Legal Update 2005 - OFT protects online shoppers

When developing a website, online traders need to "build in" compliance with consumer protection, data protection and other applicable regulations. Businesses subjected to an OFT or Ofcom inquiry can suffer wasted management time and costs, plus possible adverse publicity.

A number of high profile cases have recently involved these Regulations.This may be symptomatic of a low level of compliance in the online world or merely a lack of knowledge. Following an approach by the OFT, Virgin Wine Online revised its terms and conditions to remedy alleged infringements of the Distance Selling Regulations and the Unfair Terms in Consumer Contracts Regulations. Virgin Holidays also agreed to change its contract terms following action by the OFT. Recently, Ofcom took similar action against O2 and Wanadoo. Below we outline some of the complex array of legislation faced by businesses trading online.

Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR)

Under the UTCCR, a contractual term which has not been individually negotiated is regarded as unfair, if contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. An unfair term is not binding on the consumer. However, the contract can continue if it is capable of continuing without the unfair term. Not all terms are subject to the fairness test. "Core terms" (e.g. terms which define what is being purchased under the contract or which relate to price) are excluded from the scope of the fairness test so long as they are in plain, intelligible language. Ultimately, the Court - not the OFT - decides whether a term is unfair. In one case, the OFT's view was challenged and taken to the House of Lords who disagreed with the OFT on the fairness of a term. For many businesses, however, it will not be practicable to consider challenging the OFT through the Courts, even if it is thought that the OFT are being overly zealous.

The UTCCR also require that contract terms are written in plain, intelligible language. If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail. Intelligibility depends not just on vocabulary but also on how contracts are presented. The online contracting process needs to be carefully designed to ensure that terms are validly incorporated as contractual terms and that they comply with the UTCCR. On the Internet, this means ensuring that terms - or a link to them - are positioned to be sufficiently prominent and accessible.

The Consumer Protection (Distance Selling) Regulations 2000 (DSR)

Online consumer sales are "distance contracts" under the DSR because they are made by a means of distance communication (that is, without the simultaneous physical presence of the supplier and the consumer). Again, compliance with the DSR should be engineered into the website and backoffice development.

The Electronic Commerce (EC Directive) Regulations 2002

Businesses selling to consumers online also need to ensure that their websites comply with the EC Regulations.These contain supplementary requirements regarding information that is to be provided in relation to the "service provider" and in relation to the online contract. The OFT can be expected to take enforcement action to secure compliance with the E-commerce Regulations.

Stop Now Orders (EC Directive) Regulations 2001

Under these Regulations, if the OFT (and a range of other bodies) consider that a trader is infringing consumer protection legislation and harming the collective interests of consumers, they may give the trader the opportunity to stop the infringement. If it is not stopped within two weeks, proceedings may then be taken to obtain a "Stop Now Order" from the court requiring the trader to stop the infringement. Failing to comply with the Order could lead to fines and / or imprisonment for contempt of court.

Data Protection

Traders who engage in poor Data Protection compliance may face enforcement action from the Information Commissioner (IC). The IC commissioned the University of Manchester Institute of Science and Technology (UMIST) to carry out a study into compliance by website operators with the Data Protection Act 1998. The study found that many companies are in breach of the Act; for example, it found that 42 per cent of websites have no privacy statement. Following the study, the IC published an enforcement strategy setting out a pro-active policy for pursuing infringements of the Data Protection Act. Websites that collect personal data was identified as one area that will attract particular scrutiny.

Nigel Miller is a Commerce and Technology partner at City law firm Fox Williams.
Nigel can be contacted at nmiller@foxwilliams.com