Tuesday, April 9, 2019

SCC: Party Autonomy in Arbitration Trumps Access to Justice Concerns

In a 5 to 4 decision, the Supreme Court of Canada held the concept of “party autonomy” and holding parties to a valid arbitration agreement trumped access to justice and policy concerns.  The Court allowed an appeal from the Court of Appeal for Ontario in which the majority ruled that part of a class action should be stayed and should proceed by way of arbitration even where there was a possibility of duplicating proceedings and inconsistent results.

In this case, the plaintiff Avraham Wellman proposed a class action for damages against TELUS Communications Inc. (“TELUS”) on behalf of about 2 million Ontario residents who had entered into mobile phone service contracts with TELUS during a specified time frame.  The proposed class consisted of both consumer and business customers.  Wellman alleged that TELUS had engaged in an undisclosed practice of rounding up calls to the next minute such that customers were overcharged and were not provided the number of minutes to which they were entitled.  TELUS’s standard terms and conditions in its service contracts included an arbitration clause stipulating that all claims arising out of or in relation to the contract (apart from collection of accounts) must be determined through mediation and then arbitration.

The arbitration clause was invalidated by Ontario’s Consumer Protection Act to the extent that it would otherwise prevent class members who were consumers from pursuing their claims in court.  However, it did not apply to business customers.  TELUS sought to have the class action stayed with respect to business customers, relying on the arbitration clause.  The motion judge dismissed TELUS’s motion for a stay and certified the action.  She held that Section 7(5) of the Arbitration Act, 1991 (“Act”) grants the courts discretion to refuse a stay where it would not be reasonable to separate the matters dealt with in the arbitration agreement from the other matters.  The motions judge held that this discretion could be exercised to allow business customers’ claims that were otherwise subject to the arbitration clause to participate in the class action where it was reasonable to do so.  The Ontario Court of Appeal dismissed TELUS’s appeal.

Justice Moldaver wrote the opinion for the majority of the SCC (Justices Gascon, Cote, Brown and Rowe concurred).  Justice Moldaver held that Section 7(5) of the Act does not grant the court discretion to refuse to stay claims that are dealt with in an arbitration agreement. 

This finding is somewhat perplexing because Section 7(5) of the Act reads as follows:

The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

However, Justice Moldaver held that in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process to which the parties agree to have their disputes resolved by an arbitrator, courts should generally take a hands off approach to matters governed by the Act.  The general rule reaffirms the concept of party autonomy and upholds the policy underlying the Act that says that parties to a valid arbitration agreement should abide by their agreement.  Paragraph 7(5)(a) and 7(5)(b) set out two preconditions.  The first precondition is met if the agreement deals with only some of the matters in respect of which the proceeding was commenced.  The second precondition is met if it is reasonable to separate the matters dealt with in the agreement from the other matters.  If both preconditions are met, instead of ordering a full stay, the Court may allow the matters that are not dealt with in the arbitration agreement to proceed in Court and may stay the court proceeding in respect of the matters that are dealt with in the agreement.  Justice Moldaver held that policy considerations cannot be permitted to distort the actual words of the statute, read “harmoniously” with the scheme of the statute, its objects and the intention of the legislature.  In this case, the legislature had already spoken to some of the concerns by shielding consumers from the potentially harsh results of enforcing arbitration agreements through the Consumer Protection Act.  The legislature made a careful policy choice to exempt consumers and only consumers.  That choice must be respected and must not be undermined by reading Section (7)(5) in a way that permitted courts to treat consumers and business customers as one and the same. 

Justice Moldaver held that while there can be no doubt as to the importance of promoting access to justice, this objective cannot, absent express direction from the legislature, be permitted to overwhelm the other important objectives pursued by the Act.  To do so would undermine the legislature’s objective of ensuring parties to a valid arbitration agreement abide by their agreement, reduce the degree of certainty and predictability associated with arbitration agreements, and weaken the concept of party autonomy in the commercial setting. 

The dissenting opinion was jointly written by Justices Abella and Karakatsanis (Chief Justice Wagner and Justice Martin concurred).

The dissenting judges held that Section 7(5) of the Act did give courts discretion to allow the entire proceedings to continue in court even if some parties would be otherwise subject to an arbitration clause.  A discretionary ability to grant a partial stay logically includes the power to refuse a partial stay.  They held that the only interpretation that gives meaningful effect to the discretionary language of Section 7(5) is one that confers on judges the ability to allow both arbitrable and non-arbitrable dispute to proceed in court.  Otherwise the words “may stay the proceedings with respect to the matters dealt with in the arbitration agreement” are superfluous and add nothing. 

The dissenters reasoned that the Ontario Court of Appeal has since 2002 granted stays of proceedings that would otherwise be subject to arbitration and for nearly a decade has permitted otherwise arbitrable matters to be joined with class actions in the public interest of avoiding duplicative proceedings, increasing costs and risking inconsistent results.  They held that the overall purpose of the Act was promote access to justice because the court system can be costly and slow.  The court’s discretion to intervene was narrow to further the goals of expedient dispute resolution.  Arbitration was intended to be a means by which parties on a relatively equally bargaining footing chose to design an alternative dispute mechanism.  However, all of TELUS’s clients, both business and consumer, signed the same non-negotiable standard form agreement.  TELUS’s individualized arbitration clause effectively precludes access to justice for business clients when a low-value claim does not justify the expense.  It’s mandatory nature illustrates that the rationales of party autonomy and freedom of contract are not existent. 

By inserting the reasonable requirement in Section 7(5)(b) of the Act the legislature clearly contemplated that in certain circumstances, it would be unreasonable to separate matters dealt with in the arbitration agreement from other matters.  In this case, eliminating judicial discretion effectively eliminates access to justice.  TELUS’ interpretation would result in costly and time consuming factual inquiries on how to divide the arbitrable and non-arbitrable claims even where the substance of both claims is identical as in this case. 

Here to impose arbitration on willing parties violates the spirit of the Act and operates as an invisible barrier to a remedy and presumptively immunizes wrongdoing from accountability contrary to fundamental notions of civil justice.

TELUS Communications Inc. v. Wellman 2019 SCC 19



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