What Laws Apply When Transacting E-Commerce

Introduction to E-commerce

This paper was written for the Continuing Legal Education Society of BC several years ago. It is still relevant when considering legal compliance.


The paper departs from the traditional formal analysis of the theory and case law on which courts base findings of jurisdiction over the person and decide about which substantive laws that apply to a given dispute. The paper discusses the application of Canadian law in the context of localizing foreign web sites for Canada; namely the process of choosing and then applying Canadian local laws (primarily statute based) to foreign originated Internet activity.

By implication, the paper suggests the potential for foreign courts to apply local substantive laws in an Internet context to activities originating in Canada which have given rise to particular causes of action or statutory offences. The paper ends by speculating on different areas of law where change might be expected.


“Perhaps the most serious legal issue that arises is the risk that a dispute may be decided in accordance with the law of the forum where the action is commenced, even if the law of some other forum should properly apply.”

As a practical matter, a foreign court will apply the law of the land in the absence of evidence to the contrary in the event that it chooses to exert jurisdiction over the defendant. The power of the Internet, permitting individuals to communicate worldwide beyond their wildest dreams, has raised the specter of parties finding themselves welcomed into courts of foreign jurisdictions as never before.

The lack of case law in common law jurisdictions has created a no man’s land between the refusal of foreign courts to take jurisdiction over activities based solely on a passive connection with a jurisdiction and their willingness to exercise specific jurisdiction based on activities that constitute a significant, if not continuous, connection with the jurisdiction.

It is likely to the benefit of either the complainant or defendant to have the dispute litigated in a particular, more convenient, forum. In adversarial systems, advantages can also result from procedural differences.

In short, conducting business on the Internet in the absence of clear rules requires measures of both judgement and luck to avoid the unhappy situation of being forced to defend one’s positions thousands of kilometers from home.


The European Commission (EC) has proposed a Directive to establish a framework for electronic commerce in the context of ensuring that the European Union (EU) principles of free trade are extended to the Internet. The EU approach to existing local laws is to interfere as little as possible, leaving nations to adapt their laws to current practice.

For example, it is unlikely that rules regarding contract formation will be implemented. Facilitating rules such as electronic signature legislation, however, are already well into the implementation phase . The proposed directive would define essential requirements of electronic signatures, set minimum liabilities for services providers (essentially to the validity of certificates issued), provide legal recognition of electronic signatures that would be technology neutral, and minimize pre-authorization for certification services given the public’s need for high levels of security.

As a result, while contracting for the choice of law will give some security, the final application of the choice of will remain localized on a country by country basis.


The U.S. approach to choice of forum and applicable law will be familiar to Canadian lawyers. Generally, however, U.S. courts are willing to exercise jurisdiction over defendants who enter into contracts with residents of the jurisdiction. With exceptions, they are generally unwilling to exercise jurisdiction over defendants who are the authors of passive information available to foreign users. Between these extremes, U.S. courts look to the level of interactivity between the web site and the user, the commercial nature of the interaction, and whether any other non-Internet activity is present.

The U.S. also has a propensity to respond to issues such as those raised by the Internet in a reactive, sector way. For example, in furtherance of privacy rights Congress has prohibited video rental stores from disclosing rental preferences of its customers in response to a zealous reporters attempt to determine the viewing tastes of a recently proposed Supreme Court nominee. As a result, web site offerings should be examined in context and by jurisdiction to ensure compliance with local laws.

Particular attention should be paid to the respective long-arm statutes delivering hapless defendants into the arms of local justice, although a discussion of these issues is beyond the scope of this paper.


If the parties to a transaction are able to specify either their choice of law or the forum in which they will resolve their disputes, much of the uncertainty surrounding choice of law will evaporate. A useful primer on web site disclaimers is available on-line.

The extent to which Terms of Service will be enforced remains to be seen, given the need to establish a contractual relationship between the user and web site host in order to do so. Case law concerning the enforceability of shrink wrap licenses, and before that disclaimers of liability for such diverse relationships as participation in sporting activities and the parking of one’s car, illustrate the uncertainty in common law jurisdictions of relying on the existence of contractual terms of this type.

On October 8, 1999, the Ontario Superior Court of Justice upheld the enforceability of a click wrap contract which specified both the applicable law (Washington State) and the forum for resolving disputes (again, Washington state). The Court stayed the class action being brought on behalf of an estimated 89,000 members of the MSN on-line service. The case also provides an interesting discussion of the manner in which the contract in question came into being.

