After Mr Cochrane set up a spread betting account, his girlfriend’s 5 year old son accessed it and placed a losing bet. In ensuing litigation, Mr Cochrane argued there was no contract and that even if there was, any small print was unfair and unenforceable. Manana Shrimpling reports the judgment of the court.
Who: Spreadex Limited and Colin Cochrane
Where: High Court
When: 18 May 2012
Law as stated at: 28 June 2012
The High Court ruled that no contract was formed between a spread betting bookmaker, Spreadex Limited (“Spreadex”), and its customer, Mr Cochrane as Spreadex had failed to give consideration for its website terms and conditions. It also held that a term stating that all activities on Mr Cochrane’s account were deemed authorised by him was ineffective for unfairness under the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”).
Spreadex allows bets to be placed on movements in prices of stocks, shares and commodities via its interactive website. Mr Cochrane had an account with Spreadex, which accumulated losses of £50,000 on one weekend after Mr Cochrane had logged onto his account, left the house and his girlfriend’s 5-year old son used the account to make bets. Spreadex demanded immediate payment and commenced proceedings for summary judgment to recover the money from Mr Cochrane.
Spreadex accepted Mr Cochrane’s account of what had taken place. It could not establish that any of the relevant trades were made by Mr Cochrane or by any person authorised by him, but sought to rely on a provision in clause 10.3 of its website terms and conditions which stated: “You will be deemed to have authorised all trading under your account number”.
The High Court considered two issues:
1. Whether there was a contract between Spreadex and Mr Chochrane into which clause 10.3 was incorporated
2. If there was a contract, whether clause 10.3 was fair under the UTCCRs
The judge held that no legal contract had come into effect between Spreadex and Mr Cochrane. He considered that the document on Spreadex’s website entitled “Customer Agreement” did no more than set out the terms which would form part of each contract between the parties for individual trades. He held that it was not possible to point to any promise or commitment by Spreadex which would provide the necessary consideration for such contract to make it legally binding.
In particular, the judge pointed out that the terms stated that Spreadex had no obligation to enter into any trade or accept a bet, to grant access to the on-line platform, nor to maintain the account in the name of the customer. The judge was also of the view that no consideration could be found in conduct, since the nature of the arrangement, which merely facilitated the making of ad hoc contracts, did not lead to a benefit being provided by Spreadex or detriment suffered by it.
Even if the provision of the on-line platform were to be treated as consideration, the judge held that clause 10.3 was not binding as it was unfair under UTCCR.
Regulation 5(1) of the UTTCR states that a clause is unfair if, “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations, to the detriment of the consumer”. Under Spreadex’s terms and conditions, Spreadex would assume no obligations and the customer would have no rights, while by contrast clause 10.3 made the customer liable for any trade on his account not made or authorised by him. This caused a significant imbalance in the parties’ rights and obligations and was therefore unfair.
The judge was of the view that a clause’s fairness under the UTCCRs must be judged by reference to all situation in which it might potentially be applicable. He considered it easily conceivable that a child may access the account without the customer’s authorisation and therefore it was unfair that clause 10.3 applied to all scenarios without exception. He suggested that Spreadex may have a more appealing case if the clause stated that the customer was liable for unauthorised trade by a third party only if it was facilitated by the negligence of the customer.
In assessing the fairness of the clause, the judge also looked at the manner in which the clause was incorporated into the contract (if there was one). Upon signing up with Spreadex, potential customers were directed to four document documents (including the Customer Agreement) which could be read elsewhere on-line and requested to click “View” to read them. They were asked to click on “Agree” once they had read and understood the documents. The judge pointed out that the Customer Agreement alone was 49 pages long and contained closely printed and complex paragraphs. He considered the inclusion of clause 10.3 in such a document an entirely inadequate way to seek to make the customer liable for any potential trades which he did not authorise.
The judge refused to order summary judgment and also made a declaration to the effect that Spreadex could not recover save in respect of any trades which it showed to have been effected by Mr Cochrane or any other person acting with his actual or ostensible authority. The case may, however, go to full trial.
Why this matters:
The most striking element of this judgment is the finding that a contract did not exist between Spreadex and the customer. While we would suggest that the facts of the case were quite unusual (dealing with large sums of money in a betting context), the case highlights the importance for online providers to bear the following in mind in relation to their terms and conditions:
- Where the terms and conditions apply to each individual contract for the sale of goods or supply of services, the requirement for consideration in each contract must not be forgotten
- The online provider should not limit its obligations to such an extent that it in effect gives no consideration at all
- Terms should not be difficult for consumers to find or understand, and important terms should be highlighted
- Online providers should beware of simply relying on the terms and conditions and should also consider what technical safety measures can be applied – e.g. automatic log-outs to prevent unauthorised use, cap on spend etc.
- Terms putting liability on the consumer should include appropriate carve outs to cover all potential scenarios where such liability may be unfair.