Principles of Internet contracting: Illuminating the shadows

Abstract

The common law that applies to Internet contract formation could be said to exist in a penumbra—a grey area of partial illumination between darkness and light—where it may be possible to lose sight of established contract law principles. Internet contracts raise difficult issues relating to their formation that challenge traditional contract doctrine. Analysis of case law from the United States, United Kingdom and Ireland illustrates that the courts have not applied contract formation doctrine in a principled or consistent way. There is a tendency for decisions to be reached for policy reasons, for example, to facilitate the development of e-commerce, or to achieve a result that is considered fair, rather than on sound principles of contract law. There may also be some uncertainty arising from the relationship between statutory consumer protection rules and common law contract formation doctrine. The enforceability of Internet contracts in the common law courts remains unpredictable. This article argues that although Internet contracting may raise distinctive contract formation issues, it is possible for the judiciary to invoke the inherent flexibility of the common law, to take into account the specific characteristics of Internet contracts, while still adhering to established contract law doctrine and maintaining a principled approach.

Keywords

Internet contract click-wrap browse-wrap

Introduction

Internet contracts are part of everyday life. They form the basis of myriad common transactions: the purchase of goods and services, digital content, social media subscriptions and telecommunication services, as examples. The electronic contracting environment places particular procedural burdens on users over and above those that apply in the traditional contract setting. These burdens mainly consist of difficulties in discovering, accessing and reading electronic terms. They also result from methods of electronic contract formation, and the different ways in which users perceive the electronic environment. Users nowadays, habituated to clicking through websites, may not realise the significance of the terms, may not appreciate the legal significance of clicking a box or, indeed, may not be aware of the existence of binding terms at all.

This article examines Internet contract formation methods, tracing the emergence of the ‘wrap’ contract form and discussing case law from the United States, United Kingdom and Ireland. The analysis demonstrates that a consistent judicial approach to the application of contract formation principles to Internet contracts has yet to emerge, resulting in uncertainty for both website operators and users regarding validity and enforceability of website terms. While the US courts have led the way, and continue to develop a response to emerging Internet contract forms, there has been little in the way of useful guidance from the courts of the United Kingdom or Ireland. This could, perhaps, be explained by the lack of formal procedures to facilitate collective redress in Ireland and the United Kingdom, which results in a relative dearth of case law. It could also be due to a perception that the role of the common law courts in Ireland and the United Kingdom is less relevant given the existence of regulatory consumer protection measures, in particular, legislation protecting consumers from the use of unfair terms in non-negotiated contracts.¹ This article argues, however, that although this legislative regime may encompass matters of procedural fairness that are relevant to online forms, the statutory provisions do not displace the rules of the common law relating to contract formation. The latter should therefore remain part of any challenge to the enforceability of online terms in both business-to-business and business-to-consumer online contracts. A common law court should, as a preliminary matter, establish that the contract has been validly formed and that its terms have been properly incorporated in accordance with contract law principles. The article suggests an appropriate judicial response to electronic contract formation that ensures consistency by adhering to established contract law principles, but also takes into account the important differences in form that affect users in the electronic contracting environment.

The emergence of ‘wrap’ contracts

Internet contracts are generally presented using ‘click-wrap’ or ‘browse-wrap’ forms. This contract form has become known as ‘wrap’ contracting. The content and form of click-wrap agreements varies, but their defining feature is that the user must positively indicate consent to terms by clicking on a website button before accessing the product or service. Browse-wrap agreements, on the other hand, do not require users to affirmatively click to show their consent to terms. The terms are usually indicated by means of a hyperlink somewhere on the website and the user is said to consent to the terms simply by browsing the website.

The use of ‘wrap’ terminology to describe Internet contracts began with the practice of marketing software products contained in plastic wrapping. At the time, software products were generally sold contained on a compact disc (CD). An End-User Licence Agreement or EULA usually accompanied the product. The EULA was contained within the plastic wrapping with a sticker on the outside of the package informing the user that by removing the plastic film from the package, the user was assenting to the terms of the licence. Alternatively, the EULA may have been packaged within the user manual for the product. These agreements became known as ‘shrink-wrap’ agreements and paved the way for the later evolution of click-wrap and browse-wrap forms.

Shrink-wrap contracts

The characteristic feature of the shrink-wrap agreement was that by the time the user had been given the opportunity to read the terms and conditions, he or she would effectively have been held to have consented to the terms simply by opening the packaging. In many of these licences, a term would also be included to the effect that if the user did not agree with the terms and conditions, they could return the product in its original packaging and receive a refund. These shrink-wrap EULAs, originally developed in the United States, soon became industry standard as a method of software distribution, despite controversy over their use. Critics expressed concern that the method of contract formation lacked the necessary element of agreement and eroded the classical contract law concept of mutual exchange because there had been no opportunity to review the contract terms before purchase.² Prior to 1996, US courts had declined to enforce shrink-wrap terms.³ Everything changed, however, in the landmark case of ProCD Inc v Zeidenberg,⁴ where the Seventh Circuit found shrink-wrap licence terms to be enforceable. The defendant, Zeidenberg, had purchased a CD from the plaintiff containing a database compiled from several thousand telephone directories together with software allowing users to access, retrieve and download the data. Zeidenberg, in contravention of one of the licence terms, downloaded the data from the database and offered it for sale for a lower fee than that which customers of ProCD would pay. He argued that he could not be bound by the restriction in the licence as the terms were not available until after he had purchased the product. However, finding that the term was enforceable against the defendant, the court noted that the box on which the software was packaged contained a clear statement that the product was subject to licence terms contained inside. Zeidenberg could have returned the disc containing the software and received a refund if he did not agree to the licence terms. According to Judge Easterbrook:

Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the licence expressly extends) may be a means of doing business valuable to buyers and sellers alike.⁵

The court was clearly intent on endorsing the software industry’s method of mass distribution of software and allowing competitive forces to regulate the market:

Competition among vendors, not judicial revision of a package’s contents is how consumers are protected in a market economy. And adjusting terms in buyers’ favour might help Matthew Zeidenberg today (he already has the software) but would lead to a response, such as a higher price, that might make consumers as a whole worse off.⁶

The decision in ProCD was criticised by many academic commentators. Lemley⁷ describes the right to refund as ‘sufficiently inconvenient as to be impractical’⁸ and questions the circumstances in which assent is supposedly given in the shrink-wrap context on the basis that the specified conduct that signifies acceptance (opening the package) is the same conduct that the user would engage in if he or she had not been aware of the licence terms.⁹ Despite these and similar criticisms,¹⁰ the majority of subsequent cases in US courts endorsed the ProCD approach and upheld the enforceability of shrink-wrap licences.¹¹

The validity of shrink-wrap terms has not been tested in Ireland or England. However, in the Scottish case of Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd,¹² the court seemed to suggest that shrink-wrap licence terms could be enforceable, although there was no discussion in that case of the fact that the licence terms may not have been accessible before the contract was concluded. The Scottish court’s decision is more notable for establishing that the third party, the software producer, would have been able to enforce the conditions of the licence against the purchaser under the Scottish law doctrine of jus quaesitum tertio.¹³ As such, the case does not provide a clear precedent as to the enforceability of shrink-wrap licence terms in the courts of England or Ireland.

