Online ‘Click’ Contracts Are Not Always Enforceable

In welcome news for users who are forced into unfair online contracts, the recent decision in Lochan v. Binance Holdings Limited, 2023 ONSC 6714, has brought relief to online users who are often forced into unfair online contracts. The court found that the arbitration agreement in Binance’s terms and conditions was unconscionable and unenforceable, as it resulted from an inequality of bargaining power and information, lacked transparency, effectively granted immunity to the platform, and was contrary to the public policy of Ontario. This decision serves as a reminder that online users will not be subject to unconscionable contracts and will not lose their statutory protections.

Facts

The plaintiffs were investors on Binance’s online crypto platform. They brought a proposed class action in Ontario against Binance. According to the class action, Binance sold the plaintiffs cryptocurrency derivatives contracts without submitting or delivering a prospectus in accordance with the Ontario Securities Act.

Binance brought a motion to stay the action in favour of arbitration in Hong Kong. It relied on an arbitration agreement embedded in its website’s terms and conditions. Binance argued that the plaintiffs and every potential class member had digitally signed the agreement, which also contained a choice of law clause designating Hong Kong law.

Decision

Justice Morgan dismissed Binance’s motion, finding that the arbitration agreement was unenforceable on public policy grounds and also unconscionable.

• Public policy: The court found that the arbitration agreement was contrary to public policy because it effectively denied the plaintiffs and other potential class members their statutory right of action under the Ontario Securities Act for Binance’s failure to file or deliver a prospectus. The court also found that the arbitration agreement imposed undue hardship on the plaintiffs and other potential class members, who would have to incur significant costs and travel expenses to arbitrate their claims in Hong Kong, a forum with no connection to the parties or the dispute. The court rejected Binance’s argument that Hong Kong law should apply to the enforceability of the arbitration agreement and held that the public policy of the forum where the action was brought (Ontario) should prevail.
• Unconscionability: The court found that the arbitration agreement was unconscionable because it was part of a standard-form contract that the plaintiffs and other potential class members had no opportunity to negotiate or understand. The court noted that Binance had designed and drafted the contract to take advantage of the complexity and obscurity of the arbitration clause, which was buried out of sight and changed several times during the class period. The court also noted that the arbitration agreement would require the plaintiffs and other potential class members to arbitrate their claims under Hong Kong law, potentially depriving them of the protection of Ontario securities law. The court concluded that the arbitration agreement resulted from an inequality of bargaining power and information between Binance and its investors. The plaintiffs and other potential class members had no opportunity to negotiate the terms of the contract, and the arbitration agreement was presented to them as a take-it-or-leave-it proposition. The court also found that the contract was not explained to the plaintiffs and other potential class members. Investors were also not given adequate time to review the arbitration agreement before being asked to sign it; the website prompted investors to open Binance Futures accounts in “under 30 seconds.”

Rikin Morzaria is a Toronto civil litigation lawyer at Kinara Law. If you’d like assistance with a legal matter, feel free to reach out to him for a free initial consultation.