the agreement. Unlike in the old days, the T&C in electronic contracting are usually displayed on a website, via a hyperlink address, through an adjacent scroll box, in a downloadable PDF file or word document, or in an e-mail message.
From time to time, high-tech or e-commerce companies will also revise or amend the T&C for the use of online services in order to be in line with updated or new services resulting from technology innovation. Users should be informed about those changes and provided with the revised terms and conditions. The questions are in what manner the revised T&C should be displayed, what would constitute an informed notice to users and how is informed consent to be collected from users to the revised terms and conditions. Although it is expected that some users do not read terms and conditions properly before they give their consent, it is the manufacturers’ or sellers’ responsibility to provide information on changes in an appropriate and effective manner.
In an online environment, how to ensure that the offeree is aware of electronic contract terms before terms are concluded is the focal point of the effectiveness of the incorporation of electronic contract terms by notice or reference. It is suggested that there are generally two approaches in response to the incorporation of standard terms: one is that ‘the terms enter the contract automatically unless the other party promptly objects to their inclusion’ and the other is that ‘something more than failure to object is necessary for the inclusion of the standard terms’. That is, the party must be aware of the standard terms before they can be incorporated into the contract.
In the English case of Gary Patchett v. Swimming Pool and Allied Trades Association Limited (SPATA), Mr and Mrs Patchett obtained details of installers from a dropdown list on SPATA’s (a company’s) website and contracted with one of them, Crown Pools Limited, to build a swimming pool in their garden. The SPATA website stated that members were fully vetted (with checks on their financial record and experience and an inspection of their work) and that they benefited from a bond and warranty scheme known as SPATASHIELD. SPATA’s website also included a reference to and encouraged people to obtain a copy of an information pack. It turned out that Crown was not a full member and therefore had not been vetted and did not benefit from the SPATASHIELD scheme, but Mr and Mrs Patchett claimed that they relied on the statements on the website as they did not check the information pack. The Court of Appeal held that it was reasonable that a customer would be expected to look at the website as a whole and obtain the relevant information pack, therefore SPATA was not liable for the error on the website as all information was correctly recorded in an information pack confirming the terms of cover. In other words, SPATA had performed its duty to inform as ‘the website should not be taken as inviting reliance without further enquiry, that is without applying for and reading the information pack referred to in paragraph 8 of the website’, whereas ‘the appellants had been grossly negligent in failing to make enquiries as to the availability of SPATASHIELD insurance.’ This is identical to a situation when customers purchase travel insurance on a website. It is sensible that customers are expected to download the PDF files of ‘the fact sheet’ and ‘terms and conditions’ and read them before they complete the purchase of insurance.
Error in electronic communications is often connected with the concepts of mistake and misrepresentation in traditional contract law. On an electronic commerce platform, pricing errors may occur accidentally due to the automated and speedy features of the Internet. Misleading statements in terms of product description can also easily occur in online shopping as products cannot actually be seen, touched or tested by buyers. When an online error happens, traditional concepts of mistake and misrepresentation are interpreted to determine the situation. One of the legal challenges in resolving online errors is that online buyers are in a difficult position to prove any technical mistakes or misleading statements on an e-commerce website, because online buyers have limited technical controls over their online transactions, and the website controller (in particular when the seller controls the website) can update or amend the misleading statement on the web page at any time.
In the traditional common law system, mistake is when parties make errors in the subject matter or terms of the contract as to the title, quality or quantity, etc. On the other hand, misrepresentation refers to a false statement of fact that induces the other party to enter into a contract. In traditional contract laws, mistake can make a contract void while misrepresentation can make a contract voidable. Mistakes should be fundamental so as to constitute a void contract, such as: • mistake as to the existence of the subject matter; • mistake as to the identity of ownership; and • mistake as to the possibility of performance. According to Lord Atkin in the case of Bell v. Lever Brothers Ltd, mistake as to quality ‘will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be.’ Common mistake as to the quantity is likely to make a contract void. For example, in the case of Cox v. Prentice, a silver bar was sold under a mistake as to its weight. The buyer obtained a verdict for damages for the difference in value between the weight of the bar as it was and as it was believed to be. The court added that the buyer could have recovered back the price he paid for the bar, which may suggest that he had the option of treating the contract as void for mistake. As to the effect of unilateral mistake, it is possible that a unilateral mistake as to either the person or the terms of the contract can render an agreement void but such mistake should be ‘fundamental’ to have that effect.
