CANADA

Matthew Latella and Christina Doria

A. LEGISLATION AND RULES

A.1      Legislation

International arbitration in Canada is, for the most part, a matter of provincial jurisdiction. Each province and territory has enacted legislation adopting the UNCITRAL Model Law, occasionally with slight variations, as the foundational law for international arbitration. Canada’s federal parliament has also adopted a commercial arbitration code based on the UNCITRAL Model Law, which is applicable when the federal government or one of its agencies is a party to an arbitration agreement or where a matter involves an area of exclusive federal jurisdiction under Canada’s constitution. In addition, each of the provinces and the federal government has adopted the New York Convention.

In March 2014, the Uniform Law Conference of Canada (the “ULCC”) released a final report and commentary with recommendations for a new Uniform International Commercial Arbitration Act (“Uniform Act”), updating Canada’s laws relating to international commercial arbitration in accordance with the 2006 UNCITRAL Model Law amendments. The ULCC has since adopted the amended Uniform Act, which is open for adoption into federal and provincial legislation.

To date, two Canadian provinces have adopted the 2006 amendments to the UNCITRAL Model Law, which offer a more flexible interpretation of some of the more rigid requirements of the New York Convention. In March 2017, Ontario was the first province to adopt the amendments with the International Commercial Arbitration Act[1] (“Ontario ICAA”). British Columbia followed suit in May 2018 by amending its own International Commercial Arbitration Act[2] (“BC ICAA”). Whereas Ontario attached the UNCITRAL Model Law as a schedule to the Ontario ICAA, British Columbia incorporated the 2006 amendments directly into the BC ICAA along with other developments, including a higher threshold for removing an arbitrator and broad powers for tribunals to grant interim measures and preliminary orders. Ontario and British Colombia are two of 32 jurisdictions worldwide that have incorporated the 2006 amendments to the UNCITRAL Model Law, and it is anticipated that Alberta will follow suit in 2020 or 2021.

The legal framework for investor-state arbitration in Canada is evolving. Canada is a party to 39 BITs, known as Foreign Investment Promotion and Protection Agreements, which contain investor-state arbitration provisions. In November 2018, Canada, the United States and Mexico signed the United States-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). Once ratified, USMCA will displace and significantly alter the provisions for investment arbitration that were contained in Chapter 11 of NAFTA. Canada is a party to the Canada-European Union Comprehensive Economic Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), both of which contain provisions for investment arbitration.

A.2      Institutions, Rules and Infrastructure

Canada remains a jurisdiction that strongly supports international arbitration, making major Canadian cities like Toronto, Vancouver, Calgary, Ottawa and Montreal a welcome “seat” of arbitration. Canadian organizations such as the Toronto Commercial Arbitration Society (“TCAS”), the Western Canada Commercial Arbitration Society (“WCCAS”) and Young Canadian Arbitration Practitioners (“YCAP”) are dedicated to the continued awareness and promotion of arbitration.

Canada is distinct in having a dual heritage of common law and civil law (in the province of Québec). Canada offers highly regarded international arbitrators and experienced arbitration counsel. It has excellent hearing facilities, quality interpretation and translation services, modern and efficient transcription services, and highly qualified experts. It also has a stable political system and reasonable visa entry requirements.

Local arbitration institutions in Canada include ADR Chambers, the ADR Institute of Canada (“ADRIC”), ICDR Canada, and British Columbia International Commercial Arbitration Centre (“BCICAC”). Canada has also attracted the presence of renowned international institutions, which have partnered with Arbitration Place, a hearing venue with resident arbitrators in Toronto and Ottawa. These include the Beijing Arbitration Commission / Beijing International Arbitration Center, the CPR, ICDR, the ICC International Court of Arbitration, ICC Canada and the LCIA.

B. CASES

B.1      Ontario Court of Appeal confirms arbitrator has jurisdiction to rule on his own jurisdiction

In Alectra Utilities Corporation v. Solar Power Network Inc.,[3] the Ontario Court of Appeal reinforced the bedrock principle that an arbitrator may rule on their own jurisdiction, known as the “competence-competence” principle. Before the lower court, the respondent successfully argued to have the judge set aside an award made under the Arbitration Act,[4] which applies to domestic arbitrations, on the basis that the award was made in excess of the arbitrator’s jurisdiction. However, applying the competence-competence principle, which exists in both Canadian domestic and international arbitration legislation, the Court of Appeal reinstated the award.

The dispute concerned Alectra’s termination of a purchase and management agreement (“PAMA”) with Solar Power. Pursuant to the PAMA, Solar Power was to finance the construction of solar power projects in Ontario. Solar Power commenced arbitration under the PAMA, challenging Alectra’s right to terminate the agreement and sought damages for lost profit resulting from the alleged breach of the PAMA. Alectra counterclaimed for recovery of amounts paid to the appellant.

