Originally published Fall 2007
In a case decided under the civil law of Québec, the Supreme Court of Canada has upheld the validity of an arbitration agreement contained in the hyperlinked terms and conditions of an online consumer purchase order. The Court also found that such a commitment to arbitrate cannot be avoided by bringing a class action. The decision has broad implications for the arbitration of consumer disputes and for class actions in all Canadian jurisdictions.
Facts
In 2003 Dell Computer Corporation posted incorrect prices on its web order pages for two products. Dell corrected the error three days later, but not before hundreds of consumers had placed online orders at the posted prices. Dell declined to process the orders. This resulted in an attempt by the Union des Consommateurs (a non-profit organization) to initiate a class action against Dell in the Superior Court of Québec. Dell resisted the proposed class action by invoking the arbitration agreement contained in the terms and conditions page hyperlinked to its website order pages. Dell applied to have the claim referred to arbitration and to have the application to institute a class action dismissed. Dell failed at first instance and again on appeal, but prevailed on further appeal to the Supreme Court of Canada.
Decision
A threshold issue was whether the courts or an arbitrator should rule first on a challenge to the validity or applicability of an arbitration agreement. The Court confirmed that, as a general rule, in any case involving an arbitration agreement such a challenge must be resolved first by the arbitrator. The Court held that a departure from that rule should be made only if the challenge is based solely on a question of law – and even then, only if the court is satisfied that it is not a delaying tactic and will not unduly impair the conduct of the arbitration. The Court held that this case ought to have been first referred to arbitration. Nevertheless, the Court addressed the case on its merits.
The Union challenged the arbitration agreement’s validity primarily in reliance on Article 3149 of the Civil Code of Québec, which protects the jurisdiction of the Québec courts over consumer matters and invalidates any purported waiver of it. Although the Union had relied successfully on that provision at trial and on appeal, the Supreme Court of Canada rejected this argument because the case lacked the "relevant foreign element" needed to trigger the article.
The Court then rejected the Union’s remaining challenges to the arbitration agreement’s validity:
- Article 1435 of the Civil Code nullifies an "external" clause in a consumer contract unless the clause is expressly brought to the consumer’s attention or the consumer already knows of it. The Court held that this arbitration clause was not external, because it was reasonably accessible by hyperlink.
- Article 2639 of the Civil Code precludes disputes over matters of "public order" being submitted to arbitration. The Union maintained that this dispute could not be submitted to arbitration because, as a class action, it was a matter of public order. The Court held that, while class actions are clearly of public interest, they are only a legal procedure and do not create new rights. That conclusion may have implications for the Canadian cases that have treated class certification as a reason to favour litigation of disputes that are otherwise subject to arbitration agreements.
Comment
The Supreme Court of Canada has gone a long way to resolving issues that continue to vex the courts of other jurisdictions, particularly the United States.
Sellers of goods and services to Canadians via the internet will be encouraged by the Court’s willingness to enforce agreements, including arbitration agreements, made in an electronic environment. The Court’s view that the commitment to arbitrate should prevail over the procedural right to commence a class action will undoubtedly inspire sellers of consumer goods to include arbitration agreements in their standard-form documents. Whether such agreements will be effective to prevent class actions may depend in part on the steps taken to bring them to the consumer’s attention.
After the events that gave rise to this dispute took place, Ontario and Québec enacted legislation prohibiting consumer agreements from requiring that disputes arising out of them be submitted to arbitration (s. 7(2) of Ontario’s Consumer Protection Act, 2002, and s. 11.1 of Québec’s Consumer Protection Act). Class action plaintiffs in Canada may prefer to bring proceedings in these provinces. It remains to be seen whether other Canadian jurisdictions follow suit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
