Heller v Uber in the SCC, Part 2: When Alternative Dispute Resolution is No Alternative At AllPosted August 5, 2020
Forms of alternative dispute resolution such as arbitration have grown increasingly popular as an alternative to court proceedings, and the time and publicity that accompany them. But what happens when a purportedly agreed form of alternative dispute resolution is no alternative at all? In this second instalment of our series on the Supreme Court of Canada’s (“SCC”) recent decision in Uber Technologies Inc. v Heller,1 we take a deeper dive into the decision’s arbitration-related implications.
We reviewed the facts, procedural history, and findings of the decision in our earlier overview blog post (which you can access here), so those details won’t be repeated here. Instead, let’s get right into the decision’s key arbitration issues.
Domestic vs. International Statutory Framework
Before addressing the merits of the motion before it, the SCC had to identify the statutory framework applicable to the underlying dispute. The parties disagreed on whether their dispute was governed by Ontario’s International Commercial Arbitration Act (“ICAA”),2 which (unsurprisingly) applies to international commercial arbitrations, or the Arbitration Act,3 which applies to all other Ontario arbitrations. The two statutes are exclusive: the Arbitration Act applies only to arbitrations to which the ICAA does not apply,4 such that a dispute can only be governed by one of them.
It’s important to identify which statute properly applies to a given dispute because there are differences between them, which can have a significant impact on how the arbitration looks and runs. For example, if the parties’ arbitration agreement does not specify the number of arbitrators that will hear the dispute, the Arbitration Act defaults to a single arbitrator,5 while the ICAA defaults to three arbitrators (if the parties cannot agree otherwise).6 Additionally, the Arbitration Act provides for a right to appeal an arbitral award on a question of law with leave,7 while the ICAA contains no appeal rights.
There are two key considerations that go into whether the ICAA applies to an arbitration: whether the arbitration is (1) international, and (2) commercial. Helpfully, the ICAA specifically sets out the circumstances in which an arbitration is “international”, which includes arbitrations where the parties had their places of business in different countries at the time they entered into the arbitration agreement, where the country in which the parties have their place of business is different from either the place of arbitration or the place with which the subject matter of the dispute is most closely connected, or where the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.8
Less helpfully, the ICAA does not define what makes an arbitration “commercial”. However, some guidance can be found in a footnote to the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), which the ICAA brings into force in Ontario. According to that Model Law footnote, the term “commercial” should be interpreted widely, covering matters arising from all relationships of a commercial nature, including “any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”9 Commentary on the Model Law has provided further context for what constitutes a “commercial” dispute, including specifically suggesting that labour and employment disputes are not considered to be commercial.10
Reviewing this commentary, the SCC determined that consideration of whether the “commercial” standard is met must be based on the nature of the parties’ dispute, rather than the nature of their relationship. Otherwise, the court would be required to undertake a more intensive fact-finding inquiry to adequately characterize the relationship, which could significantly slow down or halt an arbitration, as opposed to the pleadings-based analysis that would be sufficient to characterize the dispute. Looking to the dispute before it, the Court was satisfied that if employment disputes are not “commercial”, neither would be a dispute over whether someone is an employee (which was the key issue in the action). Because the parties’ dispute was not commercial, the domestic Arbitration Act was found to apply.
The Competence-Competence Principle and the Validity of an Arbitration Agreement
Having determined the applicable statutory framework, the SCC considered whether it should exercise its discretion to determine the validity of the parties’ arbitration agreement.
Pursuant to the “competence-competence” principle, arbitrators are considered competent to determine their own jurisdiction. In the presence of an arbitration agreement, courts typically stay court proceedings in favour of arbitration, even where there is a dispute as to the arbitrator’s jurisdiction and/or the validity of the arbitration agreement, out of respect for the arbitrator’s competence to determine those matters. However, courts retain a discretion to determine the validity of an arbitration agreement, as the Arbitration Act lists an invalid arbitration agreement as one of the grounds on which a court may refuse to stay a proceeding in favour of arbitration.11
In my earlier blog post on the Ontario Court of Appeal’s decision in this case, I expressed concern with the Court of Appeal’s distinction of issues of arbitral jurisdiction from issues relating to the validity of an arbitration clause, the latter of which it stated would not engage the competence-competence principle.12 That analysis failed to acknowledge or consider the Arbitration Act’s provision specifically empowering an arbitral tribunal to rule on objections with respect to the validity of an arbitration agreement as part of the tribunal’s power to rule on its own jurisdiction.13 Luckily, the SCC did not adopt or validate that approach.
