A court can depart from the rule of arbitral referral where a dispute would not be resolved if a stay of legal proceedings was granted
August 13, 2020
Uber Technologies Inc. v Heller 2020 SCC 16
Supreme Court of Canada W
agner CJ; Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer, SCJJ June 26, 2020
Reported by Faith Wanjiku
Statutes – interpretation of statutes – interpretation of the International Commercial Arbitration Act (ICAA) vis-à-vis the Ontario Arbitration Act (AA) – where the definition of commercial did not provide for employment disputes -whether employment disputes, in a transaction of an international nature, were governed by the International Commercial Arbitration Act (ICAA) of the Ontario Arbitration Act (AA) – International Commercial Arbitration Act, section 5(3).
Arbitration – stay of legal proceedings – rule of arbitral referral – challenge to arbitral referral – factors considered by the court – what amounted to a bona fide challenge to arbitral jurisdiction that only a court could resolve.
Contract Law – contracts of adhesion – principle of unconscionability – factors considered by the court – knowledge of a party’s vulnerability – what were the factors a court considered in order to determine that a contract between parties was unconscionable – whether knowledge of a party’s vulnerability in the contracting process was a necessary requirement to prove unconscionability of contract.
Arbitration – arbitration clause – validity of – unconscionability – mandatory clause in standard form contract between driver and multinational corporation requiring that disputes be submitted to arbitration in theNetherlands and imposing substantial up-front costs for arbitration proceedings – whether arbitration clauses in standard form contracts that required a party to pay high administrative fees to institute arbitration proceedings was unconscionable and thus invalid – whether arbitration clauses in standard form contracts that gave the impression that the designated law and place of arbitration was a foreign countrywere unconscionable and thus invalid.
Arbitration – arbitration clause – enforceability – public policy – where arbitration clause imposed substantial up-front costs for arbitration proceedings – whether an agreement clause in a contract that imposed high prohibitive fees to institute arbitration proceedings was unenforceable and thus violated public policy.
Arbitration – arbitration clause – doctrine of separability – where parties agreed to refer matters to arbitration – where a contract was found to be unconscionable – whether an arbitration clause in a contract was a separate and independent agreement.
Arbitration – stay of legal proceedings – remedies – where arbitration clause was invalid – conditional stay and severance – what were the remedies available to a court where an arbitration clause in a contract was marred with perceived unfairness?
The respondent (Heller) provided food delivery services in Toronto using the appellant’s (Uber’s) software applications. To become a driver for Uber, the respondent had to acceptthe terms of the appellant’s standard form services agreement. Under the terms of the agreement, he was required to resolve any dispute with the appellant through mediation and arbitration in the Netherlands. The mediation and arbitration process required up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. In 2017, the respondent started a class proceeding against the appellant in Ontario for violations of employment standards legislation. Uber brought a motion to stay the class proceeding in favour of arbitration in the Netherlands, relying on the arbitration clause in its services agreement with the respondent.
The respondent argued that the arbitration clause was unconscionable and therefore invalid. The trial court stayed the proceeding, holding that the arbitration agreement’s validity had to be referred to arbitration in the Netherlands, in accordance with the principle that arbitrators were competent to determine their own jurisdiction. The Court of Appeal allowed the respondent’s appeal and set aside the trial court’s order. It concluded that respondent’s objections to the arbitration clause did not need to be referred to an arbitrator and could be dealt with by a court in Ontario. It also found the arbitration clause to be unconscionable, based on the inequality of bargaining power between the parties and the improvident cost of arbitration. The appellants filed the instant appeal against the decision of the Court of Appeal.
- Whether employment disputes, in a transaction of an international nature, were governed by the Ontario International Commercial Arbitration Act (ICAA) or the Ontario Arbitration Act (AA).
- What amounted to a bona fide challenge to arbitral jurisdiction that only a court could resolve?
- What were the factors a court considered in order to determine that a contract between parties was unconscionable?
- Whether knowledge of a party’s vulnerability in the contracting process was a necessary requirement to prove unconscionability of contract.
- Whether arbitration clauses in standard form contracts that;were unconscionable and thus invalid.
- required a party to pay high administrative fees to institute arbitration proceedings; and
- gave the impression that the designated law and place of arbitration was a foreign country
- Whether an agreement clause in a contract that imposed high prohibitive fees to institute arbitration proceedings was unenforceable and thus violated public policy.
- When could a court depart from the rule of systematic referral to arbitration?
- Whether an arbitration clause in a contract was a separate and independent agreement.
