Slide 1©MNoonan2011
This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.
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In this module, we will firstly look at e-commerce in a general way; reflecting on how the type of transactions we have already looked at are affected by this medium.
-Contract formation, Sale of goods and services
Then we will look at some aspects of electronic commerce vital to business:
-data management and security including privacy
-electronic methods used in legal proceedings
And lastly, a specific service-electronic banking and payment methods-and an avenue of ADR.
As many commercial arrangements and transactions now occur using electronic commerce, students are expected to deal with issues arising in either a physical or virtual business environment.
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Webpage display and advertisements Accounting data transfer
Online sales Smartcards
Electronic data exchange Electronic orders, comparative searching
Intranets and extranets Automatic document production
An exchange of goods, services, information or other assets between suppliers and buyers facilitated by electronic means
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We can see Electronic Commerce at work in many ways
- a communications perspective
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From a communications perspective, electronic commerce is the delivery of information, products / services, or payments via telephone lines, computer networks or any other means.
When looking at the arrangements in place, we normally look to contract law. For example, offer and acceptance may occur electronically via the telephone, or an exchange of emails or faxes. It can also be a service and ACL ss. 60-63/old s. 74 TPA can be relevant.
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Business Process Perspective
From a business process perspective, electronic commerce is the application of technology towards the automation of business transactions and work flows…e.g. ordering process, payments, machine software.
In order to analyse the process/transactions for legal purposes, we need to understand what is being achieved, the steps and the relationships.
If a new way of doing something, it may be IP, protected by Copyright or be entitled to a Patent. E.g. Amazon.com ordering system.
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Service Perspective
From a service perspective, electronic commerce is a tool that addresses the desire of firms, consumers and management to cut service costs while improving the quality of goods and increasing the speed of service delivery.
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Online Perspective
From an online perspective, electronic commerce provides the capability of buying and selling products and information on the internet and other online services.
This can save businesses from having the costs and inconvenience associated with physical premises and permit them to have a much wider reach. By use of logistical services….transport and storage…that need not be theirs….they can have large operations and cover wide areas more easily than formerly. They can also sometimes do things which were not possible /very difficult before-e.g. online auctions, avoid GST. There can also be new dangers for business e.g. Hacktivism, loss of information/data.
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Evidentiary Matters including elements of contract formation, attribution of electronic conduct and Intellectual property issues.
Consumer protection in relation to business-to-consumer transactions or business-to-business (small business) transactions carried out electronically.
Evidence Act provisions about best evidence
Applications to court processes e.g. Electronic service, electronic discovery, remote proceedings and decisions.
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Oral in person or by telephone
Written formal agreement or Exchange of emails
Acceptance of an offer by conduct
Types of Contracts
Combination contracts
Some need for special legislation
The Electronic Transactions Act 1999 commenced March 15, 2000 and is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce. States are required to enact complementary law. NSW, Victoria and ACT have, but the others not yet.
The legislation is based on principles of functional equivalence
…paper based and electronic transactions should be treated equally by the law and technology neutrality
…the law will not discriminate between different forms of technology.
Note:The local version is not exactly the same as the model law.
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UNCITRAL Model law article 15
Unless otherwise agreed between the originator and the addressee, the time of receipt of a data message is determined as follows:
(a)If the addressee has designated an information system for the purpose of receiving data messages receipt occurs:
(i) At the time when the data message enters the designated information system; or
(ii)If the data message is sent to an information system of the addressee that is not the designated information system, at the time when the data message is retrieved by the addressee;
(b)If the addressee has not designated an information system, receipt occurs when the data message enters an information system of the addressee.
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Signatures
S.10 of the ETA provides that if the signature of a person is required, that requirement is taken to be met in relation to an electronic communication if:
a method is used to identify a person and to indicate the persons approval of the information communicated
the method was as reliable as was appropriate for the purposes for which the information was communicated
if the recipient is a commonwealth entity any applicable IT requirements have been complied with; and
if the recipient is not a commonwealth entity, the person consents to the method of signature used.
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Documents in Electronic Form
S.11 of the ETA provides that a requirement to produce a document is taken to have been met if the document is produced in electronic form, provided that;
the method of generating the electronic form of the document provides a reliable means of maintaining the integrity of the information contained in the document
at the time the communication was sent it was reasonable to expect that the information in the electronic form of the document would be readily accessible so as to be useable for subsequent reference
if the recipient is a commonwealth entity, any applicable IT requirements have been complied with; and
if the recipient is not a commonwealth entity, the recipient consents to the method of signature used.
NOTE that the ETA will not apply to formalities required by the parties as opposed to formalities required by legislation.
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Insurance Contracts Act
The Insurance Contracts Act specifies that some communications must be in writing. Most provisions impose obligations on the insurer to advise the insured of something in writing (ss.22,35,37,39,40,44,49,58,62,68 and 74).s,69 permits oral information, provided later given in writing.
The ETA 1999 provides that in general where a commonwealth law requires a notice in writing, it may be given by electronic means provided that the recipient consents. However, the ET regulations exclude the ICA from the scope of these provisions!
Because of the seriousness of some of these notices e.g. cancellation, in a Treasury review of the ICA in 2004, a recommendation was made that E communications be possible with consent and provided a record could be printed.
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US Uniform Computer Information Transactions Act 1999
§215 provides for electronic messages to be effective at the time of receipt, regardless of whether any individual is aware of receipt.
