Arbitration Clauses and Class Action Risk in Consumer Contracts: the Variable Canadian Landscape
The recent Saskatchewan Court of Appeal decision in Chatfiled v Saskatchewan Telecommunications has emphasized the need for corporations entering into consumer contracts to be mindful of provincial legislation affecting the enforceability of arbitration clauses.
In Chatfield, the Court followed the Supreme Court of Canada’s reasoning in Seidal v TELUS Communications Inc (covered here), which held that some claims of class members bound by an arbitration clause were excluded from a class action. Despite following the Supreme Court of Canada’s reasoning, the Saskatchewan Court of Appeal arrived at a different result. In TELUS, the arbitration clause could not prohibit a class action relating to particular provisions of British Colombia’s Business Practices and Consumer Protection Act, which provisions were interpreted as preventing consumers from waiving their rights to legal remedies including class actions. In Saskatchewan, where no such consumer protection legislation exists, the Court upheld the arbitration clause.
The regime differences in British Colombia and Saskatchewan are reflective of the broader Canadian landscape surrounding whether arbitration clauses may prohibit class actions.
- Just prior to the Supreme Court of Canada decision in Dell Computer Corp v Union des consommateurs, which allowed an arbitration clause to be enforced, Quebec amended its Consumer Protection Act to better protect consumers in this regard. Under section 11.1 of this Act, arbitration clauses that restrict a consumer’s right to bring or participate in a class action, are prohibited.
- In Ontario, the Consumer Protections Act prohibits arbitration clauses in consumer contracts which would otherwise act to bar class actions. This protection was demonstrated in the case of Smith Estate v National Money Mart Company where an arbitration clause prohibiting class actions was held to be invalid.
- Alberta straddles the line between the broad consumer protections afforded in Ontario, and the lack of protections seen in Saskatchewan. In Alberta, the Fair Trading Act prevents consumers from suing in court to enforce their rights under the Fair Trading Act only if they have contracted into an arbitration clause and the arbitration agreement has been approved by the Minister responsible for the Act.
Each province has its own unique legislative regime affecting the interaction between an arbitration clause and a class action. Knowledge of the different statutory regimes is important to deal with any disputes that may arise regarding the a contract.