Trading online: Make sure your terms and conditions are binding and fair
The recent decision in Spreadex Limited v Colin Cochrane  EWHC 1290 serves as a useful reminder for operators of websites to consider carefully their customer contracts to ensure that they are binding and objectively fair or risk losing out.
Colin Cochrane (the defendant) opened an online account with Spreadex Limited, a spread betting bookmaker (the claimant). He had some success and by 2 May 2011 he had built up a credit balance of £60,000.
On 2 May 2011, while at his girlfriend's house, Mr Cochrane had been using his account to place trades while his girlfriend's son looked on. He then left the house, to drop his car off for a service and spend the afternoon with a friend. In the event, the friend became unwell and Mr Cochrane spent several days at the friend's house.
When he eventually left, and picked up his car, Mr Cochrane recharged his mobile phone and discovered a message from Spreadex asking him to ring. When he made contact with the Spreadex, he was told his account was down by almost £50,000.
Mr Cochrane returned to his girlfriend's house and discovered numerous trades had been made without his knowledge or authorisation, and had, he alleged, been made in his absence by his girlfriend's son. Spreadex pursued a claim against him, and applied for summary judgment on that claim.
Upon applying to open his account, Mr Cochrane had to register his details, specify a password, a memorable question and answer, and a bank account number. Finally, in the application process,
Mr Cochrane was asked to review a number of documents, including a Customer Agreement, and once he had read and understood these, he was asked to "click on "Agree" to signify [his] agreement to the terms." Once he had submitted his application, Mr Cochrane was free to start trading immediately.
Mr Cochrane said that the trades had been placed without his actual (or ostensible) authority and he was therefore not liable on them. Spreadex rejected this, saying it was irrelevant that the trades had been placed without his authority, and relied on clause 10(3) of the Customer Agreement which provided:
"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…"
At the hearing of Spreadex's application for summary judgment, the issues that the court had to consider were:
- was there a binding contract between Spreadex and Mr Cochrane which would make him liable for the unauthorised trades; and,
- was clause 10(3) "unfair" within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999?
No consideration: No obligation
The court considered that the Customer Agreement, which included clause 10(3), did no more than set out the terms which would form part of each individual contract which would be created if and when Mr Cochrane made an offer for a particular trade which Spreadex accepted.
The court considered that clause 10(3), which Spreadex argued operated so as to make Mr Cochrane liable on the unauthorised trades, "can… be of no assistance to [Spreadex] unless it is shown to form part of some binding contract which pre-exists the individual [unauthorised] trades".
To demonstrate this, Spreadex was required to show that, it had provided consideration to Mr Cochrane for the terms of the customer agreement to apply independently of the contracts for the individual unauthorised trades. That is to say, that it had provided some benefit to Mr Cochrane, or suffered some corresponding detriment. The court stated that Spreadex "faced significant difficulties" in demonstrating this.
Spreadex argued that the consideration (benefit) which it had promised to Mr Cochrane which would make clause 10(3) binding upon him could be found in granting access to Mr Cochrane to its online platform which allowed him to place trades in the first place. The court rejected this because Spreadex had reserved the right to reduce or remove altogether its online service at any time.
The court decided that the provision of the online interactive platform merely facilitated "the making by the two parties of ad hoc contracts in the form of the individual trades" and was not therefore capable of amounting to the consideration necessary to make clause 10(3) legally binding.
Rather, the court held that it was "a more modern equivalent of the express readiness of a potential contracting party … to enter into contracts by receiving and responding orally to telephone calls."
Unfair contract terms
Even if the provision of the online platform was capable of constituting valid consideration for the overarching pre-trade contract, the court concluded it would still fall foul of the Unfair Terms in Consumer Contract Regulations (the Regulations).
The court considered whether clause 10(3) was unfair and therefore not binding on Mr Cochrane because "contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer" (Regulation 5(1)).
The second sentence in clause 10.3 made Mr Cochrane liable for any trade on the account whether or not authorised by him, without limitation or exception. This provision could have been made fairer, if the clause had sought to fix Mr Cochrane with liability for unauthorised trades if such trades had been facilitated, for example, by his negligence. As it was, however, the court concluded that the clause as drafted constituted a significant imbalance in the parties' rights and obligations, which viewed overall is unfair within the meaning of the Regulations.
The court also concluded that the manner in which clause 10(3) had purportedly been incorporated into the contract was an entirely inadequate way to seek to make the customer liable for any potential trades which he did not authorise, which rendered the clause unfair. The clause was difficult to find and to understand.
Mr Cochrane would have been faced in the Customer Agreement alone with 49 pages containing closely printed and complex paragraphs. The court stated that "it would have come close to a miracle if he had read the second sentence of Clause 10(3), let alone appreciated its purport or implications, and it would be quite irrational for [Spreadex] to assume that he had."
The decision that Spreadex's provision of access to its online platform did not constitute adequate consideration to bring about a binding contract overarching and independent of the contract for individual trades is perhaps surprising.
It is relatively common practice for online suppliers to set out framework terms which then apply to each individual contract of sale or supply. Although the case is perhaps too fact specific for any general principles to be extracted from it, it does perhaps import uncertainty into such situations.
For businesses, the decision is a reminder:
- that it is worth expressly stating in terms precisely what consideration is being provided for by both parties so as to avoid uncertainty and argument later;
- that it is important that any term which seeks to make a consumer liable should be objectively fair, and drafted in a manner which seeks to balance the protection of both business and consumer rather than a blanket imposition of liability without limitation or exception; and,
- that any onerous terms need to be highlighted and expressly drawn to the consumer's attention.