To stay or not to stay? B.C Supreme Court grants a stay and finds arbitration clause contained in a standard form contract to be valid

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In a recent case brought before the British Columbia Supreme Court, Williams v. Amazon[1], the Court had to determine the validity of an arbitration agreement (or arbitration clause), contained in a contract of adhesion, in the context of an application for a stay of class proceedings in favour of arbitration pursuant to section 15 of the Arbitration Act[2].

The Court granted the application to stay in favor of arbitration, with the result of having parallel proceedings, litigation and arbitral, depending on the nature of claims: consumer and non-consumer.

In addition, the Court distinguished the case from Heller v. Uber Technologies Inc.[3], currently under appeal before the Supreme Court of Canada, in which the Ontario Court of Appeal reached a different conclusion and refused to stay the class proceedings. Indeed, in Heller, the Ontario Court of Appeal found that the arbitration clause contained in a contract of adhesion was invalid as it resulted in an illegal contracting out of employment standards and was moreover unconscionable based mainly on the imbalance between the parties and substantial financial costs for a claimant to arbitrate. However, in the present case, the Court found that the arbitration clause provided for a refund of costs in many cases. Further, the arbitration could be conducted through flexible options, and as such, this was not a substantially unfair bargain so as to meet the test for unconscionability.

Background Facts

The plaintiff, John Williams, alleged that the defendants, Amazon.com Inc., Amazon Services International, Inc. and Amazon.com.ca, Inc. (collectively ‘’Amazon’’) have, “for their own benefit and to the detriment of consumers, agreed with third party sellers not to compete for the sales of new books, music, movies, and DVDs on the Amazon Canada website”. The plaintiff alleged that, as a result, consumers had been unlawfully overcharged. The plaintiff sought various remedies under section 172 of the Business and Consumer Protection Act (“BPCPA”)[4], namely the “Consumer Claims”. The plaintiff also sought various “Non-Consumer Claims”, inter alia, under section 36 of the Competition Act[5], and for the tort of conspiracy.

All of Amazon’s costumers are subject to Conditions of Use, which contain an arbitration clause. Amazon was seeking a stay of the plaintiff’s Non-Consumer Claims, conceding that the Consumer Claims could proceed to a certification hearing pursuant to the Supreme Court of Canada’s decision in Seidel[6]. In Seidel, the Supreme Court of Canada (“SCC”) concluded that claims under the BPCPA are not arbitrable as a result of a legislative prohibition. In Williams v. Amazon, the only question before the Court was whether the Non-Consumer Claims advanced by the plaintiff should be stayed in favour of arbitration.

The Court’s Decision

From an arbitration point of view, the decision mainly addressed two issues: whether the arbitration clause was mandatory, and whether it was void, inoperative or incapable of being performed.

The arbitration clause contained in Amazon’s 2014 Conditions of Use applicable to plaintiff’s case stipulated, inter alia, that: “Any dispute or claim relating in any way to your use of any Amazon.ca Service, or to any products or services sold or distributed by Amazon.ca or through Amazon.ca Services will be resolved by binding arbitration, rather than in court, except that you may assert claims in small claims court if your claims qualify. The U.S. Federal Arbitration Act and U.S. federal arbitration law apply to this agreement.”

The arbitration clause also contained a governing law cause, providing that the laws of the state of Washington, United States governed, without regard to principles of conflict of laws.

Was the arbitration clause binding on the parties?

Amazon argued that the plaintiff’s Non-Consumer Claims fell within the scope of the mandatory arbitration clause.. On the other hand, the plaintiff argued that the Conditions of Use did not contain a binding arbitration clause, but rather an optional one, which allowed both a recourse to arbitration or for a small claims action, which, according to plaintiff, was not defined in the Conditions of Use. On this issue, the Court concluded that the terms “will be resolved by binding arbitration” (our emphasis) and its exception for small claims actions suffered no ambiguity and that plaintiff’s only option was mandatory arbitration.

