In Gupta v. Cedar Homes Ltd., 2020 ONSC 6333 (“Gupta”), the Ontario Superior Court of Justice had to decide whether an arbitration clause was unconscionable, in light of the teachings of the Supreme Court of Canada’s recent decision in Uber Technologies Inc. v. Heller, 2020 SCC 16 (“Uber”). An analysis of the Uber decision can be found here.
Why This Decision Matters
The Supreme Court of Canada’s decision in Uber led to serious questions regarding the enforceability of arbitration provisions in standard form contracts. Many saw the decision as a step backwards – away from protecting the rights of private parties to enter into, and agree to alternative methods of dispute resolution.
In Gupta, the Ontario Superior Court of Justice placed an increased focus on the freedom of contract between the parties, while confirming that unconscionability requires inequality of bargaining power which pulls the agreement outside the ordinary assumptions of the bargaining process.
Background to the Dispute
In July 1994, Charles Kettles purchased a design and materials in order to build a family cottage in Bruce Mines, Ontario. The design and materials were purchased from a supplier, Lindal Cedar Homes Ltd. (“Lindal”) who sold products through local distributers. After 20 years in the cottage, Charles Kettles transferred the title in the cottage to his children, Margaret Gupta and Michael Kettles, and their respective spouses (collectively, the “Plaintiffs”). In 2018, the Plaintiffs discovered significant wood rot throughout the cottage, including on structural beams. Shortly thereafter, the Plaintiffs commenced an action for negligence, failure of the duty to warn, and breaches of an alleged lifetime warranty against Lindal and also attempted to sue the local distributor (whose identity was still in question at the time of the decision).
Lindal brought a motion to stay the action – arguing that as a result of the arbitration clause within their standard form contract, the Purchase and Sale Agreement (PSA), all disputes must be brought before an arbitrator.
Interestingly, none of the parties could locate the PSA that was allegedly made between Lindal and Charles Kettles. The Plaintiffs argued that no PSA was ever signed by Charles Kettles. Lindal argued that every transaction, without exception, required an executed PSA – though as a result of restructuring the standard form PSA in and around 1994, Lindal could not identify which of two possibilities Kettles had agreed to.
The Court reviewed the language of the two possible arbitration clauses and determined that they were practically identical with minor differences that did not impact the reasoning.
As part of the analysis in determining whether the action should be stayed in favour of arbitration, the Court examined the elements of the analytical framework developed by the Court of Appeal in Haas v. Gunasekaram, 2016 ONCA 744:
1) Is there an arbitration agreement?
2) What is the subject matter of the dispute?
3) What is the scope of the arbitration agreement?
4) Does the dispute arguably fall within the scope of the arbitration agreement?
5) Are there grounds on which the court should refuse to stay the action?
In addition to other arguments as to why the action should not be stayed in favour of arbitration, the Plaintiffs argued that the arbitration clause is unconscionable, relying on the recent decision in Uber. As articulated in Uber, unconscionability requires “inequality of bargaining power and a resulting improvident bargain” in order to justify relief.
However, the Ontario Superior Court of Justice found that “[t]his case is a far cry from Uber”. According to the Court, the general rule of freedom of contract remains paramount and the Plaintiffs could not convince the Court away from the “ordinary assumptions of the bargaining process”.
The Plaintiffs argued that re-starting the process in arbitration might make it unaffordable, but failed to provide evidence and particulars to support such assertion.
Although the PSA was a standard form contract, the Court was quick to point out that “standard form contracts do not by themselves establish an inequality of bargaining power” as found in Uber. The Court found, through evidence, that Charles Kettles developed a comfortable and personal relationship with representatives from Lindal and had the opportunity to raise and discuss concerns prior to ordering their product and entering into an agreement with them.
Finally, concerned about the forum selection clause in the arbitration agreement, the Plaintiffs argued that the bargain was improvident and that they met the “strong cause” test to avoid the forum selection clause. The arbitration agreement stipulated Vancouver as the forum which the Plaintiffs argued favoured Lindal and made the arbitration expensive (noting travel for witnesses). Ultimately, the Court found that the arbitrator would have control over the location and procedure of the arbitration and that issues related to costs could be addressed by the arbitrator through accommodations such as video-conferencing. Therefore, the Court did not conclude that the bargain was improvident and stayed the proceeding.
Showing great deference for the arbitration process and the jurisdiction of the arbitrator, the Court determined that the action should be stayed on the basis of the arbitration clause while leaving all other issues (including jurisdiction and forum selection) to be dealt with by the arbitrator.
The Court also provided pause on the concerns associated with standard form contracts raised by the recent Uber decision. Although there was no evidence that Lindal would have allowed alterations to the standard form contract before execution, the Court took great comfort in the knowledge that Charles Kettles had a relationship with the company and spoke with representatives before placing his order.
Further, the arbitration clause was simple and allowed for the arbitrator to create much of the process thereby distinguishing it from the Uber decision. The Court appears to be signaling that standard form agreements do not lead in and of themselves to unconscionable arbitration clauses provided they allow for a fair and proportionate arbitration process to occur between the parties.