British Columbia – Google wins stay of conspiracy claims; plaintiff refuses to arbitrate – #761

In Spark Event Rentals Ltd. v. Google LLC, 2023 BCSC 1115, the BC Supreme Court granted the Google Defendants a stay in favour of arbitration. The Court rejected Spark’s assertion that the applicable arbitration agreement prohibited it from commencing arbitration, and that the entire dispute with Google could not be resolved in arbitration. Spark had also sued affiliates of Apple in the action. Apple applied, unsuccessfully, to stay the action on the basis that it was so intertwined with the claims against Google that it would amount to an abuse of process for the BC litigation to proceed in parallel with an arbitration against Google on the same claims. However, Spark represented to the Court that if its claims against Google were stayed, it would not proceed with an arbitration; accordingly, the Court found that Apple’s stay application was moot. While the Court left the door open to Spark to arbitrate with Google, in effect the arbitration agreement appears to have provided a tactical shield for Google – for now. This may be a case to watch, as Canadian courts have not yet definitively ruled on the availability of joint and several damages from co-conspirators in private litigation under the Competition Act, RSC 1985, c C-34. Another unsettled question that may arise in due course is whether, in these circumstances, a party has a right of contribution and indemnity from a co-conspirator if it is ordered to pay more than its proportional share of damages.

Background – The case began as a putative class action in which Spark alleged that the Defendants – all affiliates of Google or Apple – had conspired to unlawfully inflate the prices Spark paid for Google ads. In purchasing Google ads, Spark agreed to a mandatory arbitration agreement with Google; Spark had no agreement with the Apple Defendants. The Google Defendants applied for and obtained a stay of the litigation in favor of arbitration under section 8 of the International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 (“ICAA”).

Enforcing the Google arbitration agreement means that Spark’s conspiracy claims will continue in court only against the Apple entities. Spark’s lawyers would not represent it on a contingency fee basis in an arbitration on an individual basis, and Spark indicated that it would abandon its claims against Google if the stay were granted.

Spark’s response to Google’s stay application – Spark opposed the stay motion for two reasons. First, it asserted that up-front costs practically prevented it from invoking the arbitration agreement. Second, Spark claimed that the entire dispute could not be resolved in arbitration because the case would be uneconomic without class action procedures. The Court rejected both arguments.

Issue 1: Costs of arbitration – Spark sought to fit its circumstances into the rubric that the Supreme Court of Canada described in Uber Technologies Inc. v. Heller, 2020 SCC 16, at para. 47, as an economic “brick wall” to invoking arbitration. In Uber, the amount of the filing fee the claimant was required to pay to initiate arbitration was cost-prohibitive. This meant that sending the plaintiff’s jurisdictional challenges to be decided first in arbitration posed a real risk that they would never be resolved. In Uber, the Supreme Court of Canada held that in such exceptional circumstances, the challenge to the arbitration agreement was to be resolved by a court; the majority ruled that the arbitration agreement was unconscionable, and therefore unenforceable.

Spark claimed that the costs of arbitration were, for it, insurmountable. Spark asserted that it would face arbitration filing fees of USD $5,188 to $13,800, the costs of a tribunal of three arbitrators, potential travel costs to California as the seat of the arbitration, and no clarity with respect to potential cost shifting and arbitral procedure. An affidavit filed by Spark, excerpted in part at para. 30 of the judgment, stated that Spark’s lawyers would take the case on a contingency fee basis in court, but that the “firm would not take an arbitration case like this on contingency and will not fund expenses necessary to pursue arbitration.” The affiant also stated, “Spark Event cannot afford these fees, much less the cost of a lawyer’s hourly rate to pursue this litigation on an individual basis.” 

Google presented a different view. The divergence came from whether the expedited arbitration rules governing claims of less than USD $500,000 would apply. Assuming they would, Google’s position, set out at para. 32 of the reasons, was that the arbitration met the expedited rules threshold and would be heard by a sole arbitrator, on expedited timelines, with no requirement for an in-person oral hearing, a reduced initial filing fee of USD $1000, and broad discretion to award costs and shift the burden of filing fees.

The Court rejected Spark’s position. It observed, at para. 34, that the agreement was commercial, rather than consumer, in nature. It noted that Spark had not produced financial information to back its affiant’s evidence, nor to show it could not afford the filing fees. The Court concluded, at para. 36, that Spark did not face the financial “brick wall” to commencing arbitration that the Supreme Court of Canada recognized in Uber.

Issue 2: Suitability of arbitration to resolve the entire matter – Spark claimed that the dispute could only be resolved in a class action because of the high cost of proving the effect of the alleged conspiracy on the price it paid for Google ads. Spark appears to have argued this point within the rubric of unconscionability – i.e., that the economics of bringing its claims on an individual basis in arbitration rendered the arbitration agreement improvident, and therefore unconscionable.

