This post provides a brief outline of the contractual chapter of my PhD thesis. Comments appreciated. See Part 1 for the introductory and theoretical outline.

The term 'digital constitutionalism' is used here to denote the essential values which underpin the development of legal principle as it applies to the new technological age. It refers to the way in which private legal doctrine will be read in an environment which clearly does not support a sharp distinction between public and private spheres. By accepting the fundamental proposition that the interpretation and application of law is never value-neutral, we are able to ask whether and how we ought to embed public values in the common law so as to achieve the balance required by justice.

The law of contract is a logical first candidate through which to examine the balance required in the regulation of virtual communities. Access to most virtual communities is generally purported to be governed by contractual terms of service documents which are overwhelmingly drafted in favour of the proprietors. These standard form contractual terms of service can rarely be said to reflect the 'intent of the parties'. They are drafted by repeat players, who are able to properly evaluate risk, and are presented in dense language on 'take it or leave it' terms, with the expected result that participants are both unable to properly evaluate the terms and, in cases where they do find the terms objectionable, are unable to negotiate alternative terms. Competition in contractual terms is negligible, and participants are unable to adequately manifest demand for fairer terms. Furthermore, participants tend to discount the risk that they will be adversely affected by unjust or onerous terms, rarely realising the gravity of their mistake unless and until those terms are enforced. Through these standard form contracts, proprietors essentially appropriate all power and discretion to themselves and, through selective enforcement, are able to exercise control over the virtual community.

The common law, however, is by no means bound to give full legal force to the literal wording of these contractual documents; instead, judges habitually read down contracts in light of the deemed intent of the parties and public policy interests. Indeed, if these documents, by setting out standards of behaviour and constraints on the exercise of power in virtual environments, are to be seriously treated as forming the basis for a type of social contract between participants and proprietors, then a formal literal reading is likely to lead to substantially unjust outcomes. By taking a critical approach to the interpretation of contractual terms of service, judges are in a position to substantially ameliorate the imbalance of power and encourage the development of contractual norms which more closely reflect societal values, rather than the self-interest of proprietors.

This instrumental approach is not alien to contract law. As Sir Anthony Mason and S J Gageler recognised in a 1987 article,

[t]he role of public policy in the formulation and application of contract rules has also tended to be understated. At root, public policy is inherent in the notion of legal adjudication. A court order for the enforcement of a contract does not simply allow the parties to pursue their own freely chosen course of conduct. It brings the full power of the state to bear against one party in the service of another. When and how this should be done are necessarily important questions of public policy.¹⁾

Considerations of public policy find their way into contractual interpretation in a variety of different doctrines. First and foremost, the plain contractual terms are read not by their subjective meaning, but in light of what the parties are deemed to have agreed to. A degree of reasonableness applies here, in that parties will be bound by what a reasonable person would have believed that each was agreeing to. In the case of standard form contracts which are rarely read and never negotiated, there is a strong argument that terms which are overly onerous or surprising would not reasonably be believed to form part of the contract. Other limitations apply to the incorporation and enforcement of contractual terms, including estoppel, waiver and acquiescence, and an implied duty of good faith, among others.

The way that terms of service are currently drafted generally imposes very little obligation on the proprietors of virtual communities. The interests of participants are essentially ignored, and participants have little hope of being able to successfully sue on the contract. If we are to continue to assume that contractual documents form the basis of governance in virtual communities, then it would seem to be desirable to ensure that participants are able to extract and enforce promises from proprietors as appropriate. Courts may be able to encourage more fully formed 'social contracts' by refusing to enforce the more egregious terms and implying certain terms that the participants are unlikely to be able to demand. In this way, courts may be able to safeguard the interests of participants in a way which negates the involuntariness associated with the power imbalance in virtual communities and simultaneously encourages the diversity which an efficient and effective contractual model provides.

This is an outline of the third part of my thesis. Comments appreciated. See Part 1 and Part 2 for more background.

