A recent Federal Court decision found that ticking a digital box created a legally enforceable online contract
Entering into digital contracts is something we do every day in the online world. Many websites have conditions of entry, and we often find ourselves blindly scrolling through terms and conditions and ticking a box. Rarely do we consider the implications of these actions, especially whether this type of online contract is legally enforceable.
How did the Federal Court consider whether online contracts are legally enforceable?
Following Justice Beach’s decision in the 2020 Federal Court case of Dialogue Consulting Pty Ltd v Instagram, all users of Instagram (and any other online platform) could be affected by persuasive Australian and United States (US) law.
Whilst the court was ultimately tasked with considering the potential waiver of Instagram’s right to arbitration, a point in which Justice Beach found in the affirmative, the most notable part of the judgment is Justice Beach’s analysis of online contracts in US law.
In line with Australian common law, US jurisprudence requires two essential elements to be proven when determining whether a party’s entrance into a contract is valid:
- Reasonable notice; and
- A manifestation of assent (ie: the party’s active consent to the contract)
In considering manifestation of assent, His Honour considered a number of US decisions dealing with the validity of online contracts and noted the terminology developed in US cases of sign-wrap, click-wrap, and browse-wrap agreements.
What is a sign-wrap agreement?
When are sign-wrap agreements binding?
Another example of a valid sign-wrap agreement is requiring a user to click on a check box next to text which notifies the user that clicking the box is confirmation that the user has read and agreed to the terms of service.
US courts have decided that it was irrelevant that a user could check the box without following the link and reading the terms. If the user is put on reasonable notice and the terms are reasonably communicated, they will be binding. The reasoning follows that a reasonable user would know that by clicking the registration button, they are agreeing to the terms and conditions accessible via the hyperlink, whether they have clicked on the hyperlink.
On the other hand, users were found not to be bound by sign-wrap agreements where the terms were not reasonably communicated to the reasonably prudent user. For instance, in circumstances where the hyperlinks were in a significantly lighter font and the page contained multiple confusingly similar hyperlinks.
What is a click-wrap agreement?
When are click-wrap agreements binding?
Justice Beach noted that US courts found that a digital agreement that is closer to the “click-wrap end of the spectrum”, the more likely it will be valid and enforceable. In determining their enforceability, courts look to principles of contract law with a focus on whether the plaintiffs had reasonable notice of, and manifested assent to, the clickwrap agreement.
As with binding contracts, a failure to read a clickwrap provision – for instance, scrolling through the terms and conditions and clicking the I agree button at the bottom – will not excuse compliance or enforceability (except for fraud). Click-wrap like agreements were found by US courts to be the most enforceable internet contracts by which users will be bound.
What is a browse-wrap agreement?
When are browse-wrap agreements binding?
Browse-wrap agreements are the least likely to be upheld by courts. US courts have rejected arguments that a valid contract was formed where:
- The user is required to scroll down to the bottom of the screen – an action that is not required to effect the user’s purchase;
- A particular clause was only noticeable after a multi-step process of clicking through non-obvious links.
How do these principles affect online contracts in Australia?
This article was written by Commercial and Property Lawyer, Evelyn Zeglinas and Law Graduate Miet Engelhardt.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.