Supreme Court Of Canada's Uber Ruling Provides A Roadmap To Navigate Between Arbitration And Class Actions

• Published date: 03 July 2020
• Law Firm: McMillan LLP
• Author: Robert Wisner and Paola Ramirez

In Uber Technologies Inc. v. Heller,¹ the Supreme Court of Canada invalidated a widely used arbitration clause and thereby gave Uber drivers the green light to proceed with a proposed class action. The decision is a cautionary tale for businesses that may assume their arbitration clauses in standard form contracts serve as a roadblock to class action litigation. Businesses that rely on arbitration clauses in standard form agreements should carefully review the wording of these clauses to increase the likelihood that they will survive future challenges by class action plaintiffs.

At the same time, the Supreme Court's careful reasons generally uphold a vital principle of commercial arbitration - the presumption that challenges to an arbitrator's jurisdiction are for the arbitrator to decide in first instance. The Ontario Court of Appeal had severely restricted this principle - known as "competence-competence" - in its desire to remedy a perceived injustice to the Uber drivers. By delineating a narrower new exception to the competence-competence principle, the Supreme Court of Canada has confirmed that Canada remains a pro-arbitration jurisdiction for businesses that genuinely seek to take advantage of the benefits of commercial arbitration.

The Arbitration v. Class Action Problem

The statutory frameworks governing arbitrations and class actions address different drawbacks of the traditional litigation process. Arbitration legislation allows parties to reach an enforceable arbitration agreement permitting them to:

• bypass court delays by choosing a dedicated decision-maker with time to hear matters on an expedited basis;
• tailor procedures to fit the case rather than adopting "one size fits all" rules of court;
• preserve business relationships by maintaining confidentiality and
• select subject matter experts for technical cases that would otherwise be decided by a generalist judge.

In international business transactions, arbitration also allows parties from different legal systems to resolve their disputes in a neutral forum and to enforce the resulting award in many different jurisdictions where the debtor may have assets.

Meanwhile, class action legislation seeks to improve upon traditional litigation by:

• providing access to justice for litigants whose claims cannot be efficiently resolved on an individual basis;
• fostering judicial economy for mass claims that would tax the resources of the legal system; and
• promoting behaviour modification for wrongdoers who may not otherwise be held accountable for actions that causes widespread but individually small, losses.²

The objectives of arbitration and class action legislation are often complementary, but they may conflict where proposed class action plaintiffs bring claims arising out of a standard form contract with an arbitration clause. Until Uber, the Supreme Court and other Canadian courts had resolved such conflicts in favour of arbitration unless consumer protection legislation invalidated the arbitration clause. They held that arbitration clauses provide substantive contract rights that cannot be overridden by purely procedural class action legislation.³

Only last year, the Supreme Court affirmed this pro-arbitration position by refusing to allow business plaintiffs to "piggyback" on a parallel consumer class action that was proceeding due to consumer protection legislation. Even though the proposed class action was against the same defendant, was based on the same standard form contract and raised the same issues, the arbitration clauses with non-consumers remained valid and were therefore enforced by a stay of the proposed non-consumer class action litigation.⁴

Who Decides Issues of Scope and Validity - Judges or Arbitrators?

In order to continue to bring class proceedings, plaintiffs have challenged the scope and validity of arbitration clauses in a wide range of circumstances. These cases raise the issue of who should decide such jurisdictional challenges in first instance - the arbitral tribunal or the courts? Arbitration statutes give arbitral tribunals the power to rule on their jurisdiction but also allow these questions to be decided by courts.

In the seminal Dell case, the Supreme Court of Canada adopted the competence-competence principle to harmonize the concurrent powers of both courts and arbitral tribunals to rule on questions of jurisdiction. The Court recognized that, absent initial judicial deference to arbitral tribunals on jurisdictional questions, a party could circumvent the express power of the arbitral tribunal to rule on the scope or validity of an arbitration agreement by filing an action and invoking the court's power to decide the issue. It therefore created a strong presumption that arbitral tribunals should rule on such jurisdictional challenges at first instance, subject to later judicial review.⁵

At the same time, the Dell decision recognized that there will...