Enforcement of Website Terms of Use and Incorporation of Terms in Online Transactions

Incorporation of Online Terms into Contract

If a company’s website’s terms of use include an arbitration clause, can the company enforce this against a user suing it in the Singapore court to stay the proceedings in favour of arbitration? As always, it depends.

Generally, electronic contracts can be valid and enforceable under Singapore law given the Electronic Transactions Act 2010. However, the issue of whether a particular clause is incorporated into the terms of a contract between the website operator and the user is a separate one.

Well-established contract law principles dictate that a term would be incorporated if it has been sufficiently brought to the notice of the other party. The more onerous the term, the more must have been done to bring the term to the attention of the other party. Hence, in Lord Denning MR’s decision in Thornton v Shoe Lane Parking Ltd [1970] EWCA Civ 2, he famously said: “In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling.”

Often, in considering this issue as regards website terms of use and other online terms and conditions, one considers whether the terms were any of the following:

a.      ‘click-wrap’ agreements: where the user must scroll through the terms and click on a button or checkbox or hyperlink to confirm consent to the terms;

b.      ‘browse-wrap’ agreements: where the user does not need to click on anything to indicate consent to the terms but the website simply displays a notice to the user informing that they agree to the terms; or

c.      ‘sign-in wrap’ agreements: where users are notified of the terms by way of a hyperlink and are required to click on something to continue to access the rest of the website.

However, these are ultimately convenient labels to describe certain general categories of how online terms are displayed and designed to be accessed. Ultimately, the question is a fact-sensitive inquiry into whether there was actual or constructive notice of the relevant terms by the relevant user (Julian Moreno and another v Terraform Labs Pte Ltd and others [2023] SGHC 340 at [137].)

Terraform Labs case: notice of arbitration clause in website terms

In Julian Moreno and another v Terraform Labs Pte Ltd and others [2023] SGHC 340, the Singapore High Court considered, inter alia, the question of whether an SIAC arbitration clause in the terms of use on the website of Terraform was enforceable. Terraform, as many may be familiar with, is the company which developed and ran the Terra blockchain and issued TerraUSD (UST) tokens. In May 2022, the value of UST crashed when the so-called algorithmic stablecoin peg between UST and Luna tokens (LUNA) collapsed. Representative proceedings (effectively a class action suit) was commenced in the Singapore court against Terraform, Luna Foundation Guard Ltd, and the two co-founders of Terraform, Do Kwon and Nikolaos Alexandros Platias. On the facts, the hyperlink to the Terraform website terms was at the bottom of the website. There was no particular notice or banner informing website users of the terms, or any requirement to click on anything to confirm consent to those terms.

The Court (per the Honourable Hri Kumar J) considered that in the context of an application to stay court proceedings in favour of arbitration, the issue was whether, on a prima facie basis, the claimants had actual or constructive notice of the arbitration clause. The Court found that based on the evidence before it, it could not be said to be clear and obvious that no agreement to arbitrate was concluded between Terraform and the claimants.

The Court noted that in the claimants’ case, they pleaded that they had accessed the Terra White Paper via a hyperlink at the Terra website. It was therefore highly selective of the claimants to say that a reasonable user would not have noticed the hyperlink to the website’s terms of use or stopped short of going to the end of the website.

The Court also distinguished a U.S. case involving an e-commerce website where the Californian court held that a user was not given reasonable notice of the terms of use hyperlinks in the flow of webpages in the checkout process. The Court highlighted that the Terra website was not an e-commerce website but an informational website which contained various documents accessible by hyperlink. There was therefore no particular sequence of pages or links which a user would be directed or put through before exiting the website.

The Court thus considered that the issue of incorporation or application of the website terms of use thus turned on mixed issues of fact and law, including:

a.      On actual notice:

  1.  Whether any individual user had or denies actual notice of the terms;

  2.  The placing of the hyperlink on the website to the terms of use;

  3.  Whether it is believable that users had actual notice of other hyperlinks on the website but not to the terms of use;

b.      On constructive notice – whether the website provided reasonable notice of the terms to users:

  1.  Whether the terms of use were reasonably prominent or conspicuous, considering the location and labelling of the hyperlink amidst the broader layout and design of the website.

The Court then went on to consider that for some of the claimants, they had pleaded that they relied on misrepresentations made in the Anchor website. In contrast to the Terra website, the Anchor website required that any user who connected their wallet to the Anchor protocol was by clicking on a button, which triggered a pop-up notification that included an acknowledgement that the user accepted Anchor’s terms of service. The Court found that the pop-up notice on the Anchor website was strong evidence that the claimants who had staked their UST on the Anchor Protocol and then purchased more UST would have either actual or constructive notice of the Anchor terms of service when they made their subsequent UST purchases. Thus, it was at least arguable that there was a prima facie agreement to arbitration between some of these claimants and Terraform.

Ultimately, despite the foregoing, the Court held that the court proceedings would not be stayed in favour of arbitration given that the defendants had taken steps in the proceedings within the meaning of section 6(1) of the International Arbitration Act, and thus could no longer apply to stay the proceedings. In this regard, they had filed a defence contesting the merits of the claim and had sought further and better particulars and discovery of documents for that purpose as well as striking out. In this regard, the fact that a defendant had made an express reservation of rights in its substantive defence did not change this conclusion.

The Court then made certain observations obiter dicta regarding the interaction between collective representative actions and arbitration agreements. The particular issue, which did not actually arise on the facts, would be what should happen if some but not all the represented claimants are found prima facie to be bound by an arbitration agreement.

The Court noted that in Singapore, the likely two options would be (a) those represented claimants (who are not the representatives) who are subject to a prima facie arbitration agreement may be excluded from the group; or (b) the entire action is stayed or discontinued in favour of arbitration for the arbitral tribunal to determine the jurisdictional issue.

However, from a policy perspective, the latter may not be optimal because class arbitration is not permitted unless arbitration agreements expressly provide for it (and generally they do not), so consumers and individuals with small claims and few resources may be effectively disadvantaged as they will be unlikely to bring arbitral proceedings if they are excluded from the class or representative action in court. The Court queried whether it would be appropriate to follow the approach taken by the Canadian courts e.g. in Uber Technologies Inc v Heller (2020) SCC 16 in holding that an arbitration agreement was unenforceable because of unconscionability due to inequality of bargaining power, the bargain being concluded between an unduly advantaged and an unduly disadvantaged vulnerable party, and the arbitration agreement violating the claimants’ reasonable expectations by depriving him of remedies.

Lessons and Comments

First, website operators and businesses who transact online would do well to consider carefully the design of their websites, platforms, software, and applications such as to ensure that material terms which they would want to be able to enforce against users are sufficiently notified to the users.

A risk assessment would have to be done to consider if any particular onerous or material terms need to be particularly highlighted or even positively checked by the user before any transaction may conclude.

Thus, more than just a matter of UX/UI design, and reducing friction in online transactions, businesses should consider the user flow of interactions and views, and the sequence of webpages, bearing such legal considerations in mind.

Second, businesses who wish to have their online terms include arbitration agreements should consider whether the court’s obiter dicta may suggest an inclination against upholding arbitration agreements in consumer cases, and in particular collective consumer actions, in the light of policy concerns of access to justice.

Third, litigants should be prudent in considering their strategy regarding arbitration vs court litigation at the outset. Otherwise, if any litigant has taken a step in the proceedings, e.g. by filing a defence on merits, counterclaim, or substantive application which evokes the court’s jurisdiction, that litigant would waive their right to arbitration. This is irrespective of whether an express disclaimer was included in the pleadings or other applications.

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