Journal of Information, Law and Technology
Does the Internet Occasion New Directions in
Consumer Arbitration in the EU?
Susan Schiavetta
Doctoral Research Fellow, Norwegian Research Center for Computers
and Law, University of Oslo
susan.schiavetta@jus.uio.no
This is a refereed article published on: 15 December 2004.
Citation: Schiavetta, ' Does the Internet Occasion New Directions in Consumer
Arbitration in the EU?’, 2004 (3) The Journal of Information, Law and Technology
(JILT).<http://www2.warwick.ac.uk/fac/soc/law2/elj/jilt/2004_3/schiavetta/>
Abstract
By and large problems arise when awards are being recognised and enforced under
the United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards 1958 (New York Convention). Specifically it is difficult for
consumers to either argue that consumer protection comes under the public policy
exception found in Article V(2) (b) or rely on Article V(2) (a), which allows courts to
refuse recognition and enforcement based on the non-arbitrability of the dispute.
Accordingly this article deliberates on ways to overcome this problem and in
particular whether new directions in consumer arbitration in the EU are
occasioned.sible outcomes of the Directive, and the rift between the European
Parliament and the Council.
Keywords: Arbitration, New York Convention, Unfair Terms in Consumer Contracts
Directive, recognition and enforcement of foreign arbitral awards, consumer
protection, pre-dispute arbitration clauses.
1. Introduction
In particular whilst European Union (EU) Member States either prohibit or restrict the
use of pre-dispute binding ADR clauses, such clauses are permitted in the United
States of America (US). This divergence can be problematic for EU based consumers
that enter into contracts over the Internet with businesses based in the US, as national
rules may not stand firm when enforcing B2C arbitral awards on an international
level. Hence the question arises does the Internet occasion new directions in consumer
arbitration in the EU? If EU consumers are unable to uphold domestic restrictions on
pre-dispute consumer arbitration clauses in an international context the answer is to
this question is affirmative, as different levels of protection emerge. This paper
establishes the various directions in which EU Member States can move in order to
redress this situation, commenting on which one appears to be the best.
2. Arbitration
Alternative Dispute Resolution (ADR) refers to methods for resolving disputes that
are considered to be an alternative to litigation. Whilst it covers a range of dispute
processes the two most utilised forms of ADR are mediation and arbitration. Whereas
mediation is a form of third-party intervention that involves a non-biased
intermediary, otherwise known as a mediator, supporting and facilitating negotiations
between the disputants, arbitration involves the third party assuming the role of
adjudicator and making a final decision that is potentially enforceable. Arbitrators
usually operate with less formal procedures than those followed in courts, although
they still hear the arguments of both parties and analyse the evidence submitted before
making a decision. [1]
In order to avoid litigating, both businesses and consumers may wish to use ADR to
aid the resolution process. However, due to the fact that the consumer is in a weaker
bargaining position many believe that the consumer’s ability to enter into ADR must
be subject to some constraints, particularly if the form of ADR to be used is binding.
The reasoning for this strict approach is based on a number of factors. First and
foremost pre-dispute ADR binding clauses, such as arbitration clauses, can lead to a
loss of rights and procedural protections for consumers. For instance, consumers can
be required to give up legal remedies, such as access to punitive damages.[2]
Another possible problem is the repeat player effect, whereby repeat players like
businesses can choose and manipulate what ADR processes will be used to enforce
their substantive rights against one-shotters, such as consumers.[3] For instance by
getting one-shotters to submit pre-dispute to binding arbitration repeat players are
able to determine the forum, the applicable law, the ADR Provider and even the third
party and hence the repeat player controls much of the disputing process.[4] As such
businesses can design arbitral clauses in such a way that they tilt the playing field in
their favour.[5]
As a consequence of such negative sides to pre-dispute binding arbitration clauses
many countries, such as EU Member States, have legislated to either forbid or restrict
their use. Even when consumers are permitted to agree post dispute to use ADR,
many prefer non-binding ADR procedures to binding ones, as they are based on cooperation. Furthermore non-binding ADR procedures allow the consumer to retain
some control over the resolution process, because they can withdraw from the
procedure at any time and they are not obligated to adhere to either the advice or
decision of the third party. Despite such benefits, many do not like the uncertainty that
surrounds the outcome. Of course decisions made during non-binding determinative
ADR procedures can be either issued later by an arbitrator in the form of an award or
turned into a contractual agreement but this does not achieve certainty at the outset.
Moreover it only serves to lengthen the process and hence it is often considered to be
more effective to use binding procedures from the beginning.[6]
In particular the use of pre-dispute binding clauses allows business to achieve some
advance certainty as regards the likely cost involved, the speed at which the resolution
process will progress and the assurance that the outcome will not become public
knowledge. Certainly, high litigation costs have the potential to put corporate assets at
risk, businesses do not want to waste more time than is necessary in realising a
resolution and unwanted publicity may threaten future business plans. With the rise in
international contracts such threats are even more discernible. In addition to having
similar assurances consumers are also thought to save money on the end product as
the costs saved by the business are passed on to consumers. As such many
jurisdictions, such as the US, permit businesses to insert pre-dispute arbitration
clauses into consumer contracts.[7]
2.1 The Implementation of the Unfair Terms in Consumer Contracts Directive
Legislation in place in EU Member States that forbids or restricts pre-dispute arbitral
clauses in consumer contracts stems from the Unfair Terms in Consumer Contracts
Directive (the Directive).[8] Article 3 of the Directive states that contractual clauses
that have not been individually negotiated will be regarded as unfair where they cause
a significant imbalance in the parties’ rights and obligations to the detriment of the
consumer and are contrary to good faith. However, this does not mean that all
standard terms are automatically classed as unfair;[9] rather the Annex to the
Directive gives a non-exhaustive list of terms which can be construed as unfair. For
the purposes of this paper a number of relevant terms can be found in the Annex.
Term (q) for example makes specific reference to arbitration, stating that terms that
either hinder or exclude the consumer’s right to take legal action or exercise any other
legal remedy particularly by requiring consumers to take disputes exclusively to
arbitration not covered by legal provisions are unfair. Although term (q) appears to
forbid the use of pre-dispute arbitral clauses this is not always the case. For instance
term (q) is related to term (i), which deals with those clauses which irrevocably bind
the consumer to terms they had no real opportunity to familiarise themselves with –
i.e. hidden terms.[10] Thus it would have to be established what notice the consumer
was given in respect of the arbitration clause prior to agreement. Where consent was
not defective and the consumer had ample opportunity to come to terms with the full
consequences of the arbitration clause then the consumer ought to be bound by it.[11]
Likewise, term (q) specifically refers to arbitrations not covered by legal provisions.
From the text of the Directive the exact scope of this part of term (q) is uncertain.
Whilst it has been suggested that it covers decisions made according to equity,
amiable composition or means of uncontrolled discretion,[12] it seems more likely
that it refers to ad hoc arbitrations, i.e. arbitrations that do not have any formal
administration by any established arbitral organisation.[13]
For instance, the European Court of Justice (ECJ) has stated that the use of amiable
composition is permissible.[14] Building on an earlier ECJ ruling, it was confirmed in
the Municipality of Almelo case that in order to make a preliminary ruling under
Article 234 (then numbered 177) of the Treaty Establishing the European Community,
a court or tribunal must satisfy a number of criteria, one of which is the need to apply
the rule of law. The ECJ then went on to state that this particular criterion had to be
interpreted broadly.[15] Furthermore some EU Member States, such as Spain rely
heavily on principles of equity during consumer arbitrations.[16] Consequently,
arbitral tribunals will not always base their decisions only on principles of law. It is
suggested therefore that the concept of ‘legal provisions’ as discussed in term (q)
refers to the procedural rules that will govern the arbitration. This argument gains
support from the idea that the procedural rules provide a tool to verify whether the
conditions for consumer protection have been met, and as such it is necessary that
satisfactory procedural frameworks are in place beforehand.[17] Accordingly this part
of term (q) appears to have limited application.
Term (q) goes on to give examples of other terms that could also cause a significant
imbalance in the parties’ rights to the detriment of the consumer, such as unduly
restricting the evidence available to the consumer and imposing a burden of proof on
the consumer which, according to the applicable law, should lie with another party.
Thus if the consumer was able to provide evidence and the burden of proof that would
normally apply was not deviated from, the clause ought to be permitted under
European Community law.[18] Other terms listed in the Annex also give examples of
terms that result in significant imbalances, such as term (b), which relates to terms
that inappropriately exclude or limit the rights of consumers and term (c), which deals
with terms that unilaterally bind the consumer.
