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.

Twin decision

The Dell case wound its way through the Canadian court system, concluding with a Supreme Court of Canada decision earlier this month. At issue in the case were two key legal questions -- first, whether contracts that include a clause forcing consumers to use arbitration to resolve all disputes (and thereby waive the ability to file a class action lawsuit) are enforceable. Second, whether the world of electronic commerce and online contracting permits companies to merely hyperlink to a contract's terms and conditions rather than including the terms directly on the ordering page.

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."

Second opinion

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).

While the Supreme Court could have adopted a more consumer-friendly approach -- a Washington State Supreme Court ruling released one day before the Dell decision struck down a clause that would have denied local consumers the ability to launch a class action lawsuit -- its practical effect is somewhat limited in light of the provincial statutes.

Terms and omissions

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 (i.e. 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 (i.e. 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.

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