In Spark Event Rentals Ltd. v. Google LLC, 2024 BCCA 148, released on April 19, Justice David Harris upheld a chambers judge’s conclusion that the issue of whether an arbitration agreement between the parties was unconscionable should be referred to arbitration.
The appellant, Spark Event Rentals Ltd., an event rental business, sought to bring a class action against Google and Apple alleging that both companies engaged in a conspiracy that caused the price that Spark paid for Google ads to be higher than the price would have otherwise been.
Google brought an application to stay the proceedings in favour of an arbitration process mandated in the purchase agreement that Google requires all ad buyers to sign.
Spark argued that the arbitration agreement was void as unconscionable or contrary to public policy and that the assessment of the agreement’s validity should be made by the court and not an arbitral tribunal.
In Spark Event Rentals Ltd. v. Google LLC, 2023 BCSC 1115, a chambers judge stayed the action in favour of arbitration, finding that the case did not fall within any applicable exception to the competence‑competence principle that mandates that jurisdictional challenges to arbitration be decided through arbitration.
The judge granted Spark leave to discontinue the action against Google and continue it against Apple.
Spark appealed the decision arguing that the chambers judge erred by failing to consider whether there was a real prospect that the arbitrator may never decide the merits of the jurisdictional challenge.
Justice Harris cited Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, in which the Supreme Court of Canada established certain exceptions to the rule that any challenge to the jurisdiction of an arbitrator must first be referred to the arbitrator.
The judge also cited Uber Technologies Inc. v. Heller, 2020 SCC 16, in which the Supreme Court held that a court can also decide a jurisdictional challenge when where there is a realistic prospect that the arbitral tribunal will not decide the jurisdictional challenge.
Spark argued that the chambers judge erred in considering only whether Spark could afford to initiate an arbitration.
Justice Harris noted that while the chambers judge had in several places referred to the issue as being whether Spark had established that it did not have the financial ability to initiate arbitration, he did not lose sight of the test he had to apply.
The court observed that the chambers judge had found that Spark had not discharged its burden to demonstrate that there was a real prospect that the jurisdictional challenge would not be decided by the arbitrator.
The court noted that much of Spark’s evidence went to the overall cost of resolving the entire price‑fixing claim in arbitration.
“This evidence did not assist the judge in deciding the threshold question of whether a brick wall prevented an arbitrator deciding whether the agreement was invalid,” the judge wrote.
Justice Harris added that a considerable amount of the appellant’s evidence was relevant to whether the agreement was unconscionable and held that it was not obvious, apart from the cost of having the matter adjudicated by an arbitrator, that an arbitrator could not expeditiously rule on unconscionability and public policy.
The appellant also argued that the chambers judge erred by failing to properly determine whether the arbitration agreement was invalid under the Dell approach.
Under the Dell approach, issues of mixed fact and law regarding the validity of an arbitration agreement must be referred to arbitration unless the arbitration agreement is manifestly tainted by a defect rendering it invalid or inapplicable.
The judge held that it was not plausible to suggest that the facts necessary to determine whether the arbitration agreement was unconscionable or contrary to public policy were evident on the face of the record or undisputed between the parties.
Justice Harris noted that a finding of unconscionability requires proof that there was inequality of bargaining power between the parties and proof that the contractual term at issue was improvident at the time the contract was entered into.
The judge accepted that there was a difference in sophistication between Spark and Google, but found that there was a bona fide dispute over whether Spark could plausibly be described as vulnerable.
“There is no self‑evident evidence that Spark is on the verge of insolvency and financially vulnerable to the potential predations of a rich rival on which it depends for its viability,” the judge wrote.
The court noted that Spark was arguably just a commercial entity for whom advertising through Google Ads is economically advantageous.
“[N]otwithstanding Spark’s affirmation that Google Ads are commercially necessary for it to conduct its business, there are multiple other means of advertising, engaged in by Spark, to market its services,” the judge wrote.
The court held that an assessment of whether the arbitration agreement was improvident would require an inquiry into the surrounding circumstances at the time of contract formation, such as market price, the commercial setting or the positions of the parties.
Justice Harris concluded that the determination of whether the arbitration agreement is unconscionable did not fall within the scope of the Dell framework and held that the issue should be referred to arbitration.
Justice Barbara Fisher and Janet Winteringham concurred in the decision.
Counsel for the parties were not immediately available for comment
Counsel for the appellant were Reidar Mogerman and Michelle Segal of Camp Fiorante Matthews Mogerman LLP.
Counsel for respondents Google LLC, Google Canada Corporation and Alphabet Inc. were Tracey Cohen, Andrew Borrell and Paige Mueller of Fasken Martineau DuMoulin LLP.
If you have any information, story ideas, or news tips for Law360 Canada on business-related law and litigation, including class actions, please contact Karunjit Singh at karunjit.singh@lexisnexis.ca or 905-415-5859.