30 April 2019By Brendan Monahan
In TELUS Communications Inc. v. Wellman, 2019 SCC 19, a majority of the Supreme Court of Canada has ruled that business customers with claims against TELUS will have to pursue their claims through arbitration, and cannot “piggy back” on a consumer class action.
The case provides important guidance for the enforceability of arbitration clauses, particularly in the context of the stay of proceedings provisions under section 7 of the Arbitration Act.
Background: The case centered around a proposed class action by Avraham Wellman, on behalf of approximately two million Ontario residents who entered into mobile phone service contracts with TELUS between 2002 and 2010. Mr. Wellman alleged that TELUS’ undisclosed practice of rounding up all calls to the nearest minute resulted in overbilling.
The putative class consisted of individuals who purchased phone plans for personal use (the “consumer” class members) and those who purchased plans for business use (the “non-consumer” class members).
All class members entered into a written contract incorporating TELUS’ standard terms and conditions, including an arbitration clause which, broadly speaking, stipulates that all claims arising out of or in relation to the contract, apart from the collection of accounts by TELUS, must be determined by mediation and, failing that, binding arbitration.
At the certification motion, TELUS brought a motion to stay the proceeding with respect to the non-consumer claims, relying on the arbitration clause in its standard terms and conditions. TELUS conceded that the consumer claims could proceed in court as a result of certain protections under the Consumer Protection Act which invalidate mandatory arbitration clauses contained in consumer agreements.
The Motion Judge’s Decision: The motion judge, Justice Conway, refused to grant the partial stay. Her Honour found that section 7(5) of the Arbitration Act grants the Court 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. As a result, both the consumer and non-consumer claims were allowed to proceed together. Justice Conway also certified the action. TELUS appealed her Honour’s dismissal of the stay application to the Ontario Court of Appeal.
The Court of Appeal Decision: Justice van Rensburg, writing for herself and Justice Weiler (Justice Blair concurring) dismissed the appeal and upheld the motion judge’s decision to refuse a stay. TELUS was granted leave to appeal to the Supreme Court of Canada.
The Supreme Court Decision: In a 5-4 split decision, a majority of the Supreme Court allowed the appeal and stayed the non-consumer claims.
The central issue on appeal was the interpretation of section 7(5) of the Arbitration Act. Justice Moldaver, writing for the majority, found that section 7(5) consists of two preconditions: first, the arbitration agreement must “deal with only some of the matters in respect of which the proceeding was commenced”; and second, it must be “reasonable to separate the matters dealt with in the agreement from the other matters”.
If both preconditions are satisfied, the Court “may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to the other matters”. Justice Moldaver found that the motions judge and the Court of Appeal had erred in law in interpreting section 7(5) as granting discretion to refuse to stay the non-consumer claims.
In Justice Moldaver’s view, section 7(5) was not engaged because the first precondition was not met. Unlike the motion judge and the Court of Appeal, which appear to have construed the consumer and non-consumer claims as separate “matters” in respect of which the proceeding was commenced, the majority found that the proceeding only involved a single matter: alleged overbilling. This matter was fully covered by the arbitration agreements. The Court put it this way:1
As indicated, s. 7(5) of the Arbitration Act is engaged only where the two preconditions set out in s. 7(5)(a) and (b) are satisfied. The first precondition is that the proceeding must involve both (1) at least one matter that is dealt with in the arbitration agreement and (2) at least one matter that is not. However, that is not the case here. Instead, as I have explained, the proceeding involves a single matter—alleged overbilling—and that matter is dealt with in the arbitration agreements into which the consumers and business customers entered. As such, the first precondition is not met, so s. 7(5) has nothing to say.
The majority found that since section 7(5) does not apply in this case, the proceeding must be stayed pursuant to the general rule under section 7(1), which provides that the court “shall” stay the proceeding in respect of a matter to be submitted to arbitration. Mr. Wellman had conceded that the other statutory exceptions for avoiding a stay under section 7(2) did not apply.
In dissenting reasons, Justices Abella and Karakatsanis (joined by Chief Justice Wagner and Justice Martin) agreed with the Court of Appeal and would have dismissed the appeal.
The Takeaway: The Wellman decision is consistent with prior case law, which has generally found that arbitration clauses, even those contained in adhesion contracts, will be enforced absent express legislative language to the contrary. Unfortunately for the business customers in this case, arbitration on an individual basis likely makes little sense given the amounts at issue, so the practical effect of this decision is that such customers may be left without redress. It will therefore be up to the provincial legislature to enact legislative protections for business customers (should it choose to do so), as it has already done for non-business consumers in the Consumer Protection Act.
1 TELUS Communications Inc. v. Wellman, 2019 SCC 19 at para. 100