ONTARIO – Arbitration – Arbitration Agreement for online purchasing is binding in consumer claims of a commercial nature. In the absence of any indication of Parliamentary intent to do so, mandatory arbitration clauses in consumer adhesion contracts will be enforced.
Difederico v Amazon.com Inc. et al, 2023 FCA 165 (CanLII)
2023 FCA 165 (July 25, 2023)
Federal Court of Appeal (Boivin, Woods and Laskin J.A)
This appeal arose out of a proposed class action Difederico brought against Amazon.com et al. for price fixing agreements with third party sellers contrary to sections 45 and 46 of the Competition Act. In response, Amazon brought a stay motion on the grounds that the parties were subject to an arbitration agreement.
The stay was granted by the Federal Court (“FC”) pursuant to section 4 of the United Nations Foreign Arbitral Awards Convention Act (“UNFAACA”), which states that the Convention applies to commercial legal relationships (para. 4). The FC judge held that the arbitration agreement was valid and there were no overriding public policy or unconscionability grounds to justify refusing to give effect to the arbitration agreement. (para. 3)
The Appellant argued that the FC judge erred in finding that her claims were commercial in nature and enforcing the arbitration agreement pursuant to the UNFAACA.
The Appellant argued that the New York Convention did not apply and that instead, the Federal Courts Act s. 50(1)(b), which gives the court discretion to order a stay “if the interests of justice so requires”, applied. (para. 18)
The Federal Court of Appeal (“FCA”) held that the FC Judge did not err and dismissed the appeal. The FC Judge observed that absent legislative intention, courts should give effect to arbitration agreements. The FCA held that it is well settled law that in Canada, commercial arbitration agreements are complied with and enforced by the courts unless they are found to be null, void, inoperative or incapable of performance, including arbitration agreements relating to claims pursuant to the Competition Act. (para. 17)
The FCA agreed with the FC Judge that although the appellant is a consumer, the nature of her claims “have a commercial foundation” and that the UNFAACA applied and not the stay provisions of the Federal Court Act, s. 50(1)(b), which gives the FCA or FC discretion to stay a proceeding “where for any other reason it is in the interest of justice that the proceedings be stayed”. (paras. 15 and20)
The standard of review is correctness for questions of law and palpable and overriding error for questions of fact or mixed fact and law. (para. 26)
The three issues the appeal court considered were whether the FC Judge erred in:
- Determining the UNFAACA was applicable;
- Finding the arbitration agreement enforceable; or
- Concluding that s. 36 of the Competition Act precluded mandatory arbitration?
Canada adopted the New York Convention in 1986 through the UNFAACA and the UNICITRAL Model Law through the Commercial Arbitration Act (“CAA”) RSC 1985, c.17. These two instruments are the cornerstone of international commercial arbitration. (paras. 29–31)
In Ontario, both the New York Convention and the Model Law were adopted in the International Commercial Arbitration Act, 2017.
The FCA held that the ICAA did not apply because the parties to the arbitration were not Her Majesty the Queen, a department of the Canadian Government, or a Crown Corporation and the claims were not in relation to marine or admiralty matters. The FCA agreed with the FC Judge that the UNFAACA applied to this case. (para. 32)
It is well established that Canadian courts will only consider challenges to jurisdiction of an arbitrator or the enforceability of an arbitration agreement where such challenges raise a pure question of law or a question of mixed fact and law that requires only a superficial consideration of the record. (para. 35)
The term “commercial legal relationships” is not defined in the UNFAACA. The FCA noted that the UNFAACA incorporates the New York Convention and its terms must be interpreted in a manner that is consistent with the purpose and objective of the New York Convention. The New York Convention seeks to enforce arbitration agreements by ensuring that effect is given to the parties’ intention to seek arbitration. (para. 43)
The FCA held that consumer relationships fall within the meaning of commercial legal relationships when “read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”. (paras. 40–45)
The Court reviewed the SCC’s decision in Uber Technologies Inc. v Heller, 2020 SCC16 in which the plaintiff, an Uber driver, commenced a proposed class action arguing that Uber drivers were employees. The SCC considered the ICAA and noted that it incorporated both the NY Convention and the Model Law. In Uber, the SCC held that an employment dispute cannot be defined as “commercial” for the purposes of the ICAA, because the ICAA is not intended to govern employment relationships. (paras. 46 and 47) The SCC also directed that when determining if the ICAA applies, the court should focus on the nature of the dispute and not the nature of the relationship. (para. 48)
The FC Judge held that the claims centered around Amazon’s commercial agreements with third party sellers and that these agreements are commercial transactions akin to distribution agreements or trade transactions for the sale of goods or services. Therefore, the “differences arise out of commercial legal relationships” in the context of subsection 4(1) if the UNFAACA. (paras. 49–51)
The FCA held that the UNFAACA and Article II (3) of the New York Convention applied.