Contract law may be the most prominent area of law which affects the governance of virtual communities, but it is by no means alone in this category. The way that courts interpret and apply the law of copyright, property, defamation, assault, and other innumerable laws will necessarily alter the relationships between participants and proprietors. In each case, if the common law is insensitive to the subtleties which differentiate participation in virtual communities from simple consumer transactions, then it is likely to come to decisions which are substantially unjust.

This is an exceptionalist point of view. It is premised on the assumption that there are real qualitative differences between participation in virtual communities and participation in the many different relationships which occur in real space. This assumption may not be entirely true. What appears to be true, however, is that there is a real gap between the rhetoric of the legal discourse and reality, and this gap is in the virtual domain. This gap is evidenced in the assumptions that courts make in their interpretation and application of the law – particularly, that because individuals are self-sufficient, rational actors who enter into private transactions at arms-length fully aware of any inherent risks, any limitations which apply to public actors are neither necessary not desirable in the private sphere. To the extent that this assumption has ever been correct, it is much more open to challenge in a virtual context, where access to services which have become, if not strictly necessary, then at least extremely important to all aspects of everyday life, is controlled not by public governments but by private actors.

The exceptionalist argument can be made in two different ways. The first is an internal critique, an economic argument that there are market failures which ought to be corrected. This approach recognises that individuals are particularly disadvantaged in negotiations with the large commercial proprietors of virtual communities, are unable to properly evaluate risk, and are unable to adequately manifest demand for fairer terms. It also recognises that significant network effects and high switching costs inhibit competition by disincentivising new entrants and discouraging participants from leaving established communities. In these situations, it may be desirable to introduce safeguards to ensure that there is an efficient and competitive market.

The second approach, an external critique, goes further. By stepping back from the market rhetoric, we are able to suggest that there are certain interests which should not be left to determination solely by the market. We may recognise that there are certain public values which we do not wish to be negotiated in the society we are striving to create. We may decide that these interests, like the ability to communicate with friends and family, to speak freely, to express oneself, and to form communities and associate with whom we choose, are important enough that we do not want to necessarily subject them to the vagaries of the marketplace. In these circumstances, we may decide that some of the types of limits we normally associate with restraints on the actions of public actors are appropriate to impose upon private actors.

From either point of view, current legal doctrine does not adequately recognise the realities of participation in 'private' virtual communities. In either case, if the law is to arrive at just results, judges must be able to better recognise the interests which are at stake. I believe that in most cases, the common law is flexible enough to arrive at results which are appropriate and just in the circumstances. Principles of statutory interpretation and the development of precedent provide a mechanism through which judges are able to read the law in accordance with principle and reality, rather than continuing to entrench the established interests by ignoring the ideological content of law.

Australia does not have a bill of rights. Rather, it has long been said that the interests of all Australians are appropriately safeguarded by the legislature and the development of the common law. Where the legislature is unable to adequately protect the interests of individuals or groups, Australian courts have historically been willing to read both legislation and precedent in the light of public interest principles. It is these principles which provide the greatest hope of balancing the interests of participants and proprietors in a context which is at the same time partly private and commercial and partly public and partly personal.

I am finally beginning to write up my thesis. What follows is the first half of the argument I plan to present. This will hopefully provide the structure for identifying the problem and the context of the argument.



Comments welcome – what have I missed so far?

The internet provides the medium for a wealth of virtual communities, each with its distinct set of norms and values. Individuals all around the world participate in these networks to play, to socialise, to learn and teach, to express themselves, to do business, to communicate with friends and loved ones, to engage in political discourse and political process, and for innumerable other activities. These communities provide not only a 'space' for people to interact but also the promise that each individual will be able to find a community whose norms and values align with her own. Since the internet became popular in the 1990s, this libertarian idealism has proved extremely powerful. It argues that freed from physical scarcity and spatial barriers, individuals will finally be able to choose to associate with other, like-minded, individuals, and these communities will be able to determine the rules which best fit their society, rather than the clumsy approximations that often result from national democracies.

