Electronic contracts have become an integral element in fostering smooth transactions in the contemporary landscape of business transactions.The advancement of technology, coupled with the widespread accessibility of digital platforms, has led to a significant shift from traditional paper-based contracts to electronic formats. This shift has caused significant growth in the use of e-commerce platform and social media (social commerce) for business opportunities.

This article sets out the general legal considerations involving the different parties and stakeholders involved in an e-commerce transaction – from business owners to consumers and e-money issuers. Complying with the relevant legal requirements is not just a matter of regulatory compliance, but a pivotal factor in securing the prosperity of individual e-commerce businesses as well as propelling the growth of Malaysia’s e-commerce sector, which is clearly becoming a driving force behind Malaysia’s economic advancement.

A. What is e-commerce?

Electronic commerce (“E-Commerce”) is the buying and selling of tangible products or services via an electronic network, primarily via the internet. E-commerce can be categorized into 6 types of business models, namely:

    1. Business to Consumer (B2C): Where a business sells directly to the product/service end-user.
    2. Business to Business (B2B): Where a business sells to another business.
    3. Consumer to Consumer (C2C): Where a consumer resells to another consumer.
    4. Consumer to Business (C2B): Where a consumer sells to a business or organisation.
    5. Business to Government (B2G): Where a business sells to government agencies or administrations.
    6. Consumer to Government (C2G): Where a consumer sells to government agencies or administrations.

The Malaysian Investment Development Authority (MIDA) has described E-commerce as an essential aspect in the development of the digital economy and a crucial enabler in catalyzing the growth of businesses, especially for micro, small and medium enterprises (MSMEs), which are the backbone of the nation’s economy.1

B. Who can carry out online business?

Online businesses can be carried out by an individual or a legal entity, and the latter must be registered2 with the Companies Commission of Malaysia (“CCM”) in order to carry out business.

E-commerce transaction falls within the ambit of the definition of “business” under section 2 of the Registration of Business Act 1956 (“ROBA“), encompassing every form of trade, commerce, craftsmanship, calling, profession, or other activity carried on for the purposes of gain, but does not include any office, employment, charitable undertaking or any occupation specified under the Schedule contained in ROBA.

Pursuant to the Guidelines for Registration of New Business published by the CCM, types of such business include sole proprietorships and partnerships – with the owner or a partner of the business having to be a Malaysia citizen or a permanent resident in Malaysia, and 18 years old and above.

Online corporate vendors operating from another country and conducting cross-border business transactions via the internet are not required to establish a local entity in Malaysia.

 C. What is an e-contract?

Electronic contracts (“E-contracts”) encompass legally binding agreements that are formed, signed, and executed in a digital format, by way of electronic means such as emails, digital signatures, or online platforms. These contracts hold the same legal validity as their traditional paper-based counterparts under the Contract Act 1950, as long as they satisfy the necessary legal requirements and demonstrate the parties’ intent to be bound by the terms outlined within the digital document.

The two most common E-contracts include (i) clickwrap contracts and (ii) browsewrap contracts.

A clickwrap contract requires users to actively take an explicit action, such as clicking an “I Agree” button, before they can proceed with using a service or accessing content. This method ensures a clear manifestation of the user’s intent to be bound by the terms of the vendor, making it easier to establish the enforceability of the E-contract in the event of disputes.

On the other hand, a browsewrap contract does not necessitate a direct action from the user. Instead, the terms and conditions are usually accessible through a hyperlink placed on a website’s page, often in the footer or during the checkout process. Users are expected to be aware of and agree to these terms simply by using the website or its services. However, the enforceability of browsewrap contracts can be more challenging to establish in a legal context, as it is harder to prove that users were actually aware of the terms or had intended to agree to them. As such, clickwrap contracts offer a more robust and legally defensible way of obtaining user’s consent, while browse wrap contracts present greater uncertainty regarding their validity and enforceability.

In Malaysia, it is settled law that electronic contracts are enforceable. For E-contracts to be enforceable, the contractual terms must be properly incorporated. In this regard, the general principles of contract law on incorporation of terms will apply. For example:

    1. notice of the terms must be given either before or at the time when the contract was formed.
    2. the terms should be found in a document that one would expect to find terms to be printed thereon.
    3. reasonable steps must be taken by the party who inserted the terms to bring it to the attention of the other party.
    4. if a party signed a contractual document, then it is automatically considered to be binding, even if the party had not read the terms.

Business owners – be mindful

Ensuring the enforceability of E-contracts is paramount for online businesses to ensure validity of successful transactions and to mitigate legal risks. To achieve this, businesses should follow several practical tips such as the following:

    1. establish and present clear terms and conditions prominently during the checkout process, requiring users to actively acknowledge and agree to them before proceeding;
    2. if the terms are contained in hyperlink, make sure the hyperlink is noticeable and not broken;
    3. allow customers to read, download and/or print the terms;
    4. maintain a record of each user’s acceptance of the contract terms, including the date, time, and their specific actions. This documentation serves as crucial evidence in case disputes arise; and
    5. periodically review and update the terms to reflect changes in laws, regulations, or your business practices.

Consumers – be alert

Consumers are encouraged to be mindful when entering into E-contracts. While the process of clicking “I Agree” might seem routine, it constitutes a crucial moment where individuals formally consent to the terms that govern their interactions with a service or product. Below are two examples where the Court held that once a person clicks on a button agreeing to the terms, such terms are binding whether or not it has been read.

