It is common for contracts made over the internet or via apps to include clauses requiring that any disputes arising under the contract be referred to arbitration. The enforceability of such clauses thus often comes into play when a plaintiff wishes to litigate the matter in court. The recent case of Lin v. Uber Canada Inc. considered this issue in the context of consumer protection laws and the Federal Court.

In Lin v. Uber Canada Inc., the defendants, Uber Canada Inc., Uber Technologies, Inc., Uber Portier Canada Inc., and Uber Castor Canada Inc. (collectively, “Uber”) brought a motion in the Federal Court to stay a proposed class action brought by AL. AL was acting as a potential representative plaintiff in the proposed class action. In support of their motion, Uber argued that the plaintiff’s claims were governed by a “mandatory arbitration agreement” found in the terms and conditions of the Uber platform. Therefore, the dispute should be submitted to arbitration rather than proceeding by way of a class action.

The proposed class proceeding alleged breach of section 52 of the federal Competition Act, which prohibits certain types of false or misleading representations. Specifically, AL alleged that he used the Uber Eats Food Delivery Service and the Fantuan Food Delivery Service to obtain food in Canada and that he had to pay additional charges for those services, including delivery and/or service fees. He alleged that the defendants used a marketing practice known as “drip pricing,” in violation of section 52(1.3) of the Competition Act, and represented the prices of their food delivery services in a way that was “not attainable” due to additional charges. The proceeding sought damages resulting from the “alleged prohibited misleading representations.”

The Federal Court granted a stay of the proposed class proceeding in favour of arbitration, and AL appealed.

Two-Part Test For Staying a Proceeding in Favour of Arbitration

As the Federal Court of Appeal reiterated, there is a “legislative and judicial preference for holding parties to arbitration agreements” (see Peace River Hydro Partners v. Petrowest Corp.). Arbitration clauses are presumptively valid. It is only in “exceptional circumstances” that courts will question the enforceability of an arbitration agreement or consider challenges to an arbitrator’s jurisdiction.

In the Peace River Hydro Partners case, the Supreme Court of Canada set out a two-part test to be applied when deciding whether to stay an action in favour of arbitration. The first part of the test requires the party seeking to uphold the arbitration agreement to show that there is an arguable case that various technical requirements have been met – specifically, that there is an arbitration agreement and that a court proceeding has been commenced by a party to that agreement. A court must also consider whether the court proceeding relates to a subject the parties agreed to submit to arbitration, and whether the party seeking the stay applied for it before taking steps in the court proceeding. This part of the test was not in issue in the Lin appeal, as these technical requirements were met.

The second part of the test requires the party opposed to arbitration to prove there is a “statutory exception” that would prevent a court from staying the proceeding. As the Court noted in Lin, before denying a request for a stay, it must be apparent from the court record that “deferring a matter to arbitration would create a real prospect that there would be a denial of access to justice.”

It was this second part of the test that was at issue on appeal in Lin. Specifically, AL argued that enforcement of Uber’s arbitration clause was precluded by provincial consumer protection legislation. AL also argued that the arbitration clause was “incapable of being performed,” since the organization selected in the clause to arbitrate did not adjudicate class actions. Lastly, AL argued that Uber’s arbitration clause was void on the basis that it was unconscionable.

Federal Court of Appeal Finds Consumer Protection Act Did Not Apply in the Proceeding

AL argued that the enforceability of Uber’s arbitration clause was precluded by section 7(2) of the Ontario Consumer Protection Act. That section states that an arbitration clause in a consumer contract is invalid insofar as it “prevents a consumer from exercising a right to commence an action in the Superior Court of Justice.” However, the Federal Court of Appeal agreed with the lower court that the Consumer Protection Act did not apply in the circumstances, as the proposed class action was brought in the Federal Court, not in the Superior Court of Justice. Further, that section of the Consumer Protection Act expressly addresses the enforcement of rights under that statute, which were not in issue in AL’s proposed class proceeding. Instead, the proposed proceeding concerned the federal Competition Act. For these and other reasons, the Federal Court of Appeal rejected the argument that the Consumer Protection Act invalidated the arbitration clause.

Court Reiterates That Class Action Procedures Cannot Trump a Substantive Right to Arbitrate

AL also argued that the arbitration clause in the Uber contract stipulated that disputes were to be decided by ADRIC. Still, ADRIC had advised AL’s counsel that it could not currently offer support for class arbitrations. AL argued that, as such, the clause was incapable of being performed.

The Federal Court of Appeal referenced the lower court’s comment that “class action procedures cannot override a party’s substantive right to arbitrate.” As that court noted, holding otherwise would effectively allow class actions to serve as a means to avoid an agreement to arbitrate. Instead, such agreements are only incapable of being performed if “it is impossible for the parties to obtain the specific arbitral procedures for which they bargained” (citing Peace River Hydro Partners). Among other things, the Federal Court of Appeal noted that AL could still have his own claim arbitrated by ADRIC. Since AL had not shown that the arbitration agreement was “clearly incapable of being performed,” that issue was more properly put before the arbitrator for decision.

Court Finds That Arbitration Clause Was Not Unconscionable

Lastly, the appellant argued that the Uber arbitration clause was unconscionable and therefore should not be enforced. Among other things, AL argued that there was an “inequality of bargaining power” between Uber and its customers – specifically, a “gulf in sophistication”.

The Federal Court of Appeal noted that an inequality of bargaining power only arises where a party was in a position where they could not “adequately protect their interests in the contracting process.” In other words, if the weaker party had accepted “almost any terms in a contract” because the failure to do so would have led to dire consequences, an inequality of bargaining power may be said to exist. Situations in which a weaker party is dependent on a stronger one may give rise to such inequality. However, the Court concluded here that there was no such dependence between customers and Uber. As the Court noted, there was no evidence that either AL or other members of the proposed class were dependent on the Uber Eats platform for “food delivery services.”

The Court also noted that, at its core, the appellant’s argument seemed to be that a standard form contract entered into “between a consumer and a multinational corporation” inherently concerned an inequality of bargaining power. However, this argument has been repeatedly rejected by courts. As the Court found, there was simply no evidence of vulnerability or dependency on AL’s part or on the part of other class members on Uber’s food delivery services “as a source of nourishment.” Likewise, there was no evidence to suggest that class members would not properly understand the arbitration clause. As such, the Federal Court of Appeal agreed that no inequality of bargaining power could render the arbitration clause unenforceable.

The Court ultimately dismissed the appeal.

Milosevic & Associates: Experienced Class Action Defence Lawyers

The Federal Court of Appeal’s decision in Lin v. Uber Canada Inc. serves as a critical reminder that arbitration clauses in digital contracts are often legally binding, even in the face of proposed class actions. Navigating the complexities of the Competition Act and the enforceability of standard form contracts requires a sophisticated legal strategy. If you are involved in a dispute involving consumer rights or a proposed class proceeding, the experienced class action lawyers at Milosevic & Associates in Toronto will provide the strategic and practical legal advice you need to resolve your matter effectively. Reach out to our team online or by phone at (416) 916-1387 to schedule a consultation.