SCC rules no piggybacking on consumer claims for business customers due to arbitration provisions

A recent Supreme Court of Canada¹ decision firmly settles lingering uncertainty over partial stays of litigation in Ontario in favour of domestic arbitration. The decision provides important guidance on Ontario’s Consumer Protection Act, class actions and arbitration issues.

Background

Wellman, a previous TELUS customer, commenced a proposed class action on behalf of approximately two million cellular service subscribers in Ontario: 70 per cent consumers and 30 per cent business customers. Wellman alleged TELUS engaged in an undisclosed practice of rounding up calls to the next minute, overcharging customers and short-changing them of their full number of minutes.

All of TELUS’s customers agreed to standard terms and conditions when they subscribed to the service, including a provision requiring all billing disputes be resolved by arbitration. According to subsection 7(2) of the Consumer Protection Act,² consumers cannot be precluded from bringing an action in court. This protection does not, however, extend to businesses. TELUS therefore brought a motion for a stay of proceedings pursuant to subsection 7(1) of the Arbitration Act, 1991,³ regarding the business customer claims, relying on the arbitration clause in the standard terms and conditions.

Preconditions to court’s exercise of discretion under subsection 7(5) of the Arbitration Act

The motion judge declined to stay the business customers’ claims under section 7(1), holding that subsection 7(5) of the Arbitration Act grants the court discretion to refuse a stay where it would not be reasonable to separate out certain matters for arbitration from other matters. The Court of Appeal⁴ confirmed the motion judge’s decision and dismissed TELUS’s appeal.

Justice van Rensburg, writing for the majority, limited the issues on appeal to whether the Court of Appeal’s previous findings in Griffin v Dell Canada Inc.⁵ had been overturned by the Supreme Court of Canada’s 2011 decision in Seidel v TELUS Communications Inc.⁶ Upon finding Griffin was still good law, the court held that although arbitration agreements will presumptively be enforced in Ontario, there is nothing in the Arbitration Act suggesting that such agreements oust the jurisdiction of the courts.⁷

The Supreme Court, in a 5–4 majority decision, disagreed. Justice Moldaver, writing for the majority, stated subsection 7(5) does not grant the court discretion to refuse to stay claims that are dealt with in valid arbitration agreements. While the Consumer Protection Act may allow consumers to pursue their claims in court, business customers remain bound by their arbitration agreements.

In coming to this conclusion, Justice Moldaver explained that a court may only exercise its discretion under subsection 7(5) where two preconditions are met: 1) the proceeding must involve both matters contained in the arbitration agreement and matters not contained in the arbitration agreement; and 2) it must be reasonable to separate the matters dealt with in the arbitration agreement from the other matters.⁸ The only dispute in this class action concerned billing, and billing disputes were to be submitted to arbitration. As the first precondition was not met, there was no scope for the court to exercise its discretion under subsection 7(5).

No piggybacking on claims not subject to arbitration

The majority concluded that the Ontario legislature made a careful policy choice when drafting the Consumer Protection Act to exempt consumers – and only consumers – from the ordinary enforcement of arbitration agreements.

Justice Moldaver stated that while other policy considerations, such as access to justice, are relevant to the interpretative exercise, they cannot be permitted to distort the actual language of subsection 7(5). To do so would weaken the legislature’s stated objective for the Arbitration Act: to ensure parties to a valid arbitration agreement abide by their agreement. It would also permit parties to valid arbitration agreements to circumvent arbitration by piggybacking on the claims of persons not bound to such agreements, thereby diminishing the certainty and predictability of arbitration agreements.

Implications

This decision has significant implications for the enforceability of arbitration agreements in Ontario and other Canadian provinces and territories with similar domestic arbitration legislation.

The Supreme Court’s judgment halts a developing trend in Ontario of the courts interpreting subsection 7(5) of the Arbitration Act in a manner that afforded them broader discretion to refuse a motion for a partial stay in favour of arbitration and to order the entire dispute – including claims that would otherwise be subject to mandatory arbitration – proceed before the courts. The Wellman decision will be particularly important to the conduct of class proceedings in Ontario where certain class members are bound by an arbitration agreement, a common feature of class action disputes.

The author wishes to thank Abigail Court, articling student, for her help in preparing this legal update.