The main problem with the governance of virtual communities is that our legal system operates in such a way as to vest overwhelming power in the hands of those who create and maintain the platforms. These people, whom we call 'proprietors', for they own the code that defines the platform and servers upon which the code runs, exercise almost complete discretion as to who may access and who may continue to access 'their' community. The law, by giving primacy to these property rights, marginalises the interests of participants in these communities. Further, by casting any disputes or tensions which arise as belonging wholly in the 'private' sphere, we deligitimise any change to the current allocation of entitlements.

The result so far has been that the technologically deterministic claims of the cyber-libertarians have not held up, at least not in the largest virtual communities. The suggestion that individuals will vote with their feet (or their wallets) and choose to leave communities that do not reflect their own values breaks down as individual communities become more important. Network effects act to restrict both entry of competitors and exit of participants. As the value of many communities is proportional to the number of participants, new communities have trouble reaching a critical, sustaining, mass. Participants are less likely to leave an established community for a fledgling community, even if that smaller community has more appropriate norms or values. This means that proprietors do not have to be very responsive to the demands of participants in order to retain their custom.

There are, no doubt, limits on the behaviour of proprietors. A proprietor who is not responsive enough to the demands of the community will, eventually, begin to lose participants. In the various commercial models, this usually means a drop in subscriber revenue or in revenue derived from advertising. The relationship between participants and proprietors is accordingly seen to be market-based, and proprietors have an incentive to be just responsive enough not to lose too many participants. This model, in practice, is far removed from the idealism of the cyber-libertarians. Governance is essentially reduced to business decisions about the most profitable way to manage the virtual community.

There is a significant problem when the interests of participants are reduced to a market rhetoric. The activities of participants in virtual communities cannot be understood as the activities of mere consumers of entertainment product, and treating them as such leads to substantial injustices. For participants, there is much more at stake than access to a service – that access underpins their ability to communicate with friends and family, to express themselves, to carry out trade and commerce, and to participate in political discourse. Thus, for example, when a participant is threatened with expulsion from the strongly heteronormative World of Warcraft for advertising for a guild that is friendly to those with alternate gender or sexual identities, she risks losing not only access to a recreational pastime, but access to her rich social networks, her personal identification with her avatar, her virtual possessions, and the rest of the benefits that attach to participation in the community.¹⁾

Similarly, when an individual is banned from a social networking site, she loses a significant ability to connect with her friends, family, and distant associates. The more effective the social networking platform is at changing the way that groups organise events and remain in contact, the more acutely she will feel this disconnection. The same disconnect occurs when an individual is denied access to cloud computing platforms and is no longer able to access her email contacts or stored documents.

In the corporeal world, these concerns are often seen as public concerns, and constitutional and administrative law principles have developed to restrain states from arbitrarily or capriciously taking away the ability of individuals to be secure in their property, their ability to communicate, and their freedom of association. In the privatised environment of the internet, however, there are very few guarantees. The limits of a proprietor's power are established by the bounds beyond which certain actions will become unprofitable. At its worst, this model approaches the worst failures of majoritarian or populist rule, where individuals and minority groups are often subject to harsh treatment and discrimination.

It follows that as the internet becomes more vital to the ways in which we communicate, do business, express ourselves, live, love, and learn, then the risk posed to individuals and groups dramatically increases. The law does not currently have the adequate vocabulary to deal with these risks. Constitutional action, particularly in Australia, provides limits on governmental action, but provides no individually assertable rights against private actors. This negative model assumes that, in the absence of governmental action, citizens will be free. To the extent that this model was ever accurate, it is certainly flawed in a context where access to crucial social networks and forums for self-expression requires access to another's 'property'.

In this context, the distinction between positive and negative restrictions becomes confusing. In the absence of particular government interference, we are left with the base rules of property and contract, which are nonetheless public constructs. A proprietor's right to exclude may come from the fact that they are in control of the software code which runs the platform, but that power is reinforced through the rules we choose to apply to protect that code and the servers upon which it runs and the interpretation we give to the contracts which condition access to the platform. At each of these stages we are embedding certain values in the legal system, and it is wrong to suggest that they form part of a natural state of affairs in which the government ought not interfere. There are clearly choices to be made.

