B.C. – Arbitration clause in contract of adhesion not unconscionable/against public policy – #772

In Williams v. Amazon.com Inc., 2023 BCCA 314 the Court upheld a partial stay of a proposed class action in favour of arbitration. It found that the Chambers Judge did not err when she concluded that an arbitration clause that formed part of a contract of adhesion was not unconscionable or against public policy. In doing so, the Court distinguished the case from the Supreme Court of Canada decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (“Ledcor”) on the issue of the applicable standard of review. In Ledcor, the Supreme Court determined that correctness standard applies when reviewing the interpretation of standard form contracts. Here, the British Columbia Court of Appeal found that a deferential standard was applicable because of the highly contextual and fact specific analysis required for determining unconscionability/public policy issues. The fact that a contract of adhesion was involved did not change that conclusion. The Court also distinguished this case from the Supreme Court of Canada decision in Uber Technologies Inc. v. Heller, 2020 SCC 16 (“Uber”), where the Supreme Court found an arbitration clause in a contract of adhesion invalid on the basis of unconscionability and, in concurring reasons, as against public policy. The Court distinguished Uber because of, among other things, the “profound” differences that it noted in the two cases between the arbitration clauses at issue and the vulnerability of the plaintiffs.   

Factual Background – The plaintiff was an Amazon user. He brought a court action against Amazon alleging that third party booksellers are required by Amazon to enter into arrangements that unfairly favour sales by Amazon over their sales on the Amazon platform resulting in reduced competition and higher prices for consumers such as the plaintiff. The action asserted a number of causes of action and sought damages, including under the Competition Act, R.S.C. 1985, c. C-34 (“Competition Act”) and relief under the British Columbia Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2. (the “Consumer Protection Act”). The total amount of the plaintiff’s claim was estimated to be $100.00. 

The plaintiff intended to have the action certified as a class action but before his application for certification could be heard, Amazon applied for a stay of the proceedings under the then-applicable Arbitration Act, R.S.B.C. 1996, c. 55, except those claims brought pursuant to the Consumer Protection Act. The Supreme Court of Canada in Seidel v. Telus Communications Inc., 2011 SCC 15 (“Seidel”) had previously found a legislative intent to override agreements to arbitrate such claims.

When the plaintiff opened his Amazon account, he was required to agree to certain Conditions of Use. The Conditions of Use contained an arbitration clause with a class action waiver and choice of law clause in favour of U.S./Washington State law.

The arbitration clause was tailored to the consumer context. It provided that:

• consumers could elect to pursue a small claims action rather than arbitration; 

• an arbitration would be conducted in accordance with the Rules of the American Arbitration Association (“AAA”) including the AAA’s Supplementary Procedures for Consumer-Related Disputes; 

• the consumer could choose to have the arbitration conducted by telephone, in writing, or in-person in the country in which they reside or another mutually agreed location; 

• any administration fees payable by a consumer would be reimbursed by Amazon for claims totaling less than $10,000 unless the claim was found to be frivolous; and,

• Amazon would not seek legal fees or costs against a consumer unless the claim was found to be frivolous.

The Chambers Judge Decision – Amazon’s application for a partial stay was granted. 

The Chambers Judge issued her decision before the Supreme Court of Canada decision in Uber was released. Uber provided guidance on the analytical framework for assessing the validity of an arbitration agreement on grounds of unconscionability and/or public policy. 

As set out in the majority reasons in Uber, to meet the test for unconscionability, inequality of bargaining power must be established as well as a resulting improvident bargain at para. 79.

To justify judicial intervention on grounds of public policy, the concurring reasons in Uber set out that it must be determined that the arbitration agreement’s limitation on “legally determined dispute resolution imposes undue hardship”: Uber at para. 131. Considerations relevant to undue hardship include the nature of the disputes likely to arise under the contract and the relative costs in pursuing them, inequality of bargaining power and whether there was “tailoring” of the dispute resolution clause to avoid limiting access to dispute resolution: Uber at para. 131, 134, 135

Uber was applied by the British Columbia Court of Appeal in Pearce v. 4 Pillars Consulting Group Inc., 2021 BCCA 198 in the context of a class action waiver in a standard form contract where it was alleged that various unregulated debt advisors were operating illegally. The Court found the class action waiver was unenforceable both because it was unconscionable and it was against public policy. That case did not concern an arbitration clause. 

