EULAs and incorporation by notice

Most EULA and ToS documents now require the participant to 'accept' the document by checking a box or clicking a button before continuing. If this is accepted to be equivalent to signing the contract, then the terms of the documents will generally be incorporated regardless of whether the participant has actually read them or not (absent any misleading conduct).1) However, if clicking an 'I agree' button is not treated as equivalent to signing a contract, and is instead considered more analogous to the ticket cases (incorporation by notice), terms will only be incorporated where the drafting party can show that he or she has taken reasonable steps to bring the clause to the attention of the other party.2) What is reasonable, of course, depends on the circumstances and on the clause itself.

Most of the ticket cases concern exclusion clauses. It appears likely, however, that it is the unusualness, severity, or unreasonableness of the clause which is important, rather than the strict type of clause. Lord Justice Denning (as he then was), in J Spurling Ltd v Bradshaw, noted, obiter, that

the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.3)

Lord Denning MR had an opportunity to develop this reasoning in Thornton v Shoe Lane Parking Ltd, where the Queen's Bench was asked to determine whether an exclusion provision referenced on a pillar upon entering a car park and again in small print on a ticket dispensed by an automatic parking machine was validly incorporated in the contract. His Lordship held that it was not, because the ticket was issued after the contract was formed;4) however, he noted, obiter, that if this were not the case, then the customer would be “bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.”5) Lord Denning appeared to recognise that the more onerous the provision, the greater the requisite notice must be – in the instant case, the limitation was
so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way.6)

In the same case, Megaw LJ applied a test of whether or not unusual terms had been “fairly brought before the notice of the accepting party”.7) His Lordship held that

at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish LJ, “reasonably sufficient to give the plaintiff notice of the condition,” depends upon the nature of the restrictive condition.8)

This principle was explicitly considered by Brennan J in the High Court in Oceanic Sun Line Special Shipping Co Inc v Fay, where His Honour said that

where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms of carriage, yet the other party is not in fact aware when the contract is made that an exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless, at the time of the contract, the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice9)

In Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1, Kirby P (as he then was) considered that there was a “responsibility to bring unusual conditions at least to the notice” of passengers of a cruise ship – it was the unusualness of the limitation clauses, combined with the failure to alert passengers that they ought to make their own arrangements for insurance, which meant that simply stating that the contract was subject to terms and conditions was not sufficient notice.10) Similarly, it was the “subject matter and content of the relevant limitation clauses”11) which “significantly limit[ed] the appellants common law liability”12) that determined the requisite level of notice for Gleeson CJ (as he then was) in the same case. Chief Justice Gleeson concluded that “it is the fact, and extent, rather than the precise mechanics, of the limitation that are of primary importance.”13)

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, the Queen's Bench did not accept that the reasoning of Shoe Lane Parking was limited to exclusion clauses, Dillon LJ holding that

what their Lordships said was said by way of interpretation and application of the general statement of the law by Mellish L.J. in Parker v South Eastern Railway Co, 2 CPD 416, 423-424 and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party.14)

Lord Justice Dillon extended the decision in Shoe Lane Parking to the general principle that

where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party.15)

Lord Justice Bingham reached the same conclusion, holding that

what would be good notice of one condition would not be notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound must in all fairness be given.16) at “a very high and exorbitant rate”,17) which resulted in “an inordinate liability.”18) Indeed, the both judges in this case apparently would have held that the offending clause was void as a penalty clause, but the argument was not raised at first instance or upon appeal.19) In the circumstances, the Queen's Bench had no difficulty substituting a quantum meruit for the subject matter of the contract.20) Interfoto has not, however, been greatly extended in the two decades since it was decided.

The ticket cases are interesting for our purposes. They show a line of authority which suggests that where a person does not read a contract (and is not reasonably required to read the contract) then any surprising terms must be reasonably brought to their attention before they will be bound. These cases suggest that it must be possible to contract without reading the whole terms, and that it is the responsibility of the drafter to make surprising or unusual terms stand out. They are likely to be negated, however, where the contract has been signed.21)

The interesting point to draw from this line of cases is that if, for some reason, the ticket cases can be extended to cover click-wrap contracts (ie., the terms are sought to be incorporated by notice rather than by assent), then there is support for the proposition that surprising and unusual terms should be specifically brought to the attention of the participant, without the need to imply a duty of good faith. This in turn is interesting, because it particularly accords with the Karl Llewellyn's theory of Blanket Assent.

Ibid, 466 (Denning LJ).
Ibid, 169 (Denning MR).
Ibid, 170 (Denning MR).
, 13)
, 17)
Ibid, 172 (Megaw LJ), quoting Hood v Anchor Line (Henderson Brothers) Ltd [1918] AC 837, 846, 847.
Ibid 172-3 (Megaw LJ, citations removed).
Ibid, 228-9 (Brennan J; Wilson, Deane, Toohey and Gaudron JJ not deciding).
Ibid, 24-5; cf Mahoney JA (dissenting).
Ibid, 8.
Ibid, 8-9.
Ibid, 438 (Dillon LJ).
Ibid, 427 (Dillon LJ).
Ibid, 443.)
In Interfoto, a fee clause was held to be a “very onerous clause”,((Ibid, 438 (Dillon LJ).
Ibid, 445 (Bingham LJ).
Ibid, 436 (Dillon LJ), 446 (Bingham LJ).
Ibid, 439 (Dillon LJ), 445 (Bingham LJ).
Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369, 1380 [41] (Arden LJ, obiter suggestion that the rule in Interfoto would not apply to signed contracts).