Supreme Court Enforces Arbitration Clause and Stays Business Customer Claims in Class Action

On April 4, 2019, a majority of the Supreme Court of Canada (SCC) in TELUS Communications Inc. v. Wellman (Wellman) decided that business customer claims in a class action should be stayed pursuant to arbitration clauses in the standard terms and conditions of those customers’ contracts. It further concluded that the Ontario Arbitration Act did not provide courts with jurisdiction to refuse to stay class member claims that are covered by a valid arbitration clause.

LOWER COURT DECISIONS

The plaintiff filed a proposed class action against TELUS alleging overbilling on behalf of about two million Ontario residents with standard form mobile phone service contracts. The proposed class included both consumers who purchased plans for personal use and non-consumers (business customers) who purchased plans for business use. The standard form contracts contained an arbitration clause which, by virtue of the Ontario Consumer Protection Act, did not apply to the consumer contracts. However, the business customers did not fall within those consumer provisions and TELUS moved to stay the claims of those customers in reliance on the arbitration clause in their contracts.

The court dismissed TELUS’s motion at first instance, allowing the consumer and business customer claims to proceed together in the class action. In so doing, the court held that section 7(5) of the Arbitration Act granted it the discretion to refuse a stay where it would not be reasonable to separate the matters dealt with in the arbitration agreement from other matters.

The Court of Appeal for Ontario dismissed TELUS’s appeal. Justice van Rensburg for the majority agreed with the first instance judge’s interpretation of section 7(5) of the Arbitration Act. Justice Blair concurred in the result, though expressed reservations about whether that provision extended to the interconnection of several arbitration agreements involving different parties, and whether non-consumers ought to be able to sidestep an arbitration clause by adding consumer claims and wrapping all claims in the cloak of a class proceeding.

SCC DECISION

Justice Moldaver, writing for the five-judge SCC majority, allowed the appeal and concluded that the Arbitration Act required that the business customer claims be stayed. Four justices dissented.

The majority identified the overriding issue on the appeal as the proper interpretation of section 7(5) of the Arbitration Act, rather than underlying policy concerns regarding the merits of enforcing arbitration clauses contained in standard form contracts.

As a matter of statutory interpretation, the majority noted that section 7(1) of the Arbitration Act establishes a general rule that the court must stay a proceeding commenced in respect of a matter that is the subject of an arbitration agreement. Section 7(5), which provides an exception to this general rule, has two requirements. First, the arbitration agreement must deal with only some of the matters over which the proceeding was commenced. Second, it must be reasonable to separate the matters dealt with in the arbitration agreement from the other matters. If these conditions are met, the court has discretion to allow the matters that are not dealt with in the arbitration agreement to proceed in court but must nonetheless stay the proceedings in respect of the matters dealt with in the arbitration agreement.

The majority concluded that the first precondition was not met because the sole matter at issue in the proposed TELUS class action (alleged overbilling) was dealt with in the business customers’ arbitration agreements. As such, a stay of their claims was mandatory. The majority reasoned that the legislature made a careful choice to exempt only consumers from the ordinary enforcement of arbitration agreements, and non-consumers (here, the TELUS business customers) ought to be held to their bargains. While the majority acknowledged the importance of promoting access to justice and avoiding multiple proceedings, absent express direction from the legislature, these policy concerns should not be permitted to override the objectives pursued by the Arbitration Act – including that parties to a valid arbitration agreement abide by their agreement.

For the dissent, Justices Abella and Karakatsanis emphasized policy concerns. They interpreted section 7(5) of the Arbitration Act in a manner that maintains the courts’ discretion to refuse to stay arbitrable claims if it is unreasonable to separate them from non-arbitrable claims.

IMPLICATIONS

It follows from Wellman that valid arbitration clauses in commercial agreements should be enforced even where this will exclude certain persons from class actions. This decision affirms that courts will not lightly set aside the legislative objective of enforcing valid arbitration clauses on policy grounds in class actions. It also confirms that arbitration clauses contained in standard form agreements (sometimes called contracts of adhesion because they are not negotiated) “will generally be enforced” absent legislative language to the contrary.

Going forward, companies that have such clauses in their commercial agreements can expect more certainty and predictability in those clauses being upheld by the courts. In this regard, Wellman reinforces the importance of careful drafting for both bespoke and standard form contracts that include arbitration clauses. Parties will wish to consider whether to include either broad language to the effect that all claims arising out of, or in relation to, the contract shall be determined through arbitration or more tailored language to exclude certain matters from arbitration.

For further information, please contact:

Bradley Berg                           416-863-4316
Max Shapiro                            416-863-3305

or any other member of our Arbitration group.

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We would be pleased to provide additional details or advice about specific situations if desired.

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