SCC rules business customers excluded from class action against TELUS, must arbitrate

Business customers with claims against TELUS Communications must pursue their cases through arbitration rather than as part of a class action, the Supreme Court of Canada ruled today in a decision that set guidelines for cases in which consumer class actions and arbitration clauses intersect.

SCC rules business customers excluded from class action against TELUS, must arbitrate
Brian Casey says a recent Supreme Court ruling is an ‘important decision that protects the process of arbitration but gives guidance concerning a very specific area of consumer protection.’

Business customers with claims against TELUS Communications must pursue their cases through arbitration rather than as part of a class action, the Supreme Court of Canada ruled today in a decision that set guidelines for cases in which consumer class actions and arbitration clauses intersect.

In a 5/4 decision in TELUS Communications Inc. v. Avraham Wellman, the majority of the Supreme Court found that TELUS’s business customers could not proceed with a class action but must proceed with arbitration as stipulated in their contracts. The court ruled that s. 7(5) of the Arbitration Act, 1991 (Ontario) does not grant a court discretion to refuse to stay claims that are dealt with in an arbitration agreement. 

However, the arbitration clause was determined to be invalid in regard to personal customers by virtue of Ontario’s Consumer Protection Act.

“This is an important decision that protects the process of arbitration but gives guidance concerning a very specific area of consumer protection,” says Brian Casey, an arbitrator and principal of Bay Street Chambers in Toronto. “The Arbitration Act provides that parties to an arbitration agreement are going to have to arbitrate, period.”

The class action arose from claims that TELUS had rounded up lengths of mobile phone calls to the next minute without disclosing this to its customers, so that customers were overcharged for calls and not entitled to the number of minutes they should have had under their contracts.

Under s. 7(5) of the Arbitration Act, a 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 . . . (b) it is reasonable to separate the matters dealt with in the agreement from the other matters.”

The motion judge dismissed TELUS’s motion to stay the proceeding, finding that it was not reasonable to separate matters, i.e., between personal and business customers. She found the issues to be the same, that separating the claims would lead to inefficiency and inconsistent results and to a multiplicity of proceedings. The Court of Appeal for Ontario dismissed TELUS’s request for a stay application.

“[T]he Consumer Protection Act expressly shields consumers from a stay of proceedings under the Arbitration Act,” Justice Michael Moldaver wrote for the majority, with justices Clément Gascon, Suzanne Côté, Russell Brown and Malcolm Rowe concurring.

“Consequently, they are free to pursue their claims in court. The business customers, however, do not benefit from these protections. So where does this leave them?”

The answer, said the majority, lay in the wording of s. 7 of the Arbitration Act. The respondent, Avraham Wellman, had argued that s. 7(5) of the act allows for a court’s discretion for all customers, whether personal or business, to pursue their claims in court together. The majority disagreed.

“. . . I am of the view that s. 7(5) of the Arbitration Act does not grant the court discretion to refuse to stay claims that are dealt with in an arbitration agreement. To borrow the language from this Court’s decision in Seidel v. TELUS Communications Inc., 2011 SCC 15, [2011] 1 S.C.R. 531, it is not ‘a legislative override of the parties’ freedom to choose arbitration.”

While the majority decision is “clearly right in law,” says William Horton of William G. Horton Commercial Arbitration in Toronto, “to my mind, the outcome of the decision is very unsatisfactory from every point of view. . . . I think the courts need some help from the legislature, and [the decision] has made it clear that that’s needed. Even the majority lays it at the door of the legislature.”

At issue are access to justice for consumers and using both arbitration and class actions for the purposes for which they were meant to be used.

“From an arbitration standpoint, I think it is a correct reading of [the Arbitration Act] to say, if it’s covered by an arbitration agreement, the court should stay the proceedings that are dealt with in the arbitration agreement,” says Horton. “But in the class action context, we have a whole different dynamic going on.”

In the TELUS case, the arbitration clause “is not really an arbitration agreement but simply to shut down class actions,” he says. That’s because companies with such clauses in their consumer agreements do not anticipate their customers going to arbitration to settle small claims, he says.

“What’s happening is that the arbitration agreements are being used to shut down access to the only effective remedy that people have,” Horton told Legal Feeds. “That’s what makes s. (7)5 [of the Arbitration Act] different in the context of class proceedings. That’s why the [Ontario] Court of Appeal has said for the last 10 to 12 years, in the context of class actions . . . that it makes sense” to let all claims of the same nature be determined together.

Justices Rosalie Abella and Andromache Karakatsanis, in joint dissenting reasons (also writing for Chief Justice Richard Wagner and Justice Sheilah Martin) would have dismissed the appeal. They found that where a proceeding includes matters covered by an arbitration agreement and other matters that are not, s. 7(5) of the Arbitration Act gives a judge discretion to allow the entire proceeding to continue in court, even if some parties would otherwise be subject to an arbitration clause.

The minority understood why the class action context should distinguish some arbitration agreements from others, Horton says.

“It's a different analysis, because there's a question about whether these arbitration agreements are ever really meant to produce arbitrations,” he says.

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