United States: Online Businesses - Are Your Terms And Conditions Fair?

Last Updated: June 20 2012
Article by Susan McLean and Alistair Maughan

Have you heard the one about the 5-year-old trader and the £50,000 losses? No, actually, it's not a joke...

Two recent cases in Europe indicate how courts across Europe will apply rules on the enforceability of online contracts. In one case, the UK High Court held that a man, who blamed his girlfriend's five year old son for running up £50,000 of losses in online spread-betting, was not bound by a provision in online terms and conditions that made him responsible for trades made on his account. The online operator had to bear the loss even though it's not clear what more it could have done and, to the extent that any "fault" existed, surely it was on the part of the careless online user.

The issue of enforceability of online contracts is a familiar one: how do online businesses ensure that their terms of trading form binding contracts with their customers? The consequences of failing to implement the correct procedures can be real – as the online spread-betting operator in the UK case described below found out to its (considerable) cost.

In Europe, various rules and regulations apply to online contracts depending on the country and sector (most countries' financial services regulators have issued particular regulations, for example). Typically, the rules in Europe target:

  • the information which must be disclosed to online customers;
  • cooling-off periods for online purchases; and
  • the test of fairness (or otherwise) to be applied to online terms.

It has been left up to the courts to fill in the gaps by adjudicating on the procedures by which online contracts are formed in the first place and to interpret the fairness requirements. These two recent cases – one a UK case and the other a European Court of justice ruling on a Hungarian case – covered both the formation and fairness aspects of online contracting.

Spreadex Limited v Cochrane

Mr. Cochrane opened an online account with the online spread-betting company, Spreadex, in October 2010. As part of the account sign-up process, Cochrane was asked to "read our U.S. based policy, Client Declaration, Customer Agreement, Risk Warning Notice and Order Execution Policy. Once read and understood, please click on "Agree" to signify your agreement to the terms". Cochrane ticked to accept the terms.

Cochrane made a significant number of trades each month. By the beginning of May 2011, he had a credit balance of more than £60,000. On 2 May 2011, whilst staying at his girlfriend's house, he used his computer to make trades and this was witnessed by her five-year-old son "C". Cochrane explained the trades to C as a kind of "guessing game". Cochrane left his computer at his girlfriend's house for two days whilst visiting a friend. A few days later, Cochrane learnt that his account was £50,000 in debit. Cochrane claimed that C had run up the losses whilst "playing" on Cochrane's computer.

Cochrane explained the situation to Spreadex but Spreadex demanded payment of the losses and brought a claim for summary judgment relying on clause 10(3) of its 49 page Customer Agreement which provided "You will be deemed to have authorised all trading under your account number".

The High Court rejected Spreadex's application for summary judgment and held that clause 10(3) was not legally binding because (1) it did not form part of a binding contract between Spreadex and Cochrane and (2) it was an unfair term.

On the issue of formation, the Judge held that the online terms and conditions which Cochrane had accepted did not constitute a contract. For a contract to be formed under English law (whether online or offline), there must be offer, acceptance and consideration (i.e., each party must obtain a benefit from the contract). The Judge held that there was no consideration. The online terms and conditions were so favourable to Spreadex (for example, Spreadex could refuse to accept bets, it could remove their online service at any time and it had the right to close or suspend an account at any time) that there was effectively no commitment from Spreadex.

On the issue of fairness, the Judge held that the contract had not been drafted in accordance with the good faith requirements under the Unfair Terms in Consumer Contracts Regulations 1999 and there was a significant imbalance in the parties' rights and obligations arising under the contract that negatively impinged on Cochrane's rights. As the terms were not fair, they were not legally binding on Cochrane. The Judge indicated in his judgment that if the clause had only made Cochrane liable for unauthorised trades where he had been negligent the provision may have passed the fairness test, but making him liable for all unauthorised trades under his account was not fair.

