Civil Litigation Solicitors

A recent case has called into question the inherent fairness of arbitration clauses used in agreements between businesses and consumers, unless consumers are properly advised on the legal effect of such clauses.

The case concerned (predictably) a dispute between a homeowner and a builder. The builder’s work was undertaken using a standard form contract which included standard arbitration clauses.

Under the contract, in the event of a dispute an arbitrator was to be appointed and the arbitrator’s decision was to be final. However, the impact of this was not explained to the homeowner before she signed the contract, which in any event did not include a mechanism for the appointment of the arbitrator. In such cases, the appointment should be agreed by both parties. Following the dispute, the homeowner refused to participate in arbitration, so the builder alone appointed the arbitrator.

The arbitrator made an award against the homeowner and she went to court to contest it – and won.

The judge ruled that because the arbitration clauses were not fully explained to the homeowner, they were invalid, because this created an imbalance of rights, between the supplier and customer, which breached consumer law, specifically the Unfair Terms in Consumer Contracts Regulations 1999. The appointment of the arbitrator was therefore invalid, as was his decision.

It remains to be seen what impact this decision will have on other similar cases, as the implication is that where such contracts specify the appointment of an arbitrator, the arbitrator’s appointment would appear to be automatically unfair unless appropriate advice has been given to the consumer.

It is good practice in any event to advise members of the public who are offered a contract to take legal advice regarding its implications before signing it and to evidence this advice in writing.