Enforcement problems with online contracts: an Uber case study

Enforcement problems with online contracts: an Uber case study

Enforcement problems with online contracts: an Uber case study

The United States District Court recently refused to enforce Uber’s online terms of service.  The online contract in issue included two contentious terms under which Uber riders were said to have waived their right to a jury trial and to have submitted to an arbitration process: Meyer v Kalanick No 15 Civ.9796, 2016 WL 4073012.  Although the decision is not binding on any court in Australia, given that the relevant contractual principles in the United States and Australia are effectively the same, the District Court’s decision provides useful guidance as to the factors an Australian court might take into account in determining whether an online contract is enforceable under Australian law.   

Factors to consider in determining whether an online contract is enforceable in Australia 

Australian courts have rarely addressed this specific question.  The focus of relevant decisions has tended to be more on the question of when such a contract comes into force, not whether one comes into force (see, eg, eBay International AG v Creative Festival Entertainment Pty Ltd [2006] FCA 1768; Smythe v Thomas (2007) 71 NSWLR 537; Centrebet Pty Ltd v Baasland [2013] NTSC 59). 

If an Australian court was required to consider whether an online contract was enforceable, the court would likely consider the following factors:

  • whether the user was required to click an “I accept” icon before utilising the product or services;
  • whether the existence of the terms and conditions is prominently displayed, regardless of whether an “I accept” process is involved;
  • whether it is clear to the user what he or she is “accepting”;
  • whether or not the online acceptance process is unduly complicated; and
  • whether the terms are expressed in a way which is comprehensible to the average user.

An Australian court would also consider whether or not the relevant term(s) sought to be enforced is “unfair”, in the context of Part 2-3 of the Australian Consumer Law

Three distinct categories of online contracts

The following three distinct categories of online contracts have been recognised: “clickwrap”, “browsewrap” and “sign-in wrap”.

  • “Clickwrap” contracts accompany programs supplied online and require a user to click an “I accept” (or an equivalent) button to accept the applicable terms and conditions.  
  • “Browsewrap” contracts appear on websites and generally permit users to use a website without formally clicking or otherwise acknowledging acceptance of the applicable terms and conditions.
  • “Sign-in wrap” contracts fall somewhere in between “clickwrap” and “browsewrap” contracts.  There is no “I accept” function, users are presented with a button or link to view the terms (but it is usually not necessary to do so to use the relevant website or service) and users are generally taken to accept the terms by proceeding to use the website or service.  “Sign-in wrap” contracts may also contain language to the effect that by registering for or signing into, an account, users agree to the terms of service (to which the users are able to navigate from the relevant “sign-in” screen).

The key issue is whether and in what circumstances a user is bound by the terms and conditions of the online contract.  This turns on whether the user received adequate notice of the existence of the terms and conditions.

“Clickwrap” licences

As users are required to click “I accept” (or the equivalent), there is some evidence they have had an opportunity to read the terms and conditions (even if they have chosen not to do so).  Accordingly, “clickwrap” contracts have conventionally been considered to be more likely to be enforceable than “browsewrap” or “sign-in wrap” contracts.  That may not be the case, however, where the contract involves a complicated acceptance procedure or where the terms and conditions are long and turgid.  

  • In ProCD Inc v Zeidenberg 908 F Supp 640 (1996), the court expressed concern about a complicated acceptance procedure which required users to pass through two default stages before seeing the text of the contract.  Users were first given the option of selecting between “I agree” or “read now” (“I agree” was selected as the default).  Even if users selected “read now”, they had to then choose between “Okay, I agree” and “read now”.  The procedure was nevertheless held to be effective.
  • In Forrest v Verizon Communications Inc 805 A2d 1007 (DC 2002), the terms were contained in a scroll box which displayed only part of the agreement at any one time.  Although the court said this was not “inimical to the provision of adequate notice”, the court was, on balance, prepared to enforce the contract.  
  • It is not necessarily the case that a user must have actually the read the conditions for them to be enforceable.  In DeJohn v The TV Corp International 245 F Supp 2d 913 (ND Ill 2003), Manning J said “[t]he fact that DeJohn claims that he did not read the contract is irrelevant because absent of fraud (not alleged here), failure to read a contract is not a get of jail free card”.
  • It must be clear to the user what the user is “accepting”.  In Sgouros v TransUnion Corporation  No 15-2015, Wood CJ did not enforce a “clickwrap” contract where the relevant website’s layout and language failed to provide the user with reasonable notice that their “click” would manifest acceptance.  

