Alternative dispute resolution (“ADR”) is another way to resolve a dispute instead of “going to court” (litigation). Litigation is often expensive and time consuming, and carries the risk of exposing business sensitive information through the public nature of the court system. A way to limit the risks of litigation in business relationships is by inserting an ADR clause into your contracts. This can be particularly useful for international contracts because the ADR clause can also set the place (i.e. city/country) that the mediation or arbitration will occur, reducing the costs of having to defend a contract or enforce rights against another party.
When agreements are mutually negotiated between parties of equal or similar bargaining power, there’s a good chance that an ADR clause will be upheld. However, when one party has much more bargaining power than the other and uses a standard form contract that can’t be negotiated, called a “contract of adhesion”, the court may examine certain clauses or the contract as a whole to determine if it’s unenforceable, and if so, refuse to enforce either the contract or the unfair clauses. This was the approach used by the Supreme Court of Canada last year in Uber Technologies v Heller (“Uber”).
In Uber, the court found that the terms of service agreement was a contract of adhesion, and that the ADR clause was unenforceable. The ADR clause required arbitration carried out in the Netherlands. This would have imposed such a burden on the plaintiff that it would have been impossible for the plaintiff to enforce the contract against Uber. The court refused to enforce the ADR clause.
The Uber finding was somewhat troubling, since the effect was a potential limit on the ability of parties to set the location of dispute resolution through a contract. This could mean that, for a website for example, a company could find themselves having to deal with legal issues in multiple jurisdictions to enforce the same contract.
However, since the events in Uber, Zoom has become a staple of the commercial world. Even many trials are now conducted over video conferencing software. This post-COVID reality was recognized in the recent Ontario decision in Kore Meals LLC v Freshii Development LLC (“Kore Meals”). Here the court recognized that the place that dispute resolution is to be held, whether ADR or traditional litigation, matters much less if the dispute resolution is to be carried out virtually.
In Kore Meals, Freshii Development LLC, (“Freshii”) a Chicago based subsidiary of the Toronto-based Freshii Inc., entered into a development agreement with Kore Meals, LLC (“Kore”), a Texas based company. The agreement contained an ADR clause that set out that any disputes were to be resolved by arbitration in Chicago. Kore initiated litigation in Toronto, and included Freshii’s parent in the suit. Freshii sought to rely on the arbitration clause, and Kore argued that arbitration in Chicago would be an artificial and inconvenient exercise.
After surveying the law on inconvenient forum, the court decided in favour of enforcing the arbitration clause, recognizing that “If hearings are held by videoconference, documents filed in digital form, and witnesses examined from remote locations, what is left of any challenge based on the unfairness or impracticality of any given forum? To ask the question is to answer it.”
COVID-19 has necessitated the acceleration of virtual hearings, but it has also shown that virtual hearings can be effective. Further, it has demonstrated that virtual participation can erase barriers created by distance and other factors, allowing for greater participation at lower costs. Kore Meals confirms that some form of virtual participation in ADR can overcome the objections raised in Uber. For those of us who draft these types of clauses the lesson is clear: inserting virtual participation language in an ADR clause can be key to ensuring these clauses remain enforceable and our clients continue to have the advantages that ADR can provide for dispute resolution.
If you need help with international contracts or other commercial agreements, contact me at Lerners Lawyers. We are here to make your business our priority.
 Kore Meals, para 29.