Wellman v. TELUS: Ontario Court of Appeal clarifies the impact of arbitration clauses on class proceedings
In Wellman v. TELUS Communications Company, 2017 ONCA 433, the Ontario Court of Appeal dismissed an appeal of an order denying a motion to partially stay a proposed class action on the basis that the mandatory arbitration provision contained in the governing contracts was enforceable as against the subclass of business customers. In dismissing the appeal, the Court of Appeal reaffirmed the approach adopted in recent Canadian jurisprudence which suggests that the existence of a mandatory arbitration provision may not, in and of itself, be sufficient to displace class proceedings. However, the Court’s commentary – most notably in the concurring decision – raises a number of issues which may provide defendants with some ability to leverage arbitration clauses as a means of precluding or limiting proposed class actions.
The class proceeding involved claims by consumer and business (i.e., non-consumer) customers against the defendants TELUS Communications Inc. and related entities (the “Defendants”) for allegedly overcharging customers without disclosing the billing practice. The Defendants’ contracts with customers contained standard terms and conditions, including a mandatory arbitration clause.
The Defendants conceded that by virtue of the statutory protections of the substantive and procedural rights prescribed by Ontario’s Consumer Protection Act, including the right to commence a class action notwithstanding “any agreement or waiver to the contrary”, the arbitration clause was unenforceable against consumers (representing about 70 percent of the class). However, the Defendants sought a partial stay of the business customers’ claims (about 30 percent of the class) on the basis that such claims were not governed by the Consumer Protection Act. Accordingly, they sought to invoke s. 7(5) of Ontario’s Arbitration Act, which “provides for a partial stay of court proceedings to be granted where an arbitration agreement deals with only some of the matters in respect of which the proceeding was commenced and it is reasonable to separate the matters dealt with in the agreement from the other matters.”
Hearing both the motion for a partial stay and the motion for certification together, Justice Conway refused to grant the partial stay and certified the class. She found that it would be unreasonable to separate the business customer claims from the consumer claims, as it could lead to “inefficiency, risk inconsistent results and create a multiplicity of proceedings”, and thus declined to stay the business customers’ claims.
The Defendants appealed the motion judge’s decision, arguing that Justice Conway had erroneously relied on Griffin v. Dell Canada Inc., 2010 ONCA 29, and that the Ontario Court of Appeal’s analysis in Griffin had been overtaken by the Supreme Court’s decision in Seidel v. TELUS Communications Inc., 2011 SCC 15. A partial stay in favour of arbitration was refused in Griffin, but granted in Seidel. The Defendants argued that, “in light of Seidel, s. 7(5) of the Arbitration Act cannot be read as “conferring jurisdiction” over claims the parties have agreed to submit to arbitration and that such claims are subject to the mandatory stay provision in s. 7(1).”
As in Griffin, the Defendants sought to have the appeal heard by a five-judge panel. However, this request was denied, and the appeal was heard by a three-judge panel.
Court of Appeal’s decision
The Court of Appeal dismissed the appeal. Writing for the majority, Justice van Rensburg found that Griffin had not been overtaken or altered by Seidel, since Griffin is “consistent in principle with Seidel but was decided in a different legislative context”. That is, while Seidel was decided in the context of British Columbia’s legislative framework regarding arbitration and consumer protection, Griffin was decided in the context of Ontario laws – and those differing legislative frameworks drove the different outcomes in each case. In particular:
- Section 7 of Ontario’s Consumer Protection Act expressly exempts consumer contracts from mandatory arbitration, while British Columbia’s equivalent legislation has no such provision; and
- Ontario’s Arbitration Act provides broader authority for courts to intervene in arbitration than British Columbia’s equivalent legislation, which provides courts with a very limited right of intervention.
In particular, Justice van Rensburg emphasized the importance of the legislative context in determining whether a mandatory arbitration clause will be enforced:
“Accepting the primacy of arbitration over judicial proceedings where the parties have a contractual agreement to arbitrate does not alter the Griffin analysis or the disposition of the present appeal. Rather, both Seidel and Griffin accept that arbitration agreements will generally be enforced, that any restriction of the parties’ freedom to arbitrate must be found in the legislation of the jurisdiction, and that the ability of the court to interfere with this freedom depends on the legislative context.”
Further, Justice van Rensburg rejected the argument that Seidel stands for the proposition that the substantive right to arbitrate must be given primacy over the procedural vehicle of class proceedings, acknowledging that the enforceability of arbitration clauses “cannot be determined in a legislative vacuum”.
Lastly, she found that the motions judge did not improperly conflate the issue of granting a stay with the preferable procedure analysis for certification, as Justice Conway’s decision was made on the basis that it would be unreasonable to separate the consumer and business customer claims.
Justice Blair’s concurring decision
While Justice Blair concurred with Justice van Rensburg in result, he noted that he did so “on a more restrictive basis”. He agreed that Griffin was not overtaken by Seidel and that Griffin is still binding, but expressed his reservations about Griffin’s correctness.
Notably, Justice Blair raised concerns that litigants might “sidestep” the substantive right to arbitrate by adding consumer claims – which cannot be stayed in favour of arbitration, by virtue of Ontario’s Consumer Protection Act – to non-consumer claims, and then bundling those claims under the mantle of a class action. He noted that the court in Griffin did not address this concern.
The commentary contained in Justice Blair’s concurring decision suggests that there may be need for further guidance from the courts on the interplay between arbitration clauses and class actions in certain contexts, particularly where the proposed proceedings involve non-consumer claims. Nevertheless, the ruling suggests that the Canadian courts continue to adopt a restrictive approach to mandatory arbitration clauses in the context of class proceedings.
This decision arguably raises a number of broader policy considerations related to the interplay between consumer and non-consumer claims, as well as to the interaction between ss. 7(1) and 7(5) of the Arbitration Act (i.e., the mandatory stay and partial stay provisions, respectively).
As we have previously written, the Canadian courts’ interpretation of provincial consumer protection laws as evidencing legislative intent to permit consumer class actions despite the presence of mandatory arbitration provisions stands at odds with the approach adopted by the U.S. courts to date. Notably, the U.S. courts have typically favoured enforcement of arbitration clauses in consumer contracts, with the effect of often precluding consumer class actions. For example, the New York Times reported that, in 2014, class action waivers were upheld in approximately 83 percent of U.S. cases.