Minors, Mobiles and the Law

Minors, [1] in their guise as teenagers, have been essential players in the economic world since the Fifties brought us rock & roll[2] and its attendant artefacts: singles, movies, clothes, trainers – and the pocket money to buy them with. They have bought and sold things in quantity. They have been responsible for the success of great companies: imagine EMI without the Beatles; imagine the Beatles, in their heyday, with no fans under the age of 21.

Although economic players, minors have remained legal nullities. Over the last two or three decades the benign judicial eye has lighted on pop stars and married women and identified them as classes of people uniquely unable to look after themselves without the special protection of the courts. But minors have always been firmly under the judicial wing and have been immune from the perils of contract law for as long as law books remember; and they remain so. The only important change has been the lowering in 1969 of the age of contractual consent from 21 to 18.[3]

This has not mattered a lot. If it had, someone would have changed it. The millions of payments of 6/11d (or whatever it was that a single cost, subject to the dealer’s cut) stayed in EMI’s coffers notwithstanding the legal vulnerability of the route by which they got there. The difference now is the ability in practice to deal, and to run up credit, online, and the area in which it particularly arises is mobile telephony.

The nature and size of the problem can be stated very simply.

The market for ring-tones and other services available through mobile phones is enormous. Many people are making huge amounts of money. Many companies might have gone under if it were not for ring-tones and the like.

These services are overwhelmingly bought by minors. This is a remarkable and new market. People under a certain age are spending significant sums of money on services that most people over a certain age would not dream of wanting.[4]

The minors buy the services under contracts that are unenforceable. If that fact ever became critical in practice, many service providers and content providers in this industry would lose nearly all their business overnight.

The Law

The principles are to be found in common law, although they have been qualified, at the fringes, by statute and more recently by Europe. The law I deal with here is English. The position is quite different in Scotland. Under the Age of Legal Capacity (Scotland) Act 1991, children in Scotland achieve legal capacity at the age of 16, and a child under that age may enter into binding contracts that are “of a kind commonly entered into by persons of his age and circumstances” and “reasonable”. This is clearly an improvement on the position in England.

It is a principle of common law that a minor does not have the legal capacity to carry out a legally effective act. Minors cannot, for example, make valid wills; they cannot give a receipt; they cannot give a valid consent. The capacity to act on a minor’s behalf is vested in the minor’s parent or guardian.

At common law, a contract entered into by a minor is generally voidable[5] at the instance of the minor, but remains binding on the other party; the contract is valid but can be repudiated by the minor. If the minor does elect to repudiate the contract, the court may[6] at its discretion order the minor to return to the supplier any goods or, by analogy, services to which the contract relates.

If the minor does not avoid the contract, the adult will be bound by it. The minor may sue on it, either through an adult on their behalf while still a minor, or in their own right on reaching the age of 18.

Contracts that are obviously prejudicial to the minor, or contain onerous terms, are not voidable but wholly void.[7] For example, a minor cannot commit to repay a loan. That is why banks don’t give minors overdrafts or credit cards.

Necessaries

There is an exception to the rule that contracts with minors are voidable. A minor may validly contract to receive what the paternal judges of the 19^th century termed ‘necessaries’. The courts originally defined ‘necessaries’ but the definition has been confirmed by statute. Section 3(3) of the Sale of Goods Act 1979 defines them as goods ‘suitable to the condition in life of’ the minor and to his or her ‘actual requirements’ at the time of the sale and delivery.

The wording betrays its 19^th century origins. Commentators have wondered about the extent to which items might be necessaries to minors in one ‘condition in life’ but luxuries to others. Might Lord Snooty’s champagne bill be treated differently from such brown ale as Dennis the Menace might be able to obtain on tick? And what about the middle classes? Undoubtedly these would have been relevant questions 150 years ago, but they are not now. One cannot imagine today’s judiciary thinking along those lines. More significantly, one cannot imagine today’s judiciary deciding that ring-tones or on-screen games are ‘necessary’ for anyone, however gently born.

Let us now examine how in practice goods and services may be acquired over the Internet. We need to distinguish between classic e-commerce (if that isn’t a contradiction in terms) and purchase through a mobile phone.

E-commerce

E-commerce generally works by means of credit and debit cards. There are other methods of payment, of which Paypal is best known, but they tend to involve credit or debit cards indirectly, the card being used to prime the account through which payment is made. Minors cannot commit to repay loans, and are therefore ineligible for credit cards although they will be able, if over 16, to operate bank accounts in credit and to have debit cards.

Where minors buy from a Web site using a credit card it will be someone else’s: usually a parent’s. In principle, there are two ways of doing this: with or without the parent’s consent. In practice, of course, there may be issues of fact. The parent may for example have given consent for the use of their card for some purposes, or up to some amounts, but not others.[8]

If the card is used with the parent’s consent, the purchase may be said to be by the minor on the parent’s behalf. The contract will then probably be enforceable however unnecessary the goods or services ordered.

