EULAs and incorporation by signature

In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 the High Court unanimously and emphatically stated its support for the principle in L'Estrange v Graucob that the rule from the ticket cases should not be extended to cases where the contract has been signed. In doing so, the High Court held that there existed a general proposition that “a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document”.¹⁾ The High Court expressly noted two exceptions to this general rule – where there are vitiating elements or claims for equitable or statutory relief.²⁾ The High Court gave some examples of these types of exceptions:

If there is a claim of misrepresentation, or non est factum, or if there is an issue as to whether a document was intended to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief […]³⁾

This case provides clear authority that contractual terms do not generally need to be brought to the attention of the signing party and reaffirms the High Court's preference of the objective view of contract:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.⁴⁾

The context of this case was unambiguous. It was a commercial transaction between well positioned parties where one of those parties simply neglected to read the contract, the terms of which were not unusual or surprising.⁵⁾ In coming to the conclusion that the terms were incorporated, the High Court appears to have left open the question of whether similar terms would be incorporated if they were unusual or surprising, or if the parties were less well positioned. Presumably, these factors would be relevant to allegations of misrepresentation or unconscionable conduct.

While the rule in this case has been stated in no uncertain terms, it does not necessarily resolve the question of incorporation of click-wrap terms. If selecting a box marked 'I Agree' is a signature, then the general rule would be that the terms are incorporated, regardless of whether they had been read or not. However, this general rule has exceptions, and it may be open to argue that click-wrap contracting is in itself misleading or unconscionable, or at least is misleading or unconscionable in the circumstances.

The interesting question to ask here, is when a term is unusual or surprising, for practical purposes, does it matter if the contract has been signed or not? Could there be a general requirement that unusual or surprising terms be brought to the attention of the other party?

In justifying the “importance which, for a very long time, the common law has assigned to the act of signing”,⁶⁾ the High Court quoted P S Atiyah's observation that

[t]he usual explanation for holding a signature to be conclusively binding is that it must be taken to show that the party signing has agreed to the contents of the document; but another possible explanation is that the other party can be treated as having relied upon the signature.⁷⁾

Their Honours continued, noting the strong policy argument for accepting signatures:

Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief.⁸⁾

This dual argument appears to provide a very strong justification for relying on the signing of a document to presume incorporation of all of its terms. Firstly, it avoids a difficult subjective enquiry into the states of minds of the parties at the time the document was signed.⁹⁾ Secondly, it creates certainty by enabling the other party and any third parties to rely on the signature. Embedded in each of these strong justifications, however, is a concept of reasonableness. For the first justification, as their Honours explicitly noted, “[w]hat matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.”¹⁰⁾ For the second justification, there is an implicit suggestion that for any party to rely on a signature that reliance must be reasonable, and another suggestion that in the great majority of cases, absent any reason to doubt the signature, reliance on a signature on a written contractual document will be reasonable.

In the case of click-wrap contracts, the assumptions of reasonableness can be doubted. Is it really reasonable to rely on the user clicking a button or checking a box at the bottom of a densely packed multi-page jargon-filled screen of legalese which stands between the user and his or her goal of downloading the software or entering a brave new world? Would a reasonable person, in the position of the platform owner, really assume that the user had assented to the fine print that has been displayed? Is the court's conception of the reasonable person as someone who carefully and meticulously reads all terms and conditions before signing out of touch with the way these transactions occur in practice? In short, is it unreasonable to expect individual consumers to read and understand the contract?¹¹⁾