On this basis it is not completely impossible for EU consumers to agree, pre-dispute,
to use ADR that has binding results, according to the Directive. Nevertheless, the
actual implementation of the Directive by Member States may serve to curb the
Directive’s application in this way. Section 6 of the Swedish Arbitration Act, for
instance, invalidates arbitration agreements entered into between businesses and
consumers (except for rental or lease relationships) prior to the dispute.[19] Whilst
some Member States take a similar approach to Sweden, others have not been so strict
in their implementation. In Germany, for example, the use of arbitral clauses in
consumer contracts is permitted so long as the arbitration clause is contained in a
document that has been signed by the parties. Section 126(a) of the German Civil
Code elaborates on what constitutes a signature, stating that the written form may be
substituted by a qualified electronic signature.[20] Similarly, Section 91 of the
English and Welsh Arbitration Act 1996 states that arbitration clauses in consumer
contracts will be unfair if they relate to disputes involving a pecuniary remedy that
does not exceed £5,000.[21]
Such contrasting approaches to the implementation of the Directive can be witnessed
throughout the EU. However two trends emerge from its transposition: whether they
restrict or forbid the use of pre-dispute binding arbitral clauses the implementations
are all protective of the consumer; and the fact that not all Member States have chosen
to forbid pre-dispute clauses altogether but rather regulate their use reflects that the
Directive does not ban the use of such clauses in their entirety.
2.1.1 Mandatory Rules on Choice of Forum
The Brussels Regulation,[22] which provides default jurisdictional rules, aims to
ensure that weaker contracting parties, like consumers, are protected by a mandatory
set of rules. In particular, Article 16 states that consumers may bring proceedings and
proceedings must be brought against a consumer by the other party to the contract in
the country of their domicile. Article 17 then states that this Article may be departed
from only by an agreement that has been entered into after the dispute has arisen.
However, Article 1(2)(d) in the Regulation excludes arbitration from its scope.
Technically, therefore, no prohibition is placed on the ability to contract out of the
terms offered by the instrument if the parties wish to use arbitration to resolve any
ensuing disputes.
This analysis gains support from the deliberations in the Report carried out by
Professor Peter Schlosser in 1978 on the Regulation’s predecessor - the Brussels
Convention[23] – which stated that the Convention in no way restricted the freedom
of parties to submit to arbitration. Nor did it restrict Member States from invalidating
arbitration agreements affecting disputes for which exclusive jurisdiction exists.[24]
Since many Member States took this latter approach when interpreting the Directive,
if national legislation exists which forbids the consumer’s ability to agree to an
arbitration clause in the first place then the terms of the Brussels Regulation will, of
course, apply.
2.2 The US Approach
Under the Federal Arbitration Act (FAA), pre-dispute binding arbitration is permitted
in respect of interstate commerce. [25] States in the US are therefore permitted to
prohibit or restrict the enforceability of State-based arbitration agreements that do not
have interstate parameters. Despite this, most States favour pre-dispute binding
arbitration and only a very small number make certain disclosure or other
requirements mandatory.[26] Generally, whether dealing with State or interstate
commerce the idea is that the pre-dispute clauses result in the parties waiving their
constitutional right to go to court. As a result, the formation of an arbitral agreement
must be in line with the applicable body of contract law in order to be effective. A
court can therefore void an arbitral agreement on the basis that it is at odds with the
general provisions of contract law. In deciding the validity of pre-dispute arbitration
clauses in consumer contracts, decisions by US courts reflect a similar approach to the
wording of the Directive.
Most States in the US hold that any contract purporting to waive a constitutional right
must be clear and unambiguous. Thus, the parties must expressly waive their right to
go to court, which would involve the consumer being presented with the clause and
the consumer explicitly agreeing to it.[27] In a similar vein, most States apply the
doctrine that waivers must be ‘knowing, voluntary and intelligent’. As such, the
arbitral agreement must be explained to the consumer so that there is a meeting of
minds and there has been informed consent.[28] This is a similar approach to that
taken by terms (i) and (q) of the Directive in that the arbitral clause must not be
hidden from the consumer and they must have had ample opportunity to come to
terms with the full consequences of the clause.
Additionally, courts will not uphold arbitral clauses that are deemed to be
unconscionable. To determine whether a clause is unconscionable, both procedural
and substantive unconscionability will be assessed. Hence, the court will look to how
the contract was negotiated, the disclosure of the arbitration terms, and the fairness of
the terms themselves.[29] Whilst most jurisdictions require that both procedural and
substantive unconscionability are shown to void an arbitration agreement, others are
willing to accept just procedural unconscionability where there are egregious facts
surrounding the negotiations.[30] For instance, a court has refused to enforce an
arbitral clause that was buried deep in a confusing multi-page adhesion contract
written in language that was both unfamiliar and never explained to the consumer.[31]
However, reliance on procedural unconscionability alone will generally not be
enough, because most consumer contracts are contracts of adhesion and therefore
most States will require an element of substantive unconscionability. In such cases,
the fact that the contract has been drafted by the stronger party and presented on a
take-it-or-leave-it basis serves as evidence for procedural unconscionability.[32]
Some States require a little bit more, noting that the procedural unconscionability
exists where the consumer was forced to agree to a contract of adhesion because there
is no meaningful choice to retain the goods or services elsewhere,[33] and/or the lack
of conspicuousness.[34]
When proving the substantive unconscionability of the agreement more evidence is
required as this is the most important sign of unfairness. There are a number of
reasons why an agreement to arbitrate can be held to be substantively unconscionable,
for example, the fees and costs associated with the arbitration are excessive, as this
serves to deprive consumers of a forum to vindicate their rights, [35] the clause is
one-way, i.e. businesses can resort to litigation but the consumer cannot,[36] bias on
behalf of the arbitrator,[37] inconvenient arbitration venue,[38] or there has been
waiver of statutory remedies on behalf of the consumer, such as limitations are placed
on the right to damages.[39]
This dual unconscionability standard equates to the relationship between Article 3 and
the Annex to the Directive. Article 3 establishes the procedural unconscionability of
clauses that have not been individually negotiated. For those that require that little bit
more than just the existence of a contract of adhesion, term (i) deals with the
conspicuousness of the clause. Article 3 also serves as the starting point for
substantive unconscionability as it states that clauses that cause a significant
imbalance in the parties’ rights and obligations to the detriment of the consumer will
be unfair. Term (q) elaborates on this point by stating that this unfairness can be
generated by either hindering or excluding the consumer’s right to exercise any other
legal remedy. The good faith element in Article 3 along with terms (b) and (c) also
cover a number of the other substantive unconscionability reasons. Furthermore, the
fact that the Annex is a non-exhaustive list intimates that a court in the EU could hold
a particular circumstance to be substantively unconscionable even though the
Directive does not mention it specifically.
Accordingly, it can be suggested that strictly implementing the Directive was not
necessary as consumers can agree to use binding arbitration pre-dispute without the
stronger party taking advantage of their weaker bargaining position. Indeed, courts in
the US have shown that where the agreement to arbitrate is detrimental to the
consumer the agreement will not be upheld. Neither does this approach place a greater
burden on the consumer to bring an action to void the arbitration clause as most
actions between consumers and businesses involve the consumer as plaintiff
anyway.[40]
3. Arbitration Clauses in Contracts with EU Consumers
Whether the US approach manages to strike the right balance between protecting the
consumer and allowing businesses to enter into contracts with some degree of
certainty, is an increasingly important question with the advent of the Internet. Indeed,
consumers in the EU have greater possibilities to enter into contracts with companies
based in the US that have pre-dispute arbitral clauses embodied in their contracts.
Consequently, the rights and obligations of the parties arising from their agreement to
arbitrate – for example, their obligation to submit their disputes to arbitration and
honour an award – may be subjected to the laws of a non-EU Member State. In such
circumstances it is questionable whether EU consumers can retain restrictions on the
use of pre-dispute arbitration clauses to which they would normally be entitled.
