Canada: Supreme Court Of Canada Allows The Pursuit Of A Class Action Despite A Contractual Mandatory Arbitration Clause

Michelle Seidel v. TELUS Communications Inc., 2011 SCC15

In a recent 5-4 decision, the Supreme Court of Canada narrowly overturned, in part, a decision by the British Columbia Court of Appeal and held that consumers in British Columbia seeking to certify class action proceedings asserting rights, benefits or protections under s. 172 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 (the "BPCPA") may proceed with their suits notwithstanding prior contractual commitments to mediation or arbitration.

Background and Decisions in the Courts Below

The appellant, Michelle Seidel, signed a contract for cellular phone service with TELUS Communications Inc. ("TELUS") in 2000. The service contract contained a standard arbitration clause requiring customers to waive their right to participate in a class proceeding and referred any disputes to private confidential mediation and thereafter, if unresolved, arbitration.

Notwithstanding these provisions, in 2005 the appellant filed a statement of claim in the Supreme Court of British Columbia alleging, among other things, that TELUS falsely represented to her and other customers how it calculates air time for billing purposes and that the manner in which the company actually charged for air time constituted deceptive and unconscionable practices under ss. 171 and 172 of the BPCPA. The appellant sought remedial relief under that statute, including an interim and permanent injunction prohibiting TELUS from engaging in such practices, as well as certification to act on behalf of herself and as representative of a class of TELUS customers.

TELUS countered that the appellant had waived her right to launch a class action suit when she entered into a contract containing a mandatory mediation and arbitration clause and sought a stay of proceedings. In 2009, the British Columbia Court of Appeal ruled that the class action should be stayed in respect of all claims pursuant to s. 15 of the Commercial Arbitration Act, R.S.B.C. 1996, c. 55.

The Supreme Court's Ruling

A majority of the Supreme Court held that the appeal should be allowed, identifying the underlying issues to be access to justice and, more specifically, whether and under what circumstances the BPCPA "manifests a legislative intent to intervene in the marketplace to relieve customers of their contractual commitment" to mediation or arbitration. In the Court's view, because the BPCPA's clear purpose is consumer protection, the legislation's terms should be interpreted generously in favour of consumers. In particular, s. 172 of the BPCPA contains a statutory remedy whereby a public interest plaintiff may bring an action to enforce the statute's consumer protection standards, as well as a provision in s. 3 that provides any agreement between parties waiving or releasing "rights, benefits or protections" conferred by the BPCPA is void. The Court interpreted s. 3 to mean that to the extent a waiver or mediation or arbitration clause purports to take away a right, benefit or protection conferred by the BPCPA, it will be invalid.

Justice Binnie, writing for the majority, stated that the purpose of s. 172 was clearly to encourage private enforcement in the public interest and evidenced a legislative preference for "the vindication and denunciation available through a well-publicized court action to promote adherence to consumer standards." He further noted that the legislature understood that the policy objections of s. 172 would not be best served by private arbitration, a forum he described as "necessarily limited" because "some types of relief can only be made available from a superior court." For example, Justice Binnie noted that arbitrators cannot order relief that would bind third parties or have precedential effect, and that only superior courts have the authority to grant declarations and injunctions enforceable generally.

With respect to the matter of an arbitrators' jurisdiction, the Court affirmed the competence-competence principle by stating that any challenge to an arbitrator's jurisdiction should first be determined by the arbitrator, unless the challenge involves a pure question of law or one of mixed fact and law that requires for its disposition "only superficial consideration of the documentary evidence in the record." Here, because the Court found that the issue of the legal effect of s. 172 of the BPCPA was a question of law to be determined on undisputed facts, it found the competence-competence principle was not violated.

In contrast, the dissenting judges stated that nothing short of explicit language by a legislature to exclude arbitration as a vehicle for resolving a category of legal dispute should permit a consumer to avoid a previous contract mandating that all disputes with the service provider be resolved by way of arbitration. The four-justice minority framed the issue as whether the province's law "made a clear choice" on this point, and defended arbitration as "a forum our courts have long accepted as an efficient and effective access to justice mechanism." In their view, the Court of Appeal position represented "an inexplicable throwback to a time when courts monopolized decision making and arbitrators were treated as second-class adjudicators," an approach that "completely disregards the modern state of the law in British Columbia."

In British Columbia, unlike in other provinces, no specific legislation has been enacted to remove consumer disputes from the reach of arbitration. Indeed, taking issue with the majority's contention that only a court could provide the types of relief the appellant sought, the minority noted that British Columbia explicitly grants arbitrators broad remedial powers, including the power to make declarations and order injunctions; the precise remedies contemplated by s. 172. Accordingly, the minority held that the arbitration agreement between the appellant and TELUS did not constitute an improper waiver of her rights, benefits or protections under the BPCPA.


Therefore, to the extent that a plaintiff's claim invokes s. 172 remedies in respect of rights, benefits or protections available under the BPCPA, the action must be allowed to proceed without regard for a class action waiver or mediation or arbitration clause. For the appellant's alternative claims, however, whether under other sections of the BPCPA, another statute or at common law, the arbitration clause was held by the Court to be valid and enforceable, and her action pertaining to those claims were stayed pursuant the Commercial Arbitration Act.

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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