On May 16, 2024, the Supreme Court of Canada (SCC) dismissed a number of applications for leave to appeal, including in Petty v. Niantic Inc., 2023 BCCA 315 (Petty). In Petty, the BCCA upheld the lower court’s partial stay of a proposed consumer class proceeding in favour of arbitration.
On appeal, the BCCA had been asked to determine whether the arbitration agreement at issue was unconscionable or contrary to public policy, in accordance with the framework established in Uber v. Heller, 2020 SCC 16(Uber). In confirming that the arbitration agreement was valid, the BCCA reiterated that, in the absence of clear legislative intent to the contrary, consumer-friendly arbitration agreements are enforceable, even if the effect is to curtail class actions.
Background
In Petty, the plaintiffs commenced a proposed class proceeding in the British Columbia Supreme Court (BCSC) with respect to “loot boxes” and purchases made in mobile video games. The plaintiffs alleged, among other things, breaches of consumer protection legislation and the Competition Act. Niantic applied to the BCSC to stay the action (except for consumer claims regarding which arbitration is statutorily precluded) in favour of arbitration, as provided for in the arbitration agreement contained in Niantic’s electronic terms of service that the plaintiffs had agreed to before playing the mobile video games. The BCSC rejected the plaintiffs’ arguments that, pursuant to Uber,the arbitration agreement was unconscionable and contrary to public policy. The Court granted the stay sought by Niantic. The appellant appealed to the BCCA.
The BCCA decision
The Petty appeal raised issues regarding the viability of arbitration agreements and embedded class proceeding waivers in consumer contracts of adhesion, following the SCC’s decision in Uber. The BCCA held that the legislative scheme that governs arbitration matters in British Columbia renders arbitration agreements presumptively enforceable. The BCCA considered the SCC’s discussion of unconscionability and public policy in Uber and applied it to the arbitration agreement and factual circumstances in Petty.
Uber hadinvolved a proposed class action by Uber drivers alleging violations of Ontario employment standards legislation. Uber’s standard form agreement with its drivers included an arbitration agreement. It required Uber drivers to attend a hearing in the Netherlands and pay up-front administration and filing fees of US$14,500, plus potential legal fees and other costs of participation. The majority decision of the SCC held that the arbitration agreement was unconscionable, while Justice Brown, in concurring reasons, held the arbitration agreement to be invalid on public policy grounds. Both sets of reasons concluded that the arbitration agreement effectively foreclosed access to any meaningful dispute resolution.
The BCCA held that it had been open to the BCSC to distinguish the arbitration agreement at issue and the differing circumstances of the respective plaintiffs in Petty and Uber. The BCCA also emphasized key factors that distinguished Niantic’s arbitration agreement from the agreement in Uber.
In Petty, the arbitration agreement required only a US$200 filing fee. The arbitration agreement also provided for the reimbursement of the filing fee and arbitrator costs. Niantic also agreed not to seek its legal fees against an unsuccessful claimant. In addition, Niantic agreed to reimburse the claimant’s legal fees if they succeeded. The arbitration agreement also provided that for claims under CA$10,000, the arbitration would generally be conducted in writing in a claimant’s home jurisdiction. The Niantic arbitration agreement also gave claimants the option to pursue individual small claims actions and the option to opt out of mandatory arbitration within 30 days of accepting the terms of the arbitration agreement. The BCCA held that, unlike the plaintiff in Uber, the plaintiffs were not dependent on the services provided by Niantic and there were “plenty of mobile game options” that they could play.
The BCCA upheld the arbitration clause in Petty despite it also having a class action waiver. In doing so, the BCCA distinguished its earlier decision in Pearce v. 4 Pillars Consulting Group Inc., 2021 BCCA 198 (Pearce). In Pearce, the BCCA’s analysis focused on the enforceability of a stand-alone class action waiver that did not involve an arbitration agreement. In setting out the law regarding arbitration agreements that contain class action waivers, the BCCA rejected the position that an otherwise valid arbitration agreement is rendered unconscionable or contrary to public policy by mere virtue of the fact that it includes a class action waiver. The court affirmed the principle that a class action cannot be “used to overcome the exclusive jurisdiction of arbitral tribunals or to modify the substantive rights of parties to arbitration agreements.”
Takeaways
Petty confirms that the unconscionability and public policy principles set out in Uber have not rendered properly drafted arbitration agreements void, merely because they are within consumer contracts of adhesion and contain class action waivers. Petty joins the Federal Court of Canada’s recent decision in Difederico v. Amazon.com, Inc., 2023 FCA 165 (Difederico), regarding which the SCC also denied leave to appeal. Difederico also involved alleged breaches of the Competition Act, which were stayed in favour of arbitration, resulting in an unsuccessful appeal by the plaintiff on grounds that the arbitration agreement was void because it was unconscionable and contrary to public policy.
In providing guidance on how Canadian courts will assess arbitration agreements alleged to be unconscionable or contrary to public policy, these cases create an instructive spectrum. On one side is Uber, where the plaintiff’s livelihood was at stake and the arbitration agreement was onerous to the extent that it effectively precluded access to justice. On the other side are Petty and Difederico, where the plaintiffs lacked a dependency on the consumer products central to their disputes and where the arbitration agreements were thoughtfully drafted, transparent and consumer-friendly.
For those companies interested in including an arbitration agreement in a consumer contract of adhesion, it will be important to ensure that the arbitration agreement is transparent, flexible, cost-effective and does not prevent the consumer from meaningful and accessible dispute resolution. Plaintiffs and defendants should avoid expending time and money on unconscionability and public policy arguments in matters with similar facts to Petty and Difederico. Based on the state of the law, it appears that unconscionability and public policy arguments raised to avoid arbitration will only be successful in the clearest of cases, approaching the unique set of circumstances found in Uber.
If you have questions or concerns about the issues discussed in this article, please reach out to the authors, Neil Rabinovitch or Emma Irving, who represented Niantic in Petty. The authors would like to thank Camila Maldi, who assisted in the preparation of this article.
