For businesses that enter into many standard form or similar contracts, a critical consideration is the dispute resolution procedure in those contracts. There are various options available along a spectrum from nothing (resulting in litigation in the courts) to an arbitration agreement. The choice may depend on particular circumstances, but recent developments in British Columbia highlight one significant consequence of that choice – whether class actions will be available to advance mass claims against the business for breach of those contracts.
Modern class action legislation has been in force in British Columbia since 1995. The result has been groups of many plaintiffs, each with a small claim, bringing class actions against businesses. These claims are often novel or innovative, and perhaps of debatable merit. But, in the aggregate, they can pose a substantial financial risk to a business. These class actions allow the plaintiffs to effectively pool resources and take on litigation risk, generally borne by entrepreneurial class action lawyers, in disputes that would not previously have been economic to take to court. Facilitating this is the public policy rationale for the class action as a dispute resolution procedure. But class actions also have a recognized potential for abuse. Businesses should try to control that risk.
In British Columbia, including an arbitration agreement in a contract brings into play a competing public policy, favouring arbitration over litigation as a dispute resolution procedure. Provincial legislation provides that, where parties have contracted to resolve disputes by arbitration, the jurisdiction of the courts is displaced and any litigation will be “stayed”. Recent decisions of the British Columbia courts confirm that contracting for arbitration as the dispute resolution process precludes class actions. This is a risk management tool that no British Columbia business engaged in mass transactions should ignore. In other Canadian jurisdictions different legislation and different approaches by the courts lead to different results. Businesses that operate across the country should be aware of that.
Members of our class action and international trade and arbitration practice groups can assist businesses to consider the relevant factors, and provide advice and recommendations to help them make informed decisions about the dispute resolution procedures most appropriate to their circumstances.