B.C. – stay granted despite anticipation that arbitrator applying U.S. law might not be able to grant claims – #283

In Williams v. Amazon.com, Inc., 2020 BCSC 300, Madam Justice Karen Horsman stayed a proposed class proceeding for non-consumer claims seeking damages under Canada’s Competition Act, RSC 1985, c C-34 based on a standard form contract which submitted those claims to arbitration administered in the U.S. and subject to U.S. laws.  Respecting competence-competence, Horsman J. recognized several issues affecting jurisdiction but deferred them to the arbitrator.  She acknowledged the “real prospect” that a U.S. arbitrator (i) could decide that such claims were not available under U.S. substantive law and (ii) might lack jurisdiction to award the claimed damages but those were not sufficient to hold that the arbitration agreement was void, inoperative or incapable of performance.  In addition, Horsman J. held that the agreement to arbitrate overcame any unconscionability concerns raised in Heller v. Uber Technologies Inc., 2019 ONCA 1.

Applying under section 15 of B.C.’s Arbitration Act, RSBC 1996, c 55, Amazon.com Inc., Amazon Services International, Inc. and Amazon.com.ca, Inc. (“Defendants”) applied for a stay of the litigation brought by Plaintiff.  A B.C. resident, Plaintiff had sought to certify his proceeding as a class proceeding under the Class Proceedings Act, RSBC 1996, c 50.  He alleged that Defendants had, to customers’ detriment, agreed to not compete for the sale of certain products on the Amazon website in Canada.  See para. 2.

Plaintiff advised Defendants that he intended to exclude Ontario and Québec residents from the proposed class.  Defendants had not responded to the application yet and the certification hearing has not been scheduled.

Defendants’ stay applied in regard to all the relief sought by Plaintiff except the relief available under section 172 of the Business Practices and Consumer Protection Act, SBC 2004, c 2 (“BPCPA”).  They did so as compliance with/concession to Seidel v. TELUS Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 SCR 531 which Horsman J. referred to as the “backdrop” to their application when analysing it at paras 29-35.

Plaintiff’s action comprised two (2) categories of claims which Horsman J. at paras 10-13 outlined and grouped as “Consumer Claims” and “Non-Consumer Claims” for the purposes of her analysis.   Without reproducing the full detail of the claims falling within either grouping, suffice to mention that Consumer Claims included those governing consumer transactions whereas Non-Consumer Claims included alleged breaches of the Federal Competition Act, RSC 1985, c C-34.

In addition, the facts disclosed two (2) versions of the conditions applicable to sales made by Defendants which Horsman J. reproduces at paras 16 and 17 respectively.  The first version in effect between June 21, 2002 and October 23, 2014 (“2002 Conditions of Use”) and the second in effect as of October 24, 2014 (“2014 Conditions of Use”).  Horsman J. identified disagreement between Plaintiff and Defendants regarding whether Plaintiff could invoke the 2020 Conditions of Use if he had only signed the 2014 Conditions of Use. 

While the length of the text tripled following the update in 2014, the essence of the conditions remained similar enough for Horsman J. to observe that it was “not obvious to me” that differences, if any, between the versions would have a material impact on her analysis, Horsman J. did agree that the only question for her was whether the Non-Consumer Claims should be stayed in favour of arbitration.  See paras 94-99 for her decision to state that question.

Horsman J. identified the following issues:

1 Are the prerequisites to a stay under section 15 of the Arbitration Act absent on one (1) or both of the following grounds:

(a) The Arbitration Clause does not mandate arbitration because a claimant has the option of pursuing the claim in small claims court; and,

(b) The Conditions of Use are unclear as to the identity of the contracting parties.

2 Alternatively, is the Arbitration Clause void, inoperative or incapable of being performed on one or both of the following grounds:

(a) An arbitrator applying U.S. law is not a court of competent jurisdiction for the purpose of granting remedies under the Competition Act.

(b) The Arbitration Clause is unconscionable in imposing a prohibitive cost and burden on an individual with a relatively small claim in pursuing a remedy.

3 What is the effect of any stay that is granted on the Non-Consumer Claims of potential class members other than the plaintiff?

Horsman J. then analysed and answered each in turn. Prior to doing so, Horsman J. reproduced section 15 of the Arbitration Act and the definition for “arbitration agreement” and then listed the three (3) prerequisites B.C.’s Court of Appeal established in Prince George (City of) v. A.L. Sims & Sons Ltd., 1995 CanLII 2487 (BCCA) for granting a stay of proceedings for the purpose of arbitration.

She underlined that, in assessing whether the prerequisites have been met, a court need only determine that the party applying for a stay has established “an arguable case”.  Emphasizing the limited role of the court and the role of competence-competence, she added that, on a stay application, the courts do “not resolve legitimate disputes between the parties regarding the scope of the arbitration agreement or the identification of the parties to the agreement as these are matters for the arbitral tribunal”. 

