January 1, 1Calculating...

Class action stayed in favour of arbitration

In a recent decision, the Federal Court enforced an arbitration clause and stayed a portion of a proposed class action against Amazon related to price fixing1. This decision complements a body of case law that confirms the enforceability of arbitration agreements and class action waivers found in standard form terms and conditions of use2.

What you need to know

  • The Federal Court held that:
    • disputes about the validity of an arbitration agreement or the jurisdiction of an arbitrator should be resolved by the arbitrator unless there are exceptional circumstances;
    • to argue that referring a dispute to arbitration will make it impossible for one party to arbitrate, there must be clear evidence that there is a real prospect of denial of access to justice—a mere possibility of a denial of access to justice will not overcome the agreement to arbitrate; and
    • whether an arbitration agreement is unconscionable is determined at the time the contract is entered into, not once claims arise.

The details

A proposed class action against Amazon was filed in the Federal Court in 2020 alleging that Amazon conspired with third-party sellers to fix the prices for products sold on Amazon platforms contrary to the Competition Act. Amazon brought a motion to stay a portion of the action in favour of arbitration in 2021.

When deciding whether to grant a stay of the class action, the Federal Court focused on three questions:

  1. Was there an arbitration agreement in place?
  2. Did the proposed claim arguably fall within the scope of the agreement?
  3. Were there any grounds to refuse a stay?

The Federal Court concluded that there was an arbitration agreement in place, the proposed claim fell within the agreement’s scope and there were no grounds to refuse a stay.

There was an arbitration agreement in place

The plaintiff agreed to an arbitration agreement as part of Amazon’s terms and conditions of use when she created an account and each time she made a purchase. The Federal Court rejected the plaintiff’s argument that she did not have adequate notice of the arbitration agreement because click-through contracts have “been deemed valid by Canadian courts for over two decades” and the clause was not hidden in fine print.

The proposed claim fell within the scope of the arbitration agreement

The Court found that Amazon’s arbitration agreement was broad and covered all matters pertaining to purchases made on its platforms.

There were no grounds to refuse a stay

Subject to limited exceptions, any disputes under the scope of an arbitration agreement should be stayed in favour of arbitration. This extends to disputes regarding the arbitrator’s jurisdiction and the validity of the arbitration agreement. To date, courts have identified three exceptions to this general rule. First, if there is a challenge to the validity of an arbitration agreement, a court can resolve the challenge if there is no serious debate about the issue. Second, if a challenge to an arbitrator’s jurisdiction concerns a question of law or a question of mixed law and fact only requiring a superficial examination of documentary proof and the court is convinced that the challenge is not a delay tactic and will not prejudice the recourse to arbitration, the court may decide the question. Third, if referring the matter to arbitration will make it impossible for one party to arbitrate, the court will refrain from doing so.

In this case, the plaintiff argued that it would be impossible for her to arbitrate her claims because an arbitrator would be unable to grant relief under the Competition Act (as a result of the Choice of Law clause pointing to U.S. law), the cost of arbitration was prohibitive, and the agreement was contrary to public policy and unconscionable. The Court rejected these arguments. To establish that arbitration is impossible for one party, there must be clear evidence that there is a real prospect of denial of access to justice, not just a mere possibility. Despite filing expert evidence, the plaintiff failed to meet that evidentiary threshold.

The Court found that it was not clear based on the evidence that there would be no relief available for the arbitrator to grant even if they could not apply the Competition Act. The Court also found that the cost of pursuing arbitration was not prohibitive and any barrier the plaintiff faced was due to the nature of the claim she sought to pursue. The arbitration agreement limited the up-front cost of arbitrating to $200 for the plaintiff and left open the option of pursuing small claims court actions.

The Court also concluded that the arbitration agreement and class action waiver were not contrary to public policy, in part, because there was no legislative intervention barring these forms of agreements. While Ontario, Quebec, and Alberta have legislation prohibiting arbitration clauses in consumer contracts, the Court focused on the fact that neither the Competition Act nor the governing U.S. law contained any such legislative intervention. The Court explained that although the plaintiff’s alleged harms are “those of an ordinary consumer—overpaying for goods purchased in consumer transactions—the conduct resulting in that harm has a uniquely commercial character.”

Finally, the Court found the arbitration clause was not unconscionable because there was no clear inequality of bargaining power nor an improvident bargain at the time the agreement was made.

Conclusion

Ultimately, the Federal Court stayed a portion of the proposed class action in favour of arbitration. This decision confirms the limited exceptions that can bar stays in favour of arbitration. Unless there are exceptional circumstances, arbitration agreements and class action waivers are being enforced.


To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2022 by Torys LLP.

All rights reserved.
 

Subscribe and stay informed

Stay in the know. Get the latest commentary, updates and insights for business from Torys.

Subscribe Now