In Harris v Isagenix International, 2022 BCSC 268, Justice Branch dismissed the defendants’ motion to stay a personal injury action in favour of arbitration, despite an arbitration clause in the parties’ contract. The plaintiff sought damages for personal injuries arising from her use of the defendants’ wellness products. She asserted that the defendants were negligent in the design, manufacture, distribution, marketing and supply of these products (“the Products”). She also relied upon the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 (“BPCPA”). The plaintiff was not only a consumer but also sold the products as part of the defendant’s marketing program. She signed two contracts as a result of which she became a “Preferred Customer” of the Products and, later, an “Associate” entitled to sell the products. She placed orders for the Products for herself while she was a “Preferred Customer” and for herself and others as an “Associate”. Therefore, she “wore two hats”. Justice Branch found that the arbitration clause in the applicable contract covered only potential contract claims, not tort claims. The plaintiff’s action was allowed to proceed.
The plaintiff signed two separate agreements, each with an arbitration clause, in her roles as “Preferred Customer” and “Associate”.
Role as consumer – On July 20, 2017, the plaintiff enrolled as a “Preferred Customer”, with the intention to become an “Associate”, who could purchase and re-sell the Products. She was required to agree to “Customer Terms and Conditions”, which contained a detailed arbitration clause. The most significant portions read as follows:
“(a) ANY CONTROVERSY OR CLAIM ARISING OUT OF, OR RELATING TO, THE CUSTOMER MEMBERSHIP APPLICATION AND AGREEMENT, INCLUDING THESE TERMS AND CONDITIONS, OR THE BREACH THEREOF, SHALL BE SETTLED BY CONFIDENTIAL ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS COMMERCIAL ARBITRATION RULES… IF YOU FILE A CLAIM OR COUNTERCLAIM AGAINST ISAGENIX, YOU MAY ONLY DO SO ON AN INDIVIDUAL BASIS AND NOT WITH ANY OTHER INDIVIDUAL OR AS PART OF A CLASS ACTION. YOU WAIVE ALL RIGHTS TO TRIAL BY JURY OR TO ANY COURT… All arbitration proceedings shall be held in Maricopa County, State of Arizona… Each party to the arbitration shall be responsible for its own costs and expenses, including legal and filing fees; provided, however, that the arbitrator will have discretion to award legal fees and other costs to the prevailing party. The decision of the arbitrator shall be final and binding on the parties. This agreement to arbitrate shall survive any termination or expiration of your relationship with lsagenix.
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(d) In the event that a dispute or claim arising out of, or relating to this Agreement, is not subject to arbitration as set forth above [an injunction], the laws of the state of Arizona shall govern, and the parties agree that proper jurisdiction and venue shall be in the state and federal courts of Arizona…
(e) BY CREATING AN ISAGENIX CUSTOMER ACCOUNT, YOU AGREE TO ACCEPT AND BE BOUND BY THE ABOVE CONFIDENTIAL AND BINDING ARBITRATION.”
Role as Associate – On August 23, 2017, the plaintiff became an “Associate”, defined as an “independent contractor who has met and continues to meet the eligibility requirements set forth in the Associate Contract” and “who may purchase and resell Isagenix products and participate in the Compensation Plan”. “Associates” were also bound by additional contractual documents: Independent Associate Application and Agreement; Compensation Plan; Privacy Policy, and Policies and Procedures. Justice Branch referred to all of these documents as “the Contract”.
Under the Contract, Associates were also permitted to purchase products for their own personal use.
The Contract defined “Customers” to include “Preferred Customers” (which the plaintiff was) and to “End Consumers who have created a Membership Account to purchase Isagenix products at discount prices for the own personal use…” and were are not entitled to participate in the Compensation Plan.
