Canada: Arbitration Clause Prevents Action By Home Owners From Proceeding To Trial

In Evans v Mattamy Homes Limited, the Superior Court of Justice confirmed the high bar plaintiffs must meet to demonstrate that an arbitration clause in an agreement is invalid and therefore a civil proceeding is permissible to resolve disputes between the parties. The decision will likely apply in proposed class actions with similar facts.

The Plaintiffs in this case signed Purchase and Sale agreements with Mattamy Homes Limited ("Mattamy") in February and March 2017 for preconstruction homes in Oakville. These homes had closing dates in April 2018. This action was initiated by a number of plaintiffs whose homes did not close in April 2018, claiming recession of the agreements or damages in the alternative.

The Purchase and Sale Agreements included an arbitration clause, which required that any dispute between the parties be resolved via binding arbitration. The Plaintiffs argued that the arbitration clause was unconscionable and that Mattamy exercised undue influence over them in reaching the agreement, rendering it invalid pursuant to section 7(2) of the Arbitration Act, 1991.

Mattamy brought a motion to stay the action on the basis that the clause was valid and the Plaintiffs were required to proceed through arbitration rather than litigation, pursuant to section 7(1) of Arbitration Act, 1991.This section requires that the Court stay any proceeding that relates to a dispute which the parties previously agreed to resolve through arbitration. The Court may refuse to stay the proceeding, among other reasons, if the arbitration agreement is invalid.

The onus was on the Plaintiffs to show that the arbitration clause was unconscionable. The Court applied a four-part test to make this determination. 

1. Does the Arbitration Agreement represent a grossly unfair and improvident transaction?

The Plaintiffs argued that the arbitration clause was grossly unfair because it was financially more burdensome for each plaintiff to go to arbitration individually, rather than proceed as a group of plaintiffs in a civil action. The Court compared this claim to Heller v. Uber Technologies Inc. (Uber) and found it to be distinguishable from that case. In Uber, the Plaintiffs were facing an arbitration to be held in the Netherlands. The plaintiffs in Uber were advocating for minimum wage, and so the expense of going to Europe was disproportionate. The Court found there was no such unfairness or disproportionality for the Plaintiffs in the case at hand.

2. Did the plaintiffs obtain independent legal advice or other suitable advice?

The Court was given contradicting evidence by the parties. The Plaintiffs argued that Mattamy would not present them with the Purchase and Sales Agreement until they provided a deposit cheque, and that they were not permitted to consult a lawyer. Mattamy's evidence was that buyers were always granted the opportunity to consult with a lawyer, if they choose to do so, and that the Purchase and Sales Agreement was available upon request. The Court also looked to the fact that some of the Plaintiffs had previously bought homes from Mattamy and were able to consult lawyers in the past. Therefore, the Court was not convinced that adequate legal advice was unobtainable.

3. Was there an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or other similar disability?

The Plaintiffs had not presented any evidence illustrating that they were unable to comprehend the agreement due to any of the considered factors. In fact, there was evidence before the Court showing that at least some of the plaintiffs were cognisant that the agreement would be firm and legally binding. The Court concluded that there was no overwhelming imbalance of bargaining power caused by the Plaintiffs' disposition to any factors considered above. Therefore, the Court found the Agreement was not unconscionable.

4. Did Mattamy knowingly take advantage of the plaintiffs' vulnerability?

No evidence was presented to the Court that would suggest the Plaintiffs were vulnerable and taken advantage of when signing the Agreement.

The Court went on to consider the Plaintiffs' claim that Mattamy exercised undue influence over them.

The Plaintiffs argued that they had felt pressured to sign agreements, and stated that the environment was intimidating. They argued that the fear of losing their lot made them more vulnerable. Mattamy's position was that the pressure the Plaintiffs were feeling of losing their lot was market pressure, and not from Mattamy, as lots were in high demand at the time. The Court agreed with Mattamy and added that the Plaintiffs did not object to the agreements they signed even after leaving the circumstances of the alleged undue influence. The Plaintiffs failed to show that Mattamy abused its power to compel the Plaintiffs to sign the Arbitration Agreement.

The Court therefore found that the Arbitration Agreement was valid and ordered a stay of proceedings. While this case did not involve a proposed class action, it will be relevant to such cases, because defendants often argue that arbitration clauses preclude class proceedings.

This decision affirms that there is a high threshold that plaintiffs must meet to demonstrate unconscionability and undue influence in order for an arbitration agreement to be invalid. It is important to note, however, that real estate transactions are not subject to Ontario's Consumer Protection Act, 2002, which sometimes serves to invalidate arbitration clauses.

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