Another Brick in the Wall: British Columbia Court of Appeal Confirms Framework for Determining Arbitral Jurisdiction

June 17, 2024

Written By David Gruber and Jackson Spencer

For many reasons, including delays in the litigation system, choice of decision-maker and procedural flexibility, arbitration appears to be increasing in popularity as a means to resolve commercial disputes. But what happens when the parties disagree whether an arbitration clause in a contract is enforceable, or whether the dispute is captured by the scope of the arbitration clause, or whether the claimant is barred from starting the arbitration at all? Are these questions to be resolved by the Court or by an arbitral tribunal?

In Spark Event Rentals Ltd. v Google LLC, 2024 BCCA 148 (Spark Event Rentals) the British Columbia Court of Appeal (Court of Appeal) confirmed the two complementary frameworks for obtaining a stay of a court proceeding in favour of having an arbitral tribunal decide questions of jurisdiction.

The first, the "Dell Framework", named after Supreme Court of Canada's decision in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 describes criteria for when the Court should determine a jurisdictional challenge, rather than leave the matter to an arbitral tribunal, even if the question could practically be decided by the latter.

Second, the "Brick Wall Framework", developed in the seven-judge majority of the Supreme Court of Canada in Uber Technologies Inc. v. Heller, 2020 SCC 16, captures circumstances where there are "impediments to bringing a jurisdictional challenge such that the issue of validity may not ever reach the arbitrator to be decided."¹

The Dell Framework

Notwithstanding the general rule that an arbitral tribunal can and generally should determine its own jurisdiction (the competence-competence principle), the courts retain the authority to decide a jurisdictional challenge in certain circumstances. Under the Dell Framework, these circumstances are:

1. A court may decide a question of law alone.
2. Where the jurisdiction of the arbitrator requires the admission and examination of factual proof alone, normally the matter is referred to the arbitrator.
3. For questions of mixed law and fact, courts must also favour referral to arbitration, and the only exception occurs where answering questions of fact entails a superficial review of the documentary proof in the record and where the court is convinced that the challenge is not a delaying tactic or will not prejudice the recourse to arbitration.

Importantly, in Spark Event Rentals, the Court of Appeal clarified that a "superficial review" is not inconsistent with a "searching analysis of legal questions," provided that the necessary facts engaged in the analysis are evident or not legitimately disputed.² This opens the door for parties wanting to have a Court determine a particular legal question, to agree on the factual or documentary record required for that determination. For example, in two recent British Columbia Court of Appeal decisions, the parties agreed to have the court determine a key substantive question (whether the agreements in issue were invalid because they were unconscionable or contrary to public policy) based on facts either evident on the record or undisputed by the parties.³

Accordingly, a party contesting an arbitrator's jurisdiction on a question of mixed fact and law (e.g., contractual interpretation, unconscionability or public policy), who is confident in the evidence before the court, may wish to frame the question as capable of being determined on a superficial review of the undisputed factual record.

The Brick Wall Framework

The Brick Wall Framework, which a court can invoke with or without the Dell Framework, asks whether, if a stay of the court proceeding were granted, there is a real prospect a jurisdictional challenge to the arbitration may never be decided. In Spark Event Rentals, the Court of Appeal clarified that the threshold question is whether—on a limited review of the evidence (and not a mini-trial)—there is a "real prospect" for whatever legitimate reasons, that the challenge to the validity of the arbitration agreement "may never be resolved by the arbitrator."⁴

Once that threshold is met, the court can embark on a thorough analysis of the evidence to determine the issue of jurisdiction on the merits as if it were the arbitrator, and the court has "free reign" to delve as deeply into the evidence to resolve legal and factual questions.⁵

Public Policy

Notably, in Spark Event Rentals, the Court of Appeal rejected the contention that public policy ought to be treated as an alternative ground on which to permit a court (rather than an arbitrator) to take the analysis outside of the competence-competence principle, and to decide whether an arbitration agreement is invalid. Only if the competence-competence principle is displaced (because the Dell Framework criteria are satisfied, because a real prospect of a "Brick Wall" has been established, and/or because the parties agree to displace it) should the court engage in a "detailed substantive analysis of invalidity."⁶

Court of Appeal Decision

In the result, the Court of Appeal upheld the trial judge's finding that the defendant Google LLC had established the necessary statutory requirements for a stay of the plaintiff's proposed class action, and that the plaintiff, an event rental company in Pemberton, British Columbia, had failed to displace the competence-competence principle.

The Court of Appeal found that the judge had correctly engaged in a limited review of the evidence to determine that the plaintiff had sufficient resources to initiate the arbitration process so that the arbitral tribunal "could determine whether the dispute can be resolved in the arbitration."⁷

This is so, despite the plaintiff providing evidence that it could not afford to pursue an arbitration with Google (in California before a tribunal of three arbitrators), but that it's counsel was prepared to fund a class action in British Columbia, on contingency. The Court of Appeal focused on the fact that the plaintiff had not affirmed that it "could not afford the fees associated with an adjudication of the threshold jurisdictional challenge."⁸

This confirms that whether an arbitration is prohibitively expensive in its entirety is not a bar to stay of court proceedings. Only where circumstances such as high fees, or an inability reasonably to reach the place of arbitration, effectively bars access to arbitration or insulates the arbitration from "meaningful challenge", should the court elect to decide the jurisdictional question.⁹

It was unclear whether the lower court explicitly analyzed the issue under the Dell Framework. However, the Court of Appeal was satisfied that the question whether the arbitration agreement was invalid or inapplicable because of unconscionability or contrary to public policy (a question of mixed fact and law) could not be resolved on only superficial consideration of the evidence in the record. Accordingly, the Court of Appeal upheld the decision to order a stay of proceedings of the plaintiff's proposed class action.

Conclusion

Parties entering into contracts with arbitration clauses ought to be well-aware of the Court's preference for having jurisdictional questions determined by an arbitrator. That is, despite the fact that arbitration agreements may be a prerequisite to doing business at all (for example, in Spark Event Rentals, the plaintiff event rental company purchased Google Ads and accepted Google's advertising terms of service). In Spark Event Rentals, the Court of Appeal did suggest that the plaintiff could "disseminate information about its services…without Google Ads" and rely on "organic Internet searches." However, in today's market, is that truly an option? Is consenting to arbitration before a three-member arbitral panel in California a reasonable pre-requisite for an event rental business in Pemberton, BC to contracting with Google?

Accordingly, before entering into an agreement including an arbitration clause, wherever possible, individuals and companies should seek legal advice to clearly understand their rights and remedies should a dispute arises.

If you are planning to enter into such an agreement, or currently need assistance with a dispute related to an arbitration agreement, please contact a member of the Bennett Jones commercial arbitration group.

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