January 10, 2013

Unfair Online Contracts

If your business uses online contracts, it is important to ensure that they are “fair”, or they may be ruled invalid by a court.

AUSTRALIAN CONSUMER LAW

In January 2011, the Australian Federal government brought into effect laws that seek to make unfair terms in standard form consumer contracts void. Particularly in the case of online agreements, if the terms are long, confusing, not reasonably transparent, inconsistent or go beyond what is “reasonably necessary” to protect your business interests, the court may rule an offending clause invalid, or even the entire contract. An explanation of these laws can be found here

In the NSW Supreme Court case of Malam v Graysonline, the thirteen-page length of an online contract for the purchase of a table, and the extent to which Graysonline sought to avoid all liability for any damage to goods broken during the transaction process, was considered to go beyond what was reasonably necessary to protect the interests of the online retailer.

GUIDANCE FROM THE UK

Decisions in the UK courts can also provide guidance on what may be considered “unfair”. In the past, UK courts have decided that website Terms and Conditions need to be in plain intelligible language, and businesses should make an attempt to draw any unusual terms to the consumer’s attention.

As an example, in Spreadex v Cochrane, a UK court ruled that it was unreasonable for an online gambling business not to provide an authorization and confirmation process for large transfers of money on the site. A large debt that had been incurred by a customer’s child was ruled invalid.

MEASURES TO AVOID UNFAIRNESS

If you are a business contracting with users online, you should take care to ensure that the agreement is clear and concise.

Another standard to use is proportionality. Having an online agreement that is too long will increase the likelihood of an adverse ruling. A twenty five-page agreement to buy a t-shirt is disproportionate to the transaction, and is likely to leave a court sympathetic to the consumer who says they did not read it.

It is also important to note that courts are particularly sensitive to limitations on liability and consumer rights. Make sure that these sections are especially clear and accessible to any reader.

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