Canada: Recent Developments in Class Proceedings: the (Un)Enforceability of Mandatory Arbitration Clauses

Last Updated: August 31 2005

Article by David Neave & Jennifer Spencer, ©2005 Blake, Cassels & Graydon LLP


In response to the proliferation of consumer class actions, many companies in the service industry incorporate mandatory arbitration clauses into consumer contracts so to preclude any court action, including class proceedings. However, a trend appears to be emerging in the law which favours class proceedings over arbitration. Recent authority from the British Columbia Court of Appeal allowed a class proceedings certification hearing to proceed in the face of a mandatory arbitration clause, noting that an application to stay proceedings in favour of arbitration was premature until there is a finding that a class proceeding was not the preferable procedure. Further, pending legislation in Ontario renders "inoperative" and unenforceable a mandatory arbitration clause in a consumer contract-which itself is not unconscionable or otherwise void-simply by a consumer commencing a proposed class action with respect to any dispute arising under the contract.

The British Columbia and Ontario approaches run counter to American jurisprudence which supports the enforcement of mandatory arbitration provisions in consumer agreements notwithstanding that they may effectively bar determination by way of class action or class arbitration. With consumer contracts on both sides of the border increasingly including mandatory arbitration clauses, this divergence in the jurisprudence is somewhat troubling, particularly for clients whose business straddles multiple jurisdictions

Mandatory Arbitration vs. class proceedings: the Trend

Ontario: Mandatory Arbitration Clauses and Unconscionability

In Ontario, the courts considered the enforceability of mandatory arbitration clauses in the context of proposed class proceedings in the two cases: Huras v. Primerica Financial Services Inc. and in Kanitz v. Rogers Cable Inc.

In Huras, the issue of whether an arbitration clause in a standard form employment contract was unconscionable and ought to give way in favour of a proposed class proceeding was considered. Mr. Justice Cumming held that the temporal operation of the arbitration clause did not extend to the relationship between the parties during the pre-employment training period. As a result, the defendant employer was not entitled to a stay of the proposed class proceeding in accordance with the Ontario Arbitration Act.

In Kanitz, a proposed class action advanced in response to service disruptions with Rogers Cable Inc. high-speed internet service, the Court concluded that the mandatory arbitration clause was not invalid under the Ontario Arbitration Act, and the Court stayed the action under s.7(1) of the Ontario Arbitration Act. The Court held that the arbitration clause was not void for unconscionability on the basis it was not "sufficiently divergent from community standards of commercial morality." Further, the Court observed that class proceeding legislation confers procedural and not substantive rights. The parties still have recourse to a dispute resolution mechanism albeit in the form (and forum) set out in their contractual relationship. Further, the contract provisions for dispute resolution may allow the consolidation of like disputes into a class arbitration.

In 2002, the Ontario Legislature enacted certain amendments to the Consumer Protection Act which, if proclaimed, will favour class proceedings over arbitration and will render the Kanitz decision of no precedential value in Ontario. The amendments authorize a consumer to commence a class proceeding arising out of a consumer transaction notwithstanding a term in an agreement precluding such proceedings.

The American Experience

In the recent (June 2003) U.S. Supreme Court decision in Green Tree Financial Corp. v. Bazzle, the Court confirmed its strong support for enforceability of arbitration clauses. In this case, at issue were the mandatory arbitration agreements that two groups of plaintiffs executed with respect to certain home loans with Green Tree Financial Corp. The arbitration clause was silent with respect to whether the dispute could be resolved by class arbitration. Both groups of plaintiffs sought class certification; Green Tree Financial sought an order to stay court proceedings and compel arbitration instead. In both cases, the South Carolina Court certified a class and sent both disputes to arbitration. Multi-million dollar awards were rendered.

Significantly, the U.S. Supreme Court did not comment upon the enforceability of no-class action arbitration provisions in the consumer context per se. Rather, the majority of the Court held that the question of whether an arbitration clause (which is silent with respect to class arbitration) is operative in the face of class claims is a question of contract interpretation and arbitration procedure. It is a matter, the majority determined, for the arbitrator to determine.

