Online contracts update: Uber delivers another lesson in online terms

19 January 2021

Given that online contracts are everywhere these days, it may be surprising that the New Zealand courts have yet to assess their enforceability. However, overseas cases may provide some guidance.

In the US, Uber's online terms have been examined in a series of leading decisions over the past few years. Most recently, in Kauders v Uber (2021), the Supreme Judicial Court of Massachusetts considered whether Uber could rely on its online terms to enforce an arbitration clause and so avoid a Court proceeding. After carefully scrutinising the specific layout and visual structure of the sign-up process, the Court found that customers had insufficient notice of the terms and no contract had been formed.

Despite differences in the countries' legal frameworks, the decision is a reminder to New Zealand businesses that contractual terms should be presented prominently and transparently.

Summary of the case

The case concerned an Uber customer, Christopher Kauders, who had signed up to the app in 2014. Mr Kauders was blind and used a guide dog. Various Uber drivers refused to allow the dog into their cars, and Mr Kauders sued Uber for discrimination.

In response, Uber claimed that Mr Kauders could not bring a court proceeding because of an arbitration agreement in its standard terms, which it claimed had been agreed as part of the registration process via the app.

At the time Mr Kauders registered, that registration process involved three separate screens, each featuring white text on dark background. The first two screens required users to enter contact details and set up a profile. The third screen (titled “Link Payment") required users to enter payment information, and stated at the bottom of the screen: "By creating an Uber account, you agree to the Terms & Conditions and Privacy Policy." The bold words appeared in a rectangular box and linked through to Uber's standard terms (which set out the arbitration agreement and various broad limitations of liability).

The key issue before the Court was whether Uber's sign-up process provided customers with reasonable notice of the terms. In finding that it did not, and that no enforceable contract had been created, the Court drew attention to the following features:

  • First, the Court considered that where users create an account to enable future ride services, they may not expect that initial step to create a contractual relationship. This suggests that even greater prominence may be required where registration does not involve an immediate purchase of goods or services. Conversely, where customers make online purchases, they may more readily expect that terms apply (as found in a previous case, discussed here). ​
  • The Court also criticised Uber's formatting of the link, with the first part of the text, describing the consequences of creating an account, being less prominently displayed than the bold link to the terms. The Court considered that this structure “downplayed the legal significance of creating the account."
  • The Court noted that consumers were not required to scroll through the conditions or even to select them. It also observed that, in “striking contrast", Uber required all drivers to review terms as part of the driver registration process and to click a button signifying agreement. The Court considered it significant that: “Clearly, Uber knows how to obtain clear assent to its terms."
  • The Court also criticised the placement of the hyperlink, both because it did not appear until the third screen of the process, and because it appeared at the very bottom of that screen. The more prominent information at the top of the screen, and a large button in the centre, dealt with payment options. The Court considered that: “Nothing about this third screen conveyed to a user that he or she should open a link that would reveal an extensive set of terms and conditions at the bottom of the screen to which the user was agreeing."

As a result, the Court found that there was no enforceable agreement between Uber and Mr Kauders, and therefore that the dispute was not arbitrable.

Implications in New Zealand

The case highlights the importance of presenting online terms clearly to consumers, a principle which will apply similarly in New Zealand as it does in the US. Kauders v Uber provides the following valuable takeaways for any consumer-facing organisation:

  • Terms should be transparently and conspicuously presented, particularly where consumers may not readily assume they are entering into a contract (e.g. signing up for an account without simultaneously acquiring any goods or services). ​
  • Any links to the terms should be explained by text which, with equal prominence to the link itself, explains how the terms become binding (i.e. that by creating an account, or by clicking a button, the customer accepts the terms).
  • Links to consumer terms should be at least as conspicuously presented as terms used in other channels (e.g. supplier terms). If consumer terms are presented less clearly than for other channels, a Court could (as in Kauders v Uber) infer that the business has deliberately sought to exploit consumers' willingness to agree online contracts without reading the terms.
  • Where multiple screens are used during a sign-up process, the terms should be presented early on (ideally on the first screen) and in a prominent central position.

These principles, and others described in our previous article, will not only assist in terms of improving arguments for contractual enforceability, they should also reduce regulatory risk. Where online consumer terms are not conspicuously presented, this can create a risk of challenge by the Commerce Commission under the “Unfair Contract Terms" provisions of the Fair Trading Act. In particular, if a term is not reasonably necessary to protect the relevant business's legitimate interests, or if it is not suitably transparent, there is a greater risk that a term could be declared unfair (in which case it will be unenforceable).

The significance of online terms is likely to grow as the Unfair Contract Terms regime expands to cover business-to-business contracts, as part of various proposed changes under the Fair Trading Amendment Bill (awaiting its second reading following submissions last year). It would be prudent for businesses to review their online terms with the above principles in mind.

For more information on how to support your business as it addresses these matters, please get in touch with the contacts listed or your usual Bell Gully advisor.​


Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.