June 2004 Fasken Martineau DuMoulin LLP
By Claude Marseille and André Durocher
Quebec companies providing goods or services for mass consumption must deal with an ever-increasing risk, namely the threat of class actions by their customers. Any problem with a product sold or service provided, trivial though it may seem when considered on an individual basis, may give rise to a class action.
That risk is exacerbated in Quebec. The province is sometimes referred to as “class action heaven” given the ease with which individual consumers receive court authorization to institute class actions on behalf of groups of consumers.
Companies must manage this risk. One method that may prove effective in achieving that objective is the inclusion of an arbitration clause in consumer contracts. Such a clause excludes the jurisdiction of the courts and requires that the dispute be referred to arbitration; it may even require that claims be dealt with on an individual, rather than group, basis.
Arbitrators: Independent Decision-Making Bodies
In the 2003 Desputeaux 1 case, the Supreme Court of Canada rendered a landmark decision on the validity of arbitration in Quebec and its autonomy vis-à-vis the judicial system. The Supreme Court noted that since
1986, arbitration has been an integral part of the Quebec legal system, that arbitration clauses must not be dealt with as exceptions to the principle of access to the courts, but as an alternative to judicial settlement of disputes, that the arbitrator’s jurisdiction is not inferior but equal to that of the courts, and lastly that arbitration clauses must be construed broadly and liberally.
The Quebec Experience: the Dell Computer Corporation Case
There have been few decisions in Quebec regarding whether arbitration clauses may operate so as to circumvent a class action. The case of Union des consommateurs v. Dell Computer Corporation 2 provides some answers to that question.
Dell distributes personal computers through a website. The prices advertised for certain models were incorrect: they were too low. Several consumers took advantage of the occasion and sent in orders to Dell.
Dell refused to fill them. The Plaintiff, a consumer advocacy group, then embarked on a class action against
Dell, on behalf of all those who sought to take advantage of the incorrect advertisement.
To order a computer from Dell, consumers must agree to the terms and conditions of an online sales contract.
The contract contains an arbitration clause pursuant to which any dispute concerning the computer purchased under the contract must be settled exclusively by arbitration, under the aegis of the US-based National

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Arbitration Forum ("NAF"). On the basis of that clause, Dell requested that the Superior Court refer the matter for arbitration.
Dell’s Achilles’ heel in this matter is Article 3149 of the Civil Code of Québec , pursuant to which a consumer residing or domiciled in Quebec cannot renounce to have a dispute settled by Quebec authorities.
As the arbitral authority referred to in the contract with Dell is based in the U.S., the Superior Court refused to refer the matter to arbitration. The lesson to be learned from that case is that if a company wishes to use an arbitration clause to avoid possible class actions being instituted by its Quebec customers, it must necessarily ensure that the arbitral authority selected is located in Quebec.
Another recent decision of the Superior Court sheds interesting light on the issue. While Pérès v. Procureur général du Québec 3 was rendered in the area of labour law, it nevertheless is relevant to our discussion.
In 1997, the Canadian and Quebec governments signed an agreement providing for the transfer of certain employees from Human Resources Development Canada to the ministère de l’Emploi et de la Solidarité sociale du Québec (the "MESSQ"). Ms. Dominique Pérès, one of the employees so affected, contested her new classification with the MESSQ, as did several other employees. In March of 1999, the employees’ union and the MESSQ reached a settlement.
Ms. Pérès was dissatisfied with the settlement and filed a grievance. As the union refused to intervene,
Ms. Pérès filed a motion to certify a class action on behalf of the 120 persons in a situation similar to hers.
This is where the case becomes interesting for our purposes. The potential defendants argued that the
Superior Court had no jurisdiction to hear the class action, because according to them, the real issue turned on the application of the settlement agreement between the union and the MESSQ and in such cases, the grievance procedure under the collective agreement imposed arbitration. In short, the defendants contemplated by the class action, wishing to avoid such proceedings, invoked an arbitration clause.
The Court found for the defendants and referred the matter to arbitration. In the Court's view, the dispute concerned the application of the memorandum of agreement between the union and the MESSQ and any contestation pertaining to its application is subject to the grievance procedure provided for in the collective agreement. It was held that Ms. Pérès must submit to this grievance procedure and accordingly, her class action application was dismissed. Similar reasoning should apply with respect to mandatory arbitration clauses in consumer contracts.
The Experience of Other Canadian Provinces
In Ontario, Rogers Cable Inc. ("Rogers") successfully raised an arbitration clause in a consumer contract to oppose a class action.
