How the UCT regime works

Australia has two parallel sets of UCT provisions for different types of goods and services: 

1. Part 2-3 of the Australian Consumer Law (ACL), in Schedule 2 to the Competition and Consumer Act 2010 (Cth), - which applies to standard form consumer and small business contracts for goods, services and the sale or grant of interests in land; and 
    
2. Subdivision BA of Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) - which contains equivalent provisions for contracts that are financial products or contracts for the supply of financial services.

However, the core test relating to whether a term is ‘unfair’ is the same under both regimes. A term of a standard form consumer or small business contract is unfair if it would cause a significant imbalance in the parties’ rights and obligations under the contract, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment if applied or relied on.  Both regimes now protect businesses with fewer than 100 employees or annual turnover of less than $10 million. The ACL has no contract value threshold, but the ASIC Act retains a $5 million cap on the upfront price payable for small business contracts for financial products or services. In assessing whether a term is unfair, a court must take into account the term’s transparency and the contract as a whole, and the party advantaged by the term bears the onus of proving that it is reasonably necessary (at [106]).

The decision in brief 

The appeals Court agreed with the primary Court that the arbitration clause in Plus500AU’s online User Agreement was an unfair contract term and void under the ASIC Act. 

Which version of the regime applied in Plus500? 

Unfairness is assessed by reference to the time the contract is entered into. Mr AghaeiRad completed Plus500AU’s online registration process and assented to its User Agreement on 19 August 2020. The applicable provisions were therefore the UCT provisions of the ASIC Act in force at that time.

Importantly, in 2020, the civil penalty provisions for unfair contract terms had not been introduced.  The penalty provisions were introduced only in 2023, so the UCT finding in this case did not expose Plus500 to a penalty for having proposed or relied on an unfair arbitration clause.

Unfair contract terms analysis

The Full Court’s application of the unfair contract terms provisions in the ASIC Act to the Plus500 arbitration clause highlights important considerations that businesses should take note of, including: 

• transparency;
• imbalance between the parties; and 
• reasonable necessity, each of which is discussed further below. 

When considering these factors, it is important to bear in mind the Court’s overarching comment that nothing in its reasons means that an agreement to arbitrate is void or unenforceable merely because its operation prevents a contracting party from participating in a class action.

Transparency

The relevant clause assessed by the Court was legible and accessible, but not expressed in reasonably plain language or clearly presented. The Court noted  (at [90]) that analysis of the applicable provisions:

“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 court distinguished between stating in a contract that disputes will be referred to arbitration and conveying to consumers the practical consequences of arbitration, i.e., loss of court access and inability to participate in a class action. The Court was of the view that expecting a consumer to infer those consequences “assumes a degree of legal understanding” which the criterion of transparency included in the legislation does not require the Court to impute to a consumer. Justice Lee cited empirical research indicating that 98% of participants failed to spot deliberately inserted “gotcha clauses,” spending an average of 51 seconds on terms estimated to take 15–17 minutes to read. There was, his Honour observed, “an air of fairyland about an approach to transparency which assumes that an ordinary consumer, by clicking a box recording agreement to lengthy standard terms, will ordinarily have read those terms and appreciated consequences which may be apparent to a lawyer.”

Significant imbalance: symmetry is not a safe harbour

The Court noted that a negotiated agreement between sophisticated commercial parties presents vastly different considerations from a standard consumer click-wrap term. In particular, the Court found that a term could impose the same formal obligation upon each party but operate very differently depending on their respective contractual positions. As such, even though AFCA remained an available process for consumers (as it was protected by a deliberate legislative scheme), that did not change the fact that arbitration was the ultimate adjudicative mechanism for dissatisfied customers – including when they were dissatisfied with the outcome of an AFCA process. 

The Court found that arbitrator fees alone in relation to Mr AghaeiRad’s claim would be $8,939 to $20,794 plus counsel fees – supporting a finding that the impact of the clause was not the same for all parties. The appeals Court was unpersuaded that the possibility of obtaining litigation funding or the technical feasibility of consolidating multiple individual arbitrations into a single process offset the economic challenges associated with arbitration as the primary dispute resolution mechanism for the range of claims likely to arise under the User Agreement. The appeals Court endorsed the primary Court’s approach of assessing “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” (at [97]).

Reasonable necessity

Plus500AU bore the onus of establishing the reasonable necessity of the relevant arbitration clause, but failed to convince the primary judge, who held that the arbitration clause was reasonably necessary to protect its legitimate interests. The primary Court noted that there was no evidence that any actual arbitration had ever occurred and “that the arbitration term was not a practical means of resolving typical low-value complaints”.

The coherence argument and arbitration policy

Plus500 Limited argued that finding the arbitration clause unfair was inconsistent with the legislative policy supporting arbitration. The Court accepted that arbitration policy was relevant, but held (at [110]):

“Legislative support for arbitration does not immunise every arbitration clause from generally applicable statutory protections concerning the circumstances and contractual setting in which the clause operates. Nor does the absence of a procedure analogous to Pt IVA from the uniform arbitration legislation amount to a legislative direction that the practical consequences of an arbitration term are irrelevant to the separate statutory inquiry required by s 12BG.”

Key takeaways: practical observations for businesses and practitioners

The Plus500 User Agreement predated the UCT penalty regime that commenced on 9 November 2023. Under the current regime, proposing, applying, or relying on an unfair term in a standard-form consumer or small-business contract attracts civil penalties, in addition to the term being declared void. An unfair arbitration clause in a standard-form consumer contract therefore carries the risk of a substantial civil penalty, presents a regulatory risk (ASIC and the ACCC are empowered to take action), and a class-action risk, not merely the risk of unenforceability.

The following practical guidance emerges from the decision, particularly for in-house counsel. 

• Audit dispute resolution clauses. Review all standard form consumer and small business contracts for arbitration, class action waiver, exclusive jurisdiction and/or other forum-restricting clauses and reassess them with a UCT lens.
   
• Stress-test the economics. Model the cost of the dispute resolution mechanism provided for in the standard user agreement against the realistic size of customer claims. If arbitration is impractical for a significant portion of likely disputes, the clause is vulnerable to being voided.
   
• Do not rely on facial symmetry of contractual arrangements. A facially mutual clause may still create a significant imbalance where the business holds self-help remedies and has no history of suing customers. Go beyond the formal, facial symmetry of the relevant clauses and assess the relative effect of the term on the parties. 
   
• Identify consequences prominently. If an arbitration clause is retained, explain its practical consequences in plain language (on a summary page or in a separate acknowledgement) and consider who bears the costs of arbitration.
   
• Consider less restrictive alternatives. An exclusive jurisdiction clause, or one preserving access to court and small claims, may better protect legitimate interests without triggering UCT concerns.
   
• Document the business rationale. The business bears the onus on establishing reasonable necessity. Maintain contemporaneous evidence of why the chosen dispute resolution mechanism included in the user agreement is needed.
   
• Note the open unconscionability question. The s 12CB issue remains unresolved; so be aware that a clause cleared of UCT risk is not necessarily free from unconscionability challenge.

Conclusion

Plus500 confirms that courts applying the UCT regime will assess how contractual terms operate in practice on consumers, not their formal architecture, and that class actions are now a live vehicle for UCT challenges. For contracts made or renewed since 9 November 2023, the same clause could also carry penalty exposure. Businesses should act now to review and, where necessary, restructure their standard-form terms, particularly their dispute-resolution frameworks.