Class arbitrations are commonly hailed as the “next big thing” in the realm of private dispute resolution. Their advantages would be many: class arbitrations would, in much the same way as class actions, provide a procedural vehicle for individuals to assert their rights in cases where individual damages may be small but the collective liability is large, while also avoiding the often delay-plagued and overburdened civil justice system and the costs of litigation. Class arbitrations, may, in certain ways, be better than class actions at achieving the goals of improved access to justice, judicial economy, and behaviour by taking advantage of the efficiencies built into arbitration as a judicially-sanctioned means of alternative dispute resolution.
Yet, to date, this promise has come to naught. The United States is, famously (within arbitral and class actions circles, at least), still the only jurisdiction that provides for class arbitrations. Canada has lagged behind in part because no significant Canadian contracts (and likely no contracts at all) contain group arbitration provisions. Group arbitration provisions have yet to come before a Canadian court, and, as noted by the Saskatchewan Court of Appeal in 2014 (and still true today), “There is no Canadian jurisprudence which even remotely suggests that class-wide arbitration can be ordered within the context of a class action. […] No lower level court has thoroughly considered this issue.”
Nevertheless, contractual class arbitration provisions are likely to have a significant, overlooked benefit to those Canadian enterprises that adopt them: shielding the enterprise from class actions regarding non-consumer claims.
A number of provinces have consumer protection legislation containing such statutory provisions. In Ontario, for example, s. 7(2) of the Consumer Protection Act renders mandatory arbitration clauses in consumer agreements invalid insofar as they prevent consumers from seeking relief in the courts. While the provision applies to all arbitration clauses, no contracts containing a group arbitration provision have been considered by Ontario (or Canadian) courts, and it is unlikely that this section of the CPA was drafted with such a possibility in mind. Rather, it was drafted in order to respond to clauses imposing mandatory individual arbitration.
The question then becomes what to do in cases where there are both consumer and non-consumer claims in respect of the same product or service, and the consumer claims must be allowed to proceed by way of class action. While non-consumer claims would appear to be governed by arbitration clauses, courts have explicitly noted the absence of class or group arbitration clauses in contracts and declined to stay non-consumer class proceedings on that basis. In particular, they have deemed that defendants seeking to enforce the arbitration provisions were doing so in order to exploit the inefficiencies associated with the consideration of claims individually, rather than through any commitment to the arbitral process itself.
As far back as 2010, the Ontario Court of Appeal, in Griffin v. Dell Canada, refused to stay non-consumer claims being advanced alongside consumer claims in a class action. Although the CPA did not apply to the non-consumer claims, which Dell argued were therefore governed by its contractual arbitration clause, the Court held that the lack of a group or class aspect to the arbitration provision, combined with Dell’s opposition to any such aspect, demonstrated that Dell did not genuinely wish to arbitrate but sought to enforce the provision as part of a ‘divide and conquer’ approach:
“It is important to note in this regard that Dell’s arbitration clause not only requires all claims to be arbitrated, but also provides that “[t]he arbitration will be limited solely to the dispute or controversy between Customer and Dell”, thereby precluding the possibility of a class arbitration. […] In oral argument, Dell’s counsel confirmed that his client would insist upon the enforcement of this provision and resist any attempt before an arbitrator to join together the claims of a group or class of consumers. In my view, this provides further evidence, if further evidence is required, that Dell does not genuinely seek to have the claims advanced against it determined by way of arbitration. Dell is simply seeking to exploit the inefficiency of arbitrating individual claims. As that inefficiency can be avoided if all the claims proceed by way of the class proceeding, I conclude that a granting a partial stay would not be reasonable.”
Shortly thereafter, the Supreme Court of Canada held in Seidel v. Telus Communications Inc., that, absent statutory provisions to the contrary, arbitration clauses in contracts would generally be upheld. It made clear however, that consumer protection legislation containing statutory provisions limiting the application of mandatory arbitration or class action waiver clauses “should be interpreted generously in favour of consumers,” strengthening the rights of consumers to bring class actions notwithstanding mandatory arbitration clauses in their contracts.
In the post- Seidel period, the Ontario Superior Court has again refused to stay non-consumer claims (governed by an arbitration clause) where (a) consumer claims were being advanced by way of class action and (b) the arbitration clause did not allow for group arbitration of the non-consumer claims: “there is no group arbitration permitted for the non-consumer claims. As in Griffin, separating the two proceedings could lead to inefficiency, risk inconsistent results and create a multiplicity of proceedings.”
These situations will become all the more common as class actions practice in Canada continues to develop. As a result, Canadian enterprises should consider the development and inclusion of class arbitration provisions in commercial contracts to insulate themselves from class actions regarding non-consumer claims.