Federal Court stays class action in favour of arbitration clause: Difederico v. Amazon

This article was first published on December 21, 2022 in the Ontario Bar association's Class Actions Law section, available here.

In Difederico v. Amazon.com, Inc, 2022 FC 1256, the Federal Court enforced an arbitration agreement in Amazon’s Conditions of Use to stay a proposed price-fixing class action against the company. This decision is the latest in a growing body of case law in which Canadian courts have held that arbitration agreements and class action waivers in standard form terms of use are binding on potential class members.

The proposed class action alleged that Amazon had breached the Competition Act by conspiring with third-party sellers to fix the prices of their products on Amazon’s platforms. Ms. Difederico sought to represent the portion of the class who purchased products on Amazon’s e-commerce platforms. Amazon brought a motion to stay the claim by the e-commerce class in favour of arbitration.

In granting the stay, the Federal Court set out a three-part test to determine whether a stay should be granted in recognition of an arbitration clause:

1. Is there an arbitration agreement in place?
2. Does the Plaintiff’s claim fall within the scope of the arbitration agreement?
3. Are there any grounds on which to deny the stay?

The Court concluded that there was a binding arbitration agreement in place that would cover the proposed class’s e-commerce purchases, and that there were no exceptional grounds on which to deny the stay. The Court also held that any challenge to the jurisdiction of the arbitrator or the validity of the arbitration clause was to be argued before the arbitrator.

The arbitration agreement

The Federal Court held that there could be “no serious debate” that an arbitration agreement was in place: the plaintiff was notified of and agreed to Amazon’s Conditions of Use, which included the arbitration clause, each time she “clicked through” to make an account or complete a purchase. The plaintiff made numerous purchases and continued to make purchases even after the claim was issued. The Court found that the Conditions of Use were accessible via hyperlink and users could take as much time as they wanted to review them. Similarly structured arbitration clauses have been found to be adequate notice to consumers.

The claim fell within the scope of the arbitration agreement

The Federal Court held that the threshold at this stage is low: it must be “arguable” that the dispute falls within the scope of the agreement. In this case, the arbitration agreement was broad and covered all matters that pertain to purchases made on Amazon.ca.

No grounds on which to refuse the stay

Having concluded that the proposed class action fell within the scope of a valid arbitration agreement, the Federal Court considered whether there were exceptional circumstances which justified refusing the stay but found none.

The Federal Court acknowledged the general rule that challenges to the validity of an arbitration agreement or jurisdiction of the arbitrator are to be referred to the arbitrator. The exceptions to that rule arise where:

1. The challenge concerns a question of law alone;
2. The challenge concerns a question of mixed law and fact that requires only a superficial examination of the evidence and the Court is convinced that the challenge is not a delay tactic and will not prejudice the recourse to arbitration; or
3. Referring the challenge to arbitration would make it impossible for one party to arbitrate or for the challenge to be resolved.

The plaintiff argued that the third exception applied in this case, because the arbitrator could not apply the Competition Act. The arbitration agreement instead required the application of US law, which would prevent access to remedies available under the Competition Act. The plaintiff also argued that arbitration in the US without a class action would be prohibitively expensive. For these reasons, she said the arbitration agreement would prohibit access to justice, was contrary to public policy and unconscionable.

The Federal Court held that it must be “clear on the record” that referral to arbitration would raise a real prospect of denial of access to justice and that it was not so clear that no relief would be available to the plaintiff if it proceeded to arbitration. Nor was it clear on the evidence that the choice of law clause would deny access to justice. The Court did not accept that access to justice would be denied because of the cost of proceeding with arbitration in the US.

In considering whether the arbitration agreement was contrary to public policy, the Federal Court looked at whether the Competition Act included any legislative intervention that would prevent class action waivers or arbitration clauses. Finding none, and no such intervention in US law, the Court concluded that the legislative scheme did not favour a finding that the arbitration agreement was contrary to public policy.

Finally, the arbitration agreement was not unconscionable. There was no clear inequality of bargaining power in the consumer contract between the plaintiff and Amazon and the bargain was not improvident at the time it was made.

Looking ahead

This decision is a positive one for defendants who look to the courts to enforce their terms and conditions of use when litigation arises. While the courts will consider arbitration agreements and class action waivers on the unique circumstances of each case, Difederico confirms that in the absence of exceptional circumstances, those terms should prevail.

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