Federal – Amazon purchasers’ class-action competition claims referred to arbitration – #683

In Difederico v. Amazon.com, Inc., 2022 FC 1256, Justice Furlanetto of the Federal Court granted Defendants’ motion to refer to arbitration claims asserted under section 45 of the Competition Act, RSC 1985, c C-34 (the “Competition Act”) by a proposed class representative plaintiff. Of interest to arbitration observers, the judgment considered the circumstances which qualify as “commercial legal relationships” within the meaning of the United Nations Foreign Arbitral Awards Convention Act, RSC 1985, c 16 (2nd sup) (“UNFAACA”), the statute which implements the New York Convention into the federal law of Canada. The New York Convention, Article II(3), requires a court of a contracting State, at the request of a party, to refer claims covered by an arbitration agreement to arbitration, unless the arbitration agreement is null and void, inoperative, or incapable of being performed. This case also features detailed analysis of the access-to-justice exception to the competence-competence principle recognized in Uber Technologies, Inc. v. Heller, 2020 SCC 16 (“Uber”).

The litigation – Proposed Representative Plaintiff Difederico (“Plaintiff”) filed an action on April 1, 2020, alleging over CAD $12 billion in damages on behalf of three classes of consumers who had purchased allegedly price-fixed products. The Defendants’ allegedly criminal policies (1) prohibited third-party sellers on the Amazon.com and Amazon.ca platforms from selling products to consumers on any other e-commerce website for less than the price charged on Amazon platforms, and (2) imposed penalties on third-party sellers if they violated that prohibition.

On April 6, 2021, the Defendants moved to stay claims of one of the proposed classes in favour of arbitration. The stay motion initially relied on arbitration clauses in the Conditions of Use to which users of Amazon.com and Amazon.ca must agree when they create accounts, and each time they make an order under that account. After the arbitration clause was removed from the Amazon.com Conditions of Use in May 2021, the stay motion was amended to rely only upon the Amazon.ca Conditions of Use. On September 6, 2022, the court granted the stay and referred the Plaintiff’s proposed class claims to arbitration.

Law applicable to the stay motion – The crux of this issue was whether the Plaintiff’s claims were “differences arising out of commercial legal relationships”, to which the New York Convention applies, within the meaning of subsection 4(1) of the UNFAACA. The Plaintiff argued that the UNFAACA did not apply to her relationship with Amazon, and that paragraph 50(1)(b) of the Federal Courts Act, R.S.C.1985, c.F-7,  authorized the court to refuse the stay, “in the interests of justice“. In contrast, the Defendants argued that the UNFAACA applied and left “no residual discretion under paragraph 50(1)(b) of the Federal Courts Act to refuse a stay in favour of arbitration […] where the dispute arguably falls within an arbitration agreement that is not null, void, inoperative or incapable of being performed.

The UNFAACA was the relevant statute in this case, rather than provincial legislation, because the claims were brought under the federal Competition Act, R.S.C. 1985, c. C-4. The Federal Court of Appeal upheld the constitutionality of the UNFAACA in Compania Maritima Villa Nova S.A. v. Northern Sales Co. (C.A.), 1991 CanLII 13596 (FCA) with respect to “foreign arbitral awards having a federal character in a constitutional sense.” Difederico appears to presume that Section 6 of the UNFAACA, which grants concurrent jurisdiction to the federal and provincial superior, district, or county courts with respect to enforcement of foreign arbitral awards, does the same with respect to arbitration agreements covered by the New York Convention (at least those having a federal character in a constitutional sense). 

The UNFAACA provides no definition of “commercial legal relationships”, and Justice Furlanetto observed, at para. 53, that the Federal Court had not yet interpreted that phrase. The Plaintiff argued that Uber established that employment disputes and consumer claims are not commercial.” Uber concluded that a dispute over a person’s status as an employee was not “commercial” within the scope of Section 5(3) of the Ontario International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 (“ICAA”), which adopted the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) in Ontario.

Justice Furlanetto noted, at para. 60, the direction of the majority decision in Uber to approach this issue by examining “the nature of the dispute rather than the nature of the relationship between the parties.” Applying this lens, Justice Furlanetto distinguished the Plaintiff’s alleged injuries – “those of an ordinary consumer” – from the conduct which allegedly caused them. Justice Furlanetto agreed with the Defendants’ characterization of the “pith and substance” of the dispute as allegations of anti-competitive conduct between the Defendants and third-party sellers. Accordingly, Justice Furlanetto ruled, at paras. 65-66, that “these purported agreements are commercial transactions between business entities akin to a ‘trade transaction for the supply or exchange of goods or services’ or ‘distribution agreement’ like the examples of commercial relationships listed in the footnote to the Model Law: Uber at para 23. Although Ms. Difederico is a consumer, in my view the claims she has made have a commercial foundation.” Justice Furlanetto concluded that the UNFAACA applied to the stay motion.

Merits of the stay motion – Justice Furlanetto determined, at para. 69, that to decide the stay motion required analysis of the following three questions: “(1) is there an arbitration agreement in place; (2) does Ms. Difederico’s claim arguably fall within the scope of the arbitration agreement; and (3) are there any grounds on which to deny the stay?

On the first question, Justice Furlanetto agreed with Amazon, at para. 70, that “there can be no serious debate that an arbitration agreement is in place.” She considered and dismissed the Plaintiff’s arguments that she lacked adequate notice, that there was an irreconcilable conflict between the Amazon.com and Amazon.ca Conditions of Use, and that the amendments to the Amazon.ca arbitration clause rendered it optional.

