Kanitz v. Rogers Cable Inc.
PROCEEDING UNDER The Class Proceedings Act, 1992
Between
Stefan Kanitz, Hugh Wallis, Richard Pearce, James Carnegie and
John R. Wilson, plaintiffs, and
Rogers Cable Inc., defendant
[2002] O.J. No. 665
Court File No. 01-CV-214404CP
Ontario Superior Court of Justice
Nordheimer J.
Heard: February 4-5, 2002.
Judgment: February 22, 2002.
(70 paras.)
Counsel:
Colin P. Stevenson and Harvin D. Pitch, for the plaintiffs.
Kent E. Thomson, Sandra A. Forbes and Matthew Milne-Smith, for the
defendant.
¶1
NORDHEIMER J.:— The defendant moves to stay this proposed class action on
the ground that the agreement between the parties provides for arbitration of all
claims. The motion consequently involves a consideration of the interplay between the
Arbitration Act, S.O. 1991, c. 17 and the Class Proceedings Act, S.O. 1992, c. 6.
Background
¶2
The defendant provides, among other things, cable television service and highspeed Internet access to subscribers in certain parts of Canada. As of July 18, 2001, the
date that this action was commenced, the defendant provided its Internet access services
under the brand "Rogers@Home" to approximately 370,000 Rogers@Home
customers. At the time of the institution of this action, these services were only provided
in Ontario.
¶3
The Rogers@Home service involves the use of cable modem technology to access
the Internet. Existing cable lines, which also transmit television signals, are attached to
the personal computers of Rogers@Home subscribers using cable modems provided by
the defendant. The modems allow customers to upload or download information across
the Rogers@Home network and the Internet, send and receive email, maintain personal
web space, and access various newsgroups.
¶4
When it was launched in February or March 1998, Rogers@Home was made
available in certain parts of British Columbia and Ontario. Pursuant to a swap transaction
which closed in March 2001, Shaw Communications and Rogers Communications Inc.,
the parent company of the defendant, swapped their cable assets so that Shaw took over
Rogers' cable systems in British Columbia and Rogers took over Shaw's cable systems in
Ontario.
¶5
The defendant has an established protocol for installing Rogers@Home in a
customer's home. When prospective subscribers first order the service, they are told that
a technician must attend at their home to install the service, at which time they will be
required to sign the user agreement. When the technician arrives at the customer's home,
he or she is required to explain the installation process, remove the user agreement from
the "Welcome Kit" provided to the subscriber, and have the subscriber execute the user
agreement. The technicians are instructed not to commence the installation process until
the subscriber has executed the user agreement. Subscribers are given a copy of the
executed user agreement to retain for their records.
¶6
Of the five plaintiffs, only James Carnegie and Stefan Kanitz are original
customers of the defendant. Carnegie continues to be a customer but Kanitz cancelled his
service in March 2001. The three other plaintiffs, Hugh Wallis, John Wilson and Richard
Pearce, were originally Shaw@Home customers who became Rogers@Home customers
as a result of the swap. Wallis and Pearce continue to be Rogers@Home
customers. Wilson discontinued his service in October 2001.
¶7
The user agreement describes the Rogers@Home service and the terms on which
that service is provided to subscribers. The user agreement includes on page one the
following provision regarding amendments to the user agreement:
"Amendment. We may change, modify, add or remove portions of this
Agreement at any time. We will notify you of any changes to this
Agreement by posting notice of such changes on the Rogers@Home web
site, or sending notice via email or postal mail. Your continued use of the
Service following notice of such change means that you agree to and
accept the Agreement as amended. If you do not agree to any modification
of this Agreement, you must immediately stop using Rogers@Home and
notify us that you are terminating this Agreement."
The Shaw@Home user agreement contained a similar amending provision.
¶8
In November 2000, the defendant amended the user agreement to add, among
other things, the arbitration clause. The user agreement, as amended in November 2000,
is the current user agreement which governs subscribers. The arbitration clause reads as
follows:
"Arbitration. Any claim, dispute or controversy (whether in contract or
tort, pursuant to statute or regulation, or otherwise, and whether preexisting, present or future) arising out of or relating to: (a) this Agreement;
(b) Rogers@Home; (c) oral or written statements, advertisements or
promotions relating to this Agreement or to Rogers@Home or (d) the
relationships which result from this Agreement (including relationships
with third parties who are not signatories to this Agreement) (collectively
the "Claim"), will be referred to and determined by arbitration (to the
exclusion of the courts). You agree to waive any right you may have to
commence or participate in any class action against us related to any Claim
and, where applicable, you also agree to opt out of any class proceedings
against us.
If you have a Claim you should give written notice to arbitrate to us at the
address specified in Section 6. If we have a claim we will give you notice
to arbitrate at your address. Arbitration of Claims will be conducted in
such forum and pursuant to such rules as you and we agree upon, and
failing agreement will be conducted by one arbitrator pursuant to the laws
and rules relating to commercial arbitration in the province in which you
reside that are in effect on the date of the notice to arbitrate."
¶9
The defendant posted the current version of the user agreement containing the
arbitration clause on the Rogers@Home customer support web site on January 12, 2001.
In addition, from mid-January to mid-February 2001, the fact that the user agreement had
been amended was noted on the main page of the Customer Support Site in the "News
and Highlights" section. The Customer Support Site offers links to the user agreement
through both the "Policies/Agreements" and "Rogers Docs" pages. Selecting either
option presents a page that (i) offers a link to the user agreement; (ii) explains that the
user agreement is the governing contract between the subscriber and the defendant; (iii)
reminds the subscriber that the user agreement is periodically updated, and that the
customer should check the site regularly to obtain the latest version of the user
agreement; and (iv) lists the date on which the user agreement was last updated.
