B.C. Court of Appeal Provides Guidance on the Enforceability of Class Action Waiver Clauses Post-Uber v. Heller

In Uber Technologies Inc. v. Heller[1] (summarized here), the Supreme Court of Canada set out an analytical framework for determining the enforceability of an arbitration clause in a standard form services contract. More recently, in Pearce v. 4 Pillars Consulting Group Inc.,[2] the B.C. Court of Appeal applied this framework to a class action waiver clause in a standard form consumer agreement. Pearce illustrates that, post-Heller, the enforceability of such a clause is suspect.

Background

The plaintiff filed a proposed class action on behalf of over 8,200 consumers struggling with debt to recover fees they paid to the defendants for debt restructuring services. The plaintiff alleged statutory and common law causes of action based on alleged breaches of the B.C. Business Practices and Consumer Protection Act and the federal Bankruptcy and Insolvency Act. These claims centered on the allegation that the defendants operated their debt restructuring business illegally and charged unconscionable fees.

The defendants applied to stay the claims of proposed class members who signed a standard form contract containing a class action waiver clause purporting to prevent them from participating in any class action, class arbitration, or other consolidated proceeding relating to the contract. The chambers judge dismissed this application and certified the proceeding.

Court of Appeal’s Decision

The Court of Appeal took Heller as the starting point for its analysis. The majority in Heller relied on the unconscionability doctrine to find that the arbitration clause at issue was unenforceable, while a concurring judge relied on the public policy doctrine to reach the same result. The Court of Appeal in Pearce held that both doctrines are available to challenge a contract or clause, and in this case each led to the same result: the clause was unenforceable.

Unconscionability

Heller established that the unconscionability doctrine applies where: (i) there was inequality of bargaining power between the parties; and (ii) the resulting bargain was improvident. Both elements are assessed at the time of the agreement. Inequality of bargaining power exists where one party is unable to protect their interests in the contracting process. An improvident bargain requires either an undue advantage to the stronger party or an undue disadvantage to the weaker party.

Inequality of Bargaining Power

In finding that there was inequality of bargaining power between the defendants and the proposed class members, the Court of Appeal noted the following factors: the contract was a standard form contract imposed on the proposed class members without any opportunity for negotiation; the proposed class members were consumers, not sophisticated commercial parties, who entered into the contract while in financial distress; the defendants were sophisticated business owners; and the contract did not explain the “unusual and onerous” effects of the class action waiver clause, which made it “practically impossible” to pursue claims against the defendants arising from the contract.

Improvident Bargain

The Court of Appeal rejected the defendants’ argument that, since the class action waiver clause did not prohibit individual actions (and so did not “absolutely” prevent access to justice), it did not create an undue advantage or disadvantage. The court noted the chambers judge’s finding that the proposed class members likely would not be able to pursue their claims individually because of the novelty and complexity of the legal issues raised and the relatively low monetary value of the individual claims (most were around $5,000). The court also noted that it was “far from clear” that either the small claims court or the Civil Resolution Tribunal had jurisdiction to entertain the claims advanced and grant the relief sought. Thus, the court concluded that, “[w]hile on paper it might appear that a pathway to dispute resolution exists, the practical effect of the clause so narrowly defines that pathway as to effectively and practically block access to justice and as such it is unconscionable”.

Public Policy

According to the concurring reasons in Heller, as a matter of public policy, courts will not enforce contractual terms that, expressly or in effect, deny access to independent dispute resolution according to law.

The Court of Appeal in Pearce found that the class action waiver clause at issue “significantly interfere[d] with the administration of justice”. Although the clause did not, on its face, prevent access to justice, it had “the practical effect” of preventing the proposed class members “from having access to a dispute resolution process in accordance with the law for claims arising from the relationship between the[] parties”. The court distinguished arbitration clause cases on the ground that “a valid arbitration agreement may provide a comparable measure of justice to the superior courts”, whereas a standalone class action waiver clause simply denies a potential path to justice.

Key Takeaways

  1. In determining the enforceability of a class action waiver clause, courts may consider both the unconscionability doctrine and the public policy doctrine. These two doctrines are “doctrinal cousins”, and as such they may lead to the same result.
     
  2. Standard form contracts have features that make them more susceptible to being challenged as unconscionable or contrary to public policy. These include the absence of negotiation, the typical length and complexity of the contract, the presence of terms that may be difficult to understand, and the inequality in bargaining power that may be associated with the contract.
     
  3. Courts will view standard form class action waiver clauses with suspicion. If the clause effectively denies access to justice, it will be unenforceable.
     
  4. Courts may be more receptive to arbitration clauses than to standalone class action waiver clauses, provided the arbitration clause does not, in effect, deny meaningful access to independent dispute resolution according to law.
     
  5. Any class action waiver clause should be drawn to the party’s attention and accompanied by a clear and accurate explanation of its practical implications.

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[1]    Uber Technologies Inc. v. Heller, 2020 SCC 16 [Heller].

[2]    Pearce v. 4 Pillars Consulting Group Inc., 2021 BCCA 198 [Pearce].

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