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Out-Law Guide | 30 Mar 2005 | 3:24 pm | 8 min. read
The IT and general press have on occasions reported on stories of websites whose sales systems have failed, allowing customers to place orders for goods at unintentionally discounted prices. Unless the sellers in question get their contract formation process right, they could find themselves obliged to deliver the goods at these knock-down prices.
But e-tailers need not lose out because of a pricing error, if they follow a few simple legal rules and treat their customers well.
Where pricing errors have caused a problem
In January 2012, Marks & Spencer experienced a pricing blunder, pricing a Panasonic Plasma television online at £199 when it normally retailed at £1,099. According to the news reports, the error was noticed only after close to 1 million orders had been processed.
The M&S error follows on from a long line of pricing glitches. In 2002, Kodak.com had misstated the price of a digital camera on its site; the £329 camera went on sale for just £100. Word of the error spread rapidly across the internet, and it is rumoured that before Kodak were alerted to the problem around 2,000 orders had been placed. The company initially refused to fulfil the orders, and legal action was taken by disgruntled customers who argued that the company had entered into a contract from which it could not withdraw. Eventually the company capitulated and honoured the sales, but in the process it made a massive loss and suffered weeks of bad publicity. For our news article at the time, see Kodak caves in to customers over pricing error.
Pricing errors have also have been made by Amazon who cancelled orders for Hewlett-Packard iPaq handheld computers, which had been priced at £7.32 instead of the normal selling price of £275. These cancellations resulted in many disgruntled customers and poor publicity. For our contemporaneous guide, see Amazon.co.uk's pricing error.
What if the price is "obviously" wrong?
If the consumer is aware of the mistake before placing an order, there may be no agreement between the retailer and the consumer. When Digilandmall.com mistakenly priced a printer at Singapore (SGD) $66 rather than around SGD $3854, at least six people placed multiple orders which were automatically processed by the website. Later that day Digiland became aware of the error and told its customers that their orders would not be fulfilled. The customers challenged this decision in the Singaporean courts, but lost – the court decided that the customers had actually been aware that there was a mistake as to the price of the printer before they placed their orders and therefore there was no agreement between the parties.
However e-tailers should be cautious about relying on this. Firstly, pricing errors are not always obvious to consumers, as the internet is often seen as the place to find good deals. Secondly, a contract will not be invalidated if the mistake relates to one party's understanding rather than an actual term. For more information about the effects of a mistake, see High Court upholds contract entered into by mistake.
Practical steps for protecting your site
From a legal point of view there is no reason why companies should be out of pocket for pricing errors, so long as they follow a few simple rules, treat their customers well and comply with the obligations of the E-commerce regulations, the Distance Selling regulations and the Consumer Protection from Unfair Trading regulations.
To comply with the E-commerce regulations the pricing must be clear and unambiguous, and it must state whether the price is inclusive of VAT and delivery costs (for more information see our guide on The UK's E-commerce Regulations).
It is common for most e-commerce sites to direct customers through a 'checkout' process. When a customer clicks the button to "buy," the site should take him or her to a page displaying the terms and conditions. Pop-up windows that display small print should be avoided. Here are a few things to include in these terms and conditions in order to comply with the various regulations:
Structuring the contractual process
The next stage is to structure the contractual process in a way which protects you from potential pricing errors.
It is entirely possible to sell on-line and take payment by credit card without actually concluding the contract on-line . The important factor is to make it clear that by placing an order the customer is making an offer on the site and that the contract will be formed only if the customer's order is accepted by the seller. It must be clear that taking payment from the customer's credit card does not indicate acceptance. For more information on the offer / acceptance structure, see our guide on On-line Contract Formation.
This may, at first glance, seem unfair on the customer. It is not, and it is entirely legal, but only if the site is up-front about it, to avoid misleading the customer. On-line merchant accounts provide for making refunds to a customer's credit card.
Therefore the terms should explain that, while the customer's card may be debited before the contract is formed, if the customer's order is ultimately rejected, a full refund will be made immediately.
Online terms and conditions might therefore include the following provision:
"By clicking the 'Accept' button you agree to these terms and conditions. By completing and submitting the electronic order form (or proceeding through the 'checkout process') you are making an offer to purchase goods which, if accepted by us, will result in a binding contract. Neither submitting an electronic order form or completing the checkout process constitutes our acceptance of your order."