- What were the remedies available to a court where an arbitration clause in a contract was marred with perceived unfairness?
Relevant provisions of the law
Ontario Arbitration Act Court intervention limited
6. No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:
1. To assist the conducting of arbitrations.
2. To ensure that arbitrations are conducted in accordance with arbitration agreements.
3. To prevent unequal or unfair treatment of parties to arbitration agreements.
4. To enforce awards.
7. (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.
(2) However, the court may refuse to stay the proceeding in any of the following cases:
1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment.
Held by majority:
- The parties’ dispute was fundamentally about labour and employment. The International Commercial Arbitration Act (ICAA) was not meant to apply to such cases. The ICAAand Arbitration Act (AA) were exclusive. If the ICAA governed the agreement, the AAdid not, and vice versa.Section 5(3) of the ICAA stated that the Model Law applied to international commercial arbitration agreements and awards made in international commercial arbitrations. The meaning of commercial in the section of the ICAA had to be the same as the meaning of commercial under the Model Law, as the latter stated that it applied to international commercial arbitration.
- An employment dispute was not covered by the word commercial. The question of whether someone was an employee was the most fundamental of employment disputes. It followed that if an employment dispute was excluded from the application of the Model Law, then a dispute over whether the respondent was an employee was similarly excluded. That was not the type of dispute that the Model Law was intended to govern, and thus it was not the type of dispute that the ICAA was intended to govern. It seemed unlikely that the drafters of the Model Law would have included such a thorough list of included commercial relationships and not considered whether to include employment. Employment disputes, in sum, were not covered by the ICAA. Therefore, the AAgoverned.
- The AA directed courts, on motion of a party, to stay judicial proceedings when there was an applicable arbitration agreement. However, a court had discretion to retain jurisdiction and decline to stay proceedings in five circumstances enumerated in section 7(2) of the Arbitration Act. Under the Dell Computer Corp. v Union des consommateurs,  2 S.C.R. 801(Dell) framework, the degree to which courts were permitted to analyse the evidentiary record depended on the nature of the jurisdictional challenge. Where pure questions of law were in dispute, the court was free to resolve the issue of jurisdiction. Where questions of fact alone were in dispute, the court had to normally refer the case to arbitration. Where questions of mixed fact and law were in dispute, the court had to refer the case to arbitration unless the relevant factual questions required only superficial consideration of the documentary evidence in the record.
- Although it was possible to resolve the validity of the appellant’s arbitration agreement through a superficial review of the record, the instant case also raised an issue of accessibility that was not raised on the facts in Dell and justified departing from the general rule of arbitral referral. As Dell itself acknowledged, the rule of systematic referral of challenges to jurisdiction requiring a review of factual evidence applied normally. The instant case was one of those abnormal times.
- The underlying assumption made in Dell was that if the court did not decide an issue, then the arbitrator would. As Dell stated, the matter had to be resolved first by the arbitrator. Dell did not contemplate a scenario where the matter would never be resolved if the stay were granted. That raised obvious practical problems of access to justice that the Ontario legislature could not have intended when giving courts the power to refuse a stay.
- One way (among others) in which the validity of an arbitration agreement could not be determined was when an arbitration was fundamentally too costly or otherwise inaccessible. That could occur because the fees to begin arbitration were significantly relative to the plaintiff’s claim or because the plaintiff could not reasonably reach the physical location of the arbitration. Another example might be a foreign choice of law clause that circumvented mandatory local policy, such as a clause that would prevent an arbitrator from giving effect to the protections in Ontario employment law. In such situations, staying the action in favour of arbitration would be tantamount to denying relief for the claim. The arbitration agreement would, in effect, be insulated from meaningful challenge. Those situations were not contemplated in Dell. The core of Dell depended on the assumption that if a court did not decide an issue, the arbitrator would.
- There were ways to mitigate the concern that made the overall calculus favour departing from the general rule of referring the matter to the arbitrator in those situations. Courts had many ways of preventing the misuse of court processes for improper ends. Proceedings that appeared vexatious could be handled by requiring security for costs and by suitable awards of costs. Further, if the party who successfully enforced an arbitration agreement were to bring an action, depending on the circumstances they might be able to recover damages for breach of contract, that contract being the agreement to arbitrate. Moreover, Dell itself made clear that courts could refer a challenge to arbitral jurisdiction to the arbitrator if it was a delaying tactic or would unduly impair the conduct of the arbitration proceeding. That provided an additional safeguard against validity challenges that were not bona fide.
