Rethinking Platform Liability for Online Fraud in the Digital Age

Online fraud has evolved from crude email scams into complex, multi-platform operations that exploit the very systems designed to enhance user experience and platform profitability. These schemes now operate within the infrastructure of social media, e-commerce, and digital marketplaces—leveraging algorithmic targeting, payment systems, and trust signals to deceive users at scale.

There has been a growing consensus among legal scholars, regulators, and courts that the architecture of digital platforms—particularly their algorithmic systems, engagement incentives, and monetization models—can systematically enable fraud. Notably, these are not isolated design flaws. They are predictable outcomes of systems optimized for engagement and scale, which fraudsters exploit with increasing ease. When platforms profit from the very mechanisms that facilitate deception, the line between passive host and active enabler begins to blur.

As fraud becomes a foreseeable consequence of platform design, the legal question grows more urgent: are platforms merely passive hosts, or active enablers? Can platforms still claim neutrality when their design choices systematically enable harm? And if not, what duties do they owe to users who are increasingly vulnerable by design?

The law is beginning to respond, but the implications go beyond liability. Platforms that lead in fraud prevention may not just avoid legal risk, they may gain a competitive edge.

Tort Law: The Negligence Framework

Tort law offers a powerful lens for understanding platform liability, especially through the principles of duty of care, breach, causation, and damage. These concepts are being reinterpreted to fit the realities of digital platforms, where user harm often results from systemic design choices rather than isolated incidents.

Courts are increasingly recognizing that platforms may owe users a duty of care when fraud is foreseeable and the platform has control over the environment in which it occurs. This duty becomes clearer when platforms have access to data showing recurring fraud patterns or when they actively shape user interactions through algorithms and content curation. In such cases, platforms are no longer neutral intermediaries but active participants in the digital ecosystem.

A breach of this duty occurs when platforms fail to implement reasonable protective measures. This includes ignoring known risks, neglecting industry best practices, or failing to comply with regulatory standards. Courts are also beginning to examine whether platform design choices and algorithmic decisions contribute to user vulnerability, especially when these systems prioritize engagement over safety.

Causation remains a complex issue in the digital context. Proving that a platform’s actions directly caused user harm is difficult when millions of automated decisions are involved. However, courts are applying doctrines like proximate cause and risk amplification to hold platforms accountable when their conduct significantly increases the likelihood of fraud.

Damages typically involve economic losses from fraudulent transactions, but in some jurisdictions, they may also include broader harms such as emotional distress or reputational damage. As tort law evolves, some legal systems are extending liability to include digital services under product liability frameworks, treating platforms as responsible for defective or harmful digital environments.

In cases involving multiple actors—such as third-party sellers, content creators, and platform operators—courts may apply joint and several liability to ensure victims are compensated and to encourage greater diligence across the ecosystem. Still, tort law faces real limits in this space. The scale, complexity, and opacity of platform operations often exceed what traditional negligence frameworks can handle. This is why regulatory laws and consumer protection statutes are increasingly stepping in to fill the gaps.

Ultimately, tort law is adapting to the digital age by focusing on foreseeability, control, and functional responsibility. Platforms that fail to take reasonable steps to prevent fraud may find themselves liable not just in the court of public opinion, but in courts of law around the world.

Contract Law

The application of contract law to digital platform Term of Service (ToS) is fraught with challenges. The absence of meaningful negotiation in ToS undermines the fundamental contract law principle of mutual agreement. Moreover, the cross-border nature of platforms leads to significant conflicts of law, where ToS clauses can be overridden by mandatory local consumer protection statutes.

At the core of the issue are two key factors:

• Broad Disclaimers: ToS often include wide-ranging clauses that attempt to shield platforms from responsibility for user harm. Courts and lawmakers are scrutinizing these disclaimers to determine if they're fair or violate public policy, especially when they try to eliminate accountability for foreseeable issues.

• "Take-It-Or-Leave-It" Agreements: Most ToS are adhesion contracts, meaning users have no real chance to negotiate terms. This lack of genuine consent blurs the lines of true agreement, raising questions about the legitimacy of such contracts in both common and civil law systems.

Legal doctrines and consumer protection laws are stepping in to balance the scales. For common law jurisdictions, courts often apply the "doctrine of reasonable expectations." This means users aren't presumed to agree to unlimited platform immunity, particularly for essential services or predictable harms. Exculpatory clauses can be deemed unenforceable if they're vague, unfair, or against public policy, especially when there's a significant power imbalance.

Meanwhile, civil law systems Rely on principles of "good faith" (like Germany's Treu und Glauben) and strong consumer protection statutes (such as the EU’s Unfair Contract Terms Directive). These frameworks empower courts to invalidate unfair contract terms that heavily disadvantage consumers, even "blacklisting" certain terms in digital contracts.

