Supreme Court Weighs in on Interplay Between Class Actions and Arbitration Clauses in Consumer Contracts

Arbitration clauses have been used in Canada, with mixed results, as a mechanism by which potential defendants have attempted to lessen their exposure to class actions. Arbitration clauses are frequently contained in consumer contracts and, in particular, in service contracts. These clauses typically require consumers to participate in mediation or arbitration and, often, to waive all rights to participate in class action proceedings.

A recent decision from the Supreme Court of Canada has provided guidance on the interplay between these arbitration clauses and consumer-based class actions in Canada's common law jurisdictions. In Seidel v. Telus Communications Inc.,¹ the Supreme Court of Canada overruled, in part, a 2009 British Columbia Court of Appeal decision that granted a stay of proceedings in a proposed class action in favour of arbitration. The narrow 5-4 majority concluded that certain provisions of British Columbia's Business Practices and Consumer Protection Act (BPCPA) created statutory rights that could not be waived by contract. For claims that arise under those provisions, arbitration clauses of the type contained in consumer agreements could not prevent access to the courts and could not constitute a waiver of a plaintiff's right to participate in a class action.

The decision upheld the stay imposed for the remaining allegations that were not advanced directly under s. 172 of the BPCPA.

Seidel, a proposed class action, was commenced by a Telus subscriber whose service agreement contained a standard arbitration clause and a clause that purported to bar class action proceedings. The Plaintiff's proposed class action was based, in part, on alleged violations of the BPCPA. Telus applied for a stay of the intended class action, arguing that the arbitration clause bound the parties. In doing so, Telus relied on earlier Supreme Court decisions in Dell Computer Corp. v. Union des consommateurs²and Rogers Wireless Inc. v. Muroff.³ These Quebec decisions found that procedural class action legislation could not modify the substantive rights created by arbitration clauses contained in consumer agreements. In both cases, the proposed actions were stayed and the plaintiffs were forced to seek remedies in arbitration.

At first instance, the British Columbia Supreme Court dismissed Telus' application for a stay. The stay was dismissed based on the court's view that the reasoning used in Dell was not applicable to the laws of British Columbia. The British Columbia Court of Appeal overturned the decision and stayed the proposed class action, finding that Dell and Rogers did apply in British Columbia. This decision would have forced the Plaintiff to advance his claim through arbitration and would have prevented any class action. Leave to appeal to the Supreme Court was granted in November 2009.

The Supreme Court of Canada found that allegations falling under s. 172 of the BPCPA, a statutory provision which confers rights similar to those provided to consumers under the Consumer Protection Act, 2002 in Ontario, could be advanced in a class proceeding because that section expressly provided consumers with a right to court access that could not be waived by the existence of an arbitration clause in consumer contracts.⁴ The Court observed that s. 172 of the BPCPA demonstrated a clear legislative intention to intervene and relieve consumers of contractual commitments to pursue disputes only through private, confidential mediation or arbitration.⁵ As a result, to the extent an arbitration clause purported to restrict a consumer's right to bring a claim before the courts, such a clause was invalid.

The Plaintiff's claims that fell under other provisions of the BPCPA, the now repealed Trade Practice Act or at common law continued to be stayed pursuant to British Columbia's Commercial Arbitration Act.⁶

Prior to the Supreme Court's decision in Seidel, several Quebec decisions appeared to support the denial of certification of class actions in circumstances where a consumer agreement contained an arbitration clause. The Supreme Court's decision in Seidel has limited the effect of these Quebec cases. While the BPCPA contains a provision that provides consumers with a specific right of access to the court for alleged violations, the Quebec legislation at issue in Dell did not. To the extent that a proposed class or individual action alleges a violation of consumer protection legislation that provides a similar right of access to the court, Seidel suggests that courts will uphold the parties' right to pursue the claim in court over arbitration. Clauses purporting to waive class action rights, where tied to an arbitration clause contained in a consumer service agreement, will likely not prevent plaintiffs from pursuing a class action.⁷

While the Seidel decision will likely be characterized as welcome news for consumers and consumer groups seeking to invalidate arbitration clauses commonly found in consumer agreements, the impact of the decision will be limited to consumer agreements, and particularly those which are governed by legislative provisions preserving consumers' access to the courts. This decision will not affect arbitration clauses in non-consumer contracts such as franchise and insurance agreements, which will continue to have the effect of presumptively staying intended class or individual actions.

The Seidel decision corresponds with the general approach adopted in Ontario, as reflected in the Court of Appeal's decision in Griffin v. Dell Canada Inc.⁸ That said, it remains to be seen what effect, if any, this decision will have in Quebec, a civil law jurisdiction, and in other common law jurisdictions which lack consumer protection legislation with provisions comparable to those in British Columbia and Ontario.

Notes

1. 2011 SCC 15 [Seidel].
2. [2007] 2 S.C.R. 901 [Dell].
3. 2007 SCC 35 [Rogers].
4. Supra note 1 at para. 7.
5. Supra note 1 at para. 2.
6. S.B.C. 1986, c. 3, c.15.
7. Supra note 1 at para. 46.
8. 2010 ONCA 29 [Griffin].