Second, Justice Furlanetto considered whether the Plaintiff’s claims arguably fell within the scope of the arbitration agreement. As noted at para. 92, the analytical threshold for this issue is low. Finding that the scope of the arbitration clauses at issue was broad, Justice Furlanetto appeared to hold that they not only arguably, but conclusively, covered the Plaintiff’s claims.

Third, Justice Furlanetto analyzed whether an exception applied to the principle of competence-competence, which requires challenges to arbitral jurisdiction to be determined first by the arbitrator. Exceptions apply where a challenge concerns: (1) a question of law alone; or (2) a question of mixed law and fact, where the facts entail only 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. See Dell Computer Corp. v Union des consommateurs, 2007 SCC 34, at paras. 84-86.

Uber recognized a third exception, arising where a reference to arbitration would pose “practical problems of access to justice.” The majority in Uber was concerned that factors like disproportionate or onerous costs, logistical barriers, or the circumvention of mandatory local policy, would make it impossible for the claimant to arbitrate, or for a preliminary or jurisdictional challenge to be resolved. Uber, at para. 39.

Uber provided instructions, at para. 44, for lower courts considering claims under this exception: “First, the court must determine whether, assuming the facts pleaded to be true, there is a genuine challenge to arbitral jurisdiction. Second, the court must determine from the supporting evidence whether there is a real prospect that, if the stay is granted, the challenge may never be resolved by the arbitrator.” On the second limb, Uber cautioned at para. 45 that “this assessment must not devolve into a mini-trial.

On the first limb of the test, Justice Furlanetto agreed, at para. 98, that the Plaintiff’s arguments demonstrated a genuine challenge to arbitral jurisdiction. With respect to the second limb, the Plaintiff argued: (1) that the choice of law clause in the Amazon.ca Conditions of Use would prevent an arbitrator from applying the Competition Act, foreclosing remedies for violations of Canadian law; (2) that the costs of arbitrating in the United States on an individual rather than class basis would be prohibitive; and (3) that the arbitration agreements were contrary to public policy and unconscionable. 

As to the Plaintiff’s first argument, Justice Furlanetto ruled that the record did not clearly show that there would be no relief available from a tribunal organized under the Amazon.ca Conditions of Use. The choice of law clause in question provided for the application of “the U.S. Federal Arbitration Act, applicable U.S. federal law, and the laws of the state of Washington, United States, without regard to principles of conflict of laws.” Both parties introduced expert evidence about the availability of damages for violations of the Competition Act, or damages under U.S. antitrust law, from an arbitrator appointed under the Amazon.ca Conditions of Use. Justice Furlanetto found, at para. 109, that the complex questions of fact and law presented by the parties were beyond the scope of allowable review at this stage: “to meet the exception set out in Uber […] should not require the complex analysis presented to the Court here.

Second, Justice Furlanetto concluded, at paras. 117-121, that the arbitration clauses did not preclude the Plaintiff from advancing claims. There was no evidence of legislative disfavour of class-action waivers or of arbitration under the Competition Act, and it was not persuasive that competition claims are notoriously expensive to advance.

Third and finally, Justice Furlanetto found at para. 126 that because the Plaintiff’s unconscionability argument arose from the nature of her claims, rather than from the time of contract formation, it was “not supported by the law of unconscionability.”

Contributor’s notes

First, this case is at the leading edge of a difficult and long-simmering controversy about the appropriateness of mandatory commercial arbitration between individuals and companies – especially in contracts of adhesion with large enterprises like Amazon or Uber. It would be surprising if this case is the last word on the scope of what is a “commercial legal relationship” under the UNFAACA or the Model Law. The majority decision in Uber instructed courts to approach this question by examining pleadings to determine the nature of the dispute, rather than undertaking the more nebulous, and laborious, task of characterizing the parties’ entire relationship. In contrast, the dissent in Uber, authored by Justice Côté, suggested that the inquiry should focus on a “superficial” review of the parties’ relationship.

Second, the Uber majority’s emphasis on the pleadings means that alleged conduct of third parties may be relevant to whether claims are commercial within the scope of the UNFAACA or Model Law. Viewed narrowly, this case involved a consumer’s claims in which she alleged having been unlawfully overcharged for goods. Commentary to the Model Law suggests that “ordinary consumer” claims are not commercial legal relationships, and therefore are not covered by the Model Law. Justice Furlanetto, though, following Uber, examined the wider context of the Plaintiff’s claims as-alleged in the pleadings. The allegation of illegal price-fixing involving a third party provided the crucial commercial foundation for the UNFAACA to apply, distinguishing the Plaintiff’s claims from those of an “ordinary consumer.” Considering the complexity of the global supply chain, the scope of consumer relationships which are not commercial when viewed through the Uber lens may be small.

Third, two competing circumstances appeared to drive the result in this case. On one hand, Canada strongly favours the enforcement of arbitration agreements, a policy backed by Canada’s international obligations and legislation at the federal and provincial levels. On the other hand, Justice Furlanetto lacked statutory guidance about the scope of consumer claims which are not “commercial”, or about the enforceability of class-action waivers. Legislative interventions may be needed if the outcomes in this case and others involving consumers do not accord with what policymakers want.