Online auctions are increasingly replacing the humble garage sale as the way for people to trade in ordinary (and occasionally not-so-ordinary) items. In the recent case of Smythe v Thomas [2007] NSWSC 844, the New South Wales Supreme Court weighed in on the contractual validity of an online auction, in the context of a not-so-ordinary item.

Background

In August 2006 Thomas, the defendant, listed a Wirraway Australian Warbird aircraft on eBay. Thomas set a minimum bid of $150,000 with an auction duration of 10 days. The plaintiff, Smythe, placed a bid on the aircraft in accordance with eBay rules, in the amount of $150,000. However, following the expiry of the auction period, Thomas decided that he did not wish to proceed with the sale and was entitled to withdraw because no binding contract had been formed between the parties.

Smythe v Thomas is the first Australian case to address online auctions and to consider whether an online auction is akin to a traditional auction, and further, whether an online auction is capable of forming a contract between vendor and purchaser.

Summary Of Claims

Smythe claimed that as a result of Thomas being the highest bidder and his bid equalling the minimum bid set by Thomas, a contract for the sale of the aircraft was entered into between himself and Thomas.

Thomas disputed that a contract had been entered into between the parties. He claimed that the only contracts on foot were between himself and eBay and between eBay and Smythe, and that those parallel agreements did not amount to a contract between the parties. While Thomas acknowledged that both parties had accepted eBay's terms and conditions, he contended that the mutual acceptance of those terms and conditions did not create a contract between Thomas and Smythe. Alternatively, Thomas argued that listing the goods on eBay was akin to placing a classified advert in a newspaper, and was thus merely an 'invitation to treat' (as opposed to an offer that had been accepted by Thomas).

Summary Of Decision

The New South Wales Supreme Court (Rein AJ) held that a binding contract existed between the parties and that this contract should be enforced. Rein AJ made a number of observations in relation to the issue of online auctions.

First, His Honour observed that when a purchaser and vendor agree to accept the terms and conditions of an online auction service, the parties accept 'that the online auction will have features that are both similar and different to auctions conducted in other forums'. The decision was held that an online auction is a 'species of auction'.

Second, His Honour stated that, in an eBay auction, there exists not only contracts between eBay and each of the purchaser and vendor. Rather, as in a traditional auction, contracts exist between:

  • the vendor and eBay;
  • the vendor and purchaser; and
  • eBay and the purchaser,

and that these contractual arrangements 'can sit together' to create a binding contract of sale.

The judge held that placing the item for sale on eBay did not constitute merely an invitation to treat, but was rather an offer to sell the aircraft.

Impact Of The Decision

The decision categorises online auctions, such as those conducted on eBay, as a species of auction. Moreover, in an online auction, a binding contract between the vendor and purchaser may come into existence. By affirming the contractual validity of 'peer to peer' online auctions, the decision in Smythe v Thomas greatly enhances the ability of purchasers and vendors to enforce sale of goods contracts made in an online auction environment and neutralises an argument that could have been problematic for a multi-million dollar industry.

International Developments

France's regulatory authority, the Council of Sales, has recently issued proceedings against eBay arguing that eBay should be held to the same strict standards as French auction houses. eBay has asserted that it should not be considered an auction house, but rather should be considered a mere intermediary in the sales process, as it has no role in the negotiation of contracts and it is customers who decide whether or not to put items up for sale.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.