Further, the Court held that: “until Parliament legislates otherwise, and unless the limited exceptions established in the Dell and Uber cases apply, stays in favour of arbitration are to be granted in relation to Claims brought under the Competition Act.” (para. 52)
The Appellant argued that the arbitration agreement was void on the grounds of unconscionability and that the Application judge misapplied Article II(3) of the New York Convention. The Appellant also argued that the arbitration agreement was unconscionable because there was unequal bargaining power and the arbitration agreement unduly favoured Amazon and did not provide the Appellant with the right to obtain damages from an American arbitrator. The Applicant did not establish any evidence that she was dependent or vulnerable to Amazon for important aspects of her life akin to an employment agreement as in Uber. (paras. 55 and 56)
The FCA also agreed with the FC Judge that the arbitration agreement did not result in a denial of access to justice or that the costs to arbitrate were prohibitive. (paras. 57 and 58) The Appellant’s choice of law arguments were also rejected because Amazon undertook not to argue that choice of law excluded the Competition Act.
The FCA rejected the Appellant’s argument that the arbitration agreement is inoperative because it undermines the Competition Act. The FCA referred to the SCC’s decision in Peace River Hydro Partners v Petrowest Corp. 2022 SCC 41 where a stay in favour of arbitration was denied and the arbitration agreement was found inoperative in relation to a BIA proceeding involving a court appointed receiver. (para. 63) The FCA observed that the Peace River case is an exception to the rule that arbitrators rule first on their jurisdiction. (para. 68)
The FCA observed that the SCC in Peace River emphasized that it was particular policy objectives that justified side-stepping the arbitration, and the decision was case specific and that the decision is an exception. The Court also noted that the SCC balanced “public policy considerations of the BIA against freedom of contract and party autonomy to justify the departure from the legislative and judicial preferences for holding parties to their arbitration agreements.” (para. 67)
The SCC in Peace River held:
“Sections 243 and 183 of the BIA authorize courts to do what practicality demands in the context of a receivership. In this case, practicality demands that the Arbitration Agreements not be enforced, in the interest of an orderly and efficient resolution of the receivership. In short, the chaotic nature of the arbitral proceedings bargained for by the parties would compromise the integrity of the receivership, to the detriment of affected creditors and contrary to the purposes of the BIA. [Emphasis added]”. (para. 66)
The FCA also agreed with the FC Judge that s. 36 of the Competition Act does not restrict the enforceability of arbitration agreements and that there is no language in the Act that suggests that Parliament intended that arbitration agreements be restricted or prohibited. (para. 71)
The FCA referred to Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 in which the SCC found that s. 37 of the Copyright Act did not prohibit arbitration of copyright disputes. There, the SCC held:
“The purpose of enacting a provision like s.37 of the Copyright Act is to define the jurisdiction ratione materiae of the courts over a matter. It is not intended to exclude arbitration. It merely identifies the court which, within the judicial system, will have jurisdiction to hear cases involving a particular subject matter. It cannot be assumed to exclude arbitral jurisdiction unless it expressly so states. [Emphasis added].” (para. 77)
Finally, the FCA rejected the Appellants’ argument that a court can reject a forum selection clause if it is incompatible with public interest and policy. The Court held that the Competition Act does not evidence that kind of intent as it had held in Murphy v Amway Canada Corporation 2013 FCA 38. (para. 79)
In the absence of any indication of Parliamentary intent to do so, mandatory arbitration clauses in consumer adhesion contracts will be enforced, subject to the limited exceptions developed by the Supreme Court of Canada and addressed in the FCA’s reasons.