Why arbitration clauses in consumer contracts are risky
It has long been common for businesses to include mandatory arbitration clauses in their standard consumer terms — clauses that require the consumer to resolve disputes through arbitration rather than in court. But those clauses can be unfair, unenforceable, and increasingly out of step with the DMCC Act 2024 framework for Consumer ADR.
Under the Consumer Rights Act 2015 (which now consolidates the earlier Unfair Terms in Consumer Contracts Regulations 1999), a contract term that has not been individually negotiated is unfair if — contrary to the requirement of good faith — it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer.
Terms that exclude or hinder a consumer's right to take legal action — for example by forcing disputes exclusively into arbitration outside the ordinary legal system — are on the statutory indicative list of terms that may be regarded as unfair.
What the courts have said
The leading English authority remains Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), in which the High Court refused to enforce an arbitration award against a consumer where the arbitration clause was contained in the builder's standard terms. The Court found the clause to be unfair, because it effectively stripped the consumer of the right to defend the claim in court.
European jurisprudence (which continues to influence the interpretation of consumer unfair-terms rules in the UK) has reinforced the same message: national courts must actively assess whether an arbitration clause hinders the consumer's right to legal remedy, and the mere fact that the business has explained the differences between arbitration and litigation is not enough to render the clause fair.
Why mediation is a better route
Mediation — and Consumer ADR more broadly — avoids the fairness problems that dog mandatory arbitration:
- It does not strip the consumer of court rights. Either party remains free to litigate if mediation does not resolve the dispute.
- It is proportionate. Costs are typically far lower than court or arbitration.
- It is quick. ProMediate aims to conclude Consumer ADR disputes within 28 days of receiving the complete complaint file.
- It is voluntary in outcome. The consumer only settles if the terms are acceptable.
- It aligns with the DMCC Act. Signposting consumers to an accredited ADR provider is now a statutory expectation, not a private contractual imposition.
Practical guidance for businesses
If you are drafting or reviewing consumer terms:
- Avoid mandatory arbitration clauses in B2C contracts. They may not be enforceable and can attract regulatory attention.
- Include a mediation / ADR clause signposting your accredited Consumer ADR provider instead. This is far less likely to be struck down as unfair and demonstrates good complaint handling.
- Explain the process clearly, in plain English, so consumers understand their choices.
- Ensure your signposting complies with DMCC Act duties on information and access to ADR.
Practical guidance for consumers
If a trader tries to insist you take your complaint to arbitration under their standard terms:
- You may have the right to argue the clause is unfair and unenforceable under the Consumer Rights Act 2015.
- You retain the right to complain to the trader, to escalate through their internal process, and — where eligible — to refer the matter to an accredited Consumer ADR provider such as ProMediate.
- If in doubt, seek advice from Citizens Advice or Trading Standards.