Introduction
Facts
Federal Court motion decision
Federal Court of Appeal decision

Comment


Introduction

The complicated interplay between holding parties to an arbitration agreement and upholding the purpose and intent of legislation concerned with public order is not new in Canada. In 2011 the Supreme Court of Canada decided Seidel v Telus Communications Inc,(1) in which the court refused to enforce an arbitration agreement at the expense of a class action proceeding. Seidel concerned the British Columbia Business Practices and Consumer Protection Act.(2)

More recently, on February 13 2013 the Federal Court of Appeal handed down its decision in Murphy v Amway Canada Corporation.(3) In Amway the appeal court affirmed the Federal Court's decision and declined jurisdiction to hear a motion to certify a class action in respect of the Competition Act,(4) given the parties' binding arbitration agreement and class action waiver. In Amway both parties relied on Seidel to suit their purposes. At their core, the issues and arguments in Amway echoed those of Seidel, although the Amway result was entirely different.

Facts

In Amway Kerry Murphy, an independent business owner and distributor for Amway Canada, sought to commence a class action proceeding against Amway Canada Corporation and Amway Global. The appellant claimed that the respondent's business practices contravened various provisions of the Competition Act and sought C$15,000 in damages. In response to the appellant's proposed class action, the respondent brought a motion seeking a stay and to compel arbitration, all based on the parties' contract (which mirrored the respondent's contract with its distributors generally). The contract contained an arbitration agreement, whereby the parties agreed to submit any possible claims to arbitration. The contract further contained a limited class action waiver which applied if the amount of a party's individual claim exceeded C$1,000.

The Federal Court granted the respondent's motion with costs, and the class proceeding was stayed. The appeal to the Federal Court of Appeal sought to set aside the stay in order to pursue the class proceeding at the Federal Court.

Federal Court motion decision

On the respondent's motion to stay, the appellant invoked Seidel to argue that both the class action waiver and a resolution of the dispute through private arbitration was contrary to public interest. The appellant analogised the provisions of the Competition Act at issue and the provisions of the Consumer Protection Act relied on in Seidel.

The respondent also relied on Seidel, but only insofar as it distinguished it from the case at hand. The respondent argued that Seidel made clear that agreements to arbitrate must be enforced except when there is clear legislative language to the contrary. In Seidel, such language existed.

The relevant sections of the Consumer Protection Act considered in Seidel may be summarised as follows:

  • Section 3 provides that any waiver of a party's rights, benefits or protections under the Consumer Protection Act is void, except to the extent that the waiver or release is expressly permitted by the Consumer Protection Act; and
  • Section 172 governs court actions with respect to consumer transactions for parties to contracts and for third parties, allowing for both declaratory and injunctive relief.

In Amway, while the appellant had argued that express language excluding arbitration can be found in Section 36 of the Competition Act, the judge disagreed. In his view, while Section 36 identified the Federal Court as a court of competent jurisdiction, it did not declare it to be the only competent forum. The judge found that the provisions of the Competition Act did not prevent the parties from contracting out of the jurisdiction of the Federal Court through a valid arbitration process. Therefore, the judge concluded that Seidel was an inappropriate analogy for this case.

Federal Court of Appeal decision

The fundamental issue on appeal was whether a private claim for damages brought under Section 36 of the Competition Act was arbitrable.

The appellant founded its arguments largely on public interest in stating that the private and confidential nature of arbitration was incompatible with the underlying objectives of the Competition Act – namely, to promote an environment free of anti-competitive practices. The appellant further argued that Seidel stood for the proposition that public interest concerns could displace an arbitration agreement.

The respondent submitted that to accept the appellant's argument would be to exclude from arbitration any claim under Section 36 of the Competition Act, under any circumstances. The respondent relied on a number of recent Supreme Court of Canada decisions which demonstrated that the presence of public order concerns is not determinative of whether arbitration is permitted. The respondent maintained that there is no language in the Competition Act which excludes arbitration under Section 36. Without express language to the contrary, the respondent argued that arbitration ought to be upheld, all of which was supported by the principles set out in Seidel.

The Federal Court of Appeal agreed with the respondent, finding that the answer to the question of whether the claim was arbitrable was found entirely in Seidel and undertaking a thorough analysis of that decision.

The appeal court considered in detail Justice Binnie's analysis of Sections 3 and 172 of the Consumer Protection Act in Seidel. In Binnie's view, the intent of Section 3 was to invalidate an arbitration clause to the extent that it took away a right, benefit or protection conferred by the Consumer Protection Act. Binnie then opined that the wording of Section 172 made clear that declarations and injunctions, in a consumer context, were the preferred remedies to protect the interests of consumers, and that damages were often less important given the small amounts of money at issue. Binnie further stated that Section 172 stood out as a public interest remedy and should receive an interpretation generous to consumers. He remarked that arbitration would not properly serve its policy objectives. Notably, Binnie stated that the true hallmarks of arbitration – privacy, confidentiality, lack of precedential value, the avoidance of publicity – were incompatible with the objectives of Section 172 of the Consumer Protection Act.

Having thoroughly considered Binnie's analysis in Seidel, the appeal court completely accepted it. The appellant's argument that competition law was so sacred so as to be incompatible with arbitration was rejected: competition law does not trump arbitration agreements.

The appellant's claim was indeed arbitrable. As the Supreme Court of Canada had most recently made clear in Seidel, the court will refuse to give effect to valid arbitration agreements only where there is clear statutory language that excludes arbitration. However, the claim in Amway, brought under Section 36 of the Competition Act, was a private claim and must be sent to arbitration as the parties intended. The appeal was dismissed, with costs.

Comment

There may be those who viewed Seidel as a setback for arbitrations in Canada, rejecting as it did arbitration in favour of a class action proceeding. With the arrival of Amway, there may now be those who view Seidel more favourably. As the Federal Court judge on the stay motion emphasised, a long line of Canadian cases have confirmed Canada's status as an arbitration-friendly jurisdiction. Amway is simply one of the most recent.

The Federal Court of Appeal's analysis of the complicated interplay between holding parties to an arbitration agreement and upholding the purpose and intent of legislation concerned with public order brought the overarching principle from Seidel into sharper focus. In the absence of clear legislative language to the contrary, agreements to arbitrate must be enforced. Amway in turn saw the enforcement of both a binding arbitration agreement and a class action waiver.

For further information on this topic please contact Marina Sampson at Dentons Canada LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email (marina.sampson@dentons.com).

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Endnotes

(1) 2011 SCC 15, [2011] SCR 531.

(2) SBC 2004, c 2.

(3) 2013 FCA 38 (CanLII).

(4) RSC 1985, c 34.