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Arbitration - Competence-Competence (2). Lochan v. Binance Holdings Limited
In Lochan v. Binance Holdings Limited (Ont CA, 2024) the Ontario Court of Appeal dismissed a defendant cryptocurrency operation's appeal, here from an order "dismissing its motion for a stay of proceedings in favour of arbitration, pursuant to s. 9 of the International Commercial Arbitration Act 2017".
Under the accepted competence-competence arbitration principle, a dispute over the arbitrator's contractual jurisdiction would be resolved by the arbitrator, with exceptions - here the exceptions of public policy and unconscionability:[15] First, the appellant argues that the motion judge erred in holding that an arbitration clause being contrary to public policy is an independent ground for an Ontario court to take jurisdiction and refuse a stay in favour of arbitration. In making this argument the appellant placed emphasis on the recent British Columbia Court of Appeal decision in Spark Event Rentals v. Google LLC, 2024 BCCA 148. The appellant argues that the motion judge went straight to considering whether the arbitration clause was void as contrary to public policy without first considering whether an exception to the competence-competence principle applied that would justify an Ontario court deciding whether the arbitration clause was void for public policy reasons, rather than allowing the arbitral tribunal to first consider the validity of the arbitration clause.
[16] Spark does not add anything to the analysis from Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801, and Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118. In Dell and Uber, the Supreme Court of Canada held that, in general, challenges to an arbitral tribunal’s jurisdiction should first be decided by the arbitral tribunal – what is known as the “competence-competence” principle. Before a domestic court can entertain arguments that an arbitration clause is void for reasons such as unconscionability or being contrary to public policy, it must first be satisfied that the circumstances fall within an exception to the application of the competence-competence principle to justify the domestic court deciding whether the arbitration clause is void, rather than allowing the arbitral tribunal to first decide the issue: Dell, at para. 84.
[17] Dell considered the exception to the competence-competence principle for cases where the jurisdictional issue depends on a question of law alone or where questions of mixed fact and law require only a superficial consideration of the documentary record: Dell, at paras. 84-85. Uber discussed the Dell framework and also considered the exception to the competence-competence principle for cases where impediments exist that functionally prevent a party from bringing a matter to arbitration such that, if the issue of validity of the arbitration clause is left to the arbitral tribunal, there is a real prospect that it will never be resolved by the arbitral tribunal. In Uber, the issue was high fees and inability, due to cost, to reach the place of arbitration. The concern underlying the Uber exception to the competence-competence principle is to address cases where an arbitration clause is effectively insulated from meaningful challenge. This is referred to in some of the jurisprudence as the “brick wall” framework: Uber, at paras. 32-40, 44-46.
[18] In Spark, the party resisting a referral to arbitration argued that where a party challenges the validity of an arbitration agreement on the basis that it is contrary to public policy, the party is not required to first meet the threshold of showing circumstances justifying an exception to the competence-competence principle: at para. 42. The British Columbia Court of Appeal rejected this argument. Consistent with Dell and Uber, the court held that before a domestic court can consider whether an arbitration clause is void, such that a matter should not be referred for arbitration, it must first consider the threshold question of whether an exception to the competence-competence principle applies which would justify the domestic court deciding the validity of the arbitration clause, rather than the arbitral tribunal: Spark, at paras. 43-48. The respondents do not dispute this proposition.
[19] The motion judge’s approach was consistent with Spark, Dell, and Uber. The appellant’s first argument fails because the motion judge did not go straight into the public policy analysis. Rather, as the jurisprudence provides, he first considered whether an exception to the competence-competence principle applied to justify an Ontario court deciding whether the arbitration clause was void as contrary to public policy or on the basis of unconscionability. . Difederico v. Amazon.com, Inc.
In Difederico v. Amazon.com, Inc. (Fed CA, 2023) the Federal Court of Appeal considers (and dismisses) an appeal involving the application of an international arbitration forum selection clause, here in a class action context of Competition Act [s.45 and 46] allegations of price-fixing. The central issue is whether the transaction were consumer or commercial.
In these quotes the court considered the arbitral competence-competence principle:(ii) The Competence-Competence Principle
[33] Historically, courts in Canada were reluctant to give way to arbitration and more specifically to the competence-competence principle, which, as noted earlier, mandates that any challenge to an arbitrator’s jurisdiction be decided by the arbitrator, not the courts. In essence, courts traditionally viewed the application of the competence-competence principle as favouring the autonomy of arbitration and thereby restricting their jurisdiction to judicially intervene in arbitration processes.
[34] The adoption of the New York Convention through the UNFAACA and of the UNCITRAL Model Law through the CAA paved the path for Canada to curb the historical reluctance to recognize arbitration in favour of becoming an “arbitration friendly” country. Indeed, several provinces followed suit and the Supreme Court of Canada, through a series of seminal decisions, enshrined the acceptance and implementation of international law on arbitration and the competence-competence principle in particular throughout the country: Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178 (Desputeaux); Seidel v. TELUS Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531 (Seidel); Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801 (Dell); TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 S.C.R. 144; Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118 (Uber).
[35] It is now well-established that Canadian courts will only consider challenges to the jurisdiction of an arbitrator or the enforceability of an arbitration agreement where such challenges raise a pure question of law or a question of fact or mixed fact and law that only requires a superficial consideration of the record (Dell at paras. 84-86). These questions may go to whether the arbitration agreement is null and void, inoperative, or incapable of being performed, as stated in Article II(3) of the New York Convention, or, since Uber, invalid for being unconscionable. As such, cases involving an arbitration agreement will be systematically referred to arbitration, subject to one of these limited exceptions.
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