If the minor uses the card without the parent’s consent, the contact with the supplier may be voidable but the minor will have acted fraudulently and in breach of the criminal law. The age of criminal responsibility is much lower than that for civil liability. In practice, credit card companies give parents who find themselves in that position a choice: meet the debt, or we notify the police. In that event, whether the contract with the supplier is voidable becomes academic.

Banks will issue debit cards to minors, although they tend to confine them to those aged at least 16. There is no element of credit on the bank’s part and the minor will be able to use the card only up to the limit of the amount in their current account. An instruction to a bank by a minor to pay money to a trader is effectively an instruction to return money already advanced by the minor to the bank. The bank cannot be concerned with the nature of the purchase being made by the minor from the trader, since it will not know.

It seems unlikely that a court would interfere with such a transaction. If the transaction formed a discrete and voidable contract, and the minor were able to require the bank to refund the amount paid, it would be presumably be on the basis that the minor should in turn repay to the bank the benefit acquired. Since that would be an identical sum, the result would be neutral.

Notwithstanding the position between the payer and the bank, purchases by a minor over the Internet will be voidable if not “necessary”. This may not upset online traders unduly, since sales over the Internet are effectively voidable by the purchaser anyway, under the Distance Selling Regulations.

Mobile Phones

As it becomes easier to buy goods and services by mobile phone, exactly the same issues arise as in relation to e-commerce and the use of credit cards. There is a range of additional issues, however, that derive intrinsically from the medium and from the special ways in which mobile-phone services are provided and paid for.

A service provider will enter into a contract with a customer under which the service provider agrees to provide its services and to facilitate other services, and the customer agrees to pay for them. The services provided will include regular telephony – voice and text – but they will also include additional benefits made available by the service provider, such as games, ring-tones, the download of images, news services, music, pornography and so on; even television programmes and feature films are becoming available. These additional services will actually be provided by a content provider engaged by the user. However, the service provider will provide the technical means by which they can be provided to the user, and the service provider will charge the user,[9] in turn paying the content provider and keeping a fee for doing so. The payment by the user will be charged to the user’s account with the service provider.

Significantly, the service provider may also charge the user for ordering the service by phone. The transaction may be made on a premium rate line, and the service provider may share the benefit with the content provider.

We therefore have a dramatis personae of four:

· the service provider, such as Orange, which delivers the services to the user and arranges payment, both for itself and for the content provider; some service providers provide content of their own and therefore double as content providers;[10]

· the content provider, such as the mob, which provides the games, ring-tones etc

· the user, who may be a minor; and, possibly,

· a separate adult subscriber.

Buying from the Service Provider

There are two ways in which to pay the service provider.

The first is like the arrangement for a land-line. There is an account between the service provider and the subscriber and periodically the service provider sends a bill and the subscriber settles it.

Alternatively the user is required to buy top-up cards,[11] which has the effect of topping up the user’s credit.

Under the first arrangement the subscriber is generally in debit (unless there is a deposit) and under the second the user is always in credit.

Under the first arrangement (which I’ll call a ‘credit arrangement’) the subscriber will almost always be an adult, because of the advance of credit to the user, and an adult will usually make the payment. Under the second (a ‘top-up card arrangement’), payment may well be made by the minor using the service, since top-up cards can be bought for cash.

Under a credit arrangement, the subscriber will enter into a subscription agreement with the service provider. The service provider will insist that the subscriber is an adult, and ask for documentary proof. It will also require a good credit record, which minors are unlikely to have. Unless there is deception at that stage, therefore, the law affecting minors is irrelevant. The fact that the adult subscriber may allow a minor to use the phone and the services is neither here nor there, any more than where a child uses, and a parent pays for, the family landline.

Under a top-up card arrangement, on the other hand, there may be no subscription agreement at all. The user can buy a handset, a sim-card and a top-up card separately. The sim-card may come with contractual terms that purport to become active when the sim-card itself is activated. The same concerns arise here as in respect of shrink-wrap licences, which these terms resemble. In any case, sevice providers have not been concerned about default by the user: if the user doesn’t buy a card, there will be no service. Critically, under a top-up card arrangement, the only person involved with the service provider may be a minor.

There will be a contract entered into between the user and the supplier of the top-up card. This is contained in wording on the back of the card. It is not always very coherent. The T-Mobile card says, for example, amidst a bit about how it is a top-up card and not a credit card:

This card can only be used with the T-Mobile (UK) pay as you go service and is subject to these terms and conditions. Use of this card constitutes acceptance of those conditions.

