The Court of Appeal upheld dismissal of stay in favour of arbitration based on unconscionability and public policy.

Background

The Appellant Binance Holdings Limited (“Binance”) operated the world’s largest cryptocurrency trading platform. Between 2019 and early 2022, it sold cryptocurrency derivatives to Canadians through its website. That website boasted that users could create an account in “under 30 seconds”. This claim was made even though Binance’s users could not access the platform without first accepting roughly 50 pages of terms, including an arbitration agreement.

The Respondents (collectively “Lochan”), in their capacity as representative plaintiffs, commenced a proposed class action against Binance under section 133 of the Ontario Securities Act, R.S.O. 1990, c. S.5. Section 133 provides a right of action for rescission or damages against a company selling securities that fails to file or deliver a prospectus. In the decision below, the Court found that cryptocurrency derivatives contracts were securities requiring Binance to either register with the Ontario Securities Commission and file a prospectus or seek an exemption. Binance did neither.

Binance moved under section 9 of the International Commercial Arbitration Act 2017, S.O. 2017, c. 2, Sch. 5 (the “Act”) to stay Lochan’s proposed class action based on the arbitration agreement in its website terms. The Act adopts the UNCITRAL Model Law on International Commercial Arbitration, including its stay provision housed in Article 8(1).

The motion judge dismissed the stay motion on the basis that the arbitration agreement was unconscionable and contrary to public policy. He grounded this decision on several findings:

  • Binance’s statement that a user can open an account in “under 30 seconds” while still expecting the user to be bound by a nearly 50-page contract.
  • The arbitration agreement forced the user to agree in advance that Binance could change any part of the arbitration agreement without notice, with binding effect.
  • During the proposed class period, Binance in fact changed the arbitration forum and governing law four times.
  • The last of these changes provided for arbitration in Hong Kong, under Hong Kong law, administered by the Hong Kong International Arbitration Centre. The administrative cost was prohibitive—for disputes under $1 million USD, the median cost was $26,743 USD (approximately $36,000 CAD). This excluded other incidentals, such as travel and accommodation, any tribunal-appointed expert, legal fees, and other clerical costs like transcriptions.

Considering this and other facts, the motion judge dismissed the stay motion. In so doing, he commented that:

“Binance, as the party that designed and whose professionals drafted the contract, engineered the arrangement to take advantage of the complexity that was hidden behind that superficially benign appearance of an arbitration clause.”

Decision

The Court of Appeal upheld the motion judge’s decision, rejecting Binance’s three arguments.

First, Binance argued that the motion judge erred in failing to apply the competence-competence principle—that the arbitral tribunal can and should generally assess challenges to its jurisdiction or the arbitration agreement’s validity before the matter is put to a court.

The Court found no error. The motion judge applied the Supreme Court of Canada’s framework in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, and Uber Technologies Inc. v. Heller, 2020 SCC 16 applicable to assessing stay motions. Under that framework, the court should refer the challenge to the arbitral tribunal unless resolving it invokes a pure question of law or a question of mixed fact and law requiring only a superficial assessment of the record.

Dell/Uber also permit a court to make the assessment where the party resisting a stay would, as a practical matter, have no opportunity to raise the challenge before the arbitral tribunal. This will be so if the cost and other burdens form a “brick wall” for the challenging party. The motion judge found that to be the case here. The Court of Appeal saw no basis to disturb that finding.

Second, Binance argued that the motion judge impermissibly went beyond assessing a question of law and considered the particular facts at issue.

Again, the Court rejected this argument, finding that the motion judge instructed himself properly on the Dell/Uber framework. He found, based on the record, that the competence-competence principle’s direction that the arbitral tribunal address the challenge first was displaced. The Court of Appeal found that, to the extent the motion judge considered the record, he did not go beyond the superficial review permitted under Dell/Uber.

Third, Binance essentially repackaged the second argument, stating that the judge went beyond a superficial review of the record in finding that the arbitration agreement erected a “brick wall” preventing Lochan or other class members from accessing arbitration. Binance also argued that the motion judge should have considered Lochan’s specific circumstances rather than those generalizable to class members as a whole in determining whether the clause actually foreclosed access to arbitration.

The Court rejected this argument on largely the same basis as the others. It found no palpable and overriding error in the motion judge’s decision to assess the arbitration agreement “on the basis of the typical cryptocurrency investor and the nature of disputes likely to arise under the arbitration clause.”

Analysis

In most respects, this case is a straightforward application of the Dell/Uber framework. However, it is interesting to consider the extent to which a finding of unconscionability can or should be made on a class-wide basis. On one hand, there does appear to be some force to Binance’s position. Unconscionability is an inherently fact-based analysis that accounts for the circumstances of the party resisting the stay motion (as well as the party seeking the stay and invoking the arbitration agreement).

At the same time, it is difficult to fault the Court. In Uber itself the Supreme Court of Canada assessed unconscionability based on the representative plaintiff’s circumstances, not the circumstances of each potential class member. The difference here is that the Court did not consider the proposed representative plaintiff’s (Lochan) specific circumstances as in Uber. Instead, it assessed the question “on the basis of the typical cryptocurrency investor and the nature of disputes likely to arise under the arbitration clause.”

This seems like a rough and ready practical solution to the problem of assessing unconscionability in a class action context, especially where class members may not all share the same material traits as the representative plaintiff. Unlike Uber, which dealt with generally lower income rideshare drivers, the means and abilities of Binance’s clientele, crypto traders of different levels of wealth and sophistication, may vary to a greater degree. It would be untenable to assess them on an individual basis. Indeed, this would defeat the purpose of the class action certification process provided these individuals are all otherwise within an identifiable class.

This case also offers a lesson to in-house counsel on how not to structure an enforceable arbitration agreement in a contract of adhesion. The terms here appear designed to erect the very brick wall Uber identified as an exception to the rule that the arbitral tribunal should assess a challenge to its jurisdiction or the arbitration agreement in the first instance. The post-Uber jurisprudence reveals ways that Binance could have mitigated the risk of the unconscionability/public policy hurdle.

For example, in Difederico v. Amazon.com, Inc., 2022 FC 1256 (aff’d 2023 FCA 165), the Court rejected an unconscionability argument. The arbitration agreement in that case was far less onerous. It provided for a modest $200 filing fee, which Amazon would reimburse for claims under $10,000. It expressly provided that the arbitration could be conducted in writing, by phone or at a mutually agreeable location. The clause also preserved the customer’s option to sue in small claims court in their home jurisdiction.

In-house counsel would be well-advised to consider Difederico and other similar cases (for example: Williams v. Amazon.com Inc., 2023 BCCA 314; Petty v. Niantic Inc., 2023 BCCA 315) when crafting dispute resolution clauses in standard-form agreements.

 Lochan v. Binance Holdings Limited, 2024 ONCA 784