A customer of Talk
America has won a court ruling over a consumer contract which was
amended online without his knowledge. The ruling clears the way for
the customer to take a class action suit against Talk America.
Joe Douglas signed up for a long-distance telephone service with
America Online. Talk America acquired the service from AOL and
tried to change the terms of the contract by posting a message on
its website. The changes introduced new charges, enforced New York
law as the relevant law in relation to the contract, inserted an
arbitration clause and inserted a class action suit waiver.
Douglas continued using Talk America's service for four years
before he became aware of the additional charges. When he found
out, he launched a class action lawsuit against Talk America. Talk
America tried to compel an arbitration process based on the new
contract and a district court ordered that arbitration begin.
Douglas appealed to the US Court of Appeals for the Ninth
Circuit. It found that Talk America could not change the contract
without telling Douglas.
The court said that a contract was an agreement between two
parties, and that one party could not change it without further
acceptance by the other.
"Even if Douglas had visited the website, he would have had no
reason to look at the contract posted there," said the judgment,
from Judges Kozinski, Gould and Callahan. "Parties to a contract
have no obligation to check the terms on a periodic basis to learn
whether they have been changed by the other side. Indeed, a party
can’t unilaterally change the terms of a contract; it must obtain
the other party’s consent before doing so."
"This is because a revised contract is merely an offer and does
not bind the parties until it is accepted," said the ruling.
The court pointed out that a party could not know when to check
a website for possible changes to the contract terms without being
notified that the contract has been changed and how. "Douglas would
have had to check the contract every day for possible changes,"
observed the court in a footnote to its judgment. "Without notice,
an examination would be fairly cumbersome, as Douglas would have
had to compare every word of the posted contract with his existing
contract in order to detect whether it had changed."
Talk America had argued that the notice amending the contract
was on the same website on which Douglas paid his bills and that he
therefore should have seen it. Douglas said, though, that he
authorised his bills to be paid by credit card and so had no reason
to visit the web site.
"Even if Douglas's continued use of Talk America's service could
be considered assent," wrote the court, "such assent can only be
inferred after he received proper notice of the proposed changes.
Douglas claims that no such notice was given."
The Court of Appeals said that the court which granted the
arbitration order had made a mistake. "The district court thus
erred in holding that Douglas was bound by the terms of the revised
contract when he was not notified of the changes," it said. "The
error reflects fundamental misapplications of contract law and goes
to the heart of petitioner’s claim."
The UK position
Jon Fell, a partner with Pinsent Masons, the law firm behind
OUT-LAW.COM, said a UK court would likely come to the same
conclusion when faced with these facts.
"I'm not at all surprised by the ruling," he said. "Unilateral
changes to a contract, particularly a consumer contract, will
always struggle to stand up in court."
"If an e-commerce site wants to change the terms of sale for
returning customers, it's quite easy: you display a message on
screen that tells customers, before they place an order, that the
conditions have changed. You just have to make sure they accept the
changes," he said.
Fell also warned against burying the changes in a long page of
small print. "Summarise the key changes, to make life easy for the
customer, and offer a link to the full terms," he said.
"It's impossible to evade this issue without running a big risk:
whether you deal with businesses or consumers, if you want to make
changes to a contract, you need the customer to accept them if you
want to rely upon them," said Fell. "That acceptance usually can be
implied by continued use of your services, but you have to bring
the changes to the attention of the consumer."
Fell pointed out that credit card companies typically change
their terms by sending a letter with full details and a summary of
changes. "These letters often go straight into your bin, but the
notification is what counts. Your continued use of the card implies
your acceptance and you have a genuine opportunity to cancel if you
want to."
He added that the mechanism for notifying any future changes to
a contract should be addressed in the contract itself. Again, this
must be fair to the customer and should offer an opportunity to
cancel.
Last year, UK regulator Ofcom asked UK Online to modify its
terms of service. These included a right for the broadband provider
to modify its contract at any time by emailing changes to
consumers. Ofcom noted that this did not give consumers a right to
terminate if the changes were to their disadvantage. The wording
was amended to provide that if a consumer reasonably considers he
has been disadvantaged by a change, he can cancel.