Even without explicit language in the ToS, platforms face increasing implied duties:

• Implied Covenant of Good Faith and Fair Dealing: Both common and civil law traditions recognize that parties must act honestly and fairly. This can oblige platforms to implement reasonable fraud prevention measures and maintain operational integrity, regardless of what the ToS explicitly state.

• Implied Warranties: Courts may also view platform services as carrying implied warranties for security, functionality, and user protection, similar to those found in traditional goods and services.

Equitable Doctrines: Unjust Enrichment and Restitution

Equitable doctrines, particularly unjust enrichment and restitution, offer a potent and increasingly critical framework for addressing platform liability, especially where proving fault or contractual breach is complex. Their core focus is on fundamental fairness: is it just for a platform to retain benefits—such as advertising revenue or transaction fees—acquired through fraudulent activities, irrespective of the platform's intent or direct involvement?

These principles recognize that platforms can profit significantly from fraud, even passively. As articulated in "Unjust Enrichment in Law and Equity," equitable unjust enrichment is grounded in fairness and autonomy, allowing courts to mandate restitution even without established wrongdoing or a direct contract. This is echoed globally, as seen in Malaysia's Dream Property Sdn Bhd v Atlas Housing Sdn Bhd, which affirmed unjust enrichment as a standalone cause of action.

Crucially, case law demonstrates this direct application. In the UK's Terna Energy v Revolut, the High Court ruled that a financial platform could be unjustly enriched by retaining funds acquired through fraud, even if not directly involved. The key inquiry became whether the platform was enriched at the victim's expense and if retaining those benefits would be unjust. This highlights how courts are using equity to impose liability on platforms without requiring proof of intentional wrongdoing.

Restitutionary remedies then serve to operationalize this fairness, compelling platforms to disgorge profits derived from fraudulent activities. The principle is clear: ill-gotten gains should not be retained. Where platforms hold the actual proceeds of fraud, constructive trust principles can be invoked, treating the platform as a trustee obligated to return the funds to the rightful owner. This powerful mechanism shifts the burden of proof from establishing intent to demonstrating unjust retention.

While practical challenges exist in quantifying benefits and distinguishing legitimate from fraud-related profits, the equitable approach provides a flexible and impactful tool for courts. By focusing on the fairness of profit retention rather than the fault of platform actions, these doctrines fundamentally reframe platform responsibility, moving beyond traditional negligence or breach and compelling a proactive stance on user protection as a matter of commercial justice.

The Intersecting Legal Maze: Navigating Platform Liability

Platform liability is intrinsically complex, arising from the dynamic interplay of diverse legal frameworks. A single platform action can concurrently be permissible under contract law yet illicit under consumer protection statutes. Similarly, criminal law obligations may clash with tort law duties, and regulatory mandates can contradict established equitable principles.

This inherent tension creates a formidable compliance challenge for platforms. They must reconcile their criminal law duties to prevent illegal activity with increasingly stringent regulatory demands for specific safety measures. While contract law often permits broad liability disclaimers, consumer protection legislation frequently renders them unenforceable. Furthermore, equitable doctrines can compel profit disgorgement even where other legal theories don't establish direct liability.

Compounding this complexity is the global nature of platform operations. Jurisdictions worldwide apply disparate legal frameworks with varying standards and enforcement mechanisms. This means a platform could face criminal charges in one nation for conduct that is, paradoxically, mandated by regulation in another. The dramatic divergence in consumer protection standards across borders further exacerbates this intricate compliance landscape.

The true challenge for platforms isn't just understanding these conflicting laws, but rather anticipating and shaping the emergent legal norms. The very act of compliance, or non-compliance, in one jurisdiction can set precedents or spark legislative reactions globally. This forces platforms into a delicate strategic dance: how much should they globalize their compliance efforts, potentially exceeding local requirements, to mitigate future extraterritorial risks or influence global regulatory convergence? Or, conversely, should they optimize for local compliance, accepting the inherent fragmentation and potential for conflicting demands? This ongoing tension between global operational efficiency and localized legal mandates will define the next era of platform governance.

Looking Forward: Online Safety Can Be Competitive Advantage?

The evolving landscape of platform liability law indicates a significant shift: online safety is transforming from a regulatory obligation into a key competitive differentiator. As legal scrutiny intensifies across various doctrines, platforms demonstrating superior fraud prevention capabilities stand to gain substantial market advantages.

This market-driven approach to safety has the potential to be more impactful than regulatory mandates alone. Companies that compete on safety metrics will be incentivized to innovate in fraud prevention technologies. This could lead to the development of business models that align platform profitability with robust user protection, rather than solely focusing on maximizing engagement.

The legal framework is expected to continue its evolution toward more sophisticated approaches to shared responsibility. Instead of assigning full liability to either users or platforms, future frameworks will likely acknowledge that effective fraud prevention necessitates contributions from multiple stakeholders. This may result in more nuanced liability-sharing arrangements and innovative compensation mechanisms.