In contrast, misrepresentation is a misleading pre-contractual statement or an unambiguous false statement of fact. To constitute a misrepresentation, the statement must have been addressed to the party misled and induced that other party to enter into a contract. It should also be about a false statement to a material fact. A claim for misrepresentation will render the contract voidable (not void) and the consequences can be damages and/or rescission, depending on state of the mind of the misrepresentor.
In traditional contract law, once the offer is sent, it can be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer even if it is irrevocable, or the revocation of the offer reaches the offeree before he has dispatched an acceptance unless the offer is irrevocable. In the electronic environment, the UN Convention provides a some specific rules on the notification duties and timing. It stipulates that the offer may be amended if the person, or the party on whose behalf that person was acting, notifies the other party of the error as soon as possible after having learned of the error and indicates that he or she made an error in electronic communication. This presumption is based on two conditions: One is the timing – ‘notifying the other party as soon as possible’ – and the other is the indication of the error in electronic communication. These conditions have the effect of limiting the time within which an electronic communication can be withdrawn pursuant to Article 14 of the UN Convention.
Under Article 14(1), the right of withdrawal is only available if the notification of the input error is made ‘as soon as possible’ after the party had learnt of the error, and the party ‘has not used or received any material benefit or value from the goods or services’ received. A question arises as to the effect of a withdrawal made pursuant to Article 14. For example, where the erroneous communication formed part of an offer and the automated message system of the other party accepted that offer prior to receiving notice of the withdrawal, under the normal rules of contract formation, a contract would have been formed upon the acceptance. If the withdrawn portion contained some essential term of the contract, what would be the effect of the withdrawal? According to Article 14 of the UN Convention, before buyers submit the ordering information, the website should clearly state that their information is to allow the site owner to decide whether to accept their offer. This allows the site owner to check the product type and cost entered and reject, for example, any offer for a cellphone less than Kshs 2000 as a minimum price for any television. This application of ‘Backstop’ logic reduces the cost of mistakes.
The cross-border impact of the Internet adds a further dimension to electronic contracting, that of international private law, with questions of jurisdiction and choice of law awaiting settlement. In addressing this issue, the Model Law on Electronic Commerce (Article 15) sets out a series of criteria for determining where an electronic message is sent and received. It provides that a message is deemed dispatched at the place where the originator has its place of business, and is deemed received at the place where the addressee has its place of business. In the event that either party has more than one place of business, the place of business is the one bearing the closest relationship to the transaction. If a party does not have a place of business, then the party’s habitual place of residence is substituted for the place of business. The UN Convention further provides the determination of the location of the parties (Article 6). This provision can be helpful in determining jurisdiction, applicable law and enforcement. Place of performance is another important criteria of determining jurisdiction and applicable law when disputes occur. It can be linked with the ‘location of the parties’, ‘place of business’ and ‘place of dispatch and receipt of electronic communications’ under the UN Convention. As discussed earlier, the location of the parties and place of business are regulated by Article 6 of the UN Convention. Article 10(3) of the UN Convention further provides the determination of the place of dispatch and receipt of electronic communications.
Finally, an important aspect of any contract is the signature. Signatures perform a variety of functions (e.g. identification, certification, confirmation of intent to be bound by, or to endorse, the contents of a document). The focus is on the two basic functions of a signature, namely to identify the author of a document and to confirm that the author approved the content of that document. For our purposes, it is important to note that section 2 of KICA states that “electronic signature” means data in electronic form affixed to or logically associated with other electronic data which may be used to identify the signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message. In the context of e-commerce, section 83O states that ‘Where any law requires a signature of a person, that requirement is met in relation to an electronic message if an advanced electronic signature is used that is as reliable as was appropriate for the purpose for which the electronic message was generated or communicated, in light of all the circumstances, including any relevant agreement.’ In this regard, KICA states that a “advanced electronic signature” means an electronic signature which meets all the following requirements—(a) is uniquely linked to the signatory; (b) is capable of identifying the signatory; (c) it is created using means that the signatory can maintain under his sole control; and (d) it is linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.