Counsel, consumers, and business owners should know that clear statutory language in consumer protection statutes can limit or curtail contractual freedom to choose arbitration.  The limit only applies, however, to statutory causes of action and not common law claims.

In Seidel v. Telus Communications Inc., released March 18, 2011, the Supreme Court of Canada appears to  have changed course on whether arbitration clauses can be invoked to defeat class proceedings. 

In cases released in 2006 (Bisaillon v. Concordia University) and 2007 (Dell v. Union des consommateurs), the Supreme Court concluded that arbitration provisions in collective agreements and online purchase agreements could defeat class proceedings.

The Dell case, however, was soon superseded by consumer protection legislation enacted in several provinces that either invalidated arbitration clauses or rendered them ineffective to preclude participation in class proceedings.  In addition, several lower court decisions sought to limit the ambit of Dell and Bisaillon by interpreting either the new statutes or arbitration clauses in a way that  would allow consumers to pursue class proceedings.

In Seidel, the Supreme Court of Canada considered British Columbia consumer protection legislation, the Business Practices and Consumer Protection Act (“BPCPA”) enacted several years before Dell and Bisaillon were decided. Like many consumer protection statutes, the BPCPA creates causes of action based on statutory violations.

Seidel arose out of a cellular phone services contract between an individual consumer and Telus. Ms. Seidel contended that Telus had unlawfully charged and collected some fees in violation of the consumer contract.  She sought certification of a class proceeding on behalf of all similarly situated consumers.  In support of her claim, Ms. Seidel pleaded common law causes of action as well as causes of action under the BPCPA.  Telus sought a stay of the proceeding on the basis of an arbitration clause in the services contract providing that any dispute would be submitted to arbitration, and which waived “any right you may have to commence or participate in any class action against Telus”.

In a narrow 5 to 4 ruling, a majority of the Supreme Court rejected Telus’ position by holding that contractual freedom to choose arbitration had been limited or curtailed by clear statutory language in the BPCPA. It is to be noted, however, that the Court further held that the statutory language applied only to causes of action brought under the BPCPA, and not to common law causes of action. It would thus appear that common law claims can still be arbitrated and contract language may still be possible to preclude class proceedings based on common law claims. 

Justice Binnie, writing for the majority, based much of his reasoning on the judicial principle of deference to legislative intent. He stated “…the Court’s job is neither to promote nor detract from private and confidential arbitration.  The Court’s job is to give effect to the intent of the legislature as manifested in the provisions of its statutes.”  There was no issue regarding jurisdictional competence of British Columbia to enact the consumer protection law in question. Accordingly, the majority held that the legislative provision granting courts exclusive jurisdiction over statutory causes of action and nullifying any waiver of that right was unequivocal in its intention and must be given effect.

As noted early in the majority decision, however, the underlying issue in the appeal was access to justice and how a class action waiver and arbitration clause, if enforceable, would operate to frustrate that objective.

In an interesting obiter statement, the majority noted the recent U.S. trend to interpret class action pre-dispute arbitration and waiver of class action clauses as unconscionable. With this trend in mind, the majority observed the practical reality that consumer contract arbitration clauses are “often nothing more than a guise to avoid liability for widespread low-value wrongs that cannot be litigated individually but when aggregated form the subject of a viable class proceeding”. Overall, the Seidel decision is in keeping with a trend in Canadian case law to promote access to justice when deciding class action forum and procedure.

In April of the this year, the United States Supreme Court released its decision in AT&T Mobility v. Concepcion, a case that also involved arbitration and class action preclusion clauses in a mobile telephone consumer contract.  In a narrow 5-4 ruling, the U.S. Supreme Court decided that the U.S. Federal Arbitration Act pre-empted state law—in that case California—prohibiting enforcement of arbitration clauses inhibiting consumers from pursuing class actions.  The decision in Concepcion clarifies that US companies can continue to rely upon arbitration clauses in standard form contracts to prevent class proceedings.

There are important differences between the issues raised in Seidel and the issues  decided in Concepcion.  The interplay between US Federal and State laws and the role of pre-emption were not in issue in Seidel. In Canada, arbitration statutes are provincial and not federal and arise from the provincial legislatures’ jurisdiction over “property and civil rights, in the province.” Thus, a court’s task is to determine competing claims under two provincial statutes and not a conflict between federal and provincial statutes.

The implications of Seidl for businesses in Canada could be far-reaching.  Canadian companies certainly lack the ability to restrict the availability and scope of class proceedings available to their US counterparts.