Case law 

  1. In the case of Vijay Kumar Natarajan & Anor v Malaysia Airlines Berhad [2021] 1 LNS 881, the plaintiffs wanted a refund of their flight tickets purchased from the airline because their flight from KL to Manila was rescheduled due to the Movement Control Order and the 1st Plaintiff’s meeting in Manila was cancelled. Malaysia Airlines refused to refund as the flight tickets were non-refundable. Instead, they offered a change of travel date/travel voucher but was rejected by the plaintiffs.  The High Court struck out the case as the Court was of the view that the plaintiffs were bound by the terms and conditions of the airlines presented online via the airlines’ website. One of the terms and conditions states that the flight tickets are non-refundable tickets. The plaintiffs had agreed to the terms and conditions when they clicked the button ‘I understand and accept the Terms and Conditions of Carriage and Fare Conditions’ at the time of purchase of the air ticket.
  2. In Open Country Dairy Ltd v Able Food Sdn Bhd [2021] 7 CLJ 716, the respondent (Able Food Sdn Bhd), a Malaysian company had purchased instant whole milk powder from the appellant (Open Country Dairy Ltd), a company incorporated in New Zealand. In the sales contract, it was clearly stated that terms of trade formed part of the contract and that parties agreed to comply with the terms of trade in performing their obligations under the contracts. The endorsement in each of the sales contract referred to a weblink. The respondent sued the appellant for defective milk powder. The claim was brought in the Malaysian High Court. The appellant argued that the parties agreed that the forum for any dispute was in New Zealand. The dispute was whether the terms of trade were incorporated by reference into the sales contract. The Court of Appeal held that the terms of trade were applicable regardless of whether the respondent had accessed them via the weblink provided. If parties had agreed to be bound by a contract, which also included a reference to another document, regardless of whether parties took the trouble to read them or not, then these documents and their terms would be binding upon the parties. The burden was on the person served with the contract to look up the terms of trade via the hyperlink. The failure on their part to do so is akin to a contracting party not bothering to avail themselves of the terms, and to understand the same, whether or not with the benefit of legal advice. Leave to appeal to the Federal Court was later refused.

D. What are the statutory provisions governing online businesses and consumers?

In Malaysia, there is no single legislation that governs E-commerce transactions. Instead, the relevant legislations that would be applicable in an E-commerce transaction:

    1. Registration of Business Act 1956;
    2. Electronic Commerce Act 2006;
    3. Digital Signature Act 1997;
    4. Consumer Protection Act 1999;
    5. Consumer Protection (Electronic Trade Transactions) Regulations 2012;
    6. Sale of Goods Act 1957;
    7. Communications and Multimedia Act 1998;
    8. Guidelines on Taxation of Ecommerce;
    9. Personal Data Protection Act 2010;
    10. Trade Descriptions Act 2011. 

Consumer protection

Consumers shopping on E-commerce platforms are more vulnerable to unfair business practices compared to traditional consumer transactions.  This is attributable to features of E-commerce in the use of complex terms and conditions, reliance on description of the nature of products without the opportunity to verify against the actual products before purchasing, the use of drip pricing and the collection of personal data to form algorithm in enhancing consumers’ experience.

In Malaysia, the Consumer Protection Act 1999 applies to all goods and services offered to consumers in trade including via electronic transactions. The Consumer Protection (Electronic Trade Transactions) Regulations 2012 regulates the operators that supply goods or services through a website or online marketplace and provides for the requirement to disclose to the consumers certain information. Apart from the national regulatory framework, businesses looking to use e-commerce to enter into global markets should be aware of the consumer protection regulation in the countries where they are conducting business in.

Aggrieved consumers may seek redress under Part XII of the Consumer Protection Act 1999, where consumers may file claims via the e-Tribunal system online. Upon deliberation, the Tribunal would grant an award and such award is final, binding and enforceable.

Personal data protection

Another prevalent aspect of E-commerce is the use of personal data by businesses. Consumers are often asked to provide personal details such as name, addresses, contact numbers and credit card details. The collection and processing of personal data for commercial purposes are regulated under the Personal Data Protection Act 2010. Briefly, businesses should employ the following principles in the use of personal data – Notice and Choice, Disclosure, Security, Retention and Data Integrity.

E. Payment via electronic money

One of the most important elements in E-commerce transactions is the payment platform, often taking the form of electronic money (e-money) stored in electronic wallets (e-wallet). E-money is governed under the Financial Services Act 2013 (“FSA”). Under section 2 of the FSA, e-money is defined as any payment instrument, whether tangible or intangible, that (a) stores funds electronically in exchange of funds paid to the issuer; and (b) is able to be used as a means of making payment to any person other than the issuer. Examples of e-wallet used in Malaysia are Grabpay, Touch N Go, ShopeePay and BigPay.

F. Conclusion

It is therefore crucial that E-commerce business owners are aware of the regulatory framework and practical tips highlighted above to assist their business ventures; whereas consumers ought to have knowledge and be aware of their rights. The dual perspectives would be key to fostering confidence in online transactions.

Author: Choo Yi Xi and Christine Lay Kei Een and and Yong Huey Leng

Footnotes

  1. https://www.mida.gov.my/mida-news/e-commerce-the-digital-heart-of-malaysias-economy/
  2. Section 5 Registration of Business Act 1956
  3. See also Payment Systems (Designated Payment Instruments) Order 2003

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