On May 17, 2021, the British Columbia (B.C.) Court of Appeal released a decision in Pearce v. 4 Pillars Consulting Group Inc. (Pearce) finding a class action waiver clause unenforceable as unconscionable and contrary to public policy, largely because it would likely prevent class members from pursuing any claims at all given the small amounts at issue. Pearce is one of the few Canadian decisions addressing the enforceability of class action waiver clauses, a question the Supreme Court of Canada expressly left open in the past.
BACKGROUND
The defendants sold debt advisory services to individuals on the
brink of insolvency seeking debt restructuring. The defendants
charged fees upfront, regardless of whether any debt relief was
obtained.
On the basis that the defendants were not licensed "debt
repayment agents" pursuant to the B.C. Business
Practices and Consumer Protection Act (BPCPA),
or licensed insolvency trustees pursuant to the
federal Bankruptcy and Insolvency Act
(BIA), the plaintiff commenced an action against the
defendants, applying to certify it as a class proceeding on behalf
of persons who paid the defendants fees. The plaintiff alleged that
the defendants contravened the BPCPA's provisions
governing debt repayment agents and its prohibition of
unconscionable acts or practices. The plaintiff further alleged
that the defendants' conduct was contrary to
the BIA, that the defendants' unlawful conduct
voided the applicable contracts with customers and that the fees
paid are recoverable through claims for unjust enrichment and
conspiracy.
The defendants took the position that their business was lawful.
They applied to have the plaintiff's and proposed class
members' claims struck, dismissed or stayed on a number of
grounds, including a class action waiver clause in standard form
agreements prohibiting class proceedings and requiring disputes be
resolved on individual bases.
B.C. SUPREME COURT DECISION
In October 2019, the B.C. Supreme Court dismissed the defendants' applications and certified the plaintiff's action as a class proceeding, holding that the plaintiff's claims were not bound to fail and that the class action waiver clause was unenforceable.
B.C. COURT OF APPEAL DECISION
The B.C. Court of Appeal dismissed the defendants' appeal.
The Court of Appeal agreed that the plaintiff's claims were not
bound to fail and that the action was appropriately certified as a
class proceeding. Significantly, the Court of Appeal also agreed
that the class action waiver clause was unenforceable on two
independent grounds.
First, the Court of Appeal held that the class action waiver clause
was unconscionable, finding an inequality of bargaining power and
an improvident bargain. The inequality arose because the clause was
found in standard form contracts not subject to negotiation, the
class members were consumers rather than sophisticated commercial
parties, the class members were distressed persons in vulnerable
and difficult circumstances struggling to service and repay debt
and the clause did not effectively communicate the consequences of
agreeing to it. The clause was improvident because the novel and
complex nature of the legal questions raised by the claims, and the
relatively low monetary values involved for each class member,
meant that it was unlikely class members would be able to pursue
individual claims if the clause were enforced, effectively and
practically blocking them from access to justice.
Second, the Court of Appeal held that the clause was contrary to
public policy because it significantly interfered with the
administration of justice. Its practical effect, as noted above,
would be to preclude the plaintiff and class members from accessing
any dispute resolution process at all, defeating the three goals of
class proceedings of promoting judicial economy, access to justice
and behaviour modification. While the Court of Appeal noted that
there is little jurisprudence concerning the enforceability of
class action waiver clauses, it cited two lower court decisions
from Alberta and Ontario for the proposition that such clauses have
not been enforced when considered in the past.
IMPLICATIONS
The principles in Pearce raise serious issues regarding the enforceability of class action waiver clauses, particularly where individual claims for damages can be expected to be small (as is often the case in class actions). Notably, the Court of Appeal distinguished case law involving arbitration clauses that oust the jurisdiction of the court, stating that arbitration may offer a measure of justice comparable to courts and that legislation exists directing courts to stay court proceedings in favour of arbitration.
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