Online Businesses - Are Your Terms And Conditions Fair?

Have you heard the one about the 5-year-old trader and the £50,000 losses? No, actually, it's not a joke...

Two recent cases in Europe indicate how courts across Europe will apply rules on the enforceability of online contracts. In one case, the UK High Court held that a man, who blamed his girlfriend's five year old son for running up £50,000 of losses in online spread-betting, was not bound by a provision in online terms and conditions that made him responsible for trades made on his account. The online operator had to bear the loss even though it's not clear what more it could have done and, to the extent that any "fault" existed, surely it was on the part of the careless online user.

The issue of enforceability of online contracts is a familiar one: how do online businesses ensure that their terms of trading form binding contracts with their customers? The consequences of failing to implement the correct procedures can be real – as the online spread-betting operator in the UK case described below found out to its (considerable) cost.

In Europe, various rules and regulations apply to online contracts depending on the country and sector (most countries' financial services regulators have issued particular regulations, for example). Typically, the rules in Europe target:

the information which must be disclosed to online customers; cooling-off periods for online purchases; and the test of fairness (or otherwise) to be applied to online terms. It has been left up to the courts to fill in the gaps by adjudicating on the procedures by which online contracts are formed in the first place and to interpret the fairness requirements. These two recent cases – one a UK case and the other a European Court of justice ruling on a Hungarian case – covered both the formation and fairness aspects of online contracting.

Spreadex Limited v Cochrane

Mr. Cochrane opened an online account with the online spread-betting company, Spreadex, in October 2010. As part of the account sign-up process, Cochrane was asked to "read our U.S. based policy, Client Declaration, Customer Agreement, Risk Warning Notice and Order Execution Policy. Once read and understood, please click on "Agree" to signify your agreement to the terms". Cochrane ticked to accept the terms.

Cochrane made a significant number of trades each month. By the beginning of May 2011, he had a credit balance of more than £60,000. On 2 May 2011, whilst staying at his girlfriend's house, he used his...