In an increasingly digitized world where cyber capabilities and internet outreach have systematically and steadily grown to a scale which was unfathomable just half a century ago, the advent of electronic commerce (“E-Commerce”) can be said to be the all-important nexus between the astronomical development in the digital realm and the ever-increasing pervasion of capitalism.
RISE OF E-COMMERCE
Globally, the revenue generated by E-Commerce market players in 2018 alone amounted to USD1,785,733 million with this figure being projected to grow to a staggering USD2,734,414 million by 2023 based on the projected compound annual growth rate (CAGR) of 8%. In Asia, the Asia Pacific region is leading the way in terms of E-Commerce expansion with electronic retail spending being expected to make up 31.4% of total retail spending by consumers in this region by 2020. On the local front, a report found that 88% of Malaysian Small and Medium Enterprises (SMEs) have adopted digital platforms as part of their business mode of operations.
In this regard, it is notable that the Malaysian government has put in place policy measures to encourage the adoption of E-Commerce by retail market players in Malaysia such as the establishment of the National eCommerce Council (NeCC) which is tasked with implementing the National eCommerce Strategic Roadmap one of which goals is to ensure that E-Commerce contributes RM211 billion to Malaysia’s gross domestic product (GDP) by 2020. Additionally, there is also the eTrade programme under the Malaysia External Trade Development Corporation (MATRADE) which provides various incentives such as financial assistance, advisory services and online training for SMEs which endeavour to adopt the use of E-Commerce platform as part of their business mode of operations.
As E-Commerce propel forwards on its seemingly relentless developmental path which is supported in no small part by the insatiable drive to consume on the part of capitalistic societies, the legal systems of nations around the world would sooner or later find it necessary to devise regulatory frameworks for the operations of E-Commerce market players in their respective jurisdictions. In this regard, there are several theories in terms of the approaches to E-Commerce regulations one of which is the ideological principle of cyberlibertarianism which application to E-Commerce under the guise of economic liberalism effectively provides that governments should take a hands-off approach in order to allow the E-Commerce market to develop in a free manner under a laissez-faire model system whereby private bargains are accorded utmost deference with little or no governmental intervention.
On the other side of the coin is the ideological principle of conservatism which posits that E-Commerce activities which are but one form of business activity, albeit one which take place in the digital realm, and therefore should be subjected to regulations by structured and predictable cyber laws as required under the conventional application of the principle of rule of law. As a mid-way option, the application of the Law of the Horse which was postulated by Judge Frank H. Easterbrook in the early days of the Internet posits that specialized laws need not be devised for the regulation of cyberspace activities such as E-Commerce transactions as such activities can be more properly regulated using existing laws. In other words, the Law of the Horse proposes a principle-based application of existing laws to cyberspace activities such as E-Commerce transactions.
MALAYSIAN REGULATORY FRAMEWORK
- NEED FOR REGISTRATION
In Malaysia, section 5(1) of the Registration of Business Act 1956 requires “every form of trade, commerce, craftsmanship, calling, profession, or other activity carried on for the purposes of gain” to be registered with the Companies Commission of Malaysia (CCM) no later than 30 days from the commencement date of its business. Accordingly, E-Commerce vendors operating in Malaysia are required to be duly registered with the CCM within a period of 30 days from the commencement date of their business operations. Upon the completion of the registration process with CCM, the registered E-Commerce vendor would be able to undertake their E-Commerce activities in Malaysia whereby one of the key difference which distinguishes E-Commerce transactions with regard to conventional retail trade transactions is the fact that E-Commerce transactions are carried out in the digital realm which may bring about legal issues in relation to the formation of contracts in particular the making of an offer and the valid acceptance thereof.
- VALIDITY OF ELECTRONIC CORRESPONDENCE AND SIGNATURE
Section 6(1) of the Electronic Commerce Act 2006 (“ECA”) provides that an electronic correspondence has the same legal effect, validity and enforceability as non-electronic correspondence. Section 7(2) of the ECA further provides that electronic offers and acceptance also have the same legal effect, validity and enforceability as non-electronic offers and acceptance. As for electronic signatures, section 9(1) of the ECA provides that an electronic signature is legally valid and enforceable if it fulfils the requirement set out thereunder.
