RiskdistributionintheEmailordersystem

28 January 2003

Robert Berengeno

Traditionally credit card companies, through their general terms and conditions, have passed the full risk of misuse of a card used to order goods or services by telephone or via the email upon the company accepting the order. However, a recent case heard in the Federal Court of Justice has declared such clauses to be void. This ruling will have far-reaching consequences in Germany where these clauses are common in agreements between credit card providers and companies that agree to accept orders by telephone and/or email.

In the case at issue, a company accepted four purchase orders via email placed using a credit card. After the credit card holders denied the purchases ever took place, the credit card company demanded the money back that it had already paid to the company in settlement of each order. It did so on the basis of a clause in its general terms and conditions entitling it to claim back any sums paid on behalf of the credit card holder from the company if that card holder cancels an order placed by telephone or by email.

The Federal Court of Justice declared the relevant clause to be void, because it puts the full burden of risk of misuse of the credit-card on the contracting company, regardless of culpability. This violates the precepts of good faith, because as a general rule the credit card company, in its capacity as a provider within the credit card system, has to assume the risk of misuse. Furthermore, the Court held that the accepted distribution of risk within telephone or email credit card transactions should not continue; the credit card company expressly permits orders to be made by telephone or emails and receives compensation for the risks associated with these transactions through an increased service fee.

It is anticipated that, for the German market, credit card companies and their commercial partners will now need to negotiate new clauses to deal with the risk of credit card misuse in accordance with this ruling. The result of these negotiations will be a clause that distributes the liability exposure in a more appropriate way.

These negotiations are likely to centre upon the question of whether the credit card companies will seek to offset or finance the greater risk that the ruling asks them to assume through increased service fees.

However, only time will tell if this decision will lead to a shift away from the use of credit cards to finance purchases made by telephone or email to some other form of payment system.


Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.