- A court could determine there was a bona fide challenge to arbitral jurisdiction that only it could resolve by first, determining whether, assuming the facts pleaded to be true, there was a genuine challenge to arbitral jurisdiction. Second, the court had to determine from the supporting evidence whether there was a real prospect that, if the stay was granted, the challenge could never be resolved by the arbitrator. In those circumstances, a court could resolve whether the arbitrator had jurisdiction over the dispute and, in so doing, could thoroughly analyze the issues and record.
- Turning to the instant appeal, the respondent had made a genuine challenge to the validity of the arbitration agreement. The clause was said to be void because it imposed prohibitive fees for initiating arbitration and those fees were embedded by reference in the fine print of a contract of adhesion. Second, there was a real prospect that if a stay was granted and the question of the validity of the appellant’s arbitration agreement was left to arbitration, then the respondent’s genuine challenge could never be resolved. The fees imposed a brick wall between the respondent and the resolution of any of the claims he had levelled against the appellant. An arbitrator could not decide the merits of the respondent’s contention without those — possibly unconscionable — fees first being paid. Ultimately, that meant that the question of whether the respondent was an employee could never be decided. The way to cut that Gordian Knot was for the court to decide the question of unconscionability.
- Departing from the general rule of arbitral referral in those circumstances had beneficial consequences. It would prevent contractual drafters from evading the result of the case through a choice of law clause. A choice of law clause could convert a jurisdictional question that would be one of law (and which therefore could be decided by the court) into a question as to the content of foreign law, which would require hearing evidence in order to make findings as to the content of foreign law, something that one would not ordinarily have been contemplated in a superficial review of the record.
- Even though the instantcase could have been resolved based on undisputed facts, such an approach could not be sustainable in future cases. An approach to arbitral referral that depended on undisputed facts would invite parties to dispute facts. Were that standard to apply, unreasonably disputing facts would allow a party to evade any review of the merits, by use of an arbitration clause. There would be no negative consequence, in that context, to a party unreasonably disputing facts if it meant the stay in favour of arbitration would be granted. That differed significantly from the standard civil litigation context, where unreasonable disputes as to facts could be deterred by costs awards.
- Unconscionability was meant to protect those who were vulnerable in the contracting process from loss or improvidence to that party in the bargain that was made. Although other doctrines could provide relief from specific types of oppressive contractual terms, unconscionability allowed courts to fill in gaps between the existing islands of intervention so that the clause that was not quite a penalty clause or not quite an exemption clause or just outside the provisions of a statutory power to relieve would fall under the general power, and anomalous distinctions would disappear.
- The Canadian doctrine of unconscionability had two elements: an inequality of bargaining power, stemming from some weakness or vulnerability affecting the claimant and an improvident transaction. In many cases where inequality of bargaining power had been demonstrated, the relevant disadvantages impaired a party’s ability to freely enter or negotiate a contract, compromised a party’s ability to understand or appreciate the meaning and significance of the contractual terms, or both.
- A bargain was improvident if it unduly advantaged the stronger party or unduly disadvantaged the more vulnerable. Improvidence was measured at the time the contract was formed; unconscionability did not assist parties trying to escape from a contract when their circumstances were such that the agreement thenworked a hardship upon them. For a person who was in desperate circumstances, for example, almost anyagreement would be an improvement over the status quo. In those circumstances, the emphasis in assessing improvidence should be on whether the stronger party had been unduly enriched. That could occur where the price of goods or services departed significantly from the usual market price.
- Unconscionability, in sum, involved both inequality and improvidence. The nature of the flaw in the contracting process was part of the context in which improvidence was assessed. And proof of a manifestly unfair bargain could support an inference that one party was unable adequately to protect their interests. It was a matter of common sense that parties did not often enter a substantively improvident bargain when they have equal bargaining power.
- The court rejected the four-part test approach as that higher threshold required that the transaction was grossly unfair, that there was no independent advice, that the imbalance in bargaining power was overwhelming, and that there was an intention to take advantage of a vulnerable party. Unconscionability, moreover, could be established without proof that the stronger party knowingly took advantage of the weaker. Such a requirement was closely associated with theories of unconscionability that focused on wrongdoing by the defendant. But unconscionability could be triggered without wrongdoing.
