Arbitration – Consumer Contracts

1. When we recently reviewed a Singapore travel insurance policy, we noted that it provided for SIAC arbitrationⁱ as the Dispute Resolution process. While we generally support arbitration as an efficient means of resolving disputes, we were somewhat surprised by this choice, given that the parties purchasing this cover would typically be consumers – individuals, who in most jurisdictions, benefit from additional statutory protections. Although it is relatively uncommon, shipping services can also be provided to consumers, and therefore the purpose of this article is to examine the circumstances in which an arbitration clause in a consumer contract would be considered valid.
2. Consumersⁱⁱ have considerable weaker bargaining powers such that various jurisdiction have legislated acts such as the Consumer Protection Act to balance this. In this regard, S6 of the Singapore Consumer Protection (Fair Trading) Act 2003 permits a Consumer a right of action in the courts. While it does not automatically invalidate arbitration clausesⁱⁱⁱ, courts may scrutinize arbitration clauses to determine as to whether they deprive access to affordable and effective justice? The Singapore Unfair Contract Terms Act 1977, does provide some protection to consumers including the validity of exclusion clauses (S 2) which depends on the contractual terms being reasonable. What is reasonable is defined in the same act (S 11).
3. The application of an arbitration clause in a consumer contract was recently considered in the Australian Courts in the case AghaeiRad v Plus500 Pty Ltd. The Federal court held that the arbitration clause was unfair such that relief under the Arbitration Act was refused. In particular, the court held that use of arbitration clauses in a consumer contract may result in denial or limitation on access to justice^iv.
4. With respect to Travel Insurance policies (as mentioned in 1 above), the claim pursued would generally not be substantial and may be for smaller sums, say below SGD 3,000.00. Should a consumer wish to arbitrate as provided in the policy, they would have to initiate arbitration at SIAC and which would require the consumer to file the notice of arbitration as provided in Clause 6 of the SIAC Rules 2025^v. In addition, the consumer would have to factor in payment of the arbitrators’ fees. While low value claims would result in the application of the streamlined procedure as provided in Rule 13 of SIAC Rules 2025, we believe that the costs of pursuit would surpass the claim amounts being pursued for.  In such instances, arbitration would appear to be unfair such that the Arbitration Clause may be held invalid. Having said that, we would need to see whether any such challenge does flow into the Singapore Courts together with their eventual decision.
5. Contracts of Carriage: Some contracts of carriage of goods are made by consumers (for instance movement of Personal Effects or some specific item transported by an individual). In this case, would an arbitration clause incorporated in a Bill of Lading be held invalid? We submit that this would depend
   1. on whether the costs of arbitrating is substantial vis-à-vis the services/value of the products being transported?
      1. The common arbitration clauses in the shipping industry do provide for a Small Claims/Expedited procedure for low value claims and which caps both the arbitrator’s fees and costs.
      2. If these costs (as stated in i above) are lower than what would be incurred in the courts, then it would be difficult to challenge the application of arbitration as being the dispute resolution process based on reasonableness.
   2. Whether the courts would be willing to dispense or relinquish their inherent jurisdiction?
      1. A consumer would naturally choose the jurisdiction which allows them the maximum advantage to pursue their claim. In this regard, a consumer may choose to initiate action in the courts of the jurisdiction where they are based at and argue that the arbitration clause is invalid as it was not negotiated^vi and further due to potential denial of access to justice.
      2. Some jurisdictions now require parties to consider ADR (which includes Arbitration) in the first instance to resolve their disputes. In these jurisdictions, a Carrier may voluntarily agree for the arbitration to be seated^vii where the matter is being heard to convince the court that the matter must be arbitrated instead of litigated. While we have no anecdotal evidence, we submit that most of the Courts would consider this favorably as they (Courts) retain supervisory control of the arbitration.
6. Conclusion:
   1. Whether an arbitration clause would be valid in relation to a consumer contract would depend on many factors including whether conduct of the arbitration would result in denial of justice as was held in the Australian case.
   2. With respect to Shipping Contracts such as the Bills of Lading contracts, Carriers should volunteer for the arbitration to be seated where the consumer is based, and which may dispel any objections which the consumer or the Courts may have against the use of arbitration.

^i. See Clause 8 of the HLAS Policy wordings
^ii. Different laws define Consumer differently. Clause 2(1) of the Singapore Consumer Protection (Fair Trading) Act 2003 defines consumer as an individual who, otherwise than exclusively in the course of business
a. receives or has the right to receive goods or services from a supplier; or has a legal obligation to pay a supplier for goods or services that have been or are to be supplied to another individual.
S2(3) of the English Consumer Rights Act 2025 defines consumer as an individual acting for purposes that are wholly or mainly
outside that individual’s trade, business, craft or profession and
S2(7) of the Indian Consumer Protection Act 2019 defines consumer as any person…
^iii. When a party has initiated action instead of arbitrating as provided in the contract, the other party can seek a stay as provided in S 6 of the Singapore International Arbitration Act 1994 (which applies for International Arbitrations) and S6 of the Singapore Arbitration Act 2001. Similar provisions apply in almost all arbitration acts worldwide.
^iv. See Para 205-207 of the judgement. See also articles by Holding Redlich and Piper Alderman.
^v. This clause makes it a requirement for the payment of the Claim Filing Fee and which for a claim of SGD 3,000 would be SGD 3,800.00 – see https://siac.org.sg/siac-schedule-of-fees#Admin_Fees
^vi. A Liner Bill of Lading contract is an Adhesion contracts and which means that the terms are as proposed by the stronger party (in this case, the Carrier).
^vii. The seat of arbitration is the legal, not physical, “home” which determines the procedural law (lex arbitri), the court system with supervisory jurisdiction (including challenges to the award), and the nationality of the award. It is critical because it directly impacts the enforceability, neutrality, and efficiency of the proceedings. Accordingly, the courts in the seat would have the supervisory powers over the conduct of the arbitration.