Canada: "Smith Estate V. National Money Mart Co": What You Need To Know About The Conflict Between Arbitration And Class Proceedings Statutes In Ontario

The following recent Ontario Court of Appeal decision will be of interest to financial services industry participants who have been tracking class action trends in the financial services sector. The decision addresses the trend in the context of arbitration clauses.

Smith Estate v. National Money Mart is a class action where the plaintiff class asserts that Money Mart was charging illegal rates of interest on payday loans.1 The contracts contained an arbitration clause, which, if upheld, would have denied the plaintiffs an opportunity to bring a class action against the company. Prior to the class certification motion, the defendants brought a motion for a stay of proceedings and to have the claims referred to arbitration. This motion was denied. On appeal, Justice Weiler held that the question whether or not an arbitration clause is to be enforced should be considered as part of the preferable procedure analysis on a motion for class certification. Ultimately, the action against Money Mart was certified as a class proceeding.

After the Supreme Court of Canada's decisions in Union des consommateurs v. Dell Computer Corp. ("Dell") and Muroff v. Rogers Wireless Inc. ("Rogers"), the defendants moved a second time for a stay of proceedings. It was argued that the law in Ontario had been overturned and that class proceedings must be set aside when there is a binding arbitration agreement.2

In the second stay of proceedings motion, the court addressed three questions pertaining to consumer protection, arbitration and class proceedings legislation in Ontario.

  1. What is the relationship between the Class Proceedings Act, 1992, which compels a court to certify an action as a class proceeding when the criteria for certification have been satisfied, and the Arbitration Act, 1991, which compels a court to stay proceedings when the parties have agreed to submit their dispute to arbitration?
  2. Do sections 7 and 8 of the Consumer Protection Act, 2002, which preclude contracting out of class proceedings, apply retroactively?
  3. What is the significance to the law of Ontario and other common law provinces of the Supreme Court of Canada's decisions in Dell and Rogers?

Retroactive Application of Sections 7 and 8 of the Consumer Protection Act, 2002

Sections 7 and 8 of the Consumer Protection Act, 2002 permit consumers to participate in a class action, even if the contract at issue contains an arbitration clause. Money Mart argued that these provisions did not apply retroactively. And, as a result, its clients who had signed contracts prior to the provisions coming into force were bound by the arbitration agreement and could not join the class action.

Justice Perell approached the problem as a matter of statutory interpretation. He found that these provisions were enacted in reaction to the decision in Kanitz v. Rogers Cable Inc. ("Kanitz"), where the court stayed a class proceeding because the consumer contract contained an arbitration agreement.3

In my opinion, these sections were passed to address the mischief that some ...suppliers of goods and services were using the device of an arbitration agreement not because they genuinely wished to have an alternative to court proceedings to resolve disputes but rather to immunize themselves from the seat of justice altogether... The obvious purpose of s. 7 and s. 8 of the Consumer Protection Act, 2002 was to stop this mischief, but this mischief is not stopped if the legislation is not applied retroactively.4


From a practical point of view, applying the provisions retroactively avoided the potentially unfair and difficult task of partitioning the claims. Sections 7 and 8 were held to apply retroactively, "even if this would take away the substantive contractual right to arbitrate and even if an arbitration was actually underway".5

Resolving the Conflict Between Class Proceedings and Arbitration Legislation

The courts of Ontario and British Columbia have recognized that there is a conflict between class proceedings and arbitration legislation.6 The conflict arises where class proceedings legislation dictates that the court shall certify a class when the applicable criteria are satisfied, and simultaneously the arbitration legislation instructs courts to stay the action because there is an arbitration agreement between the parties. It is worth noting that the legislature has expressly excluded arbitration as a means of dispute resolution in nineteen Ontario statutes. The Class Proceedings Act does not contain such an express exclusion.

In rejecting the defendants' first motion to stay, the Ontario Court of Appeal adopted the approach used by the British Columbia Court of Appeal in MacKinnon. Under this approach, the validity of an arbitration agreement is to be determined at the preferable procedure stage of the certification motion and no stay should be granted prior to that. Justice Perell wrote of the earlier decisions:

...an arbitration agreement that had the effect of absolutely blocking an action that satisfied the criteria for a class proceedings and thus the social purposes of access to justice, judicial economy, and behaviour modification was "inoperative" in British Columbia or "invalid" in Ontario and thus within an exemption to the stay mandated by the arbitration statute.7


This means that, as a matter of statutory interpretation, an arbitration clause is considered "invalid" under section 7(2) of Ontario's Arbitration Act, 1991, if an action pertaining to the same dispute has been certified as a class proceeding.

Although Justice Perell adopted this interpretation, it should not be taken as a rule that arbitration agreements are to be automatically struck down. A court may decide that arbitration is preferable to class proceeding or may refuse to certify the class proceeding for other reasons.8

The Effect of Supreme Court of Canada's Decisions in Dell and Rogers on the Law of Ontario

In Dell, the Supreme Court upheld an arbitration clause in a consumer contract and dismissed the authorization for a class action. Money Mart submitted that Dell and its companion case Rogers had overturned the law in Ontario as applied by Justice Weiler. Specifically, it was argued that if there is a binding arbitration agreement, then the court's subject matter jurisdiction is ousted.

In reaching his decision, Justice Perell found that statutory or court intervention is required to remove a court's jurisdiction, not merely an arbitration agreement.

Private citizens can neither confer or take away the court's jurisdiction, and under the Canadian Constitution, there is a "core jurisdiction" that cannot even be removed by Parliament or the legislatures without amending the Constitution... When a court stays an action to permit arbitration, it is not because it has no power to speak the law, but rather, the action is stayed because a statute or the court's own power directs it to defer to another means of dispute resolution selected by the parties.9


The court also rejected the proposition that the Dell and Rogers decisions changed the law in Ontario that a court can determine whether or not to stay an action at the preferable procedure analysis. The interpretation of the Civil Code of Quebec - which uses much different language than its Ontario counterparts - was the main focus of Dell and Rogers. As such, Justice Perell concluded that these decisions cannot be used to interpret s. 7 of the Arbitration Act, 1991 or to reconcile the tension between arbitration and class proceedings legislation in Ontario.

Appeal of Justice Perell's Decision Dismissed by the Ontario Court of Appeal

On appeal, Money Mart unsuccessfully sought to have Justice Perell's decision set aside and have the class action stayed and decertified. The Ontario Court of Appeal declined to rule on whether Dell or Rogers had changed the law in Ontario, or on whether s. 7 and s. 8 Consumer Protection Act, 2002 have retroactive effect. Instead, the court based its decision on the doctrine of issue estoppel.

All three preconditions for issue estoppel were found to be present. First, in its 2005 decision, the Ontario Court of Appeal had already ruled that Money Mart was not entitled to stay. Second, the 2005 decision was final and leave for appeal to the Supreme Court of Canada had been denied. Third, the parties were same as those in the 2005 decision.

Finally, with the three preconditions having been met, the court also determined that it ought to exercise its discretion and apply the doctrine of issue estoppel. In reaching this decision, it was noted that the matter had advanced to the point of trial after years of motions and several appeals including two applications for leave to appeal to the Supreme Court of Canada. Moreover, Money Mart would not agree to waive its right to object to a joinder or consolidated arbitration. Given the small size of each individual claim, the court commented: "a stay would defeat the claims subject to arbitration clauses, not on the merits but for reasons of practicality."10

Footnotes

1 See Smith v. National Money Mart Co., [2005] O.J. No. 2660 (Ont. S.C.J.), appeal quashed (Ont. C.A.), leave to appeal to S.C.C. refused, (2006) (S.C.C.); 2008 CanLII 27479 (Ont. S.C.J.), appeal quashed [2008] O.J. No. 4327 (Ont. C.A.) ["Smith Estate"]. For a similar decision in British Columbia, see MacKinnon v. National Money Mart Co. (2004), 50 B.L.R. (3d) 291 (B.C.C.A.) ["MacKinnon"].

2 See Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801 ["Dell"] and Rogers Wireless Inc. v. Muroff, [2007] 2 S.C.R. 921 ["Rogers"].

3 Kanitz v. Rogers Cable Inc .(2002), 58 O.R. (3d) 299 (Ont. S.C.J.) ["Kanitz"].

4 Smith Estate, supra note 1 at para. 118.

5 Ibid. at para. 101.

6

7 Smith Estate, supra note 1 at para. 208.

8 Smith Estate, supra note 1 at para. 209.

9 Smith Estate, supra note 1 at para. 213 and 215.

10 Smith Estate, supra note 1 at para. 50 (Ont. C.A., 2008).

About BLG

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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