¶ 10
Further, following the swap, the defendant informed former Ontario Shaw
customers that their Internet service was now provided by the defendant and that they
should consult the Customer Support Site for important information regarding the
service. On February 21, 2001, the defendant emailed the Roge rs@Home Interaction
Bulletin (Volume 2, Issue 1) to all Rogers@Home customers, including former Ontario
Shaw@Home customers. Among other things, this Bulletin welcomed the former Shaw
customers to Rogers@Home, and included a section titled "Important Info rmation for
Former Shaw@Home Customers". This section specifically asked former Shaw
customers to visit the Customer Support Site, which contains the user agreement.
¶ 11
In June 2001, Rogers mailed an "iToolbox" kit to all Rogers@Home subscribers,
which included a CD containing software and information resources and, for former
Ontario Shaw customers only, a copy of the Rogers@Home User Guide. The original
Rogers customers had already received the User Guide at the time their service was
installed. Before distributing these kits, the defendant sent an email to all of its
subscribers advising them of the iToolbox and the important service information
contained in it. The iToolbox CD included a copy of the Customer Support Site which,
as previously noted, contains the user agreement. Moreover, the User Guide urged
subscribers to visit the Customer Support Site for important information.
¶ 12
Before turning to my analysis of the issues, I should also mention that on this
motion there were two affidavits filed. For the plaintiffs, an affidavit from the plaintiff,
Hugh Wallis, was filed and on which he was cross-examined. For the defendant, an
affidavit from Vic Pollen, Vice-President of Customer Operations, was filed. No crossexamination took place on that affidavit. There are two consequences that flow from
this. One is that the evidence of the defendant is largely unchallenged. The other is that I
have only the evidence of one of the representative plaintiffs regarding the circumstances
surrounding the execution of the user agreement, the efforts made to access the
defendant's web site for updates to the user agreement, the alleged lack of notice to
customers of the amendments to the user agreement, the allegations of unconscionability
and so on.
Issues
¶ 13
The issues that are raised by this motion can be distilled down to three. They are:
(a)
(b)
(c)
whether there is, in fact, an arbitration agreement within the meaning
of section 1 of the Arbitration Act, S.O. 1991, c. 17;
if there is an arbitration agreement, is that agreement invalid or
unenforceable because it is unconscionable;
alternatively, is the agreement unenforceable because the dispute is
not capable of being the subject of arbitration or because summary
judgment is appropriate.
¶ 14
Before turning to a consideration of these issues, I will make a general comment
on the burden of proof or onus that is applicable on this motion since the parties devoted
some time to the question. It appears to be clear that the onus of proving that there is an
arbitration agreement so as to trigger the mandatory stay provided for under section 7(1)
of the Arbitration Act, 1991 is on the defendant here since it asserts that is the case. It
appears to be also clear that the onus of establishing that one of the exceptions to the
mandatory stay provided for in section 7(2) of the Act is on the plaintiffs since they bear
the burden of bringing themselves within one of the exceptions. Having said all of that,
however, I will also say that my conclusions in this matter are not driven by any
application of the principle of onus. The matter of onus, in other words, has been largely
irrelevant to the conclusions I have reached on these issues save as I may clearly indicate
otherwise.
Is there an arbitration agreement?
¶ 15
I begin by observing that, if it is found that there is an arbitration agreement, it is
clear that the disputes raised in this action would fall within its scope. The plaintiffs
allege, in paragraph 7 of the statement of claim, that the defendant breached the
agreements which it had with the putative members of the class when the defendant's
service was not continually available or was intermittently available or was unduly slow
throughout the period to which the claim applies but the defendant continued to collect
payment of the fees for the service in full without deduction. It is plain that this is exactly
the type of claim to which the arbitration provision in the user agreement was intended to
apply.
¶ 16
Section 1 of the Arbitration Act, 1991 defines an arbitration agreement as:
"an agreement by which two or more persons agree to submit to arbitration
a dispute that has arisen or may arise between them"
¶ 17
The plaintiffs say that they did not agree to submit their disputes to
arbitration. They assert that the defendant has unilaterally imposed arbitration upon them
by purporting to amend the user agreement to include such an arbitration clause without
reasonable notice to them of such amendment. The plaintiffs therefore say that the
defendant cannot rely on the arbitration clause.
¶ 18
As I have already mentioned, the original user agreements, whether from the
defendant or from Shaw, contained a provision which permitted the defendant to amend
the agreement from time to time. The clauses were broadly worded in that they provided
that Shaw or the defendant could "change, modify, add or remove portions" of the
agreements. Those user agreements also provided that continued use of the service by a
customer would constitute acceptance of any such amendments. The corollary is, of
course, that if the customer did not agree with any amendment, the customer was to cease
using the service.
¶ 19
The Shaw agreement provided that reasonable notice would be given of any such
amendments but did not specify how such reasonable notice could be given. The Rogers
agreement, on the other hand, stated that notice could be given in one of three ways: (i)
posting notice on the Rogers@Home web site; (ii) sending notice via email or (iii)
sending notice by postal mail.
