Canadian Law Lets Consumers Avoid Arbitration Clauses that Prohibit Class Actions

On April 4, 2019, the Supreme Court of Canada released its reasons in TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII) by which it reversed the Ontario Court of Appeal decision, which had refused to stay certain claims covered by a class action based on an arbitration clause.

The class representative filed a proposed class action for damages against TELUS Communications Inc. on behalf of Ontario residents who had mobile phone service contracts with TELUS during a specific period. The class included both consumers and business customers. The standard terms and conditions included an arbitration clause stipulating that all claims arising out of or in relation to the contract, apart from the collection of accounts, must be determined through mediation and, failing that, arbitration. Ontario’s Consumer Protection Act, 2002, SO 2002, c 30, Sch A invalidates such clauses to the extent that they prevent consumers from pursuing claims in court. Because business customers do not benefit from this protection, TELUS applied for a stay with respect to the business customer claims, relying on the arbitration clause. The motions judge dismissed TELUS’s motion for a stay and certified the action. She determined that section 7(5) of Ontario’s Arbitration Act, 1991, SO 1991, c 17 grants 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, thereby allowing all of the matters to proceed in court. The Court of Appeal dismissed TELUS’s appeal.

In a 5-4 split decision, the SCC held that the appeal should be allowed and the claims of the business customers should be stayed. Section 7(5) of the Arbitration Act does not give the courts discretion to refuse to stay claims dealt with by an arbitration agreement. Business customers remain bound by their agreements.

Daniel Urbas is an experienced arbitrator and mediator at Urbas Arbitral in Montreal, Quebec, Canada.

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