British Columbia: Arbitration Clauses may be "Inoperative" in the face of Class Proceedings

In British Columbia, the enforcement of a mandatory arbitration clause in a class proceeding was recently considered by the Court of Appeal in MacKinnon v. Instaloans Financial Solution Centres (Kelowna) Ltd.

The MacKinnon case places in sharp relief the operational conflict between the Commercial Arbitration Act and the Class Proceedings Act in British Columbia. On the one hand, the Commercial Arbitration Act requires the Court, on application by a party to an arbitration agreement, to stay related legal proceedings unless the Court determines that the arbitration agreement is "void, inoperative, or incapable of being performed." In contrast, the Class Proceedings Act requires the Court to certify a proceeding as a class proceeding where the requirements for certification are met.

In the MacKinnon case, the plaintiff seeks to certify, on behalf of British Columbia residents, a class proceeding against 28 corporate defendants each of which the plaintiff asserts was engaged in the pay day loans business. The statement of claim asserts that the defendants unlawfully breached the usury (criminal interest rate) provisions in the Criminal Code, that each of the defendants was unjustly enriched, and that the making of such loans constitutes an "unconscionable practice" under the BC Trade Practices Act.

At the commencement of the MacKinnon action certain defendants who had mandatory arbitration clauses in their respective loan contracts brought an application for a stay of proceedings under the BC Commercial Arbitration Act. The Chambers Judge Brown J. dismissed the defendants’ stay applications concluding "in the face of a class proceeding, the arbitration agreement is inoperative."

At the subsequent appeal, Madam Justice Levine (writing for a panel of five) was in "general agreement" with the reasoning of the Court below. Her Ladyship concluded, however, that any order to stay the proceedings was premature: it is only after the Court determines whether a class proceeding will be certified that the arbitration clause becomes inoperative.

Following the analysis in MacKinnon, it is only when the Court has completed its analysis of the certification application and determines it must certify the proceedings as a class proceeding that the Court can conclude the arbitration clause is inoperative. Accordingly, the applications for a stay and for certification of the class proceedings are interdependent and must be considered at the same time. In this way, the MacKinnon decision contrasts with those in both Ontario decisions-Huras and Kanitz.

The holding in MacKinnon is significant in a number of respects. The decision may be applicable to a broad range of consumer and commercial agreements that contain mandatory arbitration agreements. Further, while the BC arbitration legislation contemplates a stay of legal proceedings unless the arbitration agreement is void, inoperative or incapable of being performed, the Court appears to prioritize a statutory procedural preference couched in public policy considerations over substantive contractual analysis.

Implicit in the MacKinnon and Huras cases is the view from the Bench that arbitration cannot be used to efficiently and cost-effectively resolve consumer disputes. However, arbitration is widely regarded to offer a number of advantages to litigation, including both time and costs savings. Further, provincial arbitration acts provide arbitrators with substantial authority for the efficient and effective resolution of disputes. Arbitrators also have the discretion to award a successful party its actual costs for legal fees and disbursements, including expert fees, thereby providing full indemnity for a meritorious claim. As Mr. Justice Nordheimer held in Kanitz, there is an advantage to the plaintiff bringing a meritorious claim in arbitration proceedings and there is no reason—despite the Court’s concern in MacKinnon and other cases-to shield consumers from cost consequences if it is found they have advanced unmeritorious claims. Further, the economies of scale that result from consolidating claims may well be available in arbitration.


It is troubling that a trend appears to be developing in Canada which sees otherwise valid contract terms setting out alternative dispute resolution methods set aside for policy reasons favouring class proceedings. The result is not a development which favours a just, inexpensive, and speedy resolution to consumer disputes, particularly disputes that typically involve modest sums of money. A consequence of this trend may very well see British Columbia as the forum of choice for plaintiffs who seek both the sword of class proceedings and a shield of the no costs recovery rule under BC Class Proceedings 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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions