TELUS v Wellman: SCC rules business customers can no longer piggyback on consumer class actions

In a 5-4 split in TELUS Communications Inc. v. Wellman, the Supreme Court of Canada (SCC) held that, in the context of consumer class actions, business customers remain bound by arbitration clauses in agreements.¹ The April 4 decision clarifies the reach of the protections under the Ontario Consumer Protection Act (CPA), and the validity of standard form arbitration clauses in the context of class actions involving both consumers and non-consumers.

What you need to know

• Business customers will not be included as class members in consumer class actions where the agreement at issue contains a valid arbitration clause. Although arbitration clauses are generally invalid in the context of consumer agreements, business customers do not qualify as consumers and cannot invoke the protections under the CPA by piggybacking onto consumer claims.
• Courts do not have the discretion to ignore an otherwise valid arbitration clause, even where it might be reasonable to do so. While sorting between consumers and non-consumers may be cumbersome in certain cases, this inconvenience does not permit courts to disregard valid arbitration agreements in order to avoid such difficulties.
• The decision to exempt certain parties from the enforcement of arbitration agreements lies with the legislature, not the courts. Here, the legislature made a careful policy choice to exempt consumers—and only consumers—from the ordinary enforcement of arbitration agreements. Without legislative language to the contrary, arbitration clauses will generally be enforced.
• While not at issue in this case, the majority suggested that any arguments over the potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability.

Background

The plaintiff filed a proposed class action in Ontario against TELUS, alleging TELUS was improperly overcharging customers by rounding up calls to the next minute without disclosing this practice to consumers. The proposed class included both consumers and business customers. The service contracts between TELUS and each of its customers contained a standard form arbitration clause requiring that all contractual disputes be resolved through binding arbitration.

TELUS conceded that the statutory prohibition in Ontario’s CPA invalidated the arbitration clauses in the consumer contracts. However, TELUS sought a partial stay as against the business customers on the basis that those customers remain bound by the arbitration clause contained in their service agreements.

The motions judge refused TELUS’s motion to stay the claims of the business customers. Relying on section 7(5) of the Arbitration Act, she held that courts have the discretion to allow non-consumer claims that are otherwise subject to mandatory arbitration to participate in a consumer class action where it would be reasonable to do so. The Court of Appeal dismissed TELUS’s appeal.

The decision

Justice Moldaver, writing for the majority, concluded that business customers cannot invoke the protections afforded to consumers under the CPA. Business customers do not qualify as consumers and, as such, they remain bound by the arbitration agreements into which they entered. Allowing persons who are not consumers to do an end run around the Arbitration Act by simply joining their claims with those of consumers would erode the policy that parties to a valid arbitration agreement should abide by their agreement.

In reversing the motions judge and the Court of Appeal, the majority confirmed that section 7(5) of the Arbitration Act does not give courts the discretion to ignore a valid and binding arbitration agreement, even where it would be reasonable to do so. Section 7(5) provides an exception to the general rule that courts are required to stay proceedings that are subject to a mandatory arbitration clause. However, section 7(5) applies only if two preconditions are met: (i) the proceeding must involve at least one matter that is dealt with in the arbitration agreement and at least one matter that is not, and (ii) it would be reasonable to separate the matters. Because the sole matter in this proceeding—the alleged overbilling—was dealt with in the arbitration agreements, the majority held that the first precondition was not met.

The majority acknowledged the policy concerns raised by the dissenting justices, including the importance of promoting access to justice, the difficulty of distinguishing between consumers and non-consumers, and the potential unfairness caused by enforcing arbitration clauses contained in standard form contracts, but concluded that such concerns “cannot be permitted to distort the actual words of the statute…so as to make the provision say something that it does not.”² This is in keeping with the SCC’s previous decisions involving arbitration agreements in the context of class actions, such as Dell and Seidel. The responsibility for setting policy rests with the legislature, not with the courts, and the legislature made a careful policy choice to exempt consumers—and only consumers—from the ordinary enforcement of arbitration agreements.

The majority allowed the appeal and stayed claims of approximately 600,000 TELUS business customers.

Justices Abella and Karakatsanis, writing for the dissent, would have dismissed the appeal. The disagreement with the majority’s conclusion hinged on the application of section 7(5). In the dissent’s view, this provision reflects an explicit legislative intention to override an otherwise applicable arbitration clause by affording courts the discretion to grant or refuse a partial stay.

Considerations

This decision provides necessary guidance in navigating the relationship between arbitration and civil litigation, particularly in the context of consumer class actions. The majority’s narrow reading of section 7(5) reinforces the binding nature of arbitration agreements and confirms that Ontario courts do not have the discretion to decline to stay a proceeding where there is an otherwise valid arbitration clause, even in contracts of adhesion. Although not at issue in this case, the majority suggested that any arguments over the potential unfairness resulting from the enforcement of arbitration clauses contained in standard form contracts are better dealt with directly through the doctrine of unconscionability.

_________________________

¹ See 2019 SCC 19.

² para. 79