Griffin v. Dell Canada Inc and the Interplay between Arbitration and Class Actions

Can consumer and non-consumer contracts that contain an arbitration clause be made subject to class proceedings? Yes, according to a recent decision by the Court of Appeal for Ontario.

Facts

This appeal involves a proposed class action arising from the sale of allegedly defective Dell notebook computers between March 2003 and May 2005. The terms and conditions of sale contained a mandatory arbitration clause for any claim to be resolved by arbitration and administered by the National Arbitration Forum (NAF).

The first representative plaintiff leased his Dell notebook through his business, and therefore did not qualify as a "consumer" under the Consumer Protection Act, 2002 (CPA). The CPA bans mandatory arbitration clauses in consumer agreements. A second representative plaintiff, one who did qualify, was then added. This plaintiff had purchased his computer after the CPA came into effect on July 30, 2005.

Dell appealed both the Ontario Superior Court of Justice’s decision refusing Dell’s request for a stay in favour of arbitration, and the court’s decision refusing to reconsider its original decision in light of new developments in the jurisprudence. It must be noted that since these decisions were rendered by the motions judge, NAF has ceased to function with respect to consumer disputes following allegations of serious impropriety.

Issues

Accordingly, the Court of Appeal had to decide whether (i) the demise of NAF rendered Dell’s appeals moot, (ii) the CPA was applicable, and (c) a partial stay of the non-consumer claims should be granted.

Decision

The Court of Appeal concluded that the agreement in question did not name NAF as the arbitrator and that therefore Section 16(5) of the Arbitration Act, 1991, which provides that the court has no power to appoint a substitute arbitrator, did not apply. NAF will no longer accept consumer arbitrations, so it will not exercise its power to appoint an arbitrator, and thus the court will be able to do so under Section 10(1)(b) of the Act. Furthermore, when an order refusing to grant a stay is based on grounds that the matter is not subject to arbitration, an appeal is not precluded by Section 7(6) of the Act.

Concerns about the unfairness of mandatory arbitration clauses led the Ontario legislature to enact the CPA provisions outlawing mandatory arbitration clauses in consumer agreements. According to the Court of Appeal, it has been determined that sellers regularly insert arbitration clauses in order to defeat claims, not because they truly wish to arbitrate disputes with consumers. These disputes are often small claims that only become viable when aggregated by way of a class proceeding.

The second representative purchased his computer prior to the coming into force of the CPA, but his computer allegedly failed afterwards, in 2007. As the Supreme Court explained in Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, the legislation governed despite the fact that the contract was concluded prior to the effective date. Until the failure of the computer there was no claim, but rather "an ongoing legal situation," and the application of the arbitration clause was not yet triggered.

Finally, under the assumption that Dell applies in Ontario, the Court of Appeal found that non-consumer claims should proceed by way of arbitration. However, Section 7(5) of the Arbitration Act confers discretion to grant a partial stay where an action involves some claims that are subject to arbitration and some that are not. In this case, a partial stay was refused to allow all the claims to proceed under the class proceeding, as it would not have been reasonable to separate the consumer from the non-consumer claims. Granting a stay of the non-consumer claims would have led to inefficiency, a potential multiplicity of proceedings, and additional costs and delays, contrary to the Courts of Justice Act.

The liability and damages issues to be litigated are the same for both consumer and non-consumer claims. As the consumer claims dominate (70 per cent), it was reasonable that the remaining claims should follow the procedural route of the consumer claims. In this case, it is clear that the staying of any claims advanced would not result in any of the claims being arbitrated. Moreover, Dell’s arbitration clause precludes any possibility of class arbitration. Dell’s position may have been more persuasive had this option been available.

The court also found that it did not need to decide on the application of Dell in Ontario and preferred to await the Supreme Court’s decision in Seidel v. Telus Communications Inc., [2009] 5 W.W.R. 466 (B.C.C.A.).

McCarthy Tétrault Notes

Companies doing business in Ontario should be aware that both consumer and non-consumer contracts containing an arbitration clause can, for reasons of efficiency and judicial economy, be included in the same class proceedings. Moreover, a clause that explicitly prohibits class-wide arbitration can create a rebuttable presumption that an arbitration clause is designed to thwart, rather than encourage, the resolution of disputes.