Canada: Mandatory Arbitration Provisions In The Class Action Context

Mandatory Arbitration Provisions in the Class Action Context: TELUS Communications Inc. v. Wellman, 2019 SCC 19

On April 4, 2019, the Supreme Court of Canada issued reasons in TELUS Communications Inc. v. Wellman. The Supreme Court's 5-4 decision provides important guidance on the applicability of arbitration clauses in the class action context, and makes clear that potentially unfair arbitration agreements should be addressed through the doctrine of unconscionability.

  1. Background

The Plaintiff brought a proposed class action on behalf of Ontario residents who entered into mobile phone contract subscribers with the Appellant, TELUS Communications. The Plaintiff alleged that TELUS engaged in a secret practice of "rounding-up" calls to the next minute, resulting in overcharges to class members. The class included consumers, as that term is defined in Ontario's Consumer Protection Act, and "non-consumers"—i.e., businesses.

The standard-form contracts the class members signed with TELUS included an arbitration clause requiring that most claims arising from the contract be determined by mediation—and, if mediation failed, by way of binding arbitration. Ontario's Consumer Protection Act makes such clauses invalid where they would prevent consumers from commencing or joining a class action. Where the Consumer Protection Act is engaged, Ontario courts have interpreted section 7(5) of Ontario's Arbitration Act, 1991 (the "Act") to confer discretion to allow all class members—including non-consumers—to pursue their claims alongside consumers in a class action. That provision of the Act states:

Agreement covering part of dispute

The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

TELUS contended that s. 7(5) did not provide the court with authority to refuse to stay claims that are subject to an arbitration agreement.

  1. The Decision (Per Moldaver, Gascon, Côté, Brown and Rowe JJ)

The majority, accepting TELUS's argument, held that the Act did not grant the court discretion to refuse to stay non-consumer claims. In this case, that meant excluding non-consumers from the class action.

Justice Moldaver reiterated that arbitration clauses contained in commercial agreements will generally be enforced absent legislative override. Allowing non-consumer claims to persist in a consumer class action was "at odds with the policy underlying the Act that parties should abide by their agreement." The majority set the Act against Canadian courts' historical hostility to arbitration.

The majority specifically highlighted that Mr. Wellman had not argued that the agreement in question was unconscionable, and thus invalid under another provision of the Act – "arguments over any potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability" (see, for example, Heller v. Uber Technologies Inc., 2019 ONCA 1).

  1. The Dissent (Per Wagner C.J. and Abella, Karakatsanis and Martin JJ)

In dissent, Justices Abella and Karakatsanis focused on the unfairness of the arbitration clause at issue, and criticized the majority's approach as "the return of textualism" which allowed the words of section 7(5) to "dominate and extinguish the contextual policy objections" of both the Act and class actions legislation. This approach:

"has the effect of forcing litigants to spend thousands of dollars to resolve a dispute worth a fraction of that cost; denies others meaningful access to a remedy if they are not prepared, or cannot afford to, engage in a cost-benefit losing proposition; and invites the very proliferation of proceedings a class action was invented to avoid.",

The Ontario Legislature enacted the Act to allow willing parties to pursue arbitration. The majority's approach would undermine this objective. The Ontario courts' historical approach avoided this unpleasant consequence. The dissenting Justices applied the principle that the statutory interpretation of section 7(5) must be "reasonable and just", and defined the overall purpose of the Act as promoting access to justice.

The dissenting justices reviewed the Act and asserted that the majority's interpretation would undermine the Class Proceeding Act by making class certification overly cumbersome. They further highlighted the "corrosive effect on access to justice" of the majority's interpretation, since imposing arbitration on unwilling parties would be an "invisible but formidable barrier to a remedy that presumptively immunizes wrongdoing from accountability contrary to our must fundamental notions of civil justice." The dissenting justices' opinion reflects the reality that the consequence of mandatory arbitration clauses is to deny access to justice in the context of low-value claims.

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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