The benefits of bespoke drafting: BC Court upholds arbitration provision and class action waiver in consumer context
Video gamers are accustomed to accepting terms and conditions as part of their gameplay. Whether for the platform through which they access the game, the hardware on which they play it, the operating system that commands the hardware, the internet service that enables their play, or for the game itself, different terms of service apply to nearly every interaction in games. While a consumer may be under the impression that they are purchasing a copy of a game (an artifact from a simpler time) in reality (and legally speaking) the gamer is purchasing a licence to play the game in accordance with limited, and often detailed, licence terms.
While there are some constraints around that in consumer protection law, a player’s choice is to either agree to play the game on those terms, or to decline those terms and find another game to play. When a dispute arises between the player and the game company, those terms (representing an agreement between consumer and licensor) are the first stop for determining how—and where—that dispute might be resolved.
In Petty v Niantic Inc, 2022 BCSC 1077, the defendants sought a court order to partially stay1 the class proceeding brought by Sharise Petty and David Stasch (the “Plaintiffs”), as representative plaintiffs on behalf of a proposed class of residents of British Columbia and Alberta who play the games “Pokémon Go” and “Harry Potter: Wizards Unite” (the “Games”).
The Plaintiffs claimed that the “loot boxes” —a catch-all phrase for consumable, purchasable items within the Games that offer a player virtual advantages-- amounted to an unlicensed, illegal gaming system under various Canadian laws, including the Criminal Code, the Competition Act, the Alberta Consumer Protection Act and the British Columbia Business Practices and Consumer Protection Act.
By asking for a stay, the Defendants were asking the British Columbia Supreme Court (the “Court”) to halt further legal process in the action, which could later be lifted depending on certain later events taking place. The Defendants sought a stay on the basis that the Plaintiffs agreed, in the Games’ Terms of Service (the “Terms”), to a clause requiring disputes about the Games to be resolved by either binding arbitration under California law or local small claims procedures.
Prescriptive alternative dispute resolution provisions are common in consumer contracts and can vary in their restrictiveness. Among the most restrictive are “mandatory arbitration provisions” which require all disputes to be settled by binding arbitration, often pursuant to the laws of and taking place in, the jurisdiction of the service provider. Such provisions commonly incorporate class action waivers and invariably prevent or restrict the ability of the consumer to bring a class action against a service provider. Another, increasingly common, approach is the one taken by the Defendants here, which presents the consumer with a choice between arbitration and small claims procedures. Absent dispute resolution provisions in a consumer agreement, the parties may attempt to bring a claim before any court of competent jurisdiction. While flexible, it can lead to uncertainty over whether a given court is the appropriate forum to hear the dispute, which can result in delays and increased costs.
In Canada, some provinces like Ontario and Quebec have changed consumer protection law to expressly prohibit mandatory arbitration provisions and class action waivers. Notably, though, the BC BPCPA does not prohibit mandatory arbitration provisions in consumer contracts, and the Alberta CPA’s limitation on mandatory arbitration provisions states that these provisions will be enforceable if, after a dispute has arisen, the consumer is allowed to decide whether they wish to use arbitration or an action in court to resolve the dispute.
Since the Terms in this case gave consumers a choice between proceeding via arbitration or small claims court, the Court found that the Alberta CPA did not prohibit the arbitration provision in the Terms. While there were other technical arguments raised against the stay by the Plaintiffs, most significant was that the Plaintiffs asked the Court to consider the arbitration provision void, inoperative or incapable of being performed for both unconscionability and public policy reasons. Unconscionability is an equitable doctrine that is used to set aside unfair agreements, with two requirements for application: first, there must be an inequality of bargaining power; and, second, the bargain itself must be improvident. Public policy is a similar doctrine—however, where the unconscionability doctrine focusses on the vulnerability of the weaker party and the unfairness of the contract that results from that vulnerability, the public policy doctrine focusses on the harm to society at large as a result of enforcing a particular contract’s terms.
Unconscionability
As mentioned above, terms of service are commonly encountered contracts of adhesion for consumers—the term “contract of adhesion” refers to a standard form contract that is generally presented without opportunity for negotiation. The Plaintiffs argued that they are individual consumers of games while the Defendants are large sophisticated businesses, and thus an inequality of bargaining power existed particularly due to the fact that the Terms were a contract of adhesion. The Court disagreed, distinguishing the facts of this case from other recent decisions in this area, particularly Douez v. Facebook.2 3
In Douez, the plaintiffs argued that a forum selection clause in Facebook’s terms of service was unenforceable. In its analysis, the Supreme Court found that the provision was unenforceable as there was a gross inequality of bargaining power due to the fact that the terms were a contract of adhesion. The Supreme Court states that in the context of Facebook, “unlike a standard retail transaction, there are few comparable alternatives to Facebook, a social networking platform with extensive reach. British Columbians who wish to participate in the many online communities that interact through Facebook must accept that company’s terms or choose not to participate in its ubiquitous social network”.4
The Court differentiated the facts at hand from those in Douez, finding that, in Douez, the services at issue were more critical to everyday life than those at issue in Petty. The Court found that there was no evidence that use of the Games (or the ability to purchase virtual items within them) are important elements of everyday life that make the Plaintiffs dependent or vulnerable in terms of their need to play the Games. The Games themselves are free to download, and consumers had a choice of whether or not to purchase the virtual items in question. The Court emphasized that this was not a case where a “special relationship of trust” existed such as employer-employee agreements, or agreements involving financial, health or educational services.