In the discussion of the enforceability of shrink-wrap licence terms, comparisons can be drawn with the ‘ticket cases’—that traditional line of cases establishing the enforceability of terms in situations where standard forms were used without any signature requirement. In such cases, the courts were willing to find the terms binding where sufficient notice had been given before or at the time of entering into the contract.

However, there are important differences between shrink-wrap forms and the ticket cases. If we assume that the contract is formed at the time that the software is purchased,¹⁴ the terms of a shrink-wrap licence are not available anywhere for the customer to view at the time of or before the contract. Therefore they do not satisfy the requirement of prior notice which is essential in order for terms to be incorporated into the contract.¹⁵ In contrast, where a customer purchases a railway ticket, the terms and conditions may be displayed on the customer’s ticket or at least on the premises or timetables. As far as ticket sales on the Internet are concerned, the terms and conditions can usually be found in advance on the travel provider’s website and indeed, in most cases, customers are asked to click to agree to terms and conditions, thereby more likely satisfying the ‘reasonable notice’ requirement.

The question of the enforceability of shrink-wrap terms may not carry the same significance as it did in the 1990s. This is because the use of the shrink-wrap model of licensing has now to a great extent been superseded by other methods of software distribution. Software is now most often downloaded by the customer directly via the supplier’s website. EULA terms are usually presented to the customer on the website at the time of purchase and are accepted through use of the click-wrap process. The issues surrounding click-wrap contracts are explored below.

Click-wrap contracts

The click-wrap contract method was first developed when suppliers began to preload software onto computer hard disks before selling to users.¹⁶ This meant that a different method of presenting EULA terms had to be found. The most popular format involved presenting the EULA on the screen on first installation of the software. The user accepted the terms by clicking on a button stating ‘I agree’ or ‘I accept’ or other such affirmative language. In some formats, the EULA appeared in a scroll box on the screen and the user was required to scroll to the end of the agreement in order to find the ‘I agree’ button. Alternatively, the EULA appeared in a scroll box with the ‘I agree’ button on the outside of the box so that it was not necessary for the user to scroll through the agreement before clicking to proceed. In both cases, however, the installation or use of the software was dependent on the user clicking to accept the terms and conditions. These became known as ‘click-wrap’ licences. The use of the click-wrap method became widespread very quickly.¹⁷ Use of click-wrap has now extended well beyond software products to all kinds of digital content as well as to online services and purchases of tangible goods.

Much of the case law on enforceability of wrap contracts emanates from the United States where numerous cases were heard from the late 1990s onwards. Because of the requirement of clicking to indicate assent, US courts have generally been willing to enforce click-wrap contracts.¹⁸ However, it is notable that US decisions usually do not treat contract formation and incorporation of terms as separate issues.¹⁹ The cases therefore are usually decided on the basis of whether there has been reasonable notice of the existence of contract terms rather than on whether there is mutual consent and intention to create legal relations. In most of these cases, the courts have been willing to find the necessary assent when the user clicks ‘I agree’, without further discussion of the legal meaning of the click or the degree of notice that might be required. In I.Lan Systems Inc v Netscout Service Level Corp,²⁰ for example, the court in upholding the click-wrap licence stated that:

The only issue before the court is whether clickwrap licence agreements are an appropriate way to form contracts, and the court holds that they are. In short, i.Lan explicitly accepted the clickwrap licence agreement when it clicked on the box stating ‘I agree’.²¹

Even where the user has not read the terms and conditions and cannot recall clicking to agree to terms, the courts have accepted evidence of actual clicking or have accepted evidence that the user’s actions would not have been possible without clicking to proceed.²²

Browse-wrap contracts

Browse-wrap agreements differ from click-wrap because they do not require users to affirmatively click to show their consent to terms. The browse-wrap form is often used in connection with a website’s ‘Terms of Service’ or ‘Terms of Use’. By simply visiting a website or using the website, the user is said to be agreeing to terms and conditions located via a hyperlink either on the same page or on a different page or location.

US courts, when considering browse-wrap contracts, again have not focused on issues of contract formation, but instead have focused on notice and manifestation of assent. Notice can be constructive or actual. Constructive notice is established where a reasonable person in the position of the recipient should have seen the terms. Manifestation of assent may be active or passive, and a user may indicate assent by continuing to use a website after reasonable notice has been given that this conduct constitutes acceptance.²³ In browse-wrap cases, notice may be more difficult to establish than in click-wrap where the user is required to confirm that they have seen the terms. In a great many of the cases decided in US courts, browse-wrap contracts have been found to be unenforceable due to inadequate notice. Despite this, the courts have yet to take a definitive view rejecting browse-wrap as a method of online contract formation.

The seminal US case on browse-wrap contracts is Specht v Netscape Communications Corp ²⁴ where the US Court of Appeals for the Second Circuit considered the validity of an arbitration clause in an online software licence agreement. The licence terms were only accessible via a link at the bottom of the home page. The licence itself stated that by installing or using the product, the user was consenting to be bound to the agreement. Once the software had been downloaded, there was no further information about the existence of the licence terms. The court found that the licence terms were unenforceable. The court rejected Netscape’s argument that downloading the software was conduct indicating assent to the terms because the website offer did not make it clear to the user that clicking on the download button would signify assent to those terms. In relation to browse-wrap agreements generally, the court found that ‘reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility’.²⁵

Despite these findings, Specht did not rule out the enforceability of browse-wrap terms completely and a number of subsequent cases have upheld the validity of browse-wrap terms.²⁶ A notable recent trend in US browse-wrap case law, however, is for the courts to focus close attention on the design and layout of websites and to how terms are presented in individual cases in order to assess whether there is reasonably conspicuous notice of the existence of contract terms.

In Nguyen v Barnes & Noble Inc,²⁷ the US Court of Appeals for the Ninth Circuit considered the validity of an arbitration clause in the website terms of use of retailer Barnes & Noble Inc. The terms were presented on the website via a hyperlink titled ‘Terms of Use’ in the bottom left hand corner of every page. The link also appeared, underlined in green font, in the corner of every page of the checkout process. The hyperlink on the checkout page could be accessed without scrolling and was either directly below the relevant button a user must click on to proceed in the checkout process or just a few inches away. After clicking on the link, users were presented with the full text of the terms. One of these terms stated: ‘By visiting any area in the Barnes & Noble.com Site, creating an account [or] making a purchase via the Barnes & Noble.com Site…a User is deemed to have accepted the Terms of Use’.