“Browsewrap” licences

“Browsewrap” contracts have proved to be more difficult to enforce (particularly where users are not provided with sufficient notice of the applicable terms and conditions).

  • In Specht v Netscape Communications Corp 2001 WL 755396, the defendant argued the act of downloading constituted sufficient acceptance of the terms of an end-user licence agreement.  The court rejected that argument because the terms had not been set out on the webpage containing the download icon (users had to scroll to the next page to see a reference and link to the terms).  A mere request to read and agree to the terms is not conclusive of whether users have done so.  
  • In Re Zapos.com, Inc 3:12-cv-00325-RCJ-VPC (2012) the court stated a “party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyperlink buried among a sea of links does not provide such notice.”
  • In Register.com, Inc v Verio, Inc 356 F.3D 393 (2001), however, the court rejected the defendant’s argument that an enforceable contract did not exist because the defendant had not agreed to be bound by the plaintiff’s terms.  The court warned against placing undue significance on the existence of an “I Accept” function where other evidence shows the user was aware of the terms and acted in full knowledge of them.  In this case, the court found the terms had been clearly displayed and the defendant was a frequent and experienced internet user.  

“Sign-in wrap” licences

The validity of “sign-in wrap” contracts generally turns very much on the precise facts surrounding the relevant process.

Uber’s online contract was unenforceable 

In Meyer v Kalanick, the District Court refused to enforce Uber’s online terms of service.  The court treated the terms as a “browsewrap” online contract. 

To register for Uber, users had to proceed through a multi-staged process using the Uber smartphone app. The app initially prompted riders to register using either Google or Facebook and they had to enter their name and password.  Users had to click “Next” before they were directed to another screen to make a payment and register to use the service.  

The registration and payment fields were prominent at the top of the screen, but, in contrast, a smaller button accompanied by the words “By creating an Uber account, you agree to the terms of service”, appeared in “considerably smaller font”, it was not highlighted and, indeed, was “barely legible”.  Significantly, a user could click on the “register” button without clicking on the hyperlink to the terms and conditions and users were not required to click “I accept” (or an equivalent).

Even if a user did click on the hyperlink to the terms and conditions, they would not see the actual terms, rather they were taken to a screen containing a further button which provided access to the terms.  Even if a user did eventually arrive at the terms, they were confronted with “nine pages of highly legalistic language that no ordinary consumer could be expected to understand”.  
Judge Rakoff held that “most importantly, the Uber registration screen…did not adequately call users’ attention to the existence to the Terms of Service, let alone to the fact that, by registering to use Uber, a user was agreeing to them”.  Judge Rakoff was also sceptical as to whether a reasonable smartphone user would be aware of the likely contents of Uber’s terms of services and considered such a user might assume that referred to a description of the types of services that Uber intended to provide and not to the waiver of the user’s legal rights.  

The court was critical of the fact that the contentious provisions in issue (a waiver to a jury trial and the submission to an arbitration process) were only presented to users after they had scrolled down several pages of text. 

Judge Rakoff rejected the contention that the nature of electronic contracts was such that consumers are unlikely to read them and resign themselves “simply to clicking away their rights”.  The Judge observed that “would be too cynical and hasty a view, and certainly not the law”, adding there remained a legal requirement on suppliers to “take steps to provide consumers with “reasonable notice” of contractual terms”.

Unfair contract terms in Australia

In an Australian context, the terms sought to be enforced must also be considered in light of the unfair contract terms provisions set out in part 2-3 of the Australian Consumer Law.  In essence, Part 2-3 applies to “consumer contracts”, irrespective of monetary thresholds, which are contracts involving the acquisition by an individual of goods or services which are predominately for personal, domestic or household use or consumption.  If the goods or services satisfy this threshold, and if the contract constitutes a “standard form of contract” for the purposes of section 27 (which by definition it will), then a term may be considered “unfair” if, as set out in section 24(1), it has the potential to cause significant in-balance in the parties’ rights and obligations, is not reasonably necessary for the protection of the legitimate interests of the licensor, and would cause detriment (financial or otherwise) to the licensee if relied upon by the licensor.  A term which is determined to be “unfair” will be void but the contract will continue to bind the parties’ if it is capable of operating without that term.

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