Are mandatory arbitration agreements an effective bar to consumer class proceedings in common law jurisdictions? In reasons released in March 2011, a bare majority of the Supreme Court of Canada expressed concerns about the access to justice offered by private arbitrations, and held that, in a proposed class action, a mandatory arbitration agreement in a consumer contract was unenforceable regarding rights and benefits conferred by consumer protection legislation, but enforceable regarding other claims. A strong dissent held that the entire dispute was required to be resolved by arbitration, in accordance with the parties’ mandatory arbitration agreement, and confirmed that access to justice is fully preserved in private arbitration.

Facts

Ms. Seidel entered into a standard form consumer contract with Telus for cellular telephone service that included terms requiring all disputes between them be resolved by arbitration, and confirming she waived her right to participate in class proceedings.

Despite the mandatory arbitration clause, Ms. Seidel filed a class action against Telus alleging that it had unlawfully charged her for time when her telephone was not connected to a cellular network. She alleged various causes of action including violation of B.C.’s consumer protection legislation (now called the Business Practices and Consumer Protection Act (Act).

Telus applied to stay the class proceeding based on the Commercial Arbitration Act and the Supreme Court of Canada’s recent rulings in Dell Computer Corp. v. Union des Consommateurs (Dell) and Rogers Wireless Inc. v. Muroff (Rogers); both proposed class actions based on consumer contracts. There, the Court stayed the class proceedings and referred the parties back to arbitration on the basis that the procedural rights, in class proceedings legislation, do not affect parties’ substantive rights in an arbitration agreement. Both cases were out of Québec.

At the British Columbia Court of Appeal, on the basis of Dell and Rogers, Ms. Seidel’s proposed class proceeding was stayed in favour of mandatory arbitration.

All judges at the Supreme Court of Canada agreed that the key issue was access to justice and whether this end could be served through private arbitration.

The tone of the majority’s reasons was hostile toward private arbitration. The majority confirmed that, in general, parties’ agreements to arbitrate are to be enforced in the absence of express legislative language restricting arbitration agreements. However, the Act conferred rights that could not be protected within any private arbitration and that the parties could not contract out of such rights. The majority distinguished Dell and Rogers on the basis that there was no legislation analogous to the Act in force in Quebec at the time of those decisions.

The minority was critical of the majority’s hostility toward private arbitration and held that justice, including the remedies sought by Ms. Seidel pursuant to the Act, could be obtained through private arbitration.

McCarthy Tétrault Notes

Seidel v. TELUS provides guidance on the enforceability of mandatory arbitration provisions in consumer contracts in the class proceeding context and shows a split in the Court’s view of private arbitration.

In provinces like Ontario, Québec and Alberta, there is consumer protection legislation that expressly prohibits arbitration agreements and waiver of class proceedings clauses in consumer agreements. However, in provinces like B.C. that lack such legislation, it remains that such arbitration provisions are likely enforceable, even in the face of a proposed class proceeding, except for with respect to a relatively narrow set of consumer claims.

The majority’s hostility toward private arbitration, criticized in the minority’s reasons, may be further explored in future judgments from the Court. For the present, mandatory arbitration provisions remain a useful and important tool for many defendants, with some limited exceptions.