EVALUATING SELLER LIABILITY AND BUYER SAFEGUARDS IN AI-ASSISTED E-COMMERCE TRANSACTIONS

Shivansh Singh, Student, Integrated Law Course (ILC), Faculty of Law, University of Delhi

Introduction

Chatbots are often used to guide consumers in selecting a product by providing them with requisite information about the products or services they are interested in purchasing. However, this mode of sale of goods poses a threat to compromise the rights of a buyer, which arises from the likelihood of such chatbots furnishing incorrect or fallacious information that misguides the consumers into purchasing a faulty or defective product or a product bought in a condition not agreed upon or desired by the consumer. Therefore, this article addresses the perpetual lacunae around the question of including chatbots in the overall liability in the sale of goods if they play a key role in the conduction of that sale transaction while exploring the contours of the doctrine of caveat emptor.

The Doctrine of Caveat Emptor in E-commerce

The doctrine of Caveat Emptor, translating to let the buyer beware, pronounces the responsibility of the buyer to see to the quality and the merchantability of the goods they purchase by exercising due diligence, which is the innate nature of a contract of sale. This means that under ordinary circumstances, during a contract for the sale of goods, a seller is usually exempted from the responsibility as to the fitness of goods, and any defect thereof cannot be brought under the seller’s ambit provided, no prior provision exists in the contract for the same, stating otherwise.

However, s 15 of the SoGA provides for an implied condition for the correspondence of the goods to their description if their description is selling them.

In all the prominent e-commerce platforms, the sellers usually provide a perfunctory description of the goods they sell, which is more than often in accordance with the options provided by the e-commerce platforms hosting the seller. The AI-based chatbots, in continuation, use the already available information furnished by the sellers on the platform’s databases to engage with customers, guiding and helping them purchase a good. Therefore, due to the limited scope of the submission and verification of the information submitted by the seller on such platforms, the probability of buyers making a wrong purchase because of being misled by chatbots increases, increasing the need to look for appropriate statutory protection for the same.

AI Chatbots and the Seller’s Liability

Therefore, the most pertinent question that emerges is whether AI chatbots qualify as entities legally to be brought under the scrutiny of the law.

The literal, precise and distinct contours for the same are laid in an action brought to the Civil Resolution Tribunal in Canada in the case of Moffatt v. Air Canada, where it was held that chatbots are to be considered as a part of the companies using it and cannot be treated as an independent and separate legal entity. Chatbots run parallel to machines and, therefore, incur liability for any damages like a machine owned and operated by a company would. Deriving off the principle from this case and applying it to the Indian jurisdiction, we can establish a connecting link between the businesses and the chatbots-like AI technology being deployed by them where the chatbots and similar technologies are used to directly engage with the buyers henceforth, providing for them to be considered as an extension or an agent of the businesses that deploy them.

Moreover, s 16 (1) of the SoGA provides a cushion to the buyers while dealing with chatbots when purchasing a good on an e-commerce platform. The usual purchase course on such platforms starts with the consumers communicating their requirements to the chatbots, which guides them to the appropriate services and products based on their needs and requirements. Therefore, relying on the seller’s skill and judgement through the suggestions made by the chatbots, the seller being the e-commerce platform in such cases, an implied condition exists as to the fitness of the goods purchased by the buyers for their required purposes.

Furthermore, s 16 (2) of the SoGA adds to this by establishing the seller’s description of the goods they deal in as a parameter to enforce an implied condition as to the fitness of the product purchased, further extending this safeguard to the buyers since the chatbots guide buyers to purchase a good based on the descriptions and suggestions provided by them. It is important to highlight that consumers can’t assess the quality of the product when purchasing a product digitally or online. Therefore, the exception of s 16 (2), which is based on the doctrine of caveat emptor, which renders an implied condition redundant when the buyer has inspected the good in the sale, does not apply to e-commerce-based transactions since the doctrine doesn’t apply to such cases where the buyers don’t have a real opportunity to inspect goods, thereby exempting buyers from this doctrine.

Therefore, the general language of s 16 of SoGA seeks to safeguard the buyers from a faulty or defective purchase where they do not have a fair opportunity to inspect and evaluate the quality of the goods they buy, and this can, therefore, very well be extended to transactions which are based on the prompts by AI-based technologies like chatbots.

Consumer Protection in E-commerce under Different Jurisdictions

The legal position around the question as to the liability of such nascent technologies in a faulty sale of goods transaction in foreign jurisdictions is, much like in India, not cut out distinctively and, therefore, is not well pronounced by law. In the United Kingdom, consumers are protected against fallacious sales of goods by the Consumer Rights Act 2015 (CRA 2015) and the Sale of Goods Act 1979 (SoGA 1979). The s 14 of SoGA 1979 of the UK, mirroring s 16 of the Indian Sale of Goods Act, provides an implied condition as to the quality and fitness of the goods purchased by the buyers. Similarly, the CRA 2015 provides protection to the consumers by ensuring the satisfactory quality of the delivered goods (s 9), that goods are fit for a particular purpose (s 10), and that the goods are as per the description provided to the consumers (s 11).