It has to be noted however that there is an overlap between section 9 of the ECA with the Digital Signature Act 1997 (“DSA”) which governs digital signatures whereby section 9(3) of the ECA expressly provides for the continued application of the DSA in relation to any digital signature which is used as an electronic signature in any commercial transaction. In the context of E-Commerce transactions, it is unlikely for digital signature to be used for the purposes of such transactions as ordinary electronic signature are likely to be used by customers to signify their assent to the terms and conditions of the vendor whereby the electronic signature would presumably be in the form of a symbol i.e. a tick.
- ADVERTISING AND MARKETING GIMMICKS
Given that the nature of E-Commerce transactions is such that the customers would not be able to inspect the goods until the point of delivery by which time the transaction would have been completed and payment has been made, this scheme of arrangement could potentially be exploited by unscrupulous E-Commerce vendors who may resort to using advertising and marketing gimmicks to take advantage of the inability on the part of the customers to inspect the goods prior to making payment therefor. Although E-Commerce vendors in operating in Malaysia who deploy marketing schemes such as commission, bonus or any other form of economic advantages as part of their promotional strategy would fall under the Direct Sales and Anti-Pyramid Scheme Act 1993 which provides for a cooling-off period of 10 days from the date on which the contract of sale was made during which period a customer may choose to rescind the contract provided the goods have yet to be delivered, this would be of no assistance to a customer who have purchased goods from an E-Commerce vendor and subsequently took delivery of the goods only to find the goods to be of unsatisfactory quality, outright defective or otherwise unfit to be used for the purpose which it was represented by the vendor as being suitable for. Nonetheless, a Malaysian E-Commerce customer labouring under such circumstances may have recourse to the Trade Description Act 2011 which prohibits the supply of goods in relation to which false trade description has been applied including through electronic means whereby false trade description includes untrue indications about the fitness for purpose, strength, performance, behaviour or accuracy of the goods. Alternatively, a customer may exercise the right as provided for under section 19(1) of the Contracts Act 1950 (“CA”) to set aside a contract of sale if the vendor has misrepresented information pertaining to the underlying goods. Additionally, it is notable that section 16(1) of the Sale of Goods Act 1957 (“SOGA”) provides for the implied condition as to quality or fitness of goods sold though it is only applicable to sales by description or where a customer makes known to a vendor that the customer is relying on the skill or judgment of the vendor.
Additionally, the Malaysian Communications and Multimedia Content Code (“Code”) which was issued by the Malaysian Communications and Multimedia Commission (MCMC) pursuant to its powers under section 85 of the Communications and Multimedia Act 1998 is also applicable to transactions carried out through E-Commerce platforms. The Code prohibits the use of false content which refers to information contained in any communication which truthfulness has not been verified through reasonable measures on the part of the issuer of the communication. Accordingly, E-Commerce vendors operating in Malaysia who make false representations about their products may be in breach of the Code in the absence of any reasonable measure on the part of the vendors to verify the truthfulness of its representations.
Other than false representations, the lack of any physical presence on the part of vendors who operate using E-Commerce platforms may render the customers who patronize such platforms to be in doubt as to the real identity of these vendors which may result in such customers finding themselves in a difficult position in the event they need to return the goods as part of the process to obtain a refund. In this regard, the Consumer Protection (Electronic Trade Transactions) Regulations 2012 (“CPR”) which was enacted by the Minister of Domestic Trade and Consumer Affairs pursuant to his powers under section 105(2)(a) of the Consumer Protection Act 1999 requires E-Commerce vendors to set out details such as their personal name (or that of their business) and contact details including their email address, telephone number and address on their websites. Additionally, the CPR also require E-Commerce vendors operating in Malaysia to set out the details about the full price of the goods offered by them by including any costs which may be applicable such as delivery and taxes to avert the arising of any situation whereby a customer only finds out subsequent to the placement of an order that the total price payable is more than the initially quoted price.
OPERATIONAL RISKS FOR E-COMMERCE VENDORS
From the perspective of E-Commerce vendors, the distinguishing features of E-Commerce in contrast with conventional retail trade also present newfound risks to such vendors. In this regard, it is notable that the SOGA is applicable to E-Commerce transactions as the provisions of the SOGA apply to all sale of goods transactions under a contract of sale whereby a vendor agrees to transfer the property in goods to a buyer for a price. As section 7 of the SOGA provides that electronic offers and acceptance have the same legal effect, validity and enforceability as non-electronic offers and acceptance, it can be surmised that electronic contracts for the sale of goods would amount to valid contracts of sale under the SOGA. Accordingly, E-Commerce vendors are required to comply with the provisions of the SOGA which may pose certain challenges to these vendors given the manner in which E-Commerce transactions are carried out.
