Arbitrating the unarbitrable: The problem of power imbalance

In the aftermath of the January 2019 Ontario Court of Appeal decision, in Heller v. Uber Technologies Inc., arbitration may have been placed under a judicial microscope as never before. In that decision, the Court of Appeal examined a lengthy arbitration agreement involving alleged employment issues, and tossed it out in part, based on unconscionability. Heller v. Uber Technologies Inc. may well become the spectre that haunts private arbitration as parties move reflexively toward arbitration. So the issue for lawyers representing businesses is how they advise their clients about the use of arbitration where there is an obvious power imbalance. And the issue for arbitrators centres on their duty to provide early warning of possible trouble.

Jack Zwicker

In the aftermath of the January 2019 Ontario Court of Appeal decision, in Heller v. Uber Technologies Inc., arbitration may have been placed under a judicial microscope as never before. In that decision, the Court of Appeal examined a lengthy arbitration agreement involving alleged employment issues and tossed it out in part, based on unconscionability. Heller v. Uber Technologies Inc. may well become the spectre that haunts private arbitration as parties move reflexively toward arbitration. So the issue for lawyers representing businesses is how they advise their clients about the use of arbitration where there is an obvious power imbalance. And the issue for arbitrators centres on their duty to provide early warning of possible trouble.              

While there are no available Canadian statistics dealing with the use of arbitration, on Oct. 15, 2015, The New York Times ran a lengthy, three-part series entitled Arbitration Everywhere, Stacking the Deck of Justice. According to the first part of this series, The Times examined court records dating back to 2010. During that period, U.S. lower courts ruled in favour of arbitration four times out of five in cases where consumer class actions were dismissed.

According to the Times, in 2011 and again in 2013, the U.S. Supreme Court validated class action bans in consumer credit agreements that contained arbitration clauses. These actions typically involved disputes over credit card interest, cellphone billing, cable billing, internet service, car rentals, employment and travel bookings. One of the worst of these arbitration clauses appeared in fine-print sandwiched in the fifth page of a credit card agreement containing an explanation as to how credit card interest was calculated. The credit card company was American Express.                                   

One of the underlying problems for parties, counsel and arbitrators is the lack of data regarding arbitration. Because one of the features that makes arbitration popular is confidentiality, we have no idea how often arbitration clauses are invoked. We learn of challenges to arbitration when motions to stay or motions to set aside arbitral awards such as that in Heller are litigated. But for the fact that court proceedings are public domain, we would never know how many arbitrations proceed.                   

As for lawyers representing commercial clients, Heller clearly tells us that judicial deference to arbitration is not unlimited. Where a clear power imbalance exists between the parties, four tests of common law unconscionability will be applied. So it is not difficult to foresee an increasing number of consumer challenges to one-sided arbitration agreements.

The problem for lawyers goes beyond getting their commercial clients to ensure that the consumer is sufficiently competent and literate, is capable of understanding the credit transaction and does understand it. The problem also goes beyond ensuring that the terms of the contract are not improvident or unfair to the consumer or that the consumer is not being intentionally disadvantaged. The more challenging problem is that, if the consumer and the business are not "relatively equal in strength and sophistication," will the courts more easily lean toward a finding of unconscionability?

As far as the arbitrator is concerned, just because he is appointed does not mean he is obligated to accept the appointment. If the arbitrator is uncomfortable with the underlying facts and the issues, he should question his ability to fulfil his statutory duties to act fairly, equally, impartially and without bias. Because one of the early, critical functions in contested arbitrations is a preliminary meeting of parties, represented by their counsel and the arbitrator, it is a golden opportunity to canvas this issue. Better to deal with the problem early than to allow it to fester until the arbitration ends in an award followed by a motion to set it aside. If Heller v. Uber Technologies is a harbinger of the future, the issue of power balance must be dealt with.      

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