International Journal of e-Education, e-Business, e-Management and e-Learning, Vol. 3, No.

2, April 2013

Legal Issues in e-Commerce and e-Contracting – An

Overview of Initiatives in Malaysia
Ayyappan Palanissamy

recent global trends in electronic contracting and e-


Abstract—Contracts have become so common in daily life commerce developments.
that most of the time we do not even realize that we have
entered into one. In the electronic age, the whole transaction
can be completed in seconds, with both parties simply affixing
II. LEGAL ISSUES IN E-COMMERCE AND E-CONTRACTING
their digital signatures to an electronic copy of the contract.
There was initially an apprehension amongst the legislatures to Electronic commerce (“e-commerce”) involves the
recognize this modern technology, but now many countries buying, selling or exchanging of goods, services, and
have enacted laws to recognize electronic contracts. Malaysia information through electronic networks. E-commerce has
has enacted legislations on e-commerce in compliance with
three basic forms: business-to-business transactions (B2B),
international organisations. This paper seeks to identify the
recent trends and developments on electronic contracting business-to-consumer transactions (B2C), and consumer-to-
globally and in Malaysia and an overview of e-commerce consumer transactions (C2C). There are several different
developments in the neighbouring land, Singapore, which was forms of electronic contracts, most commonly, “Click-
the first country to adopt the UNCITRAL model law on e- Wrap” or “Web-Wrap” contacts are electronic contacts that
commerce. The paper also examines relevant Malaysian require the user to scroll through terms and conditions (or
legislations on e-commerce and the adequacy of the existing
multiple web pages on a web site) and to expressly confirm
law in protecting e-consumers.
the user‟s agreement to the terms and conditions by taking
Index Terms—E-commerce, e-contracting, e-transactions. some action, such as clicking on a button that states “I
Accept” or “I Agree” or some similar statement prior to
being able to complete the transaction. Click-Wrap contracts
I. INTRODUCTION are often found in software products or on Web sites.
“Browse-Wrap” contracts are terms and conditions of use
The Internet has provided consumers with a powerful tool
that to do not require the express agreement of a user. They
for searching for and buying goods and services. Benefits
are often located in software or are posted on a Web site and
have included increased competition and lower prices, more
may make some statement that indicates use of the software
choice in products and services, and the convenience of
or Web site constitutes the user‟s agreement to the terms.
shopping for goods and services from vendors located
Often such terms may not have been brought to the attention
around the world, from anywhere and at any time. It is the
of the user [3], [4]. As most researches were carried out
world‟s fastest growing commercial market place. Estimates
with regard to formation of an e-contract and numerous
of its growth show unprecedented development. E-
studies have tried to clarify the issues of offer and
commerce is an important empowerment tools for the
acceptance and the essential elements of an enforceable e-
economies of the developing countries [1]. The introduction
contact [5]-[7], but still there are other issues like choice of
of information technology in the contracting process is seen
law and jurisdiction for dispute resolution not well
as a means to deal with the indicated problems in traditional
addressed. In this paper, my primary attention will be
paper contracting. E-contracting (electronic contracting)
devoted to procedural or jurisdictional issues rather than
aims at the automation of contract establishment and
substantive ones, that is, how should contracts be regulated,
enactment. E-contracting can be applied to solve cost, time,
and which public legal institutions should be responsible for
and complexity problems that occur in paper contracting.
regulating them. I intend to discuss issues of choice of law,
Furthermore, e-contracting provides new opportunities to
jurisdiction, etc., except in so far as these issues pose risks
the contracting parties, which can be used for the support of
that can be allocated by the parties' contract. As electronic
the emerging new business paradigms [2]. Many of the
commerce becomes International commerce, the reality is
important legal issues raised by cross-border electronic
that commercial disputes will occur creating such questions
commerce in the 1970s and 1980s have already been
as: "Which country‟s court has the jurisdiction to hear the
successfully addressed by law reform at the national level
dispute?" and "Which country‟s law is to be applied to
and by the work of international organizations undertaken in
resolve disputes?" The response to these problems has a mix
the 1990s. The focus of this paper is to provide the reader
of legislation, self-regulation and international cooperation.
with an overview of the law relating to the development of
Although e-contracts do suffer some problems not usually
E-commerce in Malaysia and Singapore and an overview of
associated with oral or written contracts, these problems are
easily surmountable, in most cases by the simple application
Manuscript received March 15, 2013; revised April 30, 2013. of current rules. By asking three basic questions, when was
Ayyappan Palanissamy is with FBD, Swinburne University, Malaysia the contract concluded? What are the terms of the contract?
(e-mail: [email protected]).

