A recent case (Spreadex Ltd v Colin Cochrane 2012) has illustrated once again the dangers of seeking to impose unfair terms when allocating liability in contracts, especially where consumers are involved.

This case also shows that aiming to give your business flexibility might mean that you do not have a contract at all.

In this case, Colin Cochrane registered with Spreadex, an online bookmaker and in doing so, agreed to their general terms of business. Having accessed the account from his girlfriend’s computer, he failed to log out correctly and was informed two days later that his account was in debit by £50,000. Cochrane alleged that his account had been used by his girlfriend’s young son without his knowledge or permission (resulting in the greatly increased running loss position). Spreadex rejected this and, relying on the term “You will be deemed to have authorised all trading under your account number...”, the next day began proceedings applying for a summary judgement. The court considered two issues:

Was there a contractual relationship?

The court held that there was no contract between the parties underlying each individual trade. Contract law requires consideration, often in the form of payment or action, to be provided for a contract to be enforceable. Spreadex argued that consideration could be found by grant of access to the website, but the court rejected this as Spreadex had absolute discretion on whether to accept a user’s bet. Whilst consideration could be found providing a benefit or suffering a detriment, this was also not satisfied as the online platform was only designed to facilitate future trades. This meant the above term did not apply and Cochrane was not liable to pay the outstanding amount. This finding is surprising, as it is common for online traders to set out the terms and conditions for each contract in one document, operating as a framework agreement. The large sum of money, the fact this related to gambling, and the unusual collection of facts would suggest that this finding is unlikely to be applied to more conventional cases.

Was the term fair?

Even if there had been a contract, the judge opined that in any case the term contravened the Unfair Terms in Consumer Contracts Regulations 1999 and so was unenforceable. This term provided that a customer would have been responsible for their account without exception, even if for example it had been hacked into, and therefore it was unfair. The fact that there were 49 pages of terms containing “closely printed and complex paragraphs” also went towards this finding.

Whilst the court’s view on the existence of a contract is probably specific to the unusual facts, it provided useful guidance to other businesses about unfair terms and the manner in which a business tries to incorporate terms into consumer contracts:

  • If a term is important, especially if it concerns liability, it should be brought to the consumer’s attention and prominently displayed.
  • Consider what technical safety measures may be incorporated into a website, rather than just relying on the contract. In the above case, automatic log-outs, re-input of passwords for large purchases, log-out warnings or spending caps may have helped Spreadex.
  • Terms making customers liable should be drafted realistically by containing any appropriate carve outs. It is important to consider the all likely scenarios. In this case the judge thought it was conceivable that a child might be able to access the account, and therefore Spreadex should have drafted its terms more fairly taking this into account.

Online transactions are becoming more commonplace in more sectors, and more cases of this nature will end up in court. As the case shows, it is vital that online agreements draw the customer’s attention to key terms. It also indicates that a contract may not necessarily be formed at the point at which the customer signs up to a website, but instead at the point at which they start using it to order products or services.