The court characterised the agreement as a browse-wrap agreement and held that the central issue in deciding on its validity was whether the user was given actual or constructive notice of the website’s terms and conditions. In this case, there was no evidence that the website user had actual knowledge of the agreement. Therefore, the validity of the browse-wrap agreement turned on whether the website would put a reasonably prudent user on inquiry notice of the terms of the contract. This in turn depended on the design and content of the website and the agreement’s web page including the conspicuousness and placement of the Terms of Use and other notices given to users of the existence of terms of use.

The court found that the plaintiff’s hyperlinks were displayed more prominently than in the Specht case. However, the proximity or conspicuousness of the hyperlink was not the only factor relevant to establishing constructive notice. The court held that:

Where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.²⁸

This case suggests that as far as US courts are concerned, where Terms of Use are presented to a consumer in browse-wrap format, in addition to making terms available via a prominent link, there must also be ‘…something more to capture the user’s attention and secure her assent….²⁹ The court did not explicitly state what this would be, but makes reference to cases where, in addition to the hyperlink, the website also contained a prominent warning stating that continued use of the site would bind users to the terms. According to the court, ‘[G]iven the breadth of the range of technological savvy of online purchasers, consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound’.³⁰

Nguyen and other similar recent cases³¹ demonstrate that the enforceability of pure browse-wrap terms in the United States is increasingly doubtful. The requirements established in Specht ³² of manifestation of assent coupled with reasonable notice are difficult to satisfy where there is no positive action required to establish that the user had notice of the terms. Nguyen ³³ suggests that simply providing a prominent link to terms and conditions is not enough to ensure that terms will be enforceable. Absent proof of actual notice of terms or cases where a commercial enterprise is involved as a sophisticated or repeat player that ought to have knowledge of the terms,³⁴ it seems increasingly unlikely that pure browse-wrap terms will be upheld, particularly in consumer cases.

Modified click-wrap and other hybrid forms

As different online contracting forms continue to evolve, drawing a clear distinction between types of ‘wrap’ contracts becomes increasingly difficult. A recent development is the emergence of ‘modified click-wrap’ agreements. In this form, the user is asked to signify agreement to terms by clicking a box labelled ‘I agree’ or similar, and the terms of the agreement are located beside that box via a hyperlink. They differ from pure click-wrap terms described above in that the user must click the box to proceed, but the terms are not presented on the same page and the user can proceed without clicking on the hyperlinked terms. US courts, when considering modified click-wrap contracts, have found them generally enforceable where the terms are made available via hyperlink, where the user has to click to accept and where it is made clear to the user that clicking means acceptance of terms.³⁵

In Fteja v Facebook Inc,³⁶ the plaintiff claimed that by terminating his account, Facebook was discriminating against him as a Muslim. Facebook filed a motion to transfer the action to court in California in accordance with the jurisdiction clause in its Terms of Use. The plaintiff argued that there was no proof that he had agreed to the clause and that he did not remember agreeing to it or to any Facebook Agreement. However, Facebook pointed out that it is impossible to become a Facebook user without clicking through the registration page where users must acknowledge that they have read and agreed to the terms of use. During the sign-up process, the user is asked to click a button that reads ‘Sign Up’. Immediately below that button a statement appears: ‘By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service’. The phrase ‘Terms of Service’ appears in hyperlinked format. The court distinguished Facebook’s Terms of Use from a pure-form click-wrap agreement as they do not contain any mechanism that forces the user to actually examine the terms before assenting. Nevertheless, the court found that the agreement was enforceable. ‘Fteja was informed of the consequences of his assenting click and he was shown, immediately below, where to click to understand the consequences. That was enough’.³⁷

Other types of online contracting forms can be described as hybrid forms that are a mixture of click-wrap and browse-wrap. These include cases where the user is required to click a box to proceed and the terms are provided via a hyperlink in close proximity to the box, but the click button itself does not necessarily indicate acceptance of terms. Examples include cases where the click button might be labelled ‘continue’ or ‘sign-up’ or ‘check-out’. In these types of cases, there is no other indication that by clicking on these buttons, the user is accepting the terms that are located behind the hyperlink.³⁸ The difference between these cases and ‘pure’ browse-wrap is that in hybrid forms, the terms are presented alongside a click button to proceed. They differ from modified click-wrap in that while there is a click to proceed, there is no statement to indicate that clicking on the button indicates acceptance of terms. Some difficulties have been caused by these characterisations and the courts have not always made this distinction. The agreement in Nguyen ³⁹ could have been characterised as a hybrid form of wrap contract but the court itself characterised it as browse-wrap. While the court did draw a distinction between modified click-wrap cases such as Fteja and the facts before it, the court did not consider the proximity of the hyperlinked terms to the click button to be relevant to its decision that the requisite notice had not been given.

In Berkson v Gogo LLC,⁴⁰ Judge Weinstein of the Eastern District of New York District Court did distinguish between various types of modified click-wrap, browse-wrap and other hybrid forms. He set out what he considered to be the general principles regarding validity of Internet agreements that could be distilled from previous cases:

First, terms of use will not be enforced where there is no evidence that the website user had notice of the agreement. The website must be designed so that a reasonably prudent user will be placed on inquiry notice of the terms of the contract. Second, terms of use will be enforced when a user is encouraged by the design and content of the website and the agreement’s webpage to examine the terms clearly available through hyperlinkage. Third, terms of use will not be enforced where the link to a website’s terms is buried at the bottom of a webpage or tucked away in obscure corners of the website where users are unlikely to see it.⁴¹

Based on this analysis, Judge Weinstein then formulated a four-step process for analysing hybrid form wrap contracts (which he termed ‘sign-in’ wrap) but which he stated could also apply to all wrap contract forms:

Aside from clicking the equivalent of sign-in (e.g. log-in, buy-now, purchase etc.), is there substantial evidence from the website that the user was aware that she was binding herself to more than an offer of services or goods in exchange for money? If not, the ‘terms of use’, such as those dealing with venue and arbitration should not be enforced against the purchaser.

Did the design and content of the website, including the homepage, make the ‘terms of use’ (i.e., the contract details) readily and obviously available to the user? If not, the ‘terms of use’ such as those dealing with venue and arbitration should not be enforced against the purchaser.

Was the importance of the details of the contract obscured or minimized by the physical manifestation of assent expected of a consumer seeking to purchase or subscribe to a service or product? If yes, then the ‘terms of use’ such as those dealing with venue and arbitration should not be enforced against the purchaser.

