Forming Contracts Online

 
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Signing up, virtually speaking

Rapid advances in computer technology and the advent of the internet have created numerous new ways of doing business and, therefore, forming contracts. So what is the legal status of such online agreements? This article looks at the legislation governing online signatures in electronic commerce and direct selling, focusing in particular on the Trading Scheme Regulations 1997 and associated guidance.

The Electronic Communications Act 2000 granted the Department for Business, Enterprise and Regulatory Reform (DBERR, formerly known as the Department of Trade and Industry ("DTI")) a specific power to introduce regulations under which any legal requirement that a document be in writing, signed, copied or printed can be satisfied electronically.

The E-commerce Directive 2000 also required EU Member States to ensure that their legal systems allow contracts to be concluded electronically. The Directive itself is not directly enforceable, but it places an obligation on Member States to amend existing legislation to that end. In the UK the E-Commerce Regulations 2002 implemented the Directive and made this provision directly enforceable. Government guidance has made it clear that existing UK legislation will be reviewed and (where appropriate) revised case by case, for example by making orders under the Electronic Communications Act.

Trading schemes

So how might these developments affect the business model of a direct sales organisation?

The Fair Trading Act 1973 defines a "trading scheme" to include any method where a participant can earn an income based on the activities of another. So the network or multi-level marketing method of selling, a method commonly used by direct sales organisations, is usually regulated as a trading scheme.

Trading schemes are principally regulated by the Trading Schemes Regulations 1997 (the "Regulations"). These say that no promoter of a trading scheme can supply goods or services to a participant unless the following requirements have been satisfied:

the promoter and the participant joining have signed a written agreement which contains all of the terms under which the latter participates;

that agreement contains a specified form of written warning and this must be printed immediately above the space for the participant's signature; and,

a copy of the agreement shall have been furnished to the participant joining.

These references to "signing", "writing", "furnishing" copies and "...

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