- One party knowingly or deliberately taking advantage of another’s vulnerability could provide strong evidence of inequality of bargaining power, but it was not essential for a finding of unconscionability. Such a requirement improperly emphasized the state of mind of the stronger party, rather than the protection of the more vulnerable. The court’s decisions left no doubt that unconscionability focused on the latter purpose. Parties could not expect courts to enforce improvident bargains formed in situations of inequality of bargaining power; a weaker party, after all, was as disadvantaged by inadvertent exploitation as by deliberate exploitation. A rigid requirement based on the stronger party’s state of mind would also erode the modern relevance of the unconscionability doctrine, effectively shielding from its reach improvident contracts of adhesion where the parties did not interact or negotiate.
- The requirements of inequality and improvidence, properly applied, struck the proper balance between fairness and commercial certainty. Freedom of contract remained the general rule. It was precisely because the law’s ordinaryassumptions about the bargaining process did not apply that relief against an improvident bargain was justified.
- A standard form contract did not, by itself, establish an inequality of bargaining power. Standard form contracts were in many instances both necessary and useful. Sophisticated commercial parties, for example, could be familiar with contracts of adhesion commonly used within an industry. Sufficient explanations or advice could offset uncertainty about the terms of a standard form agreement. Some standard form contracts could clearly and effectively communicate the meaning of clauses with unusual or onerous effects.
- Unconscionability had a meaningful role to play in examining the conditions behind consent to contracts of adhesion, as it did with any contract. The many ways in which standard form contracts could impair a party’s ability to protect their interests in the contracting process and make them more vulnerable, were well-documented. The potential for such contracts to create an inequality of bargaining power was clear. So too was their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violated the adhering party’s reasonable expectations by depriving them of remedies. That was precisely the kind of situation in which the unconscionability doctrine was meant to apply.
- Applying the unconscionability doctrine to standard form contracts also encouraged those drafting such contracts to make them more accessible to the other party or to ensure that they were not so lop-sided as to be improvident, or both. In the instant appeal, there was clearly inequality of bargaining power between the appellant and the respondent. The arbitration agreement was part of a standard form contract. The respondent was powerless to negotiate any of its terms. His only contractual option was to accept or reject it. There was a significant gulf in sophistication between the respondent, a food deliveryman in Toronto, and the appellant, a large multinational corporation. The arbitration agreement, moreover, contained no information about the costs of mediation and arbitration in the Netherlands.
- A person in the respondent’s position could not be expected to appreciate the financial and legal implications of agreeing to arbitrate under ICC Rules or under Dutch law. Even assuming that the respondent was the rare fellow who would have read through the contract in its entirety before signing it, he would have had no reason to suspect that behind an innocuous reference to mandatory mediation under the International Chamber of Commerce Mediation Rules that could be followed by arbitration under the Rules of Arbitration of the International Chamber of Commerce, there lay a US$14,500 hurdle to relief. Exacerbating the situation was that those Rules were not attached to the contract, and so the respondent would have had to search them out himself.
- The arbitration clause, in effect, modified every other substantive right in the contract such that all rights that the respondent enjoyed were subject to the apparent precondition that he traveled to Amsterdam, initiate arbitration by paying the required fees and receive an arbitral award that established a violation of the right. It was only once those pre-conditions were met that the respondent could get a court order to enforce his substantive rights under the contract. Effectively, the arbitration clause made the substantive rights given by the contract unenforceable by a driver against Uber. No reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it.
- The unconscionability of the arbitration clause could be considered separately from that of the contract as a whole. Further support came from the severability clause of the Uber Rasier and Uber Portier agreements, and section 17(2) of the AA.
- Respect for arbitration was based on it being a cost-effective and efficient method of resolving disputes. When arbitration was realistically unattainable, it amounted to no dispute resolution mechanism at all.Based on both the disadvantages faced by the respondent in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause was unconscionable and therefore invalid.
Per Brown SCJJ (concurring)
- Contractual stipulations that foreclosed access to legally determined dispute resolution — that was, to dispute resolution according to law were unenforceable not because they were unconscionable, but because they undermined the rule of law by denying access to justice and were therefore contrary to public policy. The arbitration agreement between the appellant and the respondent did just that: it effectively barred the respondent from advancing any claim against Uber, no matter how significant or meritorious. In effect, it was not an agreement toarbitrate, but rather not to arbitrate. As a matter of public policy, courts would not enforce contractual terms that, expressly or by their effect, denied access to independent dispute resolution according to law. That obviated any need to resort to, and distort, the doctrine of unconscionability.
- Access to civil justice was a precondition not only to a functioning democracy but also to a vibrant economy, in part because access to justice allowed contracting parties to enforce their agreements. A contract that denied one party the right to enforce its terms undermined both the rule of law and commercial certainty. That such an agreement was contrary to public policy was not a manifestation of judicial idiosyncrasies, but rather an instance of the self‑evident proposition that there was no value in a contract that could not be enforced. Thus, the harm to the public that would result from holding contracting parties to a bargain they could not enforce was substantially incontestable.
