Is Conflict A Bad Word? Consultant Challenges Enforceability

Conflict Is it a bad word? Consultant Challenges enforceability of Arbit

Conflict is often viewed negatively, but in the context of dispute resolution and contractual agreements, it represents an inherent part of human interaction and business transactions. This case study presents a scenario involving John Smith, a seasoned Canadian agronomy consultant, and Agro, a Vietnamese company, which introduces issues regarding the enforceability of arbitration clauses and dispute resolution policies. Smith's claims and disputes with Agro highlight critical legal considerations, especially in the international arbitration context, and raise questions about fairness, negotiation power, and the potential biases embedded within arbitration procedures.

The core conflict in this case revolves around the arbitration policy embedded within the consulting agreement between Smith and Agro. When Agro refuses to pay Smith for his services after terminating the agreement, Smith seeks legal recourse in Saskatchewan, asserting breach of contract. Agro responds by insisting on arbitration in Vietnam, citing the arbitration policy that excludes litigation and mandates arbitration at a specific location. Smith opposes this, claiming the arbitration process is biased, one-sided, and potentially unfair, thus challenging its enforceability under Canadian law, notably in light of the Supreme Court decision in Douez v Facebook.

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The enforceability of arbitration clauses, especially those that are perceived as one-sided or unfair, is a contentious issue in both domestic and international legal contexts. The Canadian courts, including the Supreme Court, have historically scrutinized arbitration agreements to ensure they do not undermine substantive fairness or violate public policy. The case of Douez v Facebook (2017 SCC 23) serves as an important precedent, emphasizing that arbitration clauses must be clear, fair, and not impose oppressive or unconscionable terms on weaker parties.

In the current scenario, Smith could argue that the arbitration policy is unenforceable because it favors Agro disproportionately, violating principles of fairness and procedural justice. The clause’s provisions—such as the skewed selection process favoring the respondent, the ability of Agro to unilaterally modify terms without notice, and the cost-shifting to Smith—may constitute unconscionable or oppressive terms that Canadian courts are reluctant to uphold. The inequitable arbitration process, especially with the potential for bias, violates the principles established in Douez v Facebook, where the Supreme Court emphasized that clauses must not be oppressive or contrary to public policy.

Furthermore, Smith can invoke the doctrine of "procedural unconscionability," arguing that the arbitration clause was presented on a "take-it-or-leave-it" basis, with unequal bargaining power, and lacked meaningful choices. The clause’s stipulation that all costs would fall on Smith could be deemed unconscionable if it effectively discourages legitimate claims or leaves the weaker party without access to justice.

On the other hand, to persuade the Canadian courts to enforce the arbitration policy, Agro might argue that the clause was mutually agreed upon, clearly laid out, and part of a broader international commercial agreement. The courts might consider whether the arbitration clause was drafted transparently and whether Smith had adequate opportunity to negotiate or understand the terms. The fact that the agreement specifies arbitration in Vietnam could be defended as a valid choice of jurisdiction, given the international nature of the contract, and rooted in the principle of party autonomy—a cornerstone of arbitration law.

Additionally, Agro could emphasize that arbitration is a preferred dispute resolution mechanism for international commercial agreements, often providing a more efficient, neutral, and binding process compared to traditional litigation. If the arbitration clause is deemed clear, distinct, and voluntary, the courts may uphold it, especially if its enforceability is not fundamentally unjust or oppressive.

The differences between this hypothetical case and Douez v Facebook primarily lie in the context—Douez involved a consumer contract that contained an arbitration clause that was deemed oppressive and unconscionable, whereas this case involves a business-to-business agreement where the arbitration clause might stand up to scrutiny if properly negotiated. However, the core issue remains whether the clause’s terms are fair and whether it was effective in limiting dispute resolution to arbitration.

One-sided arbitration clauses, like the one in this case, can be detrimental to a company's reputation and business interests. Such clauses may deter legitimate claims, discourage fair dispute resolution, and reduce the company's accountability. Courts increasingly scrutinize clauses that tilt the playing field unfairly, especially in international disputes where power imbalances are common. Enforcement of unfair arbitration clauses can lead to economic disadvantages, potential litigation risks, and damage to the company's reputation for fairness.

In conclusion, the enforceability of the arbitration policy in this case hinges on its fairness, procedural transparency, and compliance with public policy as established by Canadian case law. While arbitration is a valuable dispute resolution tool, it must balance efficiency with fairness, ensuring that neither party’s rights are unduly compromised. The courts' approach in Douez v Facebook underscores the importance of scrutinizing arbitration clauses for unconscionability and bias—principles that equally apply here. Both parties should likewise consider the long-term implications of their dispute resolution provisions, ensuring they promote justice, fairness, and equitable treatment in international commercial agreements.

References

• Douez v Facebook Inc., 2017 SCC 23.
• Born, G. B. (2020). International Commercial Arbitration. Kluwer Law International.
• Fouchard, G., Gaillard, É., & Goldman, B. (2015). An Introduction to International Commercial Arbitration. Kluwer Law International.
• Redfern, A., & Hunter, M. (2015). Law and Practice of International Commercial Arbitration. Sweet & Maxwell.
• Schmitthoff, C. M. (2016). Arbitration and the Enforcement of Commercial Contracts. Journal of Business Law.
• Shankman, D. (2018). Fairness in International Arbitration. Arbitration International.
• Canadian Arbitration Act, R.S.C. 1985, c. 17 (2nd Supp.).
• Hall, M., & Killander, M. (2015). International Commercial Arbitration. Oxford University Press.
• Huck, C. (2019). Enforcing Unconscionability and Unfair Terms in Arbitration Agreements. Journal of Dispute Resolution.
• Weinberg, J. (2016). The Role of Public Policy in International Business Arbitration. Journal of International Arbitration.