Thought You Signed Your Rights Away? Seidel v. TELUS Proves You Wrong

Irate consumers can now ignore arbitration clauses and pursue class action lawsuits against corporations even after signing away their rights to do so in a waiver. In a narrow 5-4 split decision in Seidel v. TELUS Communications Inc., 2011 SCC 15, the Supreme Court of Canada (SCC) ruled that corporations could no longer preclude class actions by including arbitration clauses in their standard consumer contracts. Here, two diverging perspectives were expressed. On one hand, the majority viewed the arbitration clause as a backdoor for large corporations to deter bad publicity and shield themselves from exposing the world of unconscionable commercial conduct, contrary to the legislative intent of the Consumer Protection Act.  On the other hand, the minority saw arbitration as a vehicle for efficient and effective dispute resolution that promotes access to justice and resolves any consumer disputes at first instance by an arbitrator.

Background and Facts

The facts were undisputed: Seidel signed a cell phone contract with TELUS and she was being charged for connection time and ring time instead of just the actual talking time. Outraged by the extra charge of “non-use” time, Seidel claimed that TELUS engaged in deceptive and unconscionable practices contrary to the British Columbia Business Practices and Consumer Protection Act (“BPCPA”). She also sought certification to act as a representative of a class of allegedly overcharged customers under the Class Proceedings Act (“CPA”).

The roadblock here was the contract Seidel signed with TELUS – it contained an arbitration clause that stripped her right to sue TELUS. Not only did the clause dictate that any dispute is to be “determined by private, confidential and binding arbitration”, but it also said that “by so agreeing, [the signatories] waive any right [they] may have to commence or participate in any class action against TELUS”.

Relying on this contractual clause, TELUS applied for a stay of proceedings, pursuant to s. 15 of the Commercial Arbitration Act. The B.C. Court of Appeal stayed Seidel’s action in reliance on Dell Computer Corp. v. Union des consommateurs et al., 2007 SCC 34 (“Dell”) and Rogers Wireless Inc. v. Muroff, 2007 SCC 35 (“Rogers”) (see excellent commentaries on these cases here and here), which held that the plaintiff was bound by the arbitration clause contained in the contract.

Seidel argued that the arbitration clause and class action waiver were unconscionable in light of s. 172 of the BPCPA, which provides that “a person other than a supplier, whether or not the person bringing the action has a special interest or any interest under this Act or is affected by a consumer transaction that gives rise to the action, may bring an action in Supreme Court” to enforce the statute’s consumer protection standards.

The main issue before the SCC was whether s.172 of the BPCPA could override the arbitration clause and class action waiver in a consumer contract, and whether Seidel could proceed by way of class action or only on an individual basis.

Majority Says No to Private and Confidential Arbitrations

Justice Binnie, who wrote the decision for the majority, decided that private arbitration is antithetical to the legislative intent of s. 172 of the BPCPA and ruled that s. 172 trumps the arbitration clause in a standard consumer contract for mobile phone services.

First, he emphasized that the Court must interpret s. 172 of the BPCPA “textually, contextually and purposively, and should be interpreted generously in favour of consumers, as the BPCPA is all about consumer protection.” The fact that s. 172 says that anyone, including those unaffected by the consumer transaction, can initiate this claim suggests that the provision provides for a public interest remedy available to anyone who wants to expose deceitful corporate conduct. He also commented that, even though arbitrators are given broad remedial power, they are still bound to ensure a “private and confidential arbitration”—any disputes would be kept out of the public’s ear, and no precedent would be created for future arbitrations raising similar complaints. This confidential nature is detrimental to the effectiveness of the public interest remedy as provided by s. 172 of the BPCPA. Therefore, the majority ruled that s. 172 of the BPCPA could not be waived by an arbitration clause in a contract, and, therefore, Seidel could assert her s. 172 right before the Supreme Court of British Columbia.

The majority also held that Seidel is not contractually barred from seeking certification of her s. 172 claims as a class action. The explanation here was rather cursory. Justice Binnie wrote that, because the class action waiver was structured internally under the heading “Arbitration” in the contract, the waiver was dependent on the arbitration provisions which had already been rendered invalid by the Court. However, he also declared that, even if there was ambiguity in the arbitration clause, it should still be resolved in favour of Seidel because of the principles of contra proferentem —“whoever holds the pen [that] creates the ambiguity must live with the consequences.” Accordingly,  Seidel could pursue the certification proceedings.

It is important to note that this case was decided against the backdrop of Dell and Roger, where the SCC rejected consumers’ attempts to pursue class actions in disputes arising out of sales contracts with embedded arbitration clauses in Quebec. Here, Justice Binnie circumscribed the ambit of these prior SCC decisions by holding that those cases were specific to Quebec’s civil justice system and would not be in conflict with the current decision. Furthermore, the Quebec legislature at that time did not have provision similar to s. 172 of the BPCPA. Thus, Dell and Rogers enforced arbitration clauses in standard form contracts since there was no legislative language to suggest otherwise.

Dissent Says Yes to Arbitration Clause

The dissent, penned by Justices LeBel and Deschamps, vehemently criticized Justice Binnie’s “hostility towards arbitration”, and that his interpretation of arbitration was “an inexplicable throwback to a time when courts monopolized decision making and arbitrators were treated as second-class adjudicators.” They defended arbitration as “an efficient and effective access to justice mechanism”, and that solving a consumer dispute by arbitration is “entirely consistent with the important public purposes of protecting consumers, vindicating their rights and promoting access to justice.” They believed that, unless the legislature clearly intended to exclude arbitration for this particular kind of dispute, a consumer claim that could proceed by way of arbitration should first be submitted to arbitration.

In response to these criticisms, Justice Binnie rebutted: “My colleagues LeBel and Deschamps JJ. attempt to cast the appeal in terms of whether or not arbitrators should be seen as `second-class adjudicators’ and paint those with whom they disagree as exhibiting `an undercurrent of hostility toward arbitration.’ Respectfully, I believe the court’s job is neither to promote nor detract from private and confidential arbitration. The court’s job is to give effect to the intent of the legislature as manifested in the provisions of its statutes.”

Ontario and Quebec Legislatures Both Inhibit Arbitration Clauses in Consumer Contracts

Even though the SCC had upheld the enforceability of arbitration clauses in Dell and Rogers, many provincial legislatures have enacted laws to invalidate clauses that would prevent consumers from pursuing class proceedings. Ontario and Quebec (after the Dell and Rogers decisions) have both prohibited arbitration clauses in consumer contracts, and Alberta requires ministerial approval to include such clauses in standard form contract. Clearly, the legislatures recognized that the arbitration process might inadvertently deliver injustice to individual consumers when battling wealthy corporations.

While arbitration is meant to curtail costs and delay, commercial arbitrators still cost $4,000-$7,000 per day – a value that is going to be considerably greater than the value of an overcharged phone bill of an individual customer. Furthermore, as suggested by Professor Susan Drummond, the arbitrator might have an incentive to rule against the consumer because repeat offender (most likely TELUS) will hire its own “competent” arbitrator for such private and confidential resolution. As relief by arbitration will never generate the notoriety and public denunciation that could be achieved by court action, other individual consumers would continue to be victims of unconscionable business practices.

When large corporations are inflicting small amount of damage on a large number of people who cannot afford to litigate individual claims, class action might be the only way to serve judicial economy and afford greater access to justice. It would also serve efficiency and justice by ensuring the corporations modify their behaviour and take full account of the harm they are causing their customers. After this victory at the SCC, Seidel can now move forward to have the Court certify the class proceeding.  Unless a class action is allowed, the deterrent function of the law will be lost.