Australia: Is arbitration innately unfair?

It is increasingly common for large enterprises, particularly those who work internationally, to rely on compulsory arbitration clauses to settle disputes arising from their contracts. The reasons for this are many, but from an international perspective the most tangible benefit is the ability to remove the peculiarities of individual jurisdictions and place disputes into a central framework that suits the requirements (and understanding) of the business. The online marketplace only exacerbates this issue, with products and services offered to a wide variety of persons and corporations, with whom each contract may be subject to a different jurisdiction and different applicable law. Commercial arbitration promises enterprises certainty, but in removing protections put in place by the local jurisdiction, it may contradict applicable Australian law.

For standard-form contracts where:

  • any party employs less than 20 people; and
  • where the upfront price payable under that contract is no more than $300,000 (or $1,000,000 if the contract is for more than 12 months)

Additional restrictions relating to overall fairness apply to available terms. Despite their presence in the Australian Consumer Law, they apply not just to consumer contracts, but also to business to business transactions that meet that standard. In late 2017, the Federal Court in Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224 handed down the first significant decision on the Australian "unfair contract terms" laws as they apply to business to business transactions. This case flags potential dangers for international enterprises trading in Australia, one of which is the now common arbitration clause.

Section 25(k) of the Australian Consumer Law explicitly notes as a type of clause that may be unfair, any clause which "limits, or has the effect of limiting, one party's right to sue another party". Arbitration clauses would likely meet such a definition. Nor do the sections circumscribe unfairness to any specific kind of provision: the legislation is broad, and notions of fairness encompass, but are not limited to, whether or not a term grants one party an additional right, protects them from consequences to which the other party is subject, or creates a significant imbalance between the parties.

It is this last factor, imbalance, which weighs against the application of arbitration clauses when offered on a standard form basis. Australia has adopted English decision making as to the substantive unfairness of a contract, taking a whole of document approach as set out in Director General of Fair Trading v First National Bank plc [2002] 1 AC 481. Arbitration clauses typically lift disputes out of local jurisdictions and place them in the "home" jurisdiction of the enterprise offering the contract. They also tend to reserve the matter to particular arbitrators, reserve nomination as to whom the arbitrator is to be, or confine conduct of that arbitration to a set of principles and rules conferred by a foreign body. Enterprises that regularly utilise arbitration as a dispute resolution method are naturally going to have more familiarity with how arbitration is conducted, and arbitration is often viewed as a remedy which favours the party requiring it. Arbitrators are not bound, as many jurisdictions are, to take into account vulnerability in bargaining power, nor are they required to apply set rules of construction which can serve to protect more vulnerable consumers.

The mere fact that the other parties to a contract still have access to the arbitration remedy is not likely to cure any perceived defect: it is the practical impact and advantage granted which is of relevance, not the existence of any technical right of redress. The mere fact that arbitration may be held outside the Australian jurisdiction, and require contractors to engage in the expense and difficulty of travel, or to engage representation in the jurisdiction where the arbitration is conduct (if representation is allowed), may well be sufficient for the Australian courts to determine an imbalance.

Section 5 of the Competition and Consumer Act 2010 extends the application of the laws to companies conducting business in Australia, even where the relevant contract and choice of laws clauses place the home of the contract in another jurisdiction. Such clauses act to vest the contract as being entered into outside of Australia. Section 5 does not alter this fact, but instead extends the application of the provisions to conduct (including entering into contracts) undertaken outside Australia. On 22 December 2017, the Federal Court confirmed, in Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224, that this extension could not be contractually excluded, or excused by choice of law provisions. It is the carrying on of business in Australia which extends the terms, not a choice of law in the contract itself.

Traditionally, the discouragement from pursuing cross-jurisdictional cases has been that, even where relief is granted, enforcing that relief in another jurisdiction has proven problematic. It should be noted that fairness of contract provisions are enforceable (and enforced) by the ACCC, Australia's competition and consumer agency. The ordinary commercial considerations which govern enforcement across jurisdictions are consequently less imperative: the agency has a vested interest in protecting and promoting Australian sovereignty in local contracts. Likewise, in addition to offending clauses being rendered void in the contracts in question, the breach of fairness of contract terms provisions can potentially give rise to penalties, as well as compensation.

As yet, the application of the unfair contract terms to arbitration clauses remains untested, however, the principal decisions mentioned above (JJ Richards & Sons Pty Ltd and Valve Corporation) are still very recent. Arbitration clauses may be the next item to be tested. If you intend to arbitrate disputes with an Australian connection, serious consideration should be given to the balance of convenience of such clauses and how – if at all – they seek to address any imbalance in power between the parties. DWF (Australia) is happy to review any such provisions, as well as wider questions relating to Australian commercial transactions from an international perspective.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions