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Is the Future Class Proceedings? - TELUS' Mandatory ADR Agreement is Unenforceable

Class proceedings are a powerful tool for consumers and lawyers.  In practical terms, class proceedings allow otherwise uneconomic claims to be brought and often create large monetary exposure to Defendants.  This occurs through aggregation.  If a class proceeding is “certified”, it will “aggregate” all of the claims of a “class” of claimants into one claim.  Where one claimant may have chosen not to file a claim for $10 because it was uneconomic, a certified class proceeding aggregates potentially of thousands of people with $10 claims into one court action.  An uneconomic lawsuit has just become a lucrative lawsuit.

Potential defendants have attempted numerous strategies to minimize the risk of class proceedings.  One strategy has been to insert clauses in consumer contracts requiring the consumer to participate in mediation or arbitration and/or to waive his or her ability to bring or participate in a class proceeding.  These types of agreements have been tested in the United States with varying results.  In Canada, the Supreme Court of Canada had not spoken directly on this issue until now.

On March 18, 2011, a strongly divided Supreme Court of Canada released its decision in Michelle Seidel v. TELUS Communications Inc, 2011 SCC 15.  In a 5 to 4 decision, Mr. Justice Binnie, writing for the majority, found that a clause in a TELUS standard form agreement that required mandatory mediation and arbitration, and which barred class proceedings, was not effective to prohibit a claimant from pursuing a statutory remedy pursuant to the British Columbia Business Practice and Consumer Protection Act (the “BPCPA”).  It was also not effective to prohibit a Claimant from seeking certification of such a claim pursuant to the British Columbia Class Proceedings Act.

The majority decision found that the BPCPA was consumer protection legislation which allowed a claimant under section 172 to bring a claim to enforce consumer protection standards and, specifically, prohibited a consumer from waiving the rights granted under that legislation.  Accordingly, to the extent TELUS’ clause restricted the consumer’s right to file such a claim in court, the clause was invalid.  In addition, the class action waiver was not severable from the mandatory mediation/arbitration clause and, as a result, was also unenforceable.  This decision therefore allowed the Claimant to continue the application for certification of the claim as a class proceeding.

Is the future now one of more class proceedings and less alternative dispute resolution?  While this decision was consumer friendly, in that it interpreted the clause in question and the consumer protection legislation broadly in favour of the consumer, the decision was also very particular to the legislation in question.  The majority also wrote that it was ultimately the choice of the legislature to determine whether arbitration/mediation clauses are to be restricted and they also allowed a mandatory stay of the court proceedings in favour of arbitration for other claims that were not found to have the same statutory protection.  There are clearly more arguments of this type to come and it may be too early to tell how friendly the future will be for agreements requiring alternate dispute resolution and restricting class proceedings.

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This blog is authored by members of the Litigation and Dispute Resolution Department. We follow new and interesting issues emerging in the legal and business communities. The wide range of experience among the members of our litigation group will provide a diverse and insightful examination of current legal trends and topics. Our goal is to provide a source of valuable information and insight on a wide variety of matters for our readers.

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