By analogy, and following the reasoning of the court, a choice of law/forum provision in Terms of Service will be enforceable if the essential elements necessary to create a contract are present. Having said this, it is likely that some Canadian laws (for example, privacy, intellectual property, and criminal legislation) will always apply, for reasons of public policy. This paper takes a conservative approach and presumes that, particularly in the case of delivery in Canada of tangible goods to consumers, Canadian laws will apply.

The analytical difficulties posed by this issue have the potential to increase dramatically when the subject matter of the sale is not a tangible product but instead consists of tangible or digital goods being delivered from servers located in foreign countries to Canadian residents. This paper does not specifically deal with this question.


In Canada, both the activity and the potential causes of action arising from it require examination. What follows is a discussion of specific areas of law and activities where personal jurisdiction is likely to be exercised by a Canadian court.


The question of whether a contract comes into existence will continue to be a matter of local interest, and will remain governed by local courts in the absence of legislation or treaties to the contrary.

Having said this, nothing prevents persons from entering into agreements governing how their relationship will be governed in the future, including how contracts will be formed between them. A discussion of contract formalities is beyond the scope of this paper. The Model Law on Electronic Commerce proposed by the United Nations Commission on International Trade is a useful starting point to an examination of the issues surrounding contract formation on-line.

A number of provinces continue to require written contracts for certain activities. For example, in Alberta transactions involving guarantees, the sale of land, and contracts having a value in excess of minimum dollar amounts. Additionally, various provincial statutes (for example, Sale of Goods Acts and Consumer Protection Acts) require that consumer contracts having more than a nominal value, be in writing and signed by the consumer.

There are no laws in Canada that clarifies whether electronic signatures and electronic contracts meet these contract formalities. Prudence dictates that web sites do business in a way that mirrors traditional local contractual analysis, with the mechanics of the web site mimicking the offer, acceptance, and conveyance of the acceptance of the offer analysis that common law legal systems expect.


As in many foreign jurisdictions, minors cannot generally be bound by contracts for goods that are not necessities of life. The age of majority in Canada varies from province to province, being either 18 or 19. Specific product acquisition or activities may also have different age requirements.


The Competition Act establishes a variety of consumer protection oriented requirements to prevent misleading or false advertising in such areas as pricing and performance claims, and with respect to packaging. Enforcement is ordinarily instigated as a result of marketplace monitoring by the Federal government. It is not uncommon in Canada in the direct sales and retail fields for companies to complain to the federal government about competitors' allegedly unfair/illegal advertising practices and to attempt (with some success) to instigate government investigations and prosecutions.

Packaging laws apply particularly to food and drug products, although all products are subject to basic requirements, including bilingual labelling. For the present, Industry Canada does not consider passive web sites located outside of Canada as selling goods in Canada. Accordingly, labelling laws may not apply to goods shipped into the country from such sites.

The Competition Act also reinforces the Criminal Code with respect to on-line contests and gambling. Many advertising promotions such as "free" give-aways are subject to these stringent rules.

Advertising gambling is prohibited in Canada in all but a few limited circumstances.

For examples of local laws unfamiliar to foreign retailers, one needs look no further than Germany. Among the European Union countries, Germany stands out as possessing some of the most arcane laws affecting retailers. For example, Land’s End Inc. was banned from advertising its unconditional guarantee in Germany; guarantees are unconventional in German business practice. Wal-Mart suffered a similar fate when it promised to compensate customers who found lower prices on the same products in competitors’ stores.


Defamation and other tort based claims are likely to result in disputes over applicable law owing to the fact that parties to defamation actions rarely have a pre-existing agreement, and because of the differing results that can occur under various legal systems.

Defamation can be against the person or trade goods. The latter cause of action does not include the presumptions that personal defamation is subject to, and so is more difficult to successfully prosecute.

It is accepted that a defamation plaintiff has a significant opportunity to shop for a forum to resolve the dispute, and as a result choose the procedural law that will apply to the resolution of the dispute. Whether the defendant will be successful in challenging the presumption that the substantive law of the forum also applies will depend on the facts of each case, and the mood of the court interpreting them.

For U.S. plaintiffs, the Communications Decency Act provides immunity to commercial interactive service providers. This approach differs from the U.K., where the Defamation Act has been interpreted as requiring a defendant to remove defamatory statements when it is notified of the potential harm before the protection of the Act applies.

Defamation plaintiffs in the U.S. can also expect to receive the response that the “defamation” is permissible as a result of the First Amendment right to free speech. Ford Motor Co. was unsuccessful in obtaining a permanent ban stopping a company from publishing Ford’s internal documents .


Bill C-6 Protection of Personal Information and Electronic Documents Act passed the House of Commons on October 26, 1999 and has been introduced into the Senate. The Act was formerly introduced in the previous sitting of the House as Bill C-54.

