Amazon blunder: e-commerce sites beware

Amazon is hoping that the small print of its online contracts will save it from enormous losses caused by mispricing HP iPAQs. But things may not be so simple... temporarily closed its on-line store last week following a pricing error on its site. Amazon was offering Hewlett Packard iPAQ H1910 Pocket PC's for £7.32 each instead of £274.99. News of the error circulated rapidly by email amongst bargain hunters. It is not known how many orders were placed at this price. The number could be significant, as some people may have ordered a large quantity with a view to making a profit on resale.

Having taken the site off-line to correct the error, Amazon set about cancelling the orders by sending an email referring to its Conditions of Web Site Use and its Pricing and Availability Policy.

There have been a number of similar cases in the past (for example, Argos and Kodak). It is not unusual for retailers to honour an erroneous price to maintain customer goodwill. However, in extreme cases, the retailer may not be able to meet the volume of orders either due to lack of supply or because of the financial consequences of doing so. It is crucial, therefore, for on-line retailers that their order process and terms and conditions adequately protect them from such errors.

Terms and Conditions

When you place an order on Amazon, and proceed to the check-out, there is a statement "By placing your order, you agree to's privacy policy and conditions of use". If you click on the link, you can view the full "Conditions of Web Site Use".

The first two terms have the headings "Copyright" and "Trademarks". If you scroll down past these, you get to a term entitled "Governing Law and Contract Formation". This provides that: "No contract will subsist between you and for the sale by it to you of any product unless and until accepts your order by e-mail confirming that it has dispatched your product." The Pricing and Availability Policy is accessed from a link at the foot of the order page. Almost immediately after placing your order, you are sent an email to confirm the details. This order acknowledgement gives details of the anticipated delivery of the goods and of your cancellation rights. It contains no reference to the conditions of use.

Incorporation of Terms

If Amazon has not taken sufficient steps to draw its terms to the user's attention, then they may not be incorporated as the terms of the contract.

On a Web site, incorporation of contractual terms depends on visibility and process. In many e-commerce sites one is required specifically to accept terms and conditions before submitting an order by clicking an "accept" button or checking a box to confirm that you have read and agree to them.

Amazon's conditions are referred to as "conditions of use" as opposed to "conditions of sale". They appear alongside a link to their "privacy policy". There is a distinction between "conditions of Web site use" and "conditions of sale". Conditions of use typically refer to such matters as intellectual property and liability for content and third party links. Typically, they appear together with the privacy policy. One might not expect important terms of sale relating to contract formation to be included in such a document.

It is doubtful whether this particular term could be said to be onerous or unusual requiring greater than usual efforts - the red hand approach -- to draw the user's attention to it (see Interfoto Picture Library Ltd V Stiletto Visual Programmes Ltd 1988 1 All ER 348). However, it is arguable whether Amazon has adequately discharged its duty to bring its terms to the user's attention.

Offer and Acceptance If the terms and conditions are validly incorporated, then they comprise the terms of the user's offer to purchase the goods. This offer is only accepted when accepts the order by e-mail confirming that it has dispatched the product. However, some users may be forgiven for believing that the order acknowledgement was in fact the expected order acceptance, thus concluding the contract. The order acknowledgement sets out the anticipated delivery date - "Will dispatch by: First Class (1-2 business days)" - and contains advice on cancellation rights with the wording "To cancel this contract, please...". One might infer from the reference to "this contract" that a contract has come into existence. Mistake If Amazon's terms fail to protect it, it may be saved by the common law and equitable doctrine of mistake. Amazon made a mistake as to a key element of the contract -- the price of the goods. Given that there was no indication that this was a special offer, the buyer must be taken to have known of the mistake. In a case of unilateral mistake, it could be said that despite an apparent offer and acceptance, there is in fact no genuine agreement (and therefore no contract) at all. In such circumstances, the contract is void and equity would not grant specific performance in relation to it. Unfair Terms in Consumer Contracts Regulations The Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No. 2083) govern the use of unfair terms in standard consumer contracts. They also require that written contract terms be expressed in plain, intelligible language. If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer will prevail. In the case of Amazon, it could be argued that it is insufficiently plain whether the order acknowledgement email giving a despatch date for the goods is the order acceptance email referred to in the terms and conditions. E-commerce Regulations Under the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 No. 2013), businesses selling on-line must provide information in a "clear, comprehensible and unambiguous manner" about the technical steps required to complete a contract on line. In relation to prices, these must "be indicated clearly and unambiguously". Breach of these requirements may be enforced by an action against the service provider for damages for breach of statutory duty; but this remedy is unlikely to offer much comfort to disappointed Amazon customers. Conclusions
  • It is strongly arguable that the Amazon terms don't apply
  • Even if they do apply, it is arguable that the order confirmation email could be taken to be acceptance
  • If Amazon lost on the above, it could argue "mistake". This is a most complex area of law and the cases are somewhat confusing but I suspect Amazon would win on this point in the end.
  • E-commerce sites will not want to have to rely on this difficult fallback argument and should prefer that their terms put the matter beyond doubt.
Nigel Miller is a Commerce and Technology partner at City law firm Fox Williams. He is also joint-Chair of the Society for Computers & Law. © Fox Williams 2003
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