Is UK contract law becoming less relevant ?

I came across a really interesting stat the other day whilst reading a fascinating report on small business use and attitudes towards using lawyers. Many small businesses baulk at using lawyers generally – it’s a problem for both sides. For the business, many are taking the view that they don’t need legal advice or that

Home » commercial law » Is UK contract law becoming less relevant ?

dserota-sbI came across a really interesting stat the other day whilst reading a fascinating report on small business use and attitudes towards using lawyers.

Many small businesses baulk at using lawyers generally – it’s a problem for both sides. For the business, many are taking the view that they don’t need legal advice or that the problem will go away. For lawyers, we are missing out on a huge untapped market and whilst we have overheads and regulatory requirements which make it very difficult to offer cut price or “unbundled” services, something needs to change.

Onto the fact I mention above – it was that some 6-7% of legal problems for small businesses are resolved through online arbitration.

This perplexed me initially – there are very few, if any, online arbitration websites and certainly none that are well known or regularly used. I thought to myself, surely there is some mistake ….. but then the “eureka” moment. This significant aspect of dealing with legal problems comes almost solely from Ebay.

Online trading is huge both in the b2b and b2c markets and Ebay is second only to Amazon in volume.

Buying used items or high value items on Ebay

The thing that’s different perhaps about Ebay is the volume and value of trades in second hand goods, from low value items to some very expensive ones.

Selling used items or high value items, from a lawyer’s perspective, rings alarm bells – chief among these is how to describe the item and it’s condition accurately and what hap[ens if the seller doesn’t do so or has misrepresented other aspects.  these areas are  a recipe for a dispute. If this arises, in traditional contract law terms, there are many complications and using the English Courts is seen as slow, expensive and the outcome uncertain.

Ebay is a massive contact market -what happens with disputes ?

So it’s clear that a huge volume of contracts are concluded every day on Ebay. In fact, according to this data from December 2012, Ebay.co.uk had 17 million active users creating a  market worth over £30 billion. In legal terms, the way it works on Ebay is that disputes are arbitrated by Ebay, who have a very clever method of controlling the final outcome due to its ownership of paypal, so that in many cases, if it determines that a seller is in the wrong, funds can be pulled out of paypal by Ebay. If the seller has already withdrawn all funds from paypal, the money is still owed to Ebay (who will have refunded money to the buyer) and as seller you will probably face a breach of contract claim from Ebay.

Interestingly, if you look at Ebay’s User Agreement in the event of a dispute between you as buyer or seller with Ebay, based on it’s arbitrated decision, Ebay has chosen to make the English Courts the choice of forum, certainly for ebay.co.uk.

There are some very interesting items for sale all the time on Ebay – sales of cars and businesses may be some of the more mundane high value items, but they are of interest because these are typical areas where disputes may arise as to the description. Certainly we would never recommend buying a business in this way, without some proper due diligence.

As just 1 example of the over 5,000 businesses for sale today on ebay.co.uk. we came across this description of a pet shop for sale, with a reserve price of £45,000.00 :-

The shop was established in 1995 and offers a large range of pet products. An e-commerce website also included in the sale that will generate further income. Area is approx 55m2 with counter, shelving, cellar with toilet and storage area, Racking and equipment included in sale (shelves, till, scales, etc.)The shop has an annual turnover of approx £100,000Gross profit of approx £30,000 + a new lease would be established to the purchaser with terms to be agreed. Plus stock at valuation. Would sell the freehold property for £495,000 including the business, see below.

Bidding for s business based on totally unverified information like the above, without a proper contract between you and the seller would be sheer madness in my view, yet transactions must go through as otherwise it is unlikely sellers would continue to  list on Ebay. All in all quite staggering !

No place for lawyers or UK contract law then ?

Ebay clearly works well for the vast majority of buyers and sellers and the arbitration and adjudication system must also work as otherwise Ebay would not be so popular. A friend of mine who trades in solver antiques on Ebay recently explained to me that whilst he loses some sales and money on Ebay trading because it can never be perfect (his problem is that if he sells items to China, the postage system in China does not definitively track the item which means that if a buyer denies receipt he will generally lose out as Ebay will favour the buyer and it is very difficult to get insurance against this risk), his business is successful and lucrative enough to still make it worthwhile.

It is clear that the Ebay system means that many thousands of contract disputes that would otherwise have ended up with lawyers and courts are being dealt with differently, and almost certainly, in a more sensible way.

This doesn’t mean however that UK contract law is not still relevant or useful – a dispute with Ebay will end up in the English Courts as detailed above. However, on this note, be aware that taking on any big organisation in any dispute is inherently more risky than a dispute with a small business (on the one hand, if you win, you will get your money. On the other hand, a huge multinational has deep pockets to potentially call your bluff)

One potential use for a lawyer is where you have bought a high value item or an item such as a car or a business. As part of the adjudication process if things go wrong, you will want to put your claim to Ebay in the best possible way, and having a lawyer to assist you may well be proportionate and useful, as long as the lawyer doesn’t get over lawyerish ! case precedents are unlikely to be relevant in such disputes, it will be more a case of producing compelling evidence and facts that the sale was a misdescription.

If you are considering buying a business you see listed on Ebay, we would very strongly recommend also that you instruct a lawyer to at least try and test out some of the facts claimed by the seller !

commercial law • Debbie Serota

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