Canada: Arbitrations, Class Actions, Consumer Contracts And The Internet – The Dell Case

Last Updated: September 7 2007

Article by Sunny Handa, Marie-Hélène Constantin and Oana Dolea (law student), © 2007, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Informational Technology, August 2007

The Supreme Court of Canada recently released its decision in Dell Computer Corporation v. Union des consommateurs and Olivier Dumoulin, which has come to be known as the "Dell case". The decision offers valuable guidance on, among other issues, the legal status of clauses accessible by hyperlink in online consumer contracts, the arbitration of consumer disputes in Quebec and, importantly, whether an arbitration clause will trump a class action.

Background

The dispute in the case arose when two Dell Computer Corporation (Dell) hand-held computer models were erroneously listed at significantly discounted prices on the company’s English-language website. Olivier Dumoulin, a Quebec resident, successfully placed an order at the discounted prices. When Dell announced it would not process orders made at the erroneous prices, the Union des Consommateurs and Mr. Dumoulin filed a motion for authorization to institute a class action against Dell. In response, Dell filed a motion to refer Mr. Dumoulin’s claim to arbitration, in accordance with an arbitration clause included in the Dell terms and conditions of sale governing online orders made through its website.

The Superior Court of Quebec and the Court of Appeal of Quebec both held that Mr. Dumoulin was not subject to the arbitration clause in question. The Superior Court decision focused on the applicability of Quebec’s private international law rules, specifically the rule of Article 3149 of the Civil Code of Quebec (C.C.Q.) reserving exclusive jurisdiction for the Quebec Courts in the context of international consumer contracts. The Court made it clear that the presence of an arbitration clause governed by the procedural rules of a U.S.-based institution introduced an international element into the consumer contract. In view of Article 3149 C.C.Q., the Court ruled that Mr. Dumoulin could not be subject to the Dell arbitration clause. Dell appealed the finding to the Court of Appeal of Quebec.

The Court of Appeal’s 2005 ruling touched on a number of issues, including the applicability of Quebec’s private international law provisions. Unlike the decision of the Superior Court, the Court of Appeal ruled that an agreement to refer a consumer dispute to arbitration did not constitute a waiver of the jurisdiction of Quebec’s courts, since the arbitration could still be held in Quebec and governed by the laws of Quebec. The Court of Appeal also rejected the argument that consumer disputes are an issue of public order and thus are not subject to arbitration under Article 2639 C.C.Q.

The Court of Appeal held, however, that an arbitration clause accessible via a hyperlink is considered to be "external" to the online contract which contains the hyperlink. It further ruled that Dell had not proven that its arbitration clause was brought to the consumer’s attention. On the basis of Article 1435 C.C.Q. – the requirement that an external clause in the context of a consumer contract is only valid if it is brought to the consumer’s attention – the Court of Appeal upheld the conclusion of the Superior Court that the Dell arbitration clause was not applicable in the case of Mr. Dumoulin.

Supreme Court Of Canada

The Supreme Court of Canada’s decision addressed a number of issues, including (i) the nature of external clauses for the purposes of Article 1435 C.C.Q. in the context of electronic consumer contracts; (ii) the arbitration of consumer disputes versus class actions in the context of the Article 2639 C.C.Q. prohibition on the use of arbitration in matters of public order; (iii) the arbitration of consumer disputes in light of the recent Bill 48 (2006) amendments to the Quebec Consumer Protection Act; (iv) the applicability of rules on the jurisdiction of Quebec Courts in the context of consumer contracts; and (v) jurisdiction over challenges to the validity of an arbitration agreement. Each of these issues is discussed below.

External Clauses And Online Consumer Contracts

The Supreme Court decision noted that the Dell case is the first instance where the Quebec Court of Appeal has had to consider the applicability of the Article 1435 C.C.Q. rule on external clauses in the context of an electronic consumer contract. The Court addressed the issue of whether an online contractual clause that is accessible by hyperlink should be characterized as a clause external to the contract. Quebec’s Act to establish a legal framework for information technology confirms the legal equivalence of paper and electronic contracts. The traditional test for an external clause in the context of paper contracts is whether the clause in question is physically separate from the contract, or is an integral part of it. The Court acknowledged that, given the technical nature of electronic contracts, the physical separation test cannot be applied literally in that context. The difference between clicking in order to access a clause via a hyperlink and scrolling down an Internet web-page to do the same was deemed insufficient for a finding that a clause accessible by hyperlink was external to the contract while one accessible by scrolling through the contract was not. A clause contained in a document found online to which an electronic contract refers but for which no hyperlink is provided would, however, be deemed to be an external clause. According to the Court, the physical separation test should be interpreted as standing for the principle that it should be no more difficult to access a clause of an electronic contract than to access its paper equivalent. The Court pointed out that the link to the terms and conditions containing the arbitration clause appeared on every page accessed by the consumer; as such, the consumer had access to the arbitration clause that was functionally equivalent to the clause being in the same paper document. The ruling of the Supreme Court on this issue is an important clarification of the meaning of Article 1435 C.C.Q. in a consumer environment where electronic contracts are increasingly prevalent.

Will Arbitration Clauses Trump Class Actions?

The Court rejected the argument that an arbitration clause cannot prevent an individual from commencing a class action in Quebec because it would mean the arbitration of an issue of public order. As was held in the case of Desputeaux v. Éditions Chouette, the Court insisted that issues designated as being of public order must be limited to matters that are analogous to those enumerated in Article 2639 C.C.Q. Just as copyright issues were not found to constitute an issue of public order in Desputeaux, the Court in Dell found no reason to include consumer disputes in that group.

The Court also found, importantly, that although class actions are of public interest, the mere fact that a claim is brought before the courts under a class action procedure rather than by way of an individual action does not change the character of a dispute which may otherwise be subject to arbitration. The class action is a procedure and its purpose is not to create a new right. The Court, accordingly, held that the mandatory arbitration clause trumped the class action rules in Quebec in this case. The Court’s decision on this point could have an impact in other provinces with mandatory arbitration statutes and class action statutes, absent express provision otherwise (i.e., in consumer protection legislation). A number of provincial courts previously held that an arbitration clause will not necessarily trump a class action. Those decisions will now have to be reconsidered in light of the Dell case.

Bill 48

The Quebec Act to amend the Consumer Protection Act and the Act respecting the collection of certain debts, also known as Bill 48, came into force just days after the Supreme Court appeal hearing was held. The Supreme Court had to decide on the applicability of s. 11.1 of the newly amended Consumer Protection Act, which provides consumers with the choice of referring a dispute to either arbitration or the courts even in the presence of a valid arbitration clause. The Court held that s. 11.1 did not apply in Dell, because the arbitration agreement was concluded before the coming into force of the new provision and the presumption against retroactivity of new laws was not rebutted. However, it is important to underscore that the changes to the Consumer Protection Act effected by Bill 48 will govern arbitration agreements concluded in Quebec after its coming into force. Under the changes imposed by Bill 48, arbitration clauses in contracts involving Quebec consumers will still be valid in form but only enforceable against a consumer if s/he agrees to submit to arbitration when a dispute arises.

Applicability Of Quebec Rules Of Private International Law

The Supreme Court established that the applicability of the C.C.Q. provisions dealing with the international jurisdiction of Quebec authorities must be limited to situations containing "a relevant foreign element". The majority explained that only an element that is legally relevant to a foreign country and plays a role in determining whether a particular court has jurisdiction can be considered sufficient to fulfill this "foreign element" requirement.

The Court found that Article 3149 C.C.Q. has such limited application because it constitutes part of the title on the international jurisdiction of Quebec authorities. Article 3149 C.C.Q. establishes the jurisdiction of Quebec authorities over actions involving a consumer contract or contract of employment if the consumer or worker has his domicile or residence in Quebec. The article also renders ineffectual any waiver of this jurisdiction by the consumer or worker.

The majority ruled that the existence of an arbitration clause in a consumer contract does not trigger the applicability of Quebec rules of private international law such as Article 3149 C.C.Q. The Court defined arbitration as an "institution without forum and without a geographical basis" (para. 28) that is focused on party choice of governing law rules, regardless of the origin of those rules. As such, there can be no possible connection with a foreign state and so no relevant foreign element as defined by the Court exists in the context of arbitration.

Bastarache, Le Bel and Fish JJ. disagreed with the majority on this point, stating that forum selection and arbitration clauses can in fact trigger the applicability of Quebec rules of private international law. In the case at issue, the fact that the designated arbitration authority was bound by American law clearly constituted a relevant foreign element. Such an institution could not be considered a Quebec authority. The arbitration clause thus constituted, in the dissenting justices’ view, an illegal waiver of the jurisdiction of Quebec authorities as set out in Article 3149 C.C.Q. The majority’s binding interpretation of this point is encouraging for enterprises engaged in contracts with consumers as they can have increased confidence that, with an arbitration clause, the contractual obligations they fashion will not be displaced by Quebec’s private international law principles.

Jurisdiction Over Challenges To The Validity Of An Arbitration Agreement

The decision also touched on the appropriate procedure for resolving challenges to an arbitrator’s jurisdiction. The majority and dissenting judges agreed that an agreement to arbitrate must be respected by the courts, which must refer any disputes over the agreement’s validity to arbitration at first instance. The Court also unanimously agreed that there exist exceptional circumstances in which courts should be able to review such a challenge directly. The majority and dissenting judges disagreed, however, on the extent of review courts should be allowed to undertake under such exceptional circumstances. The majority’s narrower interpretation led it to conclude that as long as there are any arguments requiring an analysis of the facts, a challenge to an arbitration tribunal’s jurisdiction must be remitted to arbitration.

Conclusion

With the decision in Dell, the Supreme Court has taken an important step in clarifying the law in the context of Internet contracts as well as various rules applicable to arbitration in the context of class actions and consumer dealings. Many of the rules touch on specific Quebec legislation but the Court’s decision is generally framed in language that is broad enough to be useful when interpreting similar statutes in other provinces.

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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