The increasing popularity of the Internet has resulted in significant commercial activity moving online. However, this has brought along--and magnified--problems that have traditionally plagued offline transactions. Among the most prominent of these is the issue of pricing errors.
Such errors occur when the advertised price of a product or service has been wrongly set either due to human error, machine error or transmission failure. With automated order processing systems, you can imagine the horror that can ensue--millions of transactions confirmed at a fraction of the original price.
Major online Web sites including Amazon, Dell, IBM, Foris, Argos, Sony, Kodak and Thai Airways have faced such situations with varying results.
Laser printer for S$66
Last year, Hewlett-Packard and its corporate retailer Digiland International fell to the same problem. In early 2003, on a Web site operated by the two companies, a color laser printer, which normally went for between S$3,500 (US$2,062) and S$3,800 (US$2,239), was priced at S$66 (US$39). This arose because a set of figures used in a training session was inadvertently uploaded.
It did not take long for Web sites to spread the news of the fantastic color laser printer deal. Over the course of the next few days, before the error was discovered, 784 individuals had placed 1,008 purchase orders for over 4,086 laser printers. Of these, six individuals placed 18 orders for a total of 1,606 laser printers. If the orders had been fulfilled, these individuals would have received up to S$6 million (US$3.5 million) worth of stock for a little more than S$100,000 (US$58,922).
Digiland chose not to honor the orders, and these six individuals subsequently brought action against Digiland.
Judicial Commissioner V.K. Rajah rendered his judgment in April 2004. This is believed to be the first time a court anywhere in the world has released its judgment on this issue.
The doctrine of mistake
The entire case revolved around the legal doctrine of mistake. It means that if the basis upon which the parties have agreed to be the contract is incorrect, then there is no contract to speak of.
In layman's terms, say two parties agree on the sale of a Rolls Royce car. If the car turns out to be a Toyota--against the prior knowledge of both parties--then there is no contract.
However, in the case of a unilateral mistake, where only one party is mistaken, the answer is not as simple. In the past century, unilateral mistake cases mainly involved the identity of the parties. For example, say I hire someone called Tom Jones to sing at a stadium concert. If someone named Tom Jones does turn up--but not the Tom Jones whom I had expected--then this may be a case where a unilateral mistake is cause for the voiding the contract.
Although this wasn't a case of mistaken identity, Rajah decided that "snapping up" was an issue. He identified a series of "snapping up" cases in England, Australia and Canada where "unscrupulous commercial predators" sought to take advantage of errors by unsuspecting prey.
"Snapping up", explained the judge, is taking advantage of a known or perceived error in circumstances which ineluctably suggest knowledge of the error, typically accompanied by haste or urgency with which the non-mistaken party seeks to conclude a contract.
He thus held that if the six individual plaintiffs had actual or constructive knowledge that the pricing was mistaken, then the contracts could be avoided.
Proving "snapping up"
The judge identified a series of e-mails and ICQ messages between the plaintiffs and their friends. The discussions clearly indicated that the plaintiffs were aware that the prices were mistaken. Given the stark gaping difference between the market price and the posted price, any person would have realized that something was amiss, decided the judge.
In addition, the price research carried out by the plaintiffs in the wee morning hours and the haste and size of the orders reinforced the finding of "snapping up".
The judge wryly noted that the plaintiffs attempted to take advantage of Digiland's mistake over the Internet. In turn, the ICQ chat sessions and e-mails played a significant role in undermining their credibility and claims.
Traditionally, the courts have been reluctant to allow a party to get out of a contract because of a bad bargain so the "snapping up" cases are an anomaly for only a small minority. In the whole of history throughout the Commonwealth world, there have only been over 20 such cases. Therefore, the reference to "snapping up" represents a new development in Singapore law.
The judge was prepared to take a practical view of the position of the other purchasers, who could presumably be implicated even without the e-mail or ICQ messages. For instance, if the means to clarify the mistake were available by way of easy access to an online search engine or the true pricing was commonly known, then a case of "snapping up" may again be satisfied.
The judge also took the opportunity to clarify certain areas of law in the context of e-commerce transactions.
First, he affirmed that contracts concluded over the Internet are enforceable.
Second, computers that are programmed to send out automated responses will bind the senders.
Third, the judge rejected suggestions that the stocks were subject to availability as there was no attempt to curb sales and all orders were followed up by a confirmation e-mail which stated "successful purchase confirmation". This point alone is sufficient to remind companies to review their online contracts as such contracts should be the first point of reference.
The judge also pointed out that e-commerce companies should provide for uncertainties concerning delivery of electronic messages given the alternative postal and instantaneous communications rules.
The resolution of the Digiland case is exciting to the online community as it answers some of the questions which have been perplexing the industry over the last few years. It is clearly pro-business, in favor of what the judge termed as the "reasonable expectation of honest men". He was at pains to stress that this was not a case against bargain hunting but against predatory pack hunting. It also puts to rest any wishful thinking that there is a case of one set of rules for online transactions and another set of rules for offline transactions.
This brings us to ask: Where, then, do you draw the line between "snapping up" and plain bargain hunting?
This part of the law is not so clear. A part of it is urgency, although the judge was clear that urgency is not the sole factor. There are two extremes:
On one hand, you have a group of friends exchanging notes, doing price and legal research, and buying laser printers in the middle of the night--items they had never purchased before. That is clear "snapping up".
On the other hand, you have someone who has been buying laser printers. He happens to browse on a regular site and spots a printer he had never purchased before (and so did not know the usual price) but was convinced enough to buy one. That is bargain hunting.
Bryan Tan is a partner at law firm Tan & Tan Partnership.