Brief notes on arbitration clauses in consumer contracts, illustrated by the Disney case: a US & Spain comparison

Introduction

A significant portion of economic transactions involving consumers is carried out through electronic means.[1] Adhesion contracts – in which the drafter unilaterally establishes the contractual terms and the consumer can only accept or reject them, with no scope for negotiation – are widespread in these transactions[2] and often presented as click-wrap or browse-wrap agreements.[3]

Despite the current ubiquity of these contracts, they seem to be rarely read. That, at least, was the conclusion of a 2017 study: for click-wrap agreements, 91% of the surveyed individuals clicked 'accept' without reading the terms and conditions.[4]

In parallel, e-commerce businesses are facing increased worldwide exposure to liability. In this context, some companies opt to include arbitration clauses in their contracts to avoid, where possible, cross-border litigation. While ADR mechanisms can offer an efficient, cost-effective means to resolve disputes, in certain matters, arbitration clauses can pose significant economic and logistical challenges for consumers, i.e. by requiring litigation in a distant forum or by implying higher costs compared to traditional litigation.[5]

This complex environment and somewhat paradoxical behaviour – with consumers accepting contract terms in a seemingly mindless fashion, while also clamouring for consumer protection – is the background to a case that addresses the legitimacy of business-to-consumer ('B2C') arbitrations and which has reverberated around the world.[6]

In November 2019, and like many others in the midst of the booming streaming market, an individual domiciled in the US signed up for a Disney+ free trial; to do so, he had to accept the company's terms and conditions. He provided this acceptance again in September 2023 when purchasing tickets to Disney World in Florida for himself and his wife.[7] On 5 October 2023, during a night out at one of the restaurants at Disney World, his wife – who had severe nut and dairy allergies – was exposed to an allergen and suffered fatal anaphylaxis.[8]

In February 2024, the customer filed a lawsuit against Walt Disney Parks and Resorts US ('Disney') and the restaurant under Florida's Wrongful Death Act, seeking damages exceeding USD 50,000. In May 2024, Disney filed a motion to compel arbitration and stay proceedings based on an all-inclusive arbitration clause embedded in the company's terms and conditions – the same terms and conditions that the customer had accepted twice before the facts leading to the dispute.[9]

Once news of Disney's motion spread on social media, the company was pilloried online; Disney ultimately withdrew its motion in August 2024.[10] In a brief statement to the BBC, a company representative stated that 'with such unique circumstances as the ones in this case, we believe this situation warrants a sensitive approach to expedite a resolution for the family who have experienced such a painful loss. As such, we've decided to waive our right to arbitration and have the matter proceed in court.'[11]

However, Disney's decision not to seek enforcement of the arbitration clause ultimately left the question of enforceability unanswered. This is precisely the question that this article addresses from a US and Spanish perspective: whether including an arbitration agreement in the contract terms and conditions is sufficient to enforce it against a consumer. As the reader might expect, the answer ultimately depends on the specific jurisdiction.

The United States

US courts have recently upheld B2C arbitration clauses in several notable decisions based on the Federal Arbitration Act ('FAA').[12]

In September 2022, the Nevada Supreme Court ruled in favour of Airbnb, which had sought to enforce an arbitration clause in a wrongful death lawsuit brought by the estate of a man killed at an Airbnb rental.[13] The Nevada Supreme Court cited Henry Schein, Inc. v Archer & White Sales, Inc., a case in which the US Supreme Court unanimously decided that 'a court has no power to determine the arbitrability of a dispute where the contract delegates the arbitrability question to an arbitrator, even if the argument that the arbitration agreement applies to the dispute is “wholly groundless"'.[14]

The US Supreme Court's ruling in Marmet Health Care Ctr., Inc. v Brown,[15] another wrongful death case, also illustrates the strong federal policy favouring arbitration in consumer contracts. After the West Virginia Supreme Court of Appeals had ruled that the FAA does not apply to wrongful death claims on the basis that, strictly speaking, such disputes do not arise from contracts or transactions (i.e. torts are not generally bargained for), the US Supreme Court held that the FAA does not permit such exceptions and merely 'reflects an emphatic federal policy in favor of arbitral dispute resolution.'[16]

Arbitration agreements were also upheld in AT&T Mobility LLC v Concepcion,[17] Compucredit Corp. v Greenwood,[18] Directv, Inc. v Imburgia[19] and, most recently, by the United States District Court for the Central District of California in Maynez v Walmart,[20] despite the underlying legal reasoning differing in each case.

