Terms and Conditions

Enforceability of Website terms and conditions

Spreadex Limited v Colin Cochrane ([2012] EWHC 1290)

It has been said that iTunes' terms and conditions are longer than some of Shakespeare's plays. Whilst this may be an exaggeration, reading and understanding lengthy terms like these would represent a significant investment of time and effort for a consumer and, unsurprisingly, few (if any) have the patience for such an undertaking. 

What does this mean in practice? Are such terms and conditions properly incorporated into a contract with a consumer? What if these terms are heavily weighted in favour of the business? What if the consumer has clicked an icon to signify agreement to the terms and conditions? Are they enforceable?

A recent case, Spreadex Limited v Colin Cochrane ([2012] EWHC 1290), highlights some important issues relating to terms and conditions and the ability (or otherwise) of a business to enforce them against a consumer. The first relates to contract formation, and the second to the "fairness" of terms.

Spreadex Limited is a spread betting bookmaker and the defendant, Colin Cochrane, was one of its customers. On a bank holiday in May 2011 Mr Cochrane went onto Spreadex's website at his girlfriend's house. As he made his trades Mr Cochrane described the online activity to his girlfriend's young son by playing, as he described it, "a kind of guessing game". Mr Cochrane left the house to visit a friend that afternoon. When he returned two days later and went online he found numerous trades had been executed in his absence. His girlfriend's son told him he had "been playing games on it". The child had made losses of £50,000. 

Spreadex was unsympathetic when Mr Cochrane explained the circumstances that led to these substantial losses, and sought to rely on their terms and conditions to enforce the debt. When Mr Cochrane signed up to the website he was asked to review four different documents and, once read and understood, to click "Agree" to signify his agreement. Spreadex wanted to rely on one of these four documents, a 49 page "Customer Agreement", and in particular on clause 10(3) which included the provision: "You will be deemed to have authorised all trading under your account number".

To rely on clause 10(3) Spreadex had first to establish that there was a pre-existing contract between the parties. The court held that there was no such pre-existing contract in place, instead that the provision of the online trading platform governed by the Customer Agreement was to facilitate the making of individual contracts that would be formed between Spreadex and Mr Cochrane for each particular bet placed.

In order to form a contract and rely on these terms Spreadex had to demonstrate that they had provided "consideration" to Mr Cochrane. Such consideration for a contract could have come in the form of Spreadex's grant of access to their online platform, but as they reserved the right to refuse bets, remove their service and close Mr Cochrane's account at any time, the court held that such access had not, in effect, been granted. There was no "consideration" necessary to form a contract and therefore no pre-existing contract on which Spreadex could rely.

The particular facts of this case are unusual, and it will be interesting to see to what extent the judge's decision is followed in  the future. The  decision does provide a useful lesson however; if a business's terms and conditions allow too much flexibility in relation to the service it is providing, there may be a risk that no consideration is given and therefore that no contract exists. 

The judge went on to consider whether, even if a contract had existed, clause 10(3) would have been enforceable in any event.

The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) apply to contracts between consumers and sellers for goods and services. Under UCCTR if an "unfair" contract term is not individually negotiated, it will not be binding on a consumer. The judge in this case found that there was a clear and significant imbalance in the respective parties' rights and obligations in the "Customer Agreement". The judge also took exception to the length and complexity of the terms, "it would have been close to a miracle if he [Mr Cochrane] had read the second sentence of Clause 10(3), let alone appreciated its purport of implications". The court concluded that, regardless of whether a contract in fact existed, clause 10(3) was "unfair" and therefore would have been unenforceable in any event.

The court's application of UCCTR in this case serves as a useful reminder to businesses that their terms and conditions with individual consumers should not be unreasonably weighted in their favour, particularly where such terms are contained in extensive provisions that may not be readily understood. Businesses should strive so far as they are able to make their terms plain and intelligible, and should also have regard to their "fairness" in the eyes of a court.

If a term is of particular importance to a business it should not be buried in small print in a large document but highlighted at the front, perhaps in a summarised list of key terms". Where possible clauses should also address specific circumstances in which a consumer may be liable (or the business not liable) rather than being drafted widely as a "catch-all", which a court will more likely determine to be "unfair".

To safeguard against potential challenges it is strongly advised that businesses regularly review their terms and conditions to ensure that they are up to date with the latest developments in the law and commercial practices in their industry. Moreover, terms and conditions will only be effective if they are properly incorporated into a contract. Companies should be satisfied that staff are adequately trained and that their processes are sufficiently robust in this regard, so that they can rely on their terms when the need arises.

In the case of online transactions, businesses should also consider other possible safeguards (such as website warnings or automatic log-outs after a period of time) in the event that they, like Spreadex, find themselves unable to rely upon and enforce their terms and conditions.