Guy Burgess , February 2010
Two recent US cases provide useful - and contrasting - examples relevant to New Zealand website operators.
The McAllister case
- There was no "I agree" checkbox or button confirming her assent to them.
The Overstock case
Three months prior to the McAllister case, another US court came to a different outcome, though based on different facts.
"[The plaintiff] lacked notice of the Terms and Conditions because the website did not prompt her to review the Terms and Conditions and because the link to the Terms and Conditions was not prominently displayed so as to provide reasonable notice".
Reasonable notice and agreement
These two cases starkly illustrate the importance of reasonable notice and agreement when it comes to online contracts. In short, a user must have "reasonable notice" of the terms of the contract, and there must be some form of agreement or assent by the user before any contract can come into existence.
Although online contracts are a recent phenomenon, these requirements are not new. They have long been recognised as fundamentals of contract law in earlier, analogous situations. For example, when a customer drives into a pay-and-display car-park, there is usually a sign at the entrance (albeit in very small print) listing the terms and conditions of parking there.
In such situations, the displayed terms form a binding contract, provided reasonable notice and agreement is given (and other legal requirements are met). The same principles apply to online contracts. As the court said in the McAllister case:
"The legal effect of online agreements may be an emerging area of the law, but courts still apply traditional principles of contract law and focus on whether the plaintiff had reasonable notice of and manifested assent to the online agreement."
With online contracts (as with other types of contract), it is also relevant that:
- A contract can be made regardless of whether a party actually reads the terms or not (which most people probably don't).
- A contract (or acceptance of it) does not need to be in writing to be binding (except in special situations). Ideally, a contract will be in writing, but contracts can also be oral or implied.
- No particular form of acceptance is required. In general, as long as the parties do something that signifies acceptance (e.g. using a website, or parking in the car-park), a contract can be formed.
What is "reasonable notice"?
In contrast, in the Overstock case the court said that a link to the terms at the bottom of each page was not reasonable notice, in those particular circumstances. There was no instruction to the user to read them prior to buying something on the site, and nothing to cause the user to scroll down to find them herself.
In the Overstock case, the presence of the $30 restocking fee in the terms may have been a factor counting against the court finding them binding.
Key requirements for online terms
- There should be some form of version control and records kept, in order to be able to prove at a future date that a certain form of terms and conditions (and notice of them) was in place; and
- The terms and conditions themselves should be "reasonable" in the circumstances.
It is good practice that users be required to expressly agree to additional terms, covering the additional services provided to registered users, in the registration process. Having the additional terms in a separately agreed contract has the benefits of:
- Under contract law, enabling a court to interpret disclaimer terms more favourably to the website operator than if they were contained in general website terms.
The two cases discussed add to the growing number of cases (mainly from the US) involving the validity of website terms, click-wrap and other online contracts, with sometimes varying outcomes. There has yet to be a New Zealand case directly on this topic, although these cases (and the UK case mentioned earlier) are likely to be of some influence should the matter arise.
However, as they have demonstrated, the key legal principles relating to online contracts are generally settled. By being aware of those straight-forward principles, website operators can take steps to ensure the online terms on their websites are binding.
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This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Clendons for advice specific to your situation.