Internet auctions, consumer protection and the Trade Practices Act
Contact: Mathew Webster and Andrew Sorenson of Deacons
Internet auctions have in recent years demonstrated themselves to be a popular forum for fraudulent activities. Sellers and Internet auction operators, including overseas based sellers and operators, need to be aware of their potential liability under the provisions of Part V of the Trade Practices Act 1974 (Cth) (“TPA”) and/or equivalent State and Territory Fair Trading legislation (for example, the Fair Trading Act 1987 (NSW)), where they sell or are involved in the sale of products to Australian consumers. Irrespective of the contractual arrangements between the parties, the misleading and deceptive conduct provisions of the TPA and/or equivalent Fair Trading legislation may well apply, provided a sufficient jurisdictional nexus is established in relation to the relevant conduct. This article considers the application of provisions of the TPA which may be relevant to Internet auctions, and some related commercial issues.
Internet auctions, like traditional auctions, offer a medium for consumers to buy and sell products using a bidding process. Some auction websites may also have a classifieds/trading section where consumers can purchase new or second hand products at specified prices.
For the purposes of this article, we will focus on two principal types of Internet auction activity, namely: business to consumer (“B2C”) or consumer to consumer (“C2C”) auctions. Significant auction activity also takes place at the business to business (“B2B”) level, in particular through the medium of B2B e-marketplaces.
However the focus of this article is on particular problems presented by B2C and C2C Internet auction transactions. In the case of a B2C auction the operator of the auction has control over the goods that are being auctioned. In the case of a C2C auction, the auction website acts more as a trading centre or venue where (depending upon the manner in which the auction is structured) the operator of the auction website is not a party to the actual sale and purchase of the auctioned goods. In this type of auction scenario the buyers pay the vendors directly for the goods.
One of the key benefits to sellers of an auction in cyberspace is the potential for attracting large numbers of buyers. This means that an offering is more likely to be picked up by an interested buyer, and can lead to greater competition amongst buyers for scarce goods and ultimately higher sale prices.
Of course these potential benefits to sellers may be offset by the fact that the pool of products available to consumers is also larger, with the result that consumers may be very particular about deciding to purchase a particular product, as they are likely to be able to source the same or alternative products at competitive prices elsewhere on the Internet. This aggregation of large numbers of buyers and sellers, and the low search and comparison costs characteristic of the Internet, mean that such transactions are inherently closer in nature to a hypothetical state of perfect competition than real world equivalents.
Unfortunately Internet auctions not only provide opportunities for consumers and businesses, but because of their anonymity they are also a vehicle that can be and often are taken advantage of by corporations and individuals with fraudulent intentions. According to research conducted in the United States of America, the most common complaints by consumers that have purchased goods in Internet auctions is that the seller failed to deliver the relevant goods as promised. In other cases the seller may fail to deliver the goods within a reasonable period of time or deliver goods that are materially different or less valuable than those that had been advertised.
Activities of a fraudulent nature may also occur during the auction itself. For example, a seller using a different name may lodge artificial bids in order to drive up the price. Also, a buyer may lodge an extremely low bid followed by an accomplice's extremely high bid. The buyer’s accomplice may then withdraw his bid and so that the item is sold to the buyer with the artificially low bid.
Section 58 of the TPA – failure to supply as ordered
Section 58 of the TPA (and its equivalents under State and Territory Fair Trading legislation) prohibit accepting payment where there is an intention not to supply goods or services, or to supply goods or services materially different from the goods or services for which payment (or other consideration) is accepted. The section also prohibits accepting payment where there are reasonable grounds of which the person is aware or ought to be aware, for believing that the person will not be able to supply the goods or services within the period specified by the person, or if no period is specified then in a reasonable period of time.
Operators of Internet auctions in Australia where the operator is in control of the goods to be purchased, and individuals selling goods via trading centres on the web who accept payment and:
* do not deliver the relevant goods; or
* fail to deliver the goods within a reasonable period of time; or
* deliver goods that are materially different from the goods or services for which payment was accepted may potentially be caught under section 58 of the TPA.
