Consumer Transactions on Amazon Are Subject to Arbitration

How does a Court assess a class action claim against a high-tech giant where the evidence is that the plaintiff reaffirmed the conditions of use numerous times in making her transactions in the world following the Supreme Court of Canada’s seminal case in Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118.

In Heller, the Supreme Court found a compulsory arbitration clause in a contract of adhesion was unconscionable and unenforceable. The facts in that case would have required Heller to expend a year’s earnings to dispute the service agreement with Uber.

After Heller, many parties tried to have recourse to class action proceedings for their dispute with their vendor despite compulsory arbitration clauses in their contract.

Amazon’s conditions of use contain a compulsory arbitration clause and the complaint relied on Heller to seek a stay of arbitration in favour of her class action suit.

Ms. Difederico alleges as part of her proposed class action that Amazon entered into anticompetitive agreements with third-party sellers amounting to criminal price-fixing. She further alleges that she has a statutory right, under section 36 of the Competition Act, to recover loss and damages accordingly.

In response to Ms. Difederico’s proposed class action, Amazon brought a motion seeking a stay of proceedings on the grounds that the parties are subject to an arbitration agreement. In the decision of the Federal Court, the Judge granted the requested stay in favour of arbitration pursuant to the United Nations Foreign Arbitral Awards Convention Act, R.S.C., 1985, c. 16 (2nd Supp.) (the New York Convention). In so doing, the Judge determined that Ms. Difederico entered into a valid arbitration agreement with Amazon covering her purchases on Amazon.ca and there were no overriding public policy or unconscionability grounds to justify refusing to give effect to that agreement.

When online purchasers such as Ms. Difederico create an account and make purchases, they are notified of the Conditions of Use which include a dispute resolution clause pursuant to which all purchasers must agree to arbitration. In Ms. Difederico’s case, she purchased products through each of her accounts on Amazon by placing over 285 orders since the creation of her accounts including purchases made after she disputed the Conditions of Use.

Ms. Difederico disputed that the New York Convention should apply and called on the Court to exercise its discretion to avoid the clause. The Judge determined that, although Ms. Difederico is a consumer, the nature of her claims “have a commercial foundation”. It follows, according to the Judge, that the UNFAACA is applicable in the circumstances.

Ms. Difederico appeals the Judge’s decision to the Federal Court of Appeal on the grounds that the Judge erred in finding that her claims are commercial in nature, thereby enforcing the arbitration agreement pursuant to the UNFAACA.

The Federal Court of Appeal reviewed the history of enforcement of arbitration awards in Canadian law and summarized the result:

It is now well-established that Canadian courts will only consider challenges to the jurisdiction of an arbitrator or the enforceability of an arbitration agreement where such challenges raise a pure question of law or a question of fact or mixed fact and law that only requires a superficial consideration of the record.^[1] These questions may go to whether the arbitration agreement is null and void, inoperative, or incapable of being performed, as stated in Article II(3) of the New York Convention, or, since Uber, invalid for being unconscionable. As such, cases involving an arbitration agreement will be systematically referred to arbitration, subject to one of these limited exceptions.^[2]

The UNFAACA is limited to consumer transactions so the Federal Court of Appeal assessed the meaning of the word “commercial” in this limitation and cited the author “Gary. B. Born, one of the world’s preeminent authorities in the field of international commercial arbitration, explains that the term “commercial” captures consumer transactions”:

In terms of the content of the term under the Convention, a “commercial” relationship should have its ordinary meaning, being a relationship involving an economic exchange where one (or both) parties contemplate realizing a profit or other benefit. This definition is consistent with the weight of lower court authority under the Convention and the definition of the term in other contexts. It is a liberal, expansive definition that includes all manner of business, financial, consulting, investment, technical and other enterprise.

Among other things, the foregoing definition of “commercial” includes consumer transactions and (less clearly) employment contracts, thereby bringing agreements to arbitrate disputes arising from such matters within the Convention. [Emphasis added].^[3]

The Federal Court took into account Ms. Difederico’s heavy reliance on the recent decision of the Supreme Court of Canada in Uber.

In that case, the plaintiff, an Uber driver based in Ontario, commenced a proposed class action on behalf of Ontario Uber drivers and argued that Uber drivers were employees of Uber. As such, he maintained that their relationship with Uber was governed by Ontario’s Employment Standards Act, 2000, S.O. 2000 c. 41 (ESA), and therefore the drivers were entitled to the benefit of the ESA. In so doing, he argued that the arbitration agreement included in the contract of adhesion between Uber and the drivers was void and unenforceable. In response, Uber brought a motion to stay the proposed class action in favour of arbitration.^[4]

The Federal Court of Appeal noted that the Supreme Court’s holding was quite limited with respect to the meaning of the term “commercial” and that the real holding was that the employment dispute was not the kind of dispute the applicable arbitration law was to govern.^[5]

The Federal Court of Appeal noted that “in Uber, the Supreme Court directed that in such circumstances, a court must focus on the nature of the dispute at issue and not the nature of the relationship between the parties to the arbitration agreement “. This was consistent with the jurisprudence.

A focus on the nature of the dispute caused the Federal Court of Appeal to find that the allegations of price fixing looked like a dispute over a commercial relationship.

As a result, the Federal Court of Appeal upheld the decision of the trial judge to stay the action to allow the arbitration proceeding the proceed. The Federal Court of Appeal has brought welcome certainty to the law concerning when arbitration clauses will be upheld.

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^[1] Reference is to Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801at paras. 84-86.

^[2] See Difederico v. Amazon.com, Inc., 2023 FCA 165 at para 35.

^[3] See Difederico v. Amazon.com, Inc., 2023 FCA 165 at para 44 citing Born, International Commercial Arbitration at 27.

^[4] See Difederico v. Amazon.com, Inc., 2023 FCA 165 at para 46.

^[5] See Difederico v. Amazon.com, Inc., 2023 FCA 165 at para 47.