Canada: Supreme Court Rules On Arbitration Of Consumer Claims: Reality Or Myth?

Last Updated: May 22 2011
Article by Michael Schafler

Facts

On March 18 2011 the Supreme Court released its decision in Seidel v TELUS Communications Inc.1 Ms Seidel had commenced an intended class action in the British Columbia Supreme Court notwithstanding the following arbitration clause in her contract with TELUS:

"15. ARBITRATION: Any claim, dispute or controversy (whether in contract or tort, pursuant to statute or regulation, or otherwise and whether pre-existing, present or future - except for the collection from you of any amount by TELUS Mobility) arising out of or relating to: (a) this agreement; (b) a phone or the service; (c) oral or written statements, or advertisements or promotions relating to this agreement or to a product or service; or (d) the relationships which result from this agreement (including relationships with third parties who are not parties to this agreement), (each, a "Claim") will be referred to and determined by private and confidential mediation before a single mediator chosen by the parties and at their joint cost. Should the parties after mediation in good faith fail to reach a settlement, the issue between them shall then be determined by private, confidential and binding arbitration by the same person originally chosen as mediator. Either party may commence court proceedings to enforce the arbitration result when an arbitration decision shall have been rendered and thirty (30) days have passed from the date of such decision. By so agreeing, you waive any right you may have to commence or participate in any class action against TELUS Mobility related to any Claim and, where applicable, you hereby agree to opt out of any class proceeding against TELUS Mobility otherwise commenced."

Seidel's complaint was essentially that TELUS unlawfully charges its customers for incoming calls based on when the caller connects to TELUS's network, but before the customer answers the call. Her claims (for declaratory and injunctive relief and damages) were apparently based on the British Columbia Trade Practice Act2 and Sections 171 and 172 of the British Columbia Business Practices and Consumer Protection Act.3 The British Columbia Business Practices and Consumer Protection Act contains the following provision, which was central to the appeal: "3. Any waiver or release by a person of the person's rights, benefits or protections under this Act is void except to the extent that the waiver or release is expressly permitted by this Act."

In addition, Section 15 of the Commercial Arbitration Act4 was in issue:

"15. (1) If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may apply, before or after entering an appearance and before delivery of any pleadings or taking any other step in the proceedings, to that court to stay the legal proceedings.

(2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed."

The British Columbia Court of Appeal, overturning the judge of first instance, stayed Seidel's action in favour of arbitration. In doing so, that court held that the Supreme Court's decision in Dell Computer Corp v Union des consommateurs,5 although dealing with the relationship between arbitration clauses and class actions under the Civil Code of Quebec, was also applicable to the statutory regime in British Columbia (which is similar to that of Quebec), and thus binding.

The only issue remaining before the Supreme Court was whether Seidel's claims under the Business Practices and Consumer Protection Act had been properly stayed or whether Section 3 of the act created an exception to the mandatory language of Sections 15(1) and (2) of the Commercial Arbitration Act.

Reasoning

Competence-competence principle

In a split five-to-four decision, the court ruled that Section 3 of the Business Practices and Consumer Protection Act did in fact create such an exception. However, the language employed throughout the dissenting reasons revealed a deep rift in the court as to the role of arbitration proceedings in Canada's present justice system: "In our view, [the majority's] interpretation represents an inexplicable throwback to a time when courts monopolized decision making and arbitrators were treated as second-class adjudicators."6

There was no disagreement that the competence-competence principle enunciated in Dell had general application.7 It is now beyond doubt in Canada that an express legislative direction that arbitrators are to consider the scope of their own jurisdiction, coupled with the use of language similar to that found in the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1985 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, amounts to incorporation of the competence-competence principle.

In such circumstances, in the absence of a challenge to the arbitrator's jurisdiction based solely on a question of law (or one of mixed fact and law requiring only superficial consideration of the evidence in the record), the existence or validity of an arbitration agreement to which legislation such as the Commercial Arbitration Act applies must be considered first by the arbitrator, and the court should grant the stay. In this case all of the Supreme Court judges agreed that the British Columbia Court of Appeal had properly accepted and endorsed this approach. However, the court was divided as to the correct outcome of that approach on the facts of this case.

The effect of Section 3 of the Business Practices and Consumer Protection Act

It is readily apparent from how the majority and the dissent respectively characterised the core issue that there existed a schism about the role of arbitration in today's justice system. Justice Binnie, for the majority, framed the issue as one of "access to justice", noting that "private arbitral justice, because of its contractual origins, is necessarily limited".8

The dissenting opinion, penned by Justices LeBel and Deschamps, focused not on access to justice simpliciter, but rather whether access to justice must mean "access to a judge":

"In an effort to promote and improve access to justice, and to make more efficient use of scarce judicial resources, legislatures have adopted new procedural vehicles designed to modify or provide alternatives to the traditional court action. These alternatives include class actions and arbitration, both of which have been endorsed by this Court. Consumers in British Columbia, depending on the contractual arrangements they make, already have access to either arbitration or the courts to resolve their disputes. In this case, the consumer's contract provides that in the event of a dispute, the exclusive adjudicative forum is arbitration. This is a forum our courts have long accepted as an efficient and effective access to justice mechanism. Thus, the question in this case is instead whether access to justice means - and requires - access to a judge."9