¶ 20
The plaintiffs contend that notice was not given by the defendant of the
amendment to include the arbitration provision in any of these ways. It is not disputed
that there was no notice sent by postal mail. While there were email bulletins sent out by
the defendant, the plaintiffs say that none of these email bulletins constitute notice
because the fact that the user agreement had been amended is not expressly mentioned in
any of these emails. Finally, while the amended user agreement was posted on the web
site, the plaintiffs say that no notice of the amendments was posted. In other words,
while the defendant posted the amended user agreement itself, it did not post a notice to
advise customers that the agreement had been amended such that customers would be
alerted to go and look for and review the amended agreement. The plaintiffs assert that
the defendant has therefore failed to provide the required notice.
¶ 21
In response, the defendant points out that the amendments to the user agreement
to include the arbitration clause were made in November 2000 and the amended user
agreement was posted on its web site on January 12, 2001. It further points out that after
the amended user agreement was posted, the fact that the user agreement had been
amended was noted on the main page of the Customer Support Site in the "News and
Highlights" section. Finally, the defendant observes that when a customer accesses the
user agreement on the web site, there is a note on the screen by which one accesses the
actual user agreement which states:
"End-User Agreement
The End User Agreement (EUA) is your contract with us. In most cases,
the EUA was signed during the installation of the Rogers@Home
service. It outlines the rights and responsibilities of both Rogers@Home
and users of the service. Among other things, it tells the customers what
services Rogers@Home provides as well as how these services can and
cannot be used. To provide you with the best Internet services possible,
we update the EUA on a periodic basis. Please keep checking back to
obtain the latest End User Agreement.
The EUA Was Last Updated On: January 12th 2001"
I should note that the line regarding the time of the last update appears in bold print.
¶ 22
The plaintiffs contend that none of these steps constitutes the requisite giving of
notice under the user agreement. While I accept that one can fairly assert that the
defendant could have done more to highlight the fact that the agreement had been
amended, that is not the issue. The issue is whether there was notice given of the
amendments as contemplated by the terms of the user agreement. I believe that there
was.
¶ 23
The user agreement expressly allows the defendant to amend the user agreement
and to give notice of that fact through its web site. Each of the representative plaintiffs
who was originally a customer of the defendant actually signed the user agreement which
contained this amend ing provision. Each of the representative plaintiffs who was
originally a Shaw customer also signed a user agreement which contained an amending
provision. The Shaw customers were given reasonable notice, when they became
customers of the defendant pursuant to the swap, of the terms of service and other matters
relating to the provision of the service by the defendant. It would not be unreasonable to
expect that those customers would take the time to visit the appropriate sections of the
defendant's web site to familiarize themselves with the defendant's terms of service if
they were interested in knowing what those terms of service were and whether they
differed in any material respect from those of Shaw. In my view, therefore, the former
Shaw customers became bound by the defendant's amending provision once they became
customers of the defendant pursuant to the swap and continued to use the defendant's
service.
¶ 24
The effect of the terms of the amending provision in the user agreement, in my
view, is to place an obligation on the customer, who is interested in any amendments that
the defendant may choose to make to the user agreement, to check the web site from time
to time to determine if such amendments have been made. Further, in order to check for
such changes, I do not accept that the customer can reasonably assert that all he or she
should have to do is simply go to the main screen of the defendant's web site and expect
to find a notice regarding any such amendments. The defendant is a large company with
many different interests, all of which are represented on its web site. Cable Internet
access customers, who are the only customers who we are concerned with here, can
reasonably be required to visit that portion of the web site dealing wit h the Internet access
aspect of the defendant's business to find such a notice. Such a customer can also be
reasonably required, once at the Internet access portion of the web site, to have to go to
that portion of that site where the defendant's policies and agreements are maintained to
find any such notice. One would not expect to look for such a notice in those portions of
the web site dealing with other matters, such as "View and Pay Bills" or "Price
Comparison" or "Store Locator" or any of the other different portions of the web site.
¶ 25
The evidence establishes that had any of the plaintiffs taken the time to go to the
Customer Support section of the Internet access portion of the defendant's web site, they
would have seen a notice that the user agreement had been amended. Further, if they had
ever reviewed the user agreement on the web site, they would have also known of the fact
that the defendant posts the last change date for the user agreement and they could have
easily determined therefrom whether any further changes had been made to the user
agreement since the date they last checked for any amendments. In either way, they
would receive notice of any changes made. While the plaintiffs make much of the fact
that the defendant could have, but did not, send email notifications to customers of the
amendments to the user agreement, the fact is that email notification is a separate mode
of communication authorized by the amending provision. As long as the defendant uses
one authorized method, it cannot be faulted for not having used another. I conclude,
therefore, that the defendant did give notice of the amendments as required by the user
agreement.
¶ 26
The evidence also establishes that each of the plaintiffs continued to use the
defendant's service subsequent to the posting of the notice and the amended user
agreement. Under the terms of the user agreement, therefore, they were each deemed to
have accepted the amendments.
¶ 27
The plaintiffs also submit that they were given inadequate notice of the
amendment to add the arbitration clause because the process of finding the user
agreement on the web site is unduly cumbersome and the clause in question is "buried" in
the agreement. They contend therefore that the amendment was not sufficiently brought
to their attention and they are consequently not bound by it. They rely on decisions such
as Tilden Rent-A-Car v. Clendenning (1978), 18 O.R. (2d) 601 (C.A.), Toronto Blue Jays
Baseball Club v. John Doe (1992), 9 O.R. (3d) 622 (Gen. Div.) and Badie v. Bank of
America, 67 Cal. App. 4th 779 (1998). For reasons that I will set out below, I do not find
that this case is comparable to any of those cases.
¶ 28
The evidence offered by the plaintiffs does not support their assertion that the
arbitration clause was hidden from customers. Indeed, in one respect the plaintiffs'
evidence could be fairly characterized as disingenuous. Mr. Wallis, in his affidavit,
asserted that it requires considerable effort, and the review of numerous different screens,
in order to find the user agreement. In fact, and as Mr. Wallis admitted on crossexamination, it takes a review of only five screens on the defendant's web site to get to
the user agreement. It admittedly takes more steps if one starts at the Excite@Home web
site but not significantly more once one locates the proper links to follow. I note in this
latter regard that Mr. Wallis has his Master's degree in computer science. I would expect
that he is therefore very familiar with the fact that locating a specific piece of information
on any given web site can sometimes require a trial and error approach until one becomes
familiar with the web site and where items are located on it. I do not accept, however,
that that reality fairly justifies the plaintiffs' characterization as to the magnitude of
difficulty involved in finding the user agreement that was suggested by Mr. Wallis in his
affidavit.
¶ 29
The user agreement is also contained on the iToolbox CD which the defendant
sent to all customers in June 2001. Mr. Wallis, in his affidavit, similarly advanced the
contention that it was difficult to find the agreement on the CD. He said that he was only
able to do so because of his expertise in computer science. Mr. Wallis went on to state
that "any non-technical person" he had given the CD to had not been able to find the
agreement. Under cross-examination, however, Mr. Wallis admitted that the only "nontechnical" person he had given the CD to was his wife and that it was she that had been
unable to find the agreement. He also admitted that he had no knowledge of what his
wife had done to try and find the agreement. It is this aspect of the plaintiffs' evidence
which I said could fairly be regarded as disingenuous.
¶ 30
Finally, the plaintiffs say that the clause is "buried" in the agreement. This
assertion is based largely on the fact that one has to scroll through the agreement once it
is up on the screen in order to find the arbitration clause. That contention is amply refuted
by the following observation, with which I agree, from Rudder v. Microsoft Corp. (1999),
2 C.P.R. (4th) 474 (S.C.J.) where Mr. Justice Winkler said, at pp. 480-481:
"All of the terms of the Agreement are displayed in the same
format. Although, there are certain terms of the Agreement displayed
entirely in upper-case letters, there are no physical differences which make
a particular term of the agreement more difficult to read than any other
term. In other words, there is no fine print as that term would be defined in
a written document. The terms are set out in plain language, absent words
that are commonly referred to as 'legalese'. Admittedly, the entire
Agreement cannot be displayed at once on the computer screen, but this is
not materially different from a multi-page written document which requires
a party to turn the pages."
a party to turn the pages."
¶ 31
As was the case with the agreement that was before Mr. Justice Winkler, here the
arbitration clause is a separate defined clause with its own heading in bold print. It is
displayed just as all of the other clauses of the agreement are displayed. It is not
contained within a larger clause dealing with other matters nor is it in fine print or
otherwise tucked away in some obscure place designed to make it discove rable only
through dogged determination. The clause is upfront and easily located by anyone who
wishes to take the time to scroll through the document for even a cursory review of its
contents. The arbitration clause is, therefore, not at all equivalent to the fine print on the
back of the rent-a-car contract in the Tilden case or on the back of the baseball ticket in
the Blue Jays case.
¶ 32
I am also mindful, in reaching my conclusion on this point, of the fact that we are
dealing in this case with a different mode of doing business than has heretofore been
generally considered by the courts. We are here dealing with people who wish to avail
themselves of an electronic environment and the electronic services that are available
through it. It does not seem unreasonable for persons, who are seeking electronic access
to all manner of goods, services and products along with information, communication,
entertainment and other resources, to have the legal attributes of their relationship with
the very entity that is providing such electronic access, defined and communicated to
them through that electronic format.
¶ 33
I conclude, therefore, that there was adequate notice given to customers of the
changes to the user agreement which then bound the plaintiffs when they continued to use
the defendant's service. Consequently, I find that there is an arbitration agreement
between the parties. The consequence of that finding is that there is a mandatory stay of
any action by virtue of section 7(1) of the Arbitration Act, 1991 which states:
"If a party to an arbitration agreement commences a proceeding in respect
of a matter to be submitted to arbitration under the agreement, the court in
which the proceeding is commenced shall, on the motion of another party
to the arbitration agreement, stay the proceeding."
¶ 34
The only exceptions to the mandatory stay set out in section 7(1) are contained in
section 7(2) of the Act which states:
"However, the court may refuse to stay the proceeding in any of the
following cases:
1.
2.
3.
4.
A party entered into the arbitration agreement while under a legal
incapacity.
The arbitration agreement is invalid.
The subject matter of the dispute is not capable of being the subject
of arbitration under Ontario law.
The motion was brought with undue delay.
5.
The matter is a proper one for default or summary judgment."
In this case the plaintiffs rely on exceptions #2, 3 and 5 as grounds upon which I should
refuse to stay this action.
Is the arbitration agreement invalid because it is unconscionable?
¶ 35 It is worthwhile at the outset of my consideration of this issue to recite the
standard to be applied in deciding whether the exceptions apply in any given situation. In
this regard, I respectfully adopt the following observation of Mr. Justice Hart in G. v. G.,
[2000] A.J. No. 399 (Q.B.) at para. 25:
"If the Courts' intervention were warranted upon the mere suggestion that
an arbitration contract is invalid, particularly where, as here, the invalidity
of the Contract is less than apparent, it would effectively negate the clear
legislative intent to promote arbitral autonomy."
