Originally published in Possibilities, July 2011 The CBA National ADR Section Newsletter
On March 18, 2011, the Supreme Court of Canada released its decision in Seidel v. TELUS Communications Inc,22011 SCC 15. 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, firstly, the British Columbia Trade Practice Act, R.S.B.C. 1996, c. 457 (TPA); and, secondly, sections 171 and 172 of the British Columbia Business Practices and Consumer Protection Act, S.B.C 2004, c. 2 (BPCPA). The BPCPA 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, s. 15 of the Commercial Arbitration Act, R.S.B.C. 1996, c. 55 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 of Canada's decision in Dell Computer Corp. v. Union des consommateurs, though 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 was similar to that in Quebec), and thus binding.
Before the Supreme Court of Canada, the only remaining issue was whether Seidel's claims under the BPCPA had been properly stayed or whether s. 3 of the BPCPA created an exception to the mandatory language of ss. 15(1) and (2) of the CAA.
(i) Competence-Competence Principle
In a split 5-4 decision, the court ruled that s. 3 of the BPCPA did, in fact, create such an exception. Yet, 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 adjudicators3.
There was no disagreement that the competence-competence principle enunciated in Dell had general application4. 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 (the ―New York Convention‖) and the 1985 UNICITRAL Model Law on International Commercial Arbitration (―Model Law‖) amounts to incorporation of the competence-competence principle.
In such circumstances, absent 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 like the CAA applies must be considered first by the arbitrator, and the court should grant the stay. In this case, all judges of the Supreme Court 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.
(ii) The effect of s. 3 of the BPCPA
It is readily apparent from how the majority and the dissent, respectively, characterized the core issue, that there exists a schism in the court about the role of arbitration in today's Canadian 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.‖5
The dissenting opinion, penned by Justices LeBel and Deschamps, focussed 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 judge6.
The issues, thus framed, never left any doubt about the outcome. Justice Binnie concluded that s. 3 of the BPCPA should be interpreted to mean ―that to the extent the arbitration clause purports to take away a right, benefit or protection conferred by the BPCPA, it will be invalid.‖7 Embedded in this reasoning is the notion that it is a right, benefit or protection under the BPCPA 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 J. 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 BPCPA, 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 way8.
Binnie J. offered up essentially two justifications for his approach:
- In the consumer context, declarations and injunctions (remedies provided for under the BPCPA) are the most efficient remedies in terms of protection of consumers' interests and the deterrence of wrongful suppliers' conduct9; and
- By contrast, arbitrations are ―private and confidential,‖ lack precedential value and an order made by an arbitrator would not bind third parties.10
As set out in the introduction above, the dissenting judges were unusually critical of Binnie J.'s approach. Justices 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.11
Next, they explained that the CAA was influenced by the Model Law with the result that the reasoning in Dell applied.12 As to the proper interpretation of the BPCPA, LeBel and Deschamps JJ. reasoned that s. 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 BPCPA 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 BPCPA, in its current form, does not provide a court considering a stay application under s. 15 of the CAA with a reason for refusing to grant it. Section 3 of the BPCPA 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 BPCPA 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.
Did the majority get it right? The relevant language in the Ontario Consumer Protection Act, 200213 is as follows:
No waiver of substantive and procedural rights
7. (1) The substantive and procedural rights given under this Act apply despite any agreement or waiver to the contrary.
Limitation on effect of term requiring arbitration
(2) Without limiting the generality of subsection (1), any term or acknowledgment in a consumer agreement or a related agreement that requires or has the effect of requiring that disputes arising out of the consumer agreement be submitted to arbitration is invalid insofar as it prevents a consumer from exercising a right to commence an action in the Superior Court of Justice given under this Act.
Non-application of Arbitration Act, 1991
(5) Subsection 7(1) of the Arbitration Act, 1991 [judicial stay] does not apply in respect of any proceeding to which subsection (2) applies unless, after the dispute arises, the consumer agrees to submit the dispute to arbitration.
8. (1) A consumer may commence a proceeding on behalf of members of a class under the Class Proceedings Act, 1992 or may become a member of a class in such a proceeding in respect of a dispute arising out of a consumer agreement despite any term or acknowledgment in the consumer agreement or a related agreement that purports to prevent or has the effect of preventing the consumer from commencing or becoming a member of a class proceeding.
Non-application of Arbitration Act, 1991
(4) Subsection 7(1) of the Arbitration Act, 1991 does not apply in respect of any proceeding to which subsection (1) applies unless, after the dispute arises, the consumer agrees to submit the dispute to arbitration.
When this language is compared with s. 3 of the BPCPA, one wonders why Binnie J. considered the latter to reflect a legislative intent to oust the parties' clear choice in favour of arbitration. His contention that s. 172 of the BPCPA confers a right, benefit or protection that is sheltered under s. 3 of the BPCPA presupposes that having to bring a s. 172 claim in an arbitration is worth less than in a court of law. Given the evolution and acceptance of ADR, including commercial arbitration, in Canadian courts in the past two decades, that presupposition is open to serious questioning.
Binnie J.'s argument that arbitration is antithetical to the public purposes of s. 172 (in that private arbitration cannot offer the same remedies set out in s. 172) is also not so clear cut. Firstly, any arbitral award is enforceable in the courts and, thus, open to public scrutiny. This would also engage the principle of deterrence, with which Binnie J. appears to have wrestled. Moreover, as the dissent correctly pointed out, under modern statutes in Canada, including British Columbia, arbitrators have the jurisdiction to grant ―specific performance, rectification, injunctions and other equitable remedies.‖14 Viewed in this light, there is considerable scope to suggest that the dissenting reasons are more persuasive.
It should also be pointed out that shortly after TELUS was released, the United States Supreme Court held (on a 5-4 basis) that an arbitration provision in a consumer contract prohibiting class-wide procedures is not unconscionable.15 In doing so, that court held that s. 2 of the Federal Arbitration Act 16 (which makes agreements to arbitrate ―valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract‖) could not be invoked to override an arbitration/no class action clause. It is quite clear, then, that in the consumer context, the United States Supreme Court has taken a different approach from the Supreme Court of Canada.
But are there real consequences to this in Canada? We submit that the answer is no. It is true that the open schism between the majority and the dissent is rather surprising. Deference to arbitration has, after all, become a hallmark of Canada's justice system. But in the final analysis, the Supreme Court has simply added British Columbia to the list of existing jurisdictions where consumer class actions will be permitted to proceed (subject to meeting the usual certification parameters). The result is therefore not remarkable and we believe that – except in the consumer context and even then only where the legislature has intervened – commercial arbitration in Canada will continue to thrive, as it has in the past 20 years or so.
* Michael Schafler.
2 Seidel v. TELUS Communications Inc., 2011 SCC 15.
3 Ibid, para. 55.
4 Ibid, para. 29 and 89-121.
5 Ibid, para. 7 and 22.
6 Ibid, para 52.
7 Ibid, para. 31.
8 Ibid, para. 33.
9 Ibid, para. 35.
10 Ibid, para. 35, 38-39.
11 Ibid, para. 89-121, esp. para. 103.
12 Ibid, para. 109-121, esp. para. 109-110.
13 S.O. 2002, c. 30, Sch. A. Similar language is found in the relevant Alberta and Quebec legislation. See TELUS, supra, at para. 173-175.
14 TELUS, supra, at para. 146-148.
15 AT&T Mobility LLC v. Concepcion 563 U.S. ____ (2011) [No. 09-893].
16 9 U.S.C. §2.
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