Appeal Courts Stay the Course on Arbitration Clauses in Consumer Contracts

On August 4, 2023, the British Columbia Court of Appeal (BCCA) released companion decisions in Williams v. Amazon.com Inc. (Williams) and Petty v. Niantic Inc. (Petty). In both cases, the BCCA upheld partial stays of proposed consumer class actions, finding that arbitration agreements contained within electronic standard-form contracts were valid and enforceable. A week earlier, the Federal Court of Appeal similarly upheld a stay in Difederico v. Amazon.com Inc. — another proposed consumer class action involving similar facts — in favour of arbitration. These decisions confirm that, in the absence of clear legislative intervention to the contrary, arbitration agreements will generally be enforceable, even in standard form contracts of adhesion.

Background

In Williams, the plaintiff created an account with Amazon.ca to make purchases from Amazon’s online marketplace. In doing so, he accepted Amazon’s electronic conditions of use, which contained an agreement to arbitrate all disputes relating to the agreement. The plaintiff commenced a proposed class action in the British Columbia Supreme Court (BCSC) alleging, among other things, the defendants’ business practices breached consumer protection legislation and the Competition Act. The defendants successfully applied to the BCSC for a stay of the action on the basis of the arbitration agreement, except for certain consumer protection claims that the Supreme Court of Canada (SCC) had previously ruled are not arbitrable.

Separately, the plaintiffs in Petty commenced a proposed class action in the BCSC against Niantic Inc. and other defendants with respect to “loot boxes” and purchases made in mobile video games. In Petty, the plaintiffs alleged breaches of consumer protection legislation and unjust enrichment, among other claims. The defendants applied to the BCSC to stay the action (except again for certain consumer protection claims) on the basis of an arbitration agreement contained in electronic terms of service that the plaintiffs agreed to before playing the games in issue.

Before the chambers judge, the plaintiffs in Petty unsuccessfully argued that Williams should not be followed because it had been decided before the SCC decision in Uber Technologies Inc. v. Heller (Uber), in which the majority of the court found that an arbitration agreement in a contract between Uber and a delivery driver was unconscionable and therefore not enforceable. (See our earlier Blakes Bulletin: Supreme Court of Canada Finds Arbitration Clause to Be “Uber” Unconscionable.)

The BCSC rejected these plaintiffs’ arguments and granted the partial stay sought by the defendants. The chambers judge concluded that the case was distinguishable from the facts in Uber, including because the process provided for in the arbitration agreement in issue was a viable method of resolving the plaintiffs’ individual disputes in this specific case based on the evidentiary record.

Appeal Decisions Upholding the Partial Stays

The plaintiffs in both Williams and Petty appealed. The appeals raised similar issues and were heard the same week and by the same panel of the BCCA. In both cases, the BCCA upheld the stays and dismissed the plaintiffs’ appeals. The BCCA observed that by virtue of B.C.’s arbitration legislation, and in the absence of other applicable legislative limits on the enforceability of arbitration agreements in the province, the court must make an order staying legal proceedings commenced outside of arbitration unless it finds that the arbitration agreement is void, inoperative or incapable of being performed. This establishes a presumption in favour of enforcing arbitration agreements, unlike in some other provinces where legislation voids mandatory arbitration provisions in standard form consumer contracts.

The BCCA determined that the chambers judges’ decisions, which involved questions of mixed fact and law, were entitled to deference. In considering the specific facts and evidence in Williams and Petty, including the tailored arbitration processes provided for in each case, the nature of the contracts at issue and the positions of the plaintiffs in relation to the defendants, the court found that these cases were profoundly different than the situation in Uber. While an inequality of bargaining power existed between the plaintiffs and the defendants in each case, it did not result in an improvident bargain, and therefore did not give rise to a finding of unconscionability. Neither case involved contracts of necessity, and in each case the arbitration processes provided for were low- or no-cost to the consumers. Although the plaintiffs wanted to pursue their disputes through class actions rather than arbitration, this is not a relevant factor on a stay application.

Key Takeaways

Williams, Petty and Difederico confirm that post-Uber, in the absence of clear legislative intention to limit arbitration of consumer claims, arbitration agreements remain generally enforceable. This is so even in standard form consumer contracts of adhesion if the arbitration process provided for is accessible and offers a viable means for resolving the dispute. The challenged arbitration agreements within electronic conditions of use or terms of service in these cases were not found to be unconscionable or void for public policy reasons. These recent decisions underscore that Canadian courts accept arbitration as a viable method of dispute resolution.

Update: On May 16, 2024, the Supreme Court of Canada denied the plaintiffs’ applications for leave to appeal in Williams, Petty and Difederico.

For further information, please contact:

Karine Russell                +1-604-631-3303
Robin Reinertson          +1-604-631-3323
Laura Cundari                +1-604-631-4177

or any member of our Litigation & Dispute Resolution group.