But it doesn’t say what conditions.

Buying from the Content Provider

There is then a series of subsidiary agreements, entered into each time any of these additional services is ordered.[12] The user orders a ring-tone, say. That constitutes a contract between the user and the content provider. The service provider facilitates the delivery of the service and charges the account, which may, depending on the method of payment, be in credit or debit.

The sale by the content provider may also be subject to standard terms. Typical ones include a requirement that the user is 16 or over, or if not, has parental authorisation.[13] I shall return to this reference to 16 as being a critical age.

Some of the deals now on offer involve a future commitment by the user. For a payment of so much per month, automatically charged to the account, the user may be entitled to call down so many ring-tones. Typically, there is small print under which the user can cancel the arrangement at any time; in practice, as with the book clubs that send you the book of the month unless you remember to say no thank you, inertia often takes over and the arrangement just carries on.

Under a credit arrangement, where the user is a minor and the subscriber is an adult, the buyer and the payer will be different people. The analysis of the position between the service provider and the subscriber appears to be as follows:

1 The subscription agreement says that whenever the minor places an order the adult is bound to pay for it.

2 The placing of an order by the minor has nothing (as between service provider and adult subscriber) to do with the minor’s legal capacity. It is a simple automatic triggering event. The agreement could just as easily have provided that the adult would be bound to pay every time the first day of the month fell on a Friday.

As between service provider and adult subscriber, then, the laws affecting minors are irrelevant, but as between content provider and user they are highly relevant. A minor can require the content provider to deliver, say, images of people without their shirts on. These cannot be described as ‘necessaries’. The minor can then avoid the contract, demand the return of the parental payment and offer back the images of the people without their shirts on. These, being digital, will not be even the slightest bit sullied.

These problems increase where there is a top-up card arrangement. In such cases, there is no adult for the service provider or the content provider to contract with. The laws affecting minors apply to the subscription itself and to each purchase made under it, including regular telephony. Phone calls and texts may be necessaries, but most of the ancillary services will not be. There is therefore a risk that users who are minors could cancel orders placed on service providers and content providers and demand their money back.

Does it matter?

If people who sell things to minors are legally vulnerable, this is nothing new. The legal position of a minor who commissions the delivery of a racing result to his mobile is exactly the same as where he buys the Racing Post in a newsagent. In each case the contract of sale and purchase is voidable. The critical question is whether the minor is ever likely to seek to avoid it. In the past, retailers have taken comfort from the fact that the cash has found its way from the purchaser’s pocket to theirs and that it is never going to be worth the cost of litigation to anyone to reverse that state of affairs. It is a matter of record that EMI survived the popularity of the Beatles among young people; its later troubles had quite different origins.

Not surprisingly, contracts that minors have sought to avoid have been substantial ones that justified the legal cost. And the substantiality has of course been from the point of view of the minor and not the supplier: EMI depends overwhelmingly on sales made through voidable contracts, but each of the sales is small and no purchaser is ever going to litigate it, however disappointed.

The problem with sales through mobile phones is their concentration.

Probably the service providers are not particularly vulnerable. There is an argument that voice and text services are necessaries, if less strong in the case of premium rate lines, and where service providers simply collect payment for the content providers their position is neutral even if a purchase contract is later avoided.

Where a minor makes a large volume of orders on a content provider, however, either paying in cash through a top-up card arrangement or through a credit arrangement where an adult settles the bill, it may reach the point where it is worthwhile contesting the matter through the courts.

That is particularly the case where the orders involve future commitments on the part of the subscriber.

The risk is that a minor could run up excessive expense on unnecessary services such as ring-tones, or even excessive voice or text services, maybe resorting to dubious methods to finance them. That is precisely what the law, even though it dates from a less urgent age, was designed to prevent.

Distance Selling Regulations

I referred earlier to an initiative from Europe. This is The Consumer Protection (Distance Selling) Regulations, 2000. They apply to contracts, among others, entered into with consumers over the Internet or through the medium of mobile phones.

Under the Regulations, suppliers must provide certain information about themselves. Regulation 7(2) mentions minors specifically and provides that, in giving the information, the supplier must have ‘due regard to the principles of good faith in commercial transactions and the principles governing the protection of those who are unable to give their consent such as minors’. The Regulations do not elaborate on what these principles are.

Presumably, the aim is to oblige the supplier to state clearly whether the goods offered are intended to be purchased by children and, where they are not, to specify that the purchaser must not be under-age.

If goods or services are offered to minors, for the sales to be secure they must be necessaries, or paid for by an adult. That limits the scope considerably. The supplier might provide specifically that the purchaser must be an adult; it might even require the purchaser to tick a box to the effect that they are indeed eighteen or over. What is by no means clear is what the legal effect would be if the purchaser lied about his age.