Horsman J. referred to Gulf Canada Resources Ltd. v. Arochem International Ltd., 1992 CanLII 4033 (BCCA) and Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379, adding a recent application of those appellate authorities in Pixhug Media Inc. v Steeves, 2017 BCSC 2171.  (For an Arbitration Matters note on Pixhug Media Inc. v. Steeves, see “B.C. court decides Defendants took one procedural step too many and cannot stay court action”).

Horsman J. concluded that, unless the jurisdictional challenge involved a pure question of law or a question of mixed fact and law requiring only superficial consideration of documentary evidence, the court should not depart from “the rule of systematic referral” of jurisdictional questions to the arbitrator.  She referred to Seidel v. TELUS Communications Inc. para. 29, Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801 paras 84-85 and Sum Trade Corp. Agricom International Inc. para. 35.

Horsman J. provided a concise summary of the decision in Seidel v. TELUS Communications Inc. at paras 29-35 and its role in the case law.  She did so to underscore that the bifurcation sought by Defendants was compatible with the Supreme Court’s prior jurisprudence which favoured enforcement of agreements to arbitrate but acknowledged that legislative intent could overcome the binding effect of such otherwise enforceable agreements.  Horsman J. concluded her look at Seidel v. TELUS Communications Inc. by accepting the Defendants could seek the stay of Non-Consumer Claims and,  having done so, proceeded to consider the issues necessary to decide whether to grant a stay.

1(a) prerequisites to a stay – is arbitration mandatory – paras 37-46

Plaintiff submitted that the agreement to arbitrate was not binding because it provided alternative options (arbitration or court) and granted customers a unilateral right to elect between the two (2).  He argued further that the term “small claims court” was not defined.  Plaintiff submitted cases in which the courts held that stay was inappropriate if a party had an option to arbitrate or go to court.  Horsman J. distinguished them on either their facts or that were “inapposite”.   She also underlined that the wording in the conditions before here did use the emphatic “will” and not a discretionary option, with the exception being claims eligible for small claims. She did not find the mention of “small claims” ambiguous.  See para. 43.

[42] The small claims exception may be seen as a feature that enhances the overall effectiveness of arbitration as a means of achieving efficient adjudication of disputes. In any event, a small claims action, where available, is the only alternative to binding arbitration under the dispute resolution clause that the plaintiff has agreed to under his contract with Amazon. The Arbitration Clause, on its clear terms, does not entitle the plaintiff to unilaterally elect to file a proposed class proceeding in B.C. Supreme Court.

1(b) prerequisites to a stay – are Conditions of Use unclear as to the identity of the parties – paras 47-52

Plaintiff argued that the mention of “and/or its affiliates” rendered the 2014 Conditions of Use ambiguous.  Defendants countered, arguing that the term “affiliates” is “well-understood to include a corporation that is related to another corporation by shareholdings or other means of control, and includes subsidiary, parent and sibling corporations”. Horsman J. took a more direct path and limited her role to assessing if Defendants had established an arguable case that each was a party to the 2014 Conditions of Use.  Given the “relatively low threshold”, she concluded that Defendants had succeeded on meeting that case.

2(a) is the Arbitration Clause void, inoperative or incapable of being performed – is an arbitrator applying U.S. law not a court of competent jurisdiction under the Competition Act – paras 54-81

2(a) – A(a) Horsman J. referred to the Federal Court of Appeal decision in Murphy v. Amway Canada Corporation, 2013 FCA 38 which had held that damage claims under section 36 of the Competition Act could be arbitrated.  Plaintiff disputed the result, asserting that the decision was “wrongly decided and ought not to be followed”.  Horsman J. declined to agree because Plaintiff did “not undertake any analysis of the Competition Act to show, contrary to the holding in Murphy, a clear legislative intent to override the terms of an arbitration agreement”.  Drawing again on Seidel v. TELUS Communications Inc. which held that, absent legislative intervention, arbitration agreements are to be enforced, she considered that Murphy v. Amway Canada Corporation was consistent with that Supreme Court decision and “is, of course, authority that is directly binding on this Court”.

2(a) – A(b) Horsman J. readily acknowledged “the more difficult question” of whether Competition Act damage claims could be arbitrated under a clause applying “the laws of the state of Washington, United States, without regarding to principles of conflict of laws”.

Each party provided expert opinion disputing the likelihood that an arbitrator would or would not apply the Competition Act.  Horsman J. handily sums up the competing opinions but, having done so, forwards on the decision to the arbitrator.

[69] In light of the principle of competence-competence, I do not consider it appropriate for me to finally determine whether an arbitrator appointed under the 2014 Conditions of Use would have the jurisdiction to grant relief under the Competition Act. That is for the arbitrator to determine.

