Warning! Arbitration ahead

When is arbitration unfair? This was the question determined toward the end of 2025 by Thawley J in AghaeiRad v Plus500AU Pty Ltd [2025] FCA 1602 (AghaeiRad).

What happened in this case?

Mr AghaeiRad was a casual investor/speculator who signed up to an online trading platform, Plus500 (Plus500), and subsequently lost around $100,000 through his trading activities. Believing that Plus500 was responsible for his losses, he joined a Federal Court class action against the platform.

When Mr AghaeiRad signed up to the platform, he accepted the terms and conditions contained in a User Agreement that included a domestic arbitration clause referring disputes to arbitration “in accordance with, and subject to, the Resolution Institute Arbitration Rules.”

It is worth noting that the Resolution Institute Arbitration Rules (Rules) do not stipulate that the arbitration will be administered by the Resolution Institute. Instead, the default under those Rules is a sole arbitrator who is authorised to determine the seat if it has not been stipulated in the arbitration agreement.

Plus500 applied to the Court for a stay of those proceedings in favour of arbitration, pursuant to section 8 of the Commercial Arbitration Act 2010 (NSW). Mr AghaeiRad resisted that application on various grounds, including that he was not aware of the arbitration agreement; that the dispute was a consumer dispute so not arbitrable; that the arbitration agreement (if it applied) was unfair for the purposes of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and that enforcement of the arbitration would be unconscionable within the meaning of section 12CB of the ASIC Act.

While he failed on most grounds, he succeeded on the last two, with the Court finding that the arbitration agreement was unfair and enforcing it would be unconscionable.  

Why was the arbitration agreement unfair?

In Australia, unfair contract terms are prohibited under the Australian Consumer Law and, for financial services, under the ASIC Act, which contains similar provisions.

Under section 12BF of the ASIC Act, a term is considered unfair if it:

• would cause a significant imbalance in the parties’ rights and obligations arising under the contract
• is not reasonably necessary to protect the legitimate interests of the party advantaged by the term
• would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

When deciding whether a term of a contract is unfair, a court may consider any relevant matters but must take into account the extent to which the term is transparent and the contract as a whole. A term is transparent if it is expressed in reasonably plain language, legible, clearly presented and readily available to any affected party. A term is presumed not to be reasonably necessary to protect the legitimate interests of the advantaged party unless that party proves otherwise.

In AghaeiRad, the Court reasoned that the arbitration agreement was unfair within the meaning of the legislation. This was because it:

• was not transparent – it did not convey its effect to customers in reasonably plain language or by clear presentation. The arbitration agreement was contained in a section of the User Agreement headed ‘Dispute Resolution’ and arbitration was not foreshadowed in the summary page at the start of the User Agreement. The Court observed that the arbitration agreement would have been significantly clearer had it been addressed separately. The User Agreement also failed to explain the significant practical effects of referral to arbitration and did not warn that such a clause would limit a party’s right to access a court or participate in a class action 
• caused significant imbalance in the parties’ rights and obligations under the contract – the Court concluded that the arbitration agreement prevented access to court and any class action. In doing so it noted the practical or actual effect of the arbitration agreement, not its face value symmetrical application (i.e. that Plus500 was also bound to arbitrate), saying that  “the practical effect of such a clause would be that no rational consumer would ever arbitrate, and the seller would [therefore] never be held to account”. Similarly, the Court noted the likely prohibitive cost of bringing arbitration under the agreement, saying that “the availability of arbitration [as a means to litigate] is [therefore] theoretical only for Mr AghaeiRad (and most other customers) because of the cost of arbitration relative to the (likely) value of a claim”.
• was not reasonably necessary – the arbitration term did not provide a fair means to resolve a typical complaint because no rational consumer would use arbitration in the circumstances
• would cause detriment – building on the above, the Court concluded that the agreement to arbitrate would deprive consumers of the ability to prosecute their claims in an appropriate court and the various advantages of class action procedures, where available.

Why would enforcing the arbitration agreement be unconscionable?

Mr AghaeiRad also argued that enforcement of the arbitration agreement would be unconscionable under section 12CB of the ASIC Act.

Section 12CC of the ASIC Act contains an extensive, but non-exhaustive, list of matters that the Court may consider when deciding whether conduct would be unconscionable.

Section 12CC of the ASIC Act contains an extensive, but non-exhaustive, list of matters the Court may consider when deciding whether conduct would be unconscionable. Such matters include bargaining powers, undue influence, disclosure, contract terms, good faith and whether the terms are reasonably necessary to protect legitimate interests. 

Considering the above factors, the Court found that the likely effect of enforcement of the arbitration term would be to deny or substantially limit access to justice. Thawley J also accepted that, if the proceedings were stayed and referred to arbitration, it was unlikely that a litigation funder would fund Mr AghaeiRad’s claim (or other claims) in the unlikely event that other group members would be prepared to take their claims to arbitration, with or without their own litigation funding.

Thawley J concluded that “Plus500’s contentions to the contrary to be divorced from practical reality” and that:

 “it is one thing for commercial parties to negotiate and agree that disputes be submitted to arbitration to the exclusion of courts; it is another for a standard form contract directed to consumers who are unlikely to read the agreement to incorporate a term the effect of which is to prevent any court proceeding, including class actions. A more transparent dealing with ordinary consumers of financial services at risk of losing substantial sums of money through a platform said to provide investment opportunities would involve being open and direct about the User Agreement containing an arbitration term, the enforcement of which would prevent any court proceeding the customer might wish to bring, including a representative proceeding.”

Considerations for arbitration practitioners

While the decision will produce considerable debate within the Australian arbitration community, it is not entirely unexpected. While this issue may not have been litigated previously in Australia, the perceived use of arbitration to frustrate (particularly) consumer and employment claims has been controversial in Canada and the US.

From Thawley J’s observations, it appears possible that the arbitration agreement may have been enforced had it been more expressly articulated in the terms and conditions, along with the caveats that the existence of the arbitration agreement precluded or limited access to the court and class actions – better drafting might have gone a long way.   

Other issues likely to foster discussion include:

• how the decision sits with the ‘pro-arbitration’/limited curial intervention environment created by the Commercial Arbitration Acts, particularly the ‘paramount object’ and otherwise mandatory stay
• the (apparent) absence of any evidence from the relevant institution, the Resolution Institute, including whether there had been any discussions of the efficient conduct of the references which could have included running one claim as a ‘test-case’
• the fact that the arbitration agreement appeared to adopt the Resolution Institute’s preferred and recommended wording
• the need for arbitration to be scalable, in the sense that disputes arising under particular contracts may be for small or large sums. In the former case, access to a low-cost (and perhaps locally based) ‘small claims’ procedure would be advantageous.     
• to the extent that inclusion of an arbitration agreement may in some cases amount to an unfair contract term for the purposes of section 24 of the Australian Consumer Law, that in itself may be an offence under section 224 of the ACL, and lawyers who draft such clauses for clients may separately be liable for penalty under section 224(1)(c) of the ACL.  

If you have any questions about this article or any arbitration clauses, please contact us here.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Geoff Farnsworth

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