In this regard, one type of pertinent risk faced by E-Commerce vendors is the risk of pricing error whereby a vendor may have mistakenly inserted the price for its products and by the time the vendor realised the error on its part, a considerable number of customers have taken advantage of the vendor’s mistake thereby resulting in the vendor being obliged to honour the orders placed notwithstanding the fact that the vendor would have to do so at a loss to itself as section 9(1) of the 1957 Act provides that the price of the goods shall be the price fixed by the contract. In the absence of any Malaysian case law on this point, reference may be made to the persuasive precedent of Chwee Kin Keong v Digilandmall.com Pte Ltd wherein the Singapore High Court held that a pricing mistake made by a E- Commerce Information Technology (IT) products vendor rendered the purported acceptances thereof by the opportunistic customers to be void due to the lack of any consensus ad idem i.e. meeting of minds on the basis that the “absurdly low” price which was mistakenly quoted by the vendor resulted in there being a lack of any basis for any objectively real bargain between the vendor and the customers.
Accordingly, it can be surmised that where the factual matrix in relation to a pricing error is such that the error did not result in any significant underquoting of the mistaken price as compared to the ordinary market price, the courts may find that there has been valid acceptance by the customers who have placed orders prior to the vendor being aware of the pricing error and making the necessary corrections thereto. It is submitted that the principle laid down by the Singaporean courts strikes the right balance between ensuring that the erroneous vendor pays the price for its mistake while deterring opportunistic customers from taking advantage of pricing errors where the circumstances are such that they ought to have been aware of the error due to the “absurdly low” price. Other risks which E-Commerce vendors are subject to include the possibility of lack of stock to meet customers’ demands, inadvertently entering into contracts for the sale of goods with those who are legally incapacitated such as minors and the insane as well as the possibility of dishonest customers returning goods which have been sold and delivered under the pretext that the goods are faulty after having used the goods.
CROSS-BORDER DISPUTE SETTLEMENT
As E-Commerce enables cross-border transactions to be carried out with much ease and convenience, the determination of the applicable legal jurisdiction in the event of any dispute arising from such transactions would be a material issue particularly for E-Commerce vendors whose business model operates on a global scale. With regard to conventional contracting laws, the position adopted by common law countries such as Malaysia is that in the absence of any choice of law clause or issues relating to justiciability the applicable jurisdiction would be the place which is most closely connected with the underlying transaction of the contract which in practice would usually be the place of receipt of an offer.
In the context of electronic contracts, section 23 of the ECA has adopted the common law position albeit subject to some minor modifications which had been introduced to render the provisions of the ECA to be in accordance with the position adopted by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce 1996 (“UNCITRAL Model Law”) in particular Article 15 thereof which provides that the place of receipt of an offer shall be the offeree’s principal place of business/residence whereby only in the absence thereof the place which has the closest relationship with the transaction to which the offer relates shall be the place of receipt of an offer. It is submitted that the position under the ECA and the UNCITRAL Model Law provides more certainty to the law as compared to the common law position as under the position adopted by the ECA and the UNCITRAL Model Law it would only be necessary to determine the place which is most closely connected to the underlying transaction of the contract if the offeree does not have a principal place of business/residence.
Accordingly, the applicable legal jurisdiction for cross-border E-Commerce trade disputes involving Malaysian vendors would be determined based on the location of the customer’s place of business or residence whereby if there is none, the determination would be made based on the jurisdiction which is most closely related to the transaction in dispute which from a practical perspective would hinge to a large extent on the subject matter of the transaction and the purpose for which the underlying goods were purchased by the customer.
In sum, the E-Commerce ecosystem as an elemental part of the new age digital revolution would drive humanity in general and capitalism in particular headfirst into the twenty first century. In this regard, Malaysia would do well to formulate a master blueprint under which E-Commerce-related laws and regulations can be structured in a coherent and all-encompassing manner including by making the necessary reforms to archaic laws such as the SOGA as it is imperative that Malaysia change with the times by steadfastly riding the capitalism-driven E-Commerce digital tidal wave which we at Ben & Partners eagerly look forward to embracing for we believe in the age old adage that “time and tide wait for no man”.