A Valid Arbitration Agreement is a Valid Arbitration Agreement

Photo of contract being signed

Consumers sign contracts to gain access to all kinds of goods and services, such as credit cards, cell-phone service, and internet. Increasingly, sellers and suppliers are putting arbitration clauses into these contracts, requiring buyers to resolve their disputes through arbitration. This is not necessarily because sellers are enamoured with the virtues of arbitration. Instead, they are often interested in avoiding a costly court proceeding and, particularly, a class action (Griffin v Dell Canada Inc, 2010 ONCA 29 [Griffin], para 29). Signing a contract with an arbitration agreement means customers cannot bring a class action for claims that might not be worth bringing on their own through arbitration.

In Ontario, section 8 of the Consumer Protection Act, 2002, SO 2002 c 30 [CPA] voids mandatory arbitration clauses in consumer contracts. This allows consumers to pursue class actions respecting the small-value claims that typically arise with credit card companies or cellphone, internet, and cable service providers. Business customers, however, are not protected by the CPA. In Ontario, business customers have been successfully “piggybacking” onto consumer class action claims by creatively interpreting section 7 of the Arbitration Act, 1991, SO 1991, c 17. In TELUS Communications Inc v Wellman, 2019 SCC 19 [TELUS], the Supreme Court of Canada (“the SCC”) considers and ultimately rejects this creative interpretation, enforcing and validating the arbitration clauses in the business customer context. 

Contextual Background

Avraham Wellman filed a proposed class action against TELUS Communications Inc. for overcharging customers for cell-phone usage by rounding their airtime up to the nearest minute. For example, TELUS customers who signed up for per-minute plans, a phone-call that lasted 1 minute and 1 second would be rounded up to 2 minutes by TELUS, and customers were billed accordingly. 2 million Ontario residents made up the class: 70% who used the plan for personal use, and 30% who used the plan for business purposes (TELUS, para 2). All proposed class-members signed identical, standard form, non-negotiable contracts with TELUS in order to access their services. The contract included a mandatory arbitration clause (TELUS, para 3). When the class action was filed, TELUS brought a motion seeking a partial stay for all non-consumer class members, arguing that business customers are bound by the arbitration clause in the agreement. If successful, the consumer members of the class would be allowed to continue while the non-consumer members of the class would have to resolve their dispute through individual arbitrations. The question before the SCC was whether the Arbitration Act gives a court discretion to override a valid arbitration agreement and hear the claim (TELUS, para 8). 

Statutory Framework & Leading Jurisprudence

To answer this question, the SCC interpreted section 7 of the Arbitration Act. Section 7(1) establishes the general rule that arbitration agreements should be enforced, while section 7(2) lists five exceptions to this rule. The section at issue in this case was section 7(5), which addresses arbitration agreements that cover only part of a dispute. According to section 7(5), a stay can be granted with respect to the matters covered by the arbitration agreement, while a proceeding continues with respect to other matters if: (a) the arbitration agreement in question only addresses some of the matters brought up in the proceeding and (b) it is reasonable to separate the matters dealt with in the agreement from the other matters.  

In Griffin, the ONCA interpreted section 7(5) to allow a court to refuse a stay and override an arbitration agreement where an action involves only some claims covered by an arbitration agreement and others that are not (TELUS, para 34). Writing for a unanimous five-member panel, Justice Sharpe emphasized that the claims subject to arbitration simply would not move forward if they were separated. Citing the motions judge, he stated: it was “fanciful to think that any claimant could pursue an individual claim in a complex products liability case” (TELUS, para 35). 

Seidel v TELUS Communications Inc, 2011 SCC 15 [Seidel], required interpretation of the Business Practices and Consumer Protection Act, SBC 2004, c 2 and the Commercial Arbitration Act RSBC 1996, c 55. The question before the Court in Seidel was otherwise exactly the same as in the case at bar: whether business customers’ arbitration agreements with TELUS could be overridden in order to join the consumer class action. Given that TELUS considers different legislation entirely, the key takeaway from Seidel is that arbitration clauses will generally be enforced, “absent legislative language to the contrary” (Seidel, para 42).    