Grounds for Appeal – On appeal, the plaintiff argued that the Chambers Judge erred in not finding the arbitration agreement was invalid. Under the wording of section 15(2) a stay of claims in favour of arbitration is mandatory if the applicant meets the requirements of section 15(1) unless the arbitration agreement is “void, inoperative or incapable of being performed”. More specifically, the plaintiff alleged the Chambers Judge erred in: (1) failing to find the agreement unconscionable; and (2) failing to find it contrary to public policy. The plaintiff also argued that the applicable standard of review was correctness based on Ledcor.

Standard of Review – The Court began by discussing the applicable standard of review and concluding the Chambers Judge’s unconscionability and public policy analyses attracted a deferential standard. Those analyses start with contractual interpretation, which it stated was generally a matter of mixed fact and law, subject to deference. From there, the inquiry is contextual and highly fact specific and also subject to deference. The fact that an arbitration agreement forms part of a contract of adhesion does not change the factual and legal nature of the unconscionability or public policy analysis. 

The Supreme Court of Canada decision in Ledcor, which adopted the correctness standard for reviewing interpretation of standard form contracts, was distinguished. The British Columbia Court of Appeal stated:

“[58] …In my view, Ledcor is not dispositive of the standard of review. In that case, the Supreme Court of Canada adopted a correctness standard for the interpretation of a standard form contract because there was “no meaningful factual matrix that [was] specific to the particular parties to assist the interpretation process”: at para. 4. Here, in addressing unconscionability and public policy concerns, Uber tells us that the factual matrix specific to the parties is of considerable significance to the analyses. This is an important distinguishing feature. In that case there was “no meaningful factual matrix that [was] specific to the particular parties to assist the interpretation process”: at para. 4.” 

Unconscionability and Public Policy – The Court of Appeal identified a number of shortcomings in the Chamber Judge’s analysis based on Uber. However, the Court concluded that the Chamber Judge’s overall assessment of unconscionability and public policy in the context of this particular case warranted deference and should be affirmed. 

Concerning unconscionability, it found that, although there was an inequality of bargaining power, the plaintiff had not demonstrated that it resulted in an improvident bargain as required by Uber. The arbitration agreement did not unduly advantage Amazon or unduly disadvantage the plaintiff. The Court stated:

“[134] Here, the filing fee of USD $200 is twice as much as the appellant’s anticipated claim. However, it is refundable — an important distinguishing feature from Uber. The appellant says that in describing the costs of the arbitration process as “relatively modest”, the judge “failed to factor in the costs of legal representation of prosecuting a complicated competition law claim”: appellant’s factum at para. 75. The affidavit filed in support of the appellant’s position deposes that he has read the notice of civil claim filed on his behalf in the British Columbia Supreme Court, describes it as “complicated”, and states that it is beyond his ability to represent himself. However, the affidavit does not say anything more than this. It does not explain why legal representation would be necessary in an arbitration, as opposed to a court proceeding. Nor does it set out the likely costs of that representation, specific to one or more of the issues raised.

[135] The appellant’s submission about disproportionate costs also fails to account for the fact that an arbitration can be “conducted by telephone, based on written submissions, or in person in the county where you live or at another mutually agreed location” (emphasis added). Again, this is a profoundly different from Uber. It is not readily apparent from the face of this agreement that an arbitration with Amazon would require time away from work, or travel, or accommodation costs.”

It also noted the “profoundly” different circumstances of the plaintiff at the time of contracting from those in Uber or Pearce, who were in vulnerable situations. There was no evidence, for example, that Amazon was the only marketplace where the plaintiff could buy books or that his livelihood or financial well-being was somehow dependent on access to it. 

In terms of public policy, the British Columbia Court of Appeal again acknowledged there was an inequality of bargaining power and that the transactions governed by the Conditions of Use were likely to be of small monetary value. However, the Court concluded that the costs of pursuing the claim by arbitration as provided in the Conditions of Use did not “realistically raise the possibility of undue hardship in the context of a non-dependent consumer relationship”, para. 138. 

The Court considered whether the clause was tailored to reduce limits on access to dispute resolution and concluded:

“[140]An Amazon consumer can elect to pursue a small claims action rather than arbitration. In British Columbia, this includes claims of up to $35,000 in value: s. 3 of the Small Claims Act, R.S.B.C. 1996, c. 430. Up-front administration costs for non-frivolous claims under CAD $10,000 will be reimbursed. Amazon will not seek legal costs against the consumer when a non-frivolous claim fails. There is flexibility in the mode of procedure. And, claims involving the misuse of intellectual property are exempted from the requirement to arbitrate. These elements of the agreement provide Amazon consumers with greater flexibility than did the Uber agreement. The 2014 Conditions of Use have better capacity to accommodate individual needs and circumstances.

