Off to Arbitration: Federal Court stays Class Action in Support of Arbitration
Why this decision matters
In Difederico v Amazon.com, the Federal Court of Canada upheld the competence-competence principle, reinforced the binding nature of contracts of adhesion, and confirmed that an arbitration clause cannot be deemed unconscionable by the circumstances under which an individual seeks to bring a claim, but rather the clause must be unconscionable on its face. Additionally, the Court reinforced the high bar for a finding that an arbitration clause is unconscionable.
Overview of the proceedings
On April 1, 2020, Stephanie Difederico filed a proposed class action against Amazon and its subsidiaries, alleging that their competitive pricing provision (effective year 2010 to March 2019) and subsequent fair pricing policy constituted criminal price fixing contrary to section 45 of the Competition Act, RSC 1985, c C-34. The representative Plaintiff, Ms. Difederico, created her Amazon.ca account in 2016 and, by June 23, 2021, had placed over 285 orders with Amazon.ca. Even after commencing her action, she continued to place orders with Amazon.
Upon creating an account with Amazon.com or Amazon.ca, and each time an account holder makes a purchase thereafter, customers are required to agree to the site’s “Conditions of Use”. From October 24, 2014 until March 30, 2022, the conditions of use for Amazon.ca (the “2014 Conditions”) included a dispute resolution and arbitration clause, as well as a choice of law clause. Of note, the clause states:
- Any dispute or claim relating to the use of any Amazon.ca service, or product sold by Amazon.ca, will be resolved by binding arbitration, with the exception of small claims court claims where applicable;
- Any dispute resolution proceedings will be conducted only on an individual basis and not in a class, consolidated or representative action; and
- The U.S. Federal Arbitration Act, applicable U.S. federal law, and the laws of the state of Washington shall govern the Conditions of Use without regard to principles of conflict of laws.
On April 6, 2021, Amazon filed a motion to stay the action in favour of arbitration, relying on the arbitration provisions in the dispute resolution clauses. The Federal Court ordered the stay motion to be heard prior to the certification motion.
Similar dispute resolution and choice of laws clauses were found in the conditions of use applicable to Amazon.com; however, as of May 3, 2021, Amazon.com ceased to include a dispute resolution clause providing for arbitration as part of the conditions of use for the website. As a result of this change, the Plaintiff amended her certification notice of motion to certify only the claims associated with purchases from Amazon.ca. After the motion was heard, on March 30, 2022, Amazon.ca made amendments to its conditions of use (the “2022 Amendments”), including:
- Providing the option to elect for disputes with Amazon.ca to be resolved by arbitration, or before the courts of that province, so long as the law allows; and
- Removing the conflict of laws provision, stating that the applicable U.S. laws govern except to the extent that Canadian federal or provincial law say otherwise.
The Court’s Decision on the Stay Motion
The Impact of the Amended Arbitration Clauses on the Motion
The Plaintiff argued that her motion should be deferred until after certification because of the 2022 Amendments’ removal of the arbitration clause. The Federal Court, however, agreed with Amazon, which submitted that the Plaintiff’s request to adjourn constituted an abuse of process and a collateral attack on the Sequencing and Motion to Vary orders.
The Plaintiff further argued that the amendments created uncertainty as to which arbitration and choice of law provisions were in effect and over which period, constituting procedural unfairness. The Court once again agreed with Amazon, which argued that changes to the arbitration and choice of law clauses were immaterial to the issues on the motion as the operative parts of those clauses remained consistent, and the relief requested on the motion remained unchanged.
What is the test on a stay motion?
Amazon successfully argued there is well-settled precedent in Canada that compliance with commercial arbitration agreements is to be enforced by the courts to the extent such agreements are not null, void, inoperative, or incapable of performance. Citing for example, Seidel v TELUS Communications Inc, 2011 SCC 15 and TELUS Communications Inc v Wellman, 2019 SCC 19, where the Supreme Court of Canada upheld that courts should give effect to arbitration agreements absent legislative intervention. Amazon further reinforced its argument with reference to the United Nations Foreign Arbitral Awards Convention Act, RSC 1985, c 16 (2nd sup) [UNFAACA], which applies to disputes that are commercial in nature, and argued that UNFAACA requires the Court to uphold an arbitration agreement absent circumstances rendering it null and void, inoperative or incapable of being performed.
The Court accepted Amazon’s submissions and determined that the claims made by the Plaintiff had a uniquely commercial character, despite the harms she alleged to have suffered being those of an ordinary consumer. In rendering this determination, the Court made clear that it was the conduct resulting in the harm that must have a uniquely commercial character, rather than the resulting harm itself.
The Court further noted that the three-part test for determining whether a stay applied in this case was as follows:
- Is there an arbitration agreement in place?
- Does the Plaintiff’s claim arguably fall within the scope of the arbitration agreement?
- Are there any grounds on which to deny the stay?
Step 1 - Is there an arbitration agreement in place?
The Plaintiff argued there was no binding agreement for several reasons: (i) she did not receive adequate notice of the dispute resolution terms, (ii) the dispute resolution clause on Amazon.ca is irreconcilable with the conditions of use on Amazon.com, and (iii) any agreement is made non-mandatory by the amendments to the dispute resolution clauses.
The Court disagreed. “Click through” contracts of adhesion have been deemed valid by Canadian courts for over two decades. The Plaintiff made an account with Amazon.ca and made numerous purchases through its online stores. In doing so, she was notified that clicking through to create an account or complete a purchase constituted acceptance of Amazon’s conditions of use. In fact, even after the commencement of the litigation in this case, the Plaintiff continued to make purchases through Amazon.ca. Even though she submitted there was no evidence relating to her acceptance of the 2022 Amendments, the arbitration clause found in those terms contained the same operative language as the 2014 Conditions which she voluntarily agreed to in setting up her account, and each time thereafter when she made her over 285 purchases.
The Plaintiff further argued that the conditions of use on Amazon.com and Amazon.ca must be read together such that the amended Amazon.com conditions of use created an irreconcilable conflict with the Amazon.ca arbitration clause. The Court also rejected this argument, finding that it could not succeed under either US or Canadian law based on the language on the face of the documents, which limits the conditions of use to services provided only by the relevant Amazon entity.
The Plaintiff further argued that the amendments rendered the arbitration language not mandatory. The Court also did not find this argument persuasive, as there was no language arising from the 2022 Amendment’s arbitration clause that rendered it non-binding or unenforceable.
Step 2 - Do the Plaintiff’s claims fall within the agreement?
The Court found the threshold under this step was low, and the Court need only determine that it is arguable that the dispute falls within the arbitration provision. As the Plaintiff’s claim related in some way to her “use of any Amazon.ca Service, or to any products or services sold or distributed by Amazon.ca or through Amazon.ca Services,” the subject matter fell squarely within the language of the agreement.
Step 3 - Are there grounds on which the court should refuse to grant a stay?
Generally, in cases where the validity of an arbitration agreement or the jurisdiction of the arbitrator is challenged, the approach is to refer the issue to the arbitrator, subject to three limited exceptions outlined by the Supreme Court in Dell Computer Corp v Union des consommateurs and Uber v Heller:
- Where the challenge to the validity of the agreement and/or the arbitrator’s jurisdiction concerns a question of law alone;
- Where a question of mixed law and fact involve facts that only entail a superficial examination of documentary proof in the record and the Court is convinced that the challenge is not a delay tactic and will not prejudice the recourse to arbitration; and
- Where referring a bona fide challenge to the validity of an arbitration agreement or to an arbitrator’s jurisdiction to the arbitrator would make it impossible for one party to arbitrate or for the challenge to be resolved.
The Court considered the Plaintiff’s case under the third exception, raising the bona fide challenge to both the jurisdiction of the arbitrator and the validity of the agreement. In assessing her argument, the Court considered whether she would be prevented from accessing a remedy. The Court stated that, as set out in Uber, there must be a “real prospect” that referral of an issue of jurisdiction or validity to an arbitrator would result in the challenge not being resolved. The Court determined that, to meet the exception set out in Uber at this stage should not require complex analysis presented to the Court:
… it must be clear on the record that deferral to arbitration raises a real prospect that there would be a denial of access to justice. A mere possibility, in my view, is not enough to overcome the competence-competence principle.
The Court determined that, on the record, it was not clear there would be no relief available to the Plaintiff if the matter were to proceed to arbitration, or that the choice of law clause would deny the Plaintiff access to justice.
Lastly, the Plaintiff argued that the cost of advancing her claim outside of the “class” context would deny her access to justice. The Court also rejected this argument. The arbitration clause provides that a relatively nominal up-front administrative fee of $200 is all that is required to initiate arbitration, and this fee is refunded for claims less than $10,000, unless the arbitrator determines the claim to be frivolous. Further, the flexibility of location of arbitration expands accessibility: the arbitration agreement allowed for arbitration to be conducted by phone, written submission, or in a mutually agreed upon location.
Are the 2014 and 2022 Arbitration Clauses Unconscionable?
As restated recently in Uber, in order to set aside a contract for unconscionability under Canadian law, a party must establish both inequality of bargaining power and an improvident bargain. The Court in this case contrasted the facts of the Plaintiff’s claim with that of the Plaintiff’s claim in Uber: in Uber, the analysis of unconscionability focused on “the vulnerability of the weaker party and unfairness of a contract or one of its terms.” In Uber, the Plaintiff was prevented by the arbitration clause itself from seeking recourse, and from accessing arbitration for any type of claim. By contrast, the Plaintiff argued that the 2014 and 2022 Arbitration Clauses are now unconscionable because of the nature of her claims. This argument, the Court determined, is “not supported by the law of unconscionability.”
The Federal Court’s decision to stay the action in favour of arbitration agreed to by the parties through a “click through” contract of adhesion provides further support for the primacy of arbitrations in Canada. This should serve as a reminder that arbitration agreements arising in this context are not in and of themselves unconscionable, and thought must be given as to whether the party is practically precluded from pursuing arbitration.
 See Nanisivik Mines Ltd v F.C.R.S. Shipping Ltd,  2 FC 662, 1994
 See decision at para 63
 See decision at para 68
 See Rudder v Microsoft Corp (1999), 2 CPR (4th) 474, 1999 CanLII 14923 (ONSC) at paras 10-18; Electronic Commerce Act, 2000, SO 2000, c 17, subparagraph 19(1)(b)(i)
Campney & Murphy v Bernard & Partners, 2002 FCT 1136 at para 18; Kore Meals LLC v Freshii Development LLC, 2021 ONSC 2896 at para 15.
Dell Computer Corp v Union des consommateurs, 2007 SCC 34, paras 84-86.
Uber v Heller, 2020 SCC 16.
Uber v Heller at paras 38-46
 Decision at para 112
 See Uber at paras 64-66
 See case at para 124, citing Petty at paras 59-60
arbitration international arbitration arbitration agreement arbitration clauses dispute resolution Federal Court