Arbitration Clauses Enforced as Non-Consumers Ejected from Telus Class Action by Supreme Court of Canada

Yona Gal, J.D., LL.MAppeals, Arbitration, Commercial and Contract Litigation0 Comments

In Telus Communications Inc. v Wellman, 2019 SCC 19, the Supreme Court of Canada has favoured arbitration clauses in staying the claims of non-consumers in a class action against TELUS.

The Court’s decision reflects a continued commitment of courts to taking a hands-off approach in upholding valid arbitration agreements, while its citation of the Ontario Court of Appeal’s Uber decision indicates that other routes – such as unconscionability – may be pursued to challenge specific arbitration clauses.

Facts

A proposed class action was filed in Ontario alleging that TELUS had for a number of years rounded up calls to the next minute without telling customers.

The class included both consumers and non-consumers (business customers).  Each individually agreed to the same non-negotiable standard form contract.  The contract included an arbitration clause requiring all disputes (other than collection of accounts by TELUS) to be mediated, and failing that, arbitrated.

Ontario’s Consumer Protection Act (“CPA”) renders arbitration clauses invalid insofar as they restrict consumers’ rights to pursue their claims in court.  The application of the CPA thus ruptured the class into business customers ostensibly subject to the arbitration clause and consumers free to litigate in court.

TELUS sought to enforce the arbitration clause in respect to the business customers, which consisted of about thirty percent of the near two-million Ontario residents in the class.

Issue

Under Ontario’s Arbitration Act, courts must stay a proceeding in favour of an arbitration agreement upon motion by another party to the arbitration agreement [s. 7(1)].  Five exceptions apply [s. 7(2)].

These exceptions were not at issue in this case.  The sole issue was whether Section 7(5) provides discretion to the court in the context of a class action to refuse to stay the claims of parties subject to an otherwise valid and binding arbitration agreement.  S. 7(5) provides:

“The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

  • the agreement deals with only some of the matters in respect of which the proceeding was commenced; and
  • it is reasonable to separate the matters dealt with in the agreement from the other matters.”

Decision

A narrow majority (5-4) of the Court held that the claims of the non-consumers must be stayed.  The majority and minority views of the Court disagreed both in respect to textual analysis and policy considerations.

I. Textual Analysis

The sentence in s. 7(5) uses a key introductory term (“may”) in regards to two integrated acts: 1) stay the proceeding with respect to the matters dealt with in the arbitration agreement; and 2) allow it to continue with respect to other matters.

The Majority view

According to the majority view, the purpose of s. 7(5) is only to allow the non-abitrable matters to proceed in court, provided the arbitrable and non-arbitrable matters can reasonably be separated.  In the absence of s.7(5), or where the matters cannot reasonably be disentangled, the court must order a full stay of the proceeding.  On this reading, s. 7(5) never allows for both matters to proceed in court – such a permit must be found in the five exceptions of s. 7(2).  The addition of s. 7(5) is only in allowing the court to retain jurisdiction over the non-arbitrable matters.

For the majority view, the granting of permission implicit in the term “may” refers to the entire sentence but must emphasize the latter act: allowing the non-arbitrable matters to proceed in court.  The former act – staying the matters subject to the arbitration agreement – is inevitable once the exceptions in s. 7(1) are not triggered.  There is no other choice: the court must stay the arbitrable matters.

According to the majority view, reading s. 7(5) as allowing the entire proceeding to continue in court would require adding to the sentence to read “may stay or may refuse to stay the proceeding.”  As the majority view emphasizes, such wording “simply is not there.”

The Minority View

By contrast, the minority view approaches s. 7(5) as providing that both acts – even the partial stay – to be in the court’s discretion. Under this approach, the introductory word “may” relates to both integrated acts: the stay of the arbitrable matters and the refusal of the non-arbitrable matters.  It implies that under appropriate circumstances, both acts could be otherwise under s. 7(5) – i.e. a court could refuse to stay even the arbitrable matters and allow both matters to proceed in court; or, stay even the non-arbitrable matters and send both matters to arbitration.

According to the minority’s view that the word “may” is discretion-granting and refers to both parts of the sentence, there is no need for further words to be added to the sentence.  As the minority view emphasizes: “‘may’ means ‘may’.”

II. Legislative and Policy Considerations

The minority view emphasizes the following considerations, which both segments of the court discuss:

  • Access to Justice:
    • Minority view: Allowing non-consumers to proceed in court improves access to justice, which is the “overall purpose” of the Arbitration Act.
    • Majority view: Promoting access to justice is not the overall purpose of the Act.  Instead, a number of guiding principles inform the Act, which was designed to encourage parties to resort to arbitration and require them to abide by their agreement to do so.
  • Abuse of Arbitration Clauses in Adhesion Contracts:
    • Minority view: The Arbitration Act was designed to encourage arbitration agreements entered into freely.  Large companies with overwhelming bargaining power should not be permitted to shield themselves from liability by including unfair arbitration clauses in their standard form contracts.
    • Majority view: This consideration cannot cloud the issue in this case, which is interpreting s. 7(5) of the Arbitration Act.  Further, standard form arbitration agreements are presumptively enforceable.  Lastly, there is always the avenue to attack the validity of a standard form arbitration clause on the grounds of unconscionability.  The Court noted that this route succeeded in the Ontario Court of Appeal case of Heller v Uber Technologies Inc., 2019 ONCA 1 (See our previous discussion of the Ontario Court of Appeal’s decision.)
  • Shrinking Class Sizes:
    • Minority view: Eliminating non-consumers from the class action would make the class action less economically viable and decrease the likelihood of being brought initially.
    • Majority view: The words of the statute and scheme of the Arbitration Act cannot be distorted.  While policy analysis has a legitimate role in the interpretive process, the responsibility of setting policy rests with the legislature, not with the courts.
  • Multiplicity of Proceedings:
    • Minority view: Bifurcating a class action into an arbitration and court proceeding raises the risk of inconsistent results, decreases efficiency, and increases overall costs.
    • Majority view: Multiplicity of proceedings should be avoided only “as far as possible” [s. 138 of the Courts of Justice Act].  Where, as here, the legislature contemplates a bifurcation of proceedings, effect should be given to the will of the legislature.
  • Difficulty Distinguishing Consumers and Non-Consumers:
    • Minority view: The difficulty of distinguishing consumers and non-consumers make it preferable to treat them alike.
    • Majority view: This consideration does not bear on the proper interpretation of s. 7(5).  It does not permit a court to recast the legislation as it sees fit to avoid such difficulties.

By contrast, the primary policy consideration undergirding the majority view is that parties to a valid arbitration agreement should abide by its terms.  The majority opinion noted that the introduction of the Arbitration Act signaled a new regime and attitude: courts would no longer jealously guard their jurisdiction but would instead take a hands-off approach and encourage parties to resort to arbitration.

Accordingly, in removing non-consumers from the class action against Telus, the Supreme Court of Canada shows a continued general commitment to taking a hands-off approach in favour of arbitration agreements.  Yet, as mentioned above, its citation of the Ontario Court of Appeal’s Uber decision indicates that other avenues – such as unconscionability – may be relied upon to attack the enforceability of certain arbitration clauses.

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Yona Gal, J.D., LL.M

Yona Gal, J.D., LL.M

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