Factual and Procedural Background
This opinion concerns an application by the Claimant under section 66 of the Arbitration Act 1996 seeking permission to enforce an arbitration award dated 1 February 2007 ("the Award"). The background involves a contract between the Defendant and the Claimant for a single story extension to a bungalow to accommodate the Defendant's disabled father. The Defendant engaged an architect who produced drawings, which were provided to the Claimant. The Claimant issued an estimate and a letter confirming the order, which the Defendant signed, forming the Contract. The Contract included standard terms and conditions referencing arbitration under the Arbitration Act 1950 or its statutory modifications.
A dispute arose regarding whether certain sums were included in the contract price. The Defendant raised concerns with the local Trading Standards Department, which identified potentially unfair terms in the Claimant's standard terms, including the arbitration clause. Despite the Defendant's refusal to participate in arbitration, the Claimant initiated arbitration proceedings, appointing an arbitrator unilaterally. The arbitrator issued an Award in favour of the Claimant. The Claimant then sought court permission to enforce the Award, leading to this application.
Legal Issues Presented
- Whether the arbitrator was properly appointed in accordance with the Arbitration Act 1996.
- Whether the arbitration clause in the Contract constituted an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999 and was therefore unenforceable against the Defendant.
Arguments of the Parties
Claimant's Arguments
- The Claimant submits that the arbitrator was properly appointed pursuant to section 17 of the Arbitration Act 1996, arguing that the Defendant's refusal to participate justified unilateral appointment.
- The Claimant contends that the arbitration clause is not unfair, asserting that the Defendant was in a stronger bargaining position, the work was to her special order, and that the Claimant dealt fairly and equitably.
- The Claimant argues that paragraph 1(q) of Schedule 2 to the 1999 Regulations does not apply because arbitration under the 1996 Act is arbitration covered by legal provisions.
- Relying on case law, the Claimant maintains it did not fall short of fair dealing in imposing the arbitration clause.
Defendant's Arguments
- The Defendant, supported by the Trading Standards Department and solicitors, argues that the arbitration clause is an unfair term under the 1999 Regulations, restricting consumer rights to take legal action.
- The Defendant refused to participate in arbitration, maintaining that the dispute is a legal matter and that the arbitration clause should not be enforced.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Zealander & Zealander v. Laing Homes [2000] TCLR 724 |
Consideration of unfair terms in arbitration clauses under the 1994 Regulations. |
Adopted the approach that arbitration clauses excluding consumer rights may be unfair. |
| Heifer International Inc v. Christiansen [2008] Bus LR D49 |
Assessment of fairness of arbitration clauses under the 1999 Regulations. |
Distinguished on facts; arbitration clause found fair in that case. |
| Picardi v. Cuniberti [2003] All E.R. (D) 322 |
Application of 1999 Regulations to adjudication clauses in consumer contracts. |
Referenced in context of consumer contract terms. |
| Lovell Projects Ltd v. Legg and Carver [2003] BLR 452 |
Consideration of good faith and significant imbalance in consumer contracts. |
Found no significant imbalance or lack of good faith in that case. |
| Westminster Building Company Ltd v. Beckingham [2004] 1 BLR 265 |
Good faith and fairness in construction contracts with consumers. |
Supported findings of no unfairness in similar circumstances. |
| Bryen & Langley Ltd v. Boston [2004] EWHC 2450; [2005] BLR 508 |
Fairness of adjudication clauses under the 1999 Regulations. |
Emphasized assessment of good faith over significant imbalance. |
| Director General of Fair Trading v. First National Bank plc [2002] 1 AC 481 |
Interpretation of unfair terms under the 1994 Regulations, focusing on good faith and significant imbalance. |
Provided authoritative guidance on assessing unfairness and good faith. |
| Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] QB 433 |
Concept of good faith and fair dealing in contract terms. |
Referenced as illustrative of good faith principles. |
Court's Reasoning and Analysis
The court first examined the appointment of the arbitrator. The arbitration clause required disputes to be referred in accordance with the Arbitration Act 1950 or its statutory modifications, thus the 1996 Act applied. The 1996 Act requires joint appointment of a sole arbitrator within a specified time. Here, the arbitrator was appointed unilaterally by the Claimant without the Defendant's agreement, and the court found that section 17 of the 1996 Act, which permits unilateral appointment where each party appoints an arbitrators, did not apply because this contract required joint appointment of a sole arbitrator. Consequently, the arbitrator was not properly appointed, and the tribunal lacked substantive jurisdiction.
The court then considered whether the arbitration clause itself was enforceable under the Unfair Terms in Consumer Contracts Regulations 1999. The clause was not individually negotiated and was part of a standard form contract. Applying the test from the 1999 Regulations and relevant case law, the court found that the arbitration clause caused a significant imbalance in the parties' rights and obligations to the detriment of the Defendant, contrary to the requirement of good faith. The clause excluded or hindered the Defendant's right to take legal action by requiring disputes exclusively to be resolved by arbitration, which is potentially unfair under Schedule 2 paragraph 1(q) of the Regulations.
The court rejected the Claimant's argument that arbitration under the 1996 Act is arbitration covered by legal provisions exempting it from the unfairness test. It held that the phrase refers to statutory arbitration requirements, not arbitration generally. The court noted that the arbitration fees were comparatively significant relative to the claim amount, further contributing to unfairness. Additionally, the clause's effect was not sufficiently clear or prominent to the lay Defendant, and the Claimant unconsciously took advantage of the Defendant's weaker bargaining position by including the clause in standard terms.
Considering all circumstances, including the nature of the contract, the parties' positions, and the relevant legal principles, the court concluded the arbitration clause was not binding on the Defendant under Regulation 8(1) of the 1999 Regulations.
Holding and Implications
The court DISMISSED the Claimant's application for permission to enforce the arbitration Award under section 66(3) of the Arbitration Act 1996.
The direct consequence is that the arbitration Award lacks enforceability since the tribunal lacked substantive jurisdiction due to the improper appointment of the arbitrator and the unenforceability of the arbitration clause as an unfair term. No new precedent was established beyond the application of existing legal principles to the facts of this case.