M'Learned Web: Do online auctions work?

The weird world of online trading; be careful out there

Last time, I wrote about the basic rules in English law about making a contract that works on the Web and some of the legal oddities in trading online. The moral, for the people behind the Web sites, was to eliminate as many of the oddities as possible using small print. It’s extraordinary how many trading Web sites have ineffective legal wording. More amazing is how many have none at all.

But the auction Web sites are different. The small print tends to go on for page after page of expensive legal prose. There is a good reason for this. The legal relationships involved in an online auction are very odd indeed.

Look at the chain of communication: we start with the seller.

  • The seller communicates with the online auction house.

  • The auction house communicates with the buyer and all the prospective buyers.

  • The seller may or may not be named.

  • The successful buyer will certainly be unknown to the seller until everything is over and the purchase has been made.

  • Only the auction house is communicating with everyone.

Traditionally the contractual position in an auction is very simple. Sotheby’s, for example, in a physical auction, sells as the seller’s agent. The purchaser enters into a contract with Sotheby’s. The point at which the contract is entered is clear: the fall of the hammer. The buyer pays Sotheby’s and takes the goods away, and Sotheby’s takes its commission out and passes the remaining money on to the seller.

If you look at the small print the online auction houses impose you get a very different picture. They say this is a contract of purchase and sale between the successful buyer and the seller, and the auctioneers have nothing to do with that.

They are simply providing introduction services, they say, and charge money under a separate contract; they will assist in the process of payment, and act as a bank for the buyer to pay the seller; but they are not party to the contract of purchase and sale.

There’s a good reason for this of course: in real life they can subject your genuine Van Gogh to their beady gaze and other instruments of scientific investigation. They can even up to a point, scrutinise the whites of the buyer’s eyes when he enters the room with his bidding paddle. In cyberspace, God knows.

It follows that if online sellers part with their goods without getting paid, it's their problem and not the auctioneers’. If the goods are fakes, or don’t work, or aren’t what it says on the Web site, that’s the buyer’s problem. The online auction house has nothing to do with it because, as it says in its small print, it’s not a party to the contract of sale.

It's a very strange contract. It's supposedly between two people who have never communicated with each other, who have never even heard of each other and don’t know each other’s names. All they know, and the only person they have communicated with, is the (virtual) auction house. It’s hard to see how that can be a contract that stands by itself without the auction house being a party to it and taking some responsibility.

It’s particularly hard to see how it all fits into the structures which the EU is hoping to impose on e-commerce, involving cooling-off periods, emailed confirmations of contractual commitment and so on.

We shall see. It hasn’t been tested in the courts yet. It’s fair to assume that the online auction houses also think this is problematical. Otherwise you wouldn’t get the acres of small print, and there wouldn’t be the guarantee, that they will pay you something if things go wrong.

As all lawyers know, the best way of limiting your liability is to offer a ‘guarantee’.

What it comes down to is that people are taking calculated risks because they can see the opportunity of making stacks of money. No doubt it will come to court and then we shall hear a great deal more about it.

Concerned? Tell the Mailroom. And read what others have said.

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