Acknowledging the general application of the competence-competence principle, the SCC adopted a framework previously applied in the context of the British Columbia and Quebec arbitration regimes, which provided for two exceptions to arbitral referral: where a challenge to an arbitration agreement (1) raises pure questions of law, or (2) raises questions of mixed fact and law that require only superficial consideration of the evidence in the record. With reference to the circumstances of the case before it, the SCC created a third exception to the general rule of arbitral referral: where an arbitration is fundamentally too costly or otherwise inaccessible, such that staying the action in favour of arbitration would be tantamount to denying substantive relief. This third exception will apply where (a) assuming the pleaded facts to be true, there is a genuine challenge to arbitral jurisdiction, and (b) based on supporting evidence, “there is a real prospect that, if the stay is granted, the challenge may never be resolved by the arbitrator”.
The SCC found that this third exception applied to the case before it, such that it could properly exercise its discretion not to stay the proceeding in favour of arbitration. There existed a genuine challenge to the validity of Uber’s arbitration agreement: Mr. Heller asserted that the arbitration clause was void for imposing prohibitive, potentially unconscionable fees for initiating arbitration, which fees were embedded by reference in a contract of adhesion. Those same prohibitive fees created a real prospect that the genuine challenge might never be resolved, as Mr. Heller would be required to pay them before gaining access to an arbitrator to resolve his claims. The SCC therefore determined that it would resolve the issue of the validity of Uber’s arbitration agreement, rather than referring that issue to arbitration.
The SCC found Uber’s arbitration clause to be so onerous as to be unconscionable, and therefore invalid, based on the significant up-front fees to initiate arbitration, potential costs of travel to the Netherlands for an arbitration, and incorporation of those terms by reference in a standard form contract. The SCC’s analysis, and expansion of the contractual doctrine of unconscionability, will be unpacked in a future instalment of our series on this decision.
Looking Ahead: Access to Justice Wins the Day
The SCC’s decision in this case strikes a balance between recognizing the competence of arbitrators to determine matters of jurisdiction and validity arising from an arbitration agreement, and the need to preserve access to justice. By acknowledging the general application of the competence-competence principle, the SCC preserved the credibility of arbitration as an alternative avenue for the resolution of disputes. However, the SCC’s approach also acknowledged the access to justice risks that can materialize when onerous arbitration clauses are included in contracts of adhesion. The result in this case demonstrates the risks to a party that imposes an onerous arbitration structure onto a more vulnerable party, in hopes of discouraging the resolution of any disputes that may arise. In such circumstances, the arbitration clause is effectively a weapon that discourages arbitration, and cannot practically be considered an alternative form of dispute resolution.
Going forward, it will be interesting to see how courts apply the SCC’s new exception to the general application of the competence-competence principle. The SCC held that the test for the application of this exception should require only “some limited assessment of evidence”, and should not devolve into a mini-trial. However, parties to motions which raise this new exception may feel compelled to file substantial evidence to establish arbitration accessibility or a lack thereof, which could have the undesirable result of delaying the progress of an arbitration that should properly advance. Courts will need to be vigilant about hearing and determining motions based on this exception promptly, so as not to deprive arbitration of the efficiency that makes it such an attractive alternative to court proceedings.
- 2020 SCC 16.
- RSO 1990, c I.9.
- SO 1991, c 17, s. 2(1)(b) [Arbitration Act].
- Arbitration Act, s. 2(1)(b).
- Arbitration Act, s. 9.
- ICAA, Sch. 2, art. 10(2).
- Arbitration Act, s. 45(1).
- ICAA, Sch. 2, art. 1(3).
- UNCITRAL Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law on June 21, 1985, art. 1(1). fn. 2.
- United Nations Commission on International Trade Law, Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration: Report of the Secretary-General, U.N. Doc. A/CN.9/264, March 25, 1985, at p. 10.
- Arbitration Act, s. 7(2).
- Heller v Uber Technologies Inc., 2019 ONCA 1 at paras 39-40.
- Arbitration Act, s. 17(1): “An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.”