Consumer Class Actions and Arbitration Amendments: Emerging Issues

• Author: Malcolm Ruby
• Pages: 30-48

30

CONSUMER CLASS ACTIONS AND

ARBITRATION AMENDMENTS:

EMERGING ISSUES

Malcolm Ruby*

A. INTRODUCTION

Recent amendments to Canadian consumer protection laws, like the

Ontario Consumer Protection Act, 2002 (Consumer Protection Act),1 may

create a first impression that arbitration agreements in consumer con-

tracts are no longer effective to prevent consumer class actions. Careful

scrutiny of the Ontario amendments, however, suggests that the amend-

ments may have a more narrow application than what might be initially

understood.

B. Competing Policy Goals

The policy goals underlying arbitration, consumer protection, and class

proceedings laws differ significantly and may conflict. Courts are com-

pelled by arbitration statutes to uphold freedom of contract by staying

court proceedings when contracting parties have agreed to submit dis-

putes to arbitration. In contrast, consumer protection laws can override

contracts in the interest of protecting ordinary consumers of goods or

services from unscrupulous sellers using unfair business practices. The

class proceeding is a procedural mechanism designed to promote access

to justice (particularly for individuals with small claims), enhance judi-

cial economy by aggregating multiple claims, and deter wrongful conduct

in the marketplace.

The boundaries defining the different and perhaps competing

policy goals are not clearly outlined in the statutes. While the 2007

decisions of the Supreme Court of Canada in Dell Computer v. Union

* Partner, Gowling Lafleur Henderson LLP.

1 Consumer Protection Act, 2002, S.O. 2002, c. 30.

VOL UME 5, No 1, december 2008 31

des Consommateurs2 and Rogers v. Muroff3 found that substantive policy

goals favoring arbitration prevailed over the procedural objectives of a

class proceeding, the Supreme Court did not apply recent amendments

to Quebec’s consumer protection laws in those two cases because the

Quebec amendments came into effect after the actions were commenced

and were found by the Supreme Court to have no retroactive effect.

Caselaw since Dell and Rogers provides only limited guidance to counsel

(both plaintiff and defendant) faced with an arbitration agreement in a

consumer contract that could apply in putative class proceedings.

C. Key Legislative Provisions

1. The Arbitration Act, 19914

Section 6 of the Arbitration Act states the general principle that courts

should not intervene in arbitration matters except to assist in the process

by ensuring arbitrations are conducted fairly and by enforcing arbitral

awards.

Section 7 of the Arbitration Act provides generally how disputes cov-

ered by an arbitration agreement should be dealt with if one of the parties

commences a proceeding in a court. Section 7(1) provides that a court

proceeding commenced in relation to a dispute covered by an arbitration

agreement “shall” be stayed. Section 7(2) addresses five limited excep-

tions to the general rule: (i) legal incapacity, (ii) invalidity, (iii) inarbi-

trable subject-matter, (iv) undue delay, and (v) subject-matter proper for

default or summary judgment.

Section 7(5) of the Arbitration Act provides that the court “may stay

proceedings” respecting matters “dealt with in the arbitration agreement

and allow it to continue with respect to other matters” if “the 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.” Section 7(6) provides that there

is “no appeal from the court’s decision” respecting matters determined

under section 7.

2 Dell Computer Corp. v. Union des Consommateurs, [2007] S.C.J. No. 34; 284

D.L.R. (4th) 577 (S.C.C) [Dell].

3 Rogers Wireless Inc. v. Muroff (2007), 284 D.L.R. (4th) 675 (S.C.C.) [Rogers].

4 Arbitration Act, 1991, S.O. 1991, c.17 [Arbitration Act].