Receipt is defined as:
In the case of an electronic notice…coming into existence in an information processing system or at an address in that system in a form capable of being processed by or perceived from a system of that type by a recipient, if the recipient uses, or otherwise has designated or holds out, that place or system for receipt of notices of the kind to be given and the sender does not know that the notice cannot be accessed from that place.
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s.14 Time of receipt
(3) For the purposes of a law of the Commonwealth, if the addressee of an electronic communication has designated an information system for the purpose of receiving electronic communications, then, unless otherwise agreed between the originator and the addressee of the electronic communication, the time of receipt of the electronic communication is the time when the electronic communication enters that information system.
(4) For the purposes of a law of the Commonwealth, if the addressee of an electronic communication has not designated an information system for the purpose o receiving electronic communications, then, unless otherwise agreed between the originator and the addressee of the electronic communication, the time of receipt of the electronic communication is the time when the electronic communication comes to the attention of the addressee.
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E-commerce
Valid offer?
Wording and display?. Limits? Systems?Interactive or active site?
Automated interactive sites? Vending machines…offer made when proprietor holds it out as being ready to receive money. Contract formed when consumer places money into the slot and selects item.
Acceptance?
Effective at the time communicated to offeror. When is it communicated? Email?Instantaneous? Press Send, goes to ISP, goes via a number of servers and received when recipient logs on and downloads. May go around the world to get to the next building. Is it similar to the postal system? Difficulties with certainty in time of communication.EDI is instantaneous. Fax? What if noone there to receive it?
Intention to create legal relations? Capacity?
Consideration?
Discussion point
Can a telephone company change the terms and conditions of its contract by posting a notice on its Website?
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Usually encountered when purchasing (shrinkwrap) or downloading and using software applications and electronic information distributed online (clickwrap and browsewrap)
Shrinkwrap…on the clear plastic wrapper
Clickwrap…I agree button
Browsewrap…appears on site somewhere…by using this site….you agree etc…
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Shrinkwrap
Quite often order is made by phone and company promises to send the item. Contract usually formed when order made, accepted, payment etc, and cannot add terms later. However, may be situation where on consider and agree/or return basis…sophisticated user with knowledge usual terms…licence terms shown each time program loaded with offer of refund if not acceptable….
If terms desired, need to be made known and agreed to by contracting party at time of contract…conditional on acceptance…return possible?
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Good rap for browsewrap in USA: Register.com Inc v Verio Inc
Authors: Leaellyn Rich and Irene Zeitler of Freehills
Agreement to terms and conditions?
Decision affirming the enforceability of browsewrap licences, the U S Court of Appeal for the Second Circuit has upheld a preliminary injunction issued against Verio Inc. (Verio), a website developer and hosting firm, for breaching the browsewrap-style terms of use for the services of the plaintiff, Register.com (Register): Register.com Inc v Verio Inc . 356 F. 3d 393 (2d Cir. N.Y. 2004), 2004 U.S. App. LEXIS 1074.
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Facts in Verio
Register, a provider of domain name registration services, had agreement with Internet Corporation for Assigned Names and Numbers (ICANN). Register was required to maintain and update a publicly available 'WHOIS' database of registrants' contact information, was not to impose restrictions on use of this data, except re electronic spamming. Register established a WHOIS database, which it updated on a daily basis, and provided a free public inquiry service for the information contained therein. Register's responses to WHOIS queries were captioned by a 'legend' stating that by submitting a query, the user agreed to refrain from using the data to conduct mass solicitations of business by email, direct mail or telephone (a more stringent restriction than that envisaged under the ICANN Agreement, which was only in relation to the restriction of mass solicitation by email).Verio developed automated software program or 'robot' (Robot) to access WHOIS database and compile massive lists of new registrants whom Verio then subjected to a barrage of unsolicited marketing by email, direct mail and telephone.Register demanded Verio stop, but Verio only partially complied, ceasing email solicitations, but continued direct mail and telephone. Register sued for breach terms.Verio argued not contractually because it never received legally enforceable notice of Register's conditions as the restrictive legend did not appear until after Verio had submitted the query and received the WHOIS data.
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Decision in Verio
Court upheld the preliminary injunction, concluding that online contracts do not always require formal acceptance by the offeree. In the circumstances, Register's browsewrap-type terms of use, combined with Verio's actions in repeatedly accessing the WHOIS database constituted a valid offer and acceptance, thereby resulting in a legally enforceable contract.Court distinguished case Specht. Court also disagreed with the Ticketmaster, expressly rejecting that terms were unenforceable because user had not clicked an 'I agree' icon:
'[w]e recognize that contract offers on the Internet often require the offeree to click on an "I agree" icon … no doubt in many circumstances, such a statement is essential to the formation of a contract. But not in all circumstances...It is standard contract doctrine that when a benefit is offered subject to stated conditions, and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes an acceptance of the terms, which accordingly become binding on the offeree.'
Particular significance was attached to the fact that Verio was a commercial entity that was making numerous, successive inquiries of Register's database, as a result of which it had become well aware of the terms exacted by Register.
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Implications of VERIO US decision
As electronic commerce has developed, courts have been confronted with the task of applying age-old principles of contract law to various online permutations of the classic idea of agreement between parties.
While, in recent years, courts have become comfortable with enforcing agreements supported by 'clickwrap' procedures, Verio is an authority in relation to the enforceability of 'browsewrap' or 'Web wrap' agreements.
