Copyright © 2013 Pearson Canada Inc Chapter 10 Electronic Commerce and International Trade Legal Fundamentals for Canadian Business Third Edition

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc Jurisdiction (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)

Copyright © 2013 Pearson Canada Inc Jurisdiction (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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc Dispute Resolution (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)

Copyright © 2013 Pearson Canada Inc Dispute Resolution (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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc Litigation and Jurisdiction (Continued)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc Litigation and Jurisdiction (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)

Copyright © 2013 Pearson Canada Inc Litigation and Jurisdiction (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)

Copyright © 2013 Pearson Canada Inc Litigation and Jurisdiction (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)

Copyright © 2013 Pearson Canada Inc Litigation and Jurisdiction (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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc International Treaties (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)

Copyright © 2013 Pearson Canada Inc International Treaties (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

Copyright © 2013 Pearson Canada Inc 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

Copyright © 2013 Pearson Canada Inc 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)

Copyright © 2013 Pearson Canada Inc Canadian Regulations (Continued) Exports –Other statutes regulate specific goods and practices –Canadian government provides support to exporters – Examples: Trade missions Export Development Corporation (Continued)

Copyright © 2013 Pearson Canada Inc Canadian Regulations (Continued) Imports –Imports to Canada regulated primarily through Customs Act –Canadian Border Services Agency (CBSA) enforces regulations Special Import Measures Act Excise Act (Continued)

Copyright © 2013 Pearson Canada Inc Canadian Regulations (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

Copyright © 2013 Pearson Canada Inc 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