Canada: Supreme Court Decisions Affect Class Actions, E-commerce and Arbitrations

While both the Dell Computer Corp. v. Union des consommateurs (Dell Computer) and Rogers Wireless Inc. v. Muroff (Rogers Wireless) cases originated in the Québec courts, the reasoning in each will have significant impact across the country. In both cases, the plaintiff consumers purported to commence a class action in the Québec Superior Court. The defendants immediately objected, arguing that the parties had agreed to arbitrate the disputes. The plaintiffs responded that an agreement to arbitrate could not oust the courts’ jurisdiction to hear class actions and that the agreement to arbitrate violated aspects of Québec law protecting consumers.

Both plaintiffs were successful before the Québec Court of Appeal but lost at the Supreme Court. The high court referred both matters to arbitration and refused to allow either case to proceed in the courts, despite the plaintiffs’ attempt to commence a class action.

The Supreme Court also concluded in Dell Computer that the agreement entered on-line by the plaintiff was binding. Although some of the terms of the agreement (including the dispute resolution clauses) were only accessible by scrolling down or following a link to a separate webpage, the terms were reasonably accessible and the plaintiff had a reasonable opportunity to read them.

Dell Computer Corp. (Dell) sells computer equipment over the Internet. In April 2003, a computer glitch resulted in vastly under-priced computers on the order pages of Dell’s website. Dell promptly blocked access to the order pages. But, some consumers in Québec purported to order over 500 computers at the erroneous prices using a "deep link" to the order pages. When asked to honour the orders, Dell offered a substantial price reduction but refused to sell the computers at the erroneous prices. One consumer filed a motion for authorization to institute a class action against Dell.

The terms and conditions of sale posted on Dell’s website contained a dispute resolution clause accessible through a blue hyperlink reappearing on every page that the consumers accessed. The clause provided for an agreement to arbitrate disputes with reference to an American arbitration institution and its rules of procedure.

Arbitration Issues

At first glance, the Dell Computer and Rogers Wireless cases concern arbitration law --specifically, a legal (but, practically speaking, very important) question about whether the courts or an arbitral tribunal should decide preliminary issues about the validity and scope of an arbitration agreement.

Justice Deschamps, writing for six justices of the Supreme Court in Dell Computer, set down a "general rule" that a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator, unless the challenge is based solely on a question of law. Where the challenge involves the production and review of factual evidence, the court should normally refer the case to arbitration to decide the issue. And, even where the challenge involves a question of law, the court may still refer the matter to arbitration if it would be "best for the arbitration process."

The majority’s "general rule" should apply not only in Québec, but in all the common law provinces and to disputes under federal arbitration law. It would be surprising if it did not apply nationally because all Canadian arbitration legislation, including Québec’s, is based on the same source – the UNCITRAL Model Law on International Commercial Arbitration.

In addition, consistent with the court’s recent decisions in Desputeaux v. Éditions Chouette (1987) inc. (2003), GreCon Dimter inc. v. J.R. Normand inc.(2005) and Bisaillon v. Concordia University (2006), the tone and content of the majority’s decision strongly favours arbitration as a private alternative to the courts for resolving disputes.

The majority of the court concluded that arbitration agreements can preclude class actions, even in consumer contracts that are not negotiated, essentially because a class action is not a substantive right but a procedural vehicle.

In contrast to the legal analysis used in prior class action cases in some lower courts, the Supreme Court held that a court must deal with the motion to refer a case to arbitration first, dealing with class action certification issues only if the case is not sent to arbitration. Some lower courts were treating an agreement to arbitrate as one consideration in the overall decision of whether to certify a case as a class action. They considered, for instance, whether arbitration would be the "preferable procedure" to resolve the particular dispute.

Both Ontario and Québec now have legislation that limits pre-dispute waivers of class actions in consumer cases. Under Alberta law, certain court proceedings are unavailable where a written arbitration clause has government approval and has been agreed to by the consumer. The Supreme Court’s decision suggests that a properly drafted arbitration clause will act as a waiver in those provinces without such legislation. Even in the provinces with such legislation, an effective waiver remains available outside the consumer context. In Dell Computer, the court also concluded that amendments to Québec’s Consumer Protection Act prohibiting mandatory arbitration in consumer contracts were not retroactive and, therefore, did not apply to a case where the dispute had arisen and a notice of arbitration had been delivered before the new provisions came into force.

E-commerce and Consumer Protection

The Supreme Court in Dell Computer was sensitive to the e-commerce environment in which the consumer had entered into the agreement. The majority decided that the terms and conditions of the agreement were sufficiently accessible to the consumer because they could be accessed directly by clicking on a hyperlink that reappeared on every page that the consumer accessed.

The Dell Computer decision provides strong arguments for Internet businesses that, even if a consumer does not actually read the contract terms on a website, those terms should be included in the terms of sale, provided the terms were reasonably accessible to the consumer and the consumer had a reasonably opportunity to read them. Although this part of the court’s decision turned on Québec law, the reasoning will be very persuasive in the courts of other provinces.

Québec Private International Law

Article 3149 of the Civil Code of Québec, enacted to protect workers and consumers, provides (in part) that a Québec court has jurisdiction to hear an action involving a consumer contract if the consumer has his domicile or residence in Québec. Article 3149 also states that "the waiver of such jurisdiction by the consumer … may not be set up against him."

This provision applies only in the context of an arbitration that contains a foreign element. To the assistance of lawyers and scholars, the majority of the court carefully described what constituted a foreign element for private international law purposes. Over a dissenting opinion written by Justices Bastarache and LeBel, the majority concluded that there was no foreign element solely by virtue of an arbitration clause that adopted the procedural rules of an American arbitration institution. Article 3149 was inapplicable in this case because the consumer was domiciled in Québec, Dell had a place of business in Québec, the sale occurred in Québec and the arbitration would take place in Québec before a Québec arbitrator who would apply Québec law.

In Rogers Wireless, the Supreme Court confirmed, on the basis of the principles stated in Dell Computer, that the arbitration agreement contained in the contract of services between Rogers and its wireless customer was valid and not abusive. The court referred the dispute to arbitration. Notably, the specific arbitration clause in Rogers Wireless not only referred all disputes to arbitration, but also expressly prohibited a customer from commencing or participating in a class action.

Both the Dell Computer and Rogers Wireless decisions represent another clear vote of confidence in the legitimacy and importance of independent arbitration as an alternative to resolving disputes in the courts. These decisions will have a major impact in promoting arbitration as an efficient remedy, limiting the role of courts and confirming the broad jurisdiction of arbitrators to decide the scope of their own jurisdiction.

The cases also provide helpful guidance to businesses that need to manage their class action risk and to consumers and businesses doing business on the Internet.

Andrew Little is a partner in the Litigation Department in Osler's Calgary office. Andrew acts as counsel in corporate, energy and complex contractual disputes, in court and in domestic and international arbitrations. Anne-Marie Lizotte is a partner in the in the firm’s Montréal office Research Department. Her practice has been focused on professional liability and extends to commercial law, corporate law, real estate, product liability and class actions.

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