Arbitration Clauses in Consumer Contracts Will Not Stop Class Actions in Ontario

Many businesses use standard-form sales agreements in offering products or services to the public. With the increased frequency of class litigation across Canada, vendors often insert an arbitration clause in the standard-form contract as part of their risk management strategy against consumer class actions. This strategy may work in some other Canadian provinces, but not in Ontario, which was confirmed in a very recent decision released by the Ontario Court of Appeal in Griffin v. Dell Canada Inc.

In 2008, Dell brought a motion before the Ontario Superior Court of Justice to stay the putative class action invoking the arbitration clause in the Terms and Conditions. It should be noted that prior to this Ontario class action, Dell Computer Corporation ("Dell Computer") was the defendant in a separate class action commenced in 2003 in Quebec under the Code of Civil Procedure: Union des consommateurs c. Dell Computer Corp. ("Dell Computer"). There, Dell Computer also relied on the standard arbitration clause contained in the terms and conditions of the sale for a stay of the class action. Although its stay request was refused by the Quebec Superior Court and Court of Appeal, it was granted by the majority of the Supreme Court of Canada. Deschamps J. held that the class action is a civil procedure that does not create new rights, and "cannot serve as a basis for legal proceedings if the various claims it covers, taken individually would not do so." Therefore, a class action is unavailable if there is a valid arbitration clause applicable to the disputes. It is the arbitrator, not a court, who must rule, in the first instance, on the validity or applicability of an arbitration agreement.

In this Ontario class action, Justice Lax dismissed Dell's motion for stay. She noted Dell Computer in her decisions but distinguished it on the basis that the applicable statutes in Ontario were different from those in Quebec, and that the Supreme Court's holding in Dell Computer was specific to Quebec and not applicable in Ontario. In her view, the law in Ontario was that a motion for stay in favour of arbitration should be considered within the context of the preferable procedure analysis of a certification motion of that action. In the preferrability analysis, Justice Lax then compared the class action with arbitration of the class members' claims on an individual basis. Because of the costs of proof inