Canada: Québec Court of Appeal Leaves Door Open to Arbitration of Consumer Disputes

Last Updated: October 5 2005

Article by Babak Barin, Helen Ferrigan and Randy Pepper

In Dell Computer Corporation v. Union des consommateurs, the court’s comments suggest that a consumer contract that provides for arbitration as the exclusive method of dispute resolution may be upheld in Québec if the terms of arbitration are expressly brought to the attention of the buyer when the agreement is made.

Businesses in a wide range of sectors increasingly opt to specify in commercial agreements that arbitration will be used as the sole dispute resolution mechanism in case of a disagreement between the parties. It is generally faster and cheaper for businesses to arbitrate disputes than to litigate them. Major advantages of arbitration over conventional litigation include greater procedural flexibility and privacy and the ability to choose decision-makers with appropriate expertise. In addition, arbitration can quickly resolve discrete issues without souring on-going relations between the parties.

But what happens when one of the parties to an arbitration clause in a service or sales contract is a consumer?

As class proceedings legislation has now been enacted in seven Canadian provinces, courts have found that class actions serve important policy rationales, such as increasing judicial efficiency and access to justice, especially where claims are collectively significant but individually too small to justify bringing a conventional court action. At the same time, however, courts have indicated that compelling policy and economic reasons, such as certainty and freedom of contract, justify upholding arbitration agreements. The same courts have also decided that a class action is a procedural vehicle and not a substantive right: it provides a new method of resolving disputes but does not change the underlying legal principles.

Challenging for Courts

Clashes between the competing policy rationales of consumer arbitration and consumer class actions can be challenging for the courts. A motion to stay or to dismiss a proposed class action in cases where the plaintiff had contractually agreed to resolve disputes by arbitration places these rival rationales in stark opposition: should, for example, business efficiency take priority over judicial economy or vice versa? To date, only the Ontario, British Columbia and Québec courts have expressly considered the effect of arbitration agreements in the context of class proceedings, with somewhat disparate results.

In deciding whether to certify a proposed class action outside Québec, the court must consider whether a class action is the "preferable procedure" for resolving the dispute. (This criterion does not apply as such in Québec.) While a particular arbitration agreement in one Ontario case was found to be unconscionable (or grossly unfair), the court in a more recent case upheld an arbitration clause in a consumer contract. In Kanitz v. Rogers Cable the court indicated that "preferability" must be determined with reference to all methods of dispute resolution available, including arbitration where the parties have agreed to it.

Impact of Changes to Consumer Protection Act

This decision will, however, be effectively overruled by amendments to Ontario’s Consumer Protection Act, which take effect on July 30, 2005. The new legislation will permit consumers to bring class actions in respect of agreements even if those agreements contain arbitration or other clauses that attempt to prevent class proceedings. Alberta and Saskatchewan also limit the enforceability of arbitration agreements in their consumer protection legislation. In B.C., the Court of Appeal has held that a motion to stay a class action in the face of an arbitration agreement should be considered as part of the application for certification. Only after a court has determined that arbitration is not the preferable procedure can it properly refuse to stay the class proceeding.

The Dell Decision

Most recently, in Dell Computer Corporation v. Union des consommateurs (May 30, 2005), the Québec Court of Appeal had to examine whether to uphold an arbitration clause in a consumer sales contract. The dispute in Dell arose when consumers attempted to buy a computer from Dell’s Website during a weekend when a pricing error had appeared on that Website. The error was quickly rectified but a number of consumers were able to place orders to purchase Dell’s hand-held computers at about one-fifth of the actual price. Citing its standard terms of sale, Dell refused to honour the orders.

Dell’s Website displayed a notice that all sales were subject to the customer agreement or to Dell’s standard terms of sale. The standard terms contained an arbitration clause providing that any dispute arising from the online purchase was to be resolved exclusively by arbitration administered by the U.S. National Arbitration Forum (NAF) headquartered in Minneapolis.

Dell moved to dismiss the class action launched by the consumers, arguing that the mere presence of the arbitration clause was sufficient to bar an action before the courts. In January 2004, a Superior Court judge refused to dismiss the action and granted certification, holding that the arbitration clause was inconsistent with a Québec Civil Code provision that gives a Québec authority jurisdiction to hear an action involving a consumer contract despite any waiver of jurisdiction by the consumer.

In a unanimous judgment, the Court of Appeal dismissed Dell’s appeal but noted that it did not concur with the reasons of the trial judge. The Court of Appeal found that the NAF’s code of procedure provided for the arbitration to be held in Québec, and that any arbitral award could be enforced or annulled in Québec pursuant to the province’s Code of Civil Procedure. However, because of the way the arbitration clause was presented on Dell’s Website, the Court of Appeal characterized it as an external contract which, according to the Court, was not adequately brought to the attention of the representative plaintiff. The Civil Code provides that an external clause is null if, at the time of the formation of the contract, it was not expressly brought to the attention of the consumer.

Arbitration Clauses Found Enforceable

Nevertheless, the Court of Appeal found that, depending on the facts, arbitration clauses in consumer contracts could be enforceable. The court rejected the plaintiff’s argument that the arbitration clause was inconsistent with the intent of Québec’s Consumer Protection Act: the legislature would have had to expressly indicate that consumer disputes could not be arbitrated, and it had not done so. The court also noted that the legislature had recognized the validity of both arbitration and class actions as dispute resolution mechanisms and noted, significantly, that "there was no specific reference to one procedural vehicle having precedence over the other."

The court’s comments suggest that a consumer contract that provides for arbitration as the exclusive method of dispute resolution may be upheld in Québec if the terms of arbitration are expressly brought to the attention of the buyer when the agreement is made. The decision in Dell leaves the door open for the contention that the policy rationales behind arbitration are perhaps as compelling as the policy goals of class proceedings, unless the legislature expressly indicates otherwise.

Authors credit: Randy Pepper is a partner in Osler's Litigation Department. His practice is centered on corporate commercial litigation with an emphasis on arbitration, alternative dispute resolution (ADR), defamation, product liability class actions, competition, shareholder rights, professional negligence and internet liability. Babak Barin is an associate in the Litigation Department, whose practice focuses on domestic and international commercial law, and in particular, domestic and international commercial dispute resolution. Helen Ferrigan is an articling student.

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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