4 In that case, a Rogers high-speed Internet services subscriber sought to institute a class action against Rogers on the grounds that the company continued to collect service fees, without reduction, notwithstanding the serious problems regarding service interruptions and slow service experienced by consumers. The standard-form subscription contract imposed by Rogers contained an arbitration clause.
Accordingly, Rogers filed a motion requesting that the Court refer the dispute to arbitration, which was granted.
The Court dismissed the argument based on the alleged unconscionability of the clause.
5 Even where there is clear inequality in the respective bargaining powers of the parties, the insertion of an arbitration clause in a consumer contract is insufficient to prove that Rogers was advantaged to the detriment of its customers. The

Fasken Martineau DuMoulin LLP Class Actions and Commercial Arbitration 3 arbitration clause operates solely to define the decision-making body before which a party can enforce its rights – it does not affect the merits of the matter.
The Court also dismissed the argument that no single consumer would pursue the matter before an arbitrator, given the negligible value of the individual amount claimed by each and the costs related to arbitration. No evidence was submitted in support of that allegation, which was therefore set aside.
The plaintiff further argued that the clause contravened the public policy of the Class Proceedings Act
(“CPA”) of Ontario. The Court dismissed that argument, stating that the right to institute a class action is procedural and that arbitration is a dispute resolution mechanism as well known to Ontario law as class actions.
Lastly, the Court stated that Section 20 of the 1999 Ontario Arbitration Act, could allow an arbitrator to join several arbitration matters arising from the same set of facts. The Court thus appears to open the door to class actions in arbitration proceedings. The provision referred to is similar to article 944.1 of the Quebec
Code of Civil Procedure, which provides that arbitrators may conduct the arbitration according to the procedure they determine and that they have all the necessary powers for the exercise of their jurisdiction. It is doubtful whether this provision allows an arbitrator to join several arbitrations in the manner of a class action, but the issue can certainly be raised. Regardless of the possible power of an arbitrator to allow a
"class action" in arbitral proceedings, a company may well be able to prevent such a possibility by expressly providing in the arbitration clause that each claim must be dealt with on an individual rather than a group basis.
To summarize, the Rogers case is a very useful precedent, even though it originates in a common law province, to enforce the use of an arbitration clause as a means of opposing a class action.
However there have been decisions to the contrary, specifically the Rosedale Motors 6 and Hammer Pizza 7 cases. Despite the existence of an arbitration clause, in both cases the courts ruled that the allegations and relief sought did not all fall within arbitral jurisdiction and that it was "preferable" to hear them all together before the courts. Such a decision rendered in the interests of expediency would not be upheld today, especially in light of the Supreme Court decision in the Desputeaux case cited above. In the Quebec civil law system, a court asked to decide a dispute concerning an issue in respect of which the parties have concluded an arbitration agreement must refer the matter to arbitration, regardless of whether the disagreement raises other issues between the parties or with respect to third parties. The courts may not consider the merits of a dispute in respect of which the parties have entered an arbitration agreement. The arbitration board is not inferior to a court of law and the courts have no discretion to refuse a request for referral to arbitration on the grounds that it would be "preferable" to proceed otherwise.
The US Experience
The principles established in American case law regarding class actions cannot be imported per se in
Quebec. It is nevertheless an interesting exercise to consider the legal developments south of the border given their extensive experience with class actions.
As the Supreme Court of Canada did in the Desputeaux case, the US courts stress that the primary purpose of the Federal Arbitration Act is to put an end to the hostility of the courts to arbitration clauses.
8 On many occasions, US courts have noted that the right to institute a class action is a procedural rather than substantive and that courts should not blindly prefer that procedural right over the right to have a matter dealt with by arbitration. A properly drafted arbitration clause can effectively defeat a class action in US law.

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The consumer who insists on proceeding by way of a class action despite the existence of an arbitration clause in the consumer contract must prove that arbitration would prevent him from fully asserting his legal rights.
9
A court can refuse to refer a matter for arbitration if the plaintiff can show that it would incur prohibitive costs that would prevent it from fully exercising its rights before the arbitrator. But the plaintiff must submit evidence in that respect and the mere likelihood or strictly hypothetical apprehension that such costs could be incurred will not justify invalidating an arbitration agreement.
10
"Classwide Arbitrations"
In the U.S., under certain conditions, a properly drafted arbitration clause can prevent a class action.
Nevertheless, the issue remains as to whether a class action can then proceed before an arbitration tribunal.
The US Supreme Court has ruled that this is a matter of interpreting the arbitration clause in question.
