Columns

Dell Case Sets Standard for Online Contracts

My weekly Law Bytes column (Toronto Star version, The Tyee version, homepage version) examines the recent Supreme Court of Canada decision involving Dell Computer, online contracting, and mandatory arbitration clauses.  Late on a Friday afternoon in April 2003, Dell Computer's Canadian website featured a pair of erroneous prices for the Axim, the company's handheld computer.  Rather than listing the two versions of the device correctly at $379 and $549, the site indicated that the price was $89 and $118.  Dell blocked access to the pages the following day, however, the mistakes remained accessible throughout the weekend via a direct hyperlink.

Dell typically sold about three Axims each weekend, yet on this particular April weekend, 354 Quebec-based consumers placed 509 orders. Olivier Dumoulin was among those consumers and when Dell refused to honour the mistaken price, he joined forces with a Quebec-based consumer group to launch a class action lawsuit against the company.  Dell tried to block the suit, arguing that its consumer contract provided that all disputes were to be resolved by arbitration.

The Dell case wound its way through the Canadian court system, concluding with a Supreme Court of Canada decision last month.  Quebec trial and appellate courts both sided with Dumoulin, ruling that the arbitration clause was not enforceable and that the consumer class action could proceed.  The Supreme Court overturned those decisions, concluding that the arbitration clause was enforceable and that the use of a hyperlink was sufficient.  Dell unsurprisingly welcomed the decision, maintaining that the ability to use arbitration "will lead to the fair and efficient resolution of cases for consumers and business alike."  Consumer groups were furious, stating that the decision marked "a dark day for online shoppers in Canada.”

Yet a closer examination of the decision and the current state of e-commerce in Canada suggests that neither side is right. 
Dell may extol the virtues of arbitration clauses, however, the reality is that they have been largely eliminated from Canadian e-commerce contracts by provincial legislation in Ontario, British Columbia, and Quebec (the Quebec law was passed after the Dell incident) that bars companies from using such clauses to block potential class action lawsuits. Indeed, a review of the consumer contracts used by many leading Canadian e-commerce companies reveals that the overwhelming majority – including Chapters, Expedia, Future Shop, Best Buy, Sears, eBay, Rogers, Bell, the Bay, Zip, Roots, and Toys R Us – do not include a binding arbitration clause.  Exceptions to this general rule include Amazon.ca (which maintains that it operates outside Canada) and Bose Canada (which appears to be violating Ontario law).

The effect of the Supreme Court's online contracting comments may be more far reaching.  The Court concluded that contractual terms and conditions can be enforceable even if the consumer is required to click on a hyperlink to access them (ie. the terms are not found on the ordering page itself).  It emphasized that the terms and conditions must be "reasonably accessible” and expressed the view that a hyperlinked document meets that standard.

Consumer groups fear that this opens the door to businesses deceiving consumers by sneaking unfavourable terms into hyperlinked contracts, yet that seems unlikely.  First, the enforceability of the online contracts rests on it being reasonably accessible.  Businesses engaged in e-commerce will have to ensure that their contracts – whether hyperlinked or not – meet that standard.  Second, the enforceability of online contracts requires an analysis of both form and substance.  While courts may be willing to enforce electronic contracts based on their form (ie. available via a hyperlink), the actual terms of the contract (the substance) will be subjected to rigorous analysis that could lead a court to strike down overreaching or unusually one-sided terms.

The Dell decision provides a measure of clarity to the world of online contracting, however, the ultimate message for consumers may be an age-old one – if a deal seems too good to be true, it probably is.

8 Comments

  1. michael webster says:

    bizop.ca
    One of the important fall-outs from this decision will be whether arbitration clause in franchise agreements which rules out class actions will hold up, and in what provinces.

  2. Olivier Dumoulin says:

    Student
    Swell for Dell… I still think I should have won though!!

  3. H.N.I.C.
    lol fonetap

  4. ~_~
    Binding Arbitration is a tool of the corporations to hold the consumer hostage.

  5. lol tap fail

  6. vincent gautrais says:

    professor
    In fact Michael, situation is perhaps not as dramatic as Piac or Cippic said. As I mentioned in a previous post ([ link ]) (but only in French), judges clearly stated that no evidence was done on the issue of an illegible arbitration clause. Many times, the judgment, as in par. 103, said that “relying only on the facts in the record and having heard no specific arguments” … there’s no evidence of illegibility. So, perhaps with some better arguments, and a better record (the respondents record was quite poor), the decision would be different.

    Other point, as you mentioned, several provinces passed new laws as BC, Ontario (2002) and Quebec (2006) and they forbid companies using arbitration clauses to block potential class action. But these laws introduced a new consent standard for electronic contract too. For example, Ontario Consumer Protection Act states: ” 5. (1) If a supplier is required to disclose information under this Act, the disclosure must be clear, comprehensible and prominent. 2002, c. 30, Sched. A, s. 5 (1).”

    Perhaps that the reason why Dell improves its consent process as you can see on a picture reproduce in my post; a consent process much more consumer-oriented as the former one.

  7. Sr. Systems Analyst
    I’m really not sure how this one made it as far as it did (Supreme Court) – a contract is comprised of an offer, acceptance, and action. Advertisements are not offers, they are referred to as an “invitation to treat”, and should not be considered part of a contract. The shopper actually makes the offer, the seller accepts, then the shopper seals the deal by taking action (i.e. paying for it).

    A class action suit would most likely rely on a “bait-and-switch” argument, but Dell’s action of removing any site navigation to this site clearly (to me anyway) indicates that this was not their intention. The only other possibility is erroneous invitation to treat.

    A Walmart scenario like this one would result in the cashier refusing to accept $5 for a mis-labeled $150 dvd player, and be well within rights. So to me the big question is, does electronic acceptance over a website bind the seller? It’s a question worth asking.

    But bait and switch? Come on…

  8. Natalie35Newton says:

    respond this post
    If you are willing to buy a car, you would have to get the loan. Furthermore, my brother all the time uses a student loan, which supposes to be really firm.