Lochan v. Binance Holdings Limited, 2024 ONCA 784
This action involves a proposed class action against Binance Holding Limited (“Binance”), the world’s largest cryptocurrency trading platform. The representative plaintiffs sought rescission and/or damages against Binance because it sold them securities without filing or delivering a prospectus in violation of the Ontario Securities Act.
Binance moved to stay the proceeding based on the terms of use contract, which required that any disputes be resolved through arbitration. By agreeing to the website’s terms of use, users also accepted any subsequent amendments made by Binance. The motion judge dismissed the motion to stay the proceeding, finding that the arbitration clause was void both because it was contrary to public policy and because it was unconscionable. [1] Binance had amended the arbitration clause multiple times, designating arbitration locations increasingly distant from Canada. The initial cost to access the arbitral tribunal made the forum inaccessible to the average investor.
The Ontario Court of Appeal (“ONCA”) upheld the motion judge’s decision.[2] It confirmed that, as a general rule, challenges to an arbitral tribunal’s jurisdiction should first be determined by the tribunal itself — a principle known as “competence-competence.” However, before intervening, a court must consider whether an exception applies that would justify it determining the validity of the arbitration clause. The ONCA found that an exception applied in this case. A superficial review of the record showed that, due to the inaccessibility of the arbitration forum — stemming from its cost, distance and governing law — there was a real prospect the validity challenge would never be resolved if referred to the arbitral tribunal.
The decision confirms the courts will scrutinize arbitration clauses that are buried in standard term contracts. While recognizing the arbitral tribunal’s competence to rule on its own jurisdiction, the court will intervene where access to justice is at risk.
[1] Lochan. v. Binance Holdings Limited, 2023 ONSC 6714