Canada: SCC Clarifies Role Of Arbitration/Mediation Clauses In Class Actions

Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Litigation & Dispute Resolution, April 2011

On March 18, 2011, the Supreme Court of Canada, in a five-to-four decision (Michelle Seidel v. TELUS Communications Inc., 2011 SCC 15), ruled that in certain circumstances consumers can pursue class action law suits even after signing a contract that contains a waiver of the right to do so. The majority of the Supreme Court of Canada ruled that enforcement and remedy provisions of British Columbia's consumer protection legislation, the Business Practices and Consumer Protection Act (BPCPA), provides consumers with a statutory right to take action in the Supreme Court even where the consumer has contractually agreed to mediate/arbitrate any dispute.

Background Facts

A contract that was drawn up by TELUS provided that: "[A]ny claim, dispute or controversy" was to be referred to "private and confidential mediation" and, thereafter, if the matter was not resolved, to "private, confidential and binding arbitration."

Prior to the certification of the purported class proceeding, TELUS brought an application for stay of proceedings arguing that Ms. Seidel was bound pursuant to the terms of the contract to mediate and then arbitrate any dispute and was obliged by the terms of the contract to opt out of any class action commenced against TELUS.

The British Columbia Supreme Court

In 2008, this matter was heard by The Honourable Mr. Justice Masuhara who considered whether or not it was appropriate to stay the class proceeding as a result of the arbitration clause in the mobility service contract. The Honourable Mr. Justice Masuhara considered previous British Columbia jurisprudence, which held that an arbitration agreement was only to be considered at the certification application. As a result, he dismissed the application for a stay.

The British Columbia Court of Appeal

The British Columbia Court of Appeal considered a variety of issues but particularly looked at s. 172 of the BPCPA. This section reads as follows:

172(1) The director or a person other than a supplier, whether or not the person bringing the action has a special interest or any interest under this Act or is affected by a consumer transaction that gives rise to the action, may bring an action in Supreme Court for one or both of the following:

a) a declaration that an act or practice engaged in or about to be engaged in by a supplier in respect of a consumer transaction contravenes this Act or the Regulations;
b) an interim or permanent injunction restraining a supplier from contravening this Act or the Regulations.

The British Columbia Court of Appeal considered this section and determined that as it does not exclude arbitral jurisdiction, it does not render inoperative the arbitral agreement between Ms. Seidel and TELUS. The Court of Appeal considered the Supreme Court of Canada decisions of Dell and Rogers confirming the "competence-competence principle" whereby a court is to refer the parties to arbitration unless the arbitration agreement is manifestly tainted by a defect rendering it invalid or inapplicable. As a result, the British Columbia Court of Appeal allowed the appeal and stayed Ms. Seidel's action in its entirety. This was a unanimous decision of a five-member panel of the British Columbia Court of Appeal.

The Supreme Court of Canada

The Supreme Court of Canada split five (McLachlin C.J., Binnie, Fish, Rothstein and Cromwell JJ) to four (LeBel, Deschamps, Abella and Charron JJ) to permit the purported class proceeding to proceed notwithstanding the mediation/arbitration clause in the cellular phone services contract.

Despite the divided nature of the decision, the court was unanimous on several important issues including:

  1. The choice to restrict or not to restrict arbitration choices in consumer contracts is a matter for the Legislature;
  2. The competence-competence principle enunciated in the Dell and Rogers decisions is applicable in British Columbia;
  3. Absent legislative intention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause; and
  4. Absent legislative intention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, that includes a clause that a party will not proceed with a class action.

The split in the court turned on the determination of the intention of the Legislature when enacting the consumer protection provisions of the BPCPA. The majority considered the purpose of consumer protection legislation such as the BPCPA and was of the view that its terms ought to be interpreted generously in favour of consumers. The majority held that the applicant in this case had a "statutory right" to take her complaint to the British Columbia Supreme Court. Under s. 3 of the BPCPA, any agreement waiving or releasing "rights, benefits or protections" is void under the Act. The majority noted that s. 172 provides a mandate for consumer activists or others to bring a claim (whether or not they are personally affected by the consumer transaction). The clear intention of the Legislature in drafting s. 172 in this way was to supplement the efforts of the director to implement province‑wide standards of fair consumer practices by enlisting the efforts of a host of "self‑appointed" private enforcers. An action in the British Columbia Supreme Court would likely generate a measure of notoriety that would not be achieved to the same extent by a private arbitration.

However, the majority agreed with the balance of the court that it was the choice of the Legislature whether to restrict or not restrict the use of mediation/arbitration clauses and that absent legislative intervention, the courts will generally give effect to the terms of commercial contracts freely entered into, even if they are contracts of adhesion. Hence, as for Ms. Seidel's alternate complaints beyond those set out in s. 172 of the BPCPA, the TELUS mediation/arbitration clause was valid and enforceable, and those claims were stayed. The majority also stressed that the present motion merely concerned Ms. Seidel's individual action and that certification of the matter had yet to be decided in the courts of British Columbia.

The minority held that absent a clear statement by the Legislature of an intention to the contrary, a consumer claim that could potentially proceed either by way of arbitration or class action must first be submitted to arbitration. In their view, the BPCPA did not manifest exclusive legislative intent to foreclose the use of arbitration as a vehicle for the resolution of disputes under the BPCPA in British Columbia. As a result, the mediation/arbitration clause contained in the mobile services contract between Ms. Seidel and TELUS displaced any other method of seeking a remedy, such as a class proceeding, for Ms. Seidel and the members of the purported class.

Conclusion

It is clear that the Supreme Court of Canada has provided guidance as to the use of mediation/arbitration clauses in contracts, including contracts of adhesion. The court unanimously held that absent special circumstances such as those involving consumer protection legislation, mediation/arbitration clauses are to be enforced. Given that Ontario, Quebec and Alberta have modified their consumer protection legislation to override arbitration clauses, this decision will have limited impact in those jurisdictions. However, it will be interesting to see how the courts interpret this decision in other jurisdictions as it is expected that the battleground will now be whether the court can read into consumer protection legislation sufficient legislative intent to permit actions to proceed even in circumstances where there is a mediation and arbitration clause.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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