Was the arbitration clause void, inoperative or incapable of being performed?

The plaintiff also argued that the arbitration clause should not be enforced as it was contrary to public policy and unconscionable.

First, the plaintiff argued that the claims under the Competition Act were not arbitrable, and that an arbitrator appointed to apply Washington state law to the dispute was not a court of competent jurisdiction under the Competition Act. In addition, the plaintiff argued that a claim for damages under the Competition Act cannot be arbitrated under the laws of the state of Washington. Finally, the plaintiff argued that the arbitration clause would be contrary to public policy if it allowed claims under the Competition Act to be decided in a foreign forum and under foreign law, namely Washington state law.

Applying Seidel, and because the plaintiff failed to demonstrate legislative intent to render non-arbitrable the claims under the Competition Act, the Court dismissed the plaintiff’s first argument and concluded that claims under the Competition Act are arbitrable. Regarding the plaintiff’s second argument, after considering the expert evidence, the Court recognized that an arbitrator could decide whether he or she was bound by Washington state law only, and could decline applying the Competition Act. Interestingly, the Court invoked the competence-competence principle, wherein an arbitrator can decide on his or her own jurisdiction. The Court further stated that it was up to the arbitrator to determine whether he or she has jurisdiction to grant relief under the Competition Act. Finally, the Court reiterated the limited grounds to invalidate an arbitration clause, for instance, when enforcing the arbitration clause results in a contracting out of statutory rights and when said contracting out is prohibited by statute. The Court concluded that no such prohibition existed with regards to section 36 of the Competition Act.

Second, the plaintiff argued that the arbitration clause was unconscionable in imposing a prohibitive cost and burden on an individual with a relatively small claim. The plaintiff relied on the decision of the Ontario Court of Appeal, Heller v. Uber Technologies Inc., but failed to demonstrate similar facts or similar arbitration clauses. The Court stated the fact that the arbitration clause is contained in a consumer contract is irrelevant. Instead, in order for an arbitration clause to be unconscionable, a party had to demonstrate inequality in the position of the parties and prove substantial unfairness[7].

The Court concluded that the plaintiff failed to establish the required criteria. Indeed, the Conditions of Use provided that a claimant was only required to pay a fee to initiate arbitration, which in plaintiff’s case amounted to $200, refundable by Amazon for claims less than $10,000, unless the arbitrator determines the claim to be frivolous. In addition, the arbitration proceeding could be conducted by telephone, written submissions, in person where the claimant lives, or at another mutually agreed location.

Conclusion

This decision shows the tendency of Canadian courts to enforce arbitration clauses, even when contained in adhesion contracts, such as consumer standard contracts. The fact that the terms of the arbitration clauses were not negotiated by the consumer is irrelevant when deciding whether the arbitration clause is enforceable. The courts seem inclined to apply a case-by-case analysis, by looking at the specific facts and the balance/imbalance relation between the parties, also considering the costs required to arbitrate. Where arbitration clauses provide for relatively low costs for claimant to initiate arbitration, as well as easy and accessible arbitration proceedings, the courts may be more inclined to stay proceedings in favour of arbitration.

For further related reading, see our previous post on Williams v. Amazon, 2019 BCSC 1807 (CanLII).

[1]Williams v. Amazon, 2020 BCSC 300. Notice of appeal filed on March 17, 2020.

[2]Arbitration Act, R.S.B.C. 1996, c. 55.

[3]Heller v. Uber Technologies Inc., 2019 ONCA 1, leave to appeal granted [2019] S.C.C.A. 58.

[4]Business and Consumer Protection Act, S.B.C. 2004, c. 2.

[5]Competition Act, R.S.C. 1985, c. C-34.

[6]Seidel v. TELUS Communications Inc., 2011 SCC 15.

[7] The unconscionability test is somewhat different in Ontario and British Columbia.

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