Ontario Court issues an anti-arbitration injunction against a Hong Kong-seated arbitration brought to circumvent the Court’s previous ruling that the arbitration agreement was unenforceable.

Facts

The Plaintiffs were customers of Binance Holdings Limited (“Binance”), who operates a cryptocurrency trading platform. The Plaintiffs previously brought a class action seeking relief under the Ontario Securities Act against Binance for having sold securities without filing a prospectus or obtaining an exemption.

Binance had sought to stay the class action on the basis that its customers’ user agreement contained an arbitration agreement requiring all disputes to be resolved by arbitration seated in Hong Kong and administered by the Hong Kong International Arbitration Centre (“HKIAC”). The Ontario Superior Court, and the Court of Appeal, refused to grant the stay in favour of arbitration, finding that the arbitration agreement was void for being contrary to public policy and unconscionable. This was because its practical effect was to deny at least some of Binance’s customers a realistically available forum to bring any claim due to the costs of bringing an HKIAC arbitration in Hong Kong. In circumstances where the average customer claim was $5,000, the Court found this “could effectively amount to a grant of immunity to Binance.” An analysis of this important decision was provided in last year’s Top 10 Canadian Arbitration Cases of 2024.

Faced with the Ontario class action, Binance, through an affiliated company (Nest), brought an arbitration in Hong Kong against the Plaintiffs. It did this despite the Ontario Courts’ previous determination that the arbitration agreements did not bind Binance’s customers. Nest sought damages for breach of the arbitration agreement, including an indemnity in respect of the legal costs of defending the Ontario class action and any liability resulting from an adverse judgment.

The Plaintiffs applied to the Ontario Court seeking an anti-arbitration injunction against Binance. Binance resisted, arguing the previous rulings by the Ontario Courts were not binding in Hong Kong. It also argued that it was Nest, not Binance, that commenced the arbitration against the Plaintiffs in Hong Kong. It argued that Nest was not a party to, and thus not bound by, the previous judgments. Binance further contended that the motion seeking an injunction was premature and that the Plaintiffs should first challenge the jurisdiction of the Hong Kong arbitration before seeking an injunction. Finally, Binance submitted that the cause of action in the arbitration proceedings commenced by Nest against the Plaintiffs in Hong Kong was different than the cause of action pursued by the Plaintiffs against Binance in Ontario. It argued that the Ontario cause of action was based on breach of the Ontario Securities Act while the Hong Kong claim was based on breach of contract, and those causes of action exist independently of each other.

Decision

The Court found that none of Binance’s arguments were cogent. It concluded that the arbitration commenced by Nest against the Plaintiffs was little more than a transparent attempt to circumvent the previous Ontario Court rulings. It found that Nest was Binance’s alter ego and was therefore bound by the Ontario rulings. The Court also found that the arbitration claim was parasitic on the Ontario proceedings. Specifically, the claim for an indemnity in respect of the legal costs of defending the Ontario class action and any liability resulting from an adverse judgment was simply to undermine the Plaintiffs’ claim in the Ontario class action.

The Court also held that private arbitral proceedings, unlike judicial proceedings, do not implicate state sovereignty and therefore do not raise the issue of comity. As such, the normal deference to be given to foreign courts to first rule on their own jurisdiction does not extend to foreign arbitration proceedings.

In the present case, the Court found that the general principle of competence-competence (i.e., that an arbitral tribunal should be the first to decide whether it has jurisdiction) was displaced for the same reason given in the original proceedings — i.e., the inaccessibility of the arbitration forum due to cost, distance, and choice of law, resulting in a real prospect that the challenge to the arbitration agreement’s validity would never be resolved if it were referred to the arbitral tribunal. Having previously found that it would be unconscionable and contrary to public policy to compel the Plaintiffs to arbitrate their claim in Hong Kong, the Court concluded it would be equally unconscionable and contrary to public policy to compel the Plaintiffs to challenge jurisdiction in Hong Kong.

Finally, the Court found that Nest’s arbitration claim constituted a collateral attack on the Court’s previous ruling that the arbitration agreement was void. It concluded that the arbitration proceedings were commenced in the name of Nest in an attempt to navigate around the doctrines of res judicata and issue estoppel. However, “the tactic is as ineffective as it is transparent” as those doctrines preclude relitigation where the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies. It was also an abuse of process as the arbitration clause had already been declared void such that the relief sought by Nest would effectively neuter any judgment in the Ontario class action in the Plaintiffs’ favour.

Analysis

While anti-arbitration injunctions are uncommon, the circumstances of this case overwhelmingly supported the grant of an injunction from the Court’s perspective. The Ontario Courts had already ruled at first instance, and on appeal, that the arbitration agreement was void and the Plaintiffs’ class action could therefore proceed before the Ontario Courts notwithstanding the arbitration clause in the customers’ user agreement. The Hong Kong arbitration brought by Nest effectively sought to undermine the Court’s previous rulings and render any adverse judgment against Binance in the class action nugatory. It is unsurprising that the Court granted an injunction in these circumstances.

This case properly protected the integrity of the arbitration system by preventing an arbitration agreement from denying a party from seeking relief because the arbitration process was not, in reality, legally accessible or economical in circumstances where the average customer claim was $5,000. This is consistent with international best practice, with many jurisdictions having a de minimis threshold and/or a fairness assessment of any arbitration agreement involving a consumer.

However, this is very much an extreme example, and an exception to the general rule that a court in one jurisdiction should not interfere in an arbitration seated in a different jurisdiction. The exception in this case being that the Court had already asserted jurisdiction over the question of the validity of the arbitration agreement when ruling on Binance’s original stay request when the Plaintiffs first commenced their class action in Ontario. In most circumstances, issues of jurisdiction or admissibility should be addressed before the tribunal and/or the courts of the seat, who retain supervisory jurisdiction over the arbitration. Foreign courts (such as the Canadian courts in this case) generally should only consider issues of the tribunal’s jurisdiction if and when recognition and/or enforcement of any award is sought before it.

The risk of anti-arbitration injunctions being issued by foreign courts is that the practice is at risk of abuse. There are examples of courts in certain jurisdictions issuing anti-arbitration injunctions based on spurious grounds that purportedly invalidate an arbitration agreement. While such cases can result in an affected party seeking an anti-anti-arbitration injunction, often it is the location of the parties (and/or their assets) that determines which competing injunction has the greatest power of compulsion when courts of differing jurisdictions issue opposite rulings regarding the validity of an arbitration agreement.

Lochan v. Binance Holdings Limited, 2025 ONSC 6493