In Touvongsa v. Lahouri, 2024 BCCA 405 (CanLII), the Court allowed an appeal of an order of the Supreme Court of British Columbia on the basis that the validity of the arbitration clause should be properly determined by the arbitrator by virtue of the principle of competence-competence and that none of the exceptions to this principle applied on the facts on the record. The chambers judge had found the arbitration clause unconscionable and thus inoperative. The Court made it clear that the competence-competence principle and also whether exceptions apply must be determined as a threshold question.
The arbitration clause – The case involved a personal injury action by Lahouri (the Respondent) against Touvongsa (the Appellant), who performed a non-invasive beauty treatment on Lahouri. A release, which Lahouri denied having signed, contained an arbitration agreement which read in its entirety:
“I hereby agree to arbitration of any malpractice claim”.
Without considering the principle of competence-competence or whether one of its exceptions applied, the chambers judge concluded that the arbitration agreement was inoperable on the bases that (i) it was difficult to find within the release and (ii) it was unconscionable, per Uber Technologies Inc. v. Heller, 2020 SCC 16 (Uber), based on factors such as inequality of bargaining power and contracts of adhesion.
The appeal – The Court of Appeal found that the chambers judge had erred in law by not considering the threshold issue of whether an arbitrator or the court should rule on the validity of the arbitration agreement. Section 23 of the British Columbia Arbitration Act enshrines the principle of competence-competence, whereby an arbitrator may rule on his or her own jurisdiction, including any question related to the validity of the arbitration agreement. The jurisdiction of the arbitrator to make this determination is displaced only in narrow, exceptional cases.
The Court applied the framework on competence-competence from Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Dell) and found that the matter must be referred to arbitration unless the arbitration agreement was “manifestly tainted by a defect rendering it invalid or inapplicable” (para. 75). This determination must be made on the face of the record.
In accordance with Uber, unconscionability requires both that the parties be in unequal bargaining positions and that the resulting arbitration agreement be improvident. The Court found that making such determinations in the present case required too detailed an examination of the record, given the presence of conflicting evidence on the circumstances relating to the signing of the release and other elements requiring greater consideration, such as the ability of Lahouri to afford arbitration.
The Court also considered another basis to determine the challenge to arbitral jurisdiction, based on the “brick wall” framework set out in Uber, which considers factors that might foreclose entirely the possibility of an arbitrator making the determination. Examples include the financial costs associated with the arbitration or the necessity of travel which may create a “brick wall” that could prevent Lahouri from pursuing her claim by way of arbitration. The Court of Appeal found that no such factors existed in this case based on the record before it.
The appeal was therefore allowed and the order of the chambers judge dismissing the stay application was set aside.
Contributor’s notes
This case reaffirms the established case law that the principle of competence-competence is to be displaced only in “abnormal or unusual circumstances” (para. 20). In cases involving mixed questions of fact and law, the arbitrator must determine his or her own jurisdiction, unless the relevant factual questions require only a superficial consideration of the documentary evidence in the record. Determining the unconscionability of an arbitration clause absent a clear imbalance generally goes beyond a superficial consideration of the record.
It is the latest case in a series of recent appeal-level cases that have considered the “brick wall” exception to competence-competence set out in Uber with different results, including:
- Spark Event Rentals Ltd. v. Google LLC, 2024 BCCA 148 (CanLII) (“Spark”) and
- Lochan v. Binance Holdings Limited, 2024 ONCA 784 (CanLII), covered in Ontario – Order of competence-competence analysis on stay motion challenged – #880 (“Lochan”)
Both cases were discussed in greater detail by Julie Hopkins in Arbitration Matters : B.C. – Court finds pre-condition to competence-competence – #895
Touvongsa v. Lahouri, like Lochan before it, confirms that courts must first consider the competence-competence principle and whether exceptions apply as a threshold question, before determining whether arbitration agreements are void, inoperative or incapable of being performed.
The Court of Appeal in Touvongsa v. Lahouri referred to Spark for the principle that “whether a brick wall exists may include the financial costs associated with arbitrating the jurisdictional challenge, as well as other practical impediments, such as the necessity of travel”. In other words, evidence must be adduced on impediments or “bricks” forming the “brick wall”. In this case, no such evidence was adduced on these points.