Province needs to take action on arbitration clauses

Ontario’s legislature must act after the Supreme Court of Canada barred businesses from joining a consumer class action over alleged cellphone overbilling, says Toronto class-action lawyer Margaret Waddell.

“The majority decision has flagged this as a problem for the legislature to fix, and I would hope they take that message and fix it,” says Waddell, partner with Waddell Phillips Professional Corporation. “When it comes to these types of contracts of adhesion, where they don’t have any bargaining or negotiating power, there really is no principled basis to treat businesses differently from individual consumers.

“I would love to see legislative changes that recognize arbitration clauses in these contracts are not enforceable,” she adds.

$500M class action

More than a million consumers are suing a major telecommunications company in a $500-million class action that was allowed to move forward despite class members signing standard contracts requiring arbitration of disputes, rather than litigation in court.

But in its 5-4 ruling, the majority of the top court panel found business clients of the phone company who signed contracts containing identical clauses were bound to proceed to arbitration, rather than joining the existing class action.

While Ontario’s Consumer Protection Act shielded consumers from the enforcement of arbitration clauses in certain circumstances, that same protection could not be extended to businesses, the court’s majority wrote, emphasizing the policy-setting role of legislatures.

‘Careful policy choice’

“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,” wrote Justice Michael Moldaver for the majority. “The legislature made a careful policy choice to exempt consumers — and only consumers — from the ordinary enforcement of arbitration agreements. That choice must be respected, not undermined by reading s. 7(5) in a way that permits courts to treat consumers and non-consumers as one and the same.”

Waddell says she was “disappointed, but not surprised” by the ruling, noting that the decision referenced a number of other top-court cases that engaged in similar analyses.

“What they basically said is that it’s up to the government to disallow arbitration in the context of class actions, and they will look at the text of the legislation to ascertain whether that ability exists,” she says.

However, Waddell says she held out some hope for a change in approach, considering the Supreme Court’s previous refusal to interfere with an Ontario Court of Appeal decision certifying a class action brought by both business and consumer clients of a computer company.

“The Court of Appeal essentially said that if you’ve got a class action where consumer claims are proceeding, and there are business claims dealing with the exact same issue, then from an efficiency point of view, it makes sense to include them in the class action,” she says.

“They recognized that when you’re talking about contracts of adhesion, you’re not really talking about two parties when it comes to negotiated terms of agreements. Instead, the service provider is actually crafting a barrier to dispute resolution because the cost to any single business of doing an arbitration will always swamp any claim they have,” Waddell says.

The most recent Supreme Court cases involved claims for alleged breach of contract and unjust enrichment over cellphone billing. The plaintiffs claimed the company’s standard terms and conditions for per-minute plans failed to mention that time usage charges would be rounded up to the next minute, speeding the depletion of agreed allowances.

Gives judges ‘discretion’

The case boiled down to the interpretation of s. 7(5) of Ontario’s Arbitration Act, which gives judges discretion in certain circumstances to allow an entire proceeding to continue, even when some of the parties would otherwise be subject to an arbitration clause.
But Moldaver and his colleagues in the majority found the clause was not engaged in this case because the class action dealt exclusively with issues covered by the arbitration agreement.

In their dissent, four judges said they would have sided with the business customers, concluding that the Arbitration Act gives judges discretion to allow court proceedings where an arbitration agreement is “manifestly unfair.”

“In our view, where a proceeding includes both matters covered by an arbitration agreement and other matters that are not, s. 7(5) gives a judge discretion to allow the entire proceeding to continue in court, even if some parties would otherwise be subject to an arbitration clause,” they wrote. “[The company’s] individualized arbitration clause effectively precludes access to justice for business clients when a low-value claim does not justify the expense. And its mandatory nature, in turn, illustrates that the animating rationales of party autonomy and freedom of contract are nowhere to be seen.”