{"id":2048,"date":"2024-02-22T12:02:57","date_gmt":"2024-02-22T12:02:57","guid":{"rendered":"https:\/\/blog.nicarb.org\/?p=2048"},"modified":"2024-02-22T12:02:57","modified_gmt":"2024-02-22T12:02:57","slug":"ontario-court-rejects-crypto-arbitration-agreement-as-unenforceable","status":"publish","type":"post","link":"https:\/\/blog.nicarb.org\/index.php\/2024\/02\/22\/ontario-court-rejects-crypto-arbitration-agreement-as-unenforceable\/","title":{"rendered":"Ontario Court Rejects Crypto Arbitration Agreement as Unenforceable"},"content":{"rendered":"\n

Author: Blake, Cassels & Graydon LLP<\/strong><\/a><\/p>\n\n\n\n

Canada, February 13, 2024<\/strong><\/p>\n\n\n\n

In\u00a0Lochan v. Binance Holdings Limited<\/em><\/a>\u00a0(Binance<\/em>), the Ontario Superior Court of Justice\u00a0(Court) dismissed a motion to stay a proposed class action in favour of arbitration. In making its decision, the Court found that the arbitration agreement between the parties was both unenforceable as being contrary to public policy and unconscionable.<\/p>\n\n\n\n

Background<\/strong><\/p>\n\n\n\n

From 2019 until early 2022, Binance Holdings Limited (Binance), the world\u2019s largest cryptocurrency exchange, sold crypto derivative products to Canadian investors. The plaintiff purchasers (Plaintiffs) of Binance crypto products brought a proposed class action in June 2022 on behalf of all Canadians who purchased crypto derivatives contracts from Binance. The proposed class action is based on section 133 of the Ontario\u00a0Securities Act<\/em><\/a>, which provides purchasers with a right of action against a company selling securities without filing a prospectus.<\/p>\n\n\n\n

Binance moved to stay the proposed class action based on arbitration agreements that each Plaintiff digitally signed when registering online for a account. During that process, the Plaintiffs were said to have agreed to roughly 50 pages of terms, including a choice-of-law clause and an arbitration agreement. When the Plaintiffs initiated the proposed class action, the arbitration agreement directed Binance users to arbitration in Hong Kong, under Hong Kong law, that was administered by the Hong Kong International Arbitration Centre (HKIAC) under HKIAC rules.<\/p>\n\n\n\n

The Plaintiffs provided evidence from the Ontario Securities Commission that over half of Canadian crypto investors have less than C$5,000 in crypto assets. The evidence before the Court showed that for disputes under US$1-million arbitrated at the HKIAC, the median cost of arbitration in Hong Kong on an hourly rate basis was US$26,743, not including costs associated with travel and accommodations, and any legal or expert fees.<\/p>\n\n\n\n

The Plaintiffs opposed Binance\u2019s motion to stay in favour of arbitration on the basis that the arbitration agreement was void for being contrary to public policy and unconscionable.<\/p>\n\n\n\n

Public Policy<\/strong><\/p>\n\n\n\n

Binance argued the arbitration agreement\u2019s choice of law provision, specifying the agreement was to be governed by Hong Kong law, meant the Court should assess whether the agreement was contrary to public policy under Hong Kong law.<\/p>\n\n\n\n

The Court rejected this argument and referred to Supreme Court of Canada (SCC) case law and the recent B.C. Court of Appeal decision in\u00a0Williams v. Amazon.com Inc.<\/em><\/a>. It held that an assessment of whether an arbitration agreement is against public policy should be made following Canadian law, considering Canadian \u201cpublic policy.\u201d The Court applied the decision of the SCC in\u00a0Uber Technologies Inc. v. Heller<\/em><\/a>\u00a0(Uber<\/em>) on when an arbitration agreement should be found contrary to public policy.<\/p>\n\n\n\n

The Court held that the substantial cost to bring an arbitration claim before the HKIAC relative to the value of an average claim of an average crypto investor meant the requirement that claimants pursue arbitration in Hong Kong could \u201ceffectively amount to a grant of immunity to Binance.\u201d The agreement did not disclose the cost implications of arbitration. The Court also considered that the parties had disparate bargaining power because the arbitration agreement was part of a standard-form \u201cclick\u201d contract that the Plaintiffs could not negotiate. Binance advertised account registration as being \u201cso quick as to take almost no time at all.\u201d<\/p>\n\n\n\n

The Court concluded that the arbitration agreement required potential claimants to adhere to an expensive and \u201call-but-inaccessible\u201d arbitration procedure for resolving any and all disputes, without proper disclosure of the elements of that procedure, and was, therefore, contrary to public policy and unenforceable.<\/p>\n\n\n\n

Unconscionability<\/strong><\/p>\n\n\n\n

In\u00a0obiter<\/em>, the Court held the arbitration agreement was also unenforceable on the basis that it was unconscionable. The Court again applied\u00a0Uber<\/em>\u00a0to hold that the Court should not refer a\u00a0bona fide<\/em>\u00a0challenge to the arbitrator\u2019s jurisdiction to that arbitrator if there was a real prospect that doing so would result in the challenge never being resolved. The Court held the arbitration agreement was unconscionable as it was engineered to be a non-negotiable \u201cclick\u201d contract where the details were \u201cburied out of sight\u201d. The cost and logistical complexity of arbitration were not disclosed. The inequality of information and inequality of power in the bargaining relationship between the parties was at a maximum.<\/p>\n\n\n\n

Key Takeaway<\/strong><\/p>\n\n\n\n

Binance\u00a0<\/em>is a reminder that while arbitration agreements are generally enforced in Canada, courts may decide that arbitration agreements in standard-form consumer contracts are unenforceable as against public policy or unconscionable where the agreement provides for an expensive and inaccessible arbitration procedure. The decision also confirms the importance of carefully drafting arbitration clauses in such agreements to mitigate and survive potential challenges.<\/p>\n","protected":false},"excerpt":{"rendered":"

Author: Blake, Cassels & Graydon LLP Canada, February 13, 2024 In\u00a0Lochan v. Binance Holdings Limited\u00a0(Binance), the Ontario Superior Court of Justice\u00a0(Court) dismissed a motion to stay a proposed class action in favour of arbitration. In making its decision, the Court found that the arbitration agreement between the parties was both […]<\/p>\n","protected":false},"author":1,"featured_media":2049,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[20,14],"tags":[],"class_list":["post-2048","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-arbitration-insights","category-news","col-lg-4 col-md-6"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/blog.nicarb.org\/wp-content\/uploads\/2024\/02\/download.jpg?fit=289%2C175&ssl=1","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pcb80P-x2","jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/posts\/2048","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/comments?post=2048"}],"version-history":[{"count":1,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/posts\/2048\/revisions"}],"predecessor-version":[{"id":2050,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/posts\/2048\/revisions\/2050"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/media\/2049"}],"wp:attachment":[{"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/media?parent=2048"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/categories?post=2048"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.nicarb.org\/index.php\/wp-json\/wp\/v2\/tags?post=2048"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}