A Class Divided Can Stand - Supreme Court of Canada Holds That Businesses Cannot Piggyback on Consumers To Escape Arbitration Agreements

TELUS Communications Inc. v. Wellman, 2019 SCC 19, is a significant — if narrow — victory for freedom of contract, and for a disciplined approach to statutory interpretation. By a 5-4 majority, the Supreme Court of Canada reversed a line of Ontario cases and held that s. 7(5) of province’s Arbitration Act, 1991 does not give courts discretion to decline to enforce arbitration agreements between businesses, even when those businesses are members of a class alongside consumers under the Class Proceedings Act, 1992.

Wellman affirms the principle that private parties may order their own affairs, including by deciding how disputes between them will be resolved. Legislation may limit this liberty, but it is for legislatures, not courts, to make this policy judgment. Ontario courts had held otherwise. In rejecting their approach, the Supreme Court of Canada has now confirmed that party autonomy is the default in the absence of statutory directives to the contrary.

Background

Wellman is a class action in which the representative plaintiff alleges that the defendant overcharged its wireless telephone customers by rounding up the durations of their calls to the next minute. The class consists of consumers (i.e., individual customers) and non-consumers (i.e., business customers).

All class members had entered into a standard form contract that included a dispute resolution clause. It required all claims to be determined through mediation and, failing that, arbitration.

Decisions Below

Under Ontario’s Consumer Protection Act, 2002, the arbitration clauses could not prevent the consumer class members from pursuing their claims in the Ontario courts or participating in a class proceeding. That much was common ground between the parties. They disagreed, however, on whether the non-consumer class members’ claims should be stayed as well.

The defendant argued that in the absence of legislation vitiating the arbitration clauses in the contracts between the defendant and business customers, the contracts should be enforced. The motion judge rejected this submission. She held, instead, that she had discretion under s. 7(5) of the Arbitration Act to decline a stay where a stay would be unreasonable. The motion judge held that it would be unreasonable to separate the consumer claims from the non-consumer claims and declined to order a stay.

The Court of Appeal for Ontario unanimously upheld the motion judge’s decision. While Blair J.A. doubted its correctness, all three judges agreed that the court’s decision in Griffin v. Dell Canada Inc., 2010 ONCA 29, was binding. Applying Griffin, the panel held that where arbitration agreements are enforceable against some class members but not all, Ontario courts have broad discretion not to enforce such agreements at all. The defendant appealed to the Supreme Court of Canada.

Supreme Court of Canada

For the majority, Justice Moldaver identified the principle of limited court intervention in arbitration matters as a “fundamental principle underlying modern arbitration law”. He applied the ordinary principles of statutory interpretation to conclude that s. 7(5) of the Arbitration Act could not be interpreted so as to undermine the legislature’s decision to shield only consumers from the potentially harsh effects of arbitration clauses through the Consumer Protection Act.

Justice Moldaver made a number of observations that reinforce the freedom of parties to structure their affairs through arbitration. These statements should serve to reinforce the certainty provided by arbitration clauses in future class proceedings, and other contexts:

  • The importance of promoting access to justice — on which the dissenting judges relied — cannot, absent express direction from the legislature, overwhelm other important objectives pursued by the Arbitration Act.
  • Nothing in the Arbitration Act suggests that standard-form contracts are per se unenforceable; the starting presumption is that they are enforceable.
  • Arguments about unconscionability are better addressed through the application of s. 7(2) of the Arbitration Act rather than a strained interpretation of s. 7(5).
  • Any difficulty in distinguishing consumer from non-consumer customers does not justify refusing to enforce arbitration clauses against the latter.

Wellman is a welcome correction to Ontario authority that had extended the consumer protection rationale underlying the unenforceability of arbitration provisions in consumer contracts to business contracts. The result will be improved certainty, for businesses and their customers alike.

Brandon Kain, Adam Goldenberg, and Ljiljana Stanić represented the Canadian Chamber of Commerce as intervener on appeal at the Supreme Court of Canada.

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