The idea that an arbitrator has the authority to determine her or his own jurisdiction, including deciding the scope and validity of an arbitration agreement itself, may seem odd at first, but it is a core principle of international arbitration and has been adopted by the Canadian courts – with some reservations – in domestic arbitration.
The “competence-competence” principle, as it is generally referred to internationally and in Canada, is embedded in the UNCITRAL Model Law, adopted in 1985 and updated in 2006, and is credited with much of the growth of international commercial arbitration.
There are many reasons why the responding party in an arbitration – and it is almost always the responding party – may want to challenge the jurisdiction of the arbitrator.
They may say there is no valid agreement to arbitrate. Or they are not a party to the agreement. Or the matter in dispute falls outside the scope of the agreement.
The Supreme Court of Canada, in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), laid down a general rule that, except in the narrow category of cases in which a challenge to an arbitrator’s jurisdiction is based solely on a question of law, “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.” (Dell, para. 84).
The Dell case applied this rule under Quebec law. It has also been followed by Ontario courts in cases involving the International Commercial Arbitration Act, which adopts the principles in the UNCITRAL Model Law. And more recently, the courts have recognized the principle under domestic arbitration statutes.
Article 8(1) of the Model Law provides that state courts must refer to arbitration a claim that is allegedly subject to arbitration “unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
In Ontario, section 7 of the Arbitration Act says a court must stay an action when a party to an arbitration agreement commences an action in a matter that is subject to arbitration, except in limited number of circumstances. These include: the party being under a disability; the arbitration agreement being invalid; the subject matter not being arbitrable; undue delay; or the matter being a proper one for default or summary judgment.
Section 17 says the tribunal “may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.” Arbitration Act, 1991, s. 17 (1).
When the tribunal rules on a jurisdiction issue, a party may appeal the decision in court. There is no appeal from the court’s decision: ss.17(8) and 17(9).
In Ontario Medical Association v. Willis Canada Inc. (2013), 118 O.R. (3d) 241 (C.A.), the issue was whether to stay an action by a litigant that said it was not a signatory and was not bound by an arbitration clause in an agency agreement. When the third party brought an action in court for unpaid fees, the motion judge stayed the action. The Court of Appeal agreed, saying it was up to the arbitrator to make the initial determination on the scope of the arbitration clause
Tom Heintzman, in a 2012 commentary for Construction Law Canada, asks: What Are The Limits Of Competence-Competence For Arbitral Tribunals?
First, he says, a person cannot ask the court to stay an action and refer the matter to arbitration, and at the same time take a position denying the validity of the arbitration agreement or that it is a party to the agreement. If they were successful in that argument, the matter would just have to go back to the court.
In Shaw Satellite G.P. v. Pieckenhagen, 2012 ONCA 192 the Ontario Court of Appeal said it is “incumbent on [the defendants] to indicate to the court that they are parties to and are bound by the Agreement to invoke s. 7(1). To hold otherwise would enable them to take the position before an arbitrator that they are not parties to the Agreement which in our view would be entirely inappropriate.”
However, as Heintzman notes in his article: “If…the competence-competence principle can only be invoked by a party that acknowledges, in all relevant respects, that the tribunal has jurisdiction…then the scope of the competence-competence principle may be substantially limited.”
For example, someone defending an arbitration claim or counterclaim may acknowledge the validity of the arbitration agreement, but argue that the matter in dispute (or part of the dispute) falls outside the scope of the agreement. In that case, the claimant may choose to start a court action with respect to those issues for a variety of reasons (including simply to preserve a limitation period).
Would it be appropriate for the party challenging the jurisdiction of the arbitrator to ask the court for a stay, if the end result will be to send the parties back to court if they are successful in blocking the arbitration?
Could the party that commenced the court action then consent to the stay and send the matter back to the arbitrator and argue for a broad interpretation of the arbitration agreement to make the court action unnecessary?
Most recently, the Ontario Court of Appeal chose not to deal with the “competence-competence” principle in a case about the enforceability of an arbitration clause in the context of an employment standards claim, saying it applies only where the scope of the arbitration is in issue, but it is up to the court to determine the validity of the arbitration clause.
Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII), at paragraph 39.
The court said it would not address arguments relating to the competence-competence principle , and decided the case on other grounds (ruling that a clause requiring arbitration in Netherlands was an unenforceable attempt to contract out of the Ontario Employment Standards Act and that the clause was unconscionable due to the unequal bargaining power between Uber and its drivers).
The Court of Appeal seems to have ignored the clear wording of the Arbitration Act, which says objections with respect to both the existence and validity of the arbitration agreement are within the purview of the arbitrator at the first instance.
However, it did find grounds to refuse to stay the drivers’ claim and refer the matter to arbitration under section 7 of the Arbitration Act, which says the court may refuse a stay if the arbitration agreement is invalid.
It is difficult to reconcile sections 7 and 17 of the Arbitration Act in those situations where the conflict goes to the fundamental existence or validity of the arbitration agreement. Section 7 gives the court the authority to determine validity in deciding whether to grant a stay or not. At the same time, section 17 (and the competence-competence principle generally) says that is up to the arbitrator to decide whether there is a valid agreement to arbitrate.
As one commentary on the Uber case noted:
The Court’s statements about arbitrator jurisdiction and the applicability of the competence-competence principle in this case could also have significant ramifications for future application of the competence-competence principle, and whether invalidity of an arbitration provision is an issue relating to arbitrator jurisdiction. The Court did not fully delve into this issue. Clarity from the courts on this issue would assist parties to arbitration agreements. Blakes Business Class, January 8, 2019.
And, as the Supreme Court said in the Dell decision (at paragraph 86):
“Before departing from the general [competence-competence] rule…, the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding. This means that even when considering one of the exceptions, the court might decide that to allow the arbitrator to rule first on his or her competence would be best for the arbitration process.”