- It would be the rare arbitration agreement that imposed undue hardship and acted as an effective bar to adjudication. Arbitration could require upfront costs, sometimes significant costs and far greater than those required to commence a court action. But those costs could be warranted considering the parties’ relationship and the timely resolution that arbitration could provide. Public policy should not be used as a device to set aside arbitration agreements that were proportionate in the context of the parties’ relationship but that one party simply regretted in hindsight.
- The arbitration agreement between the appellants and the respondent was disproportionate in the context of the parties’ relationship. The respondent, and only him, would experience undue hardship in attempting to advance a claim against Uber, regardless of the claim’s legal merit. That form of limitation on legally determined dispute resolution undermined the rule of law and was therefore contrary to public policy.
- Blue‑pencil severance was achieved by mechanically removing illegal provisions from a contract. In the instant case, there was no single component of the arbitration clause that was, on its own, illegal and that could be struck with a blue line.The agreement could very well embody not just the intention to arbitrate, but also the intention to prohibit either party from advancing claims valued at less than US$14,500. Barring such claims, however, in the context of the agreement between those parties, was precisely what made the arbitration clause illegal. It was therefore impossible to strike any illegal portion of the agreement without fundamentally altering the consideration associated with the bargain and doing violence to the intention of the parties. The only available remedy in response to the illegality identified was to find that the entire arbitration agreement was unenforceable. Any other remedy would require considerable distortion of the intention of the parties.
- The arbitration agreement between the parties effectively barred the respondent from accessing a legally determined dispute resolution thereby imposing undue hardship on the respondent and undermining the rule of law. The arbitration agreement was unenforceable.
Per Côté SCJJ (dissenting)
- The respondent’s arguments based on the doctrine of unconscionability and on the ESA raised questions of mixed law and fact which could not be decided on the basis of a superficial review of that evidence and should therefore be decided by the arbitrator. The testimonial evidence before the court was insufficient to support a finding that the Arbitration Clause was unconscionable. In addition, the Arbitration Clause was neither inconsistent with the Employment Standards Act, nor contrary to public policy.
- The doctrine of separability was one of the conceptual and practical cornerstones of arbitration law which played an important role in ensuring the efficacy and efficiency of the arbitration process. According to the doctrine, an arbitration clause should be analyzed as a separate agreement that was ancillary or collateral to the underlying contract. The Arbitration Act and the UNCITRAL Model Law codified one aspect of the doctrine, that was, the preservation of an arbitral tribunal’s jurisdiction to rule on the validity of the underlying contract on the basis that the arbitration agreement was to be treated as a separate and independent contract for such purposes. However, the separability doctrine had wider significance. More broadly, the doctrine held that an arbitration agreement was invalidated only by a defect relating specifically to the arbitration agreement itself and not by one relating merely to the underlying contract in which that agreement was found.
- The commitment to submit disputes to arbitration should be considered to be an independent agreement which was separate from the Service Agreement. Therefore, while the Choice of Law Clause and the Arbitration Clause appeared together in the Service Agreement, the Choice of Law Clause applied to the Service Agreement as a whole and had to be analyzed separately from the Arbitration Clause.
- In any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction had to be resolved first by the arbitrator. A court could depart from the rule of systematic referral to arbitration only if the challenge was based solely on a question of law or on a question of mixed law and fact that required only a superficial consideration of the documentary evidence. The court had to also be satisfied that the jurisdictional challenge was not a delaying tactic and would not unduly impair the conduct of the arbitration proceeding.
- Efforts to avoid the operation of the rule of systematic referral to arbitration reflected the same historical hostility to arbitration which the legislature and the court had sought to dispel. The simple fact was that the parties in the instant case had agreed to settle any disputes through arbitration; the court should not hesitate to give effect to that arrangement. The ease with which the Arbitration Clause was dispensed with on the basis of the thinnest of factual records that the doctrines of unconscionability and public policy were being converted into a form of ad hoc judicial moralism or palm tree justice would sow uncertainty and invite endless litigation over the enforceability of arbitration agreements. That was in fact what the Arbitration Act and the UNCITRAL Model Law were designed to avoid.
