The Ontario Court of Appeal (the Court) has re-examined arguments over whether a cryptocurrency dispute between cryptocurrency holders and their trading platform, Binance Holdings Limited (Binance), should have been heard in arbitration.
In Lochan. v. Binance Holdings Limited, 2023 ONSC 6714, the Ontario Supreme Court rejected pleas from Binance Holdings Limited (Binance) that legal proceedings should be stayed in favour of arbitration. Despite having an agreement directing arbitration as the forum for dispute resolution, the Supreme Court held that the nature of cryptocurrency meant that court was the most appropriate venue.
In Lochan v. Binance Holdings Limited, 2024 ONCA 784, Binance has again failed. The appeal saw Binance raising four points related to the competence-competence principle, that is – arbitral tribunals have the power to rule on their own jurisdiction. In Binance’s view, the Supreme Court was mistaken in:
- thinking that it, rather than an arbitral tribunal, should decide on whether a cryptocurrency award would contravene public policy on the basis of unconscionability;
- holding that in the relevant circumstances, the competence-competence principle did not apply;
- focusing on whether the validity of the arbitration clause could be decided if the dispute was referred to arbitration; and
- analysing whether, because of cost and distance, the average purchaser of cryptocurrency could access the Hong Kong-based arbitral tribunal.
The Courted rejected each argument:
- Binance had misinterpreted how the Supreme Court had reached the view on public policy. The Supreme Court had not in fact launched straight into a discussion on public policy. It had first considered whether the circumstances allowed for the competence-competence principle to be excluded from consideration. Finding that they had, the Supreme Court could then consider public policy.
- The Supreme Court had analysed competence-competence correctly. It first acknowledged that the default position was that a tribunal should hear its own jurisdiction. It then recognised that the onus rested with the party seeking to avoid arbitration to prove competence-competence should not apply. The respondent accordingly did so. On these facts, the Supreme Court decided to disapply the principle.
- In Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118, the Supreme Court of Canada held that a court is to undergo a superficial review of any documents relied on for arbitration. The Court found that the Supreme Court had done no more than this.
- If the Supreme Court gave effect to the arbitration clause, then the dispute would go to arbitration. Such an outcome would call into question two factors:
- The nature of the proceedings, which the Court feared could be unconscionable.
- Public policy, which is sensitive to unconscionability.
As a result, it was natural to question the profile and capability of the cryptocurrency holders. If the cryptocurrency holders were constrained by their limited resources, then the arbitral process would result in a disproportionate cost to the holders. That resulting award would offend public policy.
For more information on the Supreme Court decision, click here (page 7).
