Arbitration Clauses and Online Contracts. How to enforce them.

Entering contracts online is now a regular part of many commercial dealings. These contracts can be simple, such as the purchase of a pair of jeans by a consumer, or more complex, such as service agreements between sophisticated entities. In both cases, it is customary now to ‘tick’ or ‘click’ a box to accept a set of terms and conditions, whether or not the terms have in fact been read. Such terms often include a clause referring disputes to alternative dispute resolution and, sometimes, binding arbitration in foreign countries.

One of the main reason to include an arbitration clause in such terms is because the arbitration is usually quicker and more cost effective than litigation in court.

What is an Arbitration Clause?

Simply put, an arbitration clause is a contract term which states when the parties agree that alternative dispute resolution is necessary. It is a section of a contract that addresses the parties’ rights and options in the event of a legal dispute over a contract, where the parties agree not to sue each other in court and to, instead, direct the dispute to arbitration for determination.

The Australian Federal Court decision in Dialogue Consulting Pty Ltd v Instagram (2020) offers insight into the enforceability of arbitration clauses.

Dialogue v Instagram: Instagram’s Failed Attempt to Arbitrate

The case concerned a business, Dialogue, that provided an automated scheduling tool for social media accounts. In operating the business, Dialogue 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 to restore its use of the platform.

Instagram sought to rely on the arbitration clause in its terms of use such 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; and
  • 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.

The Federal Court held that an arbitration clause contained in online terms of use can amount to a binding and enforceable arbitration agreement for the purposes of the International Arbitration Act 1974 (Cth) (IAA). However, to rely on this argument, parties must act consistently with the requirements of the clause and not in a way that may amount to a waiver of their rights to arbitrate.

Ultimately, it was held that Instagram waived their right to arbitrate because too much time had passed, and they delayed in seeking to bring the matter to arbitration. Instagram had already brought the matter to court and used mechanism notices to produce, made requests for more information and had discussions about discovery categories for the purpose of the court proceedings. Therefore, it was too late to refer to arbitration.

How does this decision affect business owners?

Takeaways from this decision are that arbitration clauses in online terms and conditions can be relied on for the purposes of the IAA, provided they are properly incorporated by way of appropriate design and content.

This means parties seeking to rely on arbitration agreements should be careful not to waive their rights to arbitration and to compel another party to arbitration, not taking more than any necessary steps towards litigation.

The Commercial lawyers at Burke Lawyers have the experience and expertise to assist you with any contract preparation and negotiation and any formal agreements including Shareholder, Unit Holders, Partnership or Franchise.

For tailored assistance and legal advice please contact us today +61 3 9822 8588 or you can email us here.


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