- The rule of systematic referral was based on the arbitral tribunal’s competence to rule on its own jurisdiction. Article 16(1) of the UNCITRAL Model Law and section 17(1) of the Arbitration Act both stated that the arbitral tribunal had competence to rule on objections with respect to the existence or validity of the arbitration agreement. The court should not create the exception to the rule of systematic referralthat would apply where an arbitration agreement was deemed to be too costly or otherwise inaccessible. If such an exception were to be created, it should not be applied on the basis of the record before the court. The rule of systematic referral was the product of an exercise of interpretation of the UNCITRAL Model Law. That meant that any exception to the rule had to also be a product of statutory interpretation.
- It was important to understand that arbitration was not litigation by another name. Rather, it was a substitute for the parties’ own ability to negotiate or to reach agreement through mediation and was not based on a transference or denial of court power. Courts retained an oversight role throughout the arbitration process and afterwards. Arbitration legislation and supporting doctrines such as the rule of systematic referral should not therefore be conceptualized as a limit on the supervisory jurisdiction of the courts. Instead, they should be seen as a positive reinforcement of the principle of party autonomy in that they required parties to an arbitration agreement to abide by their agreement.
- The threshold for a finding of inequality of bargaining power had been set so low as to be practically meaningless in the case of standard form contracts. That standard rather vague and illusorymight be open to abuse by a party to a standard form contract who chose to enjoy the benefits of the agreement as long as it suited them, but who then chose to rely on the opaque standard when called upon to honour an obligation which was not in their interest. That would be an unwelcome development, as it would undermine private ordering and commercial certainty, which were important considerations in the law of contracts.
- The point that it would not be clear to a person reading the Arbitration Clause that the selection of the ICC Rules meant that initiating the arbitration process would entail the payment of US$14,500 (approximately CAN$19,000) in fees had some force. However, individuals should be expected to be aware that any form of dispute settlement, including litigation in the courts, came with a price. A person could not read an arbitration clause and reasonably assume that the process would be free of charge. It had not been shown that the ICC fees were out of step with the cost of pursuing litigation — or of pursuing arbitration under a different set of rules — for a claim involving an amount equivalent to the unknown amount of the respondent’s claim. It was therefore difficult to accept the speculation that the respondent would have had no reason to suspect that fees of that magnitude were required.
- It was difficult to see how the drafter of a contract could anticipate the total of the fees to be paid in a non-institutional arbitration that would be conducted on an ad hoc basis under either the Arbitration Act or the International Act,which meant that it was hard to see how an arbitration clause in a standard form contract could possibly be drafted in a way that would satisfy the requirements of the unconscionability doctrine.
- Whether to restrict arbitration clauses in standard form contracts or not was a matter for the legislature. The doctrine of unconscionability approach taken was therefore inconsistent with the proper law-making role of the courts. It was the legislature, and not the courts, which was primarily responsible for law reform. Major changes in the law were best left to the legislature, because reform should be considered with a wider view of how the new rule would operate in the broad generality of cases. A court of law could not be in a position to appreciate the economic, social and other policy issues at stake.
- Concerns were heightened by the economic context of the instant appeal, which related to the contractual arrangements of businesses operating in what some have styled the sharing economy. Enterprises with business models similar to that of Uber and individuals in the respondent’s position were part of a vital and growing sector of Canada’s economy which could be stifled if the majority’s reduced threshold for inequality of bargaining power was adopted. That sector depended on standard form contracts that were agreed to electronically by businesses and the people who used their online platforms. Individuals in the respondents’ position could have reduced opportunities to generate income in that sector of the economy if businesses like the appellant could not be assured of certainty in their contractual arrangements, as certainty was essential for global business operations. The court was simply not in a position to know what the fallout from unconscionability doctrine approach might be.
- It was true that the UNCITRAL Model Law, the Arbitration Actand the ICC Arbitration Rules left the decision regarding the location of the proceedings to the arbitral tribunal, but there was no reason to presume that an arbitral tribunal would act arbitrarily and callously by compelling a party to travel overseas unnecessarily and at great hardship. There was good reason to assume otherwise. Therefore, there was no basis for assuming that the arbitral tribunal would require the respondent to travel to Amsterdam in order to participate in arbitration proceedings. Hearings, if any needed to be conducted, could reasonably be expected either to be held in Ontario or to be conducted remotely. Further, the court should take judicial notice of the fact that modern communications technology made it unnecessary for an Ontario resident to travel overseas in order to pay the ICC Fees or to make initial representations to the arbitral tribunal.