DOI: 10.7763/IJEEEE.2013.V3.217 173

 International Journal of e-Education, e-Business, e-Management and e-Learning, Vol. 3, No. 2, April 2013

And where is the contract governed? There is nothing via the internet, together referred to as online technology
different in the eyes of the law about a contract formed in applied to alternative dispute resolution (Hornle, 2003).
Cyberspace. These questions are equally valid when ODR for small and medium sized disputes, such as those
analyzing traditional or electronic contracts. Transactions involving B2C is seen to be more effective than courts.
which may be legal within the sovereign territory of one
party may be quite illegal in the other. Let us assume that a
website operator is based in Australia, which legal system III. RECENT GLOBAL TRENDS: ROLE OF INTERNATIONAL
will regulate his contracts with overseas customer residing ORGANIZATIONS IN E-CONTRACTING
in Hong Kong? At common law, the proper law of the UNCITRAL: The United Nations Commission on
contract, usually the lex loci contractus (law of the place International Trade Law (UNCITRAL) is the core legal
where the contract is made), governed the contract. In body of the United Nations system in the field of
reality the proper law of the contract will be interpreted in international trade law. Its general mandate is to progress
the light of the Vienna Convention on International sale of the unification and harmonisation of the laws that govern
Goods (CISG) [8], as both the countries are the signatories international trade. It began to work on its Model law on
to this convention. The convention provides rules to assist electronic commerce in 1992 with the express intention of
in the identification of the proper law of the contract, in producing a legal text that can be adopted by the states so as
effect replacing the common law in most areas. The to harmonise the legal rules applicable to e-commerce. It has
Convention applies to choice of law issues in contract, and a number of working groups, including Working Group IV
begins by identifying the law applicable to the contract [9]. on electronic commerce. UNCITRAL has been responsible
The general principle is that the parties are free to choose for a number of developments in the area of electronic
the law applicable to the contract. This choice can be made transactions, including the preparation of the following
expressly or can be implied from the circumstances [10]. Model Laws and recommendations: 2009 - Promoting
This means that, generally, a Web site operator may include confidence in electronic commerce: legal issues on
a choice of law clause in the terms and conditions of the international use of electronic authentication and signature
Convention, the law of the place identified will govern the methods; 2005 - United Nations Convention on the Use of
contract. If the parties to the contract choose no applicable Electronic Communications in International Contracts; 2001
law, the issue becomes more complicated. This means that, - UNCITRAL Model Law on Electronic Signatures with
generally, a Web site operator may include a choice of law Guide to Enactment; 1996 - UNCITRAL Model Law on
clause in the terms and conditions of the Convention, the Electronic Commerce - This Model Law was designed to
law of the place identified will govern the contract. If the give national legislators a set of internationally acceptable
parties to the contract choose no applicable law, the issue rules to promote the use of electronic communications.
becomes more complicated. Malaysia has enacted a domestic legislation in the form of
It is well evident that from the above discussions, the e- Electronic Commerce Act 2006 (Act 658). The United
commerce and cross-border transactions rapidly increased, Nations Convention on the Use of Electronic
besides norms, rules and customs in the real world are Communications in International Contracts entered into
different from virtual communities, which must be force on 1 March 2013. The Convention aims at enhancing
considered in order to create an effective model of dispute legal certainty and commercial predictability where
resolution and rule enforcement in cyberspace. Alternative electronic communications are used in relation to
Dispute Resolution (ADR) in dispute resolution, having international contracts.
observed its impact on international commerce, across the International Chamber of Commerce (ICC): The
world was well appreciated as an effective commercial Commission on Commercial Law and Practice (CLP)
dispute resolution tool (Rao, 1996). Beside the growth of facilitates international trade and promotes a fair and
alternative dispute resolution, the business world is speedily balanced self-regulatory and regulatory legal framework for
integrating information technology into its ways. The two international business-to-business (B2B) transactions. The
factors, dispute resolution and information technology have ICC has a number of different task forces, including task
coalesced into a more effective, more flexible and less forces on jurisdiction and applicable law in electronic
costly way for solving disputes, compared to traditional commerce, and electronic contracting.
approaches. Online Dispute Resolution (ODR) combines the European Commission (EC): The European Parliament
efficiencies of Alternative Dispute Resolution with and the Council of the European Union have passed several
existence of the internet to save time and reduce costs (Rule, directives that impact upon the process of e-contracting in
2002). According to the American Bar Association Task the European Union. The Electronic Commerce Directive,
Force on E-commerce and ADR (the ABA Task Force) adopted in 2000, sets up an Internal Market framework for
ODR has been defined as:„ODR is a broad term that electronic commerce, which provides legal certainty for
encompasses many forms of alternative dispute resolution business and consumers alike. It establishes harmonised
(ADR) that incorporate that use of the Internet, websites, rules on issues such as the transparency and information
email communications, streaming media and other requirements for online service providers, commercial
information technology as part of the dispute resolution communications, electronic contracts and limitations of
process. Parties may never meet face to face when liability of intermediary service providers. The proper
practicing in ODR. Rather, they might communicate solely functioning of the Internal Market in electronic commerce is
online (ABA Task, 2010). ODR is information technology ensured by the Internal Market clause, which means that

