Manitoba – Court of Appeal quashes appeal of decision declaring clause invalid – #816

In Pokornik v. SkipTheDishes Restaurant Services Inc., 2024 MBCA 3, the Court dealt with a perennial issue—stays of arbitration in the class proceeding context. The decision has a few interesting takeaways, both arbitration-related and not, including one about the competence-competence principle. It also raises the thorny issue of when a stay motion decision may be appealed under section 7(6) of Manitoba’s domestic arbitration statute.

Background – The case concerns a proposed class action headed by a Skip the Dishes (“Skip”) food delivery driver. The claim seeks a declaration that the class members (Skip delivery drivers) are employees, and that they are entitled to damages for Skip’s beach of employment standards legislation. In other words, an Uber v. Heller redux.

The proposed representative plaintiff, Ms. Pokornik, entered into a “courier agreement” with Skip in 2014. It entitled her to access the Skip platform, enabling her to provide food delivery services (this is how Skip characterizes the relationship). When Ms. Pokornik agreed to the terms of the courier agreement, it did not provide for arbitration or contain a class action waiver. However, it did contain a clause allowing Skip to amend the terms unilaterally by posting the amendments in the Skip driver app. It stated that the driver was deemed to have accepted the new terms by continuing to provide services through the app. 

Skip amended the terms in 2018 to include an arbitration agreement and class action waiver. The arbitration agreement stated Skip would pay the reasonable costs of the arbitration. 

In July 2018, plaintiffs’ counsel contacted Ms. Pokornik, asking her whether she was interested in acting as a representative plaintiff in a class proceeding against Skip. She agreed. Pursuant to her lawyer’s advice, she emailed Skip, stating she did not agree to the 2018 amendments to the courier agreement, but “agreed” under protest so she could continue delivering services through the app. 

After counsel commenced the proposed class action, Skip moved for a stay under subsection 7(1) of The Arbitration Act, CCSM c A120 [Act]. 

Motion Decision – The Motion Judge dismissed the stay motion and allowed the class action to proceed. He found the stay motion did not fall within subsection 7(1) since there was no arbitration agreement in place when the proceeding was commenced. He also held Ms. Pokornik brought her claim under the previous version of the courier agreement in 2014, which contained no arbitration clause.

The Motion Judge further held that if he was wrong that there was no agreement, he would still deny the stay since the arbitration agreement was invalid under subsection 7(2) of the Act for two reasons: 1) it was unsupported by fresh consideration; and 2) it was unconscionable. 

Skip appealed.

Appeal Decision – A unanimous Court of Appeal found the Motion Judge erred in finding there was no arbitration agreement. However, it quashed the appeal pursuant to bar on further appeals in subsection 7(6) of the Act. (I return to subsection 7(6) below).

On the standard of review, the Court would have applied a correctness standard to the Motion Judge’s interpretation of section 7, noting the Skip courier agreement was a standard form contract inviting correctness review per the Supreme Court of Canada’s decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37. However, the Motion Judge’s findings on unconscionability were mixed fact and law. The Court thus applied the palpable and overriding error standard.

The Court rejected Skip’s preliminary argument that the Motion Judge should not have undertaken the analysis of which agreement governed. It said that the competence-competence principle dictates the arbitral tribunal should have resolved this question in the first instance. The Court disagreed. It reasoned that the question of which agreement applied was a question of law or, at most, a question of mixed fact and law requiring minimal recourse to the factual matrix. 

The Court agreed with Skip’s argument that the Motion Judge erred in concluding the 2014 version of the courier agreement (the one without the arbitration clause and class action waiver) applied. For the Court, Ms. Pokornik’s statement that she agreed to the terms under “duress” did not vitiate her consent. Her decision to continue using the Skip app “was a clear objective manifestation of assent”.

The Court also disagreed with the Motion Judge’s conclusion that Skip provided no fresh consideration to support the 2018 courier agreement terms. Relying in part on the Ontario Superior Court’s decision in Kanitz v. Rogers Cable Inc., 2002 CanLII 49415 (ONSC), the Court noted that a party continuing to perform a service can amount to sufficient fresh consideration. The Court also observed that the 2018 version of the agreement provided an added benefit in the form of a new seven-day termination provision.

Skip made an interesting argument in response to the Motion Judge’s unconscionability finding. It submitted those comments were obiter, justifying the Court of Appeal considering the unconscionability question de novo pursuant to subsection 26(1) of The Court of Appeal Act, CCSM c. C.240. That provision reads: “The court, upon an appeal, may give any judgment which ought to have been pronounced, and may make such further or other order as is deemed just”. 

The Court disagreed. It explained the difference between obiter—an incidental opinion falling outside the chain of reasoning leading to the outcome—and an alternative finding. Relying on jurisprudence from the Supreme Court of Canada and the Court of Appeal from Ontario, the Court stated that a dispositive conclusion does not become obiter because the court could dispose of the lis on other grounds. In this case, the unconscionability finding was a stand-alone and complete basis for declining the stay, which was the issue before the Court.

The Court stated, ironically in obiter, that it “would have found” no error in the Motion Judge’s unconscionability analysis. The Court found no need to complete that analysis because subsection 7(6) of the Act barred an appeal from the Motion Judge’s decision. That provision says there is no appeal from the Court’s decision “under this section”. 