Citing Heller,5 a recent decision of the Supreme Court of Canada involving a class action brought on behalf of a class of drivers, the Court broadly stated that contracts of adhesion are not necessarily “the product of an inequity in bargaining power”. The Court highlights that when a drafting party clearly and effectively communicates the meaning of any onerous or unusual clauses this can mitigate against the lack of “free bargaining” in contracts of adhesion. In this case, the Court found that the Plaintiffs were able to understand the arbitration provisions at issue and that the costs of arbitration and the arbitration procedure were sufficiently described in the Terms.
Therefore due to the nature of services at issue and the clarity in drafting, the Court found the first requirement for unconscionability, an inequality in bargaining power, was not met.
Although that would be enough to find against the Plaintiffs, the Court found that the second requirement, an improvident bargain, was also not met. As described by the Court, an improvident bargain “is one where the contract at issue unduly advantages the stronger party or unduly disadvantages the more vulnerable party”. In this case, the Terms allowed the Plaintiffs to opt out of the arbitration agreement within 30 days of downloading the Game, which would have given them a choice to proceed to small claims court or arbitration in their home jurisdiction. The Terms also covered some of the Plaintiffs’ costs of arbitration fees. Furthermore, the Terms stated that if the Plaintiffs succeeded, they would obtain legal fees, but also that they would not have to pay the Defendants’ legal fees if their claims were unsuccessful. As such, the second arm of the unconscionability test, an improvident bargain, was not met.
Public policy
The Plaintiffs also argued that the arbitration provision ought to be found unenforceable for public policy reasons. In determining whether to refuse to enforce an arbitration provision on public policy grounds, a court will consider whether the provision in question causes an undue hardship. This takes into account the nature of the disputes likely to arise, the proportionality between the cost to pursue potential claims and the potential award, the relative bargaining power of the parties, and whether the parties have attempted to tailor the limit on dispute resolution. For the same reasons discussed in the unconscionability analysis above, the Court found that the arbitration provision did not create an undue hardship and therefore is not unenforceable for public policy reasons. In particular, the Court found that the arbitration provision in question was “sufficiently tailored” to avoid undue hardship by providing the 30-day opt-out, indemnifying the defendants for their arbitration costs, and providing for legal fees in the event the consumer was successful in arbitration without a reciprocal right in favour of the Defendants.
Importantly, the Court found that the fact that a consumer does not have the ability access a particular form of proceeding, in this case a class or other proceeding the British Columbia Supreme Court, does not necessarily make an arbitration provision unfair or unduly burdensome.
Conclusion
As a result, the Court allowed the partial stay of proceedings requested by the Defendants. While it should be noted that the more consumer-friendly dispute resolution terms used for these particular Games are not ubiquitously present in the terms for most video games (such as the choice to opt-out of arbitration and cost mitigation for the consumer if an action is pursued), this decision stands for the proposition that, if a game developer or publisher properly considers the equity of the bargain that its games’ terms seek to strike with players, a court may uphold its arbitration provisions—provided that the consumer protection law of the jurisdiction in question does not outright prohibit it. In light of this decision, game developers and publishers should therefore consider revisiting their terms of service with counsel to ensure their dispute resolution provisions remain up-to-date and effective.
[1] The Defendants requested a stay of all proceedings other than in respect of the relief sought by the Plaintiffs under s. 172 of the BC BPCPA, which gives the court power to make declarations or grant non-monetary injunctive relief in connection with certain consumer transactions.
[2] The Plaintiffs particularly relied on the decision of the Supreme Court of Canada in Douez v. Facebook, Inc., 2017 SCC 33 where the Court engaged inequality of bargaining power in respect of a forum selection provision in Facebook’s terms of service.
[3] For example, in Pearce v. 4 Pillars Consulting Group Inc. 2021 BCCA 198, a case involving a debt restructuring business, the plaintiffs included people who were facing bankruptcy and were thus vulnerable. In Heller, the plaintiffs relied on the multinational corporation for employment and were thus vulnerable. Further discussion here
[4] Douez at para. 56
[5] Heller at para. 88