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 International Journal of e-Education, e-Business, e-Management and e-Learning, Vol. 3, No. 2, April 2013

information society services are, in principle, subject to the mandatory for commercial transactions to be conducted
law of the Member State in which the service provider is electronically. It applies to situations whereby a person
established. In turn, the Member State in which the consents to using, providing or accepting an electronic
information society service is received cannot restrict message in a commercial transaction. Such consent may be
incoming services. In addition, the Directive enhances inferred from the person‟s conduct. It also covers electronic
administrative cooperation between the Member States and commercial transactions carried out by the Federal and State
the role of self-regulation. In essence, EU Member States Governments. „Electronic‟ and „electronic messages‟ are
are bound to follow the objectives of the Directive on respectively defined under the Act as:-“the technology of
Electronic Signatures and the Directive on Electronic utilizing electrical, optical, magnetic, electromagnetic,
Commerce, but have the discretion to decide how and in biometric, photonic or other similar technology”.
what form the objectives are achieved when passing “Commercial transactions” mean “a single
national legislation to give effect to them. The Electronic communication or multiple communications of a
Commerce Directive (2000/31/EC) sets out rules which commercial nature, whether contractual or not, which
facilitate the provision of online services in the European includes any matters relating to the supply or exchange of
Union and ensure that these services meet certain criteria. goods or services, agency, investments, financing, banking
This text laid the foundations for cross-border online and insurance”. By virtue of the Act, information that is
services. Because it is technologically neutral, it was wholly and/or partly in electronic form is now legally
recognised by the stakeholders at the public consultation recognised. Furthermore, information that is merely referred
held in 2010 as the cornerstone of the Digital Single Market. to in an electronic message has also been granted legal
The aim is therefore to add to it, but not to amend it by way effect. Part II of ECA, 2006 sets out the provisions of legal
of an action plan for doubling the volume of e-commerce in recognition of electronic messages which includes
Europe by 2015. formation and validity of e-contracts, while Part III sets out
Organisation for Economic Co-operation and the legal requirements to be fulfilled by electronic means
Development (OECD): The OECD has a Working Party on and Part IV deals with communication of electronic
Information Security and Privacy that has investigated a message. The Act is a step forward in the regulation of
range of issues relating to authentication and electronic contracts effected by electronic means. It lays down the
signatures. Among other things, in 2005 the OECD legal principles that apply to the formation of such contracts.
published a report on the use of authentication across The Act also lays down the requirements that have to be
borders in OECD countries, examining the actual or satisfied to establish the terms of these contracts, thereby
