WHAT MAKES A CONSUMER? MANDATORY ARBITRATION CLAUSES AND FREE DIGITAL SERVICES IN CANADA.

Author:Milosevic, Theodore
 
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I INTRODUCTION

The enforceability of mandatory arbitration clauses and class action waivers in standard-form contracts is an issue that invokes core legal concerns such as access to justice, transparency, and fairness in the legal process. Canada has developed a reputation as an overwhelmingly "arbitration friendly" (1) jurisdiction, in which mandatory arbitration clauses have been enforced in the absence of any clear legislative language precluding such clauses. However, in Seidel v TELUS Communications Inc, (2) the Supreme Court of Canada adopted a less deferential stance towards mandatory arbitration clauses, focusing on broad legislative intent as opposed to strict legislative language in determining whether to enforce a mandatory arbitration clause. In cases where a court cannot ascertain a clear legislative intent to confer a statutory right to a trial in court, such as in the case of Murphy v Amway Canada Corporation, (3) claims predominantly remain arbitrable.

This judicial approach to the enforceability of mandatory arbitration clauses has provided greater clarity for claims falling under the ambit of Canadian provincial consumer protection legislation, which, in many cases, explicitly or implicitly addresses forced arbitration. A previously unconsidered aspect of this landscape concerns mandatory arbitration clauses in standard-form contracts for the provision of free-to-use digital services such as social media and networking services. The growth of the internet and increasing digital connectivity have allowed for the development of new business models, some of which do not require monetary payment in exchange for use of the service. The relationship between users and suppliers of these free digital services bears many similarities to that of a traditional consumer relationship in which money is exchanged, but the clear lack of monetary payment may, in some minds, differentiate these relationships from those covered by consumer protection statutes, unless otherwise stated.

It appears, from the very limited jurisprudence on the matter, that provincial consumer protection statutes may be read in such a way that they only cover transactions in which the consumer pays for goods or services. As such, the free nature of many digital services may preclude the users of these services from any legal rights afforded to traditional consumers, including the right to pursue their claims in court despite agreements that include a mandatory arbitration clause and class action waiver. This may strike some as a significant problem, while others may consider the presence of monetary payment as vital to the formation of a consumer contract.

This paper will aim to provide a roadmap of possible avenues through which the Canadian legal system can approach the issue of arbitration clauses in standard-form contracts for the provision of free digital services. As such, it will be structured in five parts. First, it will discuss the general nature of mandatory arbitration clauses in standard-form contracts, highlighting issues raised in the debate regarding the merits and drawbacks of arbitration relative to litigation and class action claims specifically. Second, it will provide an overview of the current state of Canadian law regarding the enforceability of mandatory arbitration clauses in standard-form contracts. Third, it will identify the present gap in Canadian legislation and jurisprudence related to the enforceability of arbitration clauses in standard-form contracts for free digital services, while also addressing why this gap is a problem. This section will focus on relevant consumer protection legislation in British Columbia and Ontario to narrow the lens of analysis. British Columbia and Ontario were selected given their particular importance to Canada in terms of population (4) and economic activity, (5) and because they are both common law provinces. Fourth, this paper will outline possible solutions, both judicial and legislative in nature, to the problem at hand. Finally, it will conclude by considering the broader policy implications of this research.

II MANDATORY ARBITRATION CLAUSES, CLASS ACTION WAIVERS,

AND ACCESS TO JUSTICE

A distinctive legal trend of the 21st century has been the proliferation of mandatory arbitration clauses in standard-form contracts of adhesion. Mandatory arbitration clauses can be found in contracts with significant day-to-day and societal importance, such as contracts for employment, credit cards, banking and real estate. It has proven difficult to quantify the prevalence of these clauses in our society, but a 2004 study of an "average" (6) man in California found that roughly one-third of his consumer relationships included mandatory arbitration clauses. (7) Similar research from 2004 in Canada, which focused on a sample of 86 consumer contracts ranging across sectors, found that 11.6 percent of the sample contracts contained mandatory arbitration clauses, and that these clauses were becoming increasingly common. (8)

The proliferation of mandatory arbitration clauses has been both accompanied and encouraged by North American courts repeatedly upholding the general validity of such clauses. Courts in Canada (9) and the United States (10) have adopted the standpoint that these clauses are enforceable unless there are persuasive reasons mitigating against enforceability in a given situation.

