Click-wraps the way of the future ‒ but make sure they're legal

By Alexandra Wedutenko and Nick Topfer

02 Aug 2018

Click-wrap agreements will be easier to enforce if they require positive action from the user (like ticking a box), have terms and conditions that are easily found and obvious, and highlight unusual or extremely onerous terms.

Click-wrap agreements and other forms of online contract have become the norm in many fields. They are used by IT vendors providing off-the-shelf software, smartphone applications, social media and a host of online services to consumers, small businesses and even occasionally large businesses. So it's not surprising that courts have had to re-consider how age-old principles of contract law should be applied to online agreements.

Meyer v Kalanick & Uber Technologies Inc. (15 Civ 9796), a US case, considers the enforceability of Uber's terms and conditions (T&Cs). We will then turn to the state of the law in Australia and consider whether any lessons can be drawn about enforcing click-wrap agreements in Australia.

What is a click-wrap agreement?

Essentially it's one of several types of agreement used with online products. The name derives from "shrink-wrap contracts" which were boilerplate contracts printed on product packaging. These contracts were drafted so that removal of the shrink-wrap or use of the product was deemed to be acceptance of the contract terms.

There are several different categories of these online agreements:

  • web-wrap: where a user accepts the terms of a software licence by downloading or installing the software;
  • click-wrap: where a user is must click a box (or do something similar) to indicate acceptance of terms and conditions; and
  • browse-wrap: an agreement that purports to apply merely through the act of accessing or using a website or service.

Unlike a click wrap agreement (which requires the user to do something to demonstrate they accept the terms) browse-wrap and web-wrap agreements usually don't provide any means for the user to positively evince acceptance other than opening and using the software or service.

The Uber cases: Meyer v Kalanick & Uber Technologies (15 Civ. 9796 and 16-2750)

In 2014 Mr Meyer downloaded the Uber app and registered a user account. After using the app about 10 times he brought a class action against the then Uber CEO and Uber itself, alleging breaches of US anti-trust law, including that the Uber app allowed its drivers to illegally fix their prices.

In response Uber and Kalanick filed a motion to compel arbitration with Meyer, based on a clause in the Uber app's T&Cs which required users to submit to arbitration in place of court proceedings. Meyer argued that he did not have adequate notice of the Uber app terms and conditions when signing up, so the arbitration clause could not be enforced.

The registration process

When users registered an account, the T&Cs and privacy policy were included via a hyperlink on the payment page. After entering their payment details, users had to press a button to register. Under the "Register" button was text that read "By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY". This text included a hyperlink to a separate landing page with a further link that actually lead to the T&Cs. You can see a copy of this page on page 32 of the judgment.

The key issue was whether reasonably conspicuous notice had been given of the T&Cs. If the user did not have actual notice of the T&Cs, they could still be bound if a reasonably prudent user would have been placed on "inquiry notice". Had Meyer been placed on inquiry notice of the app's T&Cs?

It was not necessary, according to the New York District Court of Appeals, to presume that the "reasonable" smartphone user has never before encountered an app or entered into a contract using a smartphone. Instead, it took the view that a reasonable user would recognise hyperlinked text and understand the significance of "Terms of Service".

The Court of Appeals also held that the T&Cs were immediately visible and in the same place as the "Register" button. This had the effect of connecting the contractual terms to the services. While the linked text was in small font, the print contrasted with the background and the hyperlinks were blue and underlined.

Ultimately the Court of Appeals held that the hyperlinked text was reasonably conspicuous, and accordingly that a reasonably prudent smartphone user would have constructive notice of the T&Cs. It emphasised that while many users will not bother reading the T&Cs, that is the choice the user makes.

How would the Meyer case play out under Australian law?

Meyer v Kalanick involved a factual assessment of the Uber app's interface with the two courts disagreeing about the proper characterisation. The central question, whether the T&Cs were reasonably conspicuous, will also be relevant for entities operating in Australia. But it's also worth considering whether there are any differences in Australian law that would be relevant.

There's a useful summary of Australian case law on incorporating terms by reference in Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2016] 2 Qd R 194.

Essentially, the question to be decided is what each party, by words and conduct, would have led a reasonable person in the position of the other party to believe had been accepted. Whether a clause is sufficient to incorporate terms found elsewhere depends on the language used and the ordinary rules of construction.

Usually the nature of the incorporated terms is not relevant. However, there are exceptions to this rule. Relevantly, if any condition incorporated by reference is so unusual that it would not reasonably be expected in the relevant type of agreement, then the party relying on that condition must give notice of it.

Whether a condition is unusual in this sense depends on the circumstances. Relevant factors include the nature of the contract and the parties as well as the industry context. For example, in agreements between businesses, a term is commonly used in the relevant industry won't be considered unusual and so there would be no onus to bring it to the counterparty's attention.

Key lessons for anyone using click-wrap agreements

While Meyer v Kalanick is not law in Australia, it does demonstrate that reasonable minds will differ about what steps are necessary to bring incorporated terms to the counterparty's attention. In online agreements, this difficulty can be avoided by requiring users to perform some action to specifically manifest acceptance of the terms. Browse-wrap agreements do generate a risk that a user could claim not to have been aware of the terms and therefore not to have had a reasonable opportunity to consider them. So if you want to use these types of agreement it will be even more important to draw attention to the T&Cs.

The analysis in Surfstone indicates that courts will take a different approach when considering agreements between commercial entities compared to agreements involving consumers. As noted, the central question under Australian law is whether a party, by its words and conduct, would have led a reasonable person in the position of the other party to believe specific terms had been accepted. A business will be taken to be aware of the terms on which parties in its industry commonly contract. This will be harder to demonstrate when it comes to consumers. Businesses also need to bear in mind issues like the prohibition on unfair contract terms under the Australian Consumer Law when dealing with consumers and small businesses.

So, when dealing with customers, businesses should make sure they:

  • draw attention to the T&Cs and highlight any that are unusual;
  • make the terms easily accessible (not hidden behind numerous screens); and
  • where possible, require customers to perform an action (like ticking a box).

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.