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E-commerce contracts and revenues

What are the revenues of carsales.com.au? We'll answer that and then turn to an anecdotal story on the continuing shift online of buyers and sellers even for expensive products.

The conclusion we'll reach is that the trend stands on a foundation of law in Australia which enforces online contracts, including online auction contracts.

Mark Day and Michael Bodey reported the statistics for carsales.com.au in The Australian yesterday:

"PBL Media holds 49.7 per cent of carsales, which had a reported A$39m in earnings before interest and tax in the last full year. That would imply a value of between A$400m and A$450m for the company, delivering A$200m to A$225m to PBL."

The report reminded me of an email this month from a friend. He is an early 1990s veteran journalist and researcher in digital media in Australia. He wrote about his purchase of a slightly pre-loved car this month, online, without seeing it in real life or test driving it. He said:

"I bought my BMW online. While I had seen a picture of it on the dealers website I hadn't actually "eye-balled" the car nor test driven it."

He then described what he used to believe in the mid-1990s about the potential for online sales, and how he now thinks differently.

In fact the car was in Brisbane and I bought it while I was in Darwin. I am re-telling this because when the internet first appeared and online buying started happening, I for one at least, thought that there would be no way anyone would buy a car online. It was potentially too big a purchase in terms of dollars and too many variables in regards to the state of the car partiuclarly when it came to second hand cars."

What has changed? Why is my friend buying an expensive car online? As you can see it even surprised him. What makes this very normal or customary today? Why are people spending tens of hours online looking for houses to buy or rent and it seems spending a lot less time than historically to actually inspect them?

Consumer habits have changed. Normality and habits go hand in hand. Looking for information online is normal, inclusive of information about real estate to rent or buy. Without too much fuss, the old law has been in most cases easily adapted to fit new factual situations.

The online trend is about convenience, speed and relative low-cost - for sellers, agents, buyers and intermediaries alike. With an admirable American simplification, Silicon Valley speak refers to this online commerce experience as involving commerce with less "friction". It works because there is less friction. Think of eBay, a pioneer in the field.

Peter Smythe v Vincent Thomas

wirraway_planeCourt decisions, such as an eBay decision in 2007 in the equity division of the Supreme Court of NSW, make clear the enforceability of online contracts and online auction contracts in Australia. For tens of millions worldwide, eBay helps reduce friction in commerce. Consider the legal aspect to this in the following overview of the facts and outcome of that case.

The 2007 eBay case in Sydney concerned the marketing and sale in an eBay auction of a restored Wirraway World War II plane for A$250,000.

Vincent Thomas (the seller) offered the plane for sale, with a noted minimum bid" of A$150,000.

Seeing the eBay auction for the plane, Peter Smythe (the buyer) phoned the seller. What was said between them was later disputed in court. But even in court all agreed the buyer then made a bid at A$150,000. Each received a notification from eBay to the effect that the buyer had “won”.

In signing up as members, both had accepted the provisions of the eBay terms and conditions. This was critical. They included a great deal of detail, including this:

"You are obligated to complete the transaction with the seller if you purchase an item through one of our fixed price formats or are the highest bidder as described below, unless the transaction is prohibited by law or this User Agreement."

When the buyer moved for completion of the transaction for the "won" valuable plane, the seller said in an email:

As you know, I told you during our phone communication that I certainly would not accept a payment of only $150,000 for my Wirraway and you were to inspect before purchase. I suggest therefore that you do not attempt to send me any payment because I will simply not accept it. eBay have already been notified of this. It will be indeed unfortunate if we need to undertake legal action about this.

The buyer, Smythe, sued to force the seller to complete the transaction. Arising from the eBay auction terms and conditions, as well as reference to common law and legislation, the court found a binding contract existed between the buyer and the seller. The court found no problem treating the plane as "goods" under the Sale of Goods Act 1923 (NSW).

Thus the court granted the legal remedy of specific performance to the buyer plaintiff to force the seller defendant to complete the sale. The case report is in Austlii.

Three practical lessons

  1. Use customised terms of use (AKA terms and conditions) - For e-commerce and website site owners, the eBay case illustrates the critical role of online terms of use customised for specific types of transactions and online business models.
  2. Customise terms of sale - In the court decision Justice Rein provides a useful reminder to sellers on auction sites who wish to protect their position: "It is clear too that a seller who lists his product on eBay would better protect himself by specifying all elements of the sale that are important to him – method of payment, time for payment, and where appropriate the exclusion of warranties where such exclusion is permitted by law. As this case itself demonstrates, the absence of details can be productive of difficulty, a point to which I shall return." (Paragraph 40)
  3. Keep file notes and records - If you sell or buy stuff online make a written note (lawyers call them diary or file notes) of all telephone conversations. Otherwise you too might spend tens of thousands and a lot of time disputing the existence or otherwise of a contract in court. Which reminds us of our favourite joke about lawyers, especially those who live solely off litigation. QUESTION: What's the difference between lawyers and lab rats? ANSWER: ... There are just some things rats won't do.

The use of the internet as advertising media continues its rise and rise. E-commerce in its many forms, eg online auctions, follows that trend. As the eBay case illustrates, case by case traditional laws are being found to apply or customised for new conditions. This legal tendancy has been ongoing since about the mid-1990s. That's the big fact, but often it is drowned out by the regular noise and media theatre about law being out of date.


Photo credit: Car in Cuba, Copyright © Henrik Michaelian 2009

 

http://www.theaustralian.news.com.au/story/0,,25838514-7582,00.html

 


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