potential barriers to the cross-border use of digital enabling parties to put in place infrastructure that is capable
signatures as identified from survey responses provided by of fulfilling these requirements. In addition, there are
both government and the private sector in a number of various other legislations which govern e-contracting. The
OECD countries (OECD 2005). enforcement of the Consumer Protection (Amendment) Act
2007 enables consumers who acquire goods or services
through electronic means to file claims in the Tribunal for
IV. DEVELOPMENT OF E-COMMERCE AND E-CONTRACTING Consumer Claims under the Consumer Protection Act 1999.
IN MALAYSIA Section 2 of the Act “Subject to subsection (2), this Act
The e-commerce legal framework of a nation can play an shall apply in respect of all goods and services that are
important role in enabling and facilitating e-commerce offered or supplied to one or more consumers in trade
transactions within the country and across its borders. In including any trade transaction conducted through electronic
2006, the Malaysian Government enacted the Electronic means”. Hence, it can be concluded here consumers who
Commerce Act 2006 which provides legal recognition of conduct online transactions or e-commerce are now
electronic messages in commercial transactions, the use of protected under this Act. Other statutory enactments include
the electronic messages to fulfill legal requirements and to Digital Signature Act 1997; Direct Sales Act 1993; Sale of
enable and facilitate commercial transactions through the goods Act 1957 and Contracts Act 1950. Under the Digital
use of electronic means. This Act is modelled to a great Signature Act 1997, digital signatures are to be the
extent on the United Nations Commission on International equivalent of signatures in the traditional sense. The legal
Trade Law (UNCITRAL) Model Law on Electronic framework of the Act was strengthened to encourage future
Commerce 1996. Certain legal principles adopted including use, by way of the Digital Signature (Amendment) Act 2001.
the principles of functional equivalence and technology In addition, the Electronic Commerce Act 2006 contains
neutrality. As a member state the country has fulfilled the broad (technology neutral) provisions on electronic
base requirement by enacting this law providing legal signatures. Malaysia upgraded its electronic signature laws
certainty as to the validity and legality of electronic and electronic commerce laws by introducing new privacy
transactions. Internet users and the owners of information law, Personal Data Protection Act, 2010 [12]. These
assets ought to get some assurance that their activities are measures provide a strong level of protection for the digital
lawful, their communications and transactions valid and economy. The country is in the process of developing a
their transactions are protected. Commercial transactions website for ASEAN Cross-Border Consumer Redress
such as banking transactions and the purchase of goods and Mechanism and the objectives of this includes, protecting
services are now frequently performed over the internet and ASEAN consumers with regard to: a) ensure Quality of
other computer networks [11]. The Act does not make it Goods and Services; b) secure Retail Transactions; c)cross