[70] For the purpose of this application, I accept that there is a realistic prospect that an arbitrator would decline to entertain a claim under the Competition Act in light of the choice of law language in the parties’ agreement. The basis for the Court’s conclusion in Mitsubishi that U.S. antitrust law would apply to an arbitration governed by Swiss law is not entirely clear to me. The experts agree that the Court did not apply renvoi, which begs the question of why U.S. antitrust law was found to be applicable. It may have been, as Mr. Sampson points out, that the Court simply relied on Mitsubishi’s concession that U.S. antitrust law applied.

Horsman J. then turned to the practical issues facing Plaintiff if he would be barred from pursuing his Competition Act damage claims in a foreign forum under foreign law.

2(a) – A(c) Plaintiff argued that is contrary to public policy, and therefore void, to have Competition Act damage claims decided in a foreign forum under foreign law because it undermines the legislative intent to authorize customers alleging anti-competitive conduct in Canada.

Horsman J. was not persuaded by either of Plaintiff’s key cases on this issue: Heller v. Uber Technologies Inc., 2019 ONCA 1 applied (leave to appeal granted Uber Technologies Inc., et al. v. David Heller, 2019 CanLII 45261 (SCC), under advisement following the November 6, 2019 hearing) and Douez v. Facebook, Inc., 2017 SCC 33 (CanLII), [2017] 1 SCR 751.  The latter did not apply because her case did not involve a forum selection clause or debate on competing forums for public adjudication of disputes.  The former did not apply because there is no similar prohibition on contracting out of a private right of action in section 36 of the Competition Act.

An arbitrator’s decision does not have binding effect, and is not publicly accessible. It will not establish norms and interpret rights for anyone other than the parties to the agreement”.  Horsman J. added that inclusion of an agreement to arbitrate in a standard form contract is, absent legislative intervention, irrelevant.

Accepting the possibility that the arbitrator may interpret jurisdiction to include or exclude authority to award damages under section 36 of the Competition Act, Horsman J. anticipated that the U.S. antitrust law might be an alternative remedy.

There is nothing in the record before me to suggest that damages under U.S. antitrust law would be an inferior remedy to damages under the Competition Act. The plaintiff has not advanced such an argument. The plaintiff simply says that the availability of damages for a U.S. cause of action as a substitute for a Canadian cause of action is irrelevant on public policy grounds because he is entitled to a remedy under the law of Canada. I do not agree. It seems to me that the question of whether the plaintiff can potentially be made whole through remedies available in an arbitration is a relevant consideration when the plaintiff seeks to invalidate an arbitration clause on the ground of the unavailability of certain remedies.

Recognizing the prospect that an arbitrator might not accept jurisdiction to award damages under Canadian legislation was not a ground for holding that the agreement to arbitrate was void, inoperative or incapable of performance.

2(b) The Arbitration Clause is unconscionable in imposing a prohibitive cost and burden on an individual with a relatively small claim in pursuing a remedy – paras 82-93

This issue directly raised the role of Heller v. Uber Technologies Inc. 

[82] The plaintiff relies on the decision of the Ontario Court of Appeal in Heller in support of his position that the Arbitration Clause in the 2014 Conditions of Use is unconscionable and therefore void. The plaintiff says that the Arbitration Clause was not negotiated, and is the result of inequality in the positions of the parties. He says that forcing him to pursue his claim in a foreign country and under foreign law is so inequitable as to be unconscionable.

Horsman J. distinguished the facts in Heller v. Uber Technologies Inc. from those before her.  The latter case denied a stay for two (2) reasons.  First, the arbitration clause was invalid because it constituted a contracting out of the Employment Standards Act, 2000, SO 2000, c 41.  Second, the clause was unconscionable due to “the significant financial and geographic barriers in created to the initiation of the arbitration process”.

[86] I do not consider the Arbitration Clause in the 2014 Conditions of Use to be analogous to the agreement in issue in Heller. A claimant such as the plaintiff is only required to pay a relatively modest up-front administrative fee of $200. Amazon is bound under the Arbitration Clause to refund these fees for claims less than $10,000, unless the arbitrator determines the claim to be frivolous. The arbitration may be conducted by telephone, written submission, or in a mutually agreed upon location. A claimant has the option of proceeding in a small claims court where the claims fall within the jurisdiction of that court.

[87] In sum, the Arbitration Clause in the present case, in contrast to Heller, provides for a low cost, and in many cases no cost, arbitration process where the claims advanced are less than $10,000. I conclude that this is not a substantially unfair bargain so as to meet the test for unconscionability.

Horsman J. also resisted Plaintiff’s invitation to intervene because enforcing arbitration clauses in standard form consumer contracts was “inherently unfair”.  Horsman J. disputed that this approach, noting that it had been discussed and dismissed in prior cases and that it was not her role to invalidate such clauses on “policy” where the legislatures have not done so.