¶ 36
The requirements for a finding that a term in a contract is unconscionable can be
drawn from decisions suc h as Rosen v. Rosen (1994), 18 O.R. (3d) 641 (C.A.) where Mr.
Justice Grange said, at p. 645:
"The question therefore becomes was there an inequality between the
parties, a preying of one upon the other which, combined with
improvidence, cast the onus upon the husband of acting with scrupulous
care for the welfare and interests of the wife. I think not.
We must always remember that it is not the ability of one party to make a
better bargain that counts. Seldom are contracting parties equal. It is the
taking advantage of that ability to prey upon the other party that produces
the unconscionability."
¶ 37
From this statement, three elements can be discerned as being required for a
finding of unconscionability. First, there must be an inequality of bargaining
power. Second, there must be some taking advantage of, or preying upon, the weaker
party by the stronger party. Third, there must be a resulting improvident agreement. It is
not sufficient to simply show that one party extracted a better deal than the other.
¶ 38
The defendant contends that there is no inequality of bargaining power in this
case because there is no evidence that any of the plaintiffs was in a disadvantaged
bargaining position regarding any aspect of the user agreement. With respect, that
submission simply ignores reality. There is clearly an inequality of bargaining power
between a single consumer and a corporation the size of the defendant here. The reality
is that there is no bargaining at all. The defendant decides on the terms of the agreement
and the consumer's sole choice is either to accept the agreement if he or she wants the
service or to reject the agreement and forego the defendant's service as a consequence. It
is very much a "take it or leave it" form of contract. The first element for a finding of
unconscionability is therefore met.
¶ 39
The second element requires a finding that the defendant used its greater
bargaining power to prey upon or take advantage of the plaintiffs. The plaintiffs'
contention on this point is that the imposition of the arbitration/no class action clause
demonstrates by its very terms that the defendant took advantage of the
plaintiffs. However, I do not believe that the mere act of inserting an arbitration
provision in a consumer contract must inevitably lead to that conclusion. The basic flaw
inherent in the plaintiffs' position is in their contention that the arbitration/no class action
clause is the equivalent of an exemption clause. As a consequence of their contention,
the plaintiffs again rely on Tilden Rent-A-Car v. Clendenning, supra. In addition, they
rely on Huras v. Prime America Financial Services Ltd., [2000] O.J. No. 1474 (S.C.J.);
aff'd. (2001), 55 O.R. (3d) 449 (C.A.).
¶ 40
In my view, an arbitration clause is not at all the same as an exemption
clause. The latter serves to remove one contracting party's liability to the other whereas
the former simply requires that the parties seek their relief in a different forum. In that
regard, the latter clause can be characterized as substantive and the former as merely
procedural. Reliance on cases such as Tilden and Huras is therefore misplaced. In
Tilden, the plaintiff sought to avoid the insurance coverage for which Mr. Clendenning
had stipulated and which appeared on the front of the contract by reliance on an
exemption clause contained on the back of the contract in circumstances where the
plaintiff knew that Mr. Clendenning had not read the contract. In Huras [See Note 1
below], the defendant was attempting to rely on a term in an employment agreement to
deny the plaintiff the rights accorded to him by the Employment Standards Act, R.S.O.
1990, c. E.14. For reasons which I will develop more in discussing the third element of
improvidence, I am unable to find on the facts of this case any evidentiary basis that
would warrant a finding that the defendant preyed upon or took advantage of the
plaintiffs in deciding to impose an arbitration proceeding for the resolution of disputes
between it and its customers.
Note 1: It should be noted that the Court of Appeal found Mr. Justice Cumming's discussion of
unconscionability in that case to be clearly obiter. It should also be noted that the Court of Appeal
expressly declined to consider the correctness of the finding of unconscionability although it had been
asked to do so by the appellant.
¶ 41
The third element requires a finding that the resulting contractual arrangements
are improvident. In this regard, the plaintiffs contend that the arbitration clause amounts
effectively to a waiver of any remedy by the customers because, they say, no customer
would pursue arbitration for the amounts that are involved here on an individual basis.
The plaintiffs say, by way of example, that given that a customer pays approximately $40
per month for the service, even if a customer were entitled to a 100% refund for a six
month period, the customer would only be entitled to $240. The plaintiffs assert that no
one is going to arbitrate over $240 because of the costs associated with any arbitration.
Therefore, the plaintiffs say that the defendant, in adopting the arbitration clause, has
done so in order to preclude the customers from pursuing any form of relief for the
service disruptions which form the subject matter of this claim. In support of this
contention, the plaintiffs point to the fact that they offered to submit to arbitration if the
defendant would agree to a class-wide arbitration but that offer was rejected by the
defendant.
¶ 42
The difficulty which I have with the plaintiffs' position on this issue is that there
is a complete absence of any evidence to support the contention that no customer would
arbitrate such claims because of the costs involved. There is no evidence that any
customer has tried to arbitrate a claim and been put off from doing so because of the
expense. There is also no evidence as to what the expenses would be for such an
arbitration. On this point, I respectfully adopt the following observation made by Chief
Justice Rehnquist of the United States Supreme Court in Green Tree Financial Corp.Alabama v. Randolph, 531 U.S. 79 (2000) where he said, at pp. 90-91:
"It may well be that the existence of large arbitration costs could preclude a
litigant such as Randolph from effectively vindicating her federal statutory
rights in the arbitral forum. But the record does not show that Randolph
will bear such costs if she goes to arbitration. Indeed, it contains hardly any
information on the matter. As the Court of Appeals recognized, 'we lack ...
information about how claimants fare under Green Tree's arbitration
clause.' 178 F. 3d, at 1158. The record reveals only the arbitration
agreement's silence on the subject, and that fact alone is plainly insufficient
to render it une nforceable. The 'risk' that Randolph will be saddled with
prohibitive costs is too speculative to justify the invalidation of an
arbitration agreement."
