Class Arbitration in Canada: The Legal and Business Case

• Author: Jeffery S. Leon, Eric R. Hoaken, and Rebecca Huang
• Pages: 381-430

381

Class aRbitR ation in Canada:

the legal and business Case

Jeffery S. Leon, Eric R. Hoaken, and Rebecca Huang

Abstract: Arbitration clauses are frequently included in a wide

variety of standard form contracts. Commonly, standard form

arbitration clauses contain broad language requiring con-

tracting parties to submit all future disputes arising out of or

in connection to an agreement to arbitration. Such disputes in

the context of consumer or commercial tran sactions, employ-

ment relationships, or franchise agreements could conceivably

give rise to common issues that could result in clas s proceed-

ings. However, the inclusion of a standard arbitration clause

may foreclose the ability to litigate a class claim and in turn,

may lead to an automatic stay of any potential cla ss action in

court. Questions as to whether an arbitration clause has the

effect of precluding class litigation or, alternatively, whether a

counterparty c an commence an arbitration on behalf of other

counterparties who have entered into similar agreements con-

taining identical arbitration clauses are the subjects of differ-

ing legal and policy discussions in North America.

Although class arbitration has been used in the United

States as a method for addressing common issues that might

otherwise be adjudicated in class proceedings, it is a novel

concept in Canada. This paper will analyze the busines s and

legal case for class arbitration in Canada based on the cur-

rent Canadian jurisprudence on the interplay between arbi-

tration clauses and class actions, and will suggest that in some

circumstance s class arbitration may be an alternative that is

more desirable than class litigation.

CCAR Vol 6 No 2.indb 381 23/12/2010 1:03:55 PM

CCAR Vol 6 No 2.indb 382 23/12/2010 1:03:55 PM

383

Class aR bitRation in Canada: the

legal and business Case

Jeffery S. Leon, Eric R. Hoaken, and Rebecca Huang*

a. intRoduCtion

Arbitration clauses are frequently included in standard form contracts

in a wide var iety of situations such as consumer or commercial trans-

actions, employment relationships, and franchise agreements. Often,

the drafter of a standard form contract enters into independent agree-

ments with numerous counterparties using the same form contract with

a standard arbitration clause. Similarly, the standard form contract may

be a contract of adhesion imposed by the drafter on a myriad of counter-

parties on a “take it or leave it” basis.

The standard arbitration clause generally contains broad language

requiring contracting parties to submit to arbitration all f uture disputes

arising out of or in connection w ith the agreement. Without an arbitra-

tion clause, similar or identical disputes arising from a standard form

contract and affecting multiple counterparties may give rise to common

issues and disputes that could result in class proceedings. However, the

inclusion of the standard arbitration cl ause may or may not foreclose

the ability to litigate a class claim and lead to an automatic stay of a

class action in court. For ex ample, in Ontario, the Consumer Protection

Act prohibits pre-dispute mandatory arbitration provisions in consumer

contracts. Consumers have a statutory right to commence a class action

in the courts, subject to post-di spute arbitration agreement s. Many Can-

adian provinces do not have a comparable prohibition in their consumer

protection legislation. If the arbitration clause has the effect of preclud-

ing class litigation, is a counterpart y permitted to demand arbitration for

its individual claim only? Alternatively, can a counterparty commence

* Jeffrey S. Leon a nd Eric R. Hoaken are litigation p artners, and Rebecca Hu ang

is a litigation a ssociate, at Bennett Jones LL P (Toronto).

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