Dialogue Consulting Pty Ltd v Instagram, Inc

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Federal Court of Australia

Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846

File number: VID 369 of 2019
Judgment of: BEACH J
Date of judgment: 22 December 2020
Catchwords:

ARBITRATION – stay of proceedings – s 7(2) of International Arbitration Act 1974 (Cth) (IAA) – arbitration agreement – proper law of agreement – scope of arbitration clause – US federal law – Californian state law – whether waiver of right to arbitrate – s 7(5) of IAA – choice of law concerning waiver – application of US law – application of Australian law – waiver established – stay refused

CONTRACTS – internet contracts – standard form contracts – formation of contract – notice of terms – choice of law for contract formation – lex forum – application of Australian law – “clickwrap” agreement – “browsewrap” agreement – “sign-in wrap” agreement – application of US law – actual or putative proper law of agreement – unfair contract terms – statutory unconscionable conduct – application of ss 21, 22, 23 and 24 of Australian Consumer Law (sch 2 to Competition and Consumer Act 2010 (Cth)) – arbitration agreement formed – no basis for statutory voidability – declaratory relief refused
Legislation:

Competition and Consumer Act 2010 (Cth) ss 45, 46, 47; sch 2 (Australian Consumer Law) ss 21, 22, 23, 24, 25

International Arbitration Act 1974 (Cth) ss 2D, 3, 7, 8, 16, 39; sch 1; sch 2

California Arbitration and Conciliation of International Disputes Act (Cal Civ Proc Code § 1280 et seq.) §§ 1281.2(a), 1297.161

Federal Arbitration Act (9 USC §1 et seq.) § 3

International Commercial Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (as adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting) Art II

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) Arts 1, 7, 8, 16, 34
Cases cited:

ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896

Arena v Intuit Inc (ND Cal, No 19-cv-02546-CRB, 12 March 2020)

Augustus v Permanent Trustee Co (Canberra) Ltd (1971) 124 CLR 245

Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57

Be In Inc v Google Inc (ND Cal, No 12-CV-03373-LHK, 9 October 2013)

BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (2008) 168 FCR 169

Cabinetree of Wisconsin Inc v Kraftmaid Cabinetry Inc, 50 F 3d 388 (7th Cir, 1995)

Colgate v JUUL Labs Inc, 402 F Supp 3d 728 (ND Cal, 2019)

Cooper v Asset Acceptance LLC, 532 Fed Appx 639 (7th Cir, 2013)

Cox v Ocean View Hotel Corporation, 533 F 3d 1114 (9th Cir, 2008)

Cullinane v Uber Technologies Inc, 893 F 3d 53 (1st Cir, 2018)

Degroma Trading Inc v Viva Energy Australia Pty Ltd

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Details
Case
[2020] FCA 1846
Decision Date

CaseChat Overview and Summary

Dialogue Consulting Pty Ltd, an Australian company, brought claims against Instagram, Inc. and related entities over alleged breaches of their terms of service. The respondents sought to stay the proceedings on the basis of an arbitration agreement that allegedly covered the claims. Dialogue opposed the stay, arguing that the arbitration agreement was invalid or inapplicable. The central issues before the court were whether there was a valid arbitration agreement, the proper law of the agreement, the scope of the arbitration clause, and whether Dialogue had waived its right to arbitrate. The court found that there was an arbitration agreement formed through a "sign-in wrap" agreement, but that Dialogue had waived its right to arbitrate by bringing the claims in court. The court applied Californian state law to determine that Dialogue had waived its right to arbitrate under section 7(5) of the International Arbitration Act 1974 (Cth). As a result, the court refused to stay the proceedings and dismissed the respondents' application. The court also dismissed Dialogue's cross-application for declarations and other relief. The court ordered that the costs of the interlocutory applications be costs in the cause.

Orders

Orders of the court

1. The respondents’ interlocutory application seeking a stay of the proceeding under s 7(2) of the International Arbitration Act 1974 (Cth) be dismissed.