Generally, if the consumer does not want to participate in the arbitration they have
two options: they can either attack the validity of the arbitration clause or seek to rely
on international mandatory rules in their place of domicile. In the context of consumer
arbitration the two concepts are inherently interrelated as an arbitration clause may be
held to be invalid as a consequence of mandatory laws on the validity of arbitration
clauses. With respect to mandatory laws, these must be supplanted into contractual
relationships irrespective of a choice of law by the parties or indeed the application of
the relevant set of conflict of laws rules where no express choice has been made. First
and foremost, whether a State’s mandatory laws can be invoked depends on whether
the contract has a close connection with the State in question.[41] Furthermore, the
mandatory law in question will have to be an international mandatory law. Whereas
domestic mandatory rules can be escaped in international settings, international
mandatory rules must be adhered to in all circumstances. What constitutes an
international mandatory rule depends on both the wording and purpose of the
rule.[42] By and large, if a rule is an international mandatory rule the legislation that
embodies the rule will specify this.[43] However, where the legislation is not so clear
on the applicability of the mandatory rule in an international context their
applicability will be judged according to the function of their purpose.[44]
3.1 Validity of the Arbitral Clause
When attacking the validity of an arbitral clause in a contract the consumer must bring
proceedings in either the court of their domicile or the jurisdiction where the seat of
arbitration is prior to the arbitration taking place. Once a court has asserted
jurisdiction it will move on to determine the existence and material validity of the
arbitration clause, which involves the court deciding what law governs the question of
existence and material validity, and then testing formation under that law.[45] In
particular, the judge will consider whether there has been a valid offer and
acceptance, consideration and intention to create legal obligations.[46] The assent
given to an arbitral clause by the consumer is particularly relevant in the online
context.[47]
Akin to the Brussels Regulation, the Rome Convention on the Law Applicable to
Contractual Obligations does not apply to arbitration and, as such, the parties are free
to make a choice of law.[48] Thus, a court may find that the proper law of the
arbitration agreement was, in accordance with a choice made by the parties, a
particular US States’ law, and that the arbitration clause was validly concluded under
this law.[49] A judge can, of course, find that despite being validly concluded the
substance of the clause is substantively unconscionable. For instance, where the
arbitration was not a documents-only procedure but requested the consumer to travel
to another jurisdiction to participate in the arbitration a court might perceive this to be
substantively unconscionable.[50]
In the event that an arbitration clause was held to be valid the consumer’s only option
is to rely on international mandatory laws that deal with the validity of pre-dispute
arbitral clauses. An English consumer, for example, could seek to rely on the Unfair
Terms in Consumer Contracts Regulations 1999 (the Regulations) which void certain
arbitral clauses. As a consequence of Section 89 of the Arbitration Act 1996, the
Regulations were extended to cover arbitration agreements. Section 89(3) states that
the Regulations are applicable whatever the law applicable to the arbitration
agreement so long as there is a close connection between the contract and the
European Economic Area (EEA).
No definition of close connection is given yet other laws adopting the same approach
shed some light on the subject. For instance, according to the Giuliano-Lagarde
Report, the concept of close connection in Article 7(1) of the Rome Convention refers
to contracts performed in a specific country or where one party is resident or has his
main place of business in that country. Likewise, Section 27(2)(b) of the Unfair
Terms Act 1977 (UK) appears to set specific requirements for a close connection as it
states that the provisions of the Act will apply where in the making of the contract one
of the parties acted as consumer, they were habitually resident in the UK at the time,
and the essential steps necessary for the making the contract were taken by the
consumer in their habitual residence, whether by themself or by others on their
behalf.[51] Thus, according to Section 27(2)(b), to establish a connection a consumer
contracting online would need to be resident in the UK and use a terminal there.[52]
Despite the fact that both the Rome Convention and the Unfair Terms Act give an
indication as to what factors may establish a close connection, it is still unclear from
Regulation 9 what approach will be taken, i.e. whether a close connection would
result from the fact that the consumer is habitually resident in a Member State or
whether additional factors similar to that in 27(2)(b) would be required. If a close
connection is established then the Regulations establish international mandatory
provisions that must be applied.
In addition to establishing a close connection, the applicability of the Regulations may
be constrained by their phraseology, as they simply ‘copy out’ the Directive.[53]
Hence, the aforementioned interpretation given to the Directive is also relevant in the
context of the Regulations. Thus, a judge could perceive an arbitral clause to be fair
even where it relates to a dispute involving a modest amount (as defined by the
Specified Amount Order) so long as it does not cause a significant imbalance in the
parties’ rights and obligations – for example, the clause does not unilaterally bind the
consumer or unduly restrict the evidence available to them, and the arbitration
procedure is not an ad hoc one. Whilst it is likely that an English judge would take a
defensive approach to pre-dispute arbitration clauses such an interpretation is not
impossible.[54]
Unfortunately, the exact position of all the Member States is unknown, however, it
can be suggested that if the legislation in place forbids the use of pre-dispute arbitral
clauses the ability to rely on that legislation will depend on whether they are
mandatory in an international setting. It should be considered, however, that the
protection given to consumers in the EU varies from Member State to Member State
and hence some consumers will be protected whilst others will not. For instance, even
if pre-dispute clauses are not permitted with respect to disputes relating to a monetary
amount of less than £5000 GBP, consumers domiciled in England and
Wales disputing contracts that relate to amounts that exceed this modest amount will
not be protected. In the event that an arbitration clause is declared to be unfair by a
court in an EU Member State according to mandatory laws then it would issue a
judgment in respect of the dispute between the business and the consumer. Another
problem to consider in this context is the issue of enforceability of the court
judgment.[55]
3.2 Application of Mandatory Rules by Arbitrators
Article II of the New York Convention affirms that contracting States must recognise
agreements to arbitrate concerning a subject matter capable of settlement by
arbitration.[56] Although the uniform rules for determining the law applicable to the
agreement are mentioned in the Convention in connection with the enforcement of the
award, a systematic interpretation of the Convention suggests that such rules are also
applicable to the enforcement of the arbitral agreement.[57] According to Article
V(1)(a), enforcement of an award can be refused if the agreement is not valid under
the law to which the parties have subjected it, or failing an indication thereon the law
of the country where the award was made. Where no choice is made the latter conflict
rule can be interpreted in the context of agreements as being the law of the country
where the award will be made.[58] Thus, even where a choice has not been made in
favour of a particular US State’s law, the place where the award should be delivered,
which can be determined by the seat of arbitration, ought to be decisive.[59]
If the agreement is valid according to the applicable law then under Article II(3) of
the New York Convention a court is obligated to refer the parties to arbitration at the
request of one of the parties. Thus, it would be up to the arbitrator to apply any
international mandatory rules.[60] Where a party has sought to rely on the Convention
in this way the court would be obliged to grant this request. Whilst such an approach
ought to be taken by all courts in states signatory to the Convention US courts have
been particularly willing to use the US’s accession to the New York Convention as a
reason for enforcing arbitration agreements in international transactions.[61] In fact,
US courts have enforced arbitration clauses in international contracts that would not
normally be permitted in a domestic context, as this is an internationally uniform
rule.[62] In doing so they have confirmed that any discretionary powers they may
have in respect of refusing to stay proceedings in favour of arbitration in a domestic
context is superseded by this rule when dealing with international arbitration.[63]
Consumers may be saved, however, by Article II(2) in the New York Convention
which affirms that an arbitral agreement must be either in writing and signed by the
parties or formed by an exchange of letters or telegrams.[64] Whilst no mention is
made of modern electronic means, a contemporary interpretation of this Article may
lead to communication methods like e-mail being covered by the Convention as emails, like telegrams, are in text form and provide an electronic record.[65] Moreover,
a number of domestic laws relating to arbitration follow the UNCITRAL Model Law
on International Commercial Arbitration and therefore define writing as including an
exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement.[66] Nonetheless, it remains to be seen whether
Article II(2) will be interpreted in this way, and in particular if website
communications, such as click-wrap agreements will also be covered.[67]
A recent decision given by the Manitoba Court of Appeal in Proctor v. Schellenberg
suggests that such an approach is possible as it was held that the definition of in
writing given in the New York Convention was not exhaustive and as such the
‘writing’ can take various forms.[68] All that is important is that there is a record to
evidence the agreement of the parties to resolve the dispute by an arbitral process.
Accordingly how that record comes into being, whether by way of fax, a series of
letters, or for that matter e-mail, is irrelevant. Such a decision indicates that courts
may recognise the current practices of concluding contracts in an international
context.
However, the New York Convention must be applied uniformly and so long as there
is divergence between national laws on e-agreements and e-signatures the exact
position of the New York Convention and approach of the courts is ambiguous.[69]
Likewise, the formal requirements of arbitration agreement ought to be assessed by
reference to Article II(2) of the Convention only as opposed to looking to national law
for guidance.[70] Accordingly, a court might not perceive an e-agreement to be valid
according to the Convention and, concomitantly, could not refer the parties to
arbitration.
In the event that the use of e-mail/click wrap agreements are permitted consumers can
attempt to rely on Article II(1) which states that to be a valid arbitration agreement the
subject matter must be capable of settlement by arbitration. The problem with this
approach is that the Convention is silent on which law should determine the
arbitrability of the dispute and various commentators are divided on this particular
issue. For instance, whilst van den Berg suggests that the court seized ought to judge
arbitrability according to the law applicable in their own jurisdiction various other
authors propose that this should be based on either a cumulative application of the law
of the forum and the law governing the arbitration agreement or just the law
governing the arbitration agreement.[71] Furthermore, many courts have
distinguished between domestic and international arbitrability holding that what is
arbitrable will be different in the international context.[72] Consequently, it is
possible that a court in the EU would not apply its domestic law to the question of
arbitrability.