Google responded that the cost of bringing Spark’s claim – relevant to whether the bargain was improvident – was, itself, to be determined in arbitration under the competence-competence principle, rather than by the Court at this stage of the litigation. As the Court noted, at para. 39, Google pointed to the flexibility of arbitration, and the possibility of costs awards, which would influence the ultimate costs of the arbitration to Spark. Google alternatively cited DiFederico v., Inc., 2022 FC 1256, for the proposition that “the inability of arbitration to support a class action claim does not constitute an improvident bargain.”

Spark’s challenges raised issues of mixed law and fact (para. 24), limiting the Court’s inquiry to a superficial view of the record. On that basis, it concluded, at para. 42: (1) it is not clear that arbitration cannot resolve the entire dispute commenced by Spark against Google; (2) the arbitral tribunal would be best suited to determine that issue; (3) Spark has the financial ability to initiate arbitration; and (4) the arbitral tribunal may decide whether the arbitration agreement was void on unconscionability or public policy grounds. 

Accordingly, the Court ruled, at para. 45, that the “determination of whether the agreement is void on unconscionability or public policy grounds must be made in the arbitration process.” 

Google was granted a stay under s. 8(2) of the ICAA.

A postscript for Apple – Spark represented to the Court that if the litigation were stayed against Google, Spark would not proceed with an arbitration against Google. The judgment noted, at para. 47, that Spark preferred to enter a discontinuance against Google and proceed in court solely against Apple. The Court granted leave for Spark to do so and ordered Spark to pay Google’s costs.

Apple had asked for a stay of the claims against it as an exercise of the court’s inherent and general jurisdiction to control its own process, preserved by the Law and Equity Act, R.S.B.C. 1996, c. 253. Apple argued that it would be an abuse of process for the action to continue against it in court in parallel with an arbitration against Google. As the judgment noted at para. 50, Spark’s unwillingness to arbitrate against Google eliminated that risk, making Apple’s application for a stay moot.

Contributor’s Notes:

First, the points of friction between arbitration – a private, consent-based process – and areas of law like competition (designed to protect public rights to fair markets) and insolvency (which prioritizes orderly administration and fairness to a community of interested parties) are easy to see. I highlighted this turbulence as an area of renewed interest in Arbitration Matters’ round-up of hot topics last year: Timothy’s 2022 Hot Topic – At the crossroads of class actions and arbitration – #702.

The Spark case, as well as DiFederico, among others, highlight the difficulty of harmonizing pro-arbitration policies and commitments with the very different policy motivations that animate class actions, insolvency law, and competition policy. Our previous Case Note on DiFederico, which focused on the consumer/commercial distinction, is available at Federal – Amazon purchasers’ class-action competition claims referred to arbitration – #683

Second, Spark raises an interesting point about parties who are unwilling, rather than unable, to arbitrate. The majority opinion in Uber, at para. 38, recognized that the rule of “systematic referral” from Union des consommateurs c. Dell Computer Corp., 2007 SCC 34, is premised “on the assumption that if a court does not decide an issue, the arbitrator will.” Uber found, at para. 47, that the plaintiff could not invoke the arbitration agreement (“The fees impose a brick wall between Mr. Heller and the resolution of any of the claims he has levelled against Uber.”), justifying a new exception to the rule of systematic referral.

Spark’s primary positions were in the “could not” category: that it could not afford the fees, and that the entire dispute could not be resolved in arbitration without class action procedures. The Court’s conclusion on Spark’s first argument, at para. 43, are framed around Spark’s “ability to initiate arbitration” (emphasis added). As to Spark’s second argument the Court concluded, at para. 44, that “Spark has not established…that the dispute cannot be resolved within the arbitration process.” But Spark also presented a “would not” position: if it was unable to have its challenges to the arbitration agreement decided by the Court, it would not arbitrate against Google.

The real-world result in either the “could not” or “would not” scenario is the same: no arbitration. Justice Brown’s concurring reasons in Uber appear to anticipate the “would not” scenario as a serious access-to-justice public policy concern. Justice Brown, at para. 114, recounted that at oral argument, “Uber’s counsel would not concede that a clause requiring an upfront payment of 10 billion dollars to commence a civil claim would necessarily be equivalent to a brick wall standing in the way of dispute resolution. With respect, the conclusion that independent adjudication would be blocked by such a clause is obvious.” While Uber mainly concerned practical capacity to advance up-front fees, even a deep-pocketed plaintiff would think long and hard about whether it is rational to deploy resources in that way. 

Similarly, where arbitration forecloses access to class procedures – a mechanism created to economically rationalize certain types of claims, especially high-volume low-value consumer claims – looking solely at a party’s financial ability to invoke arbitration answers only part of the access to justice question. The point is, a plaintiff’s practical capacity to invoke arbitration might not provide a complete answer to whether there is, in the words of Uber at para. 44, a “real prospect that, if the stay is granted, the challenge may never be resolved by the arbitrator.” Circumstances beyond the size of a plaintiff’s bankroll may inform whether it is rational to pursue justice in arbitration. This means that an arbitration agreement could, in some scenarios, thwart access to justice.