The Full Court of the Federal Court has upheld a first-instance judgment of Thawley J that an arbitration clause in a standard form consumer contract relating to an online derivatives trading platform was an unfair contract term under the ASIC Act and therefore void and unenforceable.
Consequently, a bid by the provider of the platform, Plus500, to have a class action brought by consumers permanently stayed and referred to arbitration has now been rejected for a second time.
Key Takeaways:
- If an arbitration term in a standard-form consumer contract has the practical effect of preventing consumers from having their claims heard, it may be void as an unfair contract term. An analysis of the economic feasibility of claims being heard may be relevant here.
- Drafters of standard-form contracts which would restrict the right to participate in class action proceedings should consider bringing that legal consequence “squarely to the consumers’ attention” in “readily comprehensible terms”, to improve the transparency of the relevant clause. The Full Court found the notion that consumers read and work out the full legal implications of tick-box electronic agreements to “have an air of fairyland.”
- The Full Court cautioned against reading its judgment as a blanket rule that arbitration clauses, or contractual restraint from participating in class actions, are in and of themselves unfair. The breadth of the class actions regime does not permit such sweeping statements. The practical consequences of the impugned term in each case will determine whether or not it is unfair.
- A stay of a class action proceeding as a whole, without affording group members sufficient notice and opportunity to take steps to opt out or continue the action with a different representative, would not be consistent with the Court’s supervisory and protective role over unrepresented group members.
Background
The Applicant in this case, AghaeiRad, brought a class action on behalf of himself and other users of an online derivatives trading platform against the providers of that platform, Plus500. AghaeiRad alleges that, in the way it provided and promoted complex, highly-leveraged financial derivatives to retail clients, Plus500 engaged in misleading or deceptive conduct, unconscionable conduct, and breaches of contract for failure to adequately assess customers’ suitability to trade.
As part of the sign-up process, each member of the class ticked a box on Plus500’s website declaring that they had read and agreed to be bound by various documents, including a 50-page user agreement which contained a tiered dispute-resolution clause, with disputes ultimately referred to arbitration if they were incapable of being resolved by internal dispute resolution, AFCA or mediation.
At first instance, Thawley J found that the clause was an unfair contract term and accordingly void under the ASIC Act, and that Plus500’s attempted reliance on the clause would involve unconscionable conduct contrary to the ASIC Act.
Plus500 appealed, challenging the primary judge’s evaluative conclusions which led to a finding that the clause was unfair, namely that the clause:
- Was not transparent
- Would cause a significant imbalance in the parties’ rights and obligations
- Was not reasonably necessary to protect the legitimate interests of Plus500
- Would cause detriment to AghaeiRad if it were applied or relied on
Plus500 also appealed the finding that to rely on the term would involve unconscionable conduct contrary to the ASIC Act, but the Full Court found that issue unnecessary to deal with to dispose of the appeal.
Main finding: the clause was unfair
The Full Court judgment (Lee J, with Banks-Smith and Stewart JJ agreeing) upheld that the primary judge was entitled to reach each of the evaluative findings set out above, and that there was no error in the primary judge finding the arbitration clause was void as an unfair contract term. It was unnecessary for the Full Court to determine the further grounds of appeal, or AghaeiRad’s notice of contention.
The Full Court took a practical, real-world approach to its analysis. With respect to transparency, the inquiry
“is not conducted in an artificial world in which a reasonable consumer is assumed to read every word of a lengthy standard form electronic contract merely because the consumer has clicked a box asserting that this has occurred”
The Full Court found that Plus500’s submissions to the contrary “had an air of fairyland” and that, if a business wishes to include a clause which has the practical effect of denying access to the class actions regime, whether or not that was brought squarely to the consumers attention in readily comprehensible terms may bear significantly on the analysis as to whether the clause is transparent.
Similarly, as to significant imbalance, the Full Court found that the primary judge was entitled to take into account the practical differences between the effect of the clause on the parties, notwithstanding it was “symmetric” in the sense that both parties had to arbitrate. In that analysis, the primary judge was entitled to consider evidence on the economic and practical feasibility of arbitration as compared to representative proceedings. In a nutshell:
“The primary judge was correctly concerned with what was likely to occur in the world of fact, rather than with what could be made to occur in the world of legal possibility”
Appeal Judgment at [90].
Appeal Judgment at [114].
Appeal Judgment at [117].
Appeal Judgment at [97]
Appeal Judgment at [113],
Significantly, the Full Court considered the fact that class action proceedings would be precluded if the clause was enforced does not, in and of itself, render the clause unfair. The class actions regime is one of significant breadth which prevents such a sweeping statement being made. However, it does form one of the practical consequences of enforcing the clause which a Court can take into consideration in deciding whether it is unfair.
Additional commentary from Justice Lee: remember the unrepresented group members
Justice Lee stated that the Court’s protective role over the interests of unrepresented group members provided another reason to reject the orders sought by Plus500.
Lee J pointed to various aspects of the class actions regime which reflect:
“a concern that the fate of a class action should not be determined adversely to group members simply because of something occurring in relation to the personal position of the applicant, without affording group members an opportunity to protect their own interests:”
The orders sought by Plus500 would have brought the proceeding commenced on behalf of unrepresented group members to an end based on the particular contract between Plus500 and AghaeiRad, without notice having been given or a reasonable opportunity for those group members to intervene to protect their interests. Lee J would have also refused the stay application on that basis.
Therefore, a business which has formulated an arbitration clause in a way that would not be considered unfair under consumer protection legislation, should be cautious to appropriately target its relief and provide for a process for unrepresented group members to protect their interests, should they attempt to rely on the clause in a class-actions context
Takeaways
This judgment is important for all suppliers who include an arbitration provision in a mass standard form contract.
The fact that the customer must tick a box does not mean that they will have been taken to have read and understood the contract. Drafters of these contracts must take steps to ensure the consumer is aware of the arbitration clause and its significance. The relevant clause should:
- be drafted clearly, in plain language.
- be prominent in the contract in which it sits, not buried.
- convey to the ordinary consumer its significance. In that respect, the loss of the right to participate in a class action is significant and that consequence should be transparently to the ordinary consumer.
Appeal Judgment at [113],
Appeal Judgment at [113].
Appeal Judgment at [104].
Appeal Judgment at [140]
Appeal Judgment at [141]-[142].
Appeal Judgment at [143].