Class Action Litigation v. Class-Wide Arbitration – The Supreme Court of Canada Holds Arbitration Cannot Meet the Objectives of Consumer Protection Legislation

The long-standing complaint against the court systems is that it is too slow and cumbersome a forum to deal with disputes expeditiously.  This has led to a rise in private arbitration of disputes.  The public policy objectives behind arbitration legislation are to encourage the entitlement of contracting parties to provide their own dispute resolution system and avoid the costs and delays of the civil justice system.[1]

The clash between the regimes of arbitration and class actions has been considered by the Supreme Court of Canada in the context of claims under consumer protection legislation. In Dell Computer Corp. v. Union des consommateurs ,[2] Smith v. Moneymart,[3] and Seidel v. TELUS Communications Inc.,[4] groups of consumers sought to bring class actions in the face of arbitration clauses contained in the standard form agreements they had signed for buying a computer, or obtaining a pay day loan, or signing a mobile phone contract.  In Dell (decided under Quebec law), the arbitration agreement was affirmed, and it ousted the plaintiffs’ entitlement to proceed by class action, while in both Moneymart and TELUS the plaintiffs were permitted to proceed as a class.

The lynchpin in the latter two decisions was the fact that the claims were asserted under consumer protection legislation. Moneymart and TELUS confirmed that individuals cannot contract out of their statutory right to bring an action under that legislation, including a class action as a permitted form of action.  Therefore, the arbitration agreement which purported to remove the right to proceed in court, including by class proceedings, was invalid.  The courts did not determine whether the agreement would have been valid if it provided for class or joint arbitration.  Arguably if an arbitration agreement or included procedure[5] permitted class actions it would not be as clear that the parties had contracted out of their statutory right.

However, given Justice Binnie’s characterization of the legislation in TELUS, such a result is unlikely.  He wrote, for the majority of five, that the public policy objectives of the class vehicle and consumer protection legislation were not met through arbitration:

I doubt that Ms. Seidel or TELUS would be free to turn a private and confidential arbitration into a public denunciation of the other under the guise of enforcement proceedings.….As to the statutory context, s. 172 stands out as a public interest remedy…treat[ing] the plaintiff as a public interest plaintiff intended to shine a spotlight on allegations of shabby corporate conduct.[6]

The majority’s decision in TELUS is in stark contrast to the approach taken in the United States.  In American Express Company et al. v. Italian Colors Restaurant et al.[7] the US Supreme Court considered whether the contractual waiver of class arbitration is enforceable under the Federal Arbitration Act, and specifically, merchants argued against the Amex clause, that it would be prohibitively expensive to proceed individually.  Merchants sought to bring a claim against Amex alleging the latter had used its monopoly power to force merchants to accept a form contract which violated antitrust law.  Similar to the BCCPA sections considered in TELUS, the US Clayton Act[8] provides that any person injured by an act forbidden by the antitrust laws may sue in any US district court.  Also similar to TELUS’s consideration of the relevant sections of the BCCPA, the US Supreme Court considered the “effective vindication” doctrine which holds that arbitration agreements are invalid if they are a waiver of a party’s right to pursue statutory remedies.[9]

Justice Scalia for the majority in American Express held that the arbitration agreement did not waive the merchants’ rights, even though the outcome was that they were precluded from bringing class proceedings of any kind.  The dissent by Justice Kagan was quite vigorous, and concluded that the result of the majority’s decision was that, “Amex has insulated itself from antitrust liability – even if it has in fact violated the law.  The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

Perhaps because of the potential for such an outcome, and as noted in the reasons of Justice Binnie in TELUS, certain jurisdictions, Quebec and Ontario included, have chosen to ban arbitration of consumer claims altogether.  While the public policy objectives of arbitration continue to be touted by Canadian courts, it has been made clear that these will ultimately be subservient to the public policy objectives of having, at least  in certain types of cases, class actions proceed in court.

[1] Desputeaux v. Éditions Chouette (1987), [2003] 1 S.C.R. 178.

[2] Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801 [Dell]

[3] 2008 CanLII 27479 (O.N.S.C.), aff’d by 2008 ONCA 746 [Moneymart].

[4] [2011] 1 S.C.R. 531 [TELUS].  The legislation at issue was British Columbia’s Consumer Protection Act, [BCCPA]

[5] For example, the American Arbitration Association provides in its Rules for a procedure by which class arbitrations can be conducted, and many claims have been successfully litigated through to a final determination of the issues.  Arguably the inclusion or adoption of rules such as the AAA’s into an arbitration agreement would import a procedure and forum for class proceedings.

[6] TELUS at paras. 35-36.

[7] 570 U.S.      (2013), WL 3064410.

[8] 15 USC § 15.

[9] See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985).

American Express civil justice system Class Action Litigation class-wide arbitration consumer protection legislation private arbitration of disputes TELUS The Supreme Court of Canada US Supreme Court



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