Always check your Terms and Conditions!

As a recent case in the UK High Court shows, failure to pay attention to the Terms and Conditions listed on your site can have major consequences for companies trading online.

The case was brought by an online spread betting bookmaker against a customer, Mr Cochrane, who held an online trading account with them. Rather foolishly, you might say, Mr Cochrane decided to show his girlfriend’s five-year-old son how the website worked as a “guessing game” (arguably more constructive than watching cartoons). This backfired when the child ran up £50,000 of losses by making numerous trades in gold, silver and crude oil while he was away for a few days.

The company, rejecting Mr Cochrane’s pleas for mercy, demanded immediate payment, relying upon the Terms and Conditions contained in its customer agreement which said: “You will be deemed to have authorised all trading under your account number.” When he signed up for the account, Mr Cochrane was prompted to read five separate documents, including the customer agreement, before clicking “Agree” to signify his assent.

What did the court decide?

Without considering why an online system such as this did not have an automatic timeout (this is standard, right?) the court found in Mr Cochrane’s favour. The judge said that he had to consider whether:

  • The above clause formed part of the agreement between the company, and if it was:
  • Whether the clause was fair to Mr Cochrane as a consumer

On the first point, the judge concluded that while there was a contract between the company and Mr Cochrane for each individual trade, the overarching customer agreement relied on by the company was unenforceable. This was because at the time Mr Cochrane agreed to accept the terms, the company did not make any promise or commitment in return for his acceptance. It is a basic principle of contract law that there must be some ‘give and take’ (or ‘consideration’) by each party to an agreement for it to exist. The judge was not convinced by the company’s argument that providing access to the website was a commitment in itself.

Even if there was a contract between the company and Mr Cochrane, the judge ruled that the clause, which treated him as having authorised all trades under his account, was unfair. It did not seem reasonable to the judge that under the terms, the company would not accept any obligations, yet Mr Cochrane had no rights and could be made liable for all trades made on his account without his permission. As such, there was an imbalance between the rights and obligations of the parties.

The judge was not impressed by the 49-page customer agreement either; commenting that it “would have come close to a miracle” if Mr Cochrane read the terms, let alone appreciated the implications of accepting them!

What does this teach us?

Although the result in this case turned on the particular facts, it is an important reminder that careful thought needs to be given to how Terms and Conditions are written, presented and accepted by website users.

While there are free terms and conditions online which may be suitable for some websites (for example portfolios), it is worth getting specialist legal advice for more complex websites (such as online stores and social networks).

A still from a video explaining consumers' rights online, produced by the Office of Fair Trading

A still from a video explaining consumers' rights online, produced by the Office of Fair Trading

The Office of Fair Trading (OFT) is doing a lot of work to educate consumers on their rights when buying online and in the past, has required Apple to change its terms and conditions to make them fair.

In an ideal world, users would be required to read and accept terms and conditions before being able to use a website. This might work well with mobile applications (Apple often does this when it updates its iTunes and App Store terms), but would significantly affect user experience in the case of websites.

A layered approach is often the best solution. Taking an ecommerce website, for example, a prominent link to the terms and conditions should be provided while the user browses products. When the user then proceeds to purchase a product, they should be asked to read the terms and conditions and explicitly accept them. There are JavaScript solutions available which will not allow a user to click “Accept” until they have scrolled to the bottom of the terms: a simple way of providing evidence that a user read them. (Even if they didn’t!)

It is also good practice to keep a record of the time and date on which a user accepts the terms and ensure that users are notified of any changes which might have an impact on them as users and/or consumers. The way in which Terms and Conditions are presented can also go a long way towards mitigating the risk that users will ignore them. (Eight-point Times New Roman is unlikely to cut the mustard!)

And of course, the case also reminds us to log out of websites ... and be wary of click-happy five-year-olds!

The contents of this article are intended for general information purposes only and should not be relied on or treated as a substitute for obtaining legal advice relevant to particular circumstances.

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