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Border Response to Consumer Complaints; d)redress electronic applications for public sector; c) Liability of
Mechanism Network; e)facilitate greater trade. The network service providers; d) Provision for the development
Malaysian government is always been a big supporter of of security procedures such as Public Key Infrastructure
internet technology. There are a number of policies that (PKI) and biometrics. The Singapore ETA follows closely
intend to promote investment in online ventures. One of the the UN Convention, which is an update to the UNCITRAL
major supporting initiatives by Malaysian government is 8th Model Law on Electronic Commerce, to better fit the
Malaysian plan that aims to increase the usage of current Internet environment. It seeks to promote the wider
technology and build a strong infrastructure ICT both for adoption of electronic transactions in the marketplace. The
private and public sector. Some of the main goals of UN Convention sets a new global standard for national
Malaysia 8th plan are: a) to ensure national information electronic commerce legislation.
security; b)to create Emergency Response center to address
regulatory and technical issues; c)to ensure high level of
internet security. Apart from Malaysian 8th plan, there is a VI. CONCLUSIONS AND IMPLICATIONS
specified ministry which is working for the growth of Electronic commerce is gaining acceptability throughout
information and communication technology in collaboration the globe because of its ease, flexibility and speed. E-
with other organizations such as Malaysian Institute of commercial transactions cannot be addressed simply in
Microelectronic Systems, Multimedia Development terms of mechanical changes. Rather, they have engaged a
Corporation and Malaysian Communications & Multimedia fundamental change in relationships, expectations and
Commission. Moreover, Malaysia is also participating in subject matter, which challenge contract law and contract
Asia Pacific Economic Cooperation‟s (APEC) to collaborate scholars to come to grips with the nature of their doctrines,
in devising E-commerce laws, regulations and policies. practices, and presumptions as they are applied to
With all these policies and initiatives, e-commerce in fundamentally new and different relationships. Malaysia has
Malaysia will soon be one of the most growing industries responded to technological changes by way of enacting of
[13]. Recently, a news agency [14] reported that effective 1 the Electronic Commerce Act 2006 in Malaysia modelled on
July 2013, all businesses and services conducted online will UNCITRAL's Model Law, though it departs in many
have to abide by the Consumer Protection (Electronic Trade respects from the spirit of the Model Law. It was found that
Transactions) Regulations 2012 to protect the interest of certain significant provisions are missing in this enactment;
consumers. The size of Malaysian e-commerce market is its provisions lack harmony and above all many legal issues
anticipated to be increased to RM 5 billion by 2014 [15]. have not been properly spelt out. There is no doubt that
Malaysian government is stepping forward to enact new
laws and regulations which supports the information &
V. RECENT DEVELOPMENTS IN SINGAPORE communication technologies and e-commerce industries in
The main legislation in Singapore governing electronic Malaysia which is growing tremendously. Even though
contracts is the Electronic Transactions Act (ETA) [16] the protection is afforded to online consumers under various
ETA fills the gaps where rules governing contracts in the pieces of legislations which governs e-contracting, it does
physical world need to be supplemented to deal with the not comprehensively deal with adequate and sufficient
environment enabled by new technologies. In July 1998, the protection. Malaysia needs to relook into its provisions
Electronic Transactions Act (the “ETA”) was enacted to regarding digital signature. It must be noted that there are
provide a legal foundation for the rights and obligations of two approaches which can be used to give absolute
parties transacting electronically and to address issues protection to online consumers‟ i.e. legislative and self-
arising in the context of e-commerce. At that time, regulatory approach. There is a need to draft and enact a
Singapore was the first country in the world to implement comprehensive legislation on consumer protection in e-
the UNCITRAL Model Law on E-Commerce (the commerce, as in Singapore, in compliance with the
“UNCITRAL Model Law”). In the ensuing decade, the guidelines of various international organisations addressing
country experienced an unprecedented proliferation of all the legal issues covering e-commerce. This initial study
goods and services provided online by both private and will be further continued so as to provide a comprehensive
public bodies. The legislative framework of the ETA needed e-commerce framework which will include provisions
to be updated in order to remain robust in an evolving covering various e-commerce issues.
marketplace. In 2010, the Electronic Transactions Bill was
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[9] Art.9 of Vienna Convention. Ayyappan Palanissamy has obtained two post -graduate
[10] Art.4 (a) of Vienna Convention. An example of circumstances which degrees (LL.M & MHRM), two under-graduate degrees
would allow choice of law to be implied would be where the contract (LL.B & Psychology) from Pondicherry University,
fails to comply with the formalities of one of the possible jurisdictions India. Currently, he is a lecturer at Faculty of Business &
interpreting the contract. Design at Swinburne University, Sarawak, Malaysia. His
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[12] Malaysia's Personal Data Protection Act, 2010, was due to take effect professional member of Bar Council of Tamilnadu, India;
on January 1, 2013, but the law is still not in force due to legal member of International Association of Computer Science and Information
formalities. Technology (IACSIT); member of International Economics Development
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