How to protect your site against pricing errors

This guide is based on UK law. It was last updated in August 2004.

The IT press regularly reports on stories of websites whose sales system have failed, allowing customers to place orders for goods at unintentionally discounted prices. Unless the sellers in question get their contract formation processes right they could find themselves obliged to deliver the goods at these knock-down prices.

In 2002, Kodak.com misstated the price of a digital camera on its site; the £329 camera went on sale for just £100. Word of the error spread rapidly across the internet, and it is rumoured that before Kodak were alerted to the problem around 2,000 orders had been placed. The company initially refused to fulfil the orders, and legal action was taken by disgruntled customers who argued that the company had entered into a contract from which it could not withdraw. Eventually the company capitulated and honoured the sales, but in the process it made a massive loss and suffered weeks of bad publicity.

However, from a legal point of view there is no reason why companies should be out of pocket for pricing errors, so long as they follow a few simple legal rules, treat their customers well and comply with all the obligations of the E-commerce and Distance Selling regulations.

Making sweet music

Suppose TopTrombones.com is selling trombones to UK consumers for £200 each, with free delivery. To comply with the E-commerce regulations the pricing must be clear and unambiguous and it must state whether the price is inclusive of VAT and delivery costs (for more information see our article on The UK's E-commerce Regulations). When a customer clicks the button to "buy," the site should take him to a page displaying the terms and conditions. Pop-up windows to display this small print should be avoided.

Here are a few things to include in these terms and conditions:

• make it clear who is selling (e.g. London Music Stores Limited, trading as TopTrombones.com), together with the geographical and e-mail address;
• describe clearly what the customer is getting and what it will cost, including all taxes and delivery costs; and
• identify the arrangements for delivery of the trombone, and point out that the consumer has a seven working day period during which he can return the trombone for a full refund.

All of this information is required to make sure that you comply with your obligations under the E-commerce regulations and the Distance Selling regulations. The next stage, however, is to structure the contractual process in a way which protects you from potential pricing errors.

Structuring the contract

Under the E-commerce regulations it is entirely possible to sell on-line and take payment by credit card without actually concluding the contract on-line. The important factor is to make it clear that by placing an order the customer is making an offer on the site and that the contract will be formed only if the customer's order is accepted by the seller. It must be clear that taking payment from the customer's credit card does not indicate acceptance. For more information on the offer / acceptance structure see our guide on On-line Contract Formation.

This may, at first glance, seem unfair on the customer. It is not, and it is entirely legal, but only if the site is up-front about it, to avoid misleading the customer. On-line merchant accounts provide for making refunds to a customer's credit card.

Therefore, the terms should explain that, while the customer's card may be debited before the contract is formed, if the customer's order is ultimately rejected, a full refund will be made immediately.

TopTrombones.com terms and conditions might therefore include the following provision:

"By clicking the 'Accept' button you agree to these terms and conditions. By completing and submitting the electronic order form you are making an offer to purchase goods which, if accepted by us, will result in a binding contract."

The words, "if accepted by us," are very important.

If your terms and conditions appear as a separate page during the order process, then make sure the page has fully loaded and the user has scrolled to the bottom of the page before being able to click his acceptance of the terms. Alternatively, if you only provide a link to the terms and conditions during the order process, you will need to include a checkbox which the user ticks to confirm that they accept the terms and conditions, before continuing. For more information see our guide on On-line Contract Formation.

When you get to the stage of taking the customer's money, the page should make it clear that acceptance of payment does not mean you are accepting the contract. TopTrombones.com's payment page would state: "Your card will be debited with the sum of £200 when you click the Submit button. This will be refunded if your offer is refused." If your payment provider allows it, allow the customer the choice of "submit", "clear" and "cancel" buttons.

When the card details are validated, give the customer a confirmation page. This should not confirm a completed contract; so avoid using phrases like "Your goods will be dispatched within 24 hours", as this will suggest that the offer has been accepted. Instead, this page should confirm that the order has been received and that the order is being "processed". This makes it clear that you have not yet accepted the order. It might be helpful to give the customer an order number at this stage so that he or she can chase-up any problems. It is good practice, though not legally required, to ask the user to click a button on this confirmation page to indicate that he has read the confirmation – e.g. a "Continue" button, linking to the homepage of site, and taking the user out of the secure area of the site.

Many sites at this stage will automatically generate an email confirming the customer's order. If you are going to do this it should only really contain the information contained in the confirmation page, and again avoid any language which suggests that the contract is completed.

Once you have reviewed the order and are happy with it, you can dispatch the goods. This will be enough to signify your acceptance of the customer's order, but if you wish you can e-mail the customer to confirm that you have accepted their order and their goods have been dispatched. In any event at this stage additional information should be emailed to any customers who are consumers, to comply with existing rules on e-commerce known as the Distance Selling Regulations. This largely repeats the information described above. For more information see our article on The Distance Selling Regulations – A practical overview.

However, if before dispatching the goods you discover an error on the site, for instance that a typo had labelled the trombones at £2 rather than £200 and someone ordered 500 of them, you can legally refuse to fulfil the order. Of course, customer service will be crucial at this stage, and the email refusing the order must be polite and if necessary apologetic for the misunderstanding.