and then not being able to rely on them anyway…

The Federal Court of Australia’s decision in Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846 offers recent insight into the enforceability of 'internet contracts'. In this case, the Court considered an arbitration clause that was contained in Instagram’s terms of use. Those terms were accessible via a hyperlink from the sign-in page to Instagram.

In this particular instance Instagram was found to have waived its right to rely on the clause by virtue of the manner in which the court proceedings had progressed. However, that does not undermine the important takeaway from this case, which was that the clause was valid because Dialogue had reasonable notice of the terms of use and had manifested assent to them. Further the clause was not void due to unfairness or statutory unconscionability.

Dialogue v Instagram:  Instagram’s failed attempt to force social media start-up into arbitration

Dialogue is a business that provided an automated scheduling tool for social media accounts. In the course of operating this business it scraped data from Instagram’s platform. Instagram alleged that this was a breach of its terms of use and suspended Dialogue’s access. Dialogue commenced proceedings against Instagram in order to restore its use of the platform.

After the proceedings had continued in Australia for a full 12 months, Instagram sought to rely on the arbitration clause in its terms of use. This required that all disputes be resolved by arbitration in California. Dialogue contested the referral of the dispute to arbitration on the following grounds:

  • the arbitration clause was not enforceable because the terms of use did not create a binding agreement between the parties;
  • the arbitration clause was void as an unfair contract term;
  • the arbitration clause was void as unconscionable; or
  • Instagram had waived its right to arbitrate because it participated in the Federal Court proceedings for a full 12 months before seeking to rely on the arbitration clause.

Dialogue was successful only in its last argument.

Were the terms of use enforceable?

The Court found that Instagram’s terms of use, and the arbitration clause within them, formed a valid and enforceable agreement. As is now well-established law in cases involving “internet contracts” (See Gonzalez v Agoda Company Pte Ltd [2017] NSWSC 1133), the Court looked at whether Dialogue had reasonable notice of the terms of use, and whether it had manifested assent to them. In this instance, the Court found that Instagram’s terms of use met these requirements through the hyperlink on the sign-in page for the platform. This hyperlink:

  • provided users with constructive notice of the existence of terms of use in a manner that enabled a reasonably prudent person to read them if they desired to, satisfying the element of reasonable notice; and
  • was conspicuous and provided reasonable notice to a user that by clicking 'sign in' they would be accepting (that is, manifesting assent) to the terms of use, whether or not they had followed the hyperlink or reviewed the terms of use.

What are the different types of internet contracts?

In the course of the judgment, the Court also endorsed the categorisation of internet contracts into the one of 'clickwrap', ‘sign-in wrap’, and 'browsewrap': 

  • Clickwrap agreements require the user to scroll through the terms of use and affirmatively click a button or tick box stating words to the effect of 'I agree' before accessing the site, and are usually enforceable.
  • Sign-in wrap occurs where users are notified of terms that are available by way of a hyperlink, and are required to click a button, or sign in, in order to access the site. This is the category that Instagram’s sign-in page fell into in this case and such terms are usually enforceable. 
  • Browsewrap agreements are found where a website displays a notice, or banner, notifying the user that they are agreeing to the site's terms of use by using the site. The user is not required to click a button, and need take not affirmative action to indicate their acceptance of the terms. This form of agreement may not be enforceable.

Was the arbitration clause an unfair contract term?

Dialogue argued that the arbitration clause was unfair within the meaning of s24 of the Australian Consumer Law (ACL). While provisions in standard term contracts have previously been found unfair under the ACL (see Federal Court declares terms in standard form loan contracts to be unfair), the Court rejected Dialogue’s argument for the following reasons:

  • The arbitration agreement did not cause a significant imbalance in the parties’ rights and obligations as:
    • it was transparent because the clause in question was highlighted in its own box at the top of the terms and so Instagram had taken special steps to bring the clause to a user’s attention;
    • either party could invoke the arbitration clause;
    • there was a meaningful relationship between the clause and the protection of Instagram’s interests which was reasonably foreseeable at the time of the contract; and
    • the opt-out clause, even though inconveniently requiring Dialogue to opt out in writing to Instagram’s head office within 30 days, was fair.
  • The arbitration clause was reasonably necessary to protect Instagram’s legitimate interests at the time the contract was formed. Instagram’s desire to avoid litigation in multiple jurisdictions, given its global operations, was a legitimate business interest worthy of protection through the clause. It also provided a more efficient way for Instagram to handle disputes with users, another legitimate interest worthy of protection.

Was the arbitration clause statutorily unconscionable?

Dialogue argued that the inclusion of the arbitration clause would be unconscionable, and accordingly a breach of section 21 of the ACL. In support of this claim it advanced many of the same arguments it had used to support its unfair contract terms point. The Court dealt with these arguments in a similar manner. While the Court commented that Dialogue may have raised legitimate concerns in their arguments, these concerns did not meet the required standard for unconscionability under the ACL.

Did Instagram waive its right to arbitration?

Despite finding that the clause was a valid part of the agreement between Dialogue and Instagram, it ultimately decided that that Instagram had deliberately, or intentionally, waived its arbitration right and would have to conduct the proceeding in Australia. This was because:

  • Instagram had chosen to participate in the proceedings for a lengthy period, including by lodging defences which did not assert its arbitration rights;
  • as Instagram had detailed understanding of its terms of use, it must have been aware of the arbitration clause and chosen not to rely on it;
  • although in correspondence, Instagram had expressly reserved its rights under the terms of use, including as to jurisdiction, this was insufficient in this instance (see discussion below);
  • Instagram’s published corporate policy at the time was to not rely on arbitration clauses and it had subsequently amended its terms of use to remove the arbitration clause;
  • it was possible Instagram had decided not to invoke the arbitration clause in order to avoid splitting the dispute between two continents and types of adjudication as some of Dialogue’s claims would not have been subject to the arbitration clause; and
  • the ‘no waiver’ clause in the terms of use did not apply.

With regard to the ‘no waiver’ clause, this in part turned on the specific drafting which was limited to omissions. The Court found Instagram’s actions went well beyond pure omissions and accordingly could amount to a waiver notwithstanding the clause. The Court also indicated that such a contractual term could not prevent the application of equitable principles which determine whether a waiver has occurred. 

What about Instagram’s reservation of rights?

Instagram sought to rely on the following statement in a letter from its lawyers to Dialogue’s, “[Instagram] expressly reserve all rights, including in relation to jurisdiction, venue and service.” The Court found this letter failed to reserve Instagram’s right to arbitration for the following reasons:

  • there was no reference to arbitration in the letter;
  • elsewhere in the letter, Instagram expressly referred to updated terms of use which no longer include arbitration rights; and
  • based on the particular wording of the reservation of rights, the letter was only preserving Instagram’s rights in respect of the jurisdiction clause in the terms of use and not the arbitration rights.

This serves as a reminder when drafting such letters to be as specific as possible on what rights are being reserved, and that even a carefully worded letter cannot make up for conduct which is inconsistent with such a reservation of rights.

Where to now for Dialogue’s internet contracts case?

The interim injunction preventing Instagram from suspending Dialogue’s access to their platform was been extended pending the outcome of arguments regarding Dialogue’s conduct and Instagram’s suspension of its access.

For more on screen scraping, see our article Screen Scraping: Legal or Not? on the joint OAIC and ICO investigation into Clearview Inc’s collection and use of scraped data.

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