Thus framed, the issues left no doubt about the outcome. Binnie concluded that Section 3 of the Business Practices and Consumer Protection Act should be interpreted to mean "that to the extent the arbitration clause purports to take away a right, benefit or protection conferred by the Business Practices and Consumer Protection Act, it will be invalid".10 Embedded in this reasoning is the notion that it is a right, benefit or protection under the act to assert a consumer complaint in the courts. The corollary is that being required to assert the same complaint before an arbitral tribunal is tantamount to an impairment of such right, benefit or protection. As Binnie noted:

"The text of the statute favours Ms. Seidel's interpretation. The operative language of s. 3 ('rights, benefits or protections') is all-encompassing. TELUS argues (and my colleagues LeBel and Deschamps JJ. agree, at para. 136) that the s. 172 right to 'bring an action in Supreme Court' is merely procedural. With respect, this characterization is of no assistance to TELUS. Whether procedural or substantive, it is indubitably a 'righ[t]' or 'benefi[t]' conferred by the statute. If the legislature had intended to draw distinctions between procedural and substantive 'rights, benefits or protections' in s. 3 of the Business Practices and Consumer Protection Act, it could easily have done so, but it chose not to. Ms. Seidel possesses a statutory 'right' to take her complaint to the Supreme Court. My colleagues LeBel and Deschamps JJ. read down the expression 'rights, benefits or protections' to exclude procedural rights. I can find no justification for modifying the legislation in this way."11

Binnie offered up two justifications for his approach:

  • In the consumer context, declarations and injunctions (remedies provided for under the Business Practices and Consumer Protection Act) are the most efficient remedies in terms of protection of consumers' interests and the deterrence of wrongful suppliers conduct;12 and
  • By contrast, arbitrations are "private and confidential" and lack precedential value, and an order made by an arbitrator would not bind third parties.13

As set out in the introduction above, the dissenting judges were unusually critical of Binnie's approach. LeBel and Deschamps first carefully reviewed Canadian jurisprudence on arbitration, concluding that until the late 1980s, Canadian courts had been openly hostile towards arbitration. That hostility eventually gave way to a new approach, to the effect that where a legislature intends to exclude arbitration as a vehicle for resolving a particular category of legal disputes, it must do so explicitly.14

Next, they explained that the Commercial Arbitration Act was influenced by the UNCITRAL Model Law, with the result that the reasoning in Dell applied.15 As to the proper interpretation of the Business Practices and Consumer Protection Act, LeBel and Deschamps reasoned that Section 3 was intended to protect substantive rights - however, in what forum these rights are to be dealt with is a procedural matter:

"An arbitrator can grant the remedies contemplated in s. 172 of the Business Practices and Consumer Protection Act against TELUS. The arbitration agreement between Ms. Seidel and TELUS does not therefore constitute an improper waiver of Ms. Seidel's rights, benefits or protections for the purposes of s. 3 of that Act. Consequently, the act, in its current form, does not provide a court considering a stay application under s. 15 of the Commercial Arbitration Act with a reason for refusing to grant it. Section 3 of the Business Practices and Consumer Protection Act does not prohibit agreements under which consumer disputes are to be submitted to arbitration or that otherwise limit the possibility of having a proceeding certified as a class proceeding, since s. 172 of the act merely identifies the procedural forum in which an action with respect to the rights, benefits and protections provided for in s. 172 may be brought in the public court system. However, s. 172 does not explicitly exclude alternate fora, such as an arbitration tribunal from acquiring jurisdiction."

Comment

The degree of separation between the majority and the dissent is rather surprising. Deference to arbitration has, after all, become a hallmark of Canada's justice system. What might explain the different approaches? Could it be that the majority felt obliged to draw a line in the sand? Was TELUS really trying to avoid publicity by insisting on private arbitration? This would seem inconceivable, given that the arbitral award is enforceable in the courts, as the dissent pointed out. This decision, it would appear, raises more questions than it answers. However, what is clear is that arbitration in Canada will continue to thrive, as it has in the past 20 years or so; and that as it stands, the right to choose a dispute resolution forum appears to be substantive (or at least something more than procedural only). Therefore, in the absence of the clearest of legislative languages, a consumer cannot be held to his or her bargain to submit a claim to arbitration. It should be noted that Quebec, Ontario and Alberta have enacted legislation that renders class action waiver clauses such as the one in issue in TELUS inoperative.16

Footnotes

1. Seidel v TELUS Communications Inc, 2011 SCC 15.

2. RSBC 1996, c 457.

3. SBC 2004, c 2.

4. RSBC 1996, c 55.

5. 2007 SCC 34.

6. Seidel v TELUS Communications Inc, 2011 SCC 15, para 55.

7. Ibid, para 29 and 89-121.

8. Ibid, paras 7 and 22.

9. Ibid, para 52.

10. Ibid, para 31.

11. Ibid, para 33.

12. Ibid, para 35.

13. Ibid, paras 35, 38-39.

14. Ibid, paras 89-121, esp para 103.

15. Ibid, paras 109-121, esp para 109-110.

16. Ibid, paras 173-175.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

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