Top 10 commercial decisions of 2023: What Canadian businesses need to know

What you need to know

• The Arbitration Act shows clear legislative intent in favour of the presumptive enforcement of arbitration agreements.
• Unconscionability requires there to be an unequal bargaining relationship and a resultingly uneven bargain. Where an arbitration clause is drafted in a way that supports the weaker party in having their complaints heard, it will not be unconscionable.
• Arbitration clauses barring class action claims are enforceable, as nothing in the Arbitration Act specifically preserves the right to initiate a class action.

Background

The appellant’s action began in the British Columbia Supreme Court after he filed a claim against Amazon alleging violations of the Business Practices and Consumer Protection Act, seeking relief under the Competition Act and other common law remedies. The appellant was a bookseller who alleged that Amazon’s bookselling platform favoured books distributed by Amazon itself at the expense of third-party booksellers. The appellant intended to certify his action as a class, bringing in other third-party sellers on Amazon.

In 2015, the appellant created an account with Amazon.ca which allowed him to purchase goods on the website. To do this, he was required to accept certain terms and conditions imposed by Amazon. The conditions included a mandatory arbitration clause selecting United States law for all disputes other than small claims actions or actions involving an alleged infringement intellectual property rights.  Additionally, the clause included an agreement to conduct claims on an individual basis, essentially waiving the right to initiate a class action proceeding.

Before the application on the certification of the class could be heard, Amazon brought an application for a stay of proceedings under s. 15, now s. 7, of the Arbitration Act. The lower court allowed the stay application, allowing the claims under the Consumer Protection Act to continue, following the decision in Seidel v. Telus Communications Inc., 2011 SCC 15, that found the Consumer Protection Act effectively legislated claims out of arbitration.

On appeal, the appellant argued that the arbitration clause ought not be enforced because it was 1) incapable of being performed because of the Competition Act claim; and (2) void because of unconscionability and public policy concerns. 

Applying the band-new Uber framework

At the time of the trial judge’s decision, Uber had only reached the Ontario Court of Appeal. While the trial judge had applied the Ontario court’s analysis of Uber, the Court in this decision had the benefit of expanded guidance from the Supreme Court. 

While the Court found that the trial judge’s analysis on unconscionability and public policy was not as robust as required by Uber, the decision contained no palpable and overriding errors and should not be displaced. The Court found that the trial judge had appropriately addressed the considerations of power imbalance in bargaining, the disproportionality between the costs of arbitration and the value of the appellant’s claim, and the potential for unfairness arising from the use of a standard form contract.

Unconscionability requires both an unequal bargaining relationship and a problematic bargain

The Court accepted the appellant’s position that there was an unequal bargaining relationship between Amazon, an industry-leading company with significant financial resources, and third-party booksellers. However, the Court found that despite the unequal bargaining relationship, the arbitration clause was not unconscionable.

The Court highlighted the differences between the appellant and the plaintiff in Uber, who was reliant on Uber for his livelihood. It found that the appellant was not similarly reliant on Amazon and therefore had a greater amount of choice when entering into the arbitration agreement.

Additionally, the Court found that despite the bargaining imbalance, the arbitration agreement itself was not disproportionately in favour of Amazon. The Court emphasized that Amazon had tailored its arbitration clause, allowing consumers to pursue an action in Small Claims rather than proceed to arbitration, would reimburse up-front administrative costs associated with arbitration, and did not require arbitration over intellectual property claims. The Court found that this tailoring allowed Amazon’s users greater flexibility in having their complaints heard, compared to the rigid and costly process in Uber.

Unequal bargaining relationships do not automatically make a contract contrary to public policy

The Court found that to determine whether the clause was contrary to public policy, it must look not only at the existence of an unequal bargaining relationship, but to the context of the relationship, the appellant’s degree of vulnerability, and the nature of the transactions at issue.

The Court rejected the appellant’s argument that mandatory arbitration was contrary to public policy because it deprived him of relief under the Competition Act, finding that there was nothing in the Competition Act that prevented an arbitrator from adjudicating a claim under it.