11 The interpretation exercise is not concerned with either the validity of the arbitration agreement or its application to the dispute between the parties. Because interpretation of the contract is involved, the arbitrator must first determine if he or she has jurisdiction to hear the class action as part of arbitral proceedings. However, the likelihood of a class action need not necessarily be expressly contemplated in the arbitration clause for the arbitrator to allow the class action as a matter for arbitration.
12
That being said, an arbitration clause prohibiting consumers from joining together in a class action (therefore requiring consumers to submit their claims on an individual and separate basis) is valid.
13 To summarize, in the U.S., companies can defeat class actions and impose arbitration on an individual basis to settle disputes with its customers, provided the arbitration clause is properly drafted.
Canadian case law is not as developed on that issue. As noted above, the Superior Court of Ontario, in the
Kanitz case, suggests that an arbitrator has the power to join several disputes of the same nature, thus creating a kind of "class action" in an arbitration context.
Conclusion
While Quebec case law has yet to decide the issue, American experience, that of other Canadian provinces, along with the Desputeaux decision of the Supreme Court of Canada and the Dell Computer and Pérès cases of the Superior Court of Québec would suggest that a company providing goods and services for mass consumption can protect itself against the risks inherent in class actions by inserting a properly drafted arbitration clause in its standard form contracts with their customers. Confronted with such a clause, a court asked to rule on a motion for authorization to institute a class action should refer the matter for arbitration and relinquish jurisdiction over the class action. Assuming that the arbitration clause is properly drafted, the claims before the arbitrator could then be submitted by the consumers concerned on an individual basis.
In the current context, specifically regarding the ability to institute a class action in Quebec, the "class action heaven" of North America, companies doing business here must consider this as a method of effective management of the major risks of class actions.

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Claude Marseille practices in corporate and commercial litigation, specifically in the area of construction and engineering, insurance claims, class actions and real property matters. He acts in many complex litigation matters requiring the latest information management technology, specialized data banks, document digitalization, etc. Specialist in the law of evidence and new technologies, he lectures on these subjects and is often invited to speak on those topics.
Claude Marseille can be reached at 514 397 4337 or by e-mail at cmarseille@mtl.fasken.com
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André Durocher practices in the following four areas of the law: class actions, environmental and energy law, aboriginal law and labour law. In the area of class actions, he has acted for defendants in class actions involving pharmaceutical companies, railway companies, airlines, manufacturers of chemical products, rendering plants, poultry processing plants and municipalities.
André Durocher can be reached at 514 397 7495 or by e-mail at adurocher@mtl.fasken.com
.
* The authors would like to thank M e Stéphanie Lavallée for her invaluable contribution to this note.
1. Desputeaux v. Éditions Chouette , [2003] 1 S.C.R. 178;
2. SCM 500-06-00199-030, January 16, 2004 (Langlois, J);
3. SCM 500-06-000138-012, January 19, 2004 (Courteau, J) http://www.canlii.org/qc/jug/qccs/2004/2004qccs10180.html;
4. Kanitz v. Rogers Cable Inc.
, [2002] O.J. No. 665;
5. A similar argument in Quebec civil law would be based on article 1437 of the Civil Code of Québec , which provides that an
abusive clause in a consumer contract or contract of adhesion is invalid or the obligation arising therefrom may be reduced.
An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is
therefore not in good faith;
6. Rosedale Motors Inc.
v. Petro-Canada Inc.
, [1998] O.J. No. 5461 (Ontario Court - General Division);
7. Hammer Pizza Ltd.
. v. Dominos Pizza of Canada Ltd , [1997] A.J. No. 67 (Alberta Court of Queen’s Bench);
8. See Green Tree Financial Corp.
v. Randolph , 531 U.S. 79. The U.S. Supreme Court also ruled that the States cannot
circumvent the Federal Arbitration Act by invalidating arbitration clauses governed by the Act ( Southland Corp. v. Keating ,
465 U.S. 1);
9. Johnson v. West Suburban Bank , 225 F.3d 366; see also Horenstein v. Mortgage Market Inc.
, 9 Fed. App. 618. In the area
of consumer law: Darcy Ting v. AT&T , 319 F.3d 1126;
10. Green Tree Financial Corp v. Randolph , 531 U.S. 79. See also the decision in Livingston et al . v. Associates Finance Inc .,
339 F.3d 553;
11. Green Tree Fin. Corp. v. Bazzle , 123 S. Ct. 2402;
12. Garcia v. DirecTV Inc.
, 115 Cal. App. 4th 297;
13. Livingston v. Associates Finance Inc ., 339 F.3d 553.