Posts Tagged ‘ arbitration clauses

Arbitration Clauses as a Shield Against Class Actions?…What Will Canada’s Top Court Say?

The Supreme Court of Canada has granted leave to hear an appeal next year in the matter of Seidel v. Telus Communications Inc. This appeal will attempt to clarify the issue of whether arbitration clauses in consumer agreements may prevent consumers from launching class action proceedings. This decision should move Canadian commerce one step closer in resolving what has been a flip-flopping legal issue across Canada for years.

The use of arbitration clauses in consumer agreements is common practice employed by corporate entities in laying out the mechanisms available for their consumers to use in addressing issues that may arise from such transactions. In essence, these clauses mandate customers to engage in private dispute resolution mechanisms rather than resorting to the courts to address problems.  The advantages conferred by such clauses may include a much more expedient and cost effective method of settling matters than through the “clogged” court system.

However, the downside of arbitration clauses may relate to how they are worded. The mere fact that they are unilaterally inserted into consumer contracts as a condition of service means that consumers are often forced to agree to such terms if they want to obtain such service. In addition, corporate entities may see arbitration clauses as a strategy for insulating themselves from class action claims by forcing consumers to waive their rights to participate in a class action and agreeing to the prescribed binding arbitration process instead. Concerns have also been raised about resource rich corporations compensating arbitrators for decisions in their favour.

This begs the question: can consumers resort to the courts to pursue class claims against corporate entities or must reliance on arbitration clauses be adhered to? The state of the law has been unclear in Canada.

To demonstrate the lack of clarity, I will attempt to lay out the current situation in Canada with respect to the issue of arbitration clause applicability and class actions as follows:

Seidel, a Telus customer in British Columbia launched a class action against Telus for breach of contract and deceptive and unconscionable practices. At this time, the predominant case authority was MacKinnon v. Instaloans Financial Solutions Centres (Kelowna) Ltd. which held that an arbitration clause is inoperable if a court certifies a class action. Because the court had certified Seidel’s class action against Telus, Telus simply had to live with the class action launched against it despite its arbitration clause.

The Supreme Court of Canada then subsequently rendered its decision in Dell Computers v. Union Des Consommateurs and  Rogers Wireless Inc. v. Muroff. Both these appeals came out of the Quebec lower courts and dealt with the applicability of arbitration clauses and class actions. The court agreed that in Quebec, it is the arbitrator who will determine the jurisdiction to hear the matter, not the court. The Supreme Court of Canada in both cases permitted the arbitration mechanism to prevail over the class action route.

As a result of these decisions, Telus was able to successfully appeal its case to the British Columbia Court of Appeal, which stayed the class action against it on the authority of  Dell and Rogers Wireless Inc., which seems to place arbitration clauses ahead of pursuing class actions.

It’s important to note that these Supreme Court of Canada decisions relied on by Telus were specific to Quebec, which is not a common law province and the applicability of these decisions may not necessarily clarify the issue for the other common law provinces anxious for further guidance.  This guidance shouldn’t be too far off now that Seidel has been granted leave to appeal to Canada’s top court.

I think it would be prudent for the courts to avoid taking an overly pro corporate stance on this issue. Consumers should not be denied access to the courts and forced to be bound by an arbitration clause, especially where the clause is worded unfairly. We know that corporations’ true loyalty is to their shareholders, not consumers and the Supreme Court should be mindful of this when rendering its decision next year to provide consumers with the protections they deserve.

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