¶ 43
In this regard, it is important to remember that, in Ontario, s. 54(1) of the
Arbitration Act, 1991 authorizes an arbitrator to award costs of an arbitration and that
those costs, by virtue of s. 54(2), include:
" ... the parties' legal expenses, the fees and expenses of the arbitral tribunal
and any other expenses related to the arbitration. "
¶ 44
Therefore, if a customer has a meritorious claim for a refund or rebate because of
the defendant's failure to provide the contracted service, the customer is entitled, subject
to the discretion of the arbitrator, to have any costs he or she incurs in the arbitration
included in the award. I appreciate that, in response to this latter point, it could be
asserted that if a class action proceeds, all of the members of the class are shielded from
any adverse award of costs save and except for the representative plaintiffs. Therefore,
customers under the arbitration process are exposed to an adverse award of costs which
they would not be in a class action. There are two responses to that concern.
¶ 45
First, if a few customers, say the five named representative plaintiffs here, were
to seek to have their claims arbitrated and were unsuccessful, presumably all of the other
customers, in the face of such results, would choose not to pursue their claims. In such a
scenario, only the representative plaintiffs would wind up being subject to an adverse
award of costs just as would be the case in the class action. On the other hand, if their
claims were successful, presumably the defendant would then propose some overall
resolution rather than face the time and expense of a stream of such arbitrations. If not,
then the remaining customers would still be able to arbitrate their claims and recover their
costs through the arbitration process.
¶ 46
Second, implicit in the plaintiffs' position is that there is something inherently
unfair, in these circumstances, to individuals being exposed to costs consequences if it is
found that they have advanced unmeritorious claims. The fact of the matter is that
whether an individual pursues a claim in this court, in Small Claims Court or through an
arbitration, our system dictates that they be at risk of an adverse costs order if they are
unsuccessful. I fail to see why this particular fact situation should be carved out from this
normal consequence and be treated any differently. Even if one could find reasons why
such a result might be desirable, I cannot see how that result would be sufficient to cause
an arbitration clause to be then characterized as improvident. It is perhaps worthwhile
repeating at this juncture one view of what improvident means. In Harry v. Kreutziger
(1978), 95 D.L.R. (3d) 231 (B.C.C.A.), Mr. Justice Lambert, at p. 241, offered the view
that the whole issue of unconscionability could be determined by answering the following
question:
"The single question is whether the transaction, seen as whole, is
sufficiently divergent from community standards of commercial morality
that it should be rescinded."
The mere fact that the customers might prefer to utilize a route for gaining relief where
the vast majority of them would be immune from any costs consequences if the claims
are found wanting, cannot constitute an affirmative answer to this question with respect
to the arbitration provision.
¶ 47
It is also noteworthy that the arbitration clause binds the defendant as well as its
customers. In other words, it is a mutual requirement to submit claims to arbitration. No
evidence was put before me to suggest that the defendant does not abide by the
requirement to arbitrate any claims it may have against its customers. Plaintiffs' counsel
suggested that the defendant is not similarly situated to the customers because all that the
defendant has to do is to disconnect the service if a customer does not pay. In order to
accept that suggestion, I would have to accept that the defendant routinely walks away
from monies owed to it by customers who fail to pay for its services. While that may be
the case, I am not prepared to make that assumption and, again, no evidence was put
before me to substantiate that that is, in fact, the defendant's business practice.
¶ 48
The plaintiffs further contend that the fact that the arbitration clause also
expressly prevents a customer from commencing or participating in class actions is
another fa ctor which should cause the court to conclude that the clause is
unconscionable. Indeed, plaintiffs' counsel went so far as to assert that I should conclude
that the arbitration clause was put into the user agreement by the defendant expressly for
the purpose of defeating any class action claim arising out of the complaints which have
been made to the defendant over its service difficulties, and which are now the subject
matter of this action.
¶ 49
Again, I have no evidence as to why the defendant chose to adopt the
arbitration/no class action clause or why it chose to do so at the time that it did. It is not
appropriate for the court to speculate on why it was done nor for the court to be asked to
do so. In addition, if the arbitration clause is va lid and effective, as I have found it to be,
then it would have the effect of precluding any action, including a class action. The
inclusion of that portion of the clause expressly dealing with class actions is therefore to a
large degree superfluous.
¶ 50
The plaintiffs, however, continue their attack on the arbitration clause by
asserting that the prohibition against class actions is, by itself, sufficient to constitute the
entire clause as unconscionable because it has the effect of defeating the public policy
inherent in the Class Proceedings Act, 1992. The problem with that assertion is twofold. First, it has been held on many occasions by our courts that the Class Proceedings
Act, 1992 is procedural and not substantive. As Mr. Justice Winkler said in Ontario New
Home Warranty Program v. Chevron Chemical Co. (1999), 46 O.R. (3d) 130 (S.C.J.) at
para. 50:
"Moreover, this court has noted on multiple occasions that there is no
jurisdiction conferred by the Class Proceedings Act to supplement or
derogate from the substantive rights of the parties. It is a procedural statute
and, as such, neither its inherent objects nor its explicit provisions can be
given effect in a manner which affects the substantive rights of either
plaintiffs or defendants."
