Monday, 30 April 2018

Enforceability of Arbitration Clauses that are also Forum Selection Clauses

        In the recent case of Heller v Uber, [2018] O.J. No. 502, an Uber driver commenced a proposed class action for a declaration that Uber drivers are employees and are thus entitled to the protection of the Employment Standards Act.  The contract between Uber and its drivers stipulates that disputes are to be resolved by arbitration, specifically in Amsterdam, the Netherlands,  under the Rules of Arbitration of the International Chamber of Commerce. The clause in Heller was in effect a combination of an arbitration clause and a forum selection clause.   The Ontario Superior Court of Justice stayed the proceeding after finding the arbitration clause is valid.   Unfortunately, the Court did not look closely at the forum selection aspect. 

         First, some background about the case.  After determining that the applicable statute is the International Commercial Arbitration Act, 2017 (as opposed to the Arbitration Act, 1991), Perell J. analyzed in some detail whether Heller was bound by the arbitration clause.  The Court observed that “absent legislative language to the contrary, courts must enforce arbitration agreements”  (para. 64).*   He also noted that the question of whether the arbitrator has jurisdiction over the dispute is itself to be decided, at first instance, by the arbitrator.   The Court then considered whether any exceptions to referral to arbitration apply, chiefly whether such referral is null and void on the ground of unconscionability.  Finding no exceptions were applicable, the Court found the clause was enforceable.   

          But what about the forum selection part of the clause?   The Supreme Court of Canada in Z. I. Pompey  v ECU Line  (2003), 224 D.L.R. (4th) 577 held that courts have discretion to not enforce  an otherwise valid forum selection clause if “strong cause” is shown.  Strong cause factors include inequality of bargaining power and the impact of the clause on the parties.  Unconscionability is just one of several factors.    There was no denying that Uber’s contract was not negotiable.   Having to go to the Netherlands -- where Uber’s legal team is based – could cause financial hardship for drivers; Mr. Heller earns $400 -  $600 per week based on 40 -50 hours of work per week.  The hardship would be greater still if, as is likely, the driver must pay for a local lawyer to go to the Netherlands. Mr. Heller cited Douez v Facebook [2017] S.C.J. No.23, in which the Supreme Court of Canada held a forum selection clause requiring disputes to be litigated in California was unenforceable in light of, among other things, the significant imbalance in bargaining power between Facebook and its users.  

           Perell J. distinguished Douez, saying Heller “is not about a discretionary court jurisdiction where there is a forum selection clause to stay proceedings” (para. 77).    However, the fact the arbitration clause is enforceable does not automatically mean the forum selection aspect is also enforceable.  The statutes and cases the court cited in support of its ruling in favour of the referral to arbitration do not say that the law regarding arbitration clauses prevails over the law regarding forum selection clauses.     Novatrax International v. Hagele Landtechnik (2016) 132 O.R. 3d) 481 involved a clause that said the parties are to settle any disputes by binding arbitration in Frankfurt, Germany. The defendants had moved, successfully, to stay the action in light of the aforementioned forum selection clause.  The Court of Appeal treated the clause as a forum selection clause and considered the “strong cause” analysis as set out in Pompey.  In fact, both sides agreed that the governing principles are those set out in Pompey (para. 5).  The Court of Appeal upheld the motion court’s stay.

          Unfortunately for Heller,  it does not appear that he argued that the Uber clause was a forum selection clause as well as an arbitration clause, and that the Pompey strong cause test applies.  This test gives the court broader discretion to refuse to enforce the forum aspect of the clause and have the arbitration done in Ontario.  Incidentally, Uber indicated during argument that the arbitration could be arranged in Ontario (footnote 39).   Doing so would likely be very helpful to Heller.   However, the Court did not consider having the case arbitrated in Ontario.    It simply ruled that “the action is stayed in favour of arbitration”.    There will likely be an appeal. Let’s see if the forum selection strong cause argument comes up then. 

*As well, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has the force of law in Ontario pursuant to s. 2 of the ICAA, states at Article II, para. 3:  “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

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