The Judge also said that Spreadex had not made sufficient effort to inform Cochrane of the clause. The Judge believed that it was unlikely that Cochrane would have reviewed all four of the documents referred to during the acceptance process and would have been "close to a miracle" if Cochrane had actually read clause 10(3) of the Customer Agreement, "let alone appreciated its purport or implications". In fact, the Judge believed that the 49-page Customer Agreement was an "entirely inadequate" way to seek to make the customer liable for any potential trades he did not authorise.

Nemzeti Fogyasztóvédelmi Hatóság v Invitel Távkőzlési Zrt.

No, we don't know how to pronounce it, either.

This case arose when a Hungarian court asked the ECJ for a ruling on the Hungarian implementation of the Unfair Terms Directive. Back in 2008, Invitel, a fixed-line telephone network operator in Hungary, varied its terms and conditions to include a term which required consumers using money orders to pay additional fees. This led to a flood of complaints and, eventually, to the highest court in Europe.

Unfair Terms in Consumer Contracts

All countries in the EU are required to implement the Unfair Terms Directive (93/13/EEC) on unfair terms in consumer contracts ("Unfair Terms Directive"). This directive protects consumers from unfair terms used by suppliers in two ways: firstly, it requires that suppliers draft in plain and intelligible language (the so-called "transparency test"); secondly, it applies a test of fairness to the substance of most terms (the "fairness test"). The Unfair Terms Directive also gives a list of terms which may potentially be unfair.

The Unfair Terms Directive has been implemented in the UK in the Unfair Terms in Consumer Contracts 1999. Under the Unfair Terms in Consumer Contracts Regulations 1999, "unfair" contract terms are not binding on a consumer. A contractual term which has not been individually negotiated is considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.

The core problem was that a Hungarian statute gives consumers a right to terminate if the supplier unilaterally varies the contract charges. This is actually a mandatory provision of local law but the ECJ still found that the supplier must state this right in the consumer contract in plain and intelligible language, and any failure to do so should be taken into account by a national court when determining whether a term of a consumer contract is unfair.

The main elements of the ECJ's findings were that:

  • a consumer must be given the opportunity to examine all the contract terms and their effects;
  • any supplier must always draft in plain and intelligible language;
  • suppliers must always inform consumer of any mandatory statutory or regulatory provisions which may set out a supplier's rights to vary fees and/or which provide a consumer with a termination right in these circumstances.

The ECJ's decision is consistent with an earlier decision from January 2012 in a different Hungarian case in which it ruled that, in relation to a consumer contract, a national court in the EU has a duty (not merely a right or power) to assess the fairness of a term even if the consumer has not challenged the fairness of that term. If the national court considers a term to be unfair, it must not apply it unless the consumer wants it to be applied.


Although the Spreadex case is clearly unusual, it is a useful reminder that companies providing products or services online need to be very careful when drafting their terms and conditions to ensure that those terms are enforceable against consumers.


  • Try to make the contracting process as straightforward as possible (e.g., are multiple sets of terms and policies necessary? Can all relevant issues be contained in one set of terms and conditions?).
  • Make the terms easy to read – this applies to the format as well as the wording itself (e.g., don't make the wording too small or too closely printed).
  • Try to limit the length of any terms and conditions to something manageable (a consumer is more likely to read 5 pages than 49 pages – particularly if scrolling through terms online).
  • Ensure that your contracting terms are binding (in particular, that they are not drafted with such little commitment on your side that it could be argued that there is no consideration).
  • Avoid making your terms and conditions unreasonably one-sided. Whilst protecting your organization, try to make the provisions as reciprocal as possible, bearing in mind the responsibilities of each party.
  • Draft your terms and conditions in language which is as clear and simple as possible – avoid legal or technical jargon wherever possible.
  • Bring any unusual or onerous terms to the attention of the consumer.
  • If your organisation operates globally, before using any standard terms and policies in respect of your European operations make sure that you review those terms and policies in light of the local implementation of the Unfair Terms Directive and other applicable laws. What works in the U.S. or in other jurisdictions may not meet the requirements of applicable UK or other European consumer laws.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Susan McLean
Alistair Maughan
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.