¶ 51
Secondly, it is apparent that there are two public policies at issue here which
may, to some degree, conflict. While the Class Proceedings Act, 1992 represents one
public policy, the Arbitration Act, 1991 represents another. There is no reason to prefer
one over the other if there should be a conflict between the two. However, these public
policies do not have to be interpreted in a manner such that they do conflict. They can be
interpreted in a manner where they co-exist if the plaintiffs' interpretation, which would
have the Class Proceedings Act, 1992 first conflict with, and then take precedence over,
the Arbitration Act, 1991, is not accepted.
¶ 52 There is no reason to believe that the Legislature intended the interpretation urged
by the plaintiffs. The Class Proceedings Act, 1992 was passed after the Arbitration Act,
1991. If the Legislature had intended that the former was to be given precedence over the
latter, it could have so provided. The Legislature could have expressly exempted class
proceedings from the effects of the Arbitration Act, 1991 as it did with situations of
default or summary judgment. It could have enacted any number of other provisions
which would have had the same effect. The Legislature chose not to do so.
¶ 53
Further, the Class Proceedings Act, 1992 itself requires the court to consider
whether a class action is the preferable procedure for the resolution of the common issues
before granting a certification order. In considering whether a class action is the
preferable procedure, the court must take into account alternative methods of redressing
the putative class members' complaints. As Chief Justice McLachlin said in Hollick v.
Toronto (City), [2001] S.C.J. No. 67 at para. 31:
"I think it clear, too, that the court cannot ignore the availability of avenues
of redress apart from individual actions. As noted above, the preferability
requirement was intended to capture the question of whether a class
proceeding would be preferable 'in the sense of preferable to other
procedures such as joinder, test cases, consolidation and so on': [citations
omitted]"
It would seem unarguable that the arbitration of claims is one such other procedure.
¶ 54
On this point, I also note that section 20(1) of the Arbitration Act, 1991 states:
"The arbitral tribunal may determine the procedure to be followed in the
arbitration, in accordance with this Act."
¶ 55
Without deciding the point, it would appear that section 20(1) would permit an
arbitrator, at the very least, to consolidate a number of arbitrations which raise the same
issue. Therefore, it appears at least arguable that if each of the five named representative
plaintiffs here chose to seek arbitrations of their claims, an arbitrator might well decide
that those arbitrations could be dealt with together thereby saving time and expense for
all parties. Such possibilities serve to militate against the central assertion of the
plaintiffs that the arbitration clause operates so as to erect an economic wall barring
customers of the defendant from effectively seeking relief.
¶ 56
In the end result, however, whatever concerns the plaintiffs have with respect to
the prospect of having to arbitrate their claims rather than proceed with a class action,
those concerns cannot be elevated to the level necessary to conclude that the arbitration
clause in the user agreement is "sufficiently divergent from community standards of
commercial morality" as to be unconscionable and therefore unenforceable.
Is the subject- matter of the dispute one that is not capable of being the subject of
arbitration under Ontario law?
¶ 57
The principal contention of the plaintiffs under this exception is that, because
there is a claim for punitive damages, the matter is not one that is capable of being
arbitrated because an arbitrator would have no authority to award punitive damages. The
plaintiffs rely on Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 42 O.R. (3d) 776
(Gen. Div.) [See Note 2 below] and Brimner v. Via Rail Canada Inc. (2000), 50 O.R. (3d)
114 (S.C.J.) [See Note 3 below] in support of this contention.
Note 2: Reversed on appeal - see [2001] O.J. No. 5368 (Div. Ct.).
Note 3: Leave to appeal to the Divisional Court granted - see [2001] O.J. No. 458.
¶ 58
In Rosedale Motors, Mr. Justice Sharpe, at pp. 783-784, held that because there
were claims, particularly a claim for misrepresentation, that were not arbitrable, it was
not appropriate to grant a stay against those claims that were arbitrable since all of the
claims should be determined together. In Brimner, Mr. Justice Brockenshire held that an
arbitration procedure proposed by the defendants was not the preferable way of dealing
with the plaintiffs' claims and, instead, certified the action as a class proceeding. In so
doing, Mr. Justice Brockenshire noted, at p. 120, that punitive damages could not be dealt
under the arbitration procedure and that it was inappropriate to delay the determination of
that issue by allowing the arbitration procedure to go forward.
¶ 59
Brimner is not on the same footing as this case. It did not involve a contractual
right to arbitration. It dealt with the issue of whether a party to a proposed class action
could avoid certification of that class action by proposing an alternative procedure for the
resolution of the claims. In that case, Mr. Justice Brockenshire found that the alternative
procedure was not preferable to a class action. He was not called upon to consider the
issue that is before me nor the application of the exceptions in the Arbitration Act, 1991.
¶ 60
Rosedale Motors, as I have indicated, stands for the proposition that it is
inappropriate to stay one cause of action because it is subject to arbitration when they are
other causes of action advanced which are not so subject. It makes the very practical
point that it is undesirable to grant a stay when the result will be only to bifurcate the
proceeding so that it goes forward on two separate tracks.
