Who Reads Online Terms... and does it matter?
About the Author:
RICHARD MASSEY
Senior Associate at Bell Gully
Richard has broad commercial litigation experience, including major regulatory investigations and complex High Court disputes, with a particular focus on marketing law, consumer credit, online trading, and other aspects of consumer law.
WHO READS ONLINE TERMS... and does it matter?
- Lessons from the US
"As any internet user knows, website terms and conditions are burdensomely long. One rarely reads the fine print when they create a social media account, buy an e-book or movie, use a ridesharing service, or download a mobile app."
So declared a US District Court in a recent judgment which marks the latest chapter in Nicosia v Amazon, a long-running proceeding which shines a light on the enforceability of fine print in electronic contracts.
The judgment, issued in June, will be of interest to any business reliant on online terms. The enforceability of such terms has yet to be tested in New Zealand, and overseas authority is likely to provide a relevant guide when the issue first comes before a New Zealand court. For reasons discussed further below, that may not be far away.
Nicosia v Amazon – a short summary
The case concerned Mr Nicosia's purchase of a weight loss pill (“1 Day Diet") on Amazon. The pill was found to contain dangerous chemicals, and Mr Nicosia sued Amazon alleging various breaches of US product safety legislation.
Amazon applied to strike out the claim on the basis that Mr Nicosia had accepted its Conditions of Use (CoU) at the point of purchase, and so was bound by an arbitration clause contained within. The checkout page included a button labelled “Place your order", and on the side of the screen an explanation that by placing an order customers were agreeing to the CoU.
In three successive trials, the US courts considered whether Mr Nicosia had reasonable notice of the CoU and was bound by the arbitration clause.
• The District Court found that Mr Nicosia was bound by the arbitration clause in Amazon’s CoU, which it considered had been conspicuously presented. Mr Nicosia appealed.
• The Court of Appeal doubted whether the checkout page had provided reasonably conspicuous notice of the CoU. In particular, the link to the CoU was not directly adjacent to the “Place your order" button. Further, the page was spatially cluttered with unrelated promotions and the link was not “conspicuous in light of the whole webpage." However, despite those strong doubts (which have been cited in numerous subsequent e-contract cases) the Court did not rule definitively as to whether reasonable notice of the CoU had been given, noting that that was a factual question on which “reasonable minds could disagree".
The case was then remanded to the District Court and reassigned to a new judge (95-year-old Judge Glasser of the Eastern District of New York).
• At the rehearing Judge Glasser found that Mr Nicosia was bound by the CoU. The terms had been presented on the checkout page and throughout the sign-up process. Moreover, Mr Nicosia had also continued to make purchases even after the proceeding had commenced (i.e. after he had actual notice of the arbitration clause). The Judge accordingly dismissed the claim and ordered arbitration. Perhaps most significantly, the Judge questioned whether the existence of online contract terms must be made reasonably conspicuous. As the Judge put it:
"… is there any question that reasonably prudent internet users know that there are terms and conditions attached when they log onto Facebook, order merchandise on Amazon, or hail a ride on Uber? They know this, not because a loud, brightly-coloured notice on the screen tells them so, but because it would be difficult to exist in our technological society without some generalised awareness of the fact."
Relevance for New Zealand
As noted above, there have been no New Zealand cases on the enforceability of online contracts, and in that vacuum overseas authorities (particularly from the US, where the issue has been extensively litigated) may carry greater weight.
We expect that the New Zealand courts will incline towards a generally “tech-friendly" approach, so that the law is seen to keep step with technological development and the growth of e-commerce. That would also reflect the goal of “functional equivalence" between paper-based contracts and electronic transactions, which underpinned the introduction of the Electronic Transactions Act (Now Part 4 of the Contract and Commercial Law Act 2017).
On the other hand, online contracts will apply subject to New Zealand's relatively stringent consumer protection legislation. Most relevantly, the Unfair Contract Terms (UCTs) regime under the Fair Trading Act allows the Commerce Commission to seek a declaration that a term in a standard form consumer contract is “unfair" (which would make that term unenforceable). “Fairness" for those purposes turns on various factors including whether the terms are reasonably necessary to protect the advantaged party's legitimate interests.
The Court must also consider whether the term is transparent, which will likely require analysis of the particular contractual presentation. However, transparency of itself is not determinative of fairness (and Nicosia may support an argument that presentational factors should carry little weight).
As to how the UCTs regime will apply to online contracts, consumer-facing businesses should keep a close eye on the Commission's ongoing proceeding against Viagogo. That includes an allegation that the governing law and jurisdiction clause in Viagogo's online terms (which requires resolution of disputes in Geneva, under Swiss law) is a UCT. That case remains at an early stage but may provide the first opportunity for a New Zealand court to rule on the enforceability of online terms.
Conclusion
It remains to be seen to what extent New Zealand will follow overseas approaches to online terms. At the simplest level however, it appears safe to assume that in New Zealand, as overseas, new contractual principles will emerge to address the practicalities of e-commerce. As put by Judge Glasser: “Experience, not logic, has taught that a purchase on the internet is determined by rules different from a purchase of milk at the corner grocery."
In that context, and in view of the winds of change occurring in New Zealand, this would be a valuable time for businesses to carefully review their websites, and to consider afresh the various mechanisms through which they seek to bind customers to online terms. While that is a context-specific analysis on which parties should seek tailored advice, we set out below some “tips" of general application, arising from the leading overseas authorities.
Best practice for online terms
In terms of website structure (i.e. how terms are accessed):
• Highlight the link to the terms, e.g. by using typical hyperlink formatting (blue and underlined).
• Make the terms easily accessible and avoid cluttering the screen with details of other products or promotions.
• Consider requiring a mandatory action, e.g. ticking a box (this is not essential for enforceability, although can be a helpful way of demonstrating assent).
• Where technically achievable, consider a pop-up window containing the terms through which customers must scroll before proceeding (known as a “scroll-wrap" agreement).
• Whatever mechanism is used, make the effect of that clear and consistent (e.g. “By clicking continue, you confirm that you have read and agree to the terms and conditions"; not merely “Please read our terms of use").
• Ensure that links direct to the correct version of the terms, and keep the website structure simple (so that the customer does not have to click through multiple links to find the terms).
• Present terms at the appropriate juncture, e.g. at customer registration / checkout.
• Keep detailed records of each transaction, and dates of any variations to terms.
As for the format of the terms themselves:
• Use plain language, keep concise, and avoid unnecessary technicality.
• Highlight any unusual terms in bold. The degree of prominence required will depend on the context of the contract (and, for example, any standard industry practice).
• Consider tools to make the terms as user-friendly as possible (for example, a table of contents, hyperlinked cross-references, drop-down boxes, and push notifications).
Senior Associate
Bell Gully
09 916-8800
The original article may be found here.
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