Australia: The unreadable and the unread: Online consumer contracts and the law

Last Updated: 1 October 2019
Article by Petrina Schiavi

Australian consumers regularly click to confirm that they have "read and agreed to" contracts online but do Australian companies have to write terms and conditions in a manner that can be understood by the average consumer? What if a consumer hasn't even 'clicked to view' the terms and conditions of the online contract they have just agreed to? Like some kind of 'contract zombie', can these contracts be brought back from the unread?

THE UNREADABLE

Recent analysis of the 500 most popular on-line consumer contracts (including Facebook, Uber and Air BnB) found that most were written to the same level as academic articles, and as such were incomprehensible to the average consumer1. Yet consumers persist in 'ticking the box' to say that they understand the terms. Can consumers be legally bound to contracts that they don't, and can't reasonably be expected to understand?

Some jurisdictions in the United States and the European Union have implemented a range of measures to discourage unreadable contracts. Reading scores (such as the "Flesch-Kincaid" reading score) allow courts and regulators to analyse contracts to identify whether they are likely to be understood by the average consumer and to require changes to the drafting to improve readability.

In Australia, there are no legislative instruments that require online contracts to be readable

As a result, consumers are at the mercy of difficult-to-understand contract terms.

THE UNREAD

What happens when a consumer simply gives a sideways glance to a hyperlink for 'terms and conditions', and happily continues with their flight booking, online banking, app installation or other important online transaction without even opening the link?

Courts have generally categorised online agreements into 'clickwrap' and 'browsewrap' and 'scrollwrap' agreements.

'Browsewrap' agreements present terms passively to users, usually in a hyperlink somewhere on a webpage. These contracts are often unenforceable because it usually can't be proved that the user knew the terms existed or were even aware of the hyperlink. Recent case law and research suggests that 'browsewrap' terms are more likely to be enforceable the more prominent they are such as, where hyperlinks are repeated on every page, and statements to their effects are repeated in a prominent position.

'Clickwrap' agreements, which are more prevalent, require a user to check a box or click an icon to signify their agreement with the terms of a contract. These terms are usually enforceable even where they might appear in a separate hyperlink.

'Scrollwrap' operates in a similar fashion to 'clickwrap' however, the user must scroll through the terms and conditions before confirming their assent to the contract.

THE ENFORCEABILITY OF 'UNREAD' ONLINE CONTRACTS

As is true of paper contracts, if a company can demonstrate that a website user had actual notice of the contract terms, online terms that are difficult to find (or even hidden) will be enforceable. Where the website user had actual notice of the agreement, courts will even enforce 'browsewrap' agreements (Nguyen v Barnes & Noble2). Where there is no evidence that the website user had actual knowledge of the agreement, the validity of the 'browsewrap' agreement depends on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.

In light of recent cases, companies should review how they present online terms to consumers and capture a consumer's assent to such terms prior to completing a transaction. One of the safest approaches for an e-commerce site is to employ a 'scrollwrap' agreement requiring consumers to scroll through the terms and click 'I agree' at the end. Whether that approach consistently withstands judicial scrutiny remains to be seen, but companies that take that approach should increase the odds that their terms will be enforceable.

There remains some legal uncertainty around the enforceability of 'browsewrap' contracts, therefore, it is commercially advantageous for companies to ensure that the terms and conditions which purport to bind users of their website are featured more prominently to users.

DO CONSUMERS HAVE ANY RIGHTS OR REMEDIES?

Consumers who 'agree' to onerous or unfair online contract terms that they did not read or understand are limited in their options for remedies

They may be able to rely on the common law doctrine of 'special notice' for onerous terms, and the legislative prohibition of misleading and deceptive conduct applies equally to online and offline contracts. A consumer may, however, have difficulty in bringing in remedies such as unconscionable conduct, as such conduct requires the licensor to be aware of the special disadvantage (if the user has one). An electronic or online contract is rarely entered into in circumstances where an agent of the licensor can observe the physical or constitutional weaknesses of the end-user, including the inability to read complex contracts.

There are some prohibitions on unfair contract terms under Australian Consumer Law, but the reader may not be able to identify them as such in an unreadable contract. For example, terms that are unreadable may be unfair, but the reader is unable to discern this due to the complex nature of the drafting.

IMPLICATIONS FOR COMPANIES

Although there is currently no legislation in Australia that requires contracts to be readable, companies cannot expect that this will always be the case. Consumer advocates, such as Consumer Affairs Australia and New Zealand, have taken the position that readability should be included in the Australian Consumer Law (ACL) in the context of the accessibility of disclosure of information under the ACL3. The impact of international requirements for readability in the US and EU should also not be underestimated. With many Australian companies operating within a global marketplace, such international standards represent 'best practice' and are likely to be mirrored in local legislation over time.

In terms of the problem of 'unread' contracts, it appears that 'scrollwrap' agreements that require consumers to scroll through the terms and click 'I agree' at the end offer the greatest certainty in terms of enforceability, but this is not to say that other methods will not be enforceable in some circumstances, and legal advice should be sought in each circumstance.

It is likely that Australian companies that are early movers and ensure that their online contracts are easily accessible, straightforward, and written in a way that can be comprehended by the average consumer will find themselves well placed into the future. Such an approach will offer greater certainty for both business and consumers.

As online contracts become ubiquitous in our daily lives, the readability and enforceability of these contracts is an increasingly important legal issue

It is recommended that both businesses and consumers seek specialised legal advice in this complex and ever-changing area of law.

Footnotes

1Research shows most online consumer contracts are incomprehensible, but still legally binding
2Nguyen v. Barnes & Noble Inc.
3Australian Consumer Law - Issues Paper

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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