BRITISH COLUMBIA – Arbitration – Application to Stay Proceedings – Under s. 8(1) of the International Commercial Arbitration Act, the party applying for a stay has the onus of establishing an arguable case that the prerequisites for a stay have been met. Where those prerequisites are met, under s. 8(2) of the ICAA, the party opposing the stay has the onus of showing that the arbitration agreement was void, inoperative or incapable of being performed.

BRITISH COLUMBIA – Standard of Review – An application judge’s unconscionability and public policy analyses attract a deferential standard of review. Absent a palpable and overriding error, a stay of proceedings will not be set aside.

Petty v. Niantic Inc., 2023 BCCA 315 (CanLII)
 2023 BCCA 315 (August 4, 2023)
British Columbia Court of Appeal (Saunders, Fitch and DeWitt-Van Oosten JJ.A.)

The appellant sought to overturn a stay of proceedings entered in favour of arbitration. Based on an agreement to arbitrate, the stay had been granted over all the appellants’ claims except those under the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2.

The Court of Appeal heard the appeal the same week as an appeal in Williams v. Amazon, 2023 BCCA 314. The appeals raised similar issues and were thus decided as “companion cases”. The Court therefore cautioned that this case should be read in conjunction with Williams v. Amazon. (para. 6)

The applicable Terms of Service had an arbitration clause that included the following language: “The arbitrator, and not any court or agency, shall have exclusive authority to (a) determine the scope and enforceability of this arbitration agreement and (b) resolve any dispute related to its interpretation, applicability, enforceability, or formation including any claim that all or any part of it is void or voidable.” (para. 13)

The stay application was filed under the International Commercial Arbitration Act, RSBC 1996, c 233 (“ICAA”). The Court held that under s. 8(1) of that Act, the respondents had “the onus of establishing that they met the pre-requisites for a stay” and that the applicable standard was an “arguable case.” (para. 20) Under s. 8(2), however, the appellants had the onus – if the prerequisites for a stay were met, the appellants “could only avoid a stay by showing that the arbitration agreement was void, inoperative or incapable of being performed”. (para. 21)

The Court noted that similar to the Arbitration Act, RSBC 1996, c 55, sections 8(1) and (2) of the ICAA “manifest a legislative intention to give precedence to valid arbitration agreements. In support of this objective, the statute purposefully restricts the availability of judicial intervention”. The effect of that approach is to confirm the “competence-competence” principle under which the arbitrator is to determine jurisdictional issues at first instance. (para. 22)

The appellants alleged that the judge below erred in failing to find that: 1) The arbitration agreement was unconscionable; and 2) The arbitration agreement was contrary to public policy.

In its analysis, the Court held that a deferential standard of review applied. The unconscionability and public policy analyses were “inherently contextual and informed by the factual matrix surrounding entry into the arbitration agreement and the nature of the parties’ contractual relationship, including their level of sophistication and respective bargaining power”. They therefore raised questions of mixed law and fact, to which the palpable and overriding error standard applied. (paras. 38 and 39)

Unconscionability Issue

The Court found that to meet the unconscionability test, the appellants had the burden to establish inequality of bargaining power and a resulting “improvident” burden. To justify judicial intervention on public policy grounds, they had to establish that “the arbitration agreement’s limitation on ‘legally determined dispute resolution imposes undue hardship’”. (para. 41)

In its analysis, the Court held that both the Arbitration Act and the ICAA give effect to “the long-standing principle that a court should generally refer disputes over the applicability and validity of an arbitration agreement to the arbitrator for consideration”. (para. 43)

The Court held that in the context of the case, which included a “non-dependent consumer relationship the purpose of which is to facilitate access to online video games”, it was not persuaded that the judge erred in finding that the arbitration agreement at issue was not unconscionable or contrary to public policy. (para. 55)

While the Court accepted that there was unequal bargaining power between the parties because the arbitration agreement was in a contract of adhesion into which the appellants had no input and could not negotiate their contractual relationship, that alone did not establish inequality of bargaining power or render the agreement unconscionable. (paras. 58 and 59) The fact of a standard form contract is not irrelevant; however, it is not determinative that an arbitration agreement is found in a contract of adhesion. (para. 61)

The Court found that to find unconscionability, there must be both inequality of bargaining power and a resultant improvident bargain. In a public policy analysis, inequality of bargaining power is only one relevant consideration. The analysis is multi-factorial. (para. 62)

The Court also held that “both the unconscionability and public policy analyses are contextually informed.” The impact of unequal bargaining power may be greater or lesser depending on the context. (para. 63)

In this case, the Court held that the judge did not “stray beyond the allowable parameters or take irrelevant factors into account” in analysing the bargaining power issue. The judge committed no error in principle or a palpably wrong determination of this issue. (para. 69)

In respect of the “improvident” bargain argument, the Court applied the principles of improvidence found in Uber Technologies Inc. v. Heller, 2020 SCC 16 and found that nothing in the application judge’s decision was inconsistent with those principles. The judge below was “alive to the bases on which the appellants alleged improvidence” and correctly instructed themself that “an improvident bargain is a bargain that “unduly advantages the stronger party or unduly disadvantages the more vulnerable”. The judge also appropriately distinguished the BC Court of Appeal’s decision in Pearce v. 4 Pillars Consulting Group Inc., 2021 BCCA 198, which was not decided in the context of an arbitration clause. (para. 76)

The Court dismissed this ground of appeal, holding that: “On balance, I am satisfied that given the lack of the appellants’ dependency on the services provided by the respondents, the nature of the transactions in issue, and, importantly, the specific features of a tailored arbitration agreement, with reimbursement, the ability to opt-out, and, in any event, the continued availability of a small claims action, it was open to the judge to conclude that the arbitration agreement does not represent an “unfair [bargain] resulting from unfair bargaining”: Uber at para. 82. It is not “so lop-sided as to be improvident”: Uber at para. 91.”

Public Policy Issue

The Court found that the application judge had correctly applied the factors relevant to the public policy analysis. (para. 81) The conclusions the judge reached in that analysis were open to them. The Court of Appeal could not say “in the context of this matrix that the arbitration agreement is palpably ‘an agreement not to arbitrate or to preclude parties from resorting to any form of dispute resolution according to law’”. Judicial intervention was thus not warranted. (para. 84)

The Court was not persuaded that this was one of the rare cases where an arbitration agreement imposed undo hardship and acted as an effective bar to adjudication. It also found no palpable and overriding error in the judge’s finding on the public policy issue. (para. 85)

The appeal was dismissed and the stay of proceedings upheld.