An arbitrator, not the court, is responsible for determining an arbitration agreement's validity
In a recent decision, the BC Court of Appeal ruled that an arbitrator, not the court, must determine the validity of an arbitration agreement under the competence-competence principle.
The issue in Touvongsa v. Lahouri, 2024 BCCA 405 arose from a personal injury lawsuit involving a cosmetic treatment, where the appellant sought to enforce an arbitration clause in the respondent’s signed release form.
The respondent had attended the appellant’s cosmetic treatment business for a session in October 2021, which she claims caused personal injuries. Before the treatment, the respondent allegedly signed a liability release containing an arbitration clause. The clause required disputes to be resolved through arbitration rather than litigation. The respondent denied signing the release and challenged the arbitration clause on grounds it was unconscionable.
The chambers judge dismissed the appellant’s application to stay the court proceedings, ruling that the arbitration agreement was inoperative. He reasoned that the clause was difficult to locate in the release and lacked any explanation to the respondent, and he found it unconscionable based on principles outlined in Uber Technologies Inc. v. Heller, 2020 SCC 16.
The Court of Appeal concluded the chambers judge erred in law by failing to consider whether the court or the arbitrator should decide the validity of the arbitration agreement, as required under the Arbitration Act. It held that this preliminary jurisdictional question is governed by the competence-competence principle, which generally requires arbitrators to determine their own jurisdiction unless exceptions apply.
The Court of Appeal applied the “Dell framework” and the “brick wall framework” to assess whether the chambers judge was correct in bypassing the competence-competence principle. It found that determining the unconscionability of the arbitration clause involved mixed questions of fact and law that could not be resolved through a superficial review of the evidence. The court also noted the lack of evidence regarding the costs of arbitration or the respondent’s ability to afford it, which are key factors in assessing unconscionability.
The court further held that no practical barriers, such as prohibitive costs or inaccessibility, insulated the arbitration agreement from meaningful challenge. It concluded that the issue should be determined by an arbitrator under the competence-competence principle.
The court allowed the appeal, set aside the chambers judge’s ruling, and granted a stay of the court proceedings under the Arbitration Act.