The U.S. approach to privacy has tended to leave the issue to the private sector. Having said that, the sector approach favoured in the U.S. has resulted in stringent rules being proposed with respect to the protection of personal information. If this is a precursor of the future, additional legislation protecting privacy can be expected.
The European Union passed the Data Protection Directive in 1998 which provides a strict code of conduct with respect to the collection, management and sharing of personal information. To date, the European Union has not been enforcing the directive in the interests of promoting voluntary co-operation among nations. Working documents discussing data transfers are available on-line from the European Union.

While the protection of the privacy of its’ citizens will remain of paramount local concern, the practical limitations on the ability of a country to enforce its’ laws with respect to non-resident data bases will substantially limit the application of local laws.


A foreign web site may not own exactly the same intellectual property rights in Canada as it does in its home jurisdiction. For example, trademarks are problematic since trademarks may be registered in the United States but not in Canada. As expected, in a Canadian forum trade-mark rights will be decided on the basis of Canadian substantive law.

Having said this, it is not uncommon in the case of domain name disputes that U.S. courts will take jurisdiction over Canadian defendants and apply substantive U.S. law to the determination of the parties rights. This happened to a Canadian company in the case of Desktop Technologies, Inc. v. Colorworks Reproductions & Design, Inc.

Substantive differences also exist in other areas, such as patents and copyrights. For example, the first amendment “freedom of speech” rights to parody found in U.S. copyright laws do not exist in Canada. When dealing with an U.S. owner, however, a Canadian may expect to have her rights viewed in the context of U.S. rights, which may be more favourable in the circumstances.

Lastly, whether intellectual property rights exist at all varies from jurisdiction. The protection of databases and rights of personality is an example of the law differing between U.S. and Canadian jurisdictions.


The Canadian Criminal Code and the Competition Act establish extensive disclosure requirements for contests and games of chance. Very specific rules have been developed through case law over the years to interpret vague legislative provisions. If the types of activities that will be carried out on the web site include contests or other games of chance, then it will be necessary to comply with the specific disclosure requirements that are applicable and other relevant federal and provincial laws (such as posting the contest rules).


It is beyond the scope of this paper to discuss the taxation of Internet transactions. Where Internet activities result in substantial quantities of products being shipped into a taxing jurisdiction, the shipper can expect to have to reach agreement with local taxing authorities over the collection and remittance of taxes. Amazon.com is an example of a company active enough to attract the attention of local tax collectors.


Duty remains the obligation of the importing party. Prudence, however, suggests that web site contracts make it clear that this is the case to avoid misunderstanding and disputes.

If the order fulfilment process for goods ordered supplies products that originate outside the United States, even if shipped through the USA and into Canada, it is possible that the provisions of North American Free Trade Agreement would not apply to exclude Canadian duty.


Warranty disclaimers, particularly in a consumer transaction, should conform to Canadian statutory requirements. For example, contrary to the language on many U.S. web sites, the corresponding Canadian warranty disclaimer should not try to exclude any liability for direct damages. Otherwise the courts may determine that consumers have no recourse and will impose a remedy without recourse to the limitation specified by the supplier. One solution possible is to limit the amount of direct damages to the value of the products bought.


This treaty has been enacted into British Columbia law by legislation. Unless there is an express and clear exclusion of the application of Act, it will apply in many situations to govern e-commerce transactions over the Internet.


Generally, in matters involving currency local laws will specify local currencies. For web site based transactions, all prices should be specified in the desired currency.


The province of Quebec requires a far greater effort to localize a web site, primarily because of language law requirements. At the date of this paper, the Quebec Language Charter has been found to be unconstitutional. If this decision is upheld, the foundation for much of Quebec’s legislation will disappear.

In particular, a web site should address the following laws (this list is not intended to be exhaustive).


This Act predates the Federal government’s Bill C-6 and provides a comprehensive code for the collection and protection of personal data.


This Act may apply to contests run on suppliers’ web sites that are offered to residents of Quebec. If so, extensive registration and disclosure is required under the Act.


The French Language Charter, commonly referred to as Bill 101, has onerous French language requirements for product advertising and distribution within Quebec. If a foreign supplier has any type of physical presence in Quebec, whether involving distribution, maintenance, or a sales branch or subsidiary office, there is a significant prospect that Bill 101 may apply to the supplier’s web site, even if the web site is situated outside of Quebec. For example, the Office de la langue Francaise, the administrative body charged with enforcing Bill 101, prosecuted an anglophone business operation in Montreal on the basis that its English language web site was in violation of Article 52 of the French Language Charter. That matter remains unresolved pending a resolution of the fate of Bill 101.





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The foregoing is not intended to constitute legal advice. You should contact your legal advisor about your specific legal problem.