The words, "if accepted by us," are very important.
If your terms and conditions appear as a separate page during the order process, then make sure the page has fully loaded and the user has scrolled to the bottom of the page before being able to click his acceptance of the terms. Alternatively, if you only provide a link to the terms and conditions during the order process, you should include a checkbox which the user ticks to confirm that they accept the terms and conditions, before continuing. The checkbox should appear to the left of, and next to, the acceptance wording; you should avoid relying on client-side validation to confirm whether the user has ticked the checkbox. For more information see our guide on On-line Contract Formation.
When you get to the stage of taking the customer's money, the page should make it clear that acceptance of payment does not mean you are accepting the contract. A payment page could state: "Your card will be debited with the sum of £200 when you click the Submit button. This will be refunded if your offer is refused." If your payment provider allows it, allow the customer the choice of "submit", "clear" and "cancel" buttons.
When the card details are validated, give the customer a confirmation page. This should not confirm a completed contract, so avoid using phrases like "Your goods will be dispatched within 24 hours", as this will suggest that the offer has been accepted. Instead, this page should confirm that the order has been received and that the order is being "processed". This makes it clear that you have not yet accepted the order. It might be helpful to give the customer an order number at this stage so that he or she can chase-up any problems. It is good practice, though not legally required, to ask the user to click a button on this confirmation page to indicate that he has read the confirmation – e.g. a "Continue" button, linking to the homepage of the site, and taking the user out of the secure area of the site.
Many sites at this stage will automatically generate an email confirming the customer's order. If you are going to do this it should only really contain the information contained in the confirmation page, and again avoid any language which suggests that the contract is completed.
Once you have reviewed the order and are happy with it, you can dispatch the goods. This will be enough to signify your acceptance of the customer's order, but if you wish you can email the customer to confirm that you have accepted their order and their goods have been dispatched. In any event at this stage additional information should be provided to any customers who are consumers, to comply with the Distance Selling Regulations . This largely repeats the information described above.
If before dispatching the goods you discover an error on the site you can legally refuse to fulfil the order.
Dealing with pricing errors
Many e-tailers appear to have taken notice of other businesses' problems and have now put in place a good e-commerce process.
In August 2005, Argos mistakenly offered a £349.99 television for just £0.49. This was the second time Argos had this problem, but the company had clearly learnt from the first experience. The company quickly removed the offer and successfully cancelled the orders which had been placed. Argos could do this because its website terms said that it would tell customers of any errors and give them the option of cancelling or confirming their orders. Crucially, Argos also made sure that customers accepted these terms when they placed their orders, by requiring them to tick a box confirming they accepted the terms and conditions. Argos also sent customers an order acknowledgement which clearly stated that, although an order had been placed, no contract had yet been made with the customer. For more information about this example of a pricing error, see our contemporaneous article Argos makes no mistake with 49p TV.
In 2005 Dell mistakenly advertised a $1600 Canon camera lens at the knock-down price of $196. The company blamed the error on a typo and gave consumers the choice of cancelling their orders or accepting a replacement $230 lens. In doing so, Dell relied on its terms and conditions which said that Dell was "not responsible for pricing, typographical, or other errors". However there is a risk that such a sweeping exclusion clause in consumer terms and conditions may be challenged on the grounds that it is unreasonable.
Of course, even if your e-commerce process and website terms entitle you to cancel any orders, customer service will be crucial at this stage. The email refusing the order must be polite and if necessary apologetic for the misunderstanding.
Even if you have the right to reject orders, you may choose to accept them as a gesture of goodwill and to encourage customer loyalty. In 2006 a discount voucher intended for Threshers' suppliers became available to all and sundry on the internet. Threshers could have refused to accept the vouchers, but this would have upset shoppers and could have damaged the company's reputation. Instead Threshers turned what could have been a problem into a marketing triumph by choosing to honour the vouchers – sales went through the roof and, although its margin was reduced, Threshers did not expect to make a loss. For more information about this example, see Threshers' discount voucher stampede was an act of accidental marketing genius.
France Telecom: lessons for UK employers following 'institutional harassment' ruling