The recent High Court case of Spreadex Limited v Colin Cochrane  EWHC 1290 (Comm) (click here) is a stark reminder to online traders, and indeed to other businesses, to exercise caution when imposing liability on consumers in contracts.
The High Court held that a clause in the terms and conditions of bookmaker Spreadex’s website, pursuant to which the consumer was deemed to have authorised all trade under his account without limitation or exception, was not binding on the consumer. The judge held that as the bookmaker had not given any consideration in return for the consumer entering into the terms and conditions, there was no contract between the consumer and Spreadex. In any event, the judge held that it was an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).
The claimant, Spreadex, is a spread betting bookmaker, providing an online platform for accepting bets on the prices of stocks, shares, commodities and their associated indexes. Much of its activity takes place online through its interactive website. The defendant, Mr Cochrane, had set up an account on the claimant’s website and had started trading. On 2 May 2011 the defendant visited his girlfriend’s house and explained how the site worked to her young son. Whilst spending a couple of days away from the house with no access to a computer, the defendant discovered that his account was down by almost £50,000 and that his girlfriend’s son had been playing on the computer. The defendant explained to the claimant what had happened but his explanation was rejected, and within one day the claimant started an action for summary judgment on its claim, stating that the defendant had no arguable defence.
When Mr Cochrane joined the website, he registered to open an account, and as part of such registration he was asked to click ‘View’ to read Spreadex’s Customer Agreement and three documents, and then to click ‘Agree’. Spreadex sought to rely on Clause 10(3) of the 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.”
The High Court stated that the court had to consider two questions:
- whether Clause 10(3) formed part of the contract between Spreadex and Mr Cochrane; and
- since the claimant is a consumer under the UTCCR and the clause was not individually negotiated, whether it was “unfair” and therefore not binding on the defendant.
Was there a contract?
The High Court held that Spreadex had failed to show any promise or commitment constituting consideration. This was supported by several clauses in the agreement, including Clause 29(1) which stated that the claimant has “the right at [its] absolute discretion to refuse to accept part or all of any bet”. The Customer Agreement did no more than set out terms which would form part of each individual contract if and when a consumer decided to make an offer for a particular trade and Spreadex accepts this offer. Clause 10(3) therefore did not form part of a legal contract and therefore had no binding effect on Mr Cochrane.
Was the term fair?
The High Court went on to consider Regulation 5(1) of UTCCR, concerned with the balance between rights and obligations. As Spreadex assumed no obligations, and the customer had no rights but took on significant risks under the Customer Agreement, the High Court held that there was a significant imbalance in the parties’ rights and obligations. The judge then went on to consider whether this imbalance was “contrary to good faith” referring to “all the circumstances” surrounding the contract and all its terms. Whilst he noted that some protection for the claimant for unauthorised use of accounts may be consistent with fairness, the drafting of the current clause was not. Without including limitations in the clause, such as holding customers liable only for unauthorised trades by third parties resulting from the negligence of the customer, Clause 10(3) represented a significant imbalance in the parties’ rights and obligations and was unfair within the meaning of UTCCR.
Additionally, the manner in which the claimant sought to incorporate the clause into the contract led to the term being held as unfair. Anyone signing up to the website was told of four documents, including the Customer Agreement, which could be viewed elsewhere. The judge held that it was likely that most would proceed without viewing the documents and that even if they did so, would be faced with lengthy and complex paragraphs. He noted that “It would have come close to a miracle if [the defendant] had read the second sentence of Clause 10(3), let alone appreciated its purport or implications”, and that it was an “entirely inadequate” way to attempt to make a customer liable for potential trades which he did not authorise. He also stated that the UTCCR does not remove a term from a contract but simply makes the term ineffective.
Spreadex’s application for summary judgment was dismissed.
While taking into account the unusual facts of this case, such as the large sums of money involved and the gambling context, a number of lessons can be learned from it. The judgment made it clear that businesses should be cautious in seeking to impose liability on consumers without limitation or exception. When assessing the fairness of a term, businesses should seek to consider all scenarios to which the term may apply, and draft the term to take these into consideration. It is good practice, rather than hiding away terms imposing liability on consumers in separate documents which consumers are unlikely to read, to draw consumers’ attention to such terms in a clear and concise manner. Additionally, businesses should be cautious of taking on no obligations at all as it may lead to a finding that no contract was created.
Whilst consumers should endeavour to ensure that they properly log out of any online accounts, businesses may also want to consider technical safety measures which would prevent the likelihood of unauthorised use.