10 February 2021
Entering into international contracts online is now a commercial fact of life. These contracts can be simple, such as the purchase of a pair of jeans by a consumer, or more complex service agreements between sophisticated legal entities. In both cases, it is customary now to ‘tick’ or ‘click’ a box to accept a set of terms and conditions, which may become binding whether or not they have in fact been read. These terms and conditions may also include a clause referring disputes to binding arbitration in a foreign country.
The recent case in Dialogue Consulting Pty Ltd v Instagram, Inc  FCA 1846 concerned a set of terms and conditions that included a referral of disputes to arbitration in California.
Dialogue Consulting Pty Ltd (Dialogue), a small tech company based in Melbourne, took Instagram Inc (now, Facebook Inc) (Instagram) to the Federal Court after Instagram banned Dialogue’s Sked Social software tool – a platform which allows businesses and advertisers to plan and schedule content on Facebook and Instagram – from accessing their sites.
In this article, we provide an in-depth analysis of the case by examining:
Furthermore, companies who seek to rely on these arbitration agreements should be careful not to waive their rights to compel another party to arbitration by taking more than necessary steps in any existing litigation involving this party.
In determining whether to grant the suspension, Judge Beach was required to consider a number of factors, including:
After careful consideration and analysis of all of the above, Beach J found that:
Based on these findings, Instagram’s application to suspend the proceedings would ordinarily succeed, however, Beach J was of the view that, applying US law, that Instagram had waived it rights to have the relevant matters referred to arbitration.
Essentially, there are three types of internet-formed contracts – “clickwrap”, “browsewrap” and “sign-in wrap”. “Clickwrap” and “sign-in wrap” agreements fall on the stronger end of the validity spectrum, while “browsewrap” sits on the other end.
Further, the evidence showed that:
It should also be noted that Dialogue ran a separate argument that an arbitration clause is not reasonably expected when creating an Instagram account and that accordingly, something more by way of provision of information to the acceptor was required before the contract was formed.
Under Dialogue’s cross-claim which, as aforementioned, His Honour was relatively quick to dismiss, it argued that the arbitration clause amounted to an unfair term under section 24 of the ACL and therefore should be deemed void. In particular, it argued that the arbitration clause was not transparent and limited its rights to sue Instagram.
In addition, Beach J also considered whether the arbitration clause caused a significant imbalance between the parties and whether it was reasonably necessary to protect the legitimate interests of Instagram. Beach J held that the arbitration agreement did not cause a significant imbalance between the parties because there was a meaningful relationship between the term and the protection of a party and that that the relationship was reasonably foreseeable at the time of entering the agreement.
Further, in any event, the arbitration agreement did not only favour Instagram as both parties had the option to invoke the arbitration agreement. Dialogue’s reliance on the alleged unfairness of an “opt-out” clause that provided it with only 30 days to opt-out of the arbitration agreement did not change this view. Accordingly, Dialogue failed to establish that the arbitration agreement caused a significant imbalance between the parties.
His Honour also discussed why the arbitration agreement was reasonably necessary to protect the legitimate interests of Instagram. In Gonzalez v Agoda Company Pte Ltd  NSWSC 1133 (Gonzalez), the avoidance of litigation in multiple jurisdictions was held to be a legitimate business interest worthy of protection and that inconvenience and cost alone are not likely to be sufficient to establish that submitting to a foreign jurisdiction would be unfair. Therefore, with reference to this decision, Beach J also concluded that Dialogue had failed to argue that the interests that Instagram sought to protect by way of the arbitration agreement were not legitimate and thus could not amount to an unfair contract term under the ACL. This finding, His Honour noted, was even more prevalent in the era of the COVID-19 pandemic which has seen a move towards remote hearings which make them more convenient and cost-effective.
The final and ultimately decisive element on which His Honour was required to decide was whether Instagram had waived its right to arbitrate under section 7(2) of the IAA and thus invoked the exception contained within section 7(5).
Section 7(5) of the IAA provides that a court shall not make an order to suspend proceedings if the court finds that the party seeking the suspension has waived its rights to arbitrate.
Finally, Instagram’s intentional inconsistent acts caused relevant prejudice to Dialogue such that the undue and unreasonable delays meant that the efficiencies of arbitration had been significantly impaired and valuable resources on ordinary litigation had been wasted.
In light of the above, Beach J held that Instagram had waived its right to rely on the arbitration agreement and its application to suspend the proceedings was refused.
This decision is significant because it confirms that arbitration clauses in internet-formed contracts are binding provided that they have been incorporated into a contract in such a way that reasonably puts the user on notice of its terms and that there has been a clear manifestation of assent. This is most effectively done by way of a “sign-in wrap” agreement. Furthermore, based on the findings in Gonzalez, it is unlikely that such a clause will be deemed unfair under the ACL in similar circumstances.
Finally, a party seeking to rely on an arbitration agreement is at risk of waiving its right to the benefits of this arbitration agreement if it waits too long to rely upon it and actively participates in any litigation already on foot.
Since the handing down of this judgment, Instagram has applied for leave to appeal Beach J’s decision to the Full Federal Court.
Authors: Geoff Farnsworth & Melanie Long
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.