Customer law – Appointments – Enforcement – Unfair contract terms

Mylcrist Builders Ltd v G Buck: QBD (TCC) (Mr Justice Ramsey): 19 September 2008

The applicant building company (M) applied for permission to enforce an arbitration award against the respondent (B).

B had contacted M to build an extension to her bungalow. She signed its standard terms and conditions, which contained a clause referring all disputes to arbitration. M commenced work, but a dispute later arose between the parties. M sought to commence arbitration and contacted an arbitrator (H), but following advice that the arbitration clause could be unfair, B refused to submit to the arbitration. H received an agreement to appoint that was signed only by M, but he confirmed his appointment and found judgment in M’s favour.

M sought to enforce the award. M submitted that: (1) it had given B clear notice to appoint H and therefore he was properly appointed under section 17 of the Arbitration Act 1996; (2) the arbitration clause was not an unfair term as it was made in good faith, and schedule 2 paragraph 1(q) of the Unfair Terms in Consumer Contracts Regulations 1999, which provided that a term excluding or hindering a consumer’s right to seek other legal remedies in favour of arbitration was likely to be unfair, did not apply as the arbitration clause was covered by the legal provisions of the 1996 act.

Held: (1) The arbitration clause provided no mechanism for the appointment of an arbitrator, so it was governed by the 1996 act, which stated in section 16(3) that, in such circumstances, the parties should jointly appoint a sole arbitrator. In the absence of such a joint appointment, there was a failure of the appointment procedure. Section 18 provided that the court could then appoint an arbitrator, but that did not happen. Instead, H was appointed unilaterally by M. Section 17(1) stated that, where two parties to an arbitration agreement were each to appoint an arbitrator, but one party failed to do so, the other party could appoint his arbitrator to act as the sole arbitrator. That was not the situation in the instant case. Accordingly, section 17 did not apply and H had not been properly appointed.

(2) The arbitration clause was unfair because, contrary to the requirement of good faith, it caused a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of B, Director General of Fair Trading v First National Bank Plc(2002) 1 AC 481 applied. The existence of the arbitration clause, together with the requirement for a mandatory stay under section 9 of the 1996 act, meant that the clause did exclude or hinder a consumer’s right to take legal action, Zealander v Laing Homes Ltd (2000) 2 TCLR 724 QBD (TCC) applied. Arbitration under the act was not arbitration ‘covered by legal provisions’ and, therefore, schedule 2 paragraph 1(q) of the 1999 regulations applied.

The clause prevented B from having access to the courts and caused an imbalance between M as a professional builder and B as a lay person, to her detriment. The fees payable to the arbitrator were significant compared with the claim; that was a further element of imbalance to B’s detriment.

In addition, although B had signed the contract containing the arbitration clause, its impact would not have been apparent to a lay person and had not been apparent to B, as evidenced by her subsequent conduct. The requirement of fair and open dealing meant that the clause and its effects needed to be more fully, clearly and prominently set out than they were in the present case. Although there was no suggestion that M had deliberately taken advantage of B’s lack of experience, unfamiliarity with the subject matter of the contract, or her weak bargaining position, by including arbitration in its standard terms, M clearly had taken such advantage, albeit unconsciously. The arbitration clause was not binding on B and the award did not fall to be enforced.

Application refused.

Non-counsel representative (instructed by Girlings) for the claimant; in person for the defendant.