Similarly, in the United States of America, the Uniform Commercial Code (s 2314) dictates an implied warranty for the goods to be delivered in merchantable quantity. Likewise, in Australia, s 14 of the Sale of Goods Act 1895, which is also pari materia with s 16 of SoGA, provides a similar warranty.

Therefore, buyer protection in the other common law jurisdiction in such cases is meted out by subsequent interpretation of a conjunction of consumer protection laws and contract laws revolving around the sale of goods, providing us with a viable imprint to adopt in India.

Legal Remedies for Breach of Merchantability in AI-Assisted Sales

There are several provisions with Indian laws that can provide the buyers a safeguard in the cases of a compromise in the merchantability of the goods that they purchase through such chatbots.

s 12(2) of the SoGA dictates that the breach of a condition gives the right to repudiate the contract of the sale of the goods. Furthermore, if the condition of merchantability of the good being sold is treated as a warranty as per s 13 of the SoGA, then in case of any defect in the good, the buyers can bring an action for damages as per s 12(3) of the SoGA. Thus, if, based on the suggestions made by AI-based chatbots, a buyer makes a purchase that turns out to compromise the merchantability of the goods purchased, it would amount to a breach of the implied condition as to the fitness of the goods in the transaction according to s 16 of SoGA, therefore, giving the buyer right to repudiate the contract or seek damages for the breach.

In addition to the provisions of SoGA, the incorrect details furnished by the AI-based Chatbots can be accounted for as misrepresentation under s 18 of the Indian Contracts Act 1872, providing relief to the buyer by rendering the contract voidable at the buyer’s option. Moreover, s 86 of the Consumer Protection Act 2019, which puts the liability on the sellers for any damage caused to the consumers, can be extended to e-commerce platforms in addition to s 94 (Measures to Prevent Unfair Trade Practices in E-commerce, Direct selling, etc.) of the same act that deals with e-commerce platforms specifically.

Additionally, in cases wherein the goods do not match the buyer’s intention exhibited by the sale’s contract, the buyer can reject the good, cancel their title to them, and demand that the seller deliver the correct goods as per the contract if appropriate time is left, while if the judicial time has elapsed, then the buyer can sue the seller for damages for failing to deliver the correct goods.

Question of Merchantability of Goods on E-Commerce Platforms 

Merchantability refers to the genuineness of a good according to its name, kind and description; its saleability in the market according to its description; its fitness for ordinary uses and purposes; the good should be free from defects interfering with its sale or ordinary use, and it should have some minimum standard of quality and price. The implied condition and warranty as to the merchantability of a good, therefore, arises from its sale by its description in cases where identifying the goods depends on the description since, without a clear description, it’s impossible to know exactly what the buyer is purchasing and the description is crucial since there’s no pre-delivery inspection. It is based on the rationale that in cases where the buyer can’t examine the goods before buying, the description becomes the main source of information to determine what they’re getting.

Since sales on e-commerce platforms are made similarly where the buyers do not possess a real opportunity to inspect the goods they are purchasing, such transactions invite an implied condition as to the merchantability of the goods ipso facto. The definitions provided in s 15 and s 16 of SoGA allow the buyer to reject goods that don’t match the description or aren’t of merchantable quality.

Additionally, even when the e-commerce platforms act out as sellers are not the manufacturer, they are still liable for the losses incurred by the buyer due to the sale of a defective good based on the principle that the buyer trusts the retailer to retail good quality goods. Since the buyer’s reliance on the seller is implied from their trust in the retailer’s skill and judgment in selecting the stock they sell, the retailer’s manufacturing knowledge is irrelevant.

Moreover, these implied conditions of merchantable quality and fitness for purpose also apply when goods are sold through an agent. This means that if a party generally sells goods, they undertake the fitness of the good for some purpose, and if they sell for a particular purpose, they undertake its fitness for that particular purpose. Hence, the e-commerce platforms, though they sell a wide array of goods, do so with an implied condition of their fitness for whatever purpose the buyers might purchase them for, thereby getting included in the liability if they contravene the condition.

Practical Implications

The legislature and the policymakers need to acknowledge the evolution of the fundamentals of traditional principles like caveat emptor and adopt them accordingly for digital transactions.  Therefore, policymakers need to address gaps in existing laws, create AI accountability frameworks, and harmonise domestic regulations with global standards to safeguard consumers in the evolving marketplace.

Conclusion

The rise of AI-based chatbots in e-commerce has introduced new complexities in the sale of goods. Due to the increasing reliance of e-commerce platforms on chatbots to guide consumers, the potential for miscommunication or misleading information becomes a crucial issue that alters the applicability of the doctrine of caveat emptor as it becomes challenging in digital transactions to inspect goods directly. Therefore, the importance of a strict legal framework to ensure the role of AI technologies in consumer transactions adequately to maintain fair trade practices and consumer trust as the digital marketplace evolves also increases.

References

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