The Contract also contained its own, very similar, arbitration clause:
“ANY CONTROVERSY OR CLAIM ARISING OUT OF, OR RELATING TO, THESE POLICIES AND PROCEDURES, THE COMPENSATION PLAN, OR THE GUIDANCE DOCUMENTS, OR THE BREACH THEREOF, SHALL BE SETTLED BY CONFIDENTIAL ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS COMMERCIAL ARBITRATION RULES.. IF YOU FILE A CLAIM OR COUNTERCLAIM AGAINST ISAGENIX OR ITS OWNERS, DIRECTORS, OFFICERS OR EMPLOYEES, YOU MAY ONLY DO SO ON AN INDIVIDUAL BASIS AND NOT WITH ANY OTHER INDIVIDUAL OR AS PART OF A CLASS ACTION. YOU WAIVE ALL RIGHTS TO TRIAL BY JURY OR TO ANY COURT. All arbitration proceedings shall be held in Maricopa County, State of Arizona…Each party to the arbitration shall be responsible for its own costs and expenses, including legal and filing fees; provided, however, that the arbitrator will have discretion to award legal fees and other costs to the prevailing party. The decision of the arbitrator shall be final and binding on the parties. This agreement to arbitrate shall survive any termination or expiration of your relationship with Isagenix.”
The stay motion – the defendants moved to stay the plaintiff’s personal injury action on the basis of the arbitration clause. Justice Branch dismissed the motion.
As a preliminary matter, Justice Branch found that the operative arbitration clause was that contained in the Contract, not the “Preferred Customer” Agreement.
He also found that the British Columbia International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 (“ICCA”) applied because, pursuant to s. 1(3)(b)(I) of that Act, the place of the arbitration was located outside British Columbia, which was the State in which the parties had their places of business. It appears that he was relying upon the following language in the arbitration clause to make this determination: “[a]ll arbitration proceedings shall be held in Maricopa County, State of Arizona.”
Justice Branch then set out the stay test under s. 8 of ICCA as follows, relying upon AtriCure, Inc. v. Meng, 2020 BCSC 341 at para. 59:
“[15] The three-part test for granting a stay under the ICAA is as follows:
a) the applicant must show that a party to an arbitration agreement has commenced legal proceedings against another party to the agreement;
b) the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and
c) the application must be brought before the applicant takes a step in the proceeding.”
He referred to the low threshold that the defendants must meet to obtain a stay of proceedings:
“[16] If an applicant establishes an arguable case regarding each prerequisite, the court must grant a stay, unless it determines that the arbitration agreement is void, inoperative, or incapable of being performed. The low threshold reflects the principle of competence competence, which affirms arbitrators are competent to determine their own jurisdiction in the first instance: Beck v. Vanbex Group Inc., 2021 BCSC 1619 at para. 10; Clayworth v. Octaform Systems Inc., 2020 BCCA 117 at paras. 21-25.”
There was no dispute between the parties that the defendants could establish an arguable case with respect to elements (a) and (c) of the test. Therefore, the only issue was whether the plaintiff’s claim was, “(b) in respect of a matter agreed to be submitted to arbitration”.
The plaintiff argued that the arbitration clause did not apply to her because:
(a) She brought a personal claim as a user of the product, not in her capacity as an Associate.
(b) The arbitration clause was on longer effective given the passage of time; and
(c) In the alternative, her claim under the BPCPA must be permitted to proceed given the principles set down by the Supreme Court of Canada in Seidel v TELUS Communications Inc, 2011 SCC 15.
The first issue raised by the plaintiff concerned the scope of the disputes covered by the arbitration clause. Justice Branch found that there was no arguable case that the words of the arbitration clause covered the type of claim advanced by the plaintiff:
“[18] Again, the operative words are as follows:
ANY CONTROVERSY OR CLAIM ARISING OUT OF, OR RELATING TO, THESE POLICIES AND PROCEDURES, THE COMPENSATION PLAN, OR THE GUIDANCE DOCUMENTS, OR THE BREACH THEREOF, SHALL BE SETTLED BY CONFIDENTIAL ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS COMMERCIAL ARBITRATION RULES…
[19] I find that there is no arguable case that these words cover the type of claim advanced by the plaintiff. In this case, the plaintiff raises a question of law that can be determined on undisputed facts, or alternatively one of mixed fact and law that requires “only superficial consideration of the documentary evidence in the record” for its disposition: Seidel at paras. 29-30.
[20] While the introductory words of the Arbitration Clause are broad (e.g., “arising out of”, “relating to”), these words are constrained to certain documents, being “these Policies and Procedures, the Compensation Plan, or the Guidance Documents”. There is no indication the plaintiff’s action requires anything more than cursory scrutiny of the Contract. The claim advanced by the plaintiff is not dependant on any of the referenced documents; she does not need, nor does she plead, any of these Contract documents in order to establish her traditional products liability claim.