Furthermore, the Court found that the provisions in the arbitration clause that barred class actions proceedings were not contrary to public policy. The Court considered the legislative framework set out by the Arbitration Act and found that it was overwhelmingly in favour of the enforcement of arbitration agreements, establishing a “presumption of arbitral jurisdiction”, that displaced any right to a class proceeding that might exist.

Key takeaways

In the wake of Uber, the Court of Appeal’s decision in Williams shows that despite unequal bargaining relationships, standard form contracts with arbitration clauses are presumptively enforceable. Notably, where the stronger party takes steps to accommodate the weaker in the arbitration process and the weaker party has a meaningful choice when entering the contract, a mandatory arbitration clause is not unconscionable. Parties drafting arbitration clauses should be mindful of any dominant position they may hold and consider creative drafting to lessen the imbalance of power.

Williams also demonstrates that British Columbia continues to be an arbitration-friendly jurisdiction, with courts treating arbitration agreements as presumptively enforceable absent legislative intent. Given the strong preference for arbitration in the Arbitration Act, this presumption is unlikely to be easily displaced.

Background

In Lundin Mining, there was a rockslide and resulting pit wall instability at a mine operated by Lundin. The rockslide was not disclosed for approximately one month. Once disclosed, Lundin’s share price on the TSX declined by 16 per cent.

In SNC Lavalin, SNC did not disclose a phone call with the Department of Public Prosecutions Services of Canada, in which SNC was advised that it would not be invited to negotiate a remediation agreement. Once SNC issued a press release disclosing the phone call, its securities dropped by 13 per cent.

What you need to know

In Lundin Mining, in a unanimous decision, the Court of Appeal for Ontario adopted a generous interpretation of “change in the business, operations or capital”, and granted leave for the action to proceed. The issue of class action certification was remitted to the Superior Court.

The Court confirmed the following two-step test to establish a “material change”: (1) whether there has been a “change” in the risk of the issuer’s “business, operations or capital”, and (2) whether the change was “material” in the sense that it would be expected to have a significant impact on the value of the issuer’s shares.

In the first step of the test, the Court noted that there is no assessment of the magnitude of the change. It is only at the second step that the court should consider the materiality or magnitude of the change. The Court also made it clear that a material “change” cannot be external to the company.

In SNC Lavalin, the Court of Appeal for Ontario dismissed the appeal and held that the phone call was not a “change in business, operations or capital”. The phone call between SNC and the Department of Public Prosecutions Services of Canada did not change the risk of prosecution faced by SNC. This was demonstrated by the fact that SNC continued to negotiate a remediation agreement for over one month after the phone call.  The Court emphasized that the meaning of “change” depends on the specific facts of each case and there is no clear-cut rule as to what will qualify as a “change”.

Key takeaways

• A determination of whether there has been a change in the “risk” faced by a company is highly contextual and fact specific.
• It is important for issuers to engage counsel early, as even a short delay in reporting can lead to potentially significant consequences.
• The Court of Appeal’s decisions confirm the two-part test for determining whether there has been a “material change” under the Securities Act. The test consists of two distinct inquiries.
• A broad interpretation of material change infuses a heightened sense of unpredictability into what could be considered a material change.

What you need to know

• Drs. Wu, Wong and Wadgymar founded a partnership nephrology clinic called CVNA where they provided nephrology services to patients. These doctors also treated patients at a local hospital. Over time, Drs. Kim, Perkins, and Boll joined the CVNA partnership. All the partners contributed, based on their interest in the partnership, to CVNA’s overhead expenses. Drs. Wu, Wong and Wadgymar also founded a separate organization called PDC which had as one of its goals performing research.
• After provincial funding was offered to the hospital to provide a nephropathy clinic to hospital patients, the hospital and Dr. Wu, who headed the nephrology department at the hospital, reached an agreement. The terms were that the hospital would house their new nephrology clinic at CVNA and compensate the physicians for overhead expenses.
• The terms were that the hospital would house their new nephrology clinic at CVNA and compensate the physicians for overhead expenses. The internal memo to the hospital did not specify to who payment should be made but Dr. Wu advised them to make payments to PDC. Later, the parties reduced their understanding to a Memorandum of Understanding (MOU) that only identified the payees as the “Nephrologists”. The MOU set out that the hospital would reimburse the Nephrologists based on their clinical workload.
• The Court of Appeal upheld the trial judge’s findings that the use of the word “Nephrologists” was a reference to the CVNA nephrologists who also provided services at the hospital. Further, the Court noted that only reason that PDC received the payments from the hospital was because of Dr. Wu’s request and not because this was included in the MOU.

