Unfair terms could cost more than corkage

16:00, Feb 15 2013

While I like to think I have a reasonably developed palate for craft beer, my taste in wine reflects my blue collar Timaru roots. I like big, 1990s-style chardonnays.

Forget the refined grapefruit of sauvignon, or the delicate chocolate of pinot, I love the loud, shoulder-padded buttery chardonnays we used to get 20 years ago. About as subtle as a whack in the head with a hunk of wet oak.

Once common as mud, today such chardonnays are rare as rocking horse droppings (and many would say as attractive), so when I recently got spammed by Taupo-based Scenic Cellars about a "big bold chardy" special I thought I was in. I clicked through to its website and bought a case, then settled back in happy anticipation.

Sadly the anticipation turned out to be happier than the consumption as the wine failed to live up to my hopes or the marketing. Unsurprisingly the website's legal terms includes the fact that "Scenic Cellars does not warrant that the product descriptions or other content of this site is accurate", so really I was on a hiding to nothing.

The other thing that struck me about the legal terms of the site was that, like many other eCommerce operations in New Zealand, it uses a "click wrap" style user agreement.

Broadly speaking there are two kinds of user agreements or "wraps" on eCommerce websites. One is a "click wrap" where you are presented with the terms and conditions and have to click "I agree" before proceeding.

This other is a "browse wrap" where terms and conditions are viewable on the site but your ongoing use of the site supposedly means you have agreed to them. Browse wraps do not require users to click on an "I agree" button, but assume that simply using the site signifies acceptance.

To date none of this has mattered a damn. Businesses have used both and this has worked perfectly well. However, a recent US court finding, together with some last minute additions to the local Consumer Law Reform Bill, may change all that. It may also cause more than a few website operators to gag on their chardonnay, buttery or otherwise.

Late last year the US District Court found that eCommerce giant Zappos' user agreement did not protect the company (or owner Amazon) from a class action brought by its customers. In fact the US Court went further than that.

First, it found the "browse wrap" style of agreement under which customers buy stuff on Zappos had no ability to bind those customers to its terms and conditions.

Second, it found a provision in Zappos' user agreement saying it had the right to change the terms and conditions at any time (without bringing those changes to the attention of customers) was likely to be useless. The District Court called such a clause "illusory" and suggested it was unfair and likely voided an underlying arbitration clause.

The ramification of this decision is significant given browse wraps are used by major websites like Dell, Overstock and Nokia - and the implication is that such agreements aren't worth the pixels that illuminate them.

Closer to home the long overdue Consumer Law Reform Bill is getting ready for its second reading. Along with changes to the Consumer Guarantees Act and Fair Trading Act to bring both up-to-date with the web, a new section has been added to deal with unfair contract terms.

Specifically the Bill prohibits businesses from having 'unfair contract terms' in their standard term contracts with customers. Similar to the clause in Australia's Trade Practices Act (and the 1993 EU Directive on unfair terms in consumer contracts), the new clauses mean consumers cannot be manacled by unfair terms and conditions. Typically, unfair terms are those that cause serious imbalance between the rights of the parties.

The Consumer Law Reform Bill lists 13 examples of what might be "unfair". These include terms that allow only one party to limit performance of a contract, vary the terms, or change the price without notice.

While fundamentally a good thing for consumers and a boost for their confidence in the local internet economy, you can bet some businesses will come a cropper when it first goes live.

Clear guidance will be needed on what's unfair. Like Zappos or Scenic Cellars, many online businesses have clauses enabling them to unilaterally change their terms or close customer accounts. Businesses will now need to know when such clauses can be changed and what steps they should reasonably take to ensure customers get notice.

The two outtakes for local websites selling services or products online are:

1.    If you are using a browse wrap, consider moving to a click wrap;

2.    If you change your user terms, make an effort to proactively tell your customers.

Meanwhile there's a good chance if your business fails to make sufficient changes in anticipation of the new law, it will cost you more than a case of questionable chardonnay.

Mike "MOD" O'Donnell is a professional director, author and head of operations for Trade Me. If you know of some 1990s style buttery chardonnays please tweet him at @modsta