Mr. Wellman argues the Ontario Court of Appeal’s analysis in Griffin should be followed in TELUS, and raises policy concerns such as access to justice, abuse of arbitration clauses, and multiplicity of proceedings with potentially differing outcomes. TELUS argues that section 7(5) gives the Court no authority whatsoever to hear a claim whose matter is subject to a valid arbitration agreement, and that the only exceptions to the general stay provision are laid out in section 7(2) (TELUS, para 7). 

Procedural History

In the Ontario Superior Court of Justice, the motions judge relied on Griffin to refuse the stay, finding that it was not reasonable to separate the claims of the consumers and non-consumers. She followed closely the reasons given in Griffin, and further certified the class action (TELUS, paras 19-20). 

The Ontario Court of Appeal (“ONCA”) was split in their decision. The majority determined that Griffin was not overtaken by Seidel, since both decisions uphold the general principle that contractual arbitration clauses will be presumptively enforced (TELUS, paras 21 & 25). Hence, the motions judge was correct in following Griffin and the ONCA dismissed the appeal. Concurring, Justice Blair agreed in substance with the majority but suggested that Griffin may have decided the issue of non-consumer claims and partial stays incorrectly. He wanted further clarification on whether section 7(5) really contemplates different parties with different arbitration agreements being heard together, as well as whether the Class Proceedings Act, 1992, SO 1992, c6 could be used to override the provisions of the Arbitration Act (TELUS, paras 27-28). 

Can a Court Hear a Claim Subject to a Valid Arbitration Agreement? 

The SCC’s response comes from a split court (5:4 for the majority). The polarity between Justice Moldaver’s majority decision and Justices Abella and Karakatsanis’s dissenting opinion suggests the issue may not be entirely resolved. 

Majority

Writing for the majority, Justice Moldaver found that section 7(5) of the Arbitration Act was not written with the intention of allowing business customers to piggy-back on claims of consumers instead of enforcing valid arbitration agreements. He allowed the appeal, granted costs to TELUS for the SCC and ONCA proceedings, and stayed the business customer claims. 

Engaging in a lengthy statutory interpretation analysis, the SCC determines that a “guiding principle” underlying the Arbitration Act is to ensure parties who agree to arbitration abide by those agreements, particularly in a commercial setting (TELUS, paras 50, 54). This, in turn, respects party autonomy, ensures a level of certainty and predictability in arbitration agreements, and upholds the principle of limited court intervention (TELUS, paras 52, 55, 76). With these policy objectives in mind, and paying close attention to the text of the Arbitration Act, the SCC finds that section 7(5) is not intended to provide an exception to enforcing arbitration agreements (TELUS, para 73). 

While Justice Moldaver concedes that access to justice is an important policy objective engaged in this case, he strongly states:

… [such policy concerns] 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 (TELUS, para 79).

If Mr. Wellman wants to litigate his concerns about access to justice and mandatory arbitration clauses, he should make such a claim through the doctrine of unconscionability, like in Heller v Uber Technologies Inc, 2019 ONCA 1 [Heller] (TELUS, para 85). 

Ultimately, TELUS established a new framework for judicial discretion in overriding an arbitration agreement by refusing a stay (TELUS, para 92). First, the SCC identified the “matter(s)” in question, and whether or not the matter is dealt with in the arbitration agreement. In the case at bar, there was only one matter: alleged overbilling, and it was dealt with in the arbitration agreements in question (TELUS, para 96). However, the CPA rendered these arbitration agreements invalid for consumers pursuing a class action (TELUS, para 97). Given that the CPA does not apply to business customers, the SCC referred to section 7(2) of the Arbitration Act to see if any of its exceptions apply (TELUS, para 98). Since section 7(2) was not raised in the case at bar, the SCC moved on to section 7(5). The SCC established that the correct interpretation of section 7(5) requires the proceeding to involve at least one matter covered by the arbitration agreement and at least one matter not covered by it (TELUS, para 100). Because there was only one matter and it was covered by the agreement, the SCC concluded that section 7(5) was not engaged in this case. 

