Moving from Transmission to Collaboration

August 31, 2003

On a day in March this year, Amazon found itself under public scrutiny when its UK site – – displayed a pricing error on iPaq PDAs, offering the product for sale at £7.32, when its normal retail price is £192. By 11 am that same day, the site was flooded with requests for iPaqs. Amazon refused to honour customer orders and claimed that its terms of sale state that no contract will be formed with a customer until such time as an e-mail accepting the order is sent to the customer.

This type of mis-pricing error is not uncommon and can occur as a result of either computer or human error. Not so long ago Kodak faced a similar problem to Amazon but took a different view on the situation and honoured the customer orders. How does an e-business ensure that it will not be obliged to deliver mis-priced items?

The process of purchasing

The question as to whether goods being offered for sale amounts to a legal offer or an invitation to treat is dealt with under English common law. The general view is that when goods are displayed for sale, whether online or off-line, they are offered on an invitation to treat basis and the contract is formed when the retailer accepts an offer from the customer. This will allow the retailer to withdraw the goods from sale after the consumer has made an offer. In these circumstances, the site is structured on an invitation to treat basis.

The E-Commerce Regulations have dealt with this area in the online world and require that e-businesses make clear to consumers in a clear and accessible manner how and when a contract will be formed. The wording on Amazon’s site appears to comply with this.

The bigger question remaining is whether or not the wording in Amazon’s terms of use, is incorporated into a contract between Amazon and the consumer placing the order. The customers on the Amazon site can go to the terms of use by way of a link on each page but are not ‘forced’ to go through the terms nor are they provided with this information as part of each sale. It is, therefore, possible that a customer could place an order without seeing the terms of use. This is not ideal. To be absolutely sure that a customer sees the terms and that they are incorporated into each order, the customer should be forced to go through the terms and, after scrolling to the bottom of these, should be asked to click on ‘I accept’. This is not as common as it once was since it is seen as cumbersome by marketing departments.

A number of sites have therefore adopted a slightly less rigorous alternative whereby the customer is forced through the terms once he registers and is asked to accept the terms at that stage. From a legal point of view, this may also be acceptable. However, the customer would have to be notified of, and accept, any changes to these terms over time.

Other sites follow a similar route to Amazon but include the link to the terms in the order process.

Unfortunately at the present time there is no legal authority dealing with these issues in the UK. US case law, on the other hand, has found that an opportunity to read the terms and conditions did not amount to expressly drawing a customer’s attention to the terms and did not allow for such terms to be incorporated into the contract.

Amazon’s wording makes it clear to its customers that the contract would not be formed until an e-mail accepting the customer’s offer is sent to the customer, but the question of whether or not the terms were properly incorporated into the contract with the consumer remains. If they were, then Amazon is not obligated to fulfil the orders.

The E-commerce Regulations also require that the customer is sent an acknowledgement of receipt of the order.

So, in relation to the structure of a Web site, it is necessary to ensure that there is space for such an explanation as part of the order process or, alternatively, in terms and conditions which are drawn to the customer’s attention. It is then also essential to ensure that the site’s structure allows for the sending of an acknowledgement. If a stock check is being undertaken prior to the acknowledgement being sent, then it is quite possible to make this acknowledgement an acceptance of the offer and for the sending of the e-mail to create the contract.

There is no requirement that the acknowledgement be the acceptance. Some supermarkets, for example, create acceptance of the order on delivery of the goods to the customer but payment is not taken until delivery. In this case, the price and the availability of the goods is checked on the day it is delivered. Such businesses do, however, send customers an acknowledgement of their order and make clear to customers when the contract will be formed.

A customer should not be expected to pay for the goods until such time as their order is accepted by the e-business and the site structure should accommodate this process.

The wording

As well as structuring the site on an invitation to treat basis, e-tailers should also ensure that the wording adopted ties in with this basis. If the acknowledgement is by e-mail and not part of the site itself, then it is essential to ensure that the e-mail does not mistakenly accept the order. If it did, then the e-business would be bound to supply the goods – even if it did not have the stock or the price was incorrect.

The Regulations also require that the wording be clear and that the explanation of the process and the process itself are written in plain English.

There is of course legislation which makes mis-pricing an offence in the UK.

Amanda C. Brock is a solicitor with Dixons Group plc and author of E-Business : The Practical Guide to the laws, (£49.95 – ISDN 190429855599) published by Spiro Press April 2003 – / 0870 400 100.