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In early January 2002, Kodak offered, via its Shop@Kodak website (www.kodak.co.uk) a digital camera package including the camera, a docking station, memory card and paper. The offer was advertised as a "special deal!" and the price was advertised as £100. This price was a mistake, the true figure being £329. Over the next few days the offer remained on the site and a great number of offers were received (although the true number is not known, it is estimated to have been around 4,000-5,000). Customers placing an order received an automated confirmatory email. However, prior to charging customers and despatching the goods, Kodak realised the error and wrote purporting to withdraw the offer claiming that the mistake vitiated any agreement made. Despite contacting customers on two separate occasions denying that any contract existed, Kodak faced a large number of highly organised complainants. Due to the nature of the customers being Internet-aware, a number of campaign websites rapidly sprang up. These were used to co-ordinate a great deal of pressure on the company, as well as generating media interest. County Court proceedings were issued on behalf of some customers later in the month and, at the end of January, Kodak capitulated and agreed to satisfy all orders which had been confirmed, citing a desire to offer the best "customer service".
Current understanding of web-based transactions is based almost solely on a collective belief in the legal profession of how such transactions should progress - it has not been legislated for by Parliament, nor tested before the courts. From recent debates on the topic, it is generally accepted, contrary to the original view expressed by Kodak, that an advert on a website of an item for sale at a certain price is the invitation to treat, and the process of filling out the order form and passing over personal details such as credit information by the customer is the offer. Following this to its logical conclusion, the next communication from the retailer is the acceptance of the offer if the terms contained therein are compatible with this position, and the retailer is therefore under a legal duty to perform. It is an unfortunate reality that automated responses are more often than not used for this purpose, and it is this practice that is causing online retailers problems which their standard terms and conditions often do not adequately legislate for.
"The typical modern contract is the bargain struck by the exchange of promises. If A orders goods on credit from B, both A and B are bound from the moment of agreement, and, if the one subsequently refuses to execute his part of it, the other may sue at once. The consideration for each party's promise is the other party's promise. It is difficult to see at this stage either party has suffered benefit or detriment unless each party is said to have received the benefit of the other party's promise and suffered the detriment of making his own."
Kodak intimated that their position was that acceptance took place when the customer's credit card was charged. Possibly they would have argued that the contract would therefore fail for a lack of consideration and acceptance. However, on this view, it would be impossible to know when final acceptance had actually taken place, and the consumer would only know for certain a number of weeks later when the credit card bill arrived. This would create the kind of contractual uncertainty that the original postal rule sought to prevent.
It is possible to apply a case with somewhat older facts to the newer modern circumstances. In Thornton v Shoe Lane Parking [1971]2 QB 163 it was held that a contract was formed by a customer entering a car park via an automatic barrier - the operation of the barrier effectively performed the act of contract creation as well as satisfying intent on the part of the car park. The retailer cannot argue that because any response from them is automatic that they are not capable of having formed the necessary intent.
Argos would appear to have had a particularly strong defence on this point, but Kodak were on less solid ground - in the circumstances the offer was marked as a "special deal!", published during the January period when sales are usually held. The package priced at £100 rather than £329 was not entirely unbelievable for a digital camera, especially one which had also been the subject of a recent sustained advertising programme. The camera had also recently received poor reviews in specialist publications due to the lack of an optical zoom, and poor battery life.
This is provided for in s.51 of the Sale of Goods Act 1979 - Damages for Non-delivery:
"51(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver."
It is interesting to note that it would have been rather embarrassing for Kodak to find themselves in court trying to determine on one hand the lowest possible figure on the market for the camera package for the purposes of reducing the quantum of the loss of bargain (which would no-doubt make their online shop look very expensive), while in the alternative arguing that £100 was such an unbelievably low price that any contract should be struck out for mistake under Hartog.
The Directive is an attempt to provide a unified framework for online transactions across the whole of the EU. Interestingly, in the original proposals, a further re-confirmatory email was to be required from consumer to supplier in order to complete the legal relationship. However, this was dropped as unworkable, and the Directive now requires the laws of member states to provide that acceptance (and therefore the creation of legal relations) occurs when the retailer has responded to a customer order and the customer is able to read that response - ie. It is available on their PC, or on their mail server. The Directive should have been implemented into UK law in the middle of January, but this has been delayed and the process is still in consultation with the DTI. Interestingly, the DTI's stated opinion for the consultation was that it was not necessary to specify for all cases the point at which the contract is concluded. Notwithstanding the implementation, any new legislation would not override the management of the contractual relationship through adequate standard terms.