Did the merchant clearly draw the consumer’s attention to material terms that would alter what a reasonable consumer would understand to be her default rights when initiating an online consumer transaction from the consumer’s state of residence…If not, then [those terms] should not be enforced against the consumer.⁴²

The Berkson judgment is notable for specifically referring to differences between paper and electronic contracting that may impact on questions of reasonable notice. Citing scholars such as Moringiello⁴³ and Kim,⁴⁴ the judge stated:

It is not unreasonable to assume that there is a difference between paper and electronic contracting. Based on assumptions about internet consumers, they require clearer notice than do traditional retail buyers. In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree—i.e., the average internet user—the importance of the details of the binding contract being entered into. The burden should include the duty to explain the relevance of the critical terms governing the offeree’s substantive rights contained in the contract.⁴⁵

Both Nguyen and Berkson demonstrate that US courts, when called upon to evaluate browse-wrap and hybrid forms of wrap contract, are placing more emphasis on the design and content of websites and whether terms were made readily and obviously available to users, as well as the legal significance of clicking on website buttons. Berkson is also notable for drawing a distinction between presentation methods that encourage reading and those that do not. For example, the court considered not only the way in which the terms were hyperlinked but also the characteristics of the ‘sign-in’ method of acceptance. The court compared the sign-in feature to the hyperlink to terms and found that the hyperlink to terms was ‘not in large font, all caps, or in bold’ whereas the sign-in feature was ‘very user friendly and obvious, appearing in all caps, in a clearly delineated box in both the upper right hand and lower left hand corners of the homepage’.⁴⁶

Conclusions from US case law

In the United States, case law relating to online contract formation has established that the necessary consent to terms is found by assessing whether there is reasonable notice and manifestation of assent.⁴⁷ In click-wrap contracts, the act of clicking is enough to fulfil these requirements, although the courts have not generally discussed the question of intention to create legal relations and whether a click can be treated in the same way as a signature so as to objectively establish that intention. In browse-wrap cases, the courts examine whether there is actual or constructive notice of terms. Constructive notice is found where the ‘reasonably prudent offeree’⁴⁸ would have known of the existence of the terms. While case law has been inconsistent as regards how the various wrap-type contracts are categorised and the type of notice that is required, a recent trend is for the courts to pay much closer attention to how the terms were presented to the user and to take into account the particular constraints that the electronic form places on users.⁴⁹ In particular, recent case law is imposing greater obligations on drafters to ensure communication of the binding nature of website terms, and that terms are made readily and obviously available. To the extent that the courts are now recognising the differences in how users perceive electronic forms, this approach can be welcomed. Nevertheless, decisions of the US courts may be of limited guidance given the tendency to focus on the degree of notice, without discussion of the more fundamental questions of whether the parties have objectively come to agreement so as to create a binding contract. There have been very few reported cases from the courts of the United Kingdom and Ireland relating to Internet contracts, but those that do exist suggest that there may be a tendency for the courts to follow the US approach and focus solely on the question of whether there has been reasonable notice of the website terms.

Wrap contracts in the Irish courts

Irish courts have in the last number of years heard a number of cases which deal with browse-wrap agreements. These cases all relate to low-cost air carrier, Ryanair Ltd, and its website terms of use which seek to prevent other commercial enterprises from collecting data from its website and using it for commercial purposes (the practice known as ‘screen-scraping’).

In Ryanair Ltd v Billigfluege.de GMBH,⁵⁰ the defendant, an operator of a German price comparison website, took information from Ryanair’s website (without Ryanair’s consent) and provided the information to its customers for a fee. Ryanair claimed that the defendant’s conduct was in breach of the Terms of Use on its website, in addition to trademark, copyright and database rights. Ryanair’s Terms of Use contained a clause providing that the Irish courts would have exclusive jurisdiction in respect of any dispute.

The decision in the Irish High Court related only to the preliminary issue as to jurisdiction. Billigfluege argued that under art 2 of the Brussels Regulation,⁵¹ it should be sued in its own domicile. Ryanair claimed that a number of exceptions to this rule existed, in particular art 23, which provides that the parties may agree on a particular jurisdiction to determine disputes. According to the court:

If Ryanair’s website’s terms of use could be said to be ‘agreement’, then the parties are in a legal relationship and the dispute that has arisen from the use of Ryanair’s website would be governed by the exclusive jurisdiction clause contained within that agreement.⁵²

Billigfluege claimed that there was no agreement as there was no contract in existence and that Ryanair’s terms of use lacked any contractual effect because they were never agreed to or consented to by the defendants.

Hanna J held firstly that while the defendants disputed the existence of a valid contract, the jurisdiction clause was severable and capable of surviving independently of it. Accordingly, it was not necessary for Ryanair to show the existence of a binding contract—it simply needed to establish that that there was assent to jurisdiction.⁵³ Despite this finding, Hanna J went on to examine whether the terms of use constituted an agreement for the purposes of art 23 of the Brussels Regulation, by analysing the issue in terms of contract formation and incorporation of terms. Hanna J held that:

It is a well-established general principle of law that parties to a contract cannot be bound by terms which they have not had an opportunity of reading prior to making the contract. That is not to say that a party will not be bound because they have not read the terms—they will only escape being bound if they can show they were not afforded a reasonable opportunity to read the term in question before entering into the contract.⁵⁴

Hanna J also cited Thornton v Shoe Lane Parking ⁵⁵ and distinguished it on the basis that in Thornton, the House of Lords had held that the defendants had not taken sufficient steps to ensure that the notice containing the exclusion clause was brought to the attention of customers of the car park before they purchased their tickets, whereas in the present case, the jurisdiction clause was contained in the Terms of Use on the plaintiff’s website, highlighted by way of hyperlink and was therefore fairly brought to the attention of the other party. The court characterised this method of contracting as a ‘click-wrap’ contract and held that the hyperlink to terms was not hidden or concealed, nor were the terms difficult to find. In relation to consideration, Hanna J found that Ryanair had provided consideration by providing information as to flights and prices of flights on their website. As the Terms of Use were found to have contractual effect, it followed that the exclusive jurisdiction clause contained within was also binding.

The judgment is unsatisfactory on a number of levels. Firstly, as the court itself pointed out, it was not necessary to examine the issue of contract formation at all. Despite this, the judge decided the issue of whether the jurisdiction clause was binding by addressing whether a valid contract had been formed. Secondly, the court looked at the issue of contract formation by examining ‘reasonable notice’ and the case law on incorporation of terms. If the question was whether a valid contract had come into existence, the appropriate issue would have been whether there had objectively been agreement based on offer, acceptance and intention to be bound. Thirdly, the judge made reference to a ‘click-wrap’ agreement, whereas the Terms of Use at issue appeared to be accessible via a hyperlink in a browse-wrap format; thus, the judge seemed to confuse the different issues surrounding consent to click-wrap and browse-wrap terms.⁵⁶

A second Irish case dealing with similar facts came before the High Court in 2013. In Ryanair Ltd v On the Beach Ltd,⁵⁷ the defendant was an English online travel agency. Ryanair claimed that the defendant breached the Terms of Use of the Ryanair website by screen-scraping data from it for its own commercial purposes. The defendant argued that the Irish courts did not have jurisdiction. Ryanair again claimed that the parties had agreed to the exclusive jurisdiction of the Irish courts through a clause in its Terms of Use on its website. The defendant argued that there was no contract between itself and Ryanair as it was only acting as agent for the ultimate customer who was purchasing flights. Accordingly, the defendant argued that in the absence of a contract, there could be no valid agreement in relation to jurisdiction. Again, however as in Billigfluege, the court dismissed this argument and held that a jurisdiction clause may still be valid even if one party challenges the existence of the contract in which it appears.

Having established this, Laffoy J went on to base her judgment, not on contract formation aspects, but on art 23 of the Brussels I Regulation and whether there was a valid agreement conferring jurisdiction. Accordingly, the judge was at pains to point out that ‘apart from the application of art 23(1), the Court is not concerned with whether a contractual relationship based on the Terms of Use exists between the parties’.⁵⁸

Under art 23(1)(c) Brussels Regulation, an agreement conferring jurisdiction will be valid if it is:

[I]n international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

In assessing whether art 23(1) applied, Laffoy J firstly concluded that the activity in question was international commerce. Secondly, the judge concluded that a practice existed in the airline business and in the travel agency online business that a website user becomes contractually bound by means of clicking or ticking a box to demonstrate assent or agreement to terms which the website owner has displayed. Moreover, according to the judge, it was standard Internet practice in the business that the Terms of Use of a website would be available by way of hyperlink with the objective that by browsing or viewing the website, the user would be bound to the Terms of Use. Thirdly, it was held that the defendant was aware of this practice, which was regularly followed when making bookings with online travel agencies and with airlines. It was therefore to be regarded as a consolidated practice.

Accordingly, Laffoy J held that art 23(1)(c) applied and the defendant was bound by the jurisdiction clause in the Terms of Use on Ryanair’s website:

The ultimate objective of the defendant’s use of the plaintiff’s website, whether by procurement of the cache of data, or by searching, or by booking, whether automatically or manually, is to create a legal relationship. En route to the fulfilment of that objective, indeed, at the very outset, the defendant encounters the hyperlink connection to the plaintiff’s Terms of Use, of which I have already held that the defendant is aware or ought to be aware. The defendant proceeds to use the website with such awareness. That, in my view, is all that is necessary to give rise to real consent on the part of the defendant to be bound by the jurisdiction clause. If the defendant does not wish to be bound by the jurisdiction clause, it should desist from proceeding beyond its first encounter with the hypertext link. If it does not, in relation to what ensues, there are two active participants because, as the saying goes, it takes two to tango. The participation of the defendant is both a manifestation of “real consent” in the words of the MSG case and “unambiguous manifestation of assent” in the words of the Court in the Specht case.⁵⁹

The Irish case law on the enforceability of browse-wrap terms may be of limited value given that they mainly concerned the question of ‘agreement’ for the purposes of the Brussels I Regulation. Nevertheless, the cases illustrate that there is a tendency for Irish, and perhaps also UK courts, to follow US jurisprudence relating to the enforceability of wrap contracts, focusing solely on the question of reasonable notice of the contract terms, rather than entering into a contract formation analysis.

Limitations of the case law and a suggested approach to enforceability of wrap contracts

Analysis of the case law demonstrates that there are limitations in how the courts have adjudicated on the validity of online contracts. There is little contract formation analysis in the decided cases, with the courts tending to simply assess whether reasonable notice of terms has been given via the website. The courts have not grappled in any detail with the difficult questions involving the real and perceived differences between paper and electronic contract forms. For example, the cases have not discussed the legal significance of a ‘click’ or whether terms in a website can be objectively viewed as being contained in a contractual document for the purposes of the incorporation of terms. Further, there has been a tendency to decide cases less on established contract law principles and more on the basis of public policy or considerations of fairness in individual cases. These issues are explored below and suggestions are made as to how the courts should approach issues involving contract formation and incorporation of terms in wrap contracts.

Contract formation

Under traditional contract law doctrine, the courts, when called upon to uphold or enforce a contract, look for evidence of intention of the parties to enter a mutually binding agreement. However, the actual state of mind of the parties is not relevant. Rather, intention is judged by objective standards. The courts traditionally find agreement, if, based on external evidence, a reasonable person would be led to believe that an agreement existed. This is known as the objective test of intention, and was explained by Blackburn LJ in the case of Smith v Hughes ⁶⁰ 1871:

If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree the other party’s terms.⁶¹

Under the common law, intention can be expressed in any manner and no formalities are required to form a binding contract. Intention to enter a contract can be implied by conduct. The only relevant question is whether the parties, by their outward conduct, would reasonably be regarded as having reached agreement. Clicking on a website button or browsing a website, could in theory, amount to conduct that provides objective evidence of intention to enter a contract. Traditionally, the common law courts have inferred intention to be bound from conduct such as handshakes, nods and signatures. Importantly, where a document is signed, the signature also operates to incorporate all the terms of the contract provided that the signed document can reasonably be considered to be of a contractual nature. Here, the formation of the contract and the incorporation of terms occur in one act—the act of signature.

It is important, therefore to assess whether, in click-wrap contracts, the click is treated in the same way as the signature in order to provide that objective evidence of intention to be bound and to incorporate all the terms of the contract. If a user clicks to agree during a website transaction, that conduct, objectively viewed, could certainly signal an intention to be bound by the terms of the contract. Whether the click also operates to signify assent to the incorporation of all of the terms of the contract may be a more difficult question.

As noted above, under traditional contract doctrine, signature operates as evidence of intention to be bound and also as assent to incorporation of terms. The fact that the signatory did not read or understand the terms and conditions is not relevant. This rule was first established in the case of L’Estrange v Graucob,⁶² where the plaintiff was held to be bound by an exclusion clause in a sales agreement that she had signed without reading. The rule traditionally appears to have been accepted on the basis of allowing for legal certainty and avoiding subjective enquiry into the intentions of the signatory. Yet, it has been criticised as ignoring the context in which many documents are signed, especially in consumer transactions.⁶³

An essential part of the objective test of intention, as established in Smith v Hughes, is that a person is not bound by apparent consent where the other party knew or ought to have known that the signatory did not intend to be bound by the clause. On this basis, referring to the plaintiff in L’Estrange, Spencer asks ‘Why should people in her position not be allowed to deny their apparent consent to the clause because the company knew or ought to have known that their mind did not go with their apparent consent?’⁶⁴

This criticism of the rule in L’Estrange relates to the fact that the objective test in Smith v Hughes relates to the reasonable expectations of both the drafting and the non-drafting party. When applied in this way, the courts, even where a document has been signed, should look at the context in which the signature occurred.

It is interesting to note that the Canadian courts have been willing to depart from a strict application of the rule in certain circumstances, where, for example, the contract is signed in a hurried and informal manner. In Tilden Rent a Car Co v Clendenning,⁶⁵ the Ontario Court of Appeal held that it is an essential part of the objective theory to enquire whether the other party entered the contract in the reasonable belief that the signer had assented to all the terms of the document. The defendant had rented a car from the plaintiff car rental company. He signed the agreement without reading it. The court held that the plaintiff could not rely on an exclusion clause contained in small print on the reverse side of the agreement. The contract had been signed in a hurried informal manner and the plaintiff had taken no steps to alert the defendant to the onerous provisions in the standard form contract. In these circumstances, it was held that reasonable notice should have been given of those unusual and onerous terms in the contract despite the fact that it had been signed by the defendant.

Although the English and Irish courts have not followed the line taken by the Canadian court⁶⁶ when it comes to evaluating click-wrap agreements, there is good reason for them to do so. The courts must be prepared to take into account the differences between paper contracting and electronic contracting and the fact that paper and electronic communications are perceived in different ways by consumers. Objectively, the click may signify agreement but the drafting party must have a responsibility to ensure opportunity to read, understand the circumstances—that is—to take responsibility in relation to the circumstances of the conduct which is said to constitute the evidence of intention to be bound and assent to the incorporation of terms. On this basis, the court might enquire into the prominence and labelling of the click button, and whether the website provider has drawn attention to the legal significance of clicking to agree. Discussion of context does not appear in the cases which have been heard to date. In I.Lan ⁶⁷ for example, the decision does not make reference to the presentation of the terms or the location of the ‘I agree’ button. The court simply assumed that the party clicking the ‘I agree’ button would know that they were agreeing to be legally bound to terms.

While the line of reasoning in Tilden Rent a Car may be useful to suggest that in click-wrap contracts, the courts should examine the circumstances of the click, and require notice of unusual or onerous terms, perhaps the more fundamental question is indeed whether a click should be treated in the same way as a signature for the purposes of the incorporation of terms. The US cases, as we have seen, all deal with the enforceability of click-wrap contracts in terms of whether reasonable notice has been given of the terms. This might suggest that the click is not treated as a signature, and that in fact the cases proceed in a way similar to the unsigned ticket cases at common law—the terms are only incorporated where reasonable notice has been given at the time of or prior to contract formation. However, the US cases might be of little guidance in this regard, as under US contract jurisprudence, the issues of contract formation and incorporation of terms are not usually treated separately, as they are under English law. Indeed, some of the US cases do refer to the click as being analogous to a signature and yet proceed on the basis of enquiring whether reasonable notice has been given via the website.

Is a click a signature?

There is no strict definition of signature at common law or in legislation, and many types of signing have been acknowledged by the courts. The test for validity of signatures focuses on the function of the signature rather than the form, and a signature will be considered valid regardless of what form it takes as long as it performs the functions which the law requires of a signature.⁶⁸ Those functions include the primary one of authentication—that is—identifying the signatory and evidencing intention to adopt the contents of the document. It is also generally accepted that the signature has a cautionary function particularly in the consumer context, alerting the consumer to the importance of the terms in the document. According to Mason, the cautionary function:

[A]cts to reinforce the legal nature of the document, thereby encouraging the person affixing their signature that they should take care before committing themselves to the contents of the document.⁶⁹

The eIDAS Regulation,⁷⁰ effective throughout the EU, governs the admissibility and legal effect of electronic signatures. It provides that an electronic signature cannot be denied legal validity simply because it is electronic. It also provides that electronic signatures are admissible in evidence in legal proceedings. The UK’s Electronic Communications Act 2000 provides for the admissibility of electronic signatures but does not expressly provide for their validity. In 2001, the Law Commission of England and Wales provided advice relating to formal requirements for commercial transactions.⁷¹ As part of the advice, it concluded that clicking on a website button should be regarded as the functional equivalent to a signature on the basis that it demonstrates an intention to validate and is not purely oral. The Commission also suggested that the form of the click method of signature is the equivalent of a manuscript signature using an ‘X’.⁷² Consistent with this advice, the English High Court in Bassano v Toft ⁷³ held that regulated credit agreements could be executed with an electronic signature, and that clicking on a button marked ‘I Accept’ was a signature for the purposes of the Consumer Credit Act 1974 and the Consumer Credit (Agreement) Regulations 2010. According to the court, the word ‘I’ could be treated as the mark which is ambiguously that of the consumer, ‘affixed for the purposes of authenticating and agreeing to be bound by the terms of the document’.⁷⁴

It is notable that the analysis of both the High Court and the Law Commission places the emphasis solely on the authentication function of the signature. There is no discussion of the other functions of a signature which may be relevant, such as the cautionary function which may be viewed as particularly important in the context of consumer transactions. This kind of analysis is also missing from the US case law on click-wrap contracts. Clearly one of the functions of a paper signature is to alert the signatory as to the existence and significance of legal terms within. According to Moringiello:

While it is clear that an offeree need not read contract terms in order to be bound by them, it is also clear that she must be given some signal that she is entering into a legally binding transaction so that she knows to read the offered terms. A signature provides that signal. It is not yet clear, however that a click provides that signal, and the courts do not seem to even address the possibility that it does not.⁷⁵

The question of whether a click is treated as a signature is an important one. If it is to be treated as a signature, then it may operate so as to indicate objective evidence of intention to be bound and as assent to the incorporation of all the terms. (However, even within this doctrine, as I have argued above, and following Tilden Rent a Car, there is scope to enquire into the circumstances in which the signature or click was obtained and to require reasonable notice of onerous or unusual terms.)

If the click is not so treated, then the court must assess whether the terms are incorporated by other means such as reasonable notice or course of dealing. Despite the importance of this question, analysis of the case law shows that the courts have not engaged in any depth with the legal significance of the act of clicking and there has been little discussion as to whether indeed a click is analogous to a signature. Importantly, neither do the cases enquire as to whether a click on a website is equivalent to a signature on a contractual document as is required under traditional contract doctrine.⁷⁶

Is a click on a website equivalent to a signature on a contractual document?

When deciding whether terms have been incorporated through signature, the courts have emphasised that the document signed must be a contractual one. In Grogan v Robin Meredith Plant Hire Ltd,⁷⁷ a signature on a time sheet which had a purely administrative purpose in relation to an existing contract did not incorporate clauses contained on it. And in the Irish cases of James Elliott Construction Ltd v Irish Asphalt Ltd ⁷⁸ and Noreside Construction Ltd v Irish Asphalt Ltd,⁷⁹ signatures on delivery dockets did not incorporate terms by reference because the delivery dockets did not ‘purport to have any contractual effect’.⁸⁰ According to the case law, the relevant question is whether a reasonable person would have viewed the document as contractual, taking into account the nature and purpose of the document and the circumstances of its use between the parties. In other words, when deciding this question, the court must look at the context of the transaction and ask whether a reasonable person would have thought it was a document containing contractual terms.

Where website contracts are concerned, it is important to acknowledge that perceptions in the paper environment and the electronic environment may be very different. A person signing a document may be alerted by the signature as to the contractual significance of the document. The same cannot necessarily be said about the person clicking a button on a website. Users are accustomed to clicking on websites for many different reasons—to navigate through hyperlinks or to move to different pages on the site. Accordingly, it could be argued that a reasonable user would not have viewed the website as a document containing contractual conditions. This issue may have particular relevance in relation to the kind of hybrid wrap forms that have been described above. These forms require a click but do not necessarily emphasise that the click signifies agreement to terms and conditions. For example, the click may be labelled ‘sign-in’ or ‘purchase’ and so on. As discussed, the US courts, for example, in Berkson ⁸¹ and Nguyen,⁸² have begun to pay greater attention to the manner in which terms are presented via hybrid forms of wrap contracts. In Berkson, the court compared the prominence of the ‘sign-in’ button with the hyperlink to the terms and conditions and found that the hyperlink to terms was not given comparable prominence to the sign-in button. This kind of approach is supported by contract doctrine. The courts should enquire into whether the website presentation of the click-wrap terms is such that the reasonable user would have believed that the website contained contractual terms.

Browse-wrap and reasonable notice

When it comes to browse-wrap contracts, there is no possibility to carry out the positive action of clicking to agree. The user may not even be aware that he or she has entered a contract at all, may not have been aware of an offer nor had any intention to contract. This scenario is problematic from the point of view of traditional contract formation principles and the objective test of intention described above—where a subjective inquiry as to the person’s knowledge and intention is not generally undertaken.⁸³

Decisions in the US courts have not discussed the issue from the point of view of contract formation but are concerned with questions of notice, either actual or constructive, and the degree of prominence of the terms. The Irish court in Ryanair Ltd v Billigfluege ⁸⁴ also focused on the question of ‘reasonable notice’ of the existence of terms. However, as some commentators have pointed out, the test of reasonable notice of the terms is pertinent to the question of incorporation of terms, and not to contract formation.⁸⁵ The more fundamental question in relation to browse-wrap contracts is whether a contract has been formed at all—that is—whether the parties have objectively come to agreement based on offer, acceptance and intention to be bound. There has been a tendency in courts and in legal discourse to conflate the concepts of formation and incorporation. This may be due to the line of ‘ticket’ cases referred to above which seem to most closely correlate to the presentation of contract terms on a website. In the ticket cases, however, agreement was found and the formation of the contract therefore established, where the drafting party provided a ticket containing notice of terms and the non-drafting party did nothing to return the ticket. Therefore, the ticket cases concerned the concept of ‘reasonable notice’ but this was on the basis that the customer knew that the ticket contained terms and took the ticket with sufficient notice of the terms without returning it.

While the question of incorporation of terms is of course relevant in the context of online contracting—and indeed, the issues of incorporation and formation are often intertwined—the first question which the courts should address when looking at click-wrap and browse-wrap cases is whether a valid contract has come into existence at all.⁸⁶ This means that the courts must look at whether the offer and the means of acceptance have been adequately communicated. Macdonald argues that in the context of website contracting, this would mean that the website should clearly convey to a reasonable user that the offeror intends a contract and also, where the intention is that the contract will be formed by the user carrying out certain actions, then those actions should also be objectively clearly communicated.⁸⁷ According to Macdonald:

This ‘basic formation information’ must be conveyed to the website visitor as a reasonable person. It may be credible that an individual is willing to be bound by some terms that they do not know the contents of. It is not credible that the individual agrees to a contract the existence of which they do not know about.⁸⁸

Of course the question of incorporation of terms will also be relevant to browse-wrap contracts once it is established that the contract is in existence. Indeed, Mik⁸⁹ points out that in many cases, the questions of incorporation and formation are linked together such as when the terms of the contract prescribe the method of acceptance of the terms. In such cases, issues of incorporation and formation will inevitably have to be analysed together.

When assessing the validity of browse-wrap terms, therefore, what is required is an analysis of whether basic formation information has been conveyed via the website so that a reasonable user would understand the intention to contract and the manner in which the offer can be accepted. After that, the enforceability of the terms depends on whether they have been validly incorporated. This kind of analysis is not readily apparent in the case law. While in Specht, the court required ‘reasonably conspicuous notice of the existence of terms’ and ‘unambiguous manifestation of assent’, the decision really concerned the prominence and location of the link to the terms rather than the necessity of communicating the basic formation information. However, the more recent US case of Nguyen v Barnes & Noble Inc ⁹⁰ does indirectly refer to the necessity of conveying this basic formation information by holding that mere use of a conspicuous hyperlink to terms of use by a website is not enough to establish constructive notice and by suggesting the need for ‘something more to capture the user’s attention and secure her assent’.⁹¹ A suggestion is made that this ‘something more’ would be a prominent warning that by using the website, the user would be bound by its terms. The location and prominence of such a notice would of course still be relevant as it would need to be conspicuous to the user before any actions could be taken which would be taken to constitute acceptance. This approach is also one which Irish and UK courts should adopt in future browse-wrap cases and is also consistent with contract formation doctrine.

Repeat users

In relation to browse-wrap contracts, US courts have found that even if the notification of terms is located such that it is not seen until after the action is taken that is said to constitute acceptance, the terms may still be enforceable if there has been a number of repeat visits to the site. In Register.com v Verio,⁹² a competitor of the plaintiff attempted to collect data from the plaintiff’s website for advertising purposes using repeated automated visits. The court held that the frequency of the repeat visits meant that the defendant was said to have notice of the terms. This is similar to the traditional reasoning in the line of cases dealing with incorporation of terms by previous course of dealing.⁹³ Macdonald makes the salient point, however, that no matter how many repeat visits there may be to a particular website, there cannot be adequate communication of the basic formation information (nor indeed of the content of the terms, if the question is one of incorporation of terms), if the information is located somewhere that a reasonable person would not see it or have the opportunity to read it.⁹⁴ This is supported by the Irish court’s decision in James Elliott Construction Ltd v Irish Asphalt Ltd ⁹⁵ where the defendants sought to rely on incorporation by a course of dealing on the basis of some 1100 delivery dockets containing reference to ‘terms and conditions available on request’. This argument was rejected by the Supreme Court on the basis that the delivery dockets did not actually identify the terms nor had the terms ever been provided to the plaintiffs.⁹⁶

There may be a temptation for courts to decide that where users have regular and consistent dealings with a website, that they are taken to have constructive notice of the terms regardless of how those terms are presented. Indications of such an approach were apparent in the case of Ryanair Ltd v On the Beach Ltd,⁹⁷ albeit in the context of the application of art 23(1)(c) of the Brussels Regulation. The court found that it was standard Internet practice in the airline business that the terms of use would be available by way of a hyperlink with the objective that by a provision in those terms, the use of the website, browsing or viewing the website binds the user to the Terms of Use. The court found that the evidence clearly demonstrated that the defendant was aware of the practice, it being a practice which is generally and regularly followed when making bookings with airlines and travel agencies. This finding was, of course, probably influenced by the fact that the parties were both commercial entities and that this was not a business-to-consumer transaction.

Regardless of whether the user is a consumer or a business, it must be pointed out that the first issue is whether the user objectively knows of the intention to contract, what the offer is, and what the required actions are which signify acceptance. As outlined above, this information must be conveyed in a manner such that a reasonable website user would find it and such that this notice would occur before the act intended to constitute acceptance is carried out. If this information is not conveyed, then repeat visits to the site should not form the basis of a finding of constructive notice.

Special notice for unusual or onerous terms

It is established at common law that extra steps must be taken in order to give adequate notice of clauses that are unusual or onerous. This was established in cases such as Parker v South Eastern Railway ⁹⁸ and Interfoto Picture Library v Stiletto Visual Programmes.⁹⁹ It has also been accepted as part of Irish law in Carroll v An Post,¹⁰⁰ where it was held that the rule is of particular relevance where the incorporating document is one which it is generally known is not read by those to whom it is given. The judge made particular reference to tickets and invoices but a modern-day application could see this rule as particularly relevant to online forms. The question of course is what steps might be considered appropriate in order to comply with the requirement of special notice. This is not well established, even in the older cases. It seems that the degree of notice required may depend on the nature of the clause.¹⁰¹

In relation to incorporation of terms in browse-wrap contracts, it may be that special notice would require pop-up windows displaying the term in question, or notification banners similar to cookie consent notices required under the EU’s e-Privacy Directive.¹⁰² Where click-wrap is concerned, if a click is considered to be a signature, then incorporation of terms is automatic and no discussion of notice is required. However, as discussed above, traditional case law leaves room for a finding that even in the case of signature, the context of the transaction may require special notice of unusual or onerous terms.

Legal realism—Tendency to decide cases on social or public policy grounds

Some of the case law discussed in this article demonstrates the tendency of the courts to reach decisions not on the basis of concrete contract law principles, but in order to achieve a just result or one that they consider best for policy reasons. In many of the cases, the courts were asked to adjudicate in circumstances where public policy was at issue. The first case in the US courts upholding click-wrap was Hotmail Corp v Van Money Pie Inc ¹⁰³ where the facts involved illegal sending of SPAM advertising (among other things), allegedly pornographic materials. The court’s finding was undoubtedly influenced by public policy with regard to regulating this kind of activity. In ProCD Inc v Zeidenberg,¹⁰⁴ Judge Easterbrook was clearly swayed by commercial efficiency considerations noting that the use of shrink-wrap licences was ‘a means of doing business valuable to buyers and sellers alike’.¹⁰⁵ In the screen-scraping cases, it is also likely that the motivation for decisions is at least partially policy-driven. In Ryanair Ltd v On the Beach Ltd,¹⁰⁶ Laffoy J referred to click-wrap and browse-wrap contracting forms, stating that it would be ‘difficult to see how online trade could be carried on in the absence of those devices’.¹⁰⁷ It is unfortunate if this tendency leads the courts to distort contract doctrine in order to reach results that are considered just or simply in order to promote business interests. Of course, the other disadvantage is a lack of emerging consistent principles or guidelines with regard to enforceability of online contracts.¹⁰⁸

The relationship between statutory consumer protection provisions and common law contract formation doctrine

While US case law continues to develop and respond to evolving wrap contract forms, there has been little in the way of development from the courts of the United Kingdom and Ireland. As noted in the introduction, this could be related to the lack of formal procedures to facilitate collective redress in the United Kingdom and Ireland, in marked contrast to the United States where much of the case law arises from consumer class actions. We must also consider the role of statutory consumer protection and its relationship with common law contract rules. Legislation to protect consumers from the use of unfair terms in non-negotiated contracts has been part of Irish and UK law since the mid-1990s,¹⁰⁹ and was introduced in order to transpose the provisions of the EU’s Unfair Contract Terms Directive.¹¹⁰ The Directive establishes a test for evaluating whether terms are unfair, which encompasses both matters of substantive and procedural unfairness. The Directive also incorporates a transparency requirement, so that where terms are offered in writing, they must always be drafted in ‘plain intelligible language’.¹¹¹ Where a term is found to be unfair, it must be held to be non-binding on the consumer.¹¹² The consequences of a lack of transparency are less clear, but recent case law of the Court of Justice of the European Union has confirmed that lack of transparency is a factor that must be taken into account in assessing the overall fairness of contractual terms, and that the Directive imposes a positive information obligation, so that national courts reviewing standard terms for fairness must consider how terms are presented and whether they are drafted in such a way as to allow the consumer to appreciate the legal consequences of the term.¹¹³

In the United Kingdom and Ireland, the Directive and its implementing provisions may obviously form an important part of any judicial decision on the enforceability of terms in online standard form consumer contracts. Its provisions may have particular relevance in scrutinising procedural fairness and tackling problematic practices in online contracting such as use of hidden or difficult-to-find hyperlinks, cross-referencing of terms and use of long, complex online agreements. However, courts must consider carefully the relationship between the procedural fairness provisions in the Directive and the procedural rules of common law contract formation doctrine.

In particular, it is important to note that as far as the formation of the contract is concerned, the Directive does not displace the rules of the common law. The existence of a valid contract is a matter that is left to the national contract laws of the Member States. Common law contract formation doctrine (including intention to create legal relations, consideration, notice and incorporation of terms) therefore must remain part of any challenge to the enforceability of online terms in the common law courts, even in consumer cases. The Directive itself suggests this is the case. The definition of unfair terms in art 2(a) refers to ‘contractual terms’. This implies that the fairness test cannot apply unless a contract has been concluded and the terms have been incorporated, which is a matter for national law.¹¹⁴

A common law court should, as a preliminary matter, establish that the contract has been validly formed and that its terms have been properly incorporated in accordance with contract law principles. This article has set out suggestions for this kind of enquiry in online contract formation cases. It is important that the courts should carry out this inquiry so that a body of case law can emerge applying to both business-to-business and business-to-consumer contracts that applies a consistent and principled approach to online contract formation. This will serve to cast light on the grey area of Internet contracts and provide certainty and predictability for businesses and users alike.

Footnotes

Conflict of interest

The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship and/or publication of this article.

ORCID iD

Caterina Gardiner