The Right to Withdraw from Online Auctions

Chapter 4
The Right to Withdraw from Online Auctions

‘The function of the right to withdraw is to allow the consumer in a distance sale the opportunity to test and inspect goods which he is not able to see when contracting.’1 This right comes to modify the exercise of national contract laws. The aim is to ‘put the consumer in a position which makes it more likely that his consent will be free, well considered and informed’2 in situations where the consumer is faced with information asymmetry. Based on the results of the survey on information requirements discussed in Chapter 3, information asymmetry in online auctions is a reality consumers have to contend with. It makes the right to withdraw an even more important tool than it may otherwise be. It allows consumers to make an informed decision on receipt of the item purchased for tangible goods and to reflect on their purchases while assessing the quality of the online service provided. Yet, the question of granting a right to withdraw from online auctions has been heavily debated in the run-up to the adoption of the DCR. Originally, the DSD excluded auctions from its scope, leaving consumers devoid of a right to withdraw from online auctions in many Member States.3

The original proposal for a Directive on Consumer Rights stopped short of granting a right to withdraw from online auction sales.4 To me, it was absurd that a consumer could buy the same product from a same seller but, depending on which button he or she pressed (‘buy-it-now’ or ‘place a bid’), be allowed or not to return the product.5 The proposal seemed to adopt, all too hastily, the views of a small number of stakeholders against a right to withdraw from auctions. Luckily, the politics of adopting the Directive lead to a U-turn.6 Indeed, the proposal was controversial on many other aspects, and negotiation stalled until a change in the presidency of the European Union led to a compromise text for the new directive and a number of significant changes, including the adoption of a right to withdraw from online auctions. This was achieved by excluding from the right to withdraw ‘public auctions’7 and not ‘auctions’ in general. It is this version of the Directive that was sent to Parliament for a vote. Despite a number of further amendments, the substance of the right to withdraw remained unchanged.8 This chapter reviews the scope of the right to withdraw, information requirements as well as the exercise of the right by consumers using online auctions.

1 Scope of the Right to Withdraw

1.1 Rationale for the Inclusion of Online Auctions within the Right to Withdraw under Article 16 DCR

Article 16(k) DCR states:

Member States shall not provide for the right of withdrawal set out in Articles 9 to 15 in respect of distance and off-premise contracts as regards the following: … (k) contracts concluded at a public auction.

Part of the original resistance to granting a right to withdraw from online auctions in the proposal for a Directive on Consumer Rights was anchored in the fact that auction sales are unique events. A ‘competitive bidding process creates a unique one-off transaction that cannot be repeated or re-created in an identical format because the outcome of the bidding cannot be predicted’.9 Therefore, the sale method itself could justify the exclusion from the right to withdraw.10 This view was supported by a number of public auctioneers or entities representing them.11 This position was understandable because a right to withdraw from ‘public auctions’ could disrupt the traditional auction business. This is because people would make very different decisions if they knew they had the right to withdraw.12

In the case of public auctions, the absence of a right to withdraw is justified because the intermediary has a broader role than that of the online auction platform. Traditional auctioneers take possession of the goods sold and have a number of duties to vendor and purchaser as well as third parties. In the UK, for example, this includes a duty to describe the property accurately (which includes a duty not to misrepresent) and a duty of care for the goods whilst they are in the auctioneer’s possession.13 As a result, consumers are provided with a minimum guarantee that the auctioneer will have seen the goods and given them a valuation that reflects their sale potential. This is not the case with sales conducted on online auction platforms. Yet, in its response to the public consultation on the implementation of Directive 1997/7/EC, pre-dating the debate on the DCR, eBay had raised similar arguments.14 It claimed that:

[If a] supplier was forced to re-list an item under the cooling-off regime, this would unfairly disadvantage both supplier who may not get the same price as previously and of course have to incur the cost and time of re-listing and the bidders who were outbid by someone who is not really interested in the item.15

The main reason for such a position was that it was in eBay’s interest to avoid having to revert the commission to the seller or delaying the moment this commission can be accrued (after the expiration of the period during which a consumer may withdraw). For proprietary platforms the obvious inconvenience is that they would need to refund consumers for the costs of the item, the costs of the winning bid (for pay-per-bid platforms) and, in addition, incur the costs of organising a new auction on the same product.16