Background

Drs. Wu, Wong and Wadgymar, Kim, Perkins, and Boll were partners in a nephrology practice (CVNA). All the CVNA partners contributed, based on their interest in the partnership, to CVNA’s overhead expenses. The premises that housed CVNA was owned by various corporations that were ultimately linked back to Drs. Wu and Wong.  Drs. Wu, Wong and Wadgymar also founded a separate organization called PDC which had as one of its goals performing research.

Drs. Perkins and Boll learned, by chance, that one of their partners were receiving funds from Dr. Wu. Later, Drs. Perkins and Boll started two separate but almost identical claims alleging unjust enrichment as against the remaining doctors, the hospital and PDC for their share of the funds paid by the hospital.

To establish unjust enrichment, Drs. Perkin and Boll were required to establish that (1) the defendants were enriched; (2) they were correspondingly deprived; and (3) that there was no legal reason for the benefit and corresponding deprivation.

At trial, the Court sided with Drs. Perkins and Boll and found that the funds should have been paid to each of physician partners of CVNA. The Court also found that the only reason the hospital paid the funds to PDC was because Wu, as the head of nephrology, had requested them to do so.

The defendants appealed, but their appeal was dismissed.

Key takeaways

This case is a reminder that the words of a contract will be interpreted in light of the surrounding circumstances to identify the objective intentions of the parties. In this case the use of the word “nephrologists” rather than a specific partnership meant that the reimbursements for overhead were intended to be paid to all nephrologists rather than a subset. Additionally, this decision serves as a reminder that persons in positions of trust have an obligation to act in the best interest of those whose interests they are representing.

What you need to know

• Non-text communications, such as emojis, may signify a party’s acceptance with the terms of a contract and constitute a signature to a contract.
• When interpreting whether party’s entered into a contract through non-text communications, the Court will engage in the normal objective reasonable bystander test to determine the parties intention to contract and its terms.
• The Courts may also consider surrounding circumstances and patterns of behaviour between the parties to determine whether the parties have entered into a contract.
• The Courts are aware of the evolution of technology and the challenges that it brings, but are prepared to address these challenges that may arise.

Background

South West and Achter Land & Cattle Ltd. (ALC) had a longstanding business relationship in which South West would purchase grain through ALC several deferred grain contracts since 2012. The details of these contracts were typically discussed informally over the phone or in person and, once the parties came to a consensus on the terms, South West would send a written copy of the agreement to a certain ALC representative, typically via email or text message, at which point ALC would communicate its acceptance and then deliver grain in accordance with those contracts.

For example, in the past, South West’s representative would send a photo of the front side of a one-page contract to the ALC representative with a text message asking ALC to confirm the contract. The contract page in the photo would contain terms outlining pertinent details of the contract, such as the price and delivery period, while the reverse page would contain the standard boiler plate terms that remained the same. In response to South West’s message requesting confirmation of the contract, ALC would send a message communicating its acceptance, which previously included messages like “looks good”, “ok” and “yup”. For years, the parties had no issues with this manner of contract formation until 2021.

In March 2021, South West’s representative texted ALC’s representative a message containing details of flax prices and certain months for delivery. This text message initiated a call between South West and ALC in which the terms of a contract were discussed. Similar to the past, after the parties agreed to the terms, South West drafted the agreement with a deliver period of “Nov” and sent a photo of the front page of the contract asking ALC to confirm. In response to South West’s text message, ALC’s representative texted a thumbs up emoji “👍”.