3 What is the effect of any stay that is granted on the Non-Consumer Claims of potential class members other than the plaintiff – paras 94-99

Relying on MacKinnon v. Instaloans Financial Solution Centres (Kelowna) Ltd., 2004 BCCA 472, Plaintiff argued that, even if his own claim was stayed, he had standing to advance claims on behalf of potential class members for which he personally might not have standing.  Horsman J. disagreed. Section 15 of the Arbitration Act mandated a stay on the basis of Plaintiff’s agreement to arbitrate Non-Consumer Claims and does not permit him to continue once a stay is ordered. “The plaintiff’s argument that he has standing to continue the proceeding on behalf of potential class members simply begs the question of what proceeding he proposes to continue. If an order staying the proceeding is issued under s. 15 of the Arbitration Act is issued, then there is no extant proceeding”.

urbitral note – First, Horsman J. at paras 89-93 expressly drew a line between a court applying the law and imposing policy.  She identified a “consistent theme” in Plaintiff’s submissions regarding the “inherently unfair” enforcement of arbitration clauses contained in standard form consumer contracts.  She reminded that such arguments had been considered by earlier and higher courts and that legislatures had stepped in by choice in particular instances which she noted.  That said, “I do not consider it open to me to invalidate an arbitration clause on the basis of such policy concerns where the legislature has chosen not to act”.

Second, Plaintiff and Horsman J. debated at paras 37-46 (i) whether the wording of the conditions met the requirements of B.C.’s Arbitration Act and (ii) whether the mention of “small claims court” was vague.  To resolve the issues, Horsman J. had recourse to the B.C. legislation and case law to the lex arbitri and the substantive law.  The resolution provided a decision in B.C. under those laws but does not also determine if the same answers would be provided if applied against the U.S. Federal Arbitration Act or the substantive law chosen in the conditions.

Third, the 2014 Conditions of Use address certain concerns often raised against arbitration of small value disputes and demonstrate how fairer wording can satisfy the courts if a party raises unconscionability as a ground to resist an agreement to arbitrate.

– The wording is straightforward.  The conditions clearly explain that the process is binding and to the exclusion of the courts, allow the customer to assert small claims, prohibit class proceedings, waive jury trials.

– The conditions explain how to initiate arbitration, who will conduct the arbitration and where to access the rules, including internet address and toll-free telephone line.

– The conditions identify a respected, experienced institution to administer the arbitration, namely American Arbitration Association (“AAA”).  This choice, though, is fungible as other Canadian based institutions offer equally respected and experienced such as the ADR Institute of Canada, British Columbia International Commercial Arbitration Centre, Canadian Commercial Arbitration Center as well as a branch of the AAA’s own International Centre for Dispute Resolution with its own Canadian rules.

– The conditions do mention that payment will be required but refer the customer to the administrating institution’s rules.

– Amazon undertakes to reimburse those fees if the claims total less the $10,000.00 (but do not, in the extract, specify U.S. or CAD) provided the arbitrator does not determine that the claims are “frivolous”.

– The arbitration can be conducted by telephone, on written submissions or in person in the country where the customer resides though it does not expressly state that it be conducted at the location of the customer’s residence in that country or “at another mutually agreed location”.  The options are at the choice of the customer and eliminate requiring agreement for certain options or determination by the arbitrator.

Fourth, the 2014 Conditions of Use enforce certain procedural and substantive choices which may escape the appreciation of the customer skimming those conditions prior to joining the service.  Those choices have important impacts on the process and result which, whether better, worse or equivalent to choices which favour the customer remain clear that they have decided in advance and opt for Amazon.  

– The wording stipulates that the customer agrees to both (i) a specific lex arbitri (U.S. Federal Arbitration Act) and (ii) substantive U.S. federal law and Washington state laws.  Few parties would seize the impact of the choice of either lex arbitri and substantive law.  The choice given to parties for the hearings is limited to the geography and removed for court oversight which assists arbitration and applicable law to govern the dispute.

– In contrast to the flexibility given to customers for engaging in dispute resolution by telephone or on documents only, the imposition of both a lex arbitri and substantive law is not intuitively even-handed and hardly accommodates the customers invited to sign on to Amazon’s services.  

Such choices do serve to standardize both the lex arbitri and substantive law for Amazon and thereby manage its risks but still impose those choices on the customer.

Without reproach to the administering institution chosen or the quality of the substantive law, the imposed terms could easily have selected (i) an administering institution in Canada and, to standardize risks, (ii) a single substantive law in one of the Canadian provinces other than the excluded Québec.  The very same AAA chosen in the 2014 Conditions has an active branch operating in Canada with rules tailored for Canadians.