Analysis: Cases clarify requirements for website terms of use

Case law cuts both ways when it comes to website terms of use

Two recent court cases provide useful, and contrasting, examples of when website “terms of use” are enforceable. These cases emphasise that website operators should take care to ensure their terms of use are effective.

Online contracts, such as website terms of use (sometimes called “browse-wrap” contracts) are so common today that it may be assumed questions over their validity have been answered. However, situations still arise where they are found to be unenforceable.

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 link 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 said its terms of use blocked the claim. However, the plaintiff argued the terms were not enforceable, for two reasons:

• The “notice” of the terms of use was inadequate (which is to say they were insufficiently brought to her attention); and

• There was no “I agree” checkbox confirming her assent to them.

The court rejected both of her 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” checkbox was necessary – the link was sufficient. The court therefore ruled that the terms of use were enforceable, even though the plaintiff had not actually read them.

The Overstock case

In another US case, a court came to a different outcome based on different facts.

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

The link to the terms of use was located at the bottom of each page. There was no specific prompt to read them in the site’s sign-up or purchase 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] was not prominently displayed so as to provide reasonable notice”.

For this reason, the terms of use were held to be unenforceable, allowing the claim against the website to proceed.

Reasonable notice and agreement

These two cases illustrate the importance of reasonable notice and agreement in online contracts. In short, a user must have “reasonable notice” of the terms, and there must be some form of agreement by the user, before a contract can be formed.

Although online contracts are a recent phenomenon, these requirements have long been recognised as fundamental in earlier, analogous situations.

For example, when a customer drives into a pay-and-display carpark, there is usually a sign at the entrance (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.”

It is also relevant that:

• A contract can be made regardless of whether a party actually reads the terms or not; and

• No particular form of acceptance is required.

As long as the parties do something that signifies acceptance (for example, parking in the car-park; completing an online purchase), a contract can be formed.

What is “reasonable notice”?

In the McAllister case, the court said the label next to the submit button, which said “by submitting you agree to the Terms of Use”, gave the user reasonable notice and an opportunity to review the terms in advance.

In contrast, in the Overstock case, the link to the terms (at the bottom of each page) was found not to be 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, and these have been upheld in a number of cases. For example, a recent UK case found that a disclaimer located somewhere within a website could be effective. There is no reason to conclude that a link to standard “disclaimer” terms of use, displayed with reasonable prominence somewhere on a page, is not 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.

In practice, however, most websites selling goods or providing services require users to expressly accept terms of use as part of a sign-up process (for example, as in the McAllister case). This remains a good practice, in particular when the terms of use applicable to 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, website terms saying “every person who views this site must pay $10” would not be enforceable without special notice (and even then may be questionable) or express acceptance.

In the Overstock case, the restocking fee in the terms may have been a factor counting against the court finding them enforceable.

Key requirements for online terms

Four guidelines for general website terms (available via a terms of use link) are that:

• The link should be prominently displayed on all relevant pages;

• It should be easily identifiable as a link to terms of use (for example, don’t hide the terms in an “About Us” link);

• There should be sufficient documentation so it can be proved 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 to require users to expressly agree to additional terms, covering the additional services provided to registered users, in a registration process. Having the additional terms in a separately agreed contract has the benefits of:

• Recording the express agreement;

• Allowing the inclusion of terms which may otherwise be considered “onerous” if they were simply included in general “disclaimer” terms of use; 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.

There has yet to be a New Zealand court case directly on this issue. However, as the cases discussed show, the legal principles relating to online contracts are generally settled. By being aware of those straight-forward principles, website operators can take steps to ensure their online terms are enforceable.

This article provides general information and does not constitute advice. Professional advice should be sought on specific matters. Burgess is a lawyer specialising in IT law at Clendons barristers and solicitors.

He can be reached at guy.burgess@clendons.co.nz

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