Fan Sites: a Digression

Indeed, this is a problem that arises elsewhere in the online world, and particularly in relation to fan sites.

Increasingly, these are set up to promote entertainments such as feature films or television series, and increasingly they are interactive: fans, who tend to be children, are invited to contribute ideas for stories, or drawings. The promoters of the sites often include disclaimers to the effect that fans who contribute copyright material waive all rights in it, so that they cannot complain if, later, the producers use elements derived – or said to be derived – from their contributions. If the promoters are really canny they also include a representation from the contributor that they are 18 or over, so that the waiver is effective. One of the things a minor cannot do, as we noted earlier, is give an effective waiver.

A minor can however own copyright, even if the ability to deal with it is deferred until the minor turns 18. The very likely scenario therefore is that a minor creates a copyright work, shows it to a film producer and gives an entirely ineffective waiver, leaving him able to sue when his precocious artwork, or something like it, bursts onto the screen years later, impersonated by Ewan McGregor.

What is to be done?

In the case of interactive fan sites the answer is easy: Don’t. After that it gets murkier.

The issues outlined above are challenging, but they are only part of the picture. Everyone now uses mobiles but children are used to the special features in a way that most adults are not. Some of the special features are unsuitable for children, for reasons quite apart from the economic consequences, for example the service quaintly described as “adult chat”. The industry and the regulators are alive to this, and also to the dangers of encouraging children to incur expenditure recklessly.

ICSTIS – The Independent Committee for the Supervision of Standards of Telephone Information Services – is the body that regulates the industry, and specifically premium rate services. It is an organisation very much in line with the way that the present Government likes to arrange things, with a Mission Statement, a Vision, Values and the ubiquitous Code of Practice. This deals with many things in addition to the matters discussed above, and is an entirely sensible and constructive document. It can be viewed in its entirety on the ICSTIS Web site[14] and I will not detail it here. Its approach is to require that users, if children, are fully informed what they are committing to; that they are told that they should get parental consent; that the cost is limited; that there is an effective abort button; and that the promotional material, in addition to being clear, does not exploit children’s “credulity, lack of experience or sense of loyalty”. This approach has something in common with the Distance Selling Regulations referred to above.

Curiously, ICSTIS defines “children” as “persons under sixteen years of age”. There is no statutory basis for this age limit; it just seems sensible. It is the line taken by the major banks, which will give you your own debit card if you are 16 but not otherwise.

There is therefore a double system for the protection of children.

On the one hand, the ICSTIS Code of Practice imposes obligations on service providers. It attempts to minimise the number of dreadful things that might happen when children buy things through their mobile phones. But it gives children no rights, and it cannot cater for what happens when children simply ignore the warning signs, familiarity notoriously breeding contempt. Finally, minors who are over 16 have no special protection.

On the other, we have the law. This is both draconian, in that most sales of content to minors are voidable, and permissive, in that probably no one will do anything about it. It is out of date in that there appears to be a growing consensus for sixteen as the age when children can be trusted to look after themselves commercially.

There are concerns within the industry that, legally speaking, it is built on sand. If this were the United States, the home of the class action, that would be a much more realistic fear, but the EMI precedent is probably more to the point.

The worst that can happen, from the industry’s point of view, is something like this. Some content provider behaves outrageously, and no doubt also in breach of the ICSTIS Code. A minor, or more likely a parent, is so incensed that they avoid the contract and sue for the return of the money, as a matter of principle – or the issue is highlighted in a Watchdog-type, consumer TV programme and content providers are highlighted as villainous exploiters of innocent children. The content provider, fearing to set a precedent, fights. There is publicity around the “illegality” of the contract with the minor, and demands for action. The Government decides that if it relies on ICSTIS and its Code it is not being tough enough and passes some legislation as a result of which children find it difficult or impossible to buy services through and for their mobiles. Everyone in the industry tightens their belt; some go out of business.

But that is probably unlikely.

So long as the industry does as ICSTIS tells it, that will be this Government’s preferred way of dealing with the various problems outlined above. There are all sorts of objections in principle to codes of practice. It is often less than clear what their legal basis is, what they mean and what the consequences are of breaking them. They are often devoted more to ”sending a message” than to telling citizens what they can and cannot do. But the ICSTIS Code is clearer and more sensible than most.

Whilst it may not matter hugely in practice that the industry is based on millions of sales, nearly all of which are voidable, it is untidy and it could lead to chaos. In other industries the consequences could be more harmful. It is an area of law that could bear being looked at again. Reducing the age of contractual competence to 16 would be a start.

Robin Bynoe is a Partner at Charles Russell. He offers grateful thanks to his colleagues Yolanda van Wyk and Peter Nunn.