Unfair arbitration clauses

EC law does not permit unfair terms in consumer contracts. Arbitration clauses are regarded as potentially unfair. In Asturcom Telecomunicaciones SL v Nogueira Case C-408, 6 October 2009, the Spanish courts referred to the European Court of Justice the question of whether EC law required a court to refuse to enforce an arbitration award where the consumer had failed to participate in the arbitration and had not sought to challenge the award within the time limits laid down by local law. As is often the case with the European Court of Justice, the answer was, possibly, depending upon whether the conditions for challenging the award were equivalent to conditions laid down by domestic law for enforcing other rights based on EC law or public policy.

The legislative background

The Unfair Contract Terms Directive, Council Directive 93/13/EC requires member states to legislate so as to provide by their national laws that unfair terms used in a contract between a business and a consumer are not binding on the consumer (art 6). The Directive further provides, in art 7, that Member States that there are adequate and effective means in domestic law to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers. The Annex to the Directive contains an indicative list of terms which may be regarded as unfair, and para 1(q) refers to terms which have the object or effect of ‘excluding or hindering the 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, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract’. In England this principle has been incorporated into ss89 to 91 of the Arbitration Act 1996, which render consumer arbitration agreements unenforceable where the sum in dispute is £5000 or less, and in all other cases fairness has to be tested by reference to the fairness test set out in the Directive (implemented in England by the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999 No 2083.