As a final point, it should be noted that, despite the US courts' position on this matter just described, this stance is not without its critics.[21]

In any case, in light of the foregoing – and in the absence of a forceful backlash – it would not have been surprising had the court stayed proceedings until arbitration had taken place.[22]

Spain (and a glimpse of other European countries)

Under Spanish law, consumer disputes are indeed arbitrable, but only through consumer arbitration – i.e. through the Consumer Arbitration System[23] – or specific institutional arbitration centres created by law.[24] Further, under the Consumer Arbitration System, pre-dispute arbitration agreements such as the one in the Disney case are not binding on consumers, and issues involving any reasonable indications of criminal activity, intoxication, injury or, notably for this article, death, are excluded from its scope of application. Thus, in Spain the terms and conditions of the largest streaming companies do not include
arbitration clauses.

Article 90 of the Consolidated Text of the General Consumer Protection Law[25] establishes a clear rule regarding clauses on jurisdiction or applicable law established in B2C contracts,[26] whereby it deems unfair any 'submission to arbitration other than consumer arbitration, except where this involves institutional arbitration bodies created by law for a specific circumstance or sector'. The consequence of an arbitration agreement being deemed 'unfair' is that it will be void and unenforceable.[27]

This piece of legislation is the Spanish implementation of EU Directive 93/13/EEC[28] (the 'Directive'), which addresses unfair terms in consumer contracts, aiming to prevent significant power imbalances between consumers and sellers (or suppliers) and to ensure they can access ordinary judicial proceedings. The Directive establishes that a contractual term will not be binding on the consumer if it is deemed unfair.[29] The Annex to the Directive contains an indicative, non-exhaustive list of examples of terms that may be regarded as unfair. The list makes reference to clauses that have the purpose or effect of 'excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions'.[30] The interpretation of 'arbitration not covered by legal provisions' in the Directive has sparked debate in various European jurisdictions, which in turn has been largely shaped by how each EU Member State has implemented the Directive.

Similarly to the Spanish system, the French Civil Code establishes that domestic pre-dispute arbitration agreements involving a consumer are void.[31] In England and Wales, Section 91 of the Arbitration Act of 1996 establishes that arbitration agreements relating to claims of GBP 5,000 or less are automatically classified as unfair and are therefore unenforceable against consumers. For claims over GBP 5,000 involving B2C contracts, arbitration clauses may also be considered unfair under the Consumer Rights Act of 2015, which, prior to the UK's separation from the EU in 2020, implemented the Directive.[32]

German law, in contrast, permits arbitration clauses in B2C contracts, although it sets specific conditions in connection with the consumer's consent. Under section 1031 (1-3) of the German Civil Procedure Code, arbitration agreements are subject to specific formal requirements to ensure their enforceability – primarily that the arbitration agreement be in writing.[33] For consumer contracts, section 1031 (5) also requires that the arbitration agreement form part of a record personally signed by the parties or in an electronic format[34] and that it may not contain agreements other than those relating to the arbitral proceeding (preventing the inclusion of additional terms that might confuse or mislead the consumer), except if the agreement is recorded by a notary public.

The Court of Justice of the European Union ('CJEU') has also clarified essential aspects regarding the interpretation of the Directive, reinforcing the EU's approach to consumer protection. In Mostaza Claro v Centro Móvil Milenium SL,[35] concerning a mobile-phone service contract between a Ms Claro and Móvil, the CJEU held that, if domestic courts deem a pre-dispute arbitration clause to be unfair under the Directive, they must strike it down, even if the consumer did not allege its invalidity during the arbitration proceedings and only did so in the action for annulment.[36] The CJEU went further in Asturcom Telecomunicaciones, SL v Cristina Rodríguez Nogueira.[37] This ruling confirmed the Directive's status as EU public policy,[38] stating that enforcement of the final award must not be granted if a domestic court determines in its ex officio review that under the Directive the arbitration clause is unfair.[39]

