Is a Class Arbitration Do-able?
Margaret L. Waddell, LLM, Paliare Roland LLP
The full potential for class arbitrations has yet to be canvassed in Canadian
courts; but has been fertile ground for litigation in the US over the past several years. It
may be that the differences in legislation North and South of the border will ultimately
demonstrate that the US legal system is in fact more amenable to class arbitration than
is the Canadian. Presently, unless the parties agree to arbitrate under arbitral rules or
foreign legislation that is sufficiently flexible to permit one party to the dispute to bring an
arbitration on behalf of a class of similarly situated persons, the current class action
regime in Canada does not easily accommodate the class arbitration concept.
In the US, the Supreme Court has been asked to consider preliminary issues in
the context of a class arbitration several times in the past few years. The principal case
on the potential availability of a class arbitration is Stolt-Nielson SA v. AnimalFeeds
International Corp. 130 S. Ct. 1758 (2010). In that case, the Supreme Court confirmed
that parties to an agreement can expressly agree to a class arbitration; but in the
absence of such an agreement, the defendant could not be compelled to arbitrate on a
class-wide basis. Stating the obvious, the Supreme Court reminded that “arbitration is a
matter of consent, not coercion.” Subsequent US decisions have suggested that the
Supreme Court did not foreclose the possibility that the parties might implicitly agree to
a class arbitration proceeding, even if there is no express class arbitration language in
the agreement – the issue should be determined as a matter of contractual
interpretation.
In Stolt-Nielson, the Court noted that parties are free to structure their
agreements as they deem fit. This may include specifying those with whom they are
prepared to arbitrate (singly or collectively), in addition to enumerating the subject
matters open to arbitration, and the rules to be applied in the arbitration. The Court
refused to read into the subject arbitration agreement an implied term that since the
parties agree to arbitrate, they had therefore agreed to a class arbitration. Unless the
parties have agreed that the arbitrator has the power to certify a class, such an order
would exceed the arbitrator’s jurisdiction.
The Supreme Court’s decision emphasizes the fact that a class arbitration
incorporates unique features fundamentally different than a bilateral arbitration, and
potentially prejudicial to the parties, particularly to the defendant. These differences
include the fact that the arbitrator would be called upon to bind absent third parties, the
fundamental concepts of privacy and confidentiality of arbitration would be
compromised, and the commercial/financial stakes are such that the parties may desire
the greater protections of a less streamlined procedure. In addition, because a class
arbitration affects absent class members, it necessarily must involve greater procedural
formality, and hence is a slower, more cumbersome and costly process. (See also,
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011)) These substantial and
fundamental differences between a class and a bilateral arbitration emphasize why the
parties would need to be clear in their intent to agree to a class arbitration.
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More recently, the US District Court for the Southern District of New York, in In re
A2P SMS Antitrust Litigation, 12 CV 2656, applied another Supreme Court decision,
Green Tree Fin. Corp. v. Bazzle, 539 US 444 (2003), to conclude that in circumstances
where there is a clear, enforceable agreement to arbitrate that covers the substantive
claims which are in dispute (these preconditions being “gateway” or threshold questions
within the competence of the court), then it is for the arbitrator to determine whether the
arbitration may proceed on a class basis, or merely as a private, bilateral proceeding.
(In Canada, this is the competence/competence rule) Justice A. Nathan stated: “Put
succinctly, the question of availability of class arbitration does not go to the power of the
arbitrator to hear the dispute, but rather to an issue that simply pertains to the conduct
of the proceedings that are properly before the arbitrator.” The judge emphasized that
in view of the strong policy in favour of arbitration of disputes, it will be “the rare
question [of arbitrability] that gets decided by the Court.”
While the Canadian experience is lagging behind the American, Canadian
businesses have been quick to follow the US example of incorporating mandatory
arbitration provisions and “anti-class action” clauses into standard form contracts of
adhesion. It is only a matter of time before our courts will be called upon to grapple with
the same issues that are now surfacing in the States, as enterprising class counsel look
for means of circumventing these arbitration clauses.
