Canada: Federal Court Of Appeal Holds That Competition Act Claims Are Arbitrable

In a decision released on February 14, 2013, the Federal Court of Appeal stayed a proposed class action alleging breaches of the Competition Act on the basis that the parties had agreed to a mandatory arbitration process. The Court of Appeal's decision in Murphy v. Amway Canada Corporation deals with the difficult issue of federal and provincial court jurisdiction where the parties have chosen to incorporate a statutory regime to govern arbitrations in an arbitration agreement. The decision also grapples with the controversial issue of the validity of class action waiver provisions.


Kerry Murphy was registered as an "Independent Business Owner" (IBO) under the umbrella of Amway Canada, a wholesaler of home, personal care, beauty and health products. Amway sold its products through a multi-level marketing plan. Each IBO was required to sign a Registration Agreement in order to become part of the distribution network. The Registration Agreement contained an Arbitration Agreement, whereby the parties agreed to submit any possible claims to arbitration. The Registration Agreement also incorporated procedural Rules of Conduct by reference.

Mr. Murphy registered in British Columbia as an IBO. In October 2009, he commenced proceedings in the Federal Court of Canada pursuant to s. 36 of the Competition Act, which provides that any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act may sue for and recover damages. Section 36(3) provides that the Federal Court is a "court of competent jurisdiction" for the purposes of the statute. Mr. Murphy sought damages in the amount of $15,000 for alleged breaches of the Competition Act and filed a motion for certification of a proposed class action. Amway moved to dismiss or permanently stay the action and compel arbitration on the ground that the Federal Court of Canada lacked jurisdiction pursuant to the compulsory arbitration agreement and a class action waiver provision in the Rules of Conduct.

Federal Court Jurisdiction

The Arbitration Agreement provided that the parties agreed to submit any claims or disputes "arising out of relating to my Independent Business, the IBO Compensation Plan, or the IBO Rules of Conduct"... "to binding arbitration in accordance with" the Rules of Conduct. The Arbitration Agreement further provided that the Ontario Arbitration Act, 1991 (the "OAA") "shall govern the interpretation, enforcement, and proceedings any federal or provincial court in Canada". By contrast, Rule 11.3 of the Rules of Conduct provided that the United States Arbitration Act "shall govern the interpretation and enforcement of the arbitration rules and arbitration proceedings."

The Court asserted, without any analysis, that the OAA applied:

"I note here that there appears to be a conflict between the Arbitration Agreement and Rule 11.3 in that the former provides for the applicability of the OAA while the latter provides for the applicability of the United States Arbitration Act. In my view, to the extent that the issues raised in the appellant's Statement of Claim are subject to arbitration, the OAA is the applicable statute."

No explanation was offered by the Court for resolving the conflict between the Arbitration Agreement and the Rules of Conduct in favour of the OAA.

Although the OAA was held to be the applicable statute, the Federal Court of Appeal declined to apply the provision in the OAA prohibiting appeals from a motion judge's decision. Section 7(6) of the OAA provides that "[t]here is no appeal from the court's decision" on a motion to stay a proceeding in favour of arbitration. However, the Court rejected Amway's argument that s. 7(6) precluded an appeal. According to the Court of Appeal, s. 7(6) of the OAA could not "oust" the Federal Court of Appeal`s jurisdiction in s. 27(2) of the Federal Courts Act, which provides that an appeal lies from either an interlocutory or final judgment of the Federal Court. The Court of Appeal distinguished the case law under s. 7(6) of the OAA on the basis that the OAAwas incorporated by agreement of the parties, as opposed to by "force of law".

The Court of Appeal's reasoning on this point is curious. The parties had agreed to apply Ontario law to govern their arbitration. It is unclear why, having made such an agreement, the parties were not subject to s. 7(6) of the OAA prohibiting appeals from motion judge's decisions from motions to stay an action in favour of arbitration.

Arbitration vs. Court

The Court of Appeal held that Mr. Murphy's claim under s. 36 of the Competition Act was required to be submitted to arbitration. In coming to this conclusion, the Court distinguished the Supreme Court of Canada's recent decision in Seidel v. Telus Communications Inc.

In Seidel, the Supreme Court of Canada dismissed a motion by Telus to stay a class proceeding brought by a consumer based on the British Columbia Business Practices and Consumer Protection Act (the "BPCPA"). Telus relied on a class action waiver provision in a cell phone contract with Ms. Seidel, arguing that Ms. Seidel's claim should be submitted to arbitration. However, Binnie J. held that the provisions of the BPCPA evinced an intention to prohibit class action waiver agreements.

In Amway, the Federal Court of Appeal contrasted the Competition Act with the BCPCA. The Court held that the Competition Act did not contain language indicating that Parliament intended that arbitration clauses be either restricted or prohibited. The statutory cause of action for damages under s. 36 of the Competition Act was very similar to the statutory cause of action under s. 171 of the BCPCA. However, the Competition Act did not contain a provision akin to s. 3 of the BPCPA, which stated that the rights, benefits or protections under the Act to consumers could not be waived or released except to the extent permitted by the Act. Furthermore, unlike the BCPCA, the Competition Act did not provide for injunctive relief or third party claims by persons other than those who suffered damages. According to Amway, therefore, claims based on Part VI of the Competition Act must be submitted to arbitration if the parties so provide by agreement.

Amway once again illustrates the tension between class actions and arbitration agreements. As Amway illustrates, given the state of the jurisprudence from the Supreme Court of Canada, the enforceability of arbitration agreements and class action waiver provisions will have to be resolved on a case by case basis based on an examination of the particular statute in question.

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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