Are online contracts legally enforceable, or are they all wrapped up?

Are online contracts legally enforceable, or are they all wrapped up?

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:

  1. Reasonable notice; and
  2. 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.

The Federal Court found that Instagram’s Terms of Use fell into the sign-wrap agreement category and was enforceable.

What is a sign-wrap agreement?

A sign-wrap agreement occurs when the website user is notified that there are Terms of Use (available on a page accessible by hyperlink) and requires the user to fulfil an action, such as click a “sign-in” button to approve them. Justice Beach found that Instagram’s agreement placed a reasonably prudent person on notice that their use was subject to the Terms of Use.

His Honour noted that the notice of the existence of the Terms of Use was conspicuous and provided users with a means to inquire about the Terms of Use. Additionally, Justice Beach found that the other party, Dialogue Consulting, was a highly sophisticated user of websites.

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?

A click-wrap agreement is an agreement where the site requires a user to scroll through the Terms of Use and to click a box labelled I agree or similar before the user can further use the site’s services.

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?

Lastly, a browse-wrap agreement is formed when the site has a notice that by accessing or using the services of the website, the user is agreeing to be bound by the site’s Terms of Use. They usually do not have an I agree button or equivalent, such that a user can use the website’s services without being required to take any affirmative action to indicate his or her knowledge of or agreement to its Terms of Use.

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:

  1. The link to a website’s Terms of Use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it;
  2. 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;
  3. The link to a website’s Terms of Use is among many other links and the website never directs a user to the Terms of Use; and
  4. 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?

Click-wrap and sign-wrap agreements are most likely to bind internet users into contracts. The principles highlighted by the US courts and expanded on by Justice Beach are something about which users should continue to be vigilant as internet use increases. Thankfully, the courts do take a subjective approach in considering the conspicuousness and placement of the Terms of Use hyperlink, other notices provided to users and the general design of the website.

For further information about whether online contracts are legally enforceable, contact our commercial team.

For further reading, see our article titled Are electronic signatures legally binding in Australia?



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.