Whether the arbitration agreement will be binding on the consumer will also be
constrained by the possibility that the arbitration may have begun in the US. Although
arbitration can proceed without both parties submitting to the arbitration,[73] the
consumer may have allowed the arbitration to proceed so as to save time and money.
Such an approach may be taken because the consumer may believe that the arbitration
might favour them or their lawyer has advised them to wait until the business tries to
enforce the award against them in a court in their jurisdiction. In the event that the
consumer wants to prevent the arbitration from proceeding they could move to have
the arbitration stayed by a US court. Unfortunately, the consumer would e confronted
with the sae problems as they would when bringing an action in a US court to have
the agreement declared void, i.e. they have to spend time and money pursuing such an
action and the US court may refuse to stay the arbitration on the basis of the US’
assignation to the Convention.
If the arbitration procedure goes ahead arbitrators ought to apply any mandatory laws
relating to the non-arbitrability of the dispute regardless of a choice of law. Hence,
where an international mandatory law states that the subject-matter of the dispute was
not arbitrable an arbitrator ought to refuse to take judgment over the case.[74]
Unfortunately, save for cases where the choice of law gives effect to cases of
corruption or fraud, the principle that arbitrators are bound to apply the law chosen by
the parties is often enough to set aside a foreign mandatory law.[75] A study by Yves
Derains showed that arbitrators were more inclined to apply mandatory rules that are
not part of the lex contractus where the parties have not made an express choice on
the applicable law, and they were more prepared to apply them when they are part of
the law of place of performance than when they were contained in the law of the
parties’ respective countries.[76] As Pierre Mayer correctly points out, this conclusion
reflects that whilst one trend has emerged which is favourable to the application of
mandatory rules another has emerged that is hostile.[77] As such, it must be
acknowledged that the international nature of a contract increases the danger that such
laws will not be applied.[78]
Nonetheless, if courts are willing to leave such decisions up to arbitrators this implies
that they are in some way obliged to apply mandatory laws. Moreover where
arbitrators are aware that courts are counting on them to apply mandatory laws this
may encourage them to meet this expectation.[79] Furthermore, when arbitrators are
faced with a conflict between the will of a State and the will of the parties they must
consider what can happen to their award if a mandatory rule in an enforcement state is
not adhered to.[80] Additionally, given that arbitrators are essentially replacing
national judges, States would refuse to give their support to arbitration as an
institution if it continued to result in the sacrifice of their public interests, which
would otherwise be protected by a judge. Hence arbitrators have a duty to promote the
survival of arbitration.[81]
4. Recognition and Enforcement
Ultimately whether or not the arbitrator ought to apply international mandatory rules
the possibility still exists that an arbitrator may deliver an award that fails to adhere to
mandatory laws in the consumers domicile. In such cases the focus must shift to the
remedies available to the consumer. Seeing as the arbitral tribunal would likely have
their seat of arbitration in the US the consumer would have to lean on US laws during
the review process. First and foremost, the FAA provides very limited grounds on
which courts may vacate or modify an arbitral award; in particular, an arbitral ruling
may be vacated if corruption, fraud, or arbitrator misbehaviour has taken place.
Courts can also modify or correct an award, but these require a mistake, an award on a
matter not submitted to the arbitrator, or an award that is imperfect in matter of form
not affecting the merits of the controversy.[82]
Deferential review is also available under US law, which obliges courts to enforce
arbitral awards absent compelling evidence that the arbitrator ignored mandatory
rules. However, it has been suggested by Andrew T. Gutzman that this possibility is
only available in the simplest cases. For instance, the practice of issuing an award
without a reasoned opinion in the US is often adopted specifically to avoid giving the
loser any grounds upon which to challenge the award. Thus, courts would find it
difficult to pinpoint whether an arbitrator had in fact applied mandatory laws.[83]
As noted earlier, the consumer can ignore the award and wait for the business to seek
recognition and enforcement under the New York Convention.[84] In such cases the
consumer would have to rely on one of the provisions found in the New York
Convention that permits a court in the enforcement State to deny the recognition and
enforcement of an arbitral award to avoid adhering to it. In particular Article V(2)(b)
permits refusal on the basis that enforcement would breach public policy and Article
V(2)(a) allows courts to refuse recognition and enforcement based on the nonarbitrability of the dispute.
Dealing with the concept of public policy first, this covers a number of sub-categories
of rules and norms, one of which is mandatory laws,[85] and hence if a national law
views a consumer protection law as mandatory they ought to be considered as falling
within the scope of the public policy provision. However, research carried out by the
International Commercial Arbitration Committee revealed that the concept of public
policy found in Article V(2)(b) is based on international public policy, which is
considerably narrower than domestic public policy.[86] Furthermore, whilst specific
and subjective to each State and technically based on the public policy of the country
in question, by and large the approach of national courts has been to apply public
policy provision restrictively.[87] States take this view probably because they aspire
to be an international arbitration centre and if they expect their own awards to be
recognised abroad they too must enforce those rendered in other countries.[88]
This restrictive interpretation of the public policy clause is taken because courts
recognise that the finality of arbitral awards is key to operation of the New York
Convention system. For instance, in Waterside Ocean Navigation Company v.
International Navigation Ltd the court stated that Article V(2)(b) “[m]ust be
construed in light of the overriding purpose of the convention”.[89] Namely the
recognition and enforcement of commercial arbitration agreements in international
contracts is to be encouraged and the standards by which agreements to arbitrate are
observed and arbitral awards are enforced in the signatory countries must be
unified.[90] Accordingly, in the event that arbitrability is questionable under a
national public policy rule the predominant view seems to be that the award is
valid.[91]
Moreover, even if the national law on the arbitrability of consumer disputes could be
viewed as coming within the public policy exception Articles 6(2) of the Directive
calls upon Member States to ensure that the protection offered by the Directive is not
lost as a consequence of a choice of law of a non-Member State. Thus, the consumer
obtains their protection from the Directive not the legislation in place in the enforcing
Member State.[92] A judge could therefore find an arbitral clause permissible under
the Convention regardless of the national law, so long as the arbitration clause did not
cause a significant imbalance in the rights of the parties to the detriment of the
consumer, for instance, change the burden of proof, and the procedure is not ad
hoc.[93]
When attacking the validity of an arbitral award under Article V(2)(a) of the
Convention the consumer would be suggesting that the subject matter of the
difference was not capable of being settled by arbitration under the law of that
country.[94] Whereas this appears to focus on the laws of the country where
enforcement is sought the application of this Article may be restricted by Article
V(1)(a), which stipulates that the invalidity of the agreement may justify a refusal to
enforce the award, i.e. if the subject matter of the dispute is not arbitrable any award
rendered on the subject will be invalid.[95] Invalidity is judged according to the law
of the enforcement court and the law governing the arbitration agreement, which can
be either the law chosen by the parties to govern the agreement or failing that, the law
of the country where the award was made (arbitral seat). Thus arbitrability could be
judged according to the rules in place in as many as three different countries.
Even if this particular argument was not accepted and arbitrability was to be judged
solely on the enforcement court’s own law, van den Berg suggests that the question of
non-arbitrable subject matter is superfluous because, like mandatory laws, it forms
part of the general concept of public policy.[96] Thus, it can be suggested that the
non-arbitrability of a dispute should be judged according to what is internationally
arbitrable. Indeed, a number of courts have drawn this particular distinction.[97] On
the whole, therefore, it is highly likely that an arbitration agreement would not be
considered invalid when judged under the New York Convention.[98]
4.1 Recognition and Enforcement in the EU
EU Member States must also apply the New York Convention when enforcing arbitral
awards that have been rendered in another EU Member State and thus the same
problems exist internally as externally. Yet this issue can be considered as almost
non-existent within the EU seeing as most jurisdictions forbid or severally restrict the
use of pre-dispute clauses in the first place and businesses based in the EU will
accordingly refrain from using pre-dispute arbitral clauses. Conversely, where predispute clauses are permitted in the forum State there may be a problem. For example
an arbitral award rendered in the UK relating to a dispute involving a monetary
amount of more than £5000 GBP would likely be upheld in the exequatur court. The
French Court of Appeal has already done just this, enforcing an arbitration clause in a
contract governed by English law relating to the purchase of a car by a French
consumer on the basis that consumers deserve a lower level of protection if they
partake in cross-border transactions.[99]
4.2 The Internet Intensifies the Issue
Although the problems associated with recognition and enforcement exist offline they
are more prominent now because consumers have a greater ability to enter into
contracts with companies in jurisdictions that permit pre-dispute consumer clauses.
