Two Recent Decisions Affirm International Arbitration Clauses Will Be Enforced

Two recent decisions reinforce the willingness of Ontario courts to enforce arbitration clauses, apply the competence-competence doctrine and refer any disputes regarding an arbitrator’s jurisdiction to the arbitrator for resolution. The competence-competence doctrine is an internationally recognized principle that an arbitral tribunal has the power to determine its own jurisdiction. In Ontario, the doctrine has been enacted into both section 17(1) of the Arbitration Act, 1991 (OAA) and section 16 of the International Commercial Arbitration Act, 2017 (ICAA).

HELLER V. UBER TECHNOLOGIES INC. ET. AL.

This decision concerned the enforceability of an international arbitration clause in the context of a proposed class action against ride-sharing company Uber Technologies Ltd. (and related companies, together Uber). The plaintiff alleged that he and other drivers were properly employees and thereby entitled to certain rights and benefits under Ontario’s Employment Standards Act, 2000 (ESA).

The plaintiff’s contract contained a clause requiring any dispute be arbitrated under the Rules of Arbitration of the International Chamber of Commerce (ICC Rules) in the Netherlands. Prior to certification of the class action, Uber brought a motion to stay the action in favour of arbitration.

Justice Perell of the Ontario Superior Court of Justice rejected the plaintiff’s arguments that the clause was unenforceable and allowed the motion.

Uber argued that the plaintiff’s service agreement with the company was, on its face, a commercial agreement for lead generation services and the competence-competence principle required giving the arbitrator in the Netherlands the opportunity to resolve any jurisdictional challenges. Uber pointed to the fact that the ESA did not contain any explicit language prohibiting arbitration. In response, the plaintiff argued that it would be absurd to require individuals claiming employment rights to travel overseas and go through an expensive arbitration process. The plaintiff also argued that a prohibition on mandatory arbitration could be implied through the purpose of the ESA.

Justice Perell found that there was nothing in the ESA prohibiting referral of a question of an alleged employee’s status to arbitration. Citing the Supreme Court of Canada’s decision in Seidel v. TELUS Communications Inc., Justice Perell held that, absent explicit statutory language prohibiting arbitration, he was required to stay the action in favour of arbitration and allow the arbitrator to determine any jurisdictional disputes.

Justice Perell rejected the plaintiff’s argument that the arbitration clause was unconscionable, and therefore fell into one of the exceptions under either the ICAA or the OAA. Noting that, while there was an inequality of bargaining power, there was no evidence to conclude that Uber “preyed or took advantage of” the plaintiff or other drivers, or that the agreement was improvident. This decision could be subject to appeal.

TRADE FINANCE SOLUTIONS INC. V. EQUINOX GLOBAL LIMITED AND LLOYD’S UNDERWRITERS

This decision concerned the interpretation of two clauses in a trade credit insurance policy. The policy stipulated that “any dispute arising in connection with this contract” would be referred to arbitration in London, England and decided according to the laws of England and the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The policy also contained an “action against insurer” clause, which contemplated that service with respect to an “action to enforce the obligations of the underwriters” could be made in Montreal. The plaintiff policyholder brought an action in Ontario relating to a dispute over losses under the policy. The insurers moved to stay the proceeding in favour of the London arbitration.

The motion judge refused to stay the action. He found that the action against insurer clause was not a mere service of suit clause, but that the words were wider than that purpose and permitted dispute resolution by arbitration or litigation. On that basis, he concluded that the Model Law did not apply because its application was limited to situations where the parties agreed to arbitration as the sole method of dispute resolution.

The Ontario Court of Appeal (Court) overturned the motion judge’s decision and stayed the action in favour of arbitration. The Court found that the motion judge had misinterpreted the policy and that the action against insurer clause was at least arguably a service of suit clause. On the basis of the mandatory nature of the arbitration clause and the competence-competence principle, it was for the arbitral panel to determine whether the contract also allowed court proceedings in Ontario.

The Court also disagreed with the motion judge’s conclusion that the Model Law was only operative where arbitration was the sole method of dispute resolution. It held that so long as there is an agreement to submit certain disputes in a contract to arbitration, the Model Law applies.

Blakes represented the successful insurers.

DISCUSSION

These cases confirm that Ontario courts’ default position is to apply the competence-competence principle and enforce exclusive arbitration clauses in commercial contracts. Accordingly, unless it is clear that a dispute is outside the terms of the arbitration agreement or that the parties are not subject to the arbitration agreement, any dispute about the scope of an arbitration clause is likely to be left in the hands of the arbitral tribunal. Parties should pay careful attention to the terms of arbitration clauses contained in their agreements to ensure that the clauses properly reflect the parties’ goals and intentions.

For further information, please contact:

Holly Reid                                 416-863-5255
Ryan Morris                              416-863-2176
Rahat Godil                               416-863-4009
Skye Sepp                                416-863-3887

or any other member of our Arbitration group.

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