However, eBay’s locus seemed to ignore the rationale behind a right to withdraw. It does not lie with the fact that consumers will, or will not, have a genuine interest in making a purchase but, rather, with the fact that, because the sale occurs at a distance, the consumer is not able to see the goods before concluding the contract. Therefore the consumer needs a way of ascertaining the nature and functioning of the goods.17 Unlike traditional auctioneers, intermediary platforms do not verify the goods sold on the platform. Similarly, on proprietary sites, no third party guarantees the goods. The only possible way this can be achieved is to allow consumers to withdraw from the sale. This position was supported by a number of business entities who saw the running of auctions as a way to circumvent the right to withdraw and other distance-selling obligations.18

Resistance to the granting of a right to withdraw was also anchored in the fact that consumers could abuse the right to withdraw to the detriment of sellers.19 Indeed, eBay worried that ‘consumers could abuse the right to withdraw to take unfair advantage of the price building mechanism of auction-style transactions’.20 Bonhams, a well-known traditional auctioneer, was also concerned that granting a right of withdrawal from auctions of fine art and collectables could increase the risk of market manipulation.21 Admittedly, it is possible for consumers to participate in several auctions in order to see what the best deal may be, and thus skew the price-building mechanism of auctions to their advantage. It is however unrealistic to think that such occurrences would be widespread. Indeed, for such a strategy to work, consumers need to find a number of similar goods up for sale at the same time. With the multiplication of sales of new items, such an occurrence is more feasible, but consumers still need to invest much time and effort in finding and monitoring sales. In any event, auctions are normally known to skew the price mechanism to the advantage of the seller, hence their frequent use for goods where demand outstrips supply. It is therefore not reasonable in my view to be fearful of the risk of abuse by consumers. While possible, this risk remains marginal at best. It is ever lower on pay-per-bid sites since the outlay on the consumer’s part would rapidly outstrip the benefits of bidding on several auctions in the hope to win one.

With this in mind, the solution adopted by the DCR, which limits the exclusion from the right to withdraw to ‘public auctions’, seems the most sensible compromise. It enables consumers throughout Europe to benefit from a uniform right of withdrawal from online auction sales, while preserving the integrity of the traditional ‘public auction’.22 It also brings legislation in line with the practice of some Member States that already distinguished between online auctions and ‘public auctions’.

1.2 Rationale for the Types of Products and Services Covered by the Right to Withdraw from Online Auctions

During the consultation on the DCR, some public auctioneers floated the idea of excluding certain products from the scope of the right to withdraw.

For example, Bonhams suggested ‘eliminat[ing] the availability of the cooling off period for fine art and collectables auctions’.23 This is because they are not strictly speaking consumer goods. They have relatively high value and are normally purchased by sophisticated expert buyers or by persons advised by such specialists. Thus, allowing consumers to withdraw could have an important economic impact on public auctions. The idea of making a right to withdraw from online auctions contingent on the subject matter of the sale is not new. The French legislation adopted in 2000 already carried different rules depending on the nature of the goods auctioned.24 Indeed, at that time, the law in France distinguished public auctions and ‘auction brokerage’. Sales where no adjudication takes place (i.e. auction brokerage) were not subject to the rules applicable to public auctions, except where ‘cultural goods’ were sold. In those cases, the law of public auctions was applicable. Unfortunately, the law did not define ‘cultural goods’, leaving much ambiguity with regard to what goods were subject to the right to withdraw.25 The main reason for such a rule was found in Article L123-1 of the Patrimony Code under which the State has a right to pre-empt any art sale with a view to preserving French historical and cultural heritage and ensuring that some key pieces of art remain on French territory. The application of such a right to online auction sales created much difficulty. It has since been removed by subsequent amendments of the law.26 In the DCR, the legislator did not include an exception concerning cultural goods, fine art or collectibles.