Indeed, the ease at which arbitral agreements can be formed online increases the
possibility that consumers will have an arbitral clause incorporated into their contract.
As such the Internet has changed the landscape for consumer arbitration considerably
and thus new directions in consumer arbitration are occasioned in EU.
Unfortunately, despite the protection given to consumers in some EU Member States
the illegality of arbitral agreements cannot always be guaranteed when consumers
contract with companies based in countries that permit pre-dispute arbitral binding
arbitral clauses, either in their entirety or when certain conditions are met.
Consequently, consumers in the EU are subject to different levels of protection. Given
that it is debatable whether pre-dispute consumer arbitration clauses are prohibited
under the Directive anyway, it might be practical to realign the EU’s position with
that of countries like the US, particularly since the US does not prohibit pre-dispute
binding arbitration but manages to achieve the same result as the Directive.
Likewise, the increase in electronic versions of ADR (e-ADR) can also serve to
intensify the problem as there is now more scope and reason to use pre-dispute online
arbitral clauses. In particular, e-ADR reduces the overall resources that both the
business and consumer needs to invest in the dispute. For instance, they do not have
to travel to appear at hearings and so both the time and costs associated with such
travel are eliminated. Thus, businesses could seek to rely on e-arbitration so as to
avoid the possibility that an arbitration clause be declared void on the basis that it was
substantially unconscionable for the consumer to travel to another jurisdiction. [100]
4.3 Possible Loopholes
First and foremost, signatory States to the Convention can ratify it with the so-called
‘commerce limitation’ and as such they will only apply the Convention to awards that
deal with commercial law issues. If a Member State has chosen this limitation and
under their national law disputes with consumers are not, per se, viewed as
commercial disputes, any arbitral awards rendered in consumer ADR may not be
enforceable under the New York Convention.[101]
Another possible saviour may be the standard enunciated by Article IV(b) which
states that the party wishing to apply for recognition and enforcement of the arbitral
award must supply the original agreement referred to in Article II or a duly certified
copy thereof. As noted above, Article II(2) affirms that an arbitral agreement must
either be in writing and signed by the parties or contained in an exchange of letters or
telegrams. Hence, an agreement may not be deemed valid at the stage of the
enforcement of the award. However, if a court has previously compelled arbitration
on the basis that the arbitral agreement was valid then this may influence the decision
of the enforcing court. In particular, they may favour enforcement on the basis that if
they refuse to enforce the award this will of course result in a major inconsistency in
the application of the Convention, which defeats one of the goals of the Convention,
i.e. a uniform application of the Convention. Where the enforcement procedure relates
to an arbitration procedure that has proceeded without the intervention of a court then
it will be a lot easier for a court in the EU to rely on this particular saving grace.[102]
If the Convention is not interpreted in such a way that e-agreements formed by both
email and click-wrap techniques are upheld then it is irrelevant whether EU
consumers enter into ADR agreements with companies based in countries where predispute arbitration is permitted. In particular, any award delivered by an arbitration
tribunal as a consequence of an invalid e-agreement would be unenforceable. Thus,
there would be no need for consumers to attempt to rely on the public policy or nonarbitrable provisions of the Convention.
On the other hand, it is likely that the Convention will be interpreted in this way,
whether this is as a consequence of a contemporary interpretation by a court on the
basis of the Convention as it stands now, the production of an interpretative
instrument by UNCITRAL – an idea that is currently under discussion – or a complete
modernisation of the Convention. Alternatively, the party seeking enforcement may
try to rely on the Most Favourable National Enforcement (MFR) rule, which states
that the Convention shall not deprive any interested party of any right they may have
to avail themselves of an arbitral award in the manner and to the extent allowed by the
law or the treaties of the country where such award is sought to be relied upon.[103] It
should be noted here, however, that in the event that the MFR is invoked the party
invoking it must rely on the national law in toto to the exclusion of the New York
Convention and so may lose the benefits offered by the New York Convention in
enforcing awards that would not normally be permitted under national law.
4.4 Future Directions
Despite the availability of various loopholes it is advisable that the EC institutions
confront head-on the problem that consumers may be subject to different levels of
protection as these loopholes, if they in fact exist, will not always produce the desired
outcome. Accordingly, it must be decided whether a strict or lenient approach to predispute arbitration will be taken within the EU. If a strict approach is to be taken then
full harmonisation should take place which eradicates the little differences that exist
between Member States. This will involve promulgating legislation that clearly states
that pre-dispute arbitration clauses are unfair and forbidden regardless. Furthermore,
such a provision would have to be classed as international mandatory law. The
problem with this approach is that whilst this ensures territorial protection for EU
consumers and ensures that courts, wherever they are based, will implement these
laws, it does not solve the problems associated with relying on arbitrators to
implement them. In such circumstances an arbitral award that breaches an EU
consumer’s right to benefit from an international mandatory law that forbids predispute arbitration clauses may be enforced under the New York Convention. Such a
problem is particularly relevant given that many consumers will initially shy away
from legal action so as to save resources.
To avoid this problem either the policy against permitting pre-dispute arbitration
clauses in consumer contracts would need to be adopted at an international level or
the EC institutions could take a more in favorem arbitrii attitude to pre-dispute
arbitration clauses. Seeing as the former will be very difficult to achieve and the latter
is in line with interpretation of the current UTCC Directive it is suggested that
permitting pre-dispute clauses may be the best option. Indeed, this suggestion gains
support from the emergence of a more positive approach in general to out-of-court
settlement in the EU. For instance, the European Parliament has sought to promote the
use of arbitration for consumer disputes[104] and countries such as Spain have
attached arbitration boards to public bodies to deal with complaints relating to B2C
disputes.[105]
If the decision was taken to permit the use of pre-dispute arbitration clauses more
specific standards would have to be set which regulated the way in which such clauses
should be included. One possible option would be to force Providers to use either an
opt-in or opt-out system. In fact some companies in the US have already begun
including a statement underneath the arbitration clause which allows the consumer to
receive the goods or services without accepting the arbitration clause so as to prevent
their clause from being procedurally unconscionable. Of course the language and
presentation of such a choice would have to be conspicuous and businesses would
have to explain this decision and its consequences in order for it to be
meaningful.[106]
It can of course be suggested that online consumers will have an advantage over
offline consumers because they have the World Wide Web as resource to help them
understand their decision to opt-in/out of arbitration. However, opt-in/out decisions
are just as operable offline as businesses could be obligated to supply their customers
with the necessary information to make an informed decision. Moreover, courts
would be able to negate any acceptance of a clause that was procedurally
unconscionable. Generally, therefore, it may be more beneficial to consumers if the
EC institutions harmonised the EU position on pre-dispute arbitral clauses in favour
of such clauses and regulated their operation to ensure that the consumer is protected.
If such an approach was taken within the EU this may encourage legislators in other
jurisdictions to follow suit or encourage more companies in countries like the US to
operate similar systems on their own merit.
5. Conclusion
Undoubtedly, the Internet does occasion new directions in consumer arbitration in the
EU because the possibility exists for consumers to have arbitral clauses embodied in
their contracts that can be enforced against them despite the existence of national laws
to the contrary. Whilst the uncertainty surrounding the New York Convention’s
coverage of electronic agreements, and in particular click wrap agreements, may
make such problems redundant in the interim it is likely that the Convention will
eventually be interpreted to favour e-agreements. Regulatory action therefore has to
take place that will either permit the use of pre-dispute consumer arbitration so as to
realign the EU position with countries such as the US for international commerce or
forbid it so as to establish a very specific position in respect of the internal market.
Seeing as the latter approach relies on arbitrators implementing international
mandatory laws to sustain the EU’s strict approach to pre-dispute arbitration on an
international level it is suggested that it is in the best interests of consumers that predispute arbitration clauses are permitted so that consumers are not subject to varying
levels of protection. To be sure, consumers would have more realistic expectations as
far as contracting with businesses in the US. Furthermore, they would be entitled to
more protection during the formation process if pre-dispute clauses are regulated.
Accordingly, it appears that it is in the best interests of the consumer if the EC
institutions begin to think ‘outside the box’.
Notes and References
[1] See further Palmer, Michael., & Roberts, Simon., Dispute Processes: ADR and the
Primary Forms of Decision Making, Butterworths: London, 1998.
[2] National Consumer Law Center, Consumer Arbitration Agreements:
Enforceability and Other Topics, The Consumer Credit and Sales Legal Practice
Series, Second Edition, 2002, pages 5 -6 and 53.