Notably, the restriction or prohibition of certain arbitration agreements does not negate the potential advantages that properly structured arbitration can provide in certain B2C disputes. Spain's Consumer Arbitration System is a noteworthy example, offering a fast, cost-effective and accessible means of resolving conflicts. According to the Ministry of Consumer Affairs, 59,487 arbitration requests were filed in 2022 – more than double the 26,346 filed in 2021. Of these, 43,462 requests were accepted, while only 3,461 were rejected, clearly reflecting the growing trust in arbitration as a viable alternative to traditional litigation. In contrast, the Dispute Resolution (ODR) platform established in 2013 at the EU level as a 'single point of entry for consumers and traders' to out-of-court resolve disputes arising from online sales or service contracts[40] was discontinued on 19 November 2024 due to its low rate of effective dispute resolution and limited cost-effectiveness.[41]

Final remarks: what's on the horizon for B2C arbitration?

B2C arbitration is a complex and evolving field, marked by significant jurisdictional differences and efforts to strike a balance between consumer protection and business efficiency.

Looking ahead, compelling consumers to resolve disputes through traditional litigation may not always serve their best interests. Court proceedings can be lengthy due to the heavy workloads that courts face, and they may also be ill-equipped to handle cross-border disputes efficiently. Arbitration, on the other hand, has the potential to offer – especially when managed by reputable institutions – quicker and more frequently enforceable resolutions, particularly in cross-border contexts, where an arbitral award under the New York Convention may be easier to enforce than a foreign court's judgment.

However, arbitration is not always available for consumer disputes and depending on the jurisdiction its use in B2C contracts is subject to varying degrees of scrutiny regarding fairness, which creates a risk of awards being unenforceable, as seen in cases such as Asturcom.

Where allowed by law, businesses including mandatory arbitration clauses in their B2C contracts must draft them carefully in order to ensure they are enforceable, and particularly to ensure that the clause is fair to the consumer.

_____________________

[1] For instance, a 2023 report by UNCTAD revealed that global e-commerce sales surpassed USD 5 trillion, underscoring its role as a dominant force in modern economies ('United Nations Conference on Trade and Development, E-Commerce and Digital Economy Programme: Year in Review 2023' [2024] UN Doc. UNCTAD/DTL/ECDE/INF/2024/1).

[2] Prevalent in sectors such as financial services, telecommunications and insurance, these contracts establish the terms and conditions that govern B2C relationships on online platforms, including cloud-service agreements, e-commerce sales and subscription services for digital products such as news platforms and streaming services.

[3] Click-wrap agreements are where users are presented with the terms of use in a pop-up – or similar format – and requested to indicate their acceptance by clicking a button or ticking a box that contains wording such as 'I agree' before proceeding. Browse-wrap agreements, in contrast, assume user consent through their continued use of the website and do not require users to take any explicit action, with the corresponding terms made available to them via a hyperlink.

[4] 'Do we actually agree to these terms and conditions?' in Data Science W231 | Behind the Data: Humans and Values (2021) <https://blogs.ischool.berkeley.edu/w231/2021/07/09/do-we-actually-agree-to-these-terms-and-conditions/> accessed 23 December 2024.

[5] In some countries, and although this is outside the scope of this paper, these clauses also frequently include class-action waivers that can impact consumers' bargaining power.

[6] C. Morgan, H. Brady and J. Savile-Tucker, 'A Tale of B2C Arbitration: Insights from the Disney Case and Beyond', in Herbert Smith Freehills Digital TMT and Sourcing Notes Blog (2024) <https://www.herbertsmithfreehills.com/notes/tmt/2024-posts/A-tale-of-B2C-arbitration--Insights-from-the-Disney-case-and-beyond>; R. Reed, 'Does Signing up for Disney+ Mean You Can Never Sue the Walt Disney Company?', in Harvard L. Sch. (2024) <https://hls.harvard.edu/today/does-signing-up-for-disney-mean-you-can-never-sue-the-walt-disney-company/>; Z. Loutfi and A. Al Beldjilali-Bekkaïri, 'Disney's Motion to Compel Arbitration Pursuant to Arbitration Agreements Embedded in its Streaming Subscription Terms Reversed by a Maleficent-Like Change of Heart', in Daily Jus (2024), <https://dailyjus.com/world/2024/09/disneys-motion-to-compel-arbitration-pursuant-to-arbitration-agreements-embedded-in-its-streaming-subscription-terms-reversed-by-a-maleficent-like-change-of-heart>, all accessed 26 December 2024.

