Copyright © 2013 Pearson Canada Inc. 10 - 1 Chapter 10 Electronic Commerce and International Trade...

Copyright © 2013 Pearson Canada Inc. 10 - 1

Chapter 10ElectronicCommerce andInternational Trade

Legal Fundamentals for Canadian Business

Third Edition


Learning Objectives

• Describe the nature of electronic commerce and its impact on business relationships

• Outline the jurisdictional issues that complicate online transactions

• Recognize specific kinds of tortious conduct that are pervasive on the internet

• Describe the concerns electronic and global business transactions have in common

(Continued)


Learning Objectives(Continued)

• Explain difficulties in engaging in international contracts

• Describe how contractual problems are best resolved in the global environment

• Outline how international commerce is regulated• Discuss jurisdictional issues and enforcement of

judicial decisions


Business and the Internet

• Internet facilitates business, education, entertainment, and social interaction

• Internet business transactions usually involve third parties– e.g., eBay, PayPal, ISPs

• Normal civil and criminal laws and regulations apply to online transactions and activities

(Continued)


Business and the Internet(Continued)

• Major difficulties– Determining appropriate jurisdiction– Enforcement

• Laws in place are not readily adaptable

• Governments have been reluctant to introduce regulation and control, but this is now changing


Jurisdiction

• Internet does not recognize borders– Hard to determine which laws apply– Must determine where action should be brought– Regulations could limit freedom of expression,

movement, or association – Online transactions raise taxation issues

(Continued)


Jurisdiction(Continued)

• Generally, a particular location can exercise jurisdiction if defendant is a resident there or if action underlying the complaint took place there

• Long-arm statutes may allow jurisdiction even when no resident is involved– Can be sued where not even aware of the laws

(Continued)



• Better approach: Allow judicial action only where there is a close connection between the jurisdiction and the act complained of

• May help to state in contract which jurisdiction governs the transaction

• Online offer or service should state limitations of availability

(Continued)



• Ontario Consumer Protection Act provides rights for anyone located in the province at time of transaction

• Foreign judgments may be hard to enforce, but it’s dangerous to ignore them as judgments can be enforced in other jurisdictions

(Continued)


Business Transactions Over Internet

• Domain name is unique address, leading to many conflicts– Companies in different locations want same

name– Cybersquatters

• Arbitration processes exist to deal with domain name disputes

(Continued)


Business Transactions Over Internet(Continued)

• Arbitration (Continued)– Bodies responsible for registration of domain names

(e.g., Canadian Internet Registration Authority) set policy for arbitration

– For Canadian domain names, bodies like British Columbia International Commercial Arbitration Centre and Resolution Canada Inc. offer arbitration services

– World Intellectual Property Organization (WIPO) is largest arbitration service in the world


Torts

• Defamation is most common internet tort

• Widespread distribution and uncertain jurisdiction make internet cases unique

• Person and employer may be liable

• ISP may be liable if it fails to remove or block offending messages when required by court


Online Contracts

• Legal status of internet transactions determined by contract law

• Written copies of online transactions can be altered– Particularly a problem where Statute of Frauds

requires written, signed contract


Online Contracts - Consensus

• Provinces enacted statutes based on the federal Uniform Electronic Commerce Act (UECA) guidelines to recognize electronic documents and signatures– Satisfy legal requirements for written, signed

documents– Differences among provinces– Does not apply to all documents

(Continued)


Online Contracts – Consensus(Continued)

• Business may state that law of a specified jurisdiction will apply to transaction

• Clicking “I accept” creates consensus• Offer accepted and contract formed when

and where offeror learns of acceptance– Message sent when “Send” is hit– Message received when it arrives on recipient’s

computer (even if never read)


Online Contracts – Capacity

• Difficult to know if other party has capacity to enter into contract

• Parties need more information than simply what appears on website

• Federal government has guidelines for development, implementation, and use of authentication products and services in Canada


Online Contracts – Legality

• Illegal activities are widespread on the internet• Sales of Goods Acts and consumer protection

legislation theoretically apply, but fraudulent scams are common

• Some avoid rules in specific jurisdictions by moving business

• Victims of scams may have little recourse when perpetrator is in another country


Online Contracts – Payment

• Online payment difficult to secure

• Services like PayPal may help customer get what was paid for or provide remedy in a dispute– Even foolproof methods may be overcome by

scam artists


Online Contracts – Jurisdiction

• Legality varies by jurisdiction• To convince court that it has jurisdiction,

plaintiff must show defendant was targeting the location where plaintiff resides– Courts may determine matter is not closely

enough connected

• Parties should specify what law applies and what court has jurisdiction


Alternate Dispute Resolution

• Problems can be avoided by including arbitration clauses– Arbitration is a valuable tool for ecommerce

disputes – Consumer protection legislation may make

terms for mandatory arbitration invalid

• Many organizations facilitate arbitration of disputes


Regulating the Internet

• Little effective regulation of the Internet– e.g., still no anti-spam legislation

• Government interested in regulation of taxes– Issue of privacy arises if government demands

access to certain business records


International Business Transactions

• No international court to litigate private matters

• International dispute resolution mechanisms only address disputes between sovereign nations– e.g., International Court of Justice (ICJ) and

World Trade Organization (WTO)

(Continued)


International Business Transactions (Continued)

• Many forms of international business – examples:– Import and export of goods (most common)– Protection of intellectual property– Provision and acquisition of services (e.g., call

centres)

(Continued)


International Business Transactions (Continued)

• Considerations for international business– Properly-prepared contracts are vital – Parties must comply with government

regulations in both countries

– Steps must be taken to ensure efficient, cost-effective, and favourable resolution of disputes


