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'SIM swap' that enabled theft of $63K in bitcoin at centre of B.C. court case

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A Freedom Mobile customer who sued the company for negligence after a "SIM swap" scam cost him more than $63,000 in bitcoin will have to go through the company's arbitration process to pursue his claim, a B.C. court has ruled.

Alireza Tahmasebpour and his son Sepehr filed a lawsuit in B.C. Supreme Court alleging that the mobile phone carrier had been negligent when it allowed a fraudster impersonating Alireza to obtain a new SIM card with Sepehr's phone number in January 2021.

Freedom did not file a response to the allegations, instead petitioning the court to dismiss the case because of a mandatory arbitration clause in its terms of service that requires customer disputes to be resolved outside of court.

In a decision published Thursday, B.C. Supreme Court Justice F. Matthew Kirchner expressed reservations about Freedom's case, but nevertheless concluded that an arbitrator – not the courts – must decide who has jurisdiction over the matter. 

'SIM swap' blamed for bitcoin theft

Kirchner's decision explains that Sepehr has had a cellphone associated with Alireza's plan since 2015, when Alireza opened his account with WIND Mobile, Freedom's predecessor.

Sepehr got a new iPhone at the Mobile Shop in North Vancouver in December 2018, and Alireza accompanied him to make the purchase. According to the decision, both men claim that they were never given the terms of service that included the mandatory arbitration clause.

The incident that led to the litigation occurred roughly two years after Sepehr got his new phone.

While skiing at Mount Seymour in January 2021, Sepehr got a text message from Freedom indicating that the email address on his account had been changed, the decision indicates. That was followed by a second text notifying him that his PIN had also been changed.

"The message stated that if he did not make this change he was to call a number that was given," the decision reads. "He tried to call that number, but his phone lost service. He thought this was because cell service on Mount Seymour must have been poor, but when he drove home later that evening he still had no service and learned that his sister’s and his mother’s phones also had lost service."

When Sepehr was finally able to get in touch with Freedom the next day, he learned that someone had attended a Freedom location and obtained a new SIM card with his phone number.

"This is known as a 'SIM swap,' and it is a scheme where a fraudster deceives a phone company into swapping a SIM card associated with one phone to a new device, giving the fraudster access to all the person’s phone number, phone call records, and text messages," the decision explains.

Sepehr told the court he believes the SIM swap allowed the fraudster to use two-factor authentication to access his bitcoin wallet, which was emptied of its contents – 1.46049931 bitcoin, then valued at $63,099.84 – the day after he received the messages from Freedom while skiing.

Judge finds company has 'arguable case'

In response to the Tahmasebpours' lawsuit, Freedom applied for a stay of proceedings under B.C.'s Arbitration Act, which says that such a stay must be granted if there is an "arguable case" that the arbitration clause applies to the dispute.

"The 'arguable case' standard is a relatively low bar and will be met unless there is 'no nexus between the claims and the matters reserved for arbitration,'" Kirchner's decision reads.

"Any 'legitimate question of the scope of the arbitration jurisdiction' is to be deferred to the arbitrator."

The judge concluded that Freedom had an arguable case that the arbitration clause applies, noting that while the plaintiffs claim to have never been presented with the terms of service, the company asserted that they were, and provided "regenerated" documents showing a hyperlink to the terms.

"There is no evidence to explain what a 'regenerated' version of the document is or how it was regenerated," the decision reads. "The regenerated document does not say (at least expressly) that the terms of service are incorporated into the contract, although perhaps that may be implied … it is at least arguable that the hyperlink link was sufficient to draw Alireza’s attention to the terms of service and, by implication, that they are incorporated into the contract."

Kirchner described Freedom's case as "weak," but noted that the company could not legally take steps – such as document discovery – to strengthen its case because it was petitioning for a stay of proceedings, rather than responding to the lawsuit.

"It is not for me to decide on this application whether the plaintiffs are subject to the arbitration clause but only if there is an arguable case that they are," the decision reads. "In my view, while the evidence is weak, there is at least an arguable case that the terms of service, including the arbitration clause, apply to Alireza and Sepehr."

Plaintiffs did not prove clause was 'unconscionable'

Kirchner also considered the plaintiffs' arguments that the arbitration clause was either rendered void by Ontario law – which is the provincial law governing the terms of the agreement – or "unconscionable," meaning it "arose from a relationship of unequal bargaining power and is substantially unfair to the plaintiffs," according to the decision.

The judge concluded that the Ontario law the plaintiffs referenced lists specific claims that it shields from arbitration clauses, and negligence is not among them.

On the question of unconscionability, Kirchner found that the plaintiffs had not provided enough evidence for him to reach a conclusion.

He noted that the arbitration clause makes no mention about the costs customers must bear, and that makes it potentially vulnerable to unconscionability claims.

"It is almost certain that the arbitration clause, which contains no carve-out for small claims matters, would result in an arbitration process whose costs are disproportionately high in relation to many types of claims that consumers might bring," the decision reads. "However, whether that is true in the present case is not obvious."

"I find there is potential that the arbitration clause could be unconscionable depending on the circumstances and particularly the costs the plaintiffs might have to pay up-front to start an arbitration. I am not satisfied that the plaintiffs have met their onus of clearly showing unconscionability on this application or that there is a real prospect that unconscionability (or, for that matter, the substantive claim for $63,325.99) will not be determined if the matter is referred to arbitration."

Kirchner granted Freedom the stay of proceedings it sought, but declined to award the company court costs.

He also allowed a small portion of the claim – brought based on B.C.'s Business Practices and Consumer Protection Act – to proceed through the court system, rather than arbitration. The amount the plaintiffs claimed under that law was just $150. 

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