This case helps to elucidate contract principles as they apply to browsewrap agreements and, in particular, clarifies the circumstances in which the provisions of browsewrap agreements will be held to be enforceable. Although Australian courts are not bound by American case law, the decision in Verio provides a useful guide as to how an Australian court might deal with the issue.
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Corp., 306 F.3d 17 (2d Cir. 2002),
The Court declined to enforce terms specified by Netscape against a user of Netscape's software due to insufficient evidence that the user had seen the terms when downloading the software. The terms of Netscape's offer of software were posted on the website from which the user downloaded the software. However, the user would not have seen them without scrolling down their computer screen, and there was no reason for them to do this.
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No. CV99-7654, 2000 U.S. Dist. LEXIS 12987, 2000 WL 1887522
The Court, noting that the taker of the information was not provided with an 'I agree' icon to click (although fully aware of the terms on which information was offered on Ticketmaster's site), concluded that there was insufficient proof of agreement to support a preliminary injunction.
The Court Verio commented that '[u]nder the circumstances of Ticketmaster, we see no reason why the enforceability of the offeror's terms should depend on whether the taker states (or clicks), "I agree".'
June, 2004
Consider the application to:
Choice of law clauses
misleading or deceptive conduct
Consider also ancillary liability ( aids, induces, conspires, knowingly concerned)
See expansion in ACL... As long as some conduct taken place in Australia, can involve T&C between Australia and overseas. Where were the representations made?..relevant conduct… not the state of mind.
No need for an active representation. Can be silence e.g. incomplete information, changes not noted or where reasonable expectation of information.
Examples of possible problem areas:
Advertising
Metatags and cyberstuffing-keywords to attract search engines
Linking and framing
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Jurisprudence of TPA still relevant to ACL because provisions almost* the same
Misleading and deceptive conduct
Taco Bell Inc. v. Taco Bell P/L (1982) 42 ALR 177
4 step approach to whether conduct is misleading and deceptive in all the circumstances
(1) Identify relevant section of public who may be mislead/deceived.
(2) What is effect of conduct on all those within that section…would a reasonable member of that section be mislead?
(3) Evidence that consumers are in fact suffering from a misconception may be persuasive but is not essential
(4) It must be established that the misconception has arisen as a result of conduct complained of and not some other factor
NOTE that intent of defendant not relevant and not enough to cause mere confusion. Conduct must actually mislead or deceive or be likely to…different to passing off action where confusion enough.
*extended to person and not just corporation, T&C expansion.
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terms and conditions
Results of a survey of on line retail sites by ACCC 2004
Terms and conditions compulsory viewing 14.7%
Require positive consent before completion 32.80%
Written contract easy to find 17.4%
Clause attempting to disclaim warranties in breach TPA 50.9%
Clause attempting to limit liability 66.00%
Clause attempting to limit responsibility for inaccuracy 54.3%
Clause stating that use of site is agreement to T&C 48.7%
Both clauses attempting disclaimer warranties
and limits to liability 43.8%
70% of online sites surveyed raised concerns for ACCC
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Example also of ACCC and FTC co-operation
ACCC case against US based SkyBiz.com Inc, illustrating that web-based activities can be subject to laws where information accessed, not just the law of home country operations..
ACCC alleged in Federal Court that SkyBiz.com Inc contravened TPA 61 through its operation of a pyramid selling scheme and had engaged in misleading and deceptive conduct and referral selling, prohibited by ss. 52, 59 and 57.SkyBiz. consented to orders that:The Skybiz scheme was a pyramid selling scheme. Skybiz represented the scheme could be used to engage in ecommerce when it could not; SkyBiz attempted to induce people to take part by representing that those who joined would later receive money if they introduced new consumers, contingent on those new consumers recruiting further consumers, thereby engaging in referral selling.SkyBiz represented the scheme would be a profitable business for all persons who took part and could be carried on at/ from, their home, when in fact this was not the case, thereby making false or misleading representations and SkyBiz attempted to induce persons to take part by representing that those who joined would later receive payments.
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Goods to correspond with description
Do the goods delivered correspond with description, picture?
Important to check pictures and descriptions to make sure they match those delivered.
Any tendency to vary should be clearly noted on site so as to be clear to the customer prior to the decision to purchase being made.
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Fitness for Purpose
Has the customer made known, expressly or impliedly, the purpose to the Vendor?
Expressly
Impliedly
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Merchantable Quality
As people do not see goods before they buy when bought over the Internet,it will be particularly important to point out any defects.
Note Grays auction site. When they sell factory seconds, they list some or all of the faults, a note that they have not been properly assessed, no warranty etc.
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Capacity
Normally there is a presumption at common law, that a person who enters a contract has full capacity to do so. Some exceptions for those under a disability-might include minors (under 18), mentally disable, drunkards, bankrupts.
It is impossible to be sure of identity of Internet Customer.
Consider the situation with Minors:-
A contract made by a minor is “voidable”, at the minor’s option. One exception involves “Necessities”-food, clothing, education or goods/services fit to maintain them in station of life in which they move. Even so, unenforceable if contains harsh, unreasonable terms or price is unreasonable.
Burden of proof with supplier.
What is the situation with “Luxury items”? CDs, computer games?
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Purchase by a minor
The minor uses their own debit card
The account would be debited before goods received. Therefore, once, goods received, minor would have to litigate to recover the money. However, if they changed their mind prior to delivery and informed supplier they wished to withdraw, the supplier would not be able to rely on contract terms and conditions. Minor would be entitled to a full refund.