- The Arbitration Clause could not be impugned on the basis that the Place of Arbitration Clause would require the respondent to travel to a foreign jurisdiction in order to initiate a claim or to participate in the hearings, thereby incurring expenses, and any arguments to that effect could not stand. Therefore, there was no basis for concluding that the Place of Arbitration Clause favoured the appellant significantly at the respondent’s expense.
- In the instant case, the Choice of Law Clause was not dependent on arbitration being the parties’ chosen means to settle disputes. Despite the fact that the text of the Choice of Law Clause appeared in the same paragraph of the Service Agreement as the text of the Arbitration Clause, the two clauses had very different legal effects and should have been considered to be separate. Even if the separability doctrine did not apply, there was nothing unusual or offensive about a choice of law clause in an international contract. Uber was a company with global operations and was headquartered in the Netherlands. Its selection of Dutch law to govern the contract was merely an attempt at legal risk management designed to ensure a degree of certainty in its operations. For a company with global operations, that served a valid commercial purpose which courts should not interfere with lightly.
- Public policy concerns did not justify overriding the very strong public interest in the enforcement of contracts. The Arbitration Act and the International Act as strong statements of public policy favoured enforcing arbitration agreements. Deciding whether to submit disputes to arbitration or to pursue litigation in the courts involved trade-offs. In arbitration, the parties traded the procedural certainty of the courts and the opportunity to appeal an unfavorable decision for the procedural flexibility, expediency, and efficiency of arbitration. There was no guarantee that arbitration would always yield the correct decision, but the courts were equally unable to offer that guarantee. Deciding whether that trade-off was in the parties’ best interests lay with them, not with the courts.
- While it was often complementary to other legislative objectives, the pursuit of access to justice should not be permitted to overwhelm the other important objectives pursued by the Arbitration Act. The Act also pursued another important objective: it gave effect to party autonomy by permitting parties to craft their own dispute resolution mechanism through consensual agreement. Concluding that an arbitration agreement was invalid on public policy grounds without impeaching the parties’ consent to the agreement undermined another objective of the Arbitration Act of holding parties to their commitment to submit disputes to arbitration where they had agreed to do so.
- The pro-arbitration stance that had been taken by legislatures across Canada and which was embodied in the court’s jurisprudence supported a generous approach to remedial options which would facilitate the arbitration process. Two such options were:
- Ordering a conditional stay of proceedings and
- Applying the doctrine of severance.
- If the exceptions in section 7(2) of the Arbitration Actor article 8(1) of the UNCITRAL Model Law did not apply, the legislation directed a stay of the proceedings. A stay was mandatory in such circumstances, but the Arbitration Act and the International Act were silent as to what conditions, if any, could be imposed on the stay. However, section106 of the Courts of Justice Act provided that a court may stay a proceeding on such terms as it considered just. Although it would usually be unnecessary for a court to order a conditional stay, it could be appropriate to do so to ensure procedural fairness in the arbitration process. A court should be careful not to impose conditions which impinge on the decision-making jurisdiction of the arbitral tribunal. Nonetheless, in the period before the appointment of the arbitral tribunal, a condition which facilitated the arbitration process could protect the tribunal’s jurisdiction by ensuring that the parties were able to proceed with the arbitration.
- Courts hearing motions for stays and for referral to arbitration had ordered conditional stays in the past, such conditions supported one of the purposes of arbitration agreements and of modern arbitration legislation, that of proceeding with dispute resolution in a timely manner rather than delaying progress in the courts.Considering the respondent’s particular circumstances, the court would impose a condition that the appellant advance the filing fees to enable the respondent to initiate such proceedings. The decision as to who should ultimately bear those costs would be left to the arbitral tribunal.
- Conditional stays of proceeding with dispute resolution in a timely manner would be consistent both with the principle of party autonomy and with the legislature’s intent, because it would facilitate the arbitration process. As it would merely be an interim measure, it would not change the substantive rights and obligations of the parties pursuant to the Arbitration Clause. It would therefore be consistent with section 17(1) of the Arbitration Act and article 16(1) of the UNCITRAL Model Law, because it would leave the decision on the question of the validity of the Arbitration Clause to the arbitral tribunal.
- Compelling policy considerations supported a generous application of the doctrine of severance in cases in which the parties had clearly indicated an intent to settle any disputes through arbitration but in which some aspects of their arbitration agreement had been found to be unenforceable. Where doing so was practical, courts ought to strive to give effect to the parties’ intentions by severing unenforceable terms and referring the parties to arbitration.The doctrine of severance took two forms:
- notional severance and
- blue-pencil severance.
