The Secrets to Upholding Online Contracts and Defending Your Interests

You might not realise it, but every day you’re on the internet, you’ll probably agree to an online contract, or use a service or website where you’re party to an existing online contract.

You might not actually read it, or sign it with your signature. But it is a contract nonetheless, and subject to the same conditions as any other contract—including the conditions that determine whether it is enforceable or not.

If it doesn’t meet those conditions, then it might not be enforceable. So as a business or consumer, it’s really important to understand how online contracts work—so you know how to make a good one, or to avoid being treated unfairly.

This is particularly important for businesses. If the court declares a term unfair and the business retains it in its contract, it’s liable to a fine of $200,000 for an individual, and $600,000 for a body corporate. A lot of money for words on a webpage—but all those words matter.

Types of online contracts

There are three distinct categories of online contracts.

• “Clickwrap” contracts form part of programs supplied online and require that you click an “I accept” (or an equivalent) button to agree to their terms and conditions.
• “Browsewrap” contracts are attached to websites and allow you to use a website without clicking or otherwise acknowledging acceptance of the terms and conditions.
• "Sign-in wrap" contracts are somewhere between "clickwrap" and "browsewrap". While there is no “I accept” button, you will be presented with a link to view the terms and conditions (but it is usually not required to use the relevant website) and you are taken to accept them by continuing to use the website or service.  "Sign-in wrap" contracts may also provide that by registering or signing into an account you agree to the terms and conditions.

So a lot of these contracts aren't even particularly obvious. Which brings us to the first potential problem with them.

The main issue of enforcing online contracts: notice

Whether an online contract’s terms and conditions are enforceable usually depends on whether the consumer received adequate notice of those terms and conditions. A good example of this is the Uber case, Meyer v Kalanick, from the United States.

The Uber Case: Meyer v Kalanick

The United States District Court refused to enforce Uber’s online terms of service.

But this decision was overturned on appeal to the US Circuit Court of Appeals. One of the Circuit Judges said smartphone users would find the disclosures reasonably conspicuous, even on smaller screens.

It wasn’t enough that Meyer did not follow the hyperlink to the terms and conditions page. One Judge said: “While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes”.

So, they held that Meyer did receive adequate notice of the terms and conditions of the online contract. This decision is not binding on any New Zealand court. However, it may provide guidance as to the approach that courts might take here.

Factors New Zealand courts are likely to consider when determining if an online contract is enforceable

New Zealand courts would likely consider the following questions when determining if an online contract is enforceable.

• Were you required to click an "I accept" button before utilising the product or services?
• Was the existence of the terms and conditions prominently displayed, regardless of whether an "I accept" process was involved?
• Was it is clear to you what you were "accepting"?
• Was the online acceptance process unduly complicated?
• Were the terms and conditions set out in a way which you could readily understand?

If you're a business drawing up an online contract, you should make sure you do all you can to meet this kind of standard of notice.

An “unfair” term in an online contract might be unenforceable

A New Zealand Court may also be called to consider whether or not the relevant term(s) sought to be enforced is "unfair", in the context of the Fair Trading Act 1986’s unfair contract terms provisions. This applies to all “standard form” consumer contracts—contracts that are offered on a “take it or leave it” basis without any opportunity to negotiate. This can include online contracts.

What is an unfair term?

A term is unfair if three requirements are met:

• the term must cause significant imbalance in the parties' rights and obligations arising under the contract
• the term is not reasonably necessary to protect the legitimate interests of the business
• the term causes detriment (financial or otherwise) to the consumer if it were enforced.

But there's a fairly big complication to having a contract term declared unfair in New Zealand.

Unlike in Australia, New Zealand consumers themselves cannot apply to the court to have a contract term declared unfair—only the Commerce Commission can. A New Zealand consumer can lodge a complaint with the Commerce Commission to try and get the process started, but the decision to litigate or not remains with the Commission.

The Grey List: terms that might be unfair, but still need to meet the requirements

The legislation provides a non-exhaustive “grey list” of potentially unfair terms. The grey list includes some terms that are seen frequently in online contracts (such as those which limit a business’s liability or allow it to unilaterally change the terms of the contract).

But a term won't be automatically unfair just because it is on the grey list—it will still be subject to the three requirements referred to above.

Transparency

As part of its consideration, a court must take into account the extent to which the term is transparent. So the court needs to think about whether the term is:

• clear and expressed in plain understandable language?
• buried in the fine print or expressed in complicated technical jargon?
• available to all parties affected it?

While a lack of transparency alone is not the sole indicator that a term is unfair, one-sided terms and conditions which are buried in a website may well be in difficulty.

Terms that cannot be declared unfair

The legislation also addresses terms that cannot be declared unfair. These include:

• Terms that define the main subject matter of the contract
• Terms that set out the price of the product or service being supplied
• Terms required or permitted by other legislation.

Businesses must ensure their consumer contracts comply with the provisions

If you want your customers or website visitors to comply with any terms and conditions you set out, you should do all you can to make them obvious, transparent and fair - compliant with the Act's provisions. And if you change them, you must think carefully about how you communicate those to new and existing customers.

We’re here to help if you’re:

• a business trying to ensure your online contract is enforceable, and its provisions are fair in the context of the Fair Trading Act
• a consumer who wants to know if an online contract is enforceable against them.

Give one of our experts a call or an email.