Update on Enforceability of Website Terms

Guy Burgess , February 2010

Two recent court cases have come to different conclusions on whether website "terms of use" are binding. These cases emphasise that website operators should take care to ensure the terms of use on their sites are

Online contracts, such as website terms of use (sometimes called "browse-wrap" contracts) are so commonly used today that it may be assumed that questions over their validity have been answered. In practice, however, situations still arise where they are found not to be binding.

Two recent US cases provide useful - and contrasting - examples relevant to New Zealand website operators.

The McAllister case

In Major v McAllister (23 December 2009, Missouri Court of Appeals), the plaintiff had used a website to find a tradesperson. The site required that she enter her details and click a submit button. Next to the button was a hyperlink to the terms of use, stating:

"By submitting you agree to the Terms of Use."

The plaintiff clicked the submit button, without (she claimed), having read the terms of use.

The plaintiff was unhappy with the outcome of the service and brought a claim for negligence against the website. The website claimed its terms of use blocked the claim. However, the plaintiff claimed the terms did not apply, for two reasons:

  • The "notice" of the terms of use was inadequate (i.e. they were insufficiently brought to her attention); and
  • There was no "I agree" checkbox or button confirming her assent to them.

The court rejected both of the plaintiff's arguments. It was not convinced that a user could not reasonably see the link to the terms of use - in fact, it was plainly visible next to the submit button. It also rejected the argument that an "I agree" option was necessary. The court therefore ruled that the terms of use were binding, even though it was accepted that the plaintiff had not actually read them.

The Overstock case

Three months prior to the McAllister case, another US court came to a different outcome, though based on different facts.

In Hines v. Overstock.com (8 September 2009, New York) the plaintiff returned a vacuum cleaner which she had purchased through a website. The website refunded her money, less a $30 restocking fee which was expressly mentioned in the terms of use. The plaintiff objected to the fee being deducted, saying that the terms of use did not apply.

The link to the terms of use was located at the bottom of each page. There was no prompt to read the terms of use in the site's sign-up or sale process. The plaintiff said there was insufficient notice to scroll to the end of the page to see them. The court agreed. It said:

"[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".

For this reason, the terms of use were held not to be binding on the plaintiff, allowing her claim against the website to proceed.

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 the McAllister case, the court said that the label located next to the submit button ("By submitting you agree to the Terms of Use"), gave the user reasonable notice of the terms and the opportunity to review them in advance.

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.

Does this mean that a link to terms of use at the bottom of website pages is inadequate? Not necessarily. Many websites put the link to their terms of use at the bottom of each page. These have been upheld in a number of cases. For example, a recent UK case found that a disclaimer located somewhere within a website was effective, strongly suggesting that such a link will be reasonable notice (for more information, see the article on our website "Website disclaimers - yes they do work ", September 2009). Other US cases have also found a simple link on the page to be sufficient. There is no reason to conclude that a link to standard "disclaimer" terms of use, displayed with reasonable prominence somewhere on a page, cannot be sufficient.

A strong argument can also be made that including a link to online terms of use on each page (usually at the bottom) is so prevalent and well-known that it may be considered a "customary practice" in e-commerce. Common law legal systems (which include New Zealand, the UK, the US and Australia) have long recognised "customs of merchants" in applying and shaping the law. On that basis, website users could be taken as agreeing to reasonable terms (such as common disclaimers) as conditions of using a site.

However, most websites selling goods or providing services require users to expressly accept terms of use as part of the registration process (for example, as in the McAllister case). This remains a good practice, in particular when the terms of use applicable for registered users are more extensive than those necessary for unregistered users.

Reasonable terms

Another factor in determining whether terms of use are enforceable is the content of the terms themselves. In the absence of a signed contract, the common law (and legislation in some countries) provides consumers with some protection against "onerous" terms. For example, terms saying "every person who views this site must pay us $10" would not be enforceable without special notice (which depends on the circumstances, and even then may be questionable) or express acceptance.

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

Four key requirements for general website terms (such as typical disclaimers available via a link to terms of use), are that:

  • The link to the terms of use should be prominently displayed on all relevant pages;
  • It should be easily identifiable as a link to terms of use (e.g. not just included in a link entitled "About Us");
  • 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:

  • Allowing the inclusion of terms which may otherwise be considered "onerous" if they were simply included in general "disclaimer" terms of use (e.g. a restocking fee); and
  • 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.

James Carnie
Guy Burgess
Senior Associate

PO Box 1305
New Zealand
Phone: +64 9 306 8000

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.