The recent case of Spreadex Limited v. Colin Cochrane (an application for summary judgment in the High Court) may hold an important lesson for providers of online service provision platforms, whether they are transactional in nature or not.

Mr Cochrane engaged in some online spread betting through a platform provided by Spreadex and regulated by the FSA. He met with a fair degree of success until he left his computer unattended allowing a child to access his account and start trading on it. The child met with somewhat less success. Mr Cochrane was contacted by Spreadex and told that his account was now in considerable deficit, and he asked for all his open positions to be closed.

Mr Cochrane could prove that he had not made the unsuccessful trades. Nevertheless Spreadex looked to him for the satisfaction of the debt incurred on his account. Spreadex relied on clause 10(3) of their Customer Agreement which stated:

“Your password must be declared, together with your account number, when you wish to access your account. You will be deemed to have authorised all trading under your account number...”

In other words, they were seeking to place the responsibility on Mr Cochrane for actions taken using his account which he himself had not actually authorised. The court was asked two basic issues:

  • was the “deeming” term in clause 10(3) part of a binding contract?
  • if so, was it enforceable under the Unfair Terms in Consumer Regulations 1999 (“UTCCR”)?

To decide the first issue, the court looked at whether consideration (that is, some binding promise or commitment) had been given by Spreadex for a contract to exist to provide access to the trading platform, as opposed to the actual trades. There was no question that when an actual trade was made a binding contract came into existence, but clause 10(3) would only be of assistance to Spreadex if there was found to be a pre-existing contract that governed the overall provision of the service. Spreadex was unable to point to any promise or commitment on its own part in order to make the Customer Agreement legally binding. In particular, three further clauses of the Customer Agreement were cited:

“We [Spreadex] have the right at our absolute discretion to refuse to accept part or all of any bet.”

“We [Spreadex] reserve the right to reduce or remove altogether our online service at any time.”

“We [Spreadex] reserve the right to close or suspend your account at any time.”

The court was therefore not persuaded that there was an overarching contract in place which permitted Spreadex to rely on clause 10(3). Essentially, in avoiding any kind of commitment to the customer, Spreadex had lost the ability to enforce the Customer Agreement.

However, the court went on to consider what would be the effect of the clause in the light of the second issue mentioned above, even if there were a binding overarching contract – in these circumstances what the court said was not legally binding, but it will be persuasive in future cases. The UTCCR provide that where a provision in a consumer contract is not individually negotiated, it will not be enforceable if it is found to be unfair, which means that there is an “imbalance” between the rights of the trader and the consumer.

It seemed clear that the second sentence of clause 10(3) would result in a significant imbalance between the rights and obligations of the parties, and consequently would be viewed as unfair within the meaning of the UTCCR.

The court went on to state that a further factor making it unfair was the length of the contract. The Customer Agreement was 49 pages long consisting of ‘closely printed and complex paragraphs’ and it would be ‘close to a miracle’ if a consumer actually read and understood them all. In addition to the UTCCR, there is a general principle in contract law that unusual terms have to be drawn to the attention of the party to be bound by them, and the court clearly considered that to be relevant to fairness. The court did not need to refer to a further requirement of the UTCCR, namely that written contracts have to be in “plain intelligible language” to be enforceable, but that is a point that doubtless could have been made.

The application for summary judgement was dismissed and an order was made that Spreadex could not recover damages except for any trades which they could show were made by Mr Cochrane or another person who was acting with his authority. Spreadex lost the case because they made their customer contracts too one sided and too complex, and tried to limit their own obligations to the point where they did not actually commit to providing anything to the customer.

This decision raises three important and practical points for online service providers:

  • make sure consideration is given for any online service contract;
  • don’t forget that consumers are able to rely on UTCCR; and
  • don’t make your terms and conditions too long or complicated, make them clear, concise and fair if you want to enforce them.