2. The applicant’s cross application seeking declarations and other relief be dismissed.

3. All parties’ costs of the interlocutory applications referred to in orders 1 and 2 be their costs in the cause.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Let me turn then to the background to the present applications, starting with a discussion of the parties and their pre-litigation dealings.BACKGROUND Dialogue is an Australian proprietary company with its registered office in Melbourne, Victoria. Mr Hugh Stephens is the sole director of Dialogue and the sole director, secretary and shareholder of the company that is Dialogue’s sole shareholder. Although registered in Australia, Dialogue is an international business that targets and has customers all over the globe, including in the United States and in the State of California. Indeed in evidence before me is material demonstrating that Dialogue has publicly represented that it works with about 10,000 customers globally, ranging from small businesses to larger global brands. Moreover, it has represented that its global clients include Disney, E! News, UFC, AMC Networks, MTV, Business Insider, Wish (an American online e-commerce platform) and Voice of America (a US multimedia agency). Further, in public interviews and news articles, Dialogue has represented that the majority of its customers are located in the US and Europe, its account management team is located in the US, and only at most 15 to 20% of its customers are located in Australia. Notwithstanding Dialogue’s public pronouncements and marketing paraphernalia, Dialogue sought to portray itself before me as a small business located in Melbourne, with few employees, and with its sole director and shareholder based in Melbourne. It is said that its business is conducted from Australia. Further, it uses the Instagram service on physical Android devices located in its office in Melbourne. Further, it uses a local server. Further, its products are registered as business names in Australia. This more humble description is perhaps closer to reality. Between 2013 and 2018, Dialogue’s product was called “Schedugram”. In November 2018, Dialogue changed the name of its product to “Sked Social”. Dialogue provides to clients a social media management tool that manages its clients’ planning and publishing of marketing content on Instagram and Facebook. Each client, an Instagram account holder, engages Dialogue to interact with Instagram (or Facebook) on its behalf. As I say, this product is now called Sked Social. Let me say something about the respondents to the proceeding. The first respondent is Instagram, Inc. But Instagram, Inc is no longer an active company. On 31 August 2012, Instagram, Inc merged with an acquisition subsidiary of Facebook, Inc that is now known as Instagram, LLC. The fourth respondent is Instagram, LLC, a company incorporated under the laws of the State of Delaware, which has its principal place of business in California. The second respondent is Facebook, Inc, which is also incorporated under the laws of the State of Delaware with its principal place of business in California. On or around 7 April 2012, Instagram, LLC was acquired by Facebook, Inc. The third respondent, Facebook Ireland Limited, is a company incorporated under the laws of the Republic of Ireland. Since about 6 October 2008, Facebook Ireland Limited has been a subsidiary of Facebook, Inc.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Finally, for completeness, I should again make the point that my finding on waiver under s 7(5), whether applying US law or Australian law, entails that there is no mandatory stay under s 7(2). And in the way the parties argued the case, no discretionary stay question now arises. The respondents only ever argued for a discretionary stay of the competition claims if I had accepted their argument for a mandatory stay under s 7(2) of the other claims. But I have rejected that premise. But in any event, if there had been any residual argument for a discretionary stay, I would have rejected such an argument by reason of waiver in the weaker sense; all of the matters put by Dialogue which I have accepted within a different conceptual framework would provide substantial reasons to reject such a discretionary stay.CONCLUSION For all the above reasons, the respondents’ stay application should be dismissed. Further, Dialogue’s cross-application should also be dismissed. As to the question of costs, I would normally award costs to Dialogue. But it failed on most of its arguments including its cross-application, albeit that that application was reactive. In my view the appropriate order is that I should treat the parties’ costs on both applications as being their costs in the cause. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

It is convenient at this point to set out s 7 of the IAA which provides:Enforcement of foreign arbitration agreements(1) Where:(a)the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;(b)the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a country not being Australia or a Convention country, and a party to the agreement is Australia or a State or a person who was, at the time when the agreement was made, domiciled or ordinarily resident in Australia;(c)a party to an arbitration agreement is the Government of a Convention country or of part of a Convention country or the Government of a territory of a Convention country, being a territory to which the Convention extends; or(d)a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country;this section applies to the agreement.(2) Subject to this Part, where:(a)proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and(b)the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.(3)Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.(4)For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.(5)A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. The respondents say that prima facie there is a valid arbitration agreement that covers the matters in dispute in the proceeding before me save for the competition claims, and therefore the matter should be referred to arbitration. They say that according to the competence-competence principle, it is for the arbitrator to resolve any questions of jurisdiction, including any challenge to the existence of the arbitration agreement, as well as any dispute as to the scope of the arbitration agreement. But in any event they say that even if I were to finally decide whether an arbitration agreement exists, the conditions of s 7 of the IAA are satisfied and therefore I am obliged to refer the parties to arbitration under s 7(2).