I am not in favour of basing the application of a right to withdraw on the nature of the goods sold at online auctions. However, a number of goods regularly purchased at online auctions were excluded under Article 16, and this is problematic. For example, Article 16 excludes the supply of goods made to the consumer’s specifications or clearly personalised,27 the supply of goods which are liable to deteriorate. Consumers are also barred from withdrawing from the supply of sealed goods that were unsealed after delivery28 (such as audio, video or software) and from digital content. The latter is a more controversial exception to the right to withdraw. Here the product remains unaffected by the seal being broken, or the download having begun. Yet, to avoid any illegal copies being made and used by consumers, the legislator opted to prevent consumers from changing their mind. This is, in my view, confusing for consumers who will be able to return a CD if not opened but not cancel a download if they do not use it. Many sales on online auction sites will not be affected by the digital content exception. However, many CDs or pieces of software can be purchased. When it is the case, the consumer will not necessarily be able to assert suitability unless it is unsealed. However regrettable, this is not an issue specific to online auctions, and thus I refer the reader to more general critique of this exclusion for further insights.

What is more concerning is the fact that the trade-off for no right to withdraw is an increase in the information given to the consumer before the conclusion of the contract, regarding the fact that the right of withdrawal is absent in accordance with Article 6(1)(k) DCR. For digital content, the requirement goes further and the consumer needs to give express consent for the performance to begin and acknowledge that the right of withdrawal is thereby lost.29 If consent is not present, the consumer retains a right to withdraw. While disagreeable, the rules under the DCR at least apply some sanctions against traders who do not fulfil their information requirements. However, the survey conducted on compliance with the DSD requirements raises important concerns about the effectiveness of this provision.

2 Information about the Right to Withdraw

The survey of information requirements (discussed in Chapter 3) tested if information on the right to withdraw was present. It reviewed the sales of bid packages on relevant proprietary sites as well as auction sales held on both proprietary and intermediary platforms. It found some important gaps.

2.1 Information on the Right to Withdraw from Online Auction Sales

2.1.1 Compliance with legal requirements on all platform types

Under Article 4(1)(f) DSD, consumers needed to be informed about ‘the existence of a right of withdrawal’. The survey found that poor compliance practices were rife. Out of 29 sales surveyed across 24 websites, 45% did not provide information on the existence of a right to withdraw. Intermediary platforms performed worst, with 73% of sales not giving information on the exercise of a right to withdraw. On proprietary platforms, provision of a right to withdraw was unequal.30 Golfbidder offered a right to return any of the goods purchased for a full money-back guarantee, and so did Comet Clearance (although the information about such a right was more difficult to find on the latter). The pay-per-bid sites provided information about the right to withdraw, but in a place where it was difficult for a consumer to access it. Unless consumers were, as I was, actively looking for this information, I doubt they could have found it. This is because it was often buried in terms and conditions or found in FAQs. In only one instance was the information about the right to withdraw spelt out in the sale description itself.31 Another site contained a notice displayed next to the sale that informed consumers that, by bidding, they agreed to the terms and conditions. It is those terms and conditions that contained the details of the returns policy. The terms and conditions could be accessed through a hyperlink.32 On TV auctions compliance was best, with 100% information about the existence of a right to withdraw, although it was harder to find out about it on Gems TV than on other similar sites.

2.1.2 Ignorance of the law as a main cause for lack of compliance?

Admittedly, poor compliance could be explained by the fact that Article 3(1) DSD excluded sales concluded at an auction from the scope of the Directive. I therefore tried to establish if that was the main reason for lack of compliance. To do so, I first tried to understand why over half of the sales studies were disclosing some information on a right to withdraw. Indeed, 28% of the sales provided incomplete or unclear information on the right to withdraw. Meanwhile, 27% did provide perfectly adequate information on the existence of a right to withdraw.

It was possible that offering a right to withdraw could be linked to gaining a competitive advantage. It could be a purely commercial decision, designed to attract consumers. Indeed, eBay was the only site where I found some information about consumer rights that clearly explained that a right to return the goods does not apply to auctions. Yet, out of the three sales reviewed, two sales nevertheless gave information on the existence of such a right.33 If attracting consumers was the rationale, it seems that the traders would have tried to make more out of the offer of a right to withdraw. Yet, it was not used as ‘bait’ or publicised prominently.

I therefore moved to investigate if ignorance of the law might be a more feasible explanation. I selected a reduced sample, to verify compliance for sales where the existence of a right to withdraw was not in question.