In broad terms, these clauses require the parties to resolve any disputes arising from their contractual relationship via arbitration. While the wording of specific clauses can vary, they may require the arbitration to be conducted in a certain location or per certain arbitral rules. These goals are evident in the sample mandatory arbitration clause provided by the Canadian Arbitration Association, which reads as follows:

"Any dispute, controversy or claim arising out of or relating to this contract including any question regarding its existence, interpretation, validity, breach or termination or the business relationship created by it shall be referred to and finally resolved by arbitration under the Canadian Arbitration Association Arbitration Rules. The place of the arbitration shall be___________." (11) The increasing prominence of mandatory arbitration clauses has recently attracted significant attention and debate due to concerns regarding its impact on access to justice, as well as consumer and employee rights. Academics, (12) journalists, (13) and consumer rights organizations (14) have all voiced strong criticism against mandatory arbitration clauses. Certain criticism has been directed towards whether individuals actually read and understand mandatory arbitration clauses, (15) and while this argument holds some merit, the same can be said for many aspects of standard-form contracts. (16)

Criticism directed more specifically at mandatory arbitration clauses tends to posit that forced arbitration typically leads to inequitable outcomes for individuals engaged in contractual relationships with large organizations. (17)

A prominent line of criticism in this regard focuses on the "repeat provider" and "repeat player" phenomena associated with mandatory arbitration clauses. The term "repeat provider" arises from the fact that corporations, in drafting mandatory arbitration clauses, can specify particular arbitral service providers to resolve disputes arising from the contract. These for-profit providers of arbitral services, such as the American Arbitration Association, the National Arbitration Forum, and JAMS (formerly known as Judicial Arbitration and Mediation Services) in the USA, and the Canadian Arbitration Association in Canada, compete to be the preferred arbitral service for these companies. Critics argue that competitive pressures will cause the arbitrators to either consciously or subconsciously skew outcomes in favour of corporations to secure future business. (18) A New York Times series on mandatory arbitration clauses found that in order, "[t]o deliver favorable outcomes to companies, some arbitrators have twisted or outright disregarded the law." (19)

The "repeat player" criticism is focused on the ability of large corporations to specialize their often substantial legal and financial resources around achieving success in arbitral proceedings, as opposed to court proceedings. This line of argument holds that as corporations participate in an increasing number of arbitral proceedings over time, their legal representatives will learn how best to pursue and achieve favourable outcomes in arbitration. (20)

Another concern arises in relation to the ability of mandatory arbitration clauses to bar class action proceedings, specifically when accompanied by class actions waivers under which one or more parties explicitly waives their right to pursue class action litigation. According to a New York Times study of 1,179 class action claims that were brought under contracts with mandatory arbitration clauses between 2010 and 2014. US courts enforced the arbitration clause and disallowed the class action eighty percent of the time. (21)

The negative consequences of disallowing class action claims due to mandatory arbitration clauses or class action waivers are readily apparent in the consumer context. Consumer class action suits may involve dispersed individuals or groups who have suffered the same relatively minor harm, in terms of dollar value, resulting from the faulty goods or services of a company. It seems difficult to refute that these wronged consumers should be able to seek some form of remedy through the legal system, but it makes little sense for an individual to incur the large costs associated with legal proceedings to initiate a small-value claim against a large corporation. The Supreme Court of Canada endorsed such a view when it ruled that the purpose of class actions is "to facilitate access to justice for citizens who share common problems and would...

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