The minor uses adult debit/credit card without permission
Should be treated same as if card stolen. When adult becomes aware, might choose to ratify; in which case contract would be with adult and fully enforceable. If they denied validity, child could be prosecuted for theft. Credit company would most likely seek to recover the money and the supplier would lose out.
The minor might be obliged to pay after receipt of goods
Seller could not enforce contract to recover money. Unless fraud, they could not recover the goods either.
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Sale by a minor
In NSW law has altered CL position and is different to that in the other States.
See the Minors (Property and Contracts Act) 1970.
If for their benefit, it is presumptively binding
The Supreme Court can make an order granting them capacity
A minor cannot enforce a contract that is not presumptively binding
On reaching 18, minor can affirm an act they participated in during minority
On repudiation, courts have wide discretion to produce a fair result.
Where a disposition of property occurs and minor receives at least part of consideration, it is presumptively binding.
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Electronic Banking
Specific study of one type of ecommerce we all use and which is vital in commerce
Our focus is:
When we will be liable for problems/loss in electronic banking (Cl 5 EFTCC)
Dispute Resolution mechanisms-Internal and (Cl 10 EFTCC) and external (Ombudsman).
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Issues to consider:
Ease of copying
Hacking
Note issues highlighted by music publishers, electronic books….
Possibility of new businesses…e.g. text books recorded so students can listen on their ipod instead of reading.
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Unauthorised access to systems/data by third parties
Accidental data leakage
Unauthorised access and use of data and systems by internal users.
Loss of availability of physical assets e.g. theft of laptops, malicious code attacks
Loss of availability of data
Loss of availability of services
Loss of data integrity
Misleading and deceptive conduct example:
Theft or leakage of credit (or debit) card information resulting in online fraud.
Was there an implied representation that X had taken the security measures required by industry practice to safeguard personal and financial information?
US example of TJX
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TJX example-facts
TJX was a retail chain with 3,500 stores. In Dec 2006, it disclosed that hackers had gained unauthorised access to its computer and customer credit and debit card records had been compromised.
Hackers first accessed July 2005 and intrusions undetected for 18 months, during which time 45 million records stolen-credit card details, drivers licence numbers, social security numbers of 451,000 TJX customers.
Hackers exploited one initial weakness and then built from there…weak wireless protocol used to transfer data between hand held price checking devices, cash registers and main computer. Hackers sat in a car park close to a store and used basic equipment. Also weak firewall and failure to implement further security equipment available. Data sold on the internet and used by online fraudsters from Sweden, Ukraine, Turkey, Australia, HK and Mexico.
2 class actions-by consumers and by issuing banks
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Consumer Issuing
*Diagram from Gifford, Information Security Managing the Legal Risks, CCH
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A credit card transaction
Consumer uses a credit card to pay for a purchase with merchant. The card has been issued to consumer by a financial institution (“issuing bank”) e.g. ANZ
Merchant sends consumer account info to bank that handles all merchant’s transactions (“acquiring bank”) for validation
Acquiring bank sends info to issuing bank for payment authorisation via networks operated by Visa or Mastercard.
Issuing bank authorises transaction and remits funds to acquiring bank.
Acquiring bank remits funds to merchant
Issuing bank bills consumer and consumer pays issuing bank
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Acquiring bank with Merchant
Consumer and Issuing Bank
No contractual relationship between consumer and Mastercard, or Issuing Bank and Mastercard/Visa
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TJX example-legal actions
By Issuing Bank
Issuing banks had no idea transactions were fraudulent and so paid out, but unable to recover from customers because they had not made purchases.
As well as losses from fraudulent transactions, issuing banks incurred millions of admin costs in replacing compromised cards and providing enhanced monitoring of compromised customer accounts
No realistic prospect of targeting fraudsters
Original hackers never found
Action taken against TJX and Acquiring Bank-breach of contract, negligence (dismissed), misrepresentation and violation of Massachusetts General Laws Chap 93A.
Settlement reached USD65M
By Consumers
Class action against TJX for “distress” at prospect and risk of identity theft. Loss had been absorbed by their issuing bank.
TJX agreed to provide consumers with vouchers, cash, credit monitoring services, identity theft insurance and reimbursement of proven out of pocket expenses (e.g. replacing licences).
Total cost (USD 10-20m)
Is there a relevant standard?
Was there an implied representation that X had taken the security measures required by industry practice to safeguard personal and financial information?
In this situation there is the Payment Card Industry Data Security Standard (PCI DSS), a security standard developed and administered collectively by the leading credit card companies (Amex, Visa, Mcard, Diners, JCB)
Reasonable to infer organisations impliedly rely on other organisations accepting credit card payments taking appropriate security measures?
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Was there a contract to safeguard info?
If so, may be action for breach of contract.
If not, may be negligence or express or implied representation that security measures in place.
Should one check that they are or make it a term of a relevant contract, …..as an aspect of risk management when negotiating a contract?
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Other potential liability
Directors and Officers
Corporations Act-duty of care and diligence…discharge their duties with the degree of care and diligence that a reasonable person would exercise if there were a director in the corporations circumstances.
Company operating online-Duty?
Note business judgement rule-good faith, proper purpose, no personal interest, informed judgement and believed rationally it was in best interests of company.
Duty owed to company, not world at large. Note increase in actions by Shareholders.
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Australian Cybercrime Act 2001
Employer for employee actions e.g. sexual harassment or discrimination by offensive emails, text messages, pictures
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Privacy
said CEO Sun Microsystems in 2000
Concept relates to individuals and not organisations Limited protection in Australia under Cth Privacy Act. (Also NSW Privacy and Personal Information Protection Act 1998.)