[3] Menkel-Meadow, Carrie., Do the “Haves” come out ahead in Alternative Justice
Systems: Repeat Players in ADR, 15 Ohio St. J. on Disp. Resol. 19 (1999-2000). This
problem was first discussed by Marc Galanter in the context of litigation. He
suggested that repeat player litigants have more power over one-shotters as a
consequence of their experience. Of course not all litigants with experience are repeat
players and similarly not all one-shotters are ‘have-nots’. Nonetheless the general idea
is that those with resources tend to be repeat players and will, over time, come out
ahead, as they are able to structure the next transaction and a build a record. Moreover
they can develop expertise, have ready access to specialists, and can take a long-term
approach to litigation. See further Galanter, Marc., Why the “haves” come out ahead:
Speculations on the Limits of Legal Change, 9 Law & Society Review 95-160 (1974).
[4] Menkel-Meadow, Ibid, pages 25-26 and 32-34.
[5] Fahmy, Hossam, M., Arbitration: Wiping out consumer rights?, Texas Bar
Journal, 2001, Vol.64, page 917,
http://testsite.texasbar.com/globals/tbj/2001/oct01/fahmy.asp, (accessed 01/10/03).
[6] E-mail communication with Professor Arnold Vahrenwald, 25/04/2003.
[7] See the Uniform Arbitration Act which has been followed by most States, which
does not have a specific clause determining the validity of pre-dispute consumer
clauses. Thus it is left up to courts to determine in line with their laws of contract.
Only a few States have more specific and individual rules for arbitration.
[8] 93/13/EEC.
[9] See further Office of Fair Trading, Unfair Standard Terms: Guidance for
Consumer Advisors on the Unfair Consumer Terms Regulations 1999, August 2000,
http://www.oft.gov.uk/NR/rdonlyres/ezdv4tgnhsjnviewrewoidjrfesojlcjz
2d32x4apzum4yxr7z7hwr3huhpjw4eol7d447xhshum4uip3bklyip3sjg/unfair.pdf,
(accessed 05/02/03).
[10] See for instance the Directive 97/7/EC of The European Parliament and of the
Council of 20 May 1997 on the Protection of Consumers in respect of Distance
Contracts, which gives a seven day cooling off period which allows the consumer to
familiarise themselves with the applicable documentation, which subsequently limits
the use of standard ADR clauses. See further Zealander and Zealander v. Laing
Homes Limited (Unreported) 1999.
[11] See further Odams de Zylva, Martin., Effective Means of Resolving Distance
Selling Disputes, 2001, http://www.e-global.es/015/015_odamas_distance.pdf.
[12] Ibid. Decisions in equity are based on what is deemed to be just and fair.
Amiable composition gives the arbitrator the power and discretion to apply their own
perceptions of fairness and commercial reality. Uncontrolled discretion gives the
arbitrator the power to determine and define what constitutes, for instance, a
‘material’ damage.
[13] Vahrenweld, Arnold., Out-of-Court Dispute Settlement Systems for E-commerce,
Report on Legal Issues, Part IV: Arbitration, 31st October 2000 (revised 07/03/01). Ad
hoc arbitrations involve a draft set of ad hoc provisions being inserted into a contract,
which will refer to a generally accepted set of arbitral rules, such as the UNCITRAL
Arbitration Rules, or the arbitral tribunal will be allowed to produce its own
procedures after the dispute has arisen.
[14] Erauw, Johan., Reference by Arbitrators to the European Court of Justice for
Preliminary Rulings, in L’Arbitrage et le Droit Europeén, referring to Municipality
of Almelo and others v NV Energiebedrijf Ijsselmij, European Court of Justice, Case
C-393/92 (1994) ECR I-1477, as cited in Vahrenweld, Supra No. 13, Page 149.
Although it also stated that in some cases despite an agreement to the contrary arbitral
tribunals must still observe certain rules of law, such as those falling under the
heading of public policy, by virtue of the primacy of Community law and its uniform
application.
[15] Municipality of Almelo et al, Ibid, at paras 21 – 24. See in particular para
23:“[A] court of a Member State to which an appeal against an arbitration award is
made pursuant to national law, must, even where it gives judgment having regard to
fairness, observe the rules of Community law […]”.
[16] For example, 99.23 % of all consumer arbitrations 1999 were dealt with by
equity. Vahrenweld, Supra No. 13, pages 149 and 199.
[17] Ibid, page 150. N.B. Vahrenweld appears to use the word exclude to mean
prohibit as opposed leave out.
[18] Vahrenweld, Supra No.13, Page 150. It should be noted here that the European
Union is supported by three pillars, the European Community pillar, the Common
Foreign and Security Policy pillar, and the Police Cooperation in Justice and Home
Affairs pillar. Whilst the last two are intergovernmental in nature the EC pillar
embodies the EC institutions, which work together to pass EC legislation that is then
applicable throughout the EU (This is evidenced by the titles given to the legislation
passed, for example, Directive 2004/8/EC). Of course it is possible to say EU law
seeing as the law applies throughout the EU but it is more accurate to say EC law.
Furthermore the roles of the institutions are considerably different when operating on
behalf of the Member States in the second and third pillars.
[19] See further SOU 1999/166. It should also be noted that Swedish law, like all
Scandinavian jurisdictions, afford similar protection to small businesses, See for
example, the Swedish Contract Act, Section 36. Collins, Brian, St. J., Unfair Terms in
Consumer Contracts Regulations 1994, [1995] 3 Web JCLI,
http://webjcli.ncl.ac.uk/articles3/collins3.html. Similar provisions exist in Norway,
Finland and Denmark.
[20] Section 1031 (1) of the Code of Civil Procedure states that an arbitration
agreement shall be contained either in a document signed by the parties or in an
exchange of letters, telefaxes, telegrams or other means of telecommunication which
provide a record of the agreement. Section 1031 (5) then states that whilst arbitration
agreements to which a consumer is a party must be contained in a document which
has been personally signed by the parties this written form pursuant to subsection 1
may be substituted by electronic form pursuant to section 126a of the Civil Code. See
further German Arbitration Law 1998, http://www.dis-arb.de/download/Zpo-eng.rtf,
(accessed 04/04/04). A similar approach is taken in Luxembourg which permits
arbitral clauses so long as the arbitration clause is separately signed. Article 1135-1 of
the Code of Civil Law in Luxembourg. See also Graham, James., A., Consumer
Protection / Advertising: Comments to the proposed draft by the ABA,
http://www.kentlaw.edu/cyberlaw/docs/foreign/Luxembourg-Advert-Graham.rtf,
(accessed 11/03/04), page 2.
[21] This ‘modest amount’ is set by Statutory Instrument and is therefore changeable
according to the economic climate. See further Unfair Arbitration Agreements
(Specified Amount) Order 1999, No.2167.
[22] Council Regulation (EC) 44/2001 on Jurisdiction and the Recognition and
Enforcement of Judgments in Civil and Commercial Matters. The legislation
applicable to European Free Trade Area States (which includes EEA countries and
Poland, Lichtenstein and Switzerland), and the EU Member State is the Lugano
Convention. Of the EU countries only Denmark is still signatory to the Regulation’s
predecessor, the Convention on Jurisdiction and Enforcement of Judgments in Civil
and Commercial Matters 1968.
[23] Ibid.
[24] Schlosser, Peter., Report on the Convention on the Association of the Kingdom
of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland to
the Convention on Jurisdiction and the Enforcement of judgments in civil and
commercial matters and to the Protocol on its interpretation by the Court of Justice,
OJ C 59/71 (1978), page 93, Section 63.
[25] See Allied-Bruce Terminix Companies v. Dobson 513 U.S. 265, 115 S.Ct. 834
where the Supreme Court held that the FAA was applicable to consumer Arbitrations.
[26] Supra No.2, page 17.
[27] See for example Nelson v. Cyprus Bagdad Copper Corporation 119 F.3d 756 (9th
Cir. 1997) at 762. See also National Consumer Law Center, Ibid, pages 25-26.
[28] See Obstetrics & Gynecologists Wixted, Flanagan & Robinson v. Pepper 101
Nev. 105, 693 P2d 1259 (1985) at 1261 and Turner Brother Trucking 8 S.W.3d 370
(Tex.App. 1999). See also National Consumer Law Center, Supra No.2, pages 28-29.
[29] Ibid, page 38-39. The Supreme Court in California noted that “[t]he more
substantively oppressive the contract term, the less evidence of procedural
unconscionability is required [and vice versa]. Armendariz v. Found Health
Pyschcare Services Incorporated 24 Cal. 4th 83, 114, 99 Cal. Rptr. 2d 745, 6 P.3d 669
(2000) as cited in National Consumer Law Center, Supra No.2, page 39.
[30] National Consumer Law Center, Ibid, page 39.
[31] Barajas v. PHP Clearinghouse No.51, 778D (D.Ariz. Nov. 6, 1997). See also
Pitchford v. Oakwood Mobile Homes Incorporated 1999 U.S. Dist. LEXIS 20596
(W.D. Va. Dec. 20, 1999).
