Secret commissions on the Internet

A hypothetical linking scenario which may be useful in understanding the linking concept is if www.phillipsfox.com was linked to the XYZ Web site. As a result of the link, XYZ would inevitably profit from a greater number of visitors to its site and also reap advertising revenue. To reward Phillips Fox, XYZ should be required to pay a linking fee.

The secret commission laws, relevant for Web site owners involved in linking arrangements, can be described as follows:

The Secret Commissions Act 1905 (Cth) provides that a person acting as an agent should not accept money "without the full knowledge and consent of the principal". It is an offence for the agent to accept money for facilitating a contract between the principal and a third party.

In our example, if XYZ charged a linking fee and Phillips Fox acted as an agent of its Web site users, then Phillips Fox must disclose receipt of the linking fee to the users and obtain their consent to such receipt. This would only be necessary if the relationship between Phillips Fox and the Web site user is classified as one of "agent" and "principal".

If Phillips Fox's role was no more than an advisor, suggesting (via a link) that its users use XYZ's services, then this would not constitute an agency relationship and Phillips Fox would not breach the secret commission provisions. Alternatively, if next to the link, Phillips Fox nominated XYZ as its preferred online newspaper service provider, it should disclose the receipt of linking fees and seek consent of its users for such receipt.

Secret commission provisions in the Crimes Act are broadly similar.

However, they contain a further offence of receiving a secret commission in return for "advice".

The Crimes Act refers to the situation where a first person (A) gives advice to another person (X) and such advice is intended to induce or influence X to enter into a contract with a third person (B). Where B rewards A with valuable consideration, A will commit an offence if it fails to obtain X's consent to the receipt of the commission.

It is my view that linking would fall within the broad act of giving "advice".

Accordingly, XYZ's payment of linking fees would compel Phillips Fox to disclose receipt of the fees to its Web site users and obtain their consent to such receipt.

There is a technical argument that payment is not made for the advice per se. Rather, the payment is made upon the successful subscription of the user to XYZ's services (albeit as a consequence of that advice). In my view, a court is more likely to accept the broader view that the Phillips Fox link was so integral to the XYZ subscription that it cannot be artificially separated from the event leading to payment of the linking fee.

Under these hypothetical scenarios, Web site owners may avoid liability where the user has full knowledge of all material facts. This imposes an obligation to provide full and frank disclosure of linking fees and also to obtain consent from the users to such receipt. The dollar amount should also be disclosed so the user can provide fully informed consent to the linking arrangement. Quality control measures, a properly drafted linking agreement and compliance with secret commission provisions are essential to Web site owners involved in linking arrangements.

Commentators are grappling with the linking concept because it has no direct application beyond the Internet. It is inevitable that disputes about linking arrangements will be brought to court and in reality, secret commission laws will apply to all mediums, including the Internet.

Jeremy Szwider is a solicitor at Phillips Fox. He can be contacted on 03 9274 5233 or jeremy.szwider@phillipsfox.com.