The arbitrator found that Alectra had improperly terminated the PAMA and that under the agreement the arbitrator had jurisdiction to award damages for lost profits. As a result, the arbitrator awarded Solar Power $12.3 million in damages for lost profits.

Solar Power brought an application to the Superior Court of Justice to enforce the award and Alectra brought an application to set it aside. The key issue was whether the arbitrator had jurisdiction under the PAMA to award damages for lost profits. Alectra argued that in awarding damages to Solar Power, the arbitrator went beyond the scope of the agreement. Specifically, Alectra argued the court should set aside the award under section 46(1) 3 of the Arbitration Act, on the basis that the award “deal[t] with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.” The trial judge agreed with Alectra, finding the arbitrator’s award for lost profits was unreasonable and incorrect because the arbitrator was not authorized by the arbitration agreement to award lost profits.

Solar Power appealed, arguing that in setting aside the award the lower court erroneously turned a question of jurisdiction into a review of the merits of the arbitrator’s decision. Solar Power relied on the Ontario Court of Appeal’s decision in Mexico v. Cargill, Incorporated[5] (“Cargill”). The Cargill case concerned an international arbitration dispute under NAFTA, and stated that in resolving jurisdictional questions “the court is to avoid a review of the merits.”

The Court of Appeal in Alectra v. Solar Power overturned the lower court’s judgment and reinstated the arbitrator’s award in favor of Solar Power. The Court of Appeal stated that its authority to set aside an arbitration award is contingent on the:

“… mandate the arbitration agreement confers on the arbitrator to resolve a particular dispute … if an arbitration agreement provides that an arbitrator shall resolve a particular question and the arbitrator does so, the court has no authority to set aside the award on the basis that the arbitrator’s decision is unreasonable or incorrect.”

In delineating the difference between arbitral authority and reasonableness, the Court of Appeal further held that:

Once the application judge concluded that the arbitrator acted within the authority conferred upon him by the arbitration agreement, his task was at an end. It was for the arbitrator, not the court, to interpret and apply the substantive provisions of the PAMA, and it is of no moment whether the arbitrator did so reasonably or unreasonably, correctly or incorrectly. The decision was the arbitrator’s to make.”

Finally, the court held that although a jurisdictional question must be answered correctly by the courts, it “neither requires nor authorizes review of the substance of an arbitrator’s award.

This case is noteworthy, as it reinforces the deference Canadian courts afford decisions of arbitrators, whether made domestically or internationally. In Canada, international arbitration awards may only be set aside on very limited grounds.

B.2      Supreme Court of Canada holds business parties to their bargain to arbitrate, but consumers have a right to court proceedings

In TELUS Communications Inc. v. Wellman,[6] the Supreme Court of Canada provided clarity regarding the circumstances when a court will grant a stay of an action pursuant to the domestic Arbitration Act. This decision has application in the international arbitration context, as it reflects the willingness of Canadian courts to allow arbitrations to proceed where the parties have agreed to arbitrate. The Supreme Court confirmed that an arbitration provision in the context of business contracts (i.e. as opposed to consumer contracts) is enforceable, granting Telus’ motion to stay these claims as part of a proposed class proceeding.

In Canada, most provincial consumer legislation renders an arbitration agreement with a consumer invalid. The policy behind this legislation is to protect parties lacking negotiating power from being forced to arbitrate. However, where the contracting parties are sophisticated and/or business parties, arbitration clauses are consistently enforceable. This distinction between consumers and business parties reinforces the policy objective of promoting predictability in commercial relationships. As the Supreme Court remarked in Telus v. Wellman, any other approach would “reduce the degree of certainty and predictability associated with arbitration agreements, and weaken the concept of party autonomy in the commercial setting.”

In Telus v. Wellman, the proposed class proceeding involved claims by both consumers and business customers against TELUS Communications Inc. (“Telus”), alleging that the company overcharged the plaintiffs without proper disclosure. All of these customers’ contracts with Telus contained standard terms and conditions, including a mandatory arbitration provision. Although Telus agreed the mandatory arbitration provision was unenforceable with respect to the consumers pursuant to the Consumer Protection Act 2002,[7] it argued that the business customers are not afforded the same protections under that legislation. Therefore, business customers are bound by the mandatory arbitration clause. On this basis, Telus brought a motion to stay the court claims of the business customers.

Both the court of first instance and the Ontario Court of Appeal held that it would be unreasonable to separate the claims advanced by the business customers from those of consumers, refusing to grant the stay. However, the Supreme Court overturned these decisions.

Section 7(1) of the Arbitration Act states:

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.”