Relying on various authorities, the Court recognized that subsection 7(6)’s application depends on the nature of the lower court’s decision:

 “Where the decision to refuse a stay is based on a finding that there is no arbitration agreement, or the dispute in question does not fall within the agreement, then the decision to refuse a stay is not made under the Act. Therefore, in such circumstances, an appeal is not barred by section 7(6). (see Alexander M Gay, Alexandre Kaufman & James Plotkin, Arbitration Legislation of Ontario:  A Commentary, 4th ed (Toronto:  Carswell, 2023) at 254; see also Toronto Standard Condominium Corporation No 1628 v Toronto Standard Condominium Corporation No 1636, 2020 ONCA 612 [Toronto Standard]; and Ontario Medical Assn v Willis Canada Inc, 2013 ONCA 745).” [Emphasis in original]

The Court found this situation differed from one where the lower court finds the parties’ dispute falls outside an arbitration agreement, or where an arbitration agreement never existed in the first place. The Motion Judge made his unconscionability finding pursuant to paragraph 7(2)(b) of the Act (invalidity). Accordingly, the finding was made “under” section 7, engaging subsection 7(6)’s appeal bar.

Contributor’s Notes

First, this case shows the fragility of the competence-competence framework promulgated in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34. As readers of this blog likely know, the Supreme Court stated in Dell that the arbitral tribunal should generally assess questions of jurisdiction and validity (which would include questions of contract formation) in the first instance. The exception is where the court on the stay motion can resolve the jurisdiction/validity issue as a pure question of law, or a question of mixed fact and law requiring only a superficial review of the record. 

In this case, the Court’s view that determining the applicable version of the Skip courier agreement could be a pure question of law is difficult to follow. Contract formation (and amendment) is a factually suffused inquiry, and must be a question of mixed fact and law. The distinction appears to be moot in this case, however. In service of its request that the Court of Appeal assess unconscionability de novo, Skip acknowledged that the record was “complete”. From the Court’s reasons, it does not seem the parties raised any credibility issues either. Accordingly, there was no good reason to punt the question to the arbitral tribunal.

From my perspective, this case is one more in a line of decisions that weakens the Dell framework. In Uber Technologies Inc. v. Heller, 2020 SCC 16, the majority added a “new exception” to systematic referral, namely when arbitration is practically “inaccessible” due to the respondent’s situation. However, in making its accessibility assessment, the majority conducted a rather searching analysis of the arbitration agreement, Mr. Heller’s circumstances and other aspects of the factual matrix that led the Court to find an improvident bargain. More recently, the Court of Appeal upheld a decision that likewise seems to go fairly deep into the facts to analyze whether the parties concluded an arbitration agreement (Ismail v. First York Holdings Inc., 2023 ONCA 332).

Query whether this falls out of line with jurisprudence from other Model Law jurisdictions (spoiler alert: yes. See for example the Singapore High Court’s decision in Malini Ventura v Knight Capital Pte Ltd and others, [2015] SGHC 225). 

Second, and continuing the “exposing frailties” theme, this is another case showing how weak the fresh consideration requirement for contract amendments has become. The notion that a party can satisfy the fresh consideration requirement by simply continuing to provide services already offered prior to an amendment exposes a rather low threshold. In fairness, the Court also cited the “new seven-day termination provision”, although the reasons present this as something of an afterthought.

Is it not time to put the final nail in the fresh consideration coffin? Asking for a friend.

Third, this case comment would be incomplete without discussing the enigmatic subsection 7(6) of the Act. Rarely does a provision so plainly worded prove as thorny as subsection 7(6). This provision exists in all of the ULCC-based arbitration statutes (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia). It therefore warrants a little discussion.

On its face, subsection 7(6) bars any appeal on a motion to stay a court proceeding in favour of arbitration under section 7. But the jurisprudence interpreting subsection 7(6) complicates its application. It says that where the Court finds no arbitration agreement exists, or that the parties’ dispute does not fall within the arbitration agreement, section 7 (indeed the statute as a whole) is not engaged. The case usually cited for this proposition is Huras v. Primerica Financial Services Ltd., 2000 CanLII 16892, para. 10

[10] Other authorities at the [Ontario Superior Court] level have held to the same effect. Where there is no arbitration clause, the Arbitration Act, 1991 has no application, or putting it another way, the dispute lies beyond the scope of s.7. It follows that if the court has decided that the Act is not applicable, then the prohibition against an appeal in s.7(6) is equally not applicable.” (internal citations omitted)

(See also recently: Ismail, para. 25)

The Court’s treatment of subsection 7(6) in this case appears sound. The Motion Judge made his unconscionability finding pursuant to paragraph 7(2)(b) (“the arbitration agreement is invalid”). If so, he made the finding “under this section” within the meaning of subsection 7(6), and no appeal was permitted. 

Importantly, a contract ruled unconscionable renders the agreement voidable, not void ab initio (Grant v. Saks, 2010 ONSC 2759, para. 9). If it were void ab initio, the Huras reasoning would apply since there would have been no arbitration agreement in the first place. If not, the Act would not have been engaged. But because the arbitration agreement was only voidable, it existed at the time Skip brought its stay motion, and was only rendered void by the Court’s decision. In such cases, the appeal bar should apply.

Fourth, I commend the Court for digging up a conference paper I delivered several years ago on stays under Ontario’s domestic and international arbitration legislation entitled “Arbitration’s Primacy? The Law Pertaining to Staying Court Proceedings in Favour of Arbitration” (cited in paragraph 91 at footnote 7). I sense a very intrepid law clerk as I understand from counsel (who first forwarded me with the decision), that neither party cited this obscure article.