Supreme Court Enforces Arbitration Clauses for Business Customers in Consumer Class Action

Written By Michael A. Eizenga, Andrew D. Little, Ranjan K. Agarwal and Charlotte K.B. Harman

Business customers that agreed to arbitrate disputes cannot “piggyback” their claims onto a consumer class action in court, the Supreme Court of Canada has ruled.

The court’s 5-4 decision in TELUS Communications Inc. v Wellman, released on April 4, 2019, means that claims based on business-to-business agreements will go to mediation and then arbitration, while consumers’ claims will continue as a class proceeding in the Ontario courts.

Mr. Wellman commenced a class proceeding on behalf of TELUS customers alleging that the company overcharged customers by rounding up calls to the next minute from 2002 to 2010 without disclosing the practice. The proposed class consisted of approximately two million mobile phone subscribers, 30% of which were business customers. The other 70% were consumers who purchased plans for personal use.

TELUS’s service agreements contained a dispute resolution clause that required mediation and arbitration for consumers and businesses alike. While consumers cannot be forced to arbitrate their claims due to an exception made under Ontario’s Consumer Protection Act, those protections do not extend to business interests. TELUS therefore sought to enforce the agreement to arbitrate under the business-to-business contracts and requested a stay of the business customers’ claims under s. 7(1) of the Ontario Arbitration Act, 1991. Wellman argued that a different provision, s. 7(5) of that Act, gave the Ontario court the discretion to keep the claims all together.

Justice Moldaver concluded for a majority of the court that s. 7(5) of the Arbitration Act did not apply and the business claims must therefore be stayed and sent to arbitration. Justices Abella and Karakatsanis, writing for the minority, would have allowed the Ontario court to exercise its discretion to join all claims together under s. 7(5) to ensure the overriding concern of access to justice for all customers, particularly given that TELUS' agreements were contracts of adhesion.

This decision offers several instructive takeaways for businesses that use or enter into standard form agreements that include arbitration clauses, as well as for in-house counsel, class action lawyers and arbitration lawyers:

• courts should and will generally give effect to arbitration clauses in commercial agreements, even if the contracts are "contracts of adhesion", or standard form. Section 7(1) of the Arbitration Act mandates a stay of proceedings for business-to-business agreements where a valid arbitration clause exists, even in the context of a class proceeding.
• while the Consumer Protection Act provides an exception which will allow consumer claims to proceed in court by way of a class action even where their agreements include an arbitration clause, claims of business customers who enter into the same agreements will nevertheless be sent to alternative dispute resolution.
• s. 7(5) of the Arbitration Act is not a standalone provision. It provides for a partial stay of court proceedings only where an arbitration agreement applies selectively to some of the matters in the agreement in respect of which the proceeding was commenced, and where it is reasonable to separate other matters in the agreement which are not subject to the arbitration clause. 
• where the wording and intent behind a statute does not explicitly engage specific policy considerations—however valid—courts may not intervene on the basis of those values to achieve a desired outcome. If a statute fails to provide adequate safeguards to combat issues of unequal bargaining power, that is a task for the legislature to address and remedy.

Mike Eizenga, Andrew Little, Ranjan Agarwal and Charlotte Harman of Bennett Jones represented an intervenor in the case that supported arbitration of the business claims. Please contact any of them to discuss class actions and arbitration issues.

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