Unconscionability in online contracts

19 Sep 2016

Common law courts have treated online contracts as if they were paper contracts [i]. Parties have been held to their click signatures as if they were paper signatures and, in the absence of fraud or misrepresentation, it is not an excuse that parties have not read the terms[ii].  However, there are three characteristics of online contracts differentiating them from paper contracts: they are standard form contracts; the contracts are offered by a machine; and the machine is interactive. It is arguable that the reluctance of consumers to read voluminous online standard terms, coupled with the noise, colour and entertaining activity of a website[iii], are well known to online vendors and exploited by them to induce unsophisticated or unwary consumers to enter into online contracts. 

However, very few online contracts have been invalidated for fraud or misrepresentation at common law. Courts have consistently held that online standard form contracts per se are not unconscionable[iv].  In rare instances, online contracts have been held invalid for deceit[v], and because they were not obviously contractual in nature[vi]. In equity, two decisions in California have found procedural unconscionability where a lack of online alternatives left consumers with little real choice except to enter into online contracts containing harsh terms [vii].

Scholars have disagreed on the solutions best adapted to fix the problems of unconscionable online contracts. Opinions extend from a laissez faire acceptance of online market competition restraining the worst excesses of exploitation,[viii] to highly prescriptive suggestions for legislative intervention[ix].    

In my view, markets self regulate enough to prevent the exploitation of most online consumers in the long run, leaving equity to offer a remedy to an individual who has been exploited in the short run. But although equity is principled, it is not systematic. It relies on either legislative modification or case by case argument to supply its deficiencies.   Legislation is not the answer. The internet is evolving so rapidly that today’s legislative modification can do no more than catch up with yesterday’s use of technology. 

The talent of the general law is its ability to adapt to changing market realities. The common law has reconciled itself to the validity of standard form terms in an age of mass consumption.  Equity should now accept that when those same standard form terms are offered and accepted through the medium of an interactive machine, the quality of the virtual transaction is not the same as the quality of a paper transaction. The machine offers voluminous standard form terms within a riot of sound, colour, pop ups and other distractions. If these characteristics of the machine are known to an online vendor and knowingly exploited by it, the online consumer’s assent to the terms may be vitiated by the unconscionable conduct of the online vendor.

[i] eBay International AG v Creative Festival Entertainment Pty Limited (2006) 170 FCR 450.

[ii] Barnett v Network Solutions 38 SW 3d 200 (2001).

[iii] Gautrais V (2003–2004) “The Colour of E-Consent” University of Ottowa Law and Technology Journal 189.

[iv] Dell Computer Corp v Union des Consommateurs and Dumoulin (2007) 284 DLR 4th 577.

[v] Scarcella v America Online 798 NYS 2d 348 (2004) aff 811 NYS 2d 858 (2005).

[vi] Specht v Netscape Communications 306 F 3d 17 (2002).

[vii] Comb v Paypal 218 F Supp 2d 1165 (2002); Shroyer v New Cingular Wireless Services Inc 498 F 3d 976 (9th Cir) (2007).

[viii] Hillman R A and Rachlinski J J (2002) “Standard Form Contracting in the Electronic Age” 77 NY Law Review 429.

[ix] Kim N S (2014) “Situational Duress and the Aberrance of Electronic Contracts” 89(1) Chicago-Kent Law Review 265; Beshuisen M (2005) “Just Click Here: A Brief Glance at Absurd Electronic Contracts and the Law Failing to Protect Consumers” 14 Dalhousie Journal of Legal Studies 35.