At no point between sending the thumbs up emoji and the November delivery date, did ALC contact South West to discuss the contract except in September 2021 to discuss a possible crop failure. Despite all of these circumstances, ALC did not deliver the grain in accordance with the contract and South West sued it for breach of contract.

ALC denied it entered into the contract with South West, or in the alternative, that such a contract was unenforceable under the Sale of Goods Act as there was no note or memorandum of the made and signed by ALC. Rather than communicating acceptance of the contract, ALC suggested that the thumbs up emoji was merely an acknowledgement of receipt of the contract.

Patterns of behaviour will be considered in the interpretation of non-text communications

The key issue in this case relates to the “meeting of the minds” component necessary for the formation of a contract. Specifically, the parties dispute the meaning of a thumbs up emoji in the context of this case. As such, the Court had to determine whether an objective reasonable bystander would believe the thumbs up signified the parties’ intention to contract in accordance with the terms set out. The surrounding circumstances, including the relationship between the parties may also be considered.

In this instance, the ALC exhibited a pattern of behaviour when negotiating its contracts with South West that clearly indicated it was aware the contract at issue was valid and binding. ALC had performed on past contracts where a brief one-to-two-word response was provided to South West’s request to confirm the contract. Much like this case, there was also no evidence that suggested ALC was left wondering about any of those previous contracts in which they performed and were paid. ALC had clearly intended such informal communications to signify acceptance.

The Court also considered the Dictionary.com meaning of the thumbs up emoji, which indicated “it is used to express assent, approval or encouragement in digital communications, especially in western cultures.”  Although the authority of this definition was unclear, it “seem[ed] to comport with [the Judge’s] understanding from [his] everyday use – even as a late comer to the world of technology.” As the test requires the understanding of an objective reasonable bystander, ALC’s understanding of the thumbs up emoji was not considered.

ALC also argued the interpretation of the thumbs up emoji would open the flood gates and ask the Court to interpret several other emojis, including 👊 and 🤝. This argument was not accepted as the Court must recognize the emergence of technology and the new challenges, they may bring rather than ignore it.

In light of this, the Court held the use of the thumbs up emoji in this case meant ALC accepted the contract with South West and the parties’ had a meeting of the minds.

A signature was not necessary to express acceptance of the contract

Under the circumstances of this case, much like clicking an icon on a webpage or another electronic communication, the thumbs up emoji was an action in an electronic form that may be used to express acceptance. In particular, the thumbs up emoji is an action in electronic form as defined by the Electronic Information and Documents Act.

ALC’s argument that an actual signature was an essential component for the identity of a party accepting the terms of a contract was not persuasive and not accepted. The thumbs up emoji was also sufficient to constitute a signature as required under the Sale of Goods Act, which states the contract must be in writing an signed. As electronic actions denoting acceptance under the Electronic Information and Documents Act have been accepted as valid signatures under the Sale of Goods Act, the thumbs up emoji was sufficient.

The terms of the contract are certain

ALC argued that the terms of the contract were uncertain and, as the photo only contained the one side of the contract, essential terms were not included. It was also argued that the delivery period stated as “Nov” was vague. These arguments were rejected given the surrounding circumstances.

Given the longstanding relationship between South West and ALC and the many contracts agreed to through photos sent by text message, ALC cannot now deny it agreed to this particular contract. The use of “Nov” was also not vague as the parties would have known the delivery date was in 2021 based on previous dealings.

Key takeaways

The Courts have recognized the evolution of technology and will not ignore its existence and is prepared to face he challenges that may arise from the use of non-text communications, such as emojis. Although such communications are non-traditional, the traditional test used to determine whether a contract was properly formed will be used and what an objective reasonable bystander would understand will be considered. However, this may not be the only factor the Courts will consider as they may look to the surrounding circumstances, including the relationship between the parties and their pattern of contractual dealings.

Individuals and organizations should be cautious about the use of informal non-text communications when negotiating contracts. Subjective intentions are not a factor to be considered in the interpretation of such communications that may have somewhat ambiguous or wide-ranging meanings. Parties should be clear in their communications when negotiating contract and make inquiries if there is any ambiguity in a someone’s communication respecting a contract’s terms or the acceptance of those terms.