On June 26, 2020, the Supreme Court of Canada (SCC) released its
decision in Uber Technologies Inc. v. Heller. The SCC
ruled in favour of the plaintiff, allowing him to proceed with a
class-action lawsuit in Ontario courts, rather than through a
foreign arbitration.
At issue was an arbitration clause in a standard form contract
that required claimants to pay a US$14,500 commencement fee and
specified that the place (or seat) of arbitration was the
Netherlands. The plaintiff, David Heller, sought to pursue a
proposed class action against Uber Technologies Ltd. (Uber) and
related companies seeking rights and benefits under Ontario's
Employment Standards Act, 2000 (ESA). Uber sought
to stay that class action on the basis that Mr. Heller's
contract with Uber required disputes to be submitted to the
International Chamber of Commerce (ICC) for mediation and, if
unsuccessful, to arbitration in the Netherlands.
A majority of the court held that the proposed class action should
not be stayed in favour of arbitration. The court's reasoning
provides guidance as to what types of arbitration and standard form
clauses will be enforceable.
ENFORCEABILITY OF ARBITRATION CLAUSES
A preliminary issue was whether Ontario's domestic
Arbitration Act, 1991 or the International Commercial
Arbitration Act, 2017 governed the parties' dispute. A
majority of the court held that this question should focus on the
nature of the parties' dispute, rather than the parties'
relationship, and found that the dispute at hand was fundamentally
about labour and employment and not a commercial dispute, meaning
the Arbitration Act, 1991 applied.
The court then turned to the underlying issue of who should decide
whether an arbitrator has jurisdiction: the courts or the
arbitrator/arbitral tribunal. The SCC reaffirmed prior
jurisprudence and the "competence-competence" principle
holding that courts should refer questions of arbitral jurisdiction
to arbitrators, unless the question is a pure question of law or of
mixed fact and law that requires only a superficial review of the
record and the court is convinced that the challenge is not a
delaying tactic or will not prejudice the recourse to
arbitration.
However, the majority added an additional exception. It stated
that courts may resolve a challenge to arbitral jurisdiction where,
assuming the facts pleaded to be true, there is a genuine challenge
to arbitral jurisdiction and a real prospect that, if the stay is
granted, the challenge may never be resolved by the
arbitrator.
On the facts of this case, the majority found that the question of
arbitral jurisdiction could be determined on a superficial review
of the record and that accessibility concerns - primarily, the
costs of arbitration - indicated that the issue should be decided
by the court.
UNCONSCIONABILITY IN STANDARD FORM CONTRACTS
The majority set out two elements that must be proven to establish that an agreement is unconscionable:
- An inequality of bargaining power between the parties
- An improvident bargain that unduly advantages the stronger party or unduly disadvantages the more vulnerable
The majority noted that a standard form contract does not, by
itself, establish an inequality of bargaining power, but it does
have the power to do so, particularly through choice of law, forum
selection and arbitration clauses.
In this case, the majority of the court found that the arbitration
clause was unconscionable. There was a clear inequality of
bargaining power between the parties, and the plaintiff could not
be expected to appreciate the financial and legal implications of
agreeing to arbitrate under ICC rules or Dutch law. These costs
also created an improvident bargain when compared with the
plaintiff's annual income and the disproportionately small size
of a potential arbitration award.
The SCC's ultimate finding was that the arbitration clause, in
effect, made the substantive rights provided by the contract
unenforceable by a driver against Uber.
IMPLICATIONS FOR ARBITRATION CLAUSES
The decision in Uber is unlikely to have a significant
impact on arbitration clauses in commercial contracts between
sophisticated parties. However, it does represent a significant
shift in the law as it relates to arbitration clauses in standard
form contracts between parties of unequal bargaining power, such as
those commonly used by participants in the gig economy. Canada
continues to be an arbitration-friendly jurisdiction, and
arbitration agreements freely entered into by commercial parties
will be enforced. However, the position of the majority of the
court was that respect for arbitration is based on it being a
cost-effective and efficient method such that both parties can
resort to it for resolving disputes. When arbitration is not
realistically accessible for a party, it provides no dispute
resolution mechanism at all.
As a result, it can be expected that challenges to the
"accessibility" of arbitration will become more common in
the context of standard form contracts between stronger and more
vulnerable parties. While arbitration clauses continue to be a
useful tool in contracts, this decision reinforces that care must
be taken in drafting such clauses to ensure they are enforceable.
Parties should consider including terms that clearly reflect that
arbitration will be accessible for both parties, such as capping
arbitration fees, explicitly specifying that hearings may take
place in a location other than the place or seat of arbitration,
allowing for telephone hearings or creating a tiered process based
on the size of claims.
Blakes appeared at the Supreme Court of Canada as counsel to
the Chartered Institute of Arbitrators (Canada) Inc. and the
Toronto Commercial Arbitration Society.
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