[32] See Circuit City Stores Incorporated v. Adams 279 F.3d 889 (9th Cir. 2002).
[33] See Veal v. Orkin Exterminating Company Incorporated 2001 U.S. Dist. LEXIS
4846 (W.D. Mich. Apr. 9, 2001).
[34] Powertel Incorporated v. Bexley 743 So.2d 570 (Fl. Dist. Ct. App. 1999). It
should be noted that the element of surprise in inherently fact specific.
[35] See Brower v. Gateway 2000, Incorporated 676 N.Y.S.2d 569 (N.Y. Sup. Ct.
App. Div. [Aug] 1998. This concept was recently verified in Craig Comb, et al. v.
PayPal Incorporated, Cases No. C-02-1227 and C-02-2777 JF (N.D. Cal., August 30,
2002). See National Consumer Law Center, Supra No.2, pages 46 – 47.
[36] See Arnold v. United Companies Lending Corporation 204 W. Va. 29, 511
S.E.2d 854 (1998). See also Flores v. TransAmerica HomeFirst Incorporated, (2001)
93 Cal.App.4th 846.
[37] See Graham v. ScissorTail Incorporated 28 Cal. 3d 807, 171 Cal. Rptr. 604, 623
P.2d 165 (1981). N.B. This particular argument has yet to be accepted in a number of
courts. See further National Consumer Law Center, Supra No.2, page 51.
[38] See Patterson v. ITT Consumer Financial Corporation 14 Cal. App. 4th 1659 18
Cal. Rptr. 2d 563.
[39] See Strilen v. Supercuts Incorporated 51 Cal. App. 4th 1519, 60 Cal. Rptr 2d 138
(1997).
[40] Lawson, Phillipa., Comments on the Draft Hague Convention on Jurisdiction and
Foreign Judgments in Civil and Commercial Matters, February 26, 2001,
http://www.piac.ca/HagueConvention.htm, (accessed 12/04/04).
[41] Schu, Reinhard., Consumer Protection and Private International Law in Internet
Contracts, http://ruessmann.jura.uni-sb.de/people/rschu/public/essay.htm, (accessed
08/03/04).
[42] Voser, Nathalie., Mandatory Rules of Law as a Limitation on the Law Applicable
in International Commercial Arbitration, American Review of International
Arbitration 1996. For instance mandatory rules seek to pursue a public interest and
therefore serve social or economic goals. Generally the interests of the private parties
are inferior or often not even considered at all. As such the goal of mandatory rules
tends to pursue goals which are detached from the contract itself.
[43] See for example Section 27(2) of the United Kingdom’s Unfair Contract Terms
Act 1977.
[44] For example the purpose of competition laws is to protect is to protect a market
from anti-competitive activity that will have harmful consequences and as such these
rules will only be applied to the extent that that they relate to a substantial potential
anti-competitive activity within the market that they seek to protect. Thus their ambit
is deduced from their purpose. Mayer, Pierre., Mandatory Rules of Law in
International Arbitration, Arbitration International, 274-293 and 322, at page 287.
[45] See Supra No.39. It should be noted that the applicable law in an arbitral
relationship can vary depending on what aspect of the arbitral relationship is being
considered. Firstly there is the proper law of the underlying contract, which creates
the substantive rights and obligations of the parties out of which the dispute has
arisen. Secondly there is the proper law of the arbitration agreement, which is the law
governing rights and obligations of the parties arising from their agreement to
arbitrate. Thirdly it is possible to apply the proper law of reference, i.e. the law
governing the contract which regulates the individual reference to arbitration. Lastly
there is the procedural law, such as the law governing the arbitration proceedings and
the manner in which the reference is to be conducted. Whilst in most arbitral
relationships the applicable law will be the same in all four cases there is potential to
have different laws applicable. See further Sumitomo Heavy Industries Ltd V Oil and
Natural Gas Commission [1994] 1 Lloyd’s Rep 45.
[46] It should be noted here that although formation ought to be judged according to
applicable law if the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards applies then it is arguable that if the agreement conforms to
the requirements of Article II(2) then there exists a strong presumption that there has
been a meeting of minds between the parties. See van den Berg, Albert, Jan., The New
York Convention of 1958, Toward a Uniform Interpretation, Kluwer Law and
Taxation Publishers, Deventer/The Netherlands: 1981, page 177. Article II(2) affirms
that to be valid an arbitral agreement must be either in writing and signed by the
parties or contained in an exchange of letters or telegrams which, although strict, is a
fairly narrow requirement. In order to fall under the New York Convention the
arbitration agreement must either relate to an arbitration that will take place in State
other than that of the forum court or where it relates to arbitration that is due to take
place in the forum state of the court it involves at least one party that is a foreign
national or the underlying transaction is international. See further van den Berg, Part I
– 2, and in particular pages 70 -71.
[47] It was held in Specht v. Netscape Communications Corporation and America
Online Incorporated No.01-7860 (L) (2d. Cir. Oct, 1, 2002) that so long as the
business can demonstrate that the party knowingly assented to the arbitration clause,
i.e. through the use of a click wrap system, it would be upheld.
[48] See Article 2(d). This exclusion covers procedural aspects, the formation and
validity and effects of such agreements. See further Giuliano, Mario., and Lagarde,
Paul., Report on the Convention on the law applicable to contractual obligations,
http://www.rome-convention.org/instruments/i_rep_lagarde_en.htm, (accessed
13/03/04). This report also emphasised that arbitral clauses can be taken into account
for the purposes of Article 3(1), which deals with an express choice of law made by
the parties.
[49] Of course it is possible that a judge will find a way to protect the consumer and
implement the law of the consumer’s domicile. In such cases the issue of
enforceability of the judgment arises where the judgment finds in favour of the
consumer.
[50] See for example Oceano Grupo Editorial v. Murciano Quintero Joined Cases C240/98 to C-244/98, 2000 ECR I-04941.l, Supra No.38 and Brower v. Gateway 2000,
Supra No.35.
[51] Article 5(2) of the same Convention also states that a consumer should not be
deprived of mandatory rules of the law of the country in which he has his habitual
residence, if in that country the conclusion of the contract was preceded by a specific
invitation addressed to him or by advertising, and he had taken in that country all the
steps necessary on his part for the conclusion of the contract or if the other party or
his agent received the consumer’s order in that country.
[52] The approach taken here and by Article 5(2) of Rome is now seen to be
ineffective as for example it would not catch consumers using a terminal in another
Member State, for example, in a Web café. This was the reasoning behind the changes
made to the Brussels regime which now states that a close connection will be
established were the business directs their activities to several or that Member State
and the contract falls within that Member State. Given the territorial nature of this
particular instrument, where the business is not based within the territory of the EU
they must have a branch there and the contract must have arisen out of the operations
of that branch if the contract is to fall within its scope.
[53] The Regulations were subjected to heavy criticism in the beginning because of
this verbatim approach as the Directive itself was considered to be rather unspecific
and as such the Regulations had simply inherited this problem.
[54] See further Zealander case, Supra No.10.
[55] Whereas some countries have bilateral agreements with other countries in respect
of the enforcement of judgments this is not always the case. For instance the US is not
party to any Convention or bilateral Treaty on the recognition and enforcement of
foreign judgments. N.B. An effort was made in the 1970s to conclude one with the
UK but this was stopped by the British insurance industry. See further Kovar, Jeffrey,
D., Negotiations at the Hague Conference for a Convention on Jurisdiction and
Enforcement of foreign judgments,
http://www.state.gov/documents/organization/684.doc, (accessed 14/04/04). It should
be considered here that on the basis of Comity a court judgment may be recognised
and enforced. Furthermore this problem will be solved if the long awaited Hague
Convention on Jurisdiction and the Enforcement of Foreign Judgments is realised.
[56] United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards 1958.
[57] van den Berg, Supra No.46, page 126.
[58] Ibid, page 127.
[59] See further Langerichte of Heidelberg Oct 23 1972 as cited in van den Berg,
Supra No.46, page 127.
[60] See for example Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 723
F.2d 155, 162 (1st Cir. 1983), rev'd 473 U.S. 614 (1985). It should be noted here that
the idea of a court issuing a directive imposing arbitration is unknown in many
jurisdictions and so the real meaning of referring the parties to arbitration relates to
courts staying court proceedings in favour of arbitration at the request of one of the
parties. N.B. One party must object the court having a role in the resolution process
the court cannot compel on its own motion. Article II(3) states that the parties can be
referred to arbitration within the meaning of this article. See further van den Berg,
Supra No.46, pages 129 - 131.
