Federal Court slams online retailer for misleading and deceptive conduct – but sites have shut and director has gone missing

The Australian Chamber of Commerce and Industry has scored a win over online retailer OzDirect and its director Paul Albright, with the Federal Court finding that the company engaged in false and misleading conduct for selling goods it could not supply within a “reasonable time”.

But the victory might be a hollow one – the sites in question have ceased trading and the watchdog says the whereabouts of Albright are unknown.

The decision, before Federal Court Justice Steven Rares, found OzDirect – which operated the OzDirect.com.au, OzDirect.com and Ausbuys.com sites – misled consumers about the availability and likely delivery times of items sold on the sites as well as the reasons for the delivery delays.

One example cited by Justice Rares involved a customer who ordered a laptop computer and notebook case in early February 2009.

“When he had not received the laptop by early March, Ozdirect told him he would receive it in the next couple of days. By mid-March he was told that the laptop he had ordered had been discontinued, and that the notebook case he had ordered at the same time was on “back order” to March 26. Shortly afterwards, he was told that the notebook case would be despatched. About a week later, he was told the case would be despatched later that afternoon or the next morning. He never received either the laptop or the notebook case, but in mid-April received a refund for his purchase.”

The judge also noted that Ozdirect had accepted orders and payments from a large number of customers when it has exceeded its credit limit with various suppliers.

Rares said in his judgement it was “incumbent upon [OzDirect] to ensure that its credit accounts with its suppliers were kept in order so that the contract and legitimate expectations of purchasers from Ozdirect could be fulfilled”.

Rares found OzDirect contravened the Trade Practices Act and Albright was knowingly involved in the contravention. He made injunctions against the company and director preventing them from engaging in similar behaviour, and ordered Albright and the company to pay costs.

As noted by Rares in his judgement, the cases raise some issues about the online retailing model of “drop shopping”, whereby a retailer takes an order for an item, accepts payment and then orders it from a third-party supplier.

“The use of the internet by business to sell goods and services has rapidly become a common feature of our commercial life in a way that would have been unimaginable 15 years ago,” Rares said.

“The consuming public tend to trust organisations that sell goods and services with which they deal on the internet. This trust is particularly evident in circumstances where a supplier, such as Ozdirect, asks a customer to pay for the goods or services in full before any supply or appropriation of the goods or services to meet the order takes place.”

“Here, Ozdirect was conducting a business that necessarily involved it placing itself in the position of accepting money and undertaking contractual engagements to supply goods in circumstances where it did not have the goods at hand so as to be able immediately to exchange goods for the cash. Rather, it organised its business in a way that – perhaps unbeknown to the customer – put it in the position of undertaking to obtain supply of the goods to the customer from a third party. Because it took the money immediately on the making of the order, in ordinary circumstances there was a reasonable inference that the customers understood that the goods would be supplied within a reasonably short time. After all, the items that were offered for sale were ordinary consumer items readily obtainable, but perhaps at higher prices, in shops or through other means.”

“Because it was essential to the smooth flow of Ozdirect ‘s commerce that after receiving payment it supplied the goods, it was incumbent upon it to ensure that its credit accounts with its suppliers were kept in order so that the contract and legitimate expectations of purchasers from Ozdirect could be fulfilled. This is particularly so where it was requiring them to pay immediately for the goods.”

ACCC chairman Graeme Samuel said in a statement the judgment had lessons for all online retailers.

“Other online retailers need to be aware that if they take payment from consumers for goods that they are not able to supply, they will risk similar court action by the ACCC.”

The ACCC say it is aware that a substantial number of consumers are still waiting for refunds from OzDirect. The watchdog has urged consumers who have paid Ozdirect by credit card to check with their bank if they can get a charge-back on their credit card.