In December 2020, Justice Beach of the Federal Court of Australia handed down his decision in Dialogue Consulting Pty Ltd v Instagram Inc [2020] FCA 1846. This David and Goliath battle saw Dialogue Consulting, Aussie start-up and creator of the popular social media management tool ‘Sked Social’ (previously known as ‘Schedugram’), take on the social media giant Instagram after it banned Dialogue from its platform for breaching the app’s terms of use. Instagram justified this action for multiple reasons, including because Dialogue had been engaged in ‘data scraping’ (the mass download of posts, media, and user data) in breach of Instagram’s terms of use. Dialogue wanted to contest Instagram’s decision – and here we are.
This case, which focussed on procedural questions related to the arbitration agreement rather than the merits, had a long judgment (numbering 117 pages). In this post, I focus on whether there was a valid arbitration agreement and whether the right to arbitrate had been waived by delay/acquiescence, as these were the issues the case ultimately turned on.
Can clicking ‘Yes, I agree’ manifest an intention to arbitrate?
Don’t lie – we’ve all ticked the box saying that we’ve read the terms of use of a website or app without actually reading them. But what if those terms contain an arbitration agreement? Is ticking that box and hitting ‘I agree’ enough to validly constitute an arbitration agreement, even if you haven’t read it? In determining whether an arbitration agreement existed, Dialogue v Instagram provides a useful survey of US and Australian law on this very question.
The Court first had to determine whether, on its face, an arbitration agreement existed pursuant to the laws of the State of Victoria, Australia (the law of the forum). Australian authority has been relatively scarce on internet contracts, so the Court looked to US case law. It found that the two bodies of law were largely consistent, revealing three general methods of consenting to terms of use:
- ‘Clickwrap agreements’ – where a site requires a user to scroll through the terms of use and click ‘I Agree’ before proceeding. Under US law, the act of clicking to agree is taken to signify agreement to those terms, including to any arbitration agreement.
- ‘Browsewrap agreements’ – where a site notes that by accessing the site the user agrees to be bound by terms of use. US courts are reluctant to enforce these contracts unless the user has actual notice. A disclaimer at the page footer does not meet this requirement.
- ‘Sign-in wrap agreements’ – where a user is notified when they are logging in to a website that there are terms of use accessible by hyperlink. US courts have found that, where a reasonable user knew they were agreeing to the terms by signing-in, the act of signing-in will signify the agreement of the user, regardless of whether they actually read the terms.
The Instagram terms of use were characterised by Beach J as a ‘sign-in wrap agreement’. Accordingly, the Court held that, based on the law of the forum, the arbitration agreement in Instagram’s terms of use not only existed but had been agreed to by Dialogue.
You snooze, you lose – arbitration agreements can be waived by delay
Since there was a valid agreement to arbitrate, Instagram asked the Court to stay the proceedings under section 7(2) of the Australian International Arbitration Act 1974 (Cth) (broadly analogous to Article 8 of the Model Law) and refer the parties to arbitration seated in California, pursuant to the terms of the arbitration agreement.
Case closed? Not so fast. The Court applied the US Federal Arbitration Act, which was the governing law of the arbitration agreement, finding that, despite the fact that there was a valid agreement to arbitrate, Instagram had impliedly waived its right to take advantage of that agreement.
How did this happen? The Court considered that Instagram had, amongst other things, failed to exercise its right to arbitrate for a full year. During that time, Instagram had appeared at contested hearings before the Federal Court, participated in a court-ordered mediation, sought documents through discovery and filed an unconditional appearance. Accordingly, the Court found that allowing Instagram to invoke the arbitration agreement a year after the case had first been filed was both inconsistent with the public policy objectives behind promoting international commercial arbitration, and would cause unnecessary delay and expense to Dialogue. The Court was satisfied that these facts were sufficient to constitute a waiver under both US federal law and Californian state law, making the arbitration agreement inoperative or incapable of being performed for the purposes of section 7(5) of the International Arbitration Act 1974 (Cth). The Respondent’s application for a stay was therefore denied.
But what about the kompetenz-kompetenz principle?
Typically, an Australian court would only come to a preliminary view as to whether an arbitration agreement exists and then defer the substantive jurisdictional question to the arbitral tribunal to decide, consistent with the kompetenz-kompetenz principle. That principle, which arose from a decision of the Federal Constitutional Court of Germany (hence the name), is well-established principle of international arbitration.
Effectively, the principle allows arbitral tribunals to determine the bounds of their own jurisdiction (or, to decide on their own competence/kompetenz).
Interestingly, in this case the Court not only came to a preliminary view as to whether an arbitration agreement existed, but finally determined the question and, accordingly, the jurisdiction of the arbitral tribunal.
Why did the Federal Court make its own determination? The Court acknowledged that the kompetenz-kompetenz principle applied to this case. However, the Court held that just because the principle applies doesn’t mean the Court must apply it. The Court decided that, on balance, it would be better for the Court to finally resolve these procedural issues because it was better placed to decide the choice of law, waiver and Australian Consumer Law questions in the dispute than a Californian arbitrator.
What does this mean for tech arbitrations?
The actual merits section of the case will now work its way through the Federal Court (though, Instagram has begun the process of appealing this procedural decision to the Full Court of the Federal Court, which exercises appellate jurisdiction over Federal Court decisions).
Nonetheless, there are some key takeaways from this case that arbitration practitioners and companies dealing with internet contracts should be aware of.
First, internet contracts with arbitration agreements can manifest an intention to arbitrate – but this may depend on the way the terms of use are displayed and agreed to. While not all tech companies have arbitration agreements in their terms of use, the same basic principles behind the formation and display of internet contracts likely have a similar application to exclusive jurisdiction and other dispute resolution clauses.
Second, rights to arbitrate cannot be slept on. As such, parties wishing to assert their rights under an arbitration agreement must do so sooner rather than later. Courts are now particularly on guard against parties causing ‘unreasonable delay’ or causing ‘unnecessary expense, delay and inefficiency’ by not asserting their rights to arbitrate at the beginning of a dispute.
And last – always read the terms and conditions! (Even if they’re long and wordy…)