In the case of individuals conducting private sales, a further question arises as to whether the conduct is “in trade or commerce” for the purposes of section 58. This issue is discussed further below.
Sections 52 and 53 of the TPA - misleading and deceptive conduct
Sellers who sell their products via Internet auctions and the operators of websites where Internet auctions take place need to be careful that the auction is not conducted in a manner that could constitute misleading and deceptive conduct under section 52 of the TPA (and/or its equivalents under State and Territory Fair Trading legislation). The types of seller and buyer bidding behaviour during an auction described earlier in this article may well constitute misleading or deceptive conduct by the seller or buyer (subject to determining whether such activities took place “in trade or commerce”, discussed further below).
Misleading and deceptive conduct will extend to the layout of the site itself. In this regard factors such as the size, type and colour of the font, the prominence and location of hyperlinks, visibility and location of key terms and conditions, whether any distracting graphics or technology are used as well as other relevant circumstances, may be relevant to whether the Internet based conduct is misleading or deceptive.
Most Internet auction sites are careful to describe themselves as merely a forum or venue for sellers and buyers to conduct auctions, and disclaim, in one form or another, responsibility for delivery by sellers or payment by buyers in relation to goods traded via their online auction platform. Nevertheless, depending upon the facts and circumstances of each case, scope may exist for a claim to be made against an Internet auction site for breach of section 52 in circumstances where a buyer or seller was defrauded.
Such a claim would depend, essentially, on whether the claimant could establish that they were led to believe that the auction site, through terms and conditions or through representations on the website, misled them as to the characteristics and security of the auction process. This could arguably occur through the mere failure of an auction site to adequately alert buyers or sellers to the fact that the site had no responsibility for, or control over, the transaction.
This issue was considered in the case of Evagora v eBay Australia & New Zealand Pty Limited [2001] VCAT 49, although, being a Tribunal decision, its precedent value is limited. In that case, Evagora successfully bid for a computer in an eBay hosted auction, which was paid for but never arrived. The seller of the computer was based overseas. Evagora claimed for his loss against eBay, arguing that he did not read eBay’s user agreement, and that eBay represented that the auction site was safe, which overrode the terms of the user agreement. eBay was held liable by the Tribunal for the loss suffered by Evagora.
Internet auction operators who also sell goods needs to also be careful not to breach the provisions of section 53 of the TPA. Section 53 prohibits a number of false or misleading representations including:
# falsely representing that goods are of a certain standard, quality and value;
# representing that goods have a certain sponsorship or approval which they do not have;
# making a false or misleading representation in relation to the price of goods; and
# making a false or misleading representation concerning the place of origin of goods.
Accordingly the facts about the products being sold need to be very clear and accurate. Section 53 may also apply to sellers of goods via auction sites, provided the seller’s activities are judged to be “in trade or commerce” (see further below).
It is important that the terms and conditions on which a consumer participates in Internet auctions website are clear, accurate, and accessible to avoid potential claims under sections 52 and 53. It is also important not to reduce or nullify the effectiveness of any terms and conditions by contrary or inconsistent representations or impressions given to users via the actual content of the website.
These considerations are of particular importance having regard to the fact that the website terms and conditions are necessarily of the “Click Wrap” variety. That is, the user has no ability to vary the terms and conditions, and at best, simply clicks an “I Agree” button to indicate their agreement. Where terms and conditions are not positioned in such a way as to ensure that the user reads and agrees to them before using the website, their effectiveness is likely to be reduced.
In similar fashion, sellers of products on Internet auctions should make sure that their terms of trade are accurate, accessible and clear. Matters such as whether bids will be accepted from other countries; the form of payment required; who is responsible for payment of delivery and handling costs; and return and refund policies, should specified in the terms of trade.
