Case commentary on Telus v. Wellman, 2019 SCC 19: Enforcing arbitration agreements to avoid class action in Ontario

by Christopher Afonso | Jun 07, 2019

Arbitration agreements can be useful for commercial litigants seeking to resolve disputes faster and with heightened confidentiality as compared to court actions. In the context of standard agreements for consumer goods and services, arbitration clauses are sometimes used by companies seeking to limit their exposure to court actions brought by customers, in particular to avoid or limit class actions.

The enforceability of arbitration clauses in standard form agreements has been the subject of a number of appellate decisions in Ontario and B.C., and at the Supreme Court of Canada (the “SCC”), particularly in the context of large proposed class actions.

For instance:

  • In Griffin v. Dell Canada Inc., 2010 ONCA 29, the Ontario Court of Appeal addressed the enforceability of Dell’s mandatory arbitration provision in the standard terms and conditions contained in its sales agreement. The class action was being pursued on behalf of business customers and consumers who purchased an allegedly defective model of Dell computer.
  • In Seidel v. TELUS Communications Inc., [2011] 1 SCR 531, TELUS sought to enforce a mandatory arbitration clause in a standard cellular telephone service agreement for British Columbia customers.
  • In Heller v. Uber Technologies Inc., 2019 ONCA 1, Uber sought to enforce a mandatory arbitration provision in the standard form agreement between Uber and its drivers.

 

In each of these examples, the defendant was facing a potentially large class action and sought to rely on an arbitration clause in the standard form agreements with the class members. The goal was to stay some or all of the claims by forcing at least some of the class members into arbitration in lieu of the participating in the class action.

In TELUS v. Wellman, 2019 SCC 19, the SCC heard an appeal of an Ontario Court of Appeal decision on the enforceability of an arbitration provision within TELUS’ standard cellular agreement. The Ontario Court of Appeal had decided that the arbitration clause was not enforceable against consumers as defined by the Consumer Protection Act, 2002. Sections 7 and 8 of the CPA bar arbitration clauses in consumer contracts and explicitly allow consumers to join in class actions regardless of any arbitration clause in an agreement with the proposed defendant.

The issue that was considered by the SCC was whether arbitration clauses were enforceable against business customers not protected by the CPA. In the decision below, the Ontario Court of Appeal had decided that non-consumers (i.e. business customers) also could not be forced into arbitration as a result of discretion granted to the court in the Ontario Arbitration Act, 1991.

The issue before the SCC in Wellman was similar to the issue before the court in Seidel – namely whether an arbitration provision in a TELUS contract was enforceable. In Seidel, the SCC decided that the arbitration provision was partly enforceable save in respect of some statutory claims available under BC’s version of the CPA.

In Wellman, the Ontario Court of Appeal distinguished Seidel on the basis that the SCC decided Seidel pursuant to the language of BC legislation. Since it was deciding Wellman pursuant to a different legislative scheme, the Ontario Court of Appeal ruled it was not bound by Seidel and could reach a different decision – which it did.

The Court of Appeal ruled that the Ontario CPA prohibited arbitration clauses in consumer contracts, and ruled that section 7 of the Arbitration Act granted the court discretion in whether to allow the business customers’ claims to remain part of the consumer’s class actions. The Court of Appeal ruled that it was preferable to exercise its discretion in favour of allowing the business customers to remain part of the class action. This had the effect of rendering the arbitration clauses in the agreement with the business customers unenforceable, despite the lack of legislation requiring this.

The SCC overturned the Ontario Court of Appeal’s decision in Wellman and determined that the consumers could maintain their class action but business customers could not. The SCC determined that this conclusion was required by its interpretation of section 7 of the Arbitration Act. However, the SCC did suggest that there may have been a basis to reach a different conclusion not based on legislative interpretation, but declined to rule on this alternative basis as it was not argued by the parties.

First, with respect to the interpretation issue, section 7 of the Ontario Arbitration Act requires a court to stay any action if there is an arbitration agreement in place and one of the parties brings a motion seeking a stay.

Stay

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

There are, however, exceptions provided for in the legislation where the stay may be denied:

Exceptions

  1. (2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.

2. The arbitration agreement is invalid.

3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

4. The motion was brought with undue delay.

5. The matter is a proper one for default or summary judgment.

In Wellman, none of these exceptions applied. The class counsel argued, however, that section 7(5) provided an additional reserve of discretion that did apply. Section 7(5) provides that where an arbitration provision only covers part of a dispute that the court can refuse to stay the action to avoid a multiplicity of proceedings (i.e. part of a dispute being litigated and part of it being arbitrated):

Agreement covering part of dispute

  1. (5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

The Ontario Court of Appeal accepted this argument, and found it was not sensible to split the consumer and business customer portions of the class actions into separate proceedings.

However, the SCC disagreed. It ruled that section 7(5) applied to circumstances where one particular litigant had claims that would have been covered by an arbitration agreement and claims that would not. In other words, section 7(5) applies where one party has multiple claims, some of which are subject to arbitration and some are not, but does not apply where there are multiple parties, some of who must arbitrate all of their claims and some of whom do not need to arbitrate.

The only claims in Wellman were claims for overcharging pursuant to how TELUS calculated the usage of minutes on certain plans. The SCC ruled that the business customers only had claims that were subject to an arbitration clause, and ruled that the fact that the consumers’ claims were not subject to the arbitration clause did not grant the business customers’ the ability to avoid arbitration.

If the logic of the Ontario Court of Appeal had prevailed, this suggests that adding a plaintiff who is not subject to an arbitration agreement to a Statement of Claim would allow other plaintiffs who are bound to arbitration to avoid their agreements – even if they were specifically negotiated and not just arising from standard form language. The SCC’s ruling eliminates this possibility.

However, the SCC did leave a future window open to refusing to enforce arbitration agreements in other similar cases. The class counsel and intervenors argued that allowing TELUS to succeed on its interpretation of section 7(5) of the Ontario Arbitration Act would have a number of damaging implications for public protection:

[77] Mr. Wellman and various interveners also raise a number of policy concerns that, they say, support their proposed interpretation, including the following:

  • Access to justice and the courts — Griffin improves access to justice by removing barriers to seeking relief in court.
  • Abuse of arbitration clauses in adhesion contracts — Large companies with overwhelming bargaining power should not be permitted to include unfair arbitration clauses in their standard form customer contracts and thereby shield themselves from liability by requiring private, individual arbitration for all disputes, even low-value claims that would be uneconomical to pursue through arbitration.
  • Shrinking class sizes — The interpretation of s. 7(5) outlined above would cut non-consumers out of consumer/non-consumer class actions where an arbitration agreement is present. Consequently, these class actions will shrink in size, making them less economically viable and decreasing the likelihood that they will be brought in the first place.
  • Multiplicity of proceedings — Griffin enhances the courts’ ability to avoid a multiplicity of proceedings, which raises the risk of inconsistent results, decreases efficiency, and increases overall costs. Further, s. 138 of the Ontario Courts of Justice Act, R.S.O. 1990, c. C. 43 stipulates that courts shall, as far as possible, avoid a multiplicity of proceedings.
  • Difficulty distinguishing between consumers and non-consumers — Distinguishing between consumers and non-consumers can be challenging, particularly given the rise of “hybrid consumers” and “near consumers”, making it preferable to treat consumers and non-consumers alike.

 

While these concerns were important, the SCC ruled that they did not permit the court to change the clear meaning and intent of the legislation:

[79] While I appreciate these concerns, I am respectfully of the view that they cannot be permitted to distort the actual words of the statute, read harmoniously with the scheme of the statute, its object, and the intention of the legislature, so as to make the provision say something it does not. While policy analysis has a legitimate role in the interpretative process (see Sullivan, at pp. 223-50), the responsibility for setting policy in a parliamentary democracy rests with the legislature, not with the courts. The primary role of the courts, in my view, is to interpret and apply those laws according to their terms, provided they are lawfully enacted. It is not the role of this Court to re-write the legislation.

However, the SCC did point to an issue not raised by the parties that may have permitted the court to reach a different result, and which would have considered the important policy consideration raised by the plaintiffs and the intervenors in the Wellman case – the doctrine of unconscionability.

[85] Furthermore, Mr. Wellman has not argued, either before this Court or the courts below, that the standard form arbitration agreement in question was unconscionable, which if proven would render it invalid and thereby provide a basis for refusing a stay pursuant to s. 7(2) of the Arbitration Act. In my view, arguments over any potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability, which was the approach taken in Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII), rather than indirectly by attempting to stretch the language of s. 7(5) to address a perceived problem it was never designed to address.

In Heller, the Ontario Court of Appeal addressed the enforceability of arbitration clauses in agreements between Uber and its drivers, which were not subject to the CPA. In ruling that the arbitration clauses were not enforceable, one of the basis cited by the court was the doctrine of unconscionability. It is a tenet of contract law whereby a contractual provision can be deemed unenforceable in certain circumstances.

Although the test for determining unconscionability has not been fully agreed upon by courts, the central thrust is that manifestly unfair provisions that were achieved through an imbalance of bargaining power may be deemed unenforceable.

Unconscionability was not argued before the SCC in Welllman. Whether or not arbitration clauses in standard form agreements will be found to be unconscionable will be something for future courts to consider on the facts of future cases.