The leading authority on the subject of the validity of arbitration clauses in consumer contracts under English law is the 2008 High Court judgment in Mylcrist Builders Ltd v Buck [2]. In this case, the claimant builders sought to enforce an arbitration award against a consumer. Their contract had been concluded on standard terms which included an arbitration clause.
Schedule 2 of the Regulations contains an indicative, non-exhaustive list of terms that may be regarded as unfair. Paragraph 1(q) includes terms which have the effect of “excluding or hindering a consumer’s right to take legal action or exercise any other legal remedy particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions…”.
The High Court determined that the Arbitration Act 1996 was not an arbitration “covered by legal provisions” for the purposes of paragraph 1(q) of Schedule 2. This was because that paragraph was referring to cases where, for example, there was a special statutory scheme and did not apply to arbitration generally. The effect of the arbitration clause was to prevent the consumer from having access to the court and caused an imbalance in the parties’ contractual rights and obligations. Accordingly, the term was unfair.
Returning to the case before the European Court, [3] the dispute concerned mortgage contracts which provided for arbitration in the event of dispute. The consumer sought a ruling from the national court that the clause was void and the national court in turn sought a preliminary ruling from the European Court as to whether Article 3(1) should be interpreted as meaning that the arbitration clause was unfair because there was no judicial remedy under national law against the arbitral tribunal’s decision.
The European Court ruled that:
in cases like this it was for the national court to determine whether the arbitration clause excluded or hindered the consumer’s right to take legal action or to exercise another legal remedy
the fact that the bank had provided the consumer with information on the differences between litigation and arbitration was not necessarily enough to stop the clause from being unfair.
The European Court’s ruling reinforces the risks for businesses seeking to rely on an arbitration clause in their standard terms for use with consumers. The Court did not say that such terms would always be unfair but there is clearly a strong possibility that they may be.
[2] [2008] EWHC 2172
[3] Sebestyen (Order of the Court) [2014] EUECJ C-342/13
http://www.walkermorris.co.uk/enforceability-arbitration-clauses-consumer-contracts