Kaye v Nu Skin UK Ltd (Rev 1)

On an application for a stay under section 9 of the Arbitration Act 1996, an arbitration clause may be subject to the common-law rule that onerous or unusual terms must be fairly and reasonably brought to the other party’s attention. The rule applies to commercial contracts as well as consumer contracts. Whether a clause is onerous or unusual depends on the transaction, the parties, the clause’s practical effect and the notice given. Where those matters raise a real issue, the court should permit appropriate evidence and determine the issue at trial. Section 13(2) of the Unfair Contract Terms Act 1977 excludes a written agreement to submit disputes to arbitration from the Act, including associated terms specifying the arbitral seat.

Sophie Kaye appealed against District Judge Britton’s order of 24 March 2009 staying her contractual claim against Nu Skin UK under section 9 of the Arbitration Act 1996. The distributor agreement provided for mediation and, if necessary, binding arbitration in Utah. The appeal concerned whether the arbitration provision, particularly the Utah seat, had been incorporated or was fair and conscionable; whether Nu Skin was estopped by the statement that the agreement was governed by English law; and whether section 13(2) of the Unfair Contract Terms Act 1977 permitted scrutiny of the seat provision under section 3.

1. Appeal allowed in part. The appeal succeeded on the incorporation and fairness ground only. The matter was directed to be determined with the assistance of counsel.
2. Section 9(4) of the Arbitration Act 1996 requires a stay unless the arbitration agreement is null and void, inoperative or incapable of being performed. That obligation did not justify deciding the incorporation and fairness issues without further evidence.
3. The principle illustrated by J. Spurling Limited v Bradshaw [1956] 1 WLR 461 and developed in Interfoto Library Ltd v Stiletto Ltd [1989] 1 QB 433 applies to commercial agreements. An onerous or unusual term may require particular notice before it can be incorporated or enforced.
4. Relevant circumstances included the standard-form nature and complexity of the agreement, the parties’ relative experience, the distributor’s understanding of the available remedies, the practical effect and expense of Utah arbitration, the prevalence of such clauses, and the notice given of the clause and its effect. These matters disclosed a real issue requiring further evidence.
5. The judge was wrong to treat the commercial character of the transaction as excluding the Interfoto principle and to conclude that the words of the agreement resolved the issue.
6. The estoppel ground failed. English law was the proper law of the agreement, and there was no inherent inconsistency between that provision and the arbitration clause.
7. Section 13(2) of the Unfair Contract Terms Act 1977 applied to the arbitration clause considered as a whole. It therefore excluded consideration under the Act of both the agreement to arbitrate and the term specifying Utah as the seat.

• High Court (Chancery Division): The appeal from the order of District Judge Britton dated 24 March 2009 succeeded on the first ground only. Directions were to be made for determination of the incorporation and fairness issue.