[21] In essence, the plaintiff wore two hats during the relevant period: she was both a consumer and an Associate. This proceeding is brought in her capacity as the former, not the latter. Just as she does not need to rely on her position as an Associate in order to sue as a consumer, she cannot be precluded from bringing an action as a consumer because of her status as an Associate.”
The defendants argued that the Contract included a recognition that an individual may wear both hats, as a consumer and as an “Associate”, but asserted that the Contract required consumers to arbitrate. Justice Branch rejected his interpretation as inconsistent with the wording of the Contract:
“[22] The defendants seek to rely on the fact that the Contract includes a recognition that an individual might wear both hats, but the Contract contains no more than that—a recognition. The defendants’ argument presumes that the Contract actually goes on further to state: “If you consume the Product, any claim arising from such consumption must be brought by arbitration”. But that is not what the Contract says.”
He found that the plaintiff was not seeking to enforce any rights under the Contract, but was relying upon her right to sue in negligence the supplier of a product designed for personal consumption. Therefore, he dismissed the defendants’ stay motion on that basis. However, he considered the plaintiff’s other arguments to defeat the stay motion in the alternative.
The plaintiff’s second argument was that the arbitration clause was no longer effective given the passage of time. She argued that the “Preferred Customer” Agreement came to end when she became an “Associate”. Further, the Contract provided that if no purchases were made in 12 months, the Contract would be at an end. Therefore, Justice Branch found that both agreements were no longer in effect. However, this did not “void” the arbitration clauses because of the express wording that they would survive the termination or expiration of the agreements. He also relied upon the principle of separability, as set out in Petrowest Corporation v Peace River Hydro Partners, 2020 BCCA 339 at paras. 50 to 55.
The plaintiff’s third argument was that, in the alternative, her claim under the BPCPA must be permitted to proceed given the principles set down by the Supreme Court of Canada in Seidel v TELUS Communications Inc, 2011 SCC 15. The BPCPA provides a statutory right to sue, despite an arbitration clause, for consumer protection policy reasons. The defendants argued that as an “Associate” the plaintiff was a “supplier”, who was precluded from bringing a claim under s. 172 of the BPCPA, not a consumer. Justice Branch disagreed; the plaintiff had commenced her action in her capacity as consumer, which made the defendants the “suppliers”, not the plaintiff. The defendants also argued that the plaintiff had not alleged sufficient material facts or a legal basis for a claim under s, 172 of the BPCPA. While Justice Branch agreed with this criticism, he found that it did not matter given his conclusion on the first issue, and in any event, would have granted the plaintiff leave to amend her pleading to address this deficiency.
Editor’s notes:
The facts of this case raise a number of questions.
First, why did Justice Branch conclude that the arbitration clause in the Associate Contract, rather than the “Preferred Customer” Agreement, applied? Because there is no analysis of this issue in the reasons, it may be that the parties agreed which was the relevant arbitration clause.
Second, would Justice Branch’s conclusion have been different if he had found that the arbitration clause in the “Preferred Customer” Agreement applied? It covered claims “arising out of, or relating to, the customer membership application and agreement, including these terms and conditions, or the breach thereof…” There are not enough facts in the reasons to answer this question. Justice Branch’s decision on his interpretation of the Contract suggests that he might have reached the same conclusion if the other arbitration clause were the operative one. The question is whether the language in that arbitration clause covered just contract claims or also included tort claims, including the plaintiff’s personal injury claim for damages arising from her use of the Products as a consumer under the “Preferred Customer” Agreement.
Third, the arbitration clauses in these standard term contracts contained language that allowed the “Customer” or “Associate” to make any claim only “on an individual basis and not with any other individual or as part of a class action”. Whether this term was enforceable was not at issue, as the plaintiff’s claim was brought solely on her own behalf. Nor did she challenge the terms that required all arbitration proceedings to be held in Arizona, or that each party be responsible for their own legal costs, subject to the arbitrator’s jurisdiction to award costs at the conclusion of the arbitration. No doubt having Uber Technologies Inc. v Heller, 2020 SCC 16 in mind, Justice Branch expressly stated at para. 12, “I note that the claimant does not advance a broader public policy or unconscionability challenge to the Arbitration Clause”.