[61] Ibid, 473 U.S. at 631. In American Safety Equip. Corp. v. J.P. Maguire &
Company the court highlighted that arbitration clauses in international contracts must
be enforced even assuming that a contrary result would be forthcoming in a domestic
context. Thus antitrust disputes and securities disputes, which are normally not
arbitrable in a domestic situation, have been viewed as arbitrable when they arise
within an international transaction.
[62] American Safety Equip. Corp. v. J.P. Maguire & Company. See also See for
example Lonrho Ltd.v. Shell Petroleum Co. Ltd. - 31 January 1978 - High Court of
Justice, Chancery Division.
[63] See for example the Lonrho case, Ibid.
[64] Article II(3) states that the parties can be referred to arbitration within the
meaning of this article.
[65] Hill, Richard., On-line Arbitration: Issues and Solutions,
http://www.umass.edu/dispute/hill.htm, (accessed 15/05/02), and Arsaic, Jasna.,
International Commercial Arbitration on the Internet: Has the Future Come Too
Early, Journal of International Arbitration, Vol.14 (1997) 3, 209-221.
[66] Article 7 (2). As of this writing 38 States have adopted the Model Law, see
further http://www.uncitral.org/en-index.htm (accessed 30/10/03).
[67] See Van den Berg, Supra No.46, page 284 -286.
[68] [2002] M.J. No. 496. Cf. Decision of the Norwegian Hålogaland Court of Appeal
16th August 1999, as reported in Stockholm Arbitration Report 1999 Vol.2, at page
121.
[69] See Vahrenweld, Arnold., Supra No.13, page 37.
[70] See Kahn Lucas Lancaster, Inc. v. Lark International, Ltd. (2d Cir. 7/29/99) and
Sidley and Austin, Standards For Enforcement of Arbitration Agreement May Be
Different Under International Convention, Alternative Dispute Resolution
Developments, http://articles.corporate.findlaw.com/articles/file/00082/000829/title/
Subject/topic/Alternative%20Dispute%20Resolution_International%20
Arbitration/filename/alternativedisputeresolution_1_8.
[71] See further van den Berg, Supra No. 46, page 154, and in particular footnotes 99
and 100.
[72] See Audi-NSU Auto Union A.G. v. S.A. Adelin Petit And Cie (Belgium No.2)
Cour de Cassation (1st Chamber) June 28, 1979.
[73] See for example Article 6 of the ICC’s International Court of Arbitration Rules,
http://www.iccwbo.org/court/english/arbitration/rules.asp#article_5, (accessed
12/04/04).
[74] Derains, Yves., Public Policy and the Law Applicable to the Dispute in
International Arbitration, International Arbitration Congress, 8, 1986, New York, 227
– 256, page 243. Whilst specific States have the power to regulate arbitration the takes
place within its territory, arbitral tribunals are not organs of a specific state. N.B.
Unlike a judge that can determine mandatory rules of the forum and those which are
foreign an arbitrator has no lex fori, but rather the arbitrator must distinguish between
the mandatory laws of the lex contractus and the mandatory laws of another legal
system.
[75] Ibid, page 248.
[76] Derains, Yves., Supra No.74, pages 248 – 254.
[77] Supra No.44, page 283.
[78] Ibid, page 279.
[79] Supra No.44, page 280.
[80] Ibid, page 276. In an article by Marc Blessing it is pointed out that this idea that
an arbitrator should always consider the enforcement of an award leads to a situation
where arbitrators may be forced to deliver a ‘wrong’ decision to secure enforcement.
See Impact of the Extraterritorial Application of Mandatory Rules of Law on
International Contracts, Swiss Commercial Law Series, Helbing and Lichtenhahn,
page 61, in particular footnote 64. Whilst this is undoubtedly true, the arbitrator ought
to consider this possibility when they are contemplating the application of a
mandatory rule and the possible effects its application or non-application may have on
the enforcement of the award and hence stay away from delivering a wrong decision.
[81] Ibid, pages 285-6.
[82] Gutzman, Andrew T., Arbitrator Liability: Reconciling Arbitration and
Mandatory Rules, http://www.law.duke.edu/journals/dlj/articles/dlj49p1279.htm,
(accessed 09/03/04).
[83] Ibid.
[84] It should be noted here that a court may use a party’s non-objection to the
arbitration as activating the doctrine of estoppel in respect of the Convention’s
grounds for refusal particularly where, for example, they have participated in the
arbitration i.e. appointed an arbitrator.
[85] See further Committee on International Commercial Arbitration, Interim Report
on Public Policy as a Bar to the Enforcement and Recognition of International
Arbitral Awards, International Law Association London Conference (2000), page 15.
[86] See further Shepherd, Audley., Public Policy and the Enforcement of Arbitral
Awards: Should there be a Global Standard?, Oil, Gas and Energy Law Intelligence,
Volume I, Issue 2, March 2003,
http://www.gasandoil.com/ogel/samples/freearticles/article_67.htm, (accessed
27/11/03). See also van den Berg, Albert Jan., Distinction Domestic-International
Public Policy, New York Consolidated Commentary Cases, (1996) XXI Yearbook at
p.502, and Final Report on Public Policy as a Bar to International Enforcement of
International Arbitral Awards, http://www.ilahq.org/pdf/Int%20Commercial%20Arbitration/International%20C
ommercial%20Arbitration%202002.pdf, (accessed 12/12/03). An alternative approach
to enforcing the public policy rule according to the international public policy
standard is to rely on the doctrine of transnational public policy. This particular
doctrine seeks to find shared values in the various legal systems so as to avoid
localising the application of the Convention. However, only a limited number of
decisions make reference to this concept and as such it is likely that this particular
approach will not be endorsed. See further Interim Report, page 7. For an example of
a judgment that endorsed this approach see W. v. F. and V. (1995) Bull. ASA 217.
[87]See Final Report, Ibid. In the USE case Parsons & Whittemore Overseas Co. v.
Société Générale de L’Industrie du Papier 508 F.2d 969 (2d Cir. 197) it was stated
that the “[e]nforcement of foreign arbitral awards may be denied on the basis [of
Public Policy] only where enforcement would violate the forum states most basic
notions of morality and justice”.
[88] This reasoning was applied in the Singaporean case of Hainan Machinery Import
and Export Corp. v. Donal & McCarty Pte Ltd [1996] 1 SLR 34.
[89] 737 F.2d 150 (2d Cir.1984).
[90] Ibid. See also Deutsche Schachtbau Tiefbohrgesellschaft mbh v. Ra Al Khaimah
Oil Company [1987] 2 Lloyd’s Report 246.
[91] See further Fouchard, Philippe., Gaillard, Emmanuel., and Goldman, Berthold.,
Traite de l’Arbitrage Commercial International, Litec, Paris 1996, as cited in
Vahrenweld, Supra No.66, Page 213.
[92] Vahrenweld, Supra No.13, Page 219.
[93] See further Section 2.2.
[94] Whilst it can be argued that the fact that the Convention has separated public
policy and arbitrability indicates that they are not necessarily dependent on each other
the reason it was included in the Convention as a separate condition is historical, i.e. it
was featured as a separate ground for refusal in the Convention’s predecessors.
Despite objections to this separation this system was kept without discussion.
[95] Cordero Moss, Guiditto., Arbitrability of Disputes Regarding Petroleum
Investments in Russia and the Validity of an International Arbitration Award, Volume
7, Article 15, http://www.dundee.ac.uk/cepmlp/journal/html/vol7/article7-15.html,
(accessed 24/11/03).
[96] See further Supra No.46.
[97] Fritz Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974).
[98] Supra No.46.
[99] Such a ruling was given despite the fact that consumer arbitration is controversial
in France. The Court held that the French consumer had lost their protection when
they moved out with their jurisdiction. Cour d’Appel de Paris of 07/12/94, Revue
trimestrielle du droit commercial 1995/401, as cited in Vahrenwald, Supra No.13,
page 203.
[100] See further Vahrenweld, Ibid, Pages 148 -9. See further Oceano Grupo Editorial
v. Murciano Quintero Joined Cases C-240/98 to C-244/98, 2000 ECR I-04941.l. See
also Patterson, Supra No.38 and Brower, Supra No.35.
[101] Kuner, Christopher., Legal Obstacles to ADR in European Business to
Consumer Electronic Commerce, http://www.kuner.com/data/pay/adr.html, (accessed
24/01/04). Within the EU the only countries to ratify the Convention with the
Commerce Limitation have been Denmark and Greece. See further Status of the
Conventions and Model Laws, http://www.uncitral.org/en-index.htm, (accessed
12/04/04).
[102] It should be noted here that arbitrators are also obligated to implement this
Article in the New York Convention, see further van den Berg., Supra No.46, pages
185 – 190.