"After you place your order, you will receive an email confirmation within one business day. The message will contain the details of your order with the total amount that will be billed to your credit card, including tax, shipping, and handling. This message is your receipt…Be sure to keep your receipt. You will need it if you require warranty service. If there is a problem with your order, you will receive an email notice stating what the problem is and what you need to do to correct it."
This certainly fits with the typical model of e-commerce, and the understanding that the confirmatory email acts as both acceptance of the original offer and a receipt. Kodak stipulate that if there is a problem with the order they will state that in the confirmatory email. If Kodak wanted to include further control over the formation of the legal relationship beyond the typical understanding, then should have done so via their confirmatory email or their standard terms. Kodak do include terms and conditions within their confirmatory email, which refer back to the standard terms on the website.
The confirmatory email states (clearly establishing a 'cooling off' period to comply with the Distance Selling Regulations):
"Thank you for shopping at kodak.com! Please review the terms and conditions here. These govern this contract which are provided for your reference. Please print these off and keep them in a safe place. You should also be aware that you have a right to cancel this contract if you wish .... within seven (7) working days..." (emphasis added)
This again indicates Kodak's intention that the confirmatory email would act as the contract formation point.
Kodak sought to rely on their Terms and Conditions where they provided:
"All the products on Kodak's web-site are subject to availability and we must therefore reserve the right in exceptional circumstances: to limit quantities of products we supply; to alter any of the terms and conditions on which we do business and on which we supply products to you, including the prices; to alter the availability and duration of, and to terminate at any time, any special offers. Please note that we will, however, not deduct any sums from your credit card unless, or to the extent, we are able to deliver the products to you." (Emphasis added)
There are two problems with this approach - firstly, this clause could fall foul of the Unfair Contract Terms Act 1977 and even more likely the Unfair Terms in Consumer Contracts Regulations 1999 because it is an onerous clause allowing the retailer in a position of strength to alter the conditions of the contract unilaterally without notice. Secondly, the clause specifically refers to "exceptional circumstances" in relation to "availability" and it is a stretch to apply the right to limit supplies to other situations.
It is not just the civil proceedings with which Kodak found themselves faced. It is arguable that criminal offences have been committed under Part III of the Consumer Protection Act 1987 (the provision of a false or misleading price indication). Action under this Act would be taken by the Trading Standards Authority. If found guilty of a breach, Kodak might also have found themselves liable for a fine based on the number of cases of deception carried out - in these circumstances a particularly substantial number (a maximum fine of £5,000 per consumer misled).
This experience should prompt Kodak and other online retailers to review their standard terms, their procedures and their website designs. The contractual process being undertaken is perfectly manageable, but only if adequate terms and conditions are used. The processes of e-commerce are more often than not decided by the functional design of the website itself, and it is only when problems arise that lawyers are involved. This is a dangerous way to proceed, as Kodak have discovered. Standard terms which stipulate exactly when the contract is formed, and how the supplier will deal with errors or malicious tampering must be included both in clear standard terms on the site itself, and also in any confirmatory correspondence which is sent. Close attention should be paid to ensure that terms and conditions, and the confirmatory email are compatible in their wording and function.
Furthermore, some sort of flood warning system should be in place, which would provide an automatic alert when a problem of this nature arises. It is inconceivable that some 5,000 orders for one particular type of camera over the space of a couple of days would be considered normal trading for the Kodak website. Such a site should have a process which identifies unusual ordering behaviour early, and flags the item being sold for checking by a human operator.
Kodak also took a number of days from the discovery of the mispricing before the page, and any reference to it or entry in their pricing database were removed. This allowed a number of additional customers to place orders, worsening the situation further. Effective methods must be in place before a problem or mistake arises to ensure that any notification of price errors is taken seriously and acted upon in a way which immediately prevents further transactions being undertaken.
Kodak's actions in settling the case mean that we have missed the opportunity to gain any precedent in the area, which is especially unfortunate because all previous well-publicised cases would almost certainly have fallen foul of Hartog due to blatant pricing errors. However, the events should prompt other retailers to ensure that their systems and terms will protect them from similar experiences before the situation arises.
Daniel Bates is a qualified solicitor previously with Lovells, and now with the Faculty of Law at Cambridge University as Legal IT Teaching & Development Officer sponsored by Freshfields. He joined the Faculty in November 2000 to develop, implement and teach a course to provide legal IT and legal research skills to the undergraduate and graduate students. email db298@cam.ac.uk.
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