LEARNING TO FLY? ENFORCING SALE OF GOODS CONTRACTS MADE ONLINE

CRAIG SUBOCZ, Solicitor
T: +61 3 9609 1646
E: csubocz@rk.com.au 

On 3 August 2007, the Supreme Court of New South Wales granted specific performance of a contract made through the facilities of eBay.  This note summarises the key points from Smythe v Thomas.

Background

Mr Thomas (“Defendant”) listed an aircraft on eBay for ten days ending on 25 August 2006, noting a “minimum bid” of $150,000.  On 23 August 2006, Mr Smythe (“Plaintiff”) telephoned the Defendant to discuss the possible purchase.  The conversation’s contents were disputed.  On 25 August 2006, the Plaintiff bid $150,000 and in accordance with eBay’s rules, both parties received automatically generated notices from eBay advising that the bid was successful.  The Defendant refused to complete the sale, claiming that there was no contract or, alternatively, the contract was incomplete.

The terms of the parties’ eBay membership provided:

1                eBay did not act as an auctioneer, but provides a venue for its members to offer, sell and buy goods in a number of formats.  The Court accepted that unlike a traditional auctioneer, eBay had no authority to execute a contract on behalf of a vendor.

2                A person who submits the highest qualifying bid is obliged to complete the transaction if the bid is accepted, unless completion is prohibited for any legitimate reason.

3                A person listing an item on eBay must have the right to sell it and must complete the transaction with the person who submitted the highest qualifying bid, unless completion is prohibited for any legitimate reason.

The role of eBay

The Court accepted that each party had agreed with eBay’s terms and conditions because each had an opportunity to review eBay’s terms and needed to press a button indicating acceptance of those terms before being accepted as an eBay members.   

The Court found that the eBay format adopted by the Defendant was a form of auction.  The parties agreed that eBay would automatically end the bidding at a fixed time, eBay had no personal liability to either party and if the buyer’s bid met the seller’s listed terms, then the parties accepted eBay’s generation of an advice headed “won” as the equivalent of the fall of a hammer in a traditional auction.

The Court dismissed the Defendant’s first argument that there was no contract between the Plaintiff and the Defendant.  By listing the aircraft on eBay’s site with a disclosed reserve of $150,000, the Defendant offered to sell the aircraft to a bidder who made a bid within the specified time of at least $150,000, which was the highest bid, and where the buyer did not qualify the bid in a manner which the Defendant had previously indicated would be unacceptable.  The Plaintiff had made a bid which met these criteria.

Further, the Court noted that the parties were free to agree conditions before the buyer made a bid but it would be wise for the buyer to obtain written agreement from the seller, and the seller should specify all elements of the sale important to the seller on the eBay listing.

Was the contract complete?  If so, was it enforceable?

The Court dismissed the Defendant’s second argument, that the contract was incomplete and it would be inappropriate for the Court to imply terms into the contract.  The Court accepted the Plaintiff’s version of the contentious conversation, finding that the parties discussed that, if the Plaintiff successfully bid, the Plaintiff would pay a deposit and the Defendant would like the purchase completed within six weeks of the Plaintiff’s payment, but that aspect was negotiable. 

So, the Court found that the seriousness of the bidding endeavour, the fact that the Plaintiff had sought to ascertain what deposit would be acceptable and the Defendant’s wishes concerning payment of the balance compelling enough to imply a term concerning payment into the contract.

A second issue was the aircraft’s worthiness.  The Court found that on the evidence, the Defendant had promised to the Plaintiff that the aircraft could be flown and would have a current airworthiness certificate on completion of an inspection.  Finding that there was no principle which prevented a court from incorporating promises made orally into contracts made online, the Court held that the Defendant’s promises were part of the contract.

Could the Court order specific performance of this contract?

The Plaintiff sought specific performance of the contract.  This remedy is granted when damages are an inadequate remedy and it is not onerous for the defendant to perform or for the court to supervise.

Although the aircraft was not in a flying condition and was stored in a hanger owned by a third party, the Court considered that the Defendant could take sufficient steps to procure the airworthiness of the aircraft and the release of the aircraft from the third party’s possession which were not onerous to perform or to supervise.  Therefore, the Court found that specific performance could be ordered.

Conclusions

The Court accepted that a contract could be formed online between a service provider and a customer if the service provider gave a reasonable opportunity to the customer to review the terms and conditions and the customer was required to assent to those terms through a positive act (such as clicking an ‘I accept’ button).  This is consistent with numerous US decisions and the Federal Court of Australia in eBay International AG v Creative Festival Entertainment Pty Ltd and provides valuable guidance to online service providers about ensuring that their terms and conditions bind their customers.

Selling goods online will be treated by the courts no differently from a ‘traditional’ sale of goods.  Therefore, vendors should ensure that all terms and conditions relevant to their sale are drawn to the attention of the potential purchaser before an offer is made.  Similarly, where the purchaser has the opportunity to negotiate the terms of the purchase, the purchaser would be best served by having the parties agree to any additional or varied terms in writing before proceeding with the offer.

Nonetheless, provided the evidence shows that oral statements made by a party to the other party regarding the terms of the sale can be proven, if those statements constitute promises made by that party to the other party, then a court will be prepared to incorporate those statements into the terms of the transaction.