The Supreme Court noted that section 7(1) imposes a mandatory rule requiring that a civil action be stayed in favor of arbitration in the circumstances. Section 7(5) of the act only sets out two specific circumstances in which such an action would be permitted to continue:

  • the agreement deals with only some of the matters in respect of which the proceeding was commenced; and
  • it is reasonable to separate the matters dealt with in the agreement from the other matters.

In this case, the proposed class action dealt with only one issue (i.e. the alleged overcharging), so the first precondition under section 7(5) was not met. The court decided to enforce the arbitration provision with respect to the business customers, and stay the class proceedings by the business customers. In bifurcating the consumer claims from the business claims, the court reasoned:

Mr. Wellman’s interpretation sits at odds with the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement. If accepted, Mr. Wellman’s interpretation would reduce the degree of certainty and predictability associated with arbitration agreements and permit persons who are party to an arbitration agreement to ‘piggyback’ onto the claims of others. Ultimately, this would reduce confidence in the enforcement of arbitration agreements and potentially discourage parties from using arbitration as an efficient, cost-effective means of resolving disputes. Clearly, this was not what the legislature had in mind when it passed the Arbitration Act.

The dissenting justices argued that section 7(5) of the Arbitration Act actually grants judges broader discretion to order or refuse a stay in favor of arbitration, contrary to the interpretation adopted by the majority of the court. The dissenting justices maintained that there were significant policy reasons the majority failed to take into account in coming to its decision. Firstly, they contended that the notion that business customers who sign standard-form, non-negotiable agreements have “willingly” agreed to arbitrate disputes is a fallacy. Secondly, they raised the concern that the bifurcation of claims would result in business consumers simply ceasing to enforce their rights. The dissent argued that this runs contrary to the overall purpose of the Arbitration Act, which is to promote access to justice since it would require “time-consuming factual inquiries on how to divide the arbitrable and non-arbitrable claims even where the substance of both claims [are] identical.”

B.3      Supreme Court to rule on whether Uber driver class action must be referred to arbitration

In November 2019, the Supreme Court of Canada heard the appeal of the Ontario Court of Appeal decision Heller v Uber Technologies, Inc.[8] The case saw over a dozen interveners, including the Chartered Institute of Arbitrators (Canada) and TCAS, the Canadian Chamber of Commerce, YCAP, the Canadian American Bar Association, ADR Chambers Inc., and Arbitration Place.

The case is about a Toronto-based Uber driver (“Plaintiff”) who sought to bring a class action on behalf of Uber drivers in Ontario against Uber and UberEATS, the ridesharing and food delivery businesses.

The Plaintiff alleged that Uber had violated Ontario’s Employment Standards Act, 2000 (ESA).[9] The Plaintiff entered into a service agreement with Uber that is governed by the law of the Netherlands and includes an arbitration clause selecting the Netherlands as the seat of arbitration. At the first instance, Uber successfully moved to have the Plaintiff’s proposed class action stayed in favor of arbitration in the Netherlands. The motions judge disagreed with the Plaintiff’s argument that the action should be exempted from referral to international arbitration because it involved an alleged employment relationship and the ESA restricted the parties from arbitrating. The motion judge concluded that the arbitrability of employment agreements was a question of mixed fact and law and the competence-competence principle applied.

The decision of the motion judge staying the action was overturned by the Ontario Court of Appeal in early 2019.[10] In overturning this decision, the Ontario Court of Appeal held that the arbitration clause requiring disputes to be arbitrated in the Netherlands was invalid and unenforceable. Based on the presumption that Uber drivers are employees, the Ontario Court of Appeal found that the arbitration clause was invalid because it amounted to an illegal contracting out of the ESA.

Separately, the Court of Appeal held that the arbitration clause was invalid on the basis of unconscionability. The Court found the agreement to be substantially improvident or unfair because it would require the Plaintiff or other class members to incur significant costs to initiate an arbitration proceeding in the Netherlands. The court also noted an inequality of bargaining power between Uber and Uber drivers, and the representative Plaintiff’s lack of independent legal advice before entering into the service agreement.

The Canadian arbitration community is eagerly awaiting the Supreme Court’s ruling, which will undoubtedly affect the landscape of arbitration in Canada. In addition to the clarification of the common law rules regarding the intersection of arbitration and employment, particularly in the era of the so-called “gig economy,” it remains to be seen whether the court’s ruling could prompt legislative changes to mirror the existing consumer protection legislation in most provinces.

 

[1] 2017, SO 2017, c 2.

[2] RSBC 1996, c 233.

[3] 2019 ONCA 254.

[4] 1991 SO 1991, c. 17.

[5] 2011 ONCA 622.

[6] 2019 SCC 19.

[7] SO 2002, c 30, Sch A

[8] 2018 ONSC 718.

[9] SO 2000, c 41.

[10] Heller v Uber Technologies, Inc, 2019 ONCA 1.

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