Contracts

• Know who you are contracting with

• Acquire services of professional specializing in law of jurisdiction involved

• Recognize certain terms in a contract may be invalid in a specific jurisdiction

(Continued)


Contracts(Continued)

• Contract should specify– All obligations and expectations– Any related assumptions– Dispute mechanism (other than the courts)– Law that will apply– Court that will have jurisdiction– Any financial reporting requirements

(Continued)


Contracts(Continued)

• Foreign ownership is likely to involve incorporation– Foreign ownership may be restricted, creating need for

contractual relationships with local residents• Increases risk and complications

• Supplementary standard form contracts may be required, depending on nature of transaction– e.g., bills of lading, letters of credit, insurance


Dispute Resolution

• Arbitration clause can avoid litigation– Requires disputes be resolved by arbitration

– Specifies the process and procedures

– Can be overridden by local rules

• Alternate dispute resolution useful due to– Lack of court with international jurisdiction over

private disputes

– Uncertainty and risks of court in foreign jurisdiction(Continued)


Dispute Resolution(Continued)

• Alternate dispute resolution (Continued)– Use of negotiation, mediation, and arbitration

increasing internationally• Negotiation and mediation are valuable

• Arbitration is particularly appropriate - Can specify in contract who will arbitrate and what process will be used

(Continued)



• Alternate dispute resolution (Continued)– Advantages of arbitration – reduction of risk,

respecting mutual obligations and rights, and minimal costs

– Disadvantages of arbitration – can be difficult to enforce (but less so now)

(Continued)



• Alternate dispute resolution (Continued)– Usually, arbitration awards are now enforceable

in courts– Insurance to cover transactions can eliminate

many problems• e.g., use of PayPal or credit card for payment


Litigation and Jurisdiction

• Court– When dispute involves interests in more than

one country, appropriate jurisdiction must be determined

• Right of court to hear case may be challenged by application for order of forum non conveniens

– Stated choice of law or jurisdiction can be overruled

(Continued)


Litigation and Jurisdiction(Continued)



• Court (Continued)– Some jurisdictions are passing legislation to

apply “territorial competence” test to determine court jurisdiction

• Follows Supreme Court of Canada decision• Simplifies process of determining when local court

has jurisdiction• Can override contract terms

(Continued)



• Court (Continued)– B.C. courts have territorial competence or

jurisdiction where there is close connection between province and case facts or where one of three conditions is met

• Defendant has agreed court will have jurisdiction• Defendant has submitted to that jurisdiction• Defendant is ordinarily resident in B.C.

(Continued)



• Enforcement– May be difficult to enforce judgment in another

jurisdiction (where losing party has assets)– Order by court in one jurisdiction is effective in

another jurisdiction only if court there adopts it– Often a problem with foreign jurisdictions,

especially developing countries

(Continued)



• Enforcement– Some conventions provide for reciprocating

enforcement– If no reciprocating enforcement agreement,

person wanting to enforce order must sue on the judgment in the other jurisdiction

• Process can be long, complicated, and expensive

– Often easier to enforce arbitration award

(Continued)



• Defences– Many defences may be raised to prevent

enforcement of foreign judgments – examples:• Problem with process• Differences in laws

– Courts in other jurisdictions are often more likely to enforce arbitration awards


International Treaties

• Canada is party to many international treaties and conventions affecting business

• International treaties encourage free trade by reducing or eliminating tariffs and duties

• For business transactions affected by international treaties, professional advice is recommended

(Continued)


International Treaties(Continued)

• GATT (General Agreement on Tariffs and Trade)– Agreement to promote fair trade, encourage

balanced competition and prohibit or control abusive practices

• Reduced trade barriers• Tried to balance trade rules• Tried to prevent dumping

(Continued)



• GATT– “Most favoured nation status” required

members grant all other members lowest tariffs charged on similar goods from any nation

– Required imported goods from member nations be treated same as domestic goods

(Continued)



• WTO (World Trade Organization)– Expands on GATT objectives

• Includes a dispute resolution process

• Includes services and intellectual property (as well as goods)

– Now has 153 member countries


Continental Treaties

• NAFTA (North American Free Trade Agreement)– Promotes easier trade between Canada, the

United States, and Mexico– Expands on WTO agreement

• Most duties and tariffs reduced or eliminated• Includes environmental protection provisions,

labour standards, and dispute resolution mechanism

– Movement to include other countries


Canadian Regulations

• Exports – Canada imposes few restrictions on exports

• Controls relate mainly to security, money laundering, and tax avoidance

– Export and Import Permits Act allows federal government to restrict certain exports to specific nations (and require permit)

(Continued)


Canadian Regulations(Continued)

• Exports– Other statutes regulate specific goods and

practices– Canadian government provides support to

exporters – Examples:• Trade missions

• Export Development Corporation

(Continued)



• Imports– Imports to Canada regulated primarily through

Customs Act– Canadian Border Services Agency (CBSA)

enforces regulations• Special Import Measures Act• Excise Act

(Continued)



• Imports– Restrictions on imports from certain countries– Restrictions on import of dangerous, hazardous,

and environmentally sensitive goods– Businesses that import need to determine duties

and permits required for specific transactions


Extraterritorial Reach

• Some foreign governments attempt to apply their regulations beyond their borders– e.g., U.S. Patriot Act– e.g., U.S. legislation designed to punish those

from other countries doing business with Cuba

• Canadian retaliatory legislation generally ineffective

Copyright © 2013 Pearson Canada Inc. 10 - 1 Chapter 10 Electronic Commerce and International Trade...

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