Dissent

Justices Abella and Karakatsanis’ dissenting opinion is chiefly concerned with the consequences of the majority’s interpretation of section 7(5) of the Arbitration Act. They assert that “… words matter, policy objectives matter, and consequences matter [in statutory interpretation]” (TELUS, para 108). They are most concerned that without the ability to join with consumer class actions, business customers with these low-value claims will be left with the options to pursue private arbitration at a financial loss or not at all (TELUS, para 109). In other words, enforcing TELUS’s arbitration clause would effectively “immunize” TELUS from accounting for its wrongdoing against business customers (TELUS, para 123). They agree with the majority that respecting the autonomy of contracting parties is important, but they argue that this principle is not really engaged where one party, in this case TELUS, has exclusive contractual authority. After engaging in their own textual analysis, the dissenting justices chose to follow the ONCA’s interpretation of section 7(5) of the Arbitration Act in Griffin

Where Does This Leave Disgruntled Business Customers? 

Arbitration advantages sophisticated corporations in a number of ways (see theCourt.ca’s Heller post here for further discussion). First, arbitrations are private. In situations where thousands of business customers have the same disputes regarding overcharging, the privacy requirement of arbitration reduces public scrutiny and also prevents business customers from knowing how other, identical claims, have been decided. Individual arbitration also significantly disincentivizes business customers from pursuing low-value claims because it is simply not worth the cost of arbitration, as Justices Abella and Karakatsanis highlighted. 

How can business customers get access to justice in the face of these non-negotiable, standard form arbitration agreements, then? One option is group arbitration or class arbitration, which was mentioned briefly in Griffin and in TELUS. It is only a matter of time before Canadian courts have to substantively consider class arbitration. In Stolt-Nielson SA v AnimalFeeds International Corp 130 S. Ct. 1758 (2010), the US Supreme Court at least confirmed that parties to an agreement can explicitly agree to the option of class arbitration. In the case at bar, however, the parties’ contract did not allow group arbitration, so this will not always be a viable alternative.

A second option, suggested by Justice Moldaver in TELUS, is for business customers to pursue an action against the party with contracting power, claiming the arbitration clause is unconscionable. He does not predict the merits of that claim. Regardless, claiming unconscionability every time there is an arbitration clause in a standard form contract may not be feasible. Bringing such an action only gives business customers the mere possibility of bringing a class action claim, which may be too economically risky to pursue. If the courts turn out to be favourable to these kinds of claims, the need to bring them in the first place adds seemingly unnecessary costs and delays.  

A third possibility is that the legislature revisits the Arbitration Act and amends it to prevent “class action waiver” arbitration agreements. Arbitration can be a preferable dispute resolution method that increases efficiency and reduces costs. When two autonomous parties with relatively equal bargaining power negotiate an agreement that includes an arbitration clause, that clause should have teeth and be upheld by the courts. However, when an arbitration clause is not negotiated and is mass-produced across identical customer contracts, it is often used to shield corporations from litigation or from resolving disputes at all. Using the Arbitration Act as a shield in this way was unlikely within the realm of the legislature’s intention, and yet the SCC has left it up to the legislature to make that intention crystal clear. Until then, it appears unlikely that business customers will hold service providers like TELUS to account for small but widespread infractions. 

Evaleen Hellinga

Evaleen Hellinga

Evaleen Hellinga is a third-year JD student at Osgoode Hall Law School. She completed a Bachelor of Knowledge Integration at the University of Waterloo and worked for a strategic design firm in Kitchener before law school. Evaleen was an Immigration caseworker at Parkdale Community Legal Services and is an executive member of the Canadian Association of Refugee Lawyers, Osgoode chapter. She is interested in constitutional law, labour law, immigration law, and in working toward a human-centred legal system. She enjoys making and sharing food with friends and spending time outside.

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