This part of the survey looked at sales that combined auction and fixed price. On pay-per-bid sites this is often the case, because many sites offer disappointed bidders the possibility to purchase the same product, paying a full price, minus the cost of the bids already placed. This feature is advertised at the same time as the sale by auction. Therefore, information about the existence of a right to withdraw is required. I surveyed eight sites and found that only QuiBids provided information about the existence of a right to withdraw that was compliant with the DSD. All other sites did not provide adequate information. If information about the existence of such a right was provided, it was always difficult to locate and would therefore not be clear to consumers.

The survey also looked at sales on intermediary platforms that were offered both at auction and fixed priced concomitantly. It targeted the three biggest platforms: eBay, CQout and eBid. On eBay, compliance was good but it was not perfect.34 I found an instance of information given about a right to return limited to defective products within three days.35 Examples of non-compliance were also easily found on the other intermediary platforms.36 Indeed, even in cases where a right to withdraw was offered, the information about this right was often confusing. For example, on CQout, a sale for USB car chargers provided some information on the right to withdraw and listed some reasons for returns. Yet, it omitted to mention that consumers are simply able to change their mind and return the goods they do not want under the DSD.37 It is unlikely that a consumer who is not fully aware of his/her rights would infer from the wording contained in the sale that he/she can change their mind and get a full refund. Some information about consumer rights was available by way of a hyperlink displayed further on in the sale advert. However, to understand their rights, the consumer would have to read a long pop-up box supplied by CQout. While the information in this box was factually correct, it would, at best, leave the consumer confused as to the rights that he has with regard to returning the USB car chargers.

The evidence convinced me that ignorance of the law was a more rational cause for non-compliance than confusion over the scope of the DSD or the wish to gain competitive advantage.38 This therefore has implications on the likely impact the DCR may have on current practice, a point I deal with further below.

2.2 Information on the Right to Withdraw from Bid Package Purchases on Pay-per-Bid Proprietary Platforms

The purchase of bid packages on pay-per-bid platforms, by and large, is done using a fixed price mechanism. Some bid packages can also be bought at auction. Some sites also give new users some free bids to get them started.

The survey looked at eight pay-per-bid sites. It found that 50% offered a right to withdraw from the purchase of a bid package, but most imposed onerous conditions on such withdrawal. For example, on Spree4 a withdrawal was possible against payment of an admin fee of 5% or £20, whichever was the greater – contrary to the requirements of the DSD. Similarly, on Fastbidding a refund was possible, but only on unused bid packages, and if it is requested on the day of purchase. This departs from the seven-day period granted by the DSD. To make matters worse, information on the right to withdraw was not always available in a place where it was easy for the consumer to access. Indeed, in all cases, I had to read the terms and conditions to find the relevant provisions. The other four sites surveyed did not offer a refund on any of the bid packages. Further, it was often the case that those bids had to be used within a certain time period or risk being lost altogether. The best compliance record was Auctionair. The site offered a right to withdraw and a refund on bids placed on a sale. However, the wording used was confusing and it seemed that refunds would be limited to a very small number of occurrences.

Here also it was difficult to blame lack of compliance on the potential confusion concerning the scope of the DSD. This is because, while some purchase of bid packages could happen via auctions, the vast majority of those sales will be at a fixed price. Therefore, information on a right to withdraw ought to have been available.

2.3 Impact of the DCR on the Information on the Existence of a Right to Withdraw

The DCR settles the debate on the availability of a right to withdraw for online auctions. By implication, it also settles the debate on the necessity to provide information about its existence, if there was one. All consumers buying at auctions, other than public auctions, benefit from a right to withdraw. This affects all types of online auction websites. The information requirements imposed by the DCR go further than those imposed by the DSD on this point. Indeed, under Article 6(1) DCR, the following information needs to be provided, prior to the conclusion of any auction or fixed price sale:

(h) where a right of withdrawal exists, the conditions, time limit and procedures for exercising that right in accordance with Article 11(1), as well as the model withdrawal form set out in Annex I(B);

(i) where applicable, that the consumer will have to bear the cost of returning the goods in case of withdrawal …;

(k) where a right of withdrawal is not provided for in accordance with Article 16, the information that the consumer will not benefit from a right of withdrawal or, where applicable, the circumstances under which the consumer loses his right of withdrawal;