“In trade or commerce”
It is important to note that sections 52, 53 and 58 of the TPA depend for their application upon the relevant conduct being “in trade or commerce”. This will be of particular importance in relation to sellers conducting private sales via online auction platforms. Case law exists to the effect that private “person to person” sales are not “in trade or commerce” for the purposes of section 52. It follows that, where a seller is conducting a private sale via an auction site, that seller may not be subject to the requirements of sections 52, 53 or 58. This will depend however upon the characterisation of a seller’s activities. A “one off” sale may well escape regulation under those provisions. However a seller who derives income from regular selling activities may nevertheless be found to be acting “in trade or commerce” for the purposes of sections 52, 53 and 58.
Jurisdiction
Space does not permit a detailed consideration of this issue in this article. It should be noted however that disputes over Internet transactions often involve jurisdictional issues, due to the fact that the parties, the website, and the server hosting the website may all be in different jurisdictions. This is often likely to be the case in relation to Internet auctions, where the buyer, seller, the auction website and website operator may all be located in different countries.
In the context of the TPA, it must be determined whether that Act and the particular provisions being invoked have application to the activities in question. If those questions are answered in the affirmative, issues of the enforceability of any judgment overseas must also be taken into consideration by the Courts.
Generally speaking, where a claim is made under the law of a particular country, the jurisdiction of the courts of that country to hear the claim is usually confined to matters with a requisite territorial connection to that country, which can include matters involving a person or persons having a defined connection to the territory.
The question of whether the courts of that country are the appropriate forum for the matter must also be determined. In this respect in Australia, a case will generally be heard locally unless Australia is clearly an inappropriate forum.
Section 5 of the TPA expressly provides that the TPA can operate extraterritorially. It extends the application of (inter alia) Part V of the TPA to conduct engaged outside Australia by, amongst other things, an Australian citizen, a person ordinarily resident in Australia, an Australian corporation and a company which conducts business within Australia.
In Bray v F Hoffman- La Roche , Merkel J noted that there is no requirement for a foreign entity to have a place of business in the jurisdiction for it to be carrying on business in the jurisdiction for the purposes of section 5 of the TPA. That case did not involve the Internet, but it may prove to have application in finding jurisdiction over companies conducting business via the Internet from outside Australia.
It is also noteworthy that section 6 of the TPA operates to extend the application of the TPA in reliance on (inter alia) the trade and commerce constitutional head of power (section 6(2)), and the postal, telegraphic and telephonic constitutional head of power (section 6(3)). Thus the TPA may apply to Internet activities by virtue of the fact that the activities involve trade and commerce between Australia and places outside Australia, or that telecommunications facilities are utilised to send and receive information via the Internet.
There is very little Australian case law in relation to establishing jurisdiction over activities conducted from overseas via the Internet. The High Court case of Dow Jones Inc v Gutnick , a defamation case, provides some guidance in this respect. In that case the server hosting the web based material was in the United States, but subscribers in Victoria had downloaded the material. As the case involved a claim of defamation, the location of the publication of the material was a key issue. In summary, it was found that publication occurred in the place where the material was downloaded, and accordingly the Court had jurisdiction.
Notwithstanding that the Dow Jones Case is more directly relevant to the law of defamation, the decision indicates that the Courts are likely to apply the domestic law of Australia to the Internet generally, and that overseas based material available to Australians on the Internet may be caught by Australian law. The recent case of Australian Competition and Consumer Commission v Chen demonstrates that Australian Courts are willing to find that jurisdiction can be established under the TPA over overseas based Internet activity.
That case involved the operation of a bogus Sydney Opera House website. The ACCC alleged that several consumers tried to buy tickets through the site, and were either overcharged or did not receive tickets. Claims of breach of sections 52 and 53 of the TPA were made. The operator, the website and the server hosting the website were all based overseas. The Court found jurisdiction was established by virtue of the trade and commerce power and the postal, telegraphic and telephonic power pursuant to section 6 of the TPA, and injunctions were granted restraining the operation of the website.
Andrew Sorensen and Mathew Webster are co-authors of the book “Trade Practices and the Internet” published by Thomson Lawbook Co (2003). The above issues are discussed in the book, which deals with the application of the provisions of Parts IV and V of the Trade Practices Act to the Internet]
January, 2004
http://www.findlaw.com.au/article/11134.htm