Spreadex Ltd v Cochrane

A contractual term deeming all online trading under an account to be authorised is ineffective unless incorporated into a binding contract. An online platform which merely facilitates later, individual trades does not necessarily provide consideration for such a pre-trade contract, particularly where the provider may withdraw the platform or close the account at will.

Under the Unfair Terms in Consumer Contracts Regulations 1999, fairness is assessed by reference to all situations in which the term might potentially apply. A term imposing liability for every unauthorised trade creates a significant imbalance and is unfair where it lacks safeguards such as a connection with the consumer’s negligence. The manner of incorporation may itself reinforce unfairness.

Spreadex Limited claimed payment from Colin Cochrane for online spread-betting trades made while he was absent from the computer. For the summary judgment application, Spreadex accepted that the trades were not made by Mr Cochrane or by anyone actually or ostensibly authorised by him.

Spreadex relied principally on clause 10(3) of its Customer Agreement, which deemed all trading under the customer’s account number to be authorised. It relied alternatively on clause 13(5), concerning communications reasonably believed to have been made by the customer or an authorised intermediary. The central issues were whether either clause formed part of a binding pre-trade contract and, if so, whether clause 10(3) was unfair under the Unfair Terms in Consumer Contracts Regulations 1999.

1. Summary judgment refused. The claimant could not recover on the assumed facts merely by relying on the account number or password. A declaration was made that recovery was possible only for trades shown to have been effected by the defendant or by a person acting with his actual or ostensible authority.
2. Clause 10(3) could assist only if it formed part of a binding contract which existed before the individual trades. The Customer Agreement principally set out terms for contracts formed when particular trades were offered and accepted. The claimant’s reservations of the right to refuse bets, withdraw the online service, and close or suspend the account meant that access to the platform and maintenance of the account did not supply the necessary contractual consideration. The platform merely facilitated later ad hoc trading contracts.
3. Even if platform access were consideration, clause 10(3) was unfair under regulations 5(1), 6(1) and 8(1) of the Unfair Terms in Consumer Contracts Regulations 1999. It imposed liability for any trade on the account, while the proposed pre-trade contract imposed no corresponding obligation on Spreadex and conferred no corresponding right on the customer. The resulting significant imbalance was contrary to good faith when assessed across all situations in which the clause might apply.
4. The court declined to determine whether a more limited clause, for example one requiring negligence by the customer or possibly reversing the burden of proof, would be fair. The court held, however, that clause 10(3) was unfair without such limitations. Its presentation also contributed to unfairness: the customer was directed to lengthy and complex online documents and could not reasonably be expected to appreciate the effect of the second sentence.
5. Clause 13(5) was not naturally applicable to a trade made through the online platform. Online trading was specifically addressed by clause 10(3), and the two clauses prescribed contradictory tests. The Regulations rendered clause 10(3) ineffective; they did not remove it from the contract for the purpose of interpreting clause 13(5). In any event, a reasonable-belief test would not materially alter the fairness conclusions.