Canada: The Developing Landscape Of Arbitration — The Impact Of Dell And Rogers

Article originally published in McCarthy Tétrault Litigation Co-counsel (Volume 2, Issue 3) on March 25, 2009

The legal landscape related to the enforcement of arbitration clauses continues to develop following the Supreme Court of Canada's decisions in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII) and Rogers Wireless Inc. v. Muroff, 2007 SCC 35 (CanLII) in July 2007. In both, the Supreme Court decided that under the law of Québec, as a matter of principle, an arbitrator is competent to decide his or her own jurisdiction unless doing so entails primarily deciding questions of law — in which case a court would be better disposed to determine the jurisdictional issue. The principle was held to apply even in the context of a motion for authorization to institute class proceedings. In essence, the Québec regime for class actions is procedural and does not modify substantive rights, including those resulting from an arbitration clause. Therefore, according to Dell and Rogers, it is permissible for the respondent in class action authorization proceedings to challenge the jurisdiction of the court on the basis of an arbitration clause, and, unless the clause is manifestly invalid, a court should refer the matter to arbitration.

The Dell and Rogers decisions also considered the scope of application of the recent Québec statutory prohibition against arbitration clauses and clauses excluding class actions in consumer contracts. The court states that the legislation is not retroactive and therefore has immediate application to ongoing legal situations. In the instant case, the condition for the application of the arbitration clause was that a claim against Dell or a dispute or controversy between the customer and Dell must arise. The controversy or claim arose prior to the coming into force of the statute which, therefore, did not apply.

Recent Québec decisions have applied the Dell and Rogers decisions with some nuances. Canadian common law decisions have raised questions as to the application of the Supreme Court decisions outside of Québec.

In Québec, Storex Industries Corp. c. Dr Byte USA l.l.c., 2008 QCCA 100 (CanLII) (available in French only) and 9064-1622 Québec inc. c. Société Telus Communications (Telus Mobilité), 2008 QCCS 2975 (CanLII) (available in French only) have confirmed that an arbitrator decides his or her own jurisdiction except where this involves determining issues of law. These decisions indicate that the civil courts may be asked to determine the nature of the issues relevant to the jurisdiction of an arbitrator. The decision in 9064-1622 Québec Inc. also confirms that an arbitrator can determine his or her own jurisdiction whether it is a matter of the existence, validity or application of the arbitration clause.

In Dens Tech-Dens, k.g. c. Netdent-Technologies inc., 2008 QCCA 1245 (CanLII) (available in French only), one of the parties sent a notice of arbitration to a commercial arbitration centre pursuant to an arbitration clause in a unanimous shareholders agreement. The other shareholder instituted proceedings before the Superior Court for a declaratory judgment to annul the notice of arbitration. Both the Superior Court and the Court of Appeal granted a motion to dismiss the declaratory judgment, in part based on the competence of the arbitrator to determine his or her own jurisdiction as described in Dell and Rogers. In response to the argument that the issues related to the jurisdiction of the arbitrator are purely questions of law, the Court of Appeal held that the exception only applies where a court has initially been seized of the matter and is asked to refer it to arbitration. By contrast, where the arbitration process has begun, the arbitrator must decide issues related to his or her own jurisdiction, including pure questions of law. The arbitrator's decision in this regard may subsequently be reviewed under the appropriate provincial rules regarding arbitration, including those related to homologation or annulment of an arbitration award.

Fortin c. Rogers Communications sans-fil inc., 2008 QCCS 3855 (CanLII) (available in French only) considers the transitional rules for the application of the statutory prohibition in Québec against arbitration clauses in consumer contracts. Citing the analysis in Dell and Rogers, the court states that an arbitration clause produces its legal effect only when a claim, conflict or difference arises that is covered by the clause. In particular, the court notes that the motion for authorization to institute a class proceeding by the petitioner and the respondent's manifestation of its intention to bring the matter to arbitration — as well as the formation of the contract — all occurred prior to the coming into force of the Québec legislation. The court states that once the arbitration process has been activated, the fact that damages arise successively is irrelevant to the application of the statutory amendment. The implication of the Fortin decision, and those in Dell and Rogers, may be that a juridical situation related to the statutory prohibition of arbitration clauses is "ongoing" until a claim has been made or a dispute has been submitted to arbitration. On this basis, it may be possible to argue that the statutory prohibition applies to arbitration clauses in contacts entered into before the coming into force of the amendments as long as the claim or arbitration process has been initiated after that date, despite the fact that the recent legislation is not retroactive.

In Canadian common law jurisdictions, the debate is whether the reasoning of Dell and Rogers applies outside of Québec so as to permit an arbitration clause to take priority over class action proceedings. In MacKinnon v. National Money Mart Company, 2008 BCSC 710 (CanLII) and Seidel v. Telus Communications Inc., 2008 BCSC 933 (CanLII), the courts held that the Dell and Rogers decisions do not apply in B.C. given the differences between B.C. and Québec law as regards arbitration — and in particular, as regards the ability of the courts to refuse to refer a matter to arbitration. In this respect, these cases confirm earlier B.C. decisions indicating that class action certification and an application for a stay of proceedings based upon an arbitration clause should be decided together. If it is decided that a class action is the preferable procedure, referral to arbitration is precluded because the arbitration clause becomes inoperable. In the Seidel decision, the court accepted expert testimony as to Québec law and held that there is no fundamental difference between Québec and B.C. as regards the criteria for the certification of class proceedings. By contrast, B.C. arbitration legislation permits the court to determine the jurisdiction of an arbitrator, whereas Québec law mandates the arbitrator to do so in most instances.

McCarthy Tétrault Notes:

The decisions in Seidel and MacKinnon may not be the final word on this issue. In Frey v. Bell Mobility Inc., 2008 SKQB 79 (CanLII), a Saskatchewan court took the opposite view and held that Dell and Rogers required a claim brought as a proposed class action to be stayed and sent to arbitration if the claim is covered by a valid arbitration clause.

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