Q.
Items on Internet website: Invitation to treat or offer?
A.
The Electronic Commerce Act 2006 (hereinafter referred to as ECA) was introduced on 31st August, 2006 and came into force on 19th Oct, 2006.
Although the Act was meant to facilitate the legal issues that arise in electronic transactions, some of the legal issues in electronic transactions remain unanswered.
Section 7 of the ECA provides the formation and validity of contract where the provisions read as follows:
Section 5 of the ECA provides the definition of "electronic message" as an information generated, sent, received or stored by electronic means.
However, nowhere in the ECA is the legal position of electronic advertisement discussed.
[That means using electronic advertisement in the website has no validity in the context of ECA. But, nevertheless, when a communication of decision is conducted via electronic media, it has effect under ECA. In fact, commercial contracts can be dully formed under the ECA 2006.]
Therefore, the rules to advertisements on websites may be dealt with in a similar manner to shop displays due to the interactivity of websites. However, as there is no [determinable] case law in this respect in Malaysia, the actual legal position is still conjecture as illustrated in the following circumstances which arose in the UK.
The related case is called the Argos case reported in The Times, dated 21st September, 1999. Argos, a direct selling company in the United Kingdom, advertised a television set on its website for $3. The actual price was $299.99. It had received hundreds of orders, reported to be worth over $1 million.
It was believed that one customer ordered 1700 sets. The company, however, refused to honour the contract on the ground that it had not accepted the offer. It sent e-mail to everyone who had ordered the television set, in which it said:
"Unfortunately, due to a computer system error, the Sony Nicam TV that you ordered was mistakenly advertised at $3, instead of the actual price of $299.99. Clearly, Argos had no intention to sell the TV at $3 and your order has not therefore been accepted."
Even though it was suggested that consumers who had ordered these television sets could sue Argos, no legal action materialized. The consumers were left with the option of having to re-order the television set at the actual price of $299.99.
A similar problem as in the Argos case was reported in The Times, dated 15th January, 2002 and is referred to as the Kodak case. Kodak advertised its Kodak DX3700 camera on its website as costing just $100 on New Year Eve. Hundreds of customers on seeing the advertisements ordered the camera by pressing the click wrap button and bought it by giving the company their credit card details. Kodak then replied with a confirmation order, which was to operate as a receipt and a warranty.
Many customers believed the confirmation order was the acceptance to their offer, constituting a contract and the $100 would be charged to their credit cards. The terms in the website were unclear as to whether the confirmation was an acceptance to the offer. The actual price of the camera was $329.
Discovering the error, Kodak sent an e-mail informing the customers of the error, apologizing and offering the camera at the actual price. They also promised to discount of 10% on the next purchase. The existing orders were rejected, which led to much frustration and annoyance of the customers. The customers, as in the Argos case, were left with an option to re-order the camera at the actual price of $329.
Both Argos and Kodak argued that no binding contract had come into existence between them and the customers. Both companies contended that, it was generally presumed that items advertised on the website have the same status as goods displayed in shop windows which amounts to an invitation to treat and not an offer. The rationale for holding display of goods as an invitiation ot treat and not as an offer was namely that it is a convenient method of enabling customers to see what there is and choose, and possibly put back and substitute, articles which they wish to have and then to go up to the cashier and offer to buy what they have so far chosen as illustrated in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd (1953).
Thus, upon the customer making an offer, it is up to the person making the invitation to treat to accept or reject the offer. An offer is the willingness of a person to enter into a contract.
This distinction is important because acceptance of an offer creates a contract, whereas accepting an invitation to treat has no effect.
Therefore, both Argos and Kodak argued that since they had not accepted the offer made by the customer, there was no contract and the customers have no cause of action against them.
How about the automatic response generated by Kodak which indicated $100 will be taken from their credit cards? Did such action render a 'consideration' paid and thus, there was contract? See the argument here.
Ref:
Nuraisyah Chua Abdullah. 2004. Question & Answers on Malaysian Courts, Statutes, Cases & Contract, Tort and Criminal Law. 2013 Edition. Chapter 6. Page 183. International Law Book Services.
Section 2 and 7, Contract Act, 1950. Available at,
http://www.agc.gov.my/Akta/Vol.%203/Act%20136.pdf
Electronic Commerce Act, 2006. Available at,
http://www.agc.gov.my/Akta/Vol.%2014/Act%20658.pdf
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