Fundamentally, our legal system should develop to arrive at just results. This means that we must be careful to consider the interests of participants and refrain from marginalising those against the interests of the proprietors. This is a balancing exercise, however, because we must be careful not to destroy the vibrant and diverse nature of these spaces through over-regulation, and equally careful not to undermine the commercial viability of platforms which are provided through private sector investment.

This balancing process is the essence of digital constitutionalism. The rest of this thesis will consider how public values can be applied to the laws which govern virtual communities.

Where the proprietor of a virtual community generally fails to enforce the rules, could it be estopped from doing so in any particular instance?

Despite a clear contractual right to terminate, a provider may be estopped from terminating in circumstances where it would be unconscionable to do so.¹⁾ In order to prevent the provider from terminating, a participant would have to show that the provider had represented that it would not terminate, that the participant relied on that representation to his or her detriment, and that it would be unjust or inequitable for the provider to terminate in those circumstances.

The representation that the provider would not rely on the right to terminate does not need to be explicit, but it must be unequivocal.²⁾ The representation does not need to be made to a particular person, but can be made to a class of people.³⁾ Where breaches of a particular rule are widespread, a long-standing failure to enforce the rule could conceivably be construed as a representation that the provider will not enforce the rule in future. However, such non-enforcement could also be construed as not making any representation as to the future.⁴⁾ The requirement that the representation be unambiguous does not mean that “it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed.”⁵⁾ Whether a representation has been made is a question of fact, and its existence “must be decided on ordinary common law principles of construction and of what is reasonable, without fine distinctions or technicalities.”⁶⁾ In practice, while possible, it may be quite difficult for a participant to establish that the provider represented that it would not enforce a rule in future or against any particular person.

If a representation can be shown, the participant must also be able to show that he or she reasonably relied on that representation. While showing reliance may be straightforward – in that the participant would not have engaged in conduct that technically broke the rules if he or she did not believe that the rule would not be enforced – showing that the reliance was reasonable may be more difficult. In Galaxidis v Galaxidis, Tobias JA (with whom the other members of the NSW Court of Appeal agreed) held that

the representation is sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted the representation in a particular way being a meaning which it is clearly capable of bearing and upon which it is reasonable for the representee to rely.⁷⁾

Brennan J, in Walton Stores v Maher, held that it was “essential to the existence of an equity created by estoppel that the party who induces the adoption of the assumption or expectation knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation”.⁸⁾ Again, whether it is reasonable for a participant to rely on a representation that the provider will not enforce a strict contractual right will depend on the circumstances.

It may be difficult to establish in many cases, but it would certainly be open for a judge to find that a platform owner is estopped from terminating a particular participant's access to the virtual community where it takes no action against others who have habitually broken the same rule. If an estoppel can be established, it is important to consider that estoppel does require that that the representation or promise be fulfilled, but instead only provides a remedy for the detriment suffered as a result of reliance upon the representation.⁹⁾ For this reason, an estoppel, unlike an election, is not permanent – if the detriment to the relying party can be cured, the provider will once again be entitled to exercise its rights. For practical purposes, this means that given sufficient warning, a provider may be able to begin to enforce rules which it had largely ignored in the past.

There is a lot of flexibility in the doctrine of estoppel, and a significant normative question arises as to whether it ought to apply in any given case.¹⁰⁾ In the most extreme cases, it will almost certainly be effective as a brake on the ability of platform owners to rely on strict contractual rights which it has encouraged participants to believe would not be enforced. Its application in other circumstances, however, will depend in a large part on the discretion of the court as to how the alleged representation is interpreted and how reasonable the court believes the reliance on that representation to be. Like the other ways in which strict contractual rights can be read down, I believe that these considerations will depend particularly on the importance which the court attaches to the interests of the participant at issue.