Focus is conciliation between aggrieved individual and organisation rather than compensation
If conciliation not possible, Privacy Commissioner can make a “determination” which can include compensation-but rare and modest to date.
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We will consider only privacy in connection with information security.
NPP apply to private sector organisations. Information Privacy Principles (IPPs) apply to public sector agencies.
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Data Security
4.1 An organisation must take reasonable steps to protect the personal information it holds from misuse and loss and from unauthorised access, modification or disclosure
4.2 An organisation must take reasonable steps to destroy or permanently de-identify personal information if it is no longer needed for any purpose for which the information may be used or disclosed.
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Rummery v. Federal Privacy Commissioner (2004) AATA 1221
Whistleblower at ACT Dept of Justice. DOJ sought to discredit Rummery by relating information of a personal nature to Ombudsman. Flagrant attempt by senior public servant to discredit a whistleblower.
AAT found conduct a “serious breach” of Privacy Act but awarded only $8,000.
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Emerging Common law remedy?
ALRC and NSW Law Reform Commission have both recommended introduction of new statutory cause of action for “tort of serious invasion of privacy”.
May emerge incrementally in the common law due to indications in various HC cases
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“Mobile Security Outrage-private phone details of millions accessible over the Internet”-Vodafone
Sun Herald 9 January, 2011
Customer information accessed through a secure web portal accessible to authorised employees and dealers via a secure login and password. Unauthorised use of password and then sharing of information?
Because customer database is not an intranet and instead is on internet users with a password can log in from anywhere and access any customer information-name, address, driver licence number, D.O.B., pin number to access and change details on account, call list.
Up to 4m customers affected. Potential exposure for customers?-criminal activity, identity theft, spouses checking up on each other.
Already a 12,500 customer class action against Vodafone over service issues.
Best legal remedies for customers?
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Some dispute resolution tribunals etc choose electronic proceedings e.g. Domain Name disputes.
Some Arbitrations reliant on documents can be carried out remotely and thereby lower costs.
Our courts regularly use various electronic methods-for service (e.g. on parties via their Lawyer, or if personal service not feasible on respondent’s Facebook page), discovery, videoconferencing for overseas witnesses or parties.
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Contract between Banker and Customer
Students are expected to have a good working knowledge of the terms and conditions of a bank customer contract for electronic banking, credit cards, internet banking, the application of sections 5 and 10 of the Electronic Funds Code of Conduct to them and be able to work through and resolve a problem with such services.
The EFT Code of Conduct is available on the FIDO section of the ASIC website.
Useful summaries and copies of policy guidelines for the Financial Services Ombudsman are available on their website.
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CREDIT CARDS and ELECTRONIC BANKING
Contract between Banker and Customer
Contract may consist of more than one set of terms and conditions and terms may be implied by other instruments or by Statute.
See: Electronic Banking Conditions of Use / Terms and Conditions
Note that there are frequent variations from time to time for both
Code of Banking Practice (disclosure mostly)
Electronic Funds Transfer Code of Conduct (especially 5 & 10)
See also:
Contract Review-harsh/unconscionable
External-See Financial Services Ombudsman
What information do you have to be given and when?
You are entitled to a copy of the contract (Terms and Conditions).
The account institution must give you the contract at the time of or before you use a new way of accessing your account.
Your account institution must give you certain information about your new card or PIN and include information about fees, restrictions, accounts that can be accessed, how to report loss, theft or unauthorised use, and how to make a complaint.
If the account institution changes the rules, they have to tell you about it at least 20 days before they take effect.
If you deposit, withdraw or transfer money electronically, the account institution must offer you a receipt showing the date of the transaction, the type, accounts and amounts involved and location of the transaction.
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EFT Code cont.
What happens if there is an unauthorised transaction on your account?
- There is an obligation to check your statements.
- Contact your account institution as soon as possible.
- There will be some instances where you will be liable for them, and others where you will not be, and some in between; where you will be liable to a limited extent.
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When will you get your money back for authorised transactions?
When:
- there is fraudulent or negligent conduct by employees or agents of the account institution;
- a forged, faulty, expired card, PIN or password was used;
- the transaction took place before your received your card, PIN,password;
- a merchant incorrectly debited your account more than once;
- the transaction took place after you told your account institution your card had been stolen or lost, or someone else may know your PIN or password;
- no PIN or password was required to conduct the transaction;
- it is clear you have not contributed to the loss;
- the account institution expressly authorises the conduct.
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Where the account institution can prove: -
- you contributed to the loss by acting fraudulently, or not keeping your PIN or password secret;
- you unreasonably delayed before telling your account institution that your card had been misused, lost or stolen or that someone else might know your PIN or password.
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What is the extent of my liability?
Where the account institution can show that the account holder acted fraudulently or unreasonably denied advice, they will be responsible to the extent of the daily transaction limit and the balance of the account.
When will liability be split between the account institution and the customer?
If a PIN or password was needed to perform the unauthorised transaction and it cannot be proven that the customer contributed to the loss, the customer will only be responsible for the lowest of
- $150.00;
- the balance of the account; and
- the amount of money that had gone out of the account before the account institution was informed.
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- Access Methods Security Guidelines
Access methods (which include devices and codes) comprise the keys to your account. You and any other user must take reasonable card to ensure that access methods and any record of access methods are not misused, lost or stolen.
These are Guidelines only. They summarise how you can maintain the security of your access methods and help to avoid losses to you or us. Your liability for any loss will be determined in accordance with the Electronic Funds Transfer (EFT) Code of Conduct, the provisions of which are reflected in the relevant Conditions of Use. For full details on how to protect your access methods (which includes a card, PIN and Password) please refer to your copy of the Electronic Banking Terms and Conditions or Credit Cards Conditions of Use, as appropriate.
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devices (if they are cards) are signed immediately upon receipt;
devices are kept secure and (if they are cards) carried by you whenever possible;
you regularly check that devices are still in your possession.
Codes (for example, a PIN or password)
Try to memorise your code as soon as you receive it. If you are unable to memorise your code and need to make a record of it, please ensure you have made a reasonable attempt to disguise your code in the record - that is, scramble the details so that no one else is able to work out what your code is. We are not liable to reimburse you if an unauthorised transaction occurs on your account and you or any other user have not made a reasonable attempt to disguise a code or to prevent unauthorised access to the code record.
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Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
For example, we will not consider that a reasonable attempt has been made to disguise a code if you or any other user only:
recorded the code in reverse order;
recorded the code as a ‘phone’ number where no other ‘phone’ numbers are recorded;
recorded the code as a four digit number, prefixed by a telephone area code;
recorded the code as a series of numbers or words with any of them marked, circled or in some way highlighted to indicate the code;
recorded the code disguised as a date (e.g. 9/6/63) where no other dates are recorded;
recorded the code in an easily understood code, e.g. A=1, B=2; or
self-selected a code which is an obvious word or number or one that can be found in a purse or wallet or can be easily guessed by someone else (such as a date of birth, middle name, family member’s name or driver’s licence number).
©MNoonan2011
You or any other user must ensure that:
a code or disguised record of a code is not recorded on an access method;
devices and codes (including any record of codes) are not kept together such that if a thief gets hold of the access method, he/she will also find the disguised code: for example, in a briefcase, bag, wallet or purse (even if in different compartments), in a car (even if in different areas of the car - in fact access methods should not be left in a car at all), at home in the one item of furniture, (e.g. different drawers of the same bedroom dresser) or in any other situation where an access method is not separate and well apart from a code record;
no one else is told or finds out your code - not even family or friends;
transactions are ready to be made when you approach the electronic equipment, such as an automatic teller machine;
no one watches a code being entered. Check the location of mirrors, security cameras or any other means of observing the code being enters, and then shield it from sight;
nothing (such as a device, transaction record or cash) is left behind when the transaction is completed.
©MNoonan2011
Notice to Commonwealth Bank Customers
- Access Methods Security Guidelines cont.
What to do if your access method is misused, lost or stolen
You must tell us as soon as you become aware (even if you are confident that the codes are secure) that the access method used by you or any user is lost or stolen or you suspect that your (or any user’s) code has become known to someone else because it may help us detect fraud and reduce the need for us to conduct a lengthy enquiry because of extended misuse of the account.
Otherwise, you will be liable for the unauthorised transactions that occur on your account or any account linked to the card if it can be shown that you or any user unreasonably delayed telling us of the access method or code loss, theft or misuse.
You can tell us by calling 13 2221 at any time (24 hours a day, 7 days a week) or visiting your nearest branch during business hours)
©MNoonan2011
Notice to Commonwealth Bank Customers
- Safeguarding Other Types of Payment Instruments, such as Cheques and Passbooks
You must do everything you reasonably can to make sure that other payment instruments such as cheques and passbooks are not misused or lost or stolen. Not only must you take care to guard against theft, you must always ensure that you draw cheques in a way that does not facilitate fraud.
It is important that you tell us as soon as you become aware that a payment instrument has been lost or stolen. You may be liable for the unauthorised transactions that occur on your account if it can be shown that you unreasonably delayed telling us of the loss, theft or misuse of the payment instrument. If you have a cheque facility you should also check your statements for unauthorised transactions and report them to the Bank as soon as possible.
Even if you are confident that the payment instruments are secure, you must tell us as soon as you become aware of the loss or theft of a payment instrument or of any unauthorised access to your account(s).
©MNoonan2011
No liability for:
1. Losses caused by fraudulent, negligent conduct of employees or agents of bank or networks or merchants
2. Losses relating to component of access method that are forged, faulty, expired or cancelled
3. Losses that arise from transactions using device or code prior to issue
4. Double debits
5. Unauthorised transactions occurring after notification
6. Where it is clear that user has not contributed to the loss
Liable where:
Where bank can prove on balance of probability that user contributed to losses through their fraud, contravention of security guidelines
Where bank can prove on balance of probability that user has contributed to losses by unreasonably delaying notification
See 5.6 for security guidelines
©MNoonan2011
INTERNAL SCHEME EFT Code of Conduct s. 10
Internal Complaint handling procedures to comply with AS4269-1995 or other as approved by ASIC
Customers to be advised of procedure in T&C
Decision to be based on all relevant established facts and not unsupported inferences
Information to be obtained.
If equipment malfunction complained of, institution must investigate whether one occurred.
Within 21 days, institution to complete investigation and advise user of outcome with reasons or advise customer of need for more time.
Unless exceptional circumstances, investigation completed 45 days. If longer, must inform customer of reasons, provide monthly updates, estimated decision date
Where customer liable, institution to make available copies of documents etc.
Where institution does not observe procedure external dispute resolution body may make institution liable to compensate for effects of decision or delay
Records of complaints to be kept.
NOTE: 28% EFT complaints (30,375) April 99-March 2000 concerned
unauthorised transactions ATM and EFTPOS transactions. Majority resolved in
favour card issuer; most common reason being cardholder negligence with their
PIN.
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1. Account type, number, type of access method used
2. Name and address of user
3. Other users authorised
4. Whether device signed
5. Whether device lost or stolen or security of codes breached Date and time of loss, theft or security breach
Time of report to account institution
Time, date, method of reporting to police or other authority
6. Code details
Was record of code made? How? Where kept Was record of code lost or stolen? Date? Time? Code disclosed to anyone?
7. How loss occurred (e.g. housebreaking, stolen)
8. Where loss of device occurred e.g. office, home
9. Details of transaction to be investigated
Description date time, amount Type and location of electronic equipment used
10. Details of any circumstances surrounding the loss, theft, security breach, or reporting or steps taken to ensure security of device or codes which user considers relevant to their liability
11. Details of last valid transaction.
©MNoonan2011
External Dispute Resolution – Formerly via Banking and Financial Services Ombudsman. Since 1 July 2008, via the Financial Ombudsman service -merger of 3 financial industry schemes See www.fos.org.au
JURISDICTION
The complaint must be about a specific “banking service” (NOT commercial judgements, policies, fees, branch closures) a bank has provided to complainant
The person complaining must be able to say that the banks action have directly caused them a financial loss.
The amount of financial loss must be less than $280,000.
The person complaining must be an individual and/or a small business (15 full time employees or less, annual turnover of $1m or less and independently owned and managed). Some corporations-those which are also a charity, trustee or statutory authority-excluded.
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In a letter setting out particulars of the complaint,
name address and telephone number,
bank name,
account number, and
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Ombudsman examines letter
Allocates a case number
Sends details to bank
After 30 days bank should have provided O with response. If it asks for longer, has to explain
If complainant receives a recommendation, they may accept or reject. If they reject, the O will not be able to assist further.If complainant accepts and bank does too, case resolved.If complainant accepts but bank does not, the O can issue an award which binds the bank.
When seeking to look at likely outcome of complaint, important to consider terms of reference, guidelines and policies.
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- Bank Cheques
When considering a complaint about the stopping or dishonouring of bank cheques, O has regard to the guidelines of ABA and Law Society of NSW. Banks will only dishonour bank cheques in limited circumstances:
Forged or counterfeit instruments
Materially altered bank cheques
A court order restraining payment
Failure of consideration for issue of a bank cheque
NOTE a complaint by payee/holder falls outside terms of reference because drawing bank did not provide a banking service to payee.
©MNoonan2011
The Drawer receives a “banking service” from the paying bank
The Payee receives a “banking service” from the collecting bank
If the Drawer wishes to complain about the collecting bank, they would not be able to do so to O even though the collecting bank has certain statutory obligations under the Cheques Act, because collecting bank not providing “banking service” to Drawer.
©MNoonan2011
Banking Ombudsman Policies
- Third Party Cheques
A third party cheque is a cheque deposited for payment into an account operated by someone other than the Payee.
In these circumstances, the collecting bank is providing a “banking service” to the person who presents the cheque for payment.
The O does not, however, have power to investigate a complaint by the Payee or a person otherwise claiming to be the true owner because the collecting bank did not provide a “banking service” them.
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- Late Dishonours
Sometimes, banks advise a customer that a cheque has been dishonoured outside 3 day clearing period but still within clearance rules within banks.
Customers may not have been provided with clear information about steps involved in cheque clearance.
May not be aware of notation on account permitting release of uncleared funds or a commercial decision has been made to permit them access to uncleared funds.
In these situations, O may consider whether bank actions are misleading, deceptive.
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Mistake and change of position in good faith
O takes the view that where uncleared funds have been released to customer because of human or system error, bank is entitled to recover the money paid under mistake except where customer, in reliance on the payment, changed their position in good faith.
Bank must establish it made a mistake of fact or law, it acted on the mistake in releasing the funds and the recipient has been unjustly enriched. Customer must establish they acted in good faith (actual belief in the security of the receipt), they relied on the mistake and they changed their position. A person can still be foolish, but honest.
Customer must act to their detriment on faith of receipt. Mere expenditure not sufficient-must appear they would have acted differently had they not mistakenly believed they were richer than they were.e.g. not enough to simply spend the money on ordinary living expenses. Must be a genuine change of condition. E.g. making a bad investment that would not otherwise have been made, lending money to a third party that is irrecoverable, taking overseas trip that would not otherwise have been taken.
©MNoonan2011
SAMPLE A BIO 2002 A Hasty Return
Mr and Mrs S went to Europe for their honeymoon. They intended to stay for 1 month, but after 2 days, their credit card stopped working. They cut short their holiday and returned to Australia.
They lodged a dispute with ABIO, claiming that the bank should compensate them for their loss of enjoyment of their holiday.
When ABIO referred the dispute to the bank for its consideration, it offered an ex-gratia payment of $3,000. Mr and Mrs S did not accept this offer, and it was subsequently withdrawn by the bank.
Investigation
The information provided by the bank did not establish why the credit card had stopped working. However, it was the case manager's view that as the bank represents to customers that the particular type of card can be used in most countries, the bank would be potentially liable for losses resulting from the failure of the card to work.
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The case manager then investigated whether, according to the Ombudsman's guidelines for assessing non-financial loss, Mr and Mrs S were entitled to any compensation from the bank.
The case manager noted that:
Mr and Mrs S did not contact the bank to try to rectify the problem with the credit card; and
Whilst the credit card did not work, they could still have accessed
alternative funds by using Mr S's Keycard. This would have allowed them to make EFTPOS purchases and ATM withdrawals of up to $A800 per day, which appeared to be more than adequate for their travelling needs.
Resolution
The case manager concluded that Mr and Mrs S acted with extreme haste. As they had not given the bank an opportunity to resolve the matter, and did not take any reasonable steps to minimise the inconvenience they were suffering, the case manager found that it was not reasonable for Mr and Mrs S to expect to be compensated by the bank.
A Hasty Return Cont.
SAMPLE A BIO 2002 Disputed ATM Withdrawals
Mr B and Ms C disputed a large number of ATM withdrawals, totalling $27,000, made from their line-of-credit account over a three-year period with their debit cards. They acknowledged receiving monthly statements, but said they were only concerned with the closing balance. They only made a detailed check when they noticed that the home loan was not reducing as quickly as expected. They provided a detailed list of disputed transactions, but conceded that some of the withdrawals would have been their own. They claimed that access to their account could have been gained internally by the bank, or via a hacker on the internet.
The bank declined to make any refund. It said it was not clear why some transactions were disputed and others were not. It also noted that Mr B and Ms C had not disputed any transactions on their credit card account, yet on some days, valid credit card purchases occurred in the same suburb as disputed debit card withdrawals.
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Facts that came up during the investigation included that: both debit cards were used, but most of the disputed withdrawals were made with Mr B's card; both cards had bank-generated PINs; on two occasions it seemed that disputed ATM withdrawals had been used to make payments to the credit card account; on one occasion a disputed withdrawal was followed by a valid withdrawal only one minute later; and on at least one occasion there was a disputed cash withdrawal using a debit card on the same day that one of the disputants used a credit card to purchase goods in the same shopping centre.
The case manager found nothing to support the contention that access was gained internally by the bank or via an internet hacker. There was also no information to support a possibility that an unauthorised third party had gained access to the cards and PINs. On the weight of information, the case manager concluded that the most probable explanation for the disputed transactions was that they had been made by the disputants themselves. The bank was not asked to compensate the disputants.
Disputed ATM Withdrawals cont.
Merchant EFTPOS Facility
Disputant partnership selling giftware. 1 partner in business since inception. 1 bought share from partner who retired. All documentation signed by retired partner.
A customer frequently telephoned over 5 weeks to order gift hampers. To process, disputants keyed customer card number into EFTPOS terminal. Did not swipe card or obtain signature, nor did customer ever come into shop. By keying “off Line”, disputants by-passed electronic system which prevented transactions over $100 limit if cardholder’s account did not have sufficient funds.
Bank attempted to levy chargebacks because transactions not authorised.
Case manager reviewed merchant agreement. Bank entitled to charge back transactions if not valid or not processed in accordance with relevant procedures.
Found that disputants had contravened procedures by processing “off line” at a time when electronic system functioning, failing to seek authorisation and failing to take reasonable care to detect unauthorised use of the card…given the size, frequency and nature of transactions.
Disputants argued they were not bound because neither had signed. However, after review of partnership agreements and partnership legislation, found original partner bound continuing partner and new partner had assumed equal liability.
Finding was that bank could rely on merchant agreement and charge back all of the transactions.
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Finding 6 on 2 August 2005
X had line of credit facility, with card access. Had never used the card in 10 years. Stored it with PIN in a drawer. Stolen 24 November, 2004. Unauthorised withdrawals on 24/11-$2,800 and 25/11-$3,000.
Bank debited him for the lot. Reasons: he failed to protect PIN, failed to notify immediately, daily limit correct. He complained to O.
Investigator found he failed to protect PIN with reasonable methods to prevent unauthorised access, AAPT records showed he rang bank 24/11 and spoke for 8 minutes-did notify bank, limit correct-See EFT Code 5. Liable for $2,800 (amount taken before notification) but not $3,000 (after notification).
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Limits where compensation sought
Ombudsman does not award punitive damages or compensation for time spent on the complaint
An illustration of this was where Y sold investment property with settlement planned for 22 Nov. On 11 Nov, his bank informed him that they had lost the deeds. There followed several anxious days of calls and complaints, an application for a new CT, before the old one was found and settlement effected on 22 Nov as planned. Y claimed his expenses and $15,000 punitive damages for all the stress. The bank offered $300 in compensation. The O policy was that a person must be moderately robust in the way they deal with unexpected problems. O does not award punitive damages and does not award compensation for time spent pursuing a complaint.
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March 2008 QB3
David is a postman who steals a few envelopes containing cheque books during the year. He signs and cashes one or two cheques, then discards the books. Who bears the loss of this fraud?
Summarise the requirements of clause 10 of the EFT Code of Conduct relating to internal complaint investigation and resolution procedures.
Describe 3 ways in which electronic commerce can create new legal dilemmas.
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Exam Questions-March 2007
Is it , or is it not, a reasonable attempt at “disguise” for the purposes of the EFT Code of Conduct to put your PIN giving access to your bank account in your electronic organiser protected by a code? Explain why or why not.
If a family member forges your signature on cheques drawn on your account to pay for a shopping spree, can you stop the bank from debiting your account? Explain why or why not.
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Exam Questions-indirect
As well as by direct questions, knowledge of this module can be examined indirectly.