In Coinbase Inc. v. Suski et al, the United States Supreme Court considered the interesting scenario of two parties having entered into multiple contracts dictating conflicting modes of dispute resolution such that it is unclear which agreement governs on this issue. The Court concluded that in such circumstances, a court – not an arbitrator – must first decide which contract applies, and therefore which mode of dispute resolution governs.[1] Given that many Canadian parties also do business in the United States, Coinbase will accordingly be of interest to Canadian readers notwithstanding that it is premised upon an underlying arbitral framework much different from that seen in Canada with respect to similar issues.

Background

Coinbase, Inc. operates a cryptocurrency exchange platform where users can buy and sell digital currencies. In order to do so, users must create accounts and enter into a User Agreement with Coinbase. This User Agreement included an arbitration agreement, which specified that any disputes arising from the User Agreement, including issues related to its enforceability and scope, would be decided by an arbitrator:

This Arbitration Agreement includes, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement. All such matters shall be decided by an arbitrator and not by a court or judge. (emphasis added).[2]

In June 2021, the respondents, having previously entered into a User Agreement, then entered a sweepstakes competition offered by Coinbase for a chance to win cryptocurrency. In agreeing to enter the sweepstakes competition, the respondents agreed to the Official Rules of the sweepstakes. The Official Rules, through a forum selection clause, designated that any controversies related to the promotion would be exclusively decided by the California courts:

The California courts (state and federal) shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion and the laws of the state of California shall govern the promotion. Each entrant waives any and all objections to jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts. (emphasis added).[3]

A conflict arose when the respondents filed a class-action lawsuit in the U.S. District Court for the Northern District of California, alleging that the sweepstakes violated various California consumer protection laws. Coinbase, invoking the Arbitration Agreement from the User Agreement, brought a motion to compel arbitration. However, the respondents argued that the forum selection clause in the Official Rules should prevail, thus requiring the dispute to be resolved in court.[4]

The District Court and the Ninth Circuit sided with the respondents, ruling that the forum selection clause in the Official Rules superseded the Arbitration Agreement in the User Agreement. Coinbase subsequently appealed to the United States Supreme Court, leading to the present case.[5]

The Supreme Court Decision

In finding for the respondents, the Court emphasized that the Federal Arbitration Act, as a core principle, endorses the fact that arbitration is a matter of contract. Indeed, the Court emphasized that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”.[6] This principle ensures that arbitration agreements are on equal footing with other contracts, and are honoured based on the parties’ mutual consent.[7]

Moreover, the Court further emphasized that arbitration agreements are strictly a matter of consent. Specifically, while arbitration is a platform to resolve disputes, it can only resolve disputes which have been agreed by the parties to be submitted to arbitration. As a result, the proper analysis to be undertaken is to discern the exact scope of the parties’ agreement, in order to determine what the parties have agreed to in their contracts. In that regard, the Court acknowledged that parties can form multiple agreements concerning arbitration, which can pertain to (1) the merits of a dispute, (2) whether the dispute is arbitrable, as well as (3) who decides whether the dispute is arbitrable. In this case, the Court introduced a fourth layer: determining which contract governs when there are conflicting agreements as to who decides arbitrability (or, as the Court put it, whether the parties “agreed to arbitrate arbitrability”).[8]

The Court emphasized that determining who has the power to decide arbitrability is a crucial exercise as, usually, a party who has not agreed to arbitrate will posses the ability to go to court regarding the merits of the dispute. Thus, courts are cautious to assume that parties have agreed to arbitrate absent clear and unmistakable evidence.[9] In that regard, the United States differs from Canada and several other jurisdictions, in that the latter would generally apply the principle of competence-competence as a default rule in order to refer such a question to the arbitrator for determination (subject to some exceptions).

In any event, Coinbase argued that the User Agreement’s arbitration agreement was meant to govern all agreements moving forward, such that the parties agreed to arbitrate all subsequent disputes. On the other hand, the respondents argued that the forum selection clause in the Official Rules superseded the arbitration agreement in the User Agreement. This would mean that the parties’ intention was to send disputes related to the sweepstakes, including those regarding arbitrability, to California courts.

Moreover, Coinbase argued for the application of the severability principle, which stipulates that an arbitration or delegation provision is severable from the rest of the contract, and “unless the challenge is to the arbitration [or delegation] clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance”.[10] As a result, Coinbase argued that the Ninth Circuit should have isolated the arbitration provision and considered only arguments which were specific to that provision. However, the Court noted that this principle does not require a party to challenge only the arbitration provision. Rather, if a challenge applies equally to the whole contract and the arbitration provision, a court must address that challenge. Thus, the Court upheld the Ninth Circuit’s approach of considering both contracts to determine which agreement governed.[11]

Finally, Coinbase also argued that the User Agreement’s arbitration agreement should govern without regard to the subsequent forum selection clause in the Official Rules. The Court declined to address this argument, concluding that it was outside the scope of the question presented to the Court, given that the Court was only asked to decide whether a court or arbitrator would decide on the conflict between the two provisions – it was not asked to decide itself which agreement governed.[12]

Accordingly, the Court concluded that when faced with multiple agreements that are in conflict, the question of which contract governs must be answered by a court.[13]

Commentary

Notwithstanding that Coinbase is not a Canadian case, it will nevertheless be of interest to Canadian readers given the possibility of a similar situation occurring for parties doing business in Canada (particularly where they are engaged in transactions or projects requiring multiple agreements).

That being said, readers should necessarily exercise caution in considering takeaways from this decision as it applies to Canada. As noted above, the United States differ from Canada and other jurisdictions in that the United States, in principle, does not treat competence-competence as a default rule that gives arbitrators the authority to rule on jurisdictional issues. To the contrary, the American approach is to assign that responsibility to the courts, unless there is clear and unmistakable evidence that the parties have delegated that authority to the arbitrator.

On the other hand, however, Coinbase is not necessarily a case purely about arbitrability or who has the ability to decide questions of arbitrability. As the Court observed, this was actually a case about the interpretation of conflicting agreements, to which traditional principles of contract interpretation apply, in order to answer the question of whether the parties agreed to arbitrate arbitrability issues (or in other words, whether or not there is an agreement to arbitrate). Ultimately, this question was resolved by reference to the American default rule of delegating such a question to the courts in the absence of clear and unmistakable evidence to the contrary (of which there was none in this case).

Ultimately, although the result may very well have been different if this case had occurred in Canada[14], Coinbase nevertheless offers certain fundamental takeaways for Canadian readers.

In particular, the decision confirms the necessity of ensuring uniformity in dispute resolution provisions across related documents. Ensuring that all agreements within a commercial relationship are consistent on this issue will allow parties to avoid disputes of this nature and focus on the merits of disagreements, thus saving time and resources on issues that are peripheral to the substance of a dispute. Indeed, Coinbase is a perfect example of such a risk, as the resolution of this case took several years (during which time the substance of the respondents’ class-action complaint took a back seat to this preliminary issue).

[1] Coinbase, Inc. v. Suski et al 144 S.Ct. 1186, No. 23-3 [Coinbase].

[2] Ibid at page 2.

[3] Ibid at page 3.

[4] Ibid.

[5] Ibid.

[6] Ibid at page 4.

[7] Ibid.

[8] Ibid at page 5.

[9] Ibid.

[10] Ibid.

[11] Ibid at pages 6-7.

[12] Ibid at page 8.

[13] Ibid at pages 6 and 8.

[14] See, for example, Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 at paras 38-43.

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