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Insights

Introduction

In the ever-expansive world of e-commerce, clicking that small box with the words ‘I agree’ has become second nature to many consumers. Every day, consumers who purchase goods and services online are asked whether they agree to a variety of legal instruments, including terms and conditions of sale, terms of use and privacy policies. However, how many actually read the terms of these legal documents that they are agreeing to?

A recent experimental survey conducted in the United States assessed the extent to which individuals ignored a privacy policy and terms of service (also known as a terms of use) when joining a fictitious social networking service, named ‘NameDrop’. The results found that 77% skipped the privacy policy by selecting the ‘quick join’ open. Those who took the time to read the privacy policy and terms of service, spent on average 73 seconds reading it respectively. It would then come as no surprise, that 97% agreed to the privacy policy and 93% agreed to the terms of service. Strikingly, 98% missed clause 2.3.1 of the terms of use, whereby they had agreed to give away their future first born child.

The traditional approach in Australia

In Australia, the law provides no comfort to a party who fails or neglects to read the legal instrument in which they sign. This is because of the significance that the law attaches to a signature, which ordinarily conveys a representation that the person who signs has either read and approved the contents of the document or is willing to take the chance of being bound by those contents – whatever they might be. [1] In this regard, legal instruments often gain their efficacy by signature, which signifies a commitment to certain terms and thereby enables third parties to assume the legal efficacy of the document. [2]

Although there are instances where a party may not be bound in the presence of  misrepresentation, duress, mistake – the general rule is that in absence of any such vitiating element, equitable or statutory relief, a person who signs a contract is bound by those terms and it is immaterial where they have been read or not. [3]

But what about online contracts, where selecting the words ‘I agree’ are used in place of a traditional signature? These agreements are referred to as ‘click-wrap’ agreements, which are in essence online contracts where the terms and conditions are located on the same page (generally directly above) with an option to ‘click’ the words ‘I agree’.

Click-wrap agreements and enforceability

In Smyth v Thomas, [4] the defendant was a registered eBay user and the owner of a Wirraway Australian Warbird aircraft, which he had listed on listed on eBay with a notation of a “minimum bid” of $150,000 for 10 days in August 2006. The plaintiff was also a registered eBay user, who made a bid for $150,000 (the minimum bid) and later received a notification from eBay to the effect that he had “won” the online auction. The defendant was unsatisfied with the price, so he refused to sell the aircraft. The plaintiff then sued for breach of contract.

The Court found in favour of the plaintiff and ordered that the contract be specifically enforced. In coming to its decision, the Court specifically affirmed that eBay’s terms and conditions, which both parties had accepted online as a click-wrap agreement, created a framework for the auction which the parties were required to follow. Those terms and conditions were then binding on both parties and meant that the defendant was obliged to complete the transaction.

Although Smyth v Thomas establishes that click-wrap agreements are enforceable, it should be noted that neither party claimed they were not bound for failing to read or being unaware of the contents of eBay’s standard online terms and conditions.

Outlook

So, while we know the click-wrap agreements are enforceable, it still remains unclear whether this position will remain the same, in circumstances where a person fails to read or is otherwise unaware of the contents of the agreement that they click ‘I agree’. This is question that Australian Courts are yet to decide.

Until this question has been answered, it is strongly recommended that consumers take the time to carefully read and understand the effect of every legal instrument they encounter online – because if you’re not careful, you might unknowingly give up your first-born child!

[1] Wilton v Farnworth (1948) 76 CLR 646 at 649; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 211 ALR 342 at 354.

[2] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 211 ALR 342 at 354.

[3] L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 211 ALR 342 at 356.

[4] [2007] NSWSC 844