¶ 61
The issue here is whether, by the mere fact of advancing a claim for punitive
damages, the plaintiffs can bring themselves within the third exception in section 7(2) of
the Arbitration Act, 1991. I do not believe that they can. Punitive damages are not, by
themselves, a cause of action. They are a form of relief that depends for its existence on a
separate or independent actionable wrong which involves conduct which the court
subsequently finds is so offensive that it is deserving of punishment - see, most recently,
Marshall v. Watson Wyatt & Co. (c.o.b. Watson Wyatt Worldwide), [2002] O.J. No. 84
(C.A.) at para. 44.
¶ 62
I do not accept that a party can avoid the consequences of an arbitration
agreement by simply tacking onto their basic complaint a claim for punitive damages. To
hold otherwise would effectively make optional every arbitration agreement since all a
party would have to do to avoid arbitration is advance a punitive damages claim. Given
the frequency with which such claims are seen in statements of claim in this court, there
would be little left to which the arbitration process could apply. As Mr. Justice Blair
said, albeit in a different context, in Deluce Holdings Inc. v. Air Canada (1992), 12 O.R.
(3d) 131 (Gen. Div.) at pp. 151-152:
"It is important to guard against the resort to such a position simply as a
tactic to avoid the agreed upon arbitration procedure, thereby eroding the
clear policy of the legislature that the parties are to arbitrate what they have
agreed to arbitrate."
¶ 63
I find therefore that the plaintiffs cannot bring themselves within the third
exception in section 7(2).
Is the matter a proper one for summary judgment?
¶ 64
Finally, the plaintiffs assert that this is a case where summary judgment will be
brought once the class action is certified and therefore the fifth exception in section 7(2)
of the Arbitration Act, 1991 applies.
¶ 65
I confess to having some difficulty understanding the circumstances to which the
fifth exception was intended to apply. I am advised by counsel that they were able to find
only one case where the application of this exception has been considered and that is the
decision in Ottawa Rough Riders Inc. v. Ottawa (City), (1995), 44 C.P.C. (3d) 27, (Ont.
Gen. Div.) where Mr. Justice Sedgwick said, at p. 33:
"Finally, the plaintiff says that a stay of this action is inappropriate because
the matter is a proper one for summary judgment (see Arbitration Act, sec.
7(2) 5). No judicial authority was offered as to the circumstances in which
this defence to a motion under section 7(1) of the Arbitration Act to stay an
action is available to the plaintiff. I take it to mean that a matter is a proper
one for summary judgment if a successful motion for summary judgment is
or could be brought in respect of the matter."
¶ 66
In that case, Mr. Justice Sedgwick was faced with a motion to stay and a crossmotion for summary judgment. He was able therefore to determine both matters at the
same time. I do not have any summary judgment motion before me nor could the
plaintiffs be reasonably expected to have brought such a motion at this early stage of the
proceedings. The inherent difficulty with the application of this exception is that the
defendant is obliged under the Act to bring the motion to stay at the earliest opportunity
whereas, in the case of most actions, a motion for summary judgment is normally brought
somewhat later in the proceeding. At the very least, it normally has to await the close of
pleadings. Further, the bringing of a motion for summary judgment in a class action
becomes more complicated due to the need to first have the action certified as a class
proceeding - a process that is frequently lengthy and expensive. The problem with the
test postulated by Sedgwick J., namely that the exception applies where a successful
motion for summary judgment is or could be brought, is that in most cases it would
simply be impossible to tell at the stage of the motion to stay whether a successful
summary judgment motion is a reasonable possibility. I would also observe on this point
that the very nature of a class action, with the necessary requirement that common issues
exist for determination, strongly suggests to me that class actions generally would not be
amenable to resolution by way of the summary judgment procedure.
¶ 67
This practical reality is evident in this very case. While the plaintiffs say that
they will bring their summary judgment motion based on the admissions of the defendant
found in various of its bulletins and emails and other sources, the affidavit of Mr. Pollen
shows that there are a number of different reasons why service might not be received by
any given customer and that most of those reasons have nothing to do with the
defendant. There are also potential issues to be addressed regarding the proper
interpretation of certain provisions in the user agreement regarding the provision of the
service. It is not difficult to contemplate many obstacles to a successful summary
judgment motion in this case which, in turn, must inevitably raise a real concern as to
whether such relief is a realistic prospect. Again, however, and through no fault of the
parties, I am left simply to speculate on that possibility with virtually no evidence to
assist - a situation which is hardly fair to either of the parties.
¶ 68
In any event, in the end result it is important to remember that the decision
whether or not to refuse to stay the proceeding under section 7(2) is a discretionary
one. It is not mandatory as is the obligation to stay under section 7(1). Due to the
difficulties I have identified above with considering, at this stage, the likelihood of a
successful summary judgment motion being brought, I decline to exercise my discretion
to refuse a stay on that ground.
Conclusion
¶ 69
For the reasons I have given, I conclude that the plaintiffs' claims are subject to
the arbitration provision in the user agreement and that, consequently, I am obliged to
stay this action under the mandatory requirements of section 7(1) of the Arbitration Act,
1991 since none of the exceptions in section 7(2) apply. An order to that effect is
granted.
¶ 70
If the parties cannot agree on the disposition of the costs of this motion, they may
make written submissions to me. The defendant's submissions are to be filed with 15
days of the release of these reasons and the plaintiffs' response is to be delivered within
10 days thereafter. No reply submissions are to be filed without leave. The submissions
should inc lude the necessary bill of costs or equivalent information that will allow me to
fix the costs of the motion should I decide that costs are to be awarded.
NORDHEIMER J.