Arbitration clause

In the context of contract law, many contracts will have an “arbitration clause”. This clause is a dispute resolution mechanism whereby parties at the outset recognise that disputes may arise (for example in construction contracts) and as a result must attempt to resolve any dispute by arbitration before going to court.
The arbitration clause itself will usually specifically state the jurisdiction that the arbitration is to take place, which is of particular importance when contracts have effect in multiple states or countries.

Arbitration clauses (in consumer contracts) need to be carefully drafted so that they comply with the Australian Consumer Law (ACL), specifically to ensure that they comply with the “unfair terms” provisions. An arbitration clause will be deemed unfair if:

  • parties’ rights are significantly imbalanced;
  • the clause is unnecessary to protect the legitimate interests of the party taking advantage of it; or
  • the clause causes financial or other detriment to a party.