Online auctions are increasingly replacing the humble garage
sale as the way for people to trade in ordinary (and
occasionally not-so-ordinary) items. In the recent case of
Smythe v Thomas  NSWSC 844, the New South Wales
Supreme Court weighed in on the contractual validity of an
online auction, in the context of a not-so-ordinary item.
In August 2006 Thomas, the defendant, listed a Wirraway
Australian Warbird aircraft on eBay. Thomas set a minimum bid
of $150,000 with an auction duration of 10 days. The plaintiff,
Smythe, placed a bid on the aircraft in accordance with eBay
rules, in the amount of $150,000. However, following the expiry
of the auction period, Thomas decided that he did not wish to
proceed with the sale and was entitled to withdraw because no
binding contract had been formed between the parties.
Smythe v Thomas is the first Australian case to
address online auctions and to consider whether an online
auction is akin to a traditional auction, and further, whether
an online auction is capable of forming a contract between
vendor and purchaser.
Summary Of Claims
Smythe claimed that as a result of Thomas being the highest
bidder and his bid equalling the minimum bid set by Thomas, a
contract for the sale of the aircraft was entered into between
himself and Thomas.
Thomas disputed that a contract had been entered into
between the parties. He claimed that the only contracts on foot
were between himself and eBay and between eBay and Smythe, and
that those parallel agreements did not amount to a contract
between the parties. While Thomas acknowledged that both
parties had accepted eBay's terms and conditions, he
contended that the mutual acceptance of those terms and
conditions did not create a contract between Thomas and Smythe.
Alternatively, Thomas argued that listing the goods on eBay was
akin to placing a classified advert in a newspaper, and was
thus merely an 'invitation to treat' (as opposed to an
offer that had been accepted by Thomas).
Summary Of Decision
The New South Wales Supreme Court (Rein AJ) held that a
binding contract existed between the parties and that this
contract should be enforced. Rein AJ made a number of
observations in relation to the issue of online auctions.
First, His Honour observed that when a purchaser and vendor
agree to accept the terms and conditions of an online auction
service, the parties accept 'that the online
auction will have features that are both similar and different
to auctions conducted in other forums'. The
decision was held that an online auction is a
'species of auction'.
Second, His Honour stated that, in an eBay auction, there
exists not only contracts between eBay and each of the
purchaser and vendor. Rather, as in a traditional auction,
contracts exist between:
the vendor and eBay;
the vendor and purchaser; and
eBay and the purchaser,
and that these contractual arrangements 'can sit
together' to create a binding contract of
The judge held that placing the item for sale on eBay did
not constitute merely an invitation to treat, but was rather an
offer to sell the aircraft.
Impact Of The Decision
The decision categorises online auctions, such as those
conducted on eBay, as a species of auction. Moreover, in an
online auction, a binding contract between the vendor and
purchaser may come into existence. By affirming the contractual
validity of 'peer to peer' online auctions, the
decision in Smythe v Thomas greatly enhances the
ability of purchasers and vendors to enforce sale of goods
contracts made in an online auction environment and neutralises
an argument that could have been problematic
for a multi-million dollar industry.
France's regulatory authority, the Council of Sales,
has recently issued proceedings against eBay arguing that eBay
should be held to the same strict standards as French auction
houses. eBay has asserted that it should not be considered an
auction house, but rather should be considered a mere
intermediary in the sales process, as it has no role in the
negotiation of contracts and it is customers who decide whether
or not to put items up for sale.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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