- Notional severance involved reading down a contractual provision so as to make it legal and enforceable. Blue-pencil severance consisted of removing the illegal part of a contractual provision. Whereas notional severance called for the application of a bright line test of illegality, blue-pencil severance could be effected where the court could strike out the portion of the contract it wanted to remove by drawing a line through it without affecting the meaning of the part that remained. In deciding whether to apply the doctrine of severance, a court ought to also consider whether it would be both commercially practical and consistent with the parties’ intentions for it to enforce the remainder of the arbitration agreement. Therefore, where the parties’ intention to submit disputes to arbitration was clearly established, applying the doctrine of severance would usually be consistent with their intentions.
- The practice in other countries was to sever unenforceable provisions while giving effect to the arbitration clause wherever possible. In the instant case, the parties’ commitment to submit disputes to arbitration was clear. The selection of the ICC Rules was neither contrary to public policy nor unconscionable, but, if it were so, the appropriate remedy would be for the court to apply blue-pencil severance and strike the selection of the ICC Rules, leaving it to the appellant and the respondent to agree on an arbitration procedure, or to the arbitral tribunal to decide how to proceed. The same would be the case for the Place of Arbitration Clause. That approach was more consistent with the parties’ intentions and with the legislature’s intent than simply holding that the entire arbitration agreement was invalid.
- If the parties were unable to agree on how to proceed, the Arbitration Act and the UNCITRAL Model Law contained detailed provisions to assist in the enforcement of an arbitration agreement where the parties were unable to agree on the details.
Appeal dismissed with costs to the respondent throughout.
Relevance to the Kenyan situation
Kenyan courts have been seen to promote arbitration by staying proceedings in order to promote alternative dispute resolution as provided for under article 159(2)(c) of the Constitution of Kenya, 2010. The Kenyan Arbitration Act of 1995 under section 6(1) provides that a court may stay proceedings and refer the parties to arbitration unless if finds-
- that the arbitration agreement is null and void, inoperative or incapable of being performed; or
- that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.
This is similar to the Ontario Arbitration Act that provides for exceptions to when a court may refuse to stay the proceeding under section 7(2). In the case of Niazsons (K) Ltd v China Road & Bridge Corporation Kenya  eKLR, the majority of the court held that an applicant for a stay of proceedings under section 6(1) of the Arbitration Act was obliged to bring his application promptly. The court would then consider three things, these were:
- whether the applicant had taken any steps in the proceeding other than the steps allowed by the section;
- whether there were any legal impediments on the validity, operation or performance of the arbitration agreement; and
- whether the suit indeed concerned a matter agreed to be referred to arbitration.
Validity of an arbitration agreement is one of the exemptions to issuing stay of proceedings in Kenya. Therefore, Kenyan courts cannot enforce unconscionable and invalid arbitration agreements which are marred with inequality of bargaining power and resulting improvident bargain. In the case of James Heather – Hayes v African medical and Research Foundation (AMREF)  eKLR, the court held that contracts were normally commenced by sober and willing parties. The contract of employment was standard form contract and a product of the employer which did not give the employee a chance to participate in its making. Parties were expected to execute contractual documents on their free will or else issues of duress and undue influence came to their rescue. It is worth noting that article 159 of the Constitution of Kenya, 2010 courts were continuously commanded to promote arbitration and other forms of alternative dispute resolution mechanisms and should by wary to hamper with the process of arbitration. Section 10 of the Arbitration Act provides that courts should only intervene as far as the law permitted. However, the words employed was intervene which connoted a form of justifiable intervention in law. This was reiterated in the case of Chania gardens Limited v Gilbi Construction Company and another  eKLR where the court held that where there was a valid arbitration clause, all issues falling within the jurisdiction of the arbitrator should be decided by a tribunal and the court should not intervene. The instant case also brings out a new exception to the rule of systematic referral to arbitration when applications are brought to stay legal proceedings that may be subject to an arbitration agreement, allowing the court to decide the matter when there is a real prospect that, if a stay is granted, the challenge may in fact never be resolved by the arbitrator.This is almost similar tothe Arbitration Act of Kenya, where section 6 (1) (a) provides that a court may refuse to stay legal proceedings and fail to refer the dispute to arbitration where the arbitration agreement is incapable of being performed. The Canadian judgment will definitely be jurisprudential when such a scenario emerges in the arbitration area of law. The instant case is also relevant to the Kenyan situation as the same business model exists in Kenya where the contractual arrangements in the sector are dependent on standard form contracts that are agreed upon electronically by uber drivers in Kenya. The case can guide Kenyan litigants in pursuing their claims.