In support of his public policy challenge, the plaintiff argued that if the arbitration agreement was upheld, his claims would be subject to the U.S. Federal Arbitration Act, applicable U.S. federal law, and the laws of the state of Washington and so the Competition Act would not be applied to his claims and this was contrary to Canadian public policy.

The Court deferred to the analysis of the Chambers Judge. She accepted that, based on the evidence, that an arbitrator would not necessarily conclude that the Competition Act did not apply. Further, even if damages were not available under the Competition Act, an arbitrator might grant an alternative remedy of damages under U.S. antitrust law and there was nothing on the record to suggest that was an inferior remedy. Based on those findings, prejudice to the plaintiff was not demonstrated.

The plaintiff relied on Douez v. Facebook, Inc., 2017 SCC 33, in which the Supreme Court of Canada declined, in the consumer context, to give effect to a forum selection clause that required disputes to be determined under California law. The Court of Appeal distinguished this case on the basis that it did not concern an arbitration clause and that, unlike this case, it involved a “quasi-constitutional” right – the right to privacy. The Court further concluded that “I see nothing in the Competition Act that evinces a legislative intention to prohibit an arbitrator from adjudicating a claim for damages based on an alleged breach of the Act, or to prohibit adjudication of a Competition Act claim outside of Canada” at para. 156. 

Finally, the plaintiff argued the arbitration clause was both unconscionable and contrary to public policy because it prohibited class proceedings. Relying on Pearce, the plaintiff argued that the ability to seek relief on a class basis was critical to achieving an effective remedy against Amazon, and, importantly, behavioural modification. 

The British Columbia Court of Appeal distinguished Pearce, noting that there was no arbitration agreement in that case and so the analysis was not conducted in the context of the Arbitration Act where there is a legislative presumption in favour of arbitration. It also noted that in Pearce it was found that without the ability to proceed by way of a class action, individual members of the proposed class would be unable to access any form of justice. There was no such finding here.

The Court was of the view that the Supreme Court of Canada decision in Seidel was of greater assistance than Pearce. In that case, the class waiver was described as non-severable and “dependent on the arbitration provision”. It was “only by virtue of their agreement to arbitrate that consumers [barred] themselves from a class action” Accordingly, the Supreme Court concluded if the arbitration provision was rendered invalid, the class waiver would also fall at para. 46

Based on this, the British Columbia Court of Appeal reasoned that “[l]ogically, if the arbitration provision was not invalid and thereby enforceable, the class waiver would also follow suit”, para. 168. It concluded that unless an arbitration agreement is determined to be “void, inoperative or incapable of being performed”, the statutory objective of the stay provision under the Arbitration Act must prevail and the arbitration clause, as a whole, is to be enforced including the class action waiver. (This language also appears in the current statute: SBC 2020, c. 2, s.7(2)) It noted that some provinces have precluded mandatory arbitration agreements and/or class waivers in the consumer context. British Columbia is not one of them.

Contributor’s Notes:

In a companion case, Petty v. Niantic Inc., 2023 BCCA 315 (“Petty”) the British Columbia Court of Appeal reached the same conclusion for similar reasons in the context of a proposed class action against video game developers and publishes where it was alleged that “loot boxes” that players purchase in video games for a chance to win virtual awards amounted to unlicensed gaming. The action was stayed as the dispute, absent claims under consumer legislation, was subject to an arbitration clause in a contract of adhesion. See also the recent case: Difederico v. Amazon.com, Inc., 2023 FCA 165. The Case Note on the lower Court decision is Federal – Amazon purchasers’ class-action competition claims referred to arbitration – #683.

All of these cases are consistent with the proposition that “[a]bsent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause”: Seidel, at para. 2. Williams and Petty demonstrate that with contracts of adhesion in the non-dependent consumer context, so long as arbitration clauses are “tailored” to the circumstances of consumer claims and do not act as a material barrier to access to justice, can withstand challenges when pressed based on unconscionability and public policy. Attempts to refine the fit and reinforce the seams of the arbitration agreement in this fashion find support in Justice Brown’s concurring reasons in Uber where he observed when discussing whether a plaintiff would experience undue hardship in attempting to advance a claim by arbitration, “it may be relevant to consider whether the parties have attempted to tailor the limit on dispute resolution” at para. 135. For previous Case Notes on this proceeding see: British Columbia – Effect of consent orders staying proceedings in favour of arbitration – #636 and B.C. – stay granted despite anticipation that arbitrator applying U.S. law might not be able to grant claims – #283.