The recent High Court case of Spreadex Limited v Colin Cochrane [2012] EWHC 1290 (Comm), a judgment concerning a summary judgment application, has important lessons for online traders but may have importance in a much wider field. Certainly, it is of interest to many web site operators.
Background
Spreadex is a spread betting bookmaker. Customers wanting to place bets could do so through Spreadex’s web site (as well as by telephone). The defendant Mr Cochrane registered with the web site and pressed the submit button to accept Spreadex’s various terms and conditions and policy documents. Later, he carried out some trades and had a significant positive sum in his account.
On 2 May 2011 Cochrane was at his girlfriend’s house and explained how Spreadex’s site worked to his girlfriend’s young son. Subsequently, he spent a couple of days at a sick friend’s house without access to a computer and then discovered that his account was down by a substantial amount of money and that his girlfriend’s son had been playing on the computer. For the purpose of the summary judgment application, the court accepted the accuracy of the defendant’s account of the events of 2 to 4 May.
Cochrane explained to Spreadex what had happened and that he had not authorised his girlfriend’s son to carry out any trades, but Spreadex issued proceedings to recover the outstanding money from Cochrane.
Contract Terms and Consideration
Spreadex sought to rely on clause 10(3) of its 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 key issue in the case was whether Spreadex could invoke clause 10(3) to replace the lack of actual or ostensible authority.
The court first considered if clause 10(3) formed part of a contract between the parties and concluded that it did not. The document including clause 10(3) did no more than set out the terms which would form part of each individual contract which would later be created if and when Cochrane made an offer for a particular trade and if Spreadex accepted it. Clause 10(3) did not form part of a binding contract which pre-dated the individual trades on which Spreadex contended Cochrane was liable.
Spreadex did not promise or commit to do anything which might form part of a contract and provide the consideration necessary to make it legally binding and in fact clause 29(1) explicitly allowed Spreadex to refuse to accept part or all of any bet. The judge said that Spreadex was not providing consideration by providing an arrangement which merely facilitated the making by the two parties of ad hoc contracts. David Donaldson QC, sitting as a deputy High Court judge, said (at [15]-[16]):
Unfair Contract Terms
David Donaldson QC went on to consider the fairness of clause 10(3) under reg 8(1) of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) because it was not individually negotiated and Cochrane was a consumer. This involved the judge assessing whether, contrary to the requirement of good faith, the clause caused a significant imbalance in the parties’ rights and obligations to the detriment of the consumer (reg 5(1)).
Most fundamentally, reg 5(1) concerns the balance between rights and obligations. Under Spreadex’s suggested pre-trade contract it would assume no obligations and Cochrane would have no rights. The terms did not really commit Spreadex to anything: Spreadex could refuse to accept bets without giving reasons, and could withdraw access rights whenever it wanted. Yet Cochrane would be liable for any trade on the account, even if he had never made or authorised it. The judge said that was a significant imbalance in the parties’ rights and obligations and unfair under the UTCCR.
A further and compounding factor was the way in which Spreadex sought to incorporate the clause into the contract. During the sign-up process, the potential customer was told that four documents could be viewed elsewhere. The judge suspected that most would simply click to say that they agreed. Even if they did look at the documents, the customer agreement alone consisted of 49 pages. It was therefore unlikely that Cochrane would even read clause 10(3): ‘[i]t 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 have been quite irrational for the claimant to assume that he had’. According to the judge, it was an entirely inadequate way to seek to make a customer liable for any potential trades which he did not authorise and was another factor making the contract unfair.
The judge also made the point that the UTCCR did not remove an unfair term from a contract, it only specified that it will be ineffective.
The judge dismissed Spreadex’s application for summary judgment.
Some Observations
The case does not create any new law, but is another illustration of the dangers of seeking to impose unfair limits on liability, especially where customers are involved. It also illustrates that aiming to give yourself flexibility might mean that you don’t have a contract at all. The Office of Fair Trading has produced useful guidance on unfair terms in consumer contracts which is available at http://www.oft.gov.uk/shared_oft/reports/unfair_contract_terms/oft311.pdf.
It is also a stark warning to consumers to ensure that they log out of online accounts when leaving computers unattended. Although the consumer won this battle, he had to go to the time and effort of defending legal proceedings and it may be that Spreadex will continue to a full trial.
The judgment is available here.
Helen Hart is a freelance legal journalist and editor. She has previously worked at Practical Law Company, Stevens & Bolton LLP, Palm, Centrica and Allen & Overy LLP.