To date, there have been a number of decisions where Canadian courts have
been asked to rule on whether the parties are obliged to arbitrate, or whether the
subject matter of the proposed class action takes the case out of the private dispute
resolution realm. An early example was the decision of Sharpe J. (as he then was) in
Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 42 OR (3d) 776 (Gen Div.) In that
case, the plaintiff was successful in arguing that the claims asserted in the class action
included claims that were not arbitrable. Since those claims were closely tied to the
claims subject to arbitration, it was “highly desirable they proceed together before the
same forum so as to avoid a multiplicity of proceedings.” Sharpe J. held that the
language of s. 7(5) of the Arbitration Act gives the court discretion to refuse a stay of the
court proceeding where it is not reasonable to separate the matters dealt with in the
arbitration agreement from the other matters in dispute between the parties.
The plaintiff in Kanitz v. Rogers Cable Inc. (2002), 58 OR (3d) 299 (SCJ) was
less successful. However, in the grand scheme, the case was highly successful as it
resulted in an amendment to the Ontario Consumer Protection Act, 2002 carving out the
enforceability of arbitration clauses and anti-class action clauses in consumer contracts.
Griffin v. Dell Canada Inc., 2010 ONCA 29, leave ref’d, combined the themes of
judicial economy and consumer protections from Rosedale Motors and the amended
Consumer Protection Act. In that case, the proposed class included both businesses
that could not shelter under the protection of the Consumer Protection Act, and
individual purchasers who could. The Court of Appeal refused to split the proposed
class and compel the corporate computer purchasers to arbitrate. In the course of his
decision, Sharpe JA identified that the predominate intent of arbitration clauses is not to
remove disputes from the courts to an alternative dispute resolution methodology; but
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rather to raise substantive barriers to dispute resolution. He noted at para. 29, “Both
academic research and the common sense reflected by the findings of the motion judge
in this case indicate that suppliers and sellers regularly insert arbitration clauses in order
to defeat claims rather than out of a genuine desire to arbitrate disputes with
consumers. Such disputes often involve small claims that are not individually viable.
Such claims only become viable if they can be aggregated by way of a class
proceeding.” The Court of Appeal refused to grant a stay of the non-consumer claims in
the class action, since this would lead to inefficiency, a potential multiplicity of
proceedings, added cost and delay.
Finally, the SCC has also spoken on the enforcement of arbitration clauses in
both Quebec and under the common law regimes. In Seidel v. TELUS Communications
Inc., 2011 SCC 15, the Court confirmed the basic proposition from Dell v. Union des
consommateurs, 2007 SCC 34 that it is up to the legislature to say whether arbitration
clauses in consumer contracts are enforceable. “Absent legislative intervention, the
courts will generally give effect to the terms of a commercial contract freely entered into,
even a contract of adhesion, including an arbitration clause.”
Having now put to rest the preliminary question of whether the commencement of
a class action will automatically trump an arbitration clause (it will not, absent legislation
to the contrary), the likely next area of scrimmage will follow the US pattern, and will be
concerning whether a class arbitration is possible or permissible. This remains
uncharted territory. The language of s. 25(1)(c) of the Ontario Class Proceedings Act,
1992 is sufficiently broad to permit arbitration of individual issues after the common
issues are determined, should the parties agree. But s. 2 of the Act speaks only to
commencing a proceeding in “the court”, which is defined as the Superior Court of
Justice. Hence, the Class Proceedings Act, 1992, as currently framed, cannot govern a
class arbitration. That however, is not the end of the discussion. Parties are free to
establish terms upon which they will agree to arbitrate their disputes, and as a
consensual process, this may include class arbitration in appropriate cases.
Furthermore, as the Class Proceedings Act, 1992 is now under review, it is possible that
the Law Commission of Ontario may recommend changes to Ontario’s legislation to
expressly accommodate class arbitrations.
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