[7] However, and as the individual pointed out in his response to Disney's motion to compel arbitration, the 'My Disney Experience Terms and Conditions' inserted in the theme park tickets' purchase agreement did not include an arbitration provision.

[8] Z. Loutfi and A. Al Beldjilali-Bekkaïri, supra.

[9] C. Morgan, H. Brady and J. Savile-Tucker, supra.

[10] C. Weldon, 'The Scoop: Disney allows lawsuit to go ahead after social media backlash - PR Daily', in PR Daily (2024) <https://www.prdaily.com/the-scoop-disney-allows-lawsuit-to-go-ahead-after-social-media-backlash/>, accessed 26 December 2024.

[11] Z. Loutfi and A. Al Beldjilali-Bekkaïri, supra.

[12] See 9 U.S.C. s 2.

[13] Airbnb, Inc. v Rice, 138 Nev. Adv. Op. 65, U.S. (29 September 2022).

[14] Henry Schein, Inc. v Archer & White Sales, Inc., 139 S. Ct. 524, U.S., Judgment (8 January 2019).

[15] Marmet Health Care Ctr., Inc. v Brown, 132 S. Ct. 1201, U.S., Judgment (21 February 2012).

[16] Marmet Health Care Ctr., Inc. v Brown, 132 S. Ct. 1201, U.S., Judgment (21 February 2012); Buza, M. (2012). 'To Arbitrate or Not to Arbitrate? There is No Question' in Louisiana Bar Journal 60(3) (2018) <https://law.lsu.edu/experiential/files/2018/01/To-Arbitrate.pdf.> accessed 26 December 2024.

[17] AT&T Mobility LLC v Concepcion, 131 S. Ct. 1740, U.S., Judgment (27 April 2011).

[18] Compucredit Corp. v Greenwood, 132 S. Ct. 665, U.S., Judgment (10 January 2012).

[19] Directv, Inc. v Imburgia, 136 S. Ct. 463, U.S., Judgment (14 December 2015).

[20] Maynez v Walmart, Inc., 479 F. Supp. 3d 890, U.S.C.D. Cal., Judgment (14 August 2020).

[21] A group of legal scholars considers that consumer contracts should be excluded from the scope of the FAA. See e.g. J. Sovern, 'The Federal Arbitration Act Should Not Cover Consumer Claims' in Colum. Law Sch. Blue Sky Blog (10 January 2024) <https://clsbluesky.law.columbia.edu/2024/01/10/the-federal-arbitration-act-should-not-cover-consumer-claims/> accessed 26 December 2024. Among other arguments, some authors reason that arbitration clauses dissuade consumers from filing claims, see AJJ Research 'The Truth About Forced Arbitration' (10 September 2019) <https://ssrn.com/abstract=3451316> accessed 26 December 2024, given that individual claims tend to involve nominal amounts and the consent that consumers give when agreeing to arbitration clauses is poorly informed, see R. Sommers, 'What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation' (25 July 2023). <https://ssrn.com/abstract=4521064> accessed 26 December 2024.

[22] See 9 U.S.C. s 3; Smith v Spizzirri, No 22-1218, slip op. at 1 U.S. (16 May 2024): 'When a district court finds that a lawsuit involves an arbitrable dispute and a party has requested a stay of the court proceeding pending arbitration, s 3 compels the court to issue a stay, and the court lacks discretion to dismiss the suit.'

[23] Spain's Consumer Arbitration System (Sistema Arbitral de Consumo), as outlined in Art 57 and 58 of the Consolidated Text of the General Consumer Protection Act (Texto Refundido de la Ley General para la Defensa de Consumidores y Usuarios – LGDCU), is a platform administered by the Spanish government for resolving B2C disputes without resorting to formal court proceedings, offering a voluntary, binding and enforceable process.

[24] Consolidated Text of the General Consumer Protection Act (Texto Refundido de la Ley General para la Defensa de Consumidores y Usuarios – LGDCU), Art 90 (1).

[25] Consolidated Text of the General Consumer Protection Act (Texto Refundido de la Ley General para la Defensa de Consumidores y Usuarios – LGDCU).

[26] Directive 93/13/EEC of the Council of 5 April 1993 on unfair terms in consumer contracts, Art 6(2).

[27] Consolidated Text of the General Consumer Protection Act (Texto Refundido de la Ley General para la Defensa de Consumidores y Usuarios – LGDCU), Art 83 (1).

[28] Directive 93/13/EEC of the Council of 5 April 1993 on unfair terms in consumer contracts.

[29] Directive 93/13/EEC of the Council of 5 April 1993 on unfair terms in consumer contracts, Art 6 (1).

[30] Directive 93/13/EEC of the Council of 5 April 1993 on unfair terms in consumer contracts, Annex, Section 1.q).

[31] French law differentiates between a pre-dispute arbitration clause, known as a clause compromissoire, and a compromis, which is an agreement to arbitrate entered into after a dispute has arisen; Art 2061 of the French Civil Code states that 'a pre-dispute arbitration clause must have been accepted by the party against whom it is invoked' and that 'when one of the parties has not contracted within the framework of their professional activity, the clause cannot be enforced against them' (In French: 'La clause compromissoire doit avoir été acceptée par la partie à laquelle on l'oppose, à moins que celle-ci n'ait succédé aux droits et obligations de la partie qui l'a initialement acceptée. Lorsque l'une des parties n'a pas contracté dans le cadre de son activité professionnelle, la clause ne peut lui être opposée').

[32] Consumer Rights Act of 2015, s 62, and Schedule 2, para 20.

[33] Section 1031 of the German Civil Procedure Code (Zivilprozessordnung - ZPO) refers to 'a document signed by the parties, or in letters, telefax copies, telegrams or other forms of communication exchanged between them that ensure documentary proof of the agreement'.

[34] Section 126 (a) of the German Civil Code (Bürgerliches Gesetzbuch- BGB) outlines the requirements for replacing the traditional written form with an electronic form in legal transactions, including the primary requirement that the electronic document bear a qualified electronic signature attesting to the authenticity and integrity of the agreement.

[35] CJEU, Case C-168/05, Mostaza Claro v Centro Móvil Milenium SL, Judgment (26 October 2006) ECR I-10421.

[36] B.Ulrich Graf and Arthur E. Appleton, 'ECJ Case C 40/80 Asturcom - EU Unfair Terms Law Confirmed as a Matter of Public Policy', (2010) 28 ASA Bulletin, p 413 <https://kluwerlawonline.com/journalarticle/ASA+Bulletin/28.2/ASAB2010041> accessed 26 December 2024.

[37] CJEU, Case C-40/08, Asturcom Telecomunicaciones SL v Rodríguez Nogueira, Judgment (6 October 2009) ECR I-9579. In this case the CJEU held that a domestic court hearing a claim for the enforcement of an arbitral award that has become final without the consumer's participation, is required by the Directive – as soon as it has the necessary factual and legal elements – to 'assess of its own motion whether an arbitration clause in a contract concluded between a seller or supplier and a consumer is unfair, in so far as, under national rules of procedure, it can carry out such an assessment in similar actions of a domestic nature'. If that is the case, it is for the domestic court to establish 'all the consequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause'.

[38] CJEU, Case C-168/05, Mostaza Claro v Centro Móvil Milenium SL, Judgment (26 October 2006) ECR I-10421, ¶ 52.

[39] Even though Asturcom was between two Spanish parties, the CJEU's ruling implies that analogous legal reasoning could well be applied to annul an arbitration clause in the case of a foreign arbitral award being enforced under the New York Convention. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958, Art V(2)(b), 330 U.N.T.S. 3 ('New York Convention').

[40] Established under Regulation 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes, O.J. (L 165) 1 (EU), amending Regulation 2006/2004 and Directive 2009/22/EC. <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0524> accessed 26 December 2024.

[41] Position (EU) No 1/2024 of the Council at First Reading, with a view to the adoption of a Regulation of the European Parliament and of the Council repealing Regulation (EU) No 524/2013, and amending Regulations (EU) 2017/2394 and (EU) 2018/1724 with regard to the discontinuation of the European Online Dispute Resolution Platform, C/2024/7271, O.J. (C 123) 4 <https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:C_202407271> accessed 26 December 2024.