Arbitration Clauses in Online Gaming Contracts:

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Arbitration Clauses in Online Gaming Contracts:
Not another boilerplate provision


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Operators of online gaming sites must give serious consideration to including mandatory arbitration clauses in their online gaming contracts. Given arbitration’s unique business and pragmatic consequences, arbitration clauses should address the protective concerns of legal counsel, but also require the input of management. There are many reasons a gaming site operator would desire a mandatory arbitration clause. The parties to a gaming contract may feel more confident when disputes are resolved by someone knowledgeable about the industry than by a judge. Experienced gaming industry veterans acting as arbitrators are likely to be more consistent and even-handed in their decision-making. Moreover, arbitration offers relative privacy and confidentiality in resolving disputes compared to the court system.

Arbitration clauses also offer defensive advantages to gaming site owners. They can frustrate class action proceedings by requiring any complainant to proceed on a case by case basis through arbitration. This will often keep many potential claimants from making a claim to begin with.

Generally, whether your arbitration falls under the domestic or international Ontario arbitration statute, courts are not given the first opportunity to decide any aspect of an arbitration award, as an arbitral tribunal alone can rule on whether it has the authority under the terms of the arbitration clause to hear the dispute. However, recent judicial consideration has opened the door to the courts taking jurisdiction over arbitration matters where there are no factual disputes, which potentially includes foreign arbitral award enforcement.

On the negative side, arbitration awards can be pragmatically difficult to enforce in an online gaming context. The place of events giving rise to a dispute, the place for dispute resolution, and the place of enforcement are often not the same. This disjunction is virtually always bound to occur where one operates an online gaming site.

Because online gaming sites often operate internationally and are frequently located in different jurisdictions than most of their users, a mandatory arbitration clause allows the location and law of the arbitration to be favourably chosen in advance by the owners. This encourages consistency for the gaming site both geographically and substantively. The disadvantage to a locally decided arbitral award is the defendant likely has no assets in the chosen jurisdiction, and therefore the arbitral award must still be enforced in the home jurisdiction of the user to ensure payment.

When attempting to enforce a foreign arbitral award, the party seeking the enforcement must often endure the scrutiny of the “public policy” test of the enforcing jurisdiction. For example, the International Commercial Arbitration Act in Ontario (based on both the UNCITRAL Model Law and the New York Convention) is intended to enable recognition and enforcement of foreign arbitral awards. Prominent among the grounds to refuse enforcement is that “the subject-matter of the dispute is not capable of settlement by arbitration” under the law of the jurisdiction in question or that “the recognition or enforcement of the award would be

contrary to the public policy” in that jurisdiction.

Though public policy can encompass a number of concerns, a particular concern to online gaming sites is that a public policy defence may consider whether the debt that is the subject of the arbitration is barred by gaming legislation in the enforcing jurisdiction. Where enforcement of private gaming contracts and debts is contrary to local law, gaming site owners should remain aware that arbitral awards related to enforcing such contracts or debts from other jurisdictions may be unenforceable locally.

However, in the context of enforcement of foreign judgments, Ontario gaming legislation has been construed narrowly and public policy considerations have not precluded recognition and enforcement in Ontario of gaming debts incurred in other jurisdictions. The Ontario judiciary has mentioned that the growth of casino gambling in Ontario has lessened the plausibility of a public policy defence to refuse enforcement of foreign judgments. Arguably, no different approach should be taken in the enforcement of a foreign arbitration award.

In closing, a well crafted arbitration clause in online gaming contracts is worth the attention of not only a company’s legal counsel but also a company’s management. What seems to be a routine legal provision in standard contracts can have substantial business implications when it comes to online gaming contracts.

By Javad Heydary, chairman and managing director of Heydary Hamilton PC