Digital constitutionalism the governance of virtual communities, part 2: contract

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.

Hon Sir Anthony Mason and S J Gageler, “The Contract”, in P D Finn (ed) “Essays on Contract” (1987) Law Book Company Ltd, 1, 2.