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E-businesses in the Internet age pose some interesting challenges

10 October 2007

With more New Zealanders embracing Internet shopping, the providers of goods and services need to ensure the contracts they use can be enforced. Bruno Bordignon, of top 10 law firm Duncan Cotterill, outlines how traditional contracts need to be adjusted for the Web.

E-businesses in the Internet age pose some interesting challenges, not the least of which is how to contract with consumers.

Internet shopping has seen the emergence of the “click wrap” contract, which takes its name from its predecessor, the shrink wrap contract. The shrink wrap contract is commonly used with shrink wrapped software: the idea in most cases is that, on breaking the shrink wrap seal, the user agrees to the licensor’s Terms and Conditions (T&Cs).

The flaw in this concept is that, for the terms to have legal effect, the user must agree to the terms without having had the opportunity to read them.

The click wrap contract seeks to avoid this logical, and legal, dilemma.  If you have bought plane tickets, downloaded software, or become a member of limited access websites (e.g. TradeMe, MySpace) you will have most likely already entered into a click wrap contract. Alternatively, you will have been asked to “Accept” or “Decline” the site owner’s T&Cs of purchase by clicking on the appropriate button. 

It is vital for sellers of goods or services over the Internet to ensure their online T&Cs would stand up to scrutiny by the courts.  The courts are likely to take into account matters such as:

a)    whether adequate notice is given to the consumer of the T&Cs and whether the user was given the opportunity to consider the T&Cs and conditions before accepting; and

b)    whether the T&Cs are written in plain English and understandable to a user not expecting to enter into a contract.

Interestingly, in click wrap cases decided this year in the United States, the Courts have shown an increasing propensity to consider the balance of power between the parties entering the contract and whether or not the terms of the contract can be considered unconscionable and, therefore, unenforceable. These cases recognise that in each click wrap contract there is an element of procedural unconscionability, and that it is now up to the Courts to look at each disputed term of the contract and make a judgment as to whether or not that term is unreasonable or onerous in the circumstances.

In New Zealand the general rules of contract law should be applied. However, the fact that a contract is unfair doesn’t necessarily mean that the parties are able to extract themselves from it. It is likely to be some time before our Courts adopt an American approach and address this issue.

So what can you do to make your click wrap contract as enforceable as possible?  Here are a few suggestions:

• The website should be set up so that the user must scroll down through the T&Cs of the contract before they are able to click on the “Accept” button. This can often be achieved by having a separate window open that contains the T&Cs and the “Accept” button at the bottom of this window. A hypertext link may not be adequate because users have to take further action to view the T&Cs.
• There needs to be a clear option for the user to “Accept” or “Decline”. Ensure this process is logged behind the scenes should the validity of the T&Cs be called into question.
• Don’t set up the site to default to the “Accept” button – the user should be required to physically select the appropriate button.
• In addition to the “Accept/ Decline” process, promotional material on the website should refer, and have a hypertext link, to the T&Cs.
• The drafting of the T&Cs should be in plain English and be easily understandable to the average consumer.
• If there are any unusual or onerous provisions, especially provisions excluding or limiting the supplier’s liability to the consumer, they should be highlighted (for example, in bold capitals) in the terms and conditions, or drawn to the user’s attention in some other way.
• In the case of an ongoing contract in which the terms and conditions change, the user should be required to repeat the “Accept”/”Decline” procedure.

It is vital that the supplier ensures the consumer has to take a pro-active role in accepting the terms and conditions of entering into a Web-based transaction. While the courts have not had to rule on many “click wrap” cases so far, the general rules of contract law will apply but they must also have been clearly adjusted so that consumers understand the fine print of the transaction.

Bruno Bordignon is a Partner in the Wellington office of national and trans-Tasman law firm Duncan Cotterill, which also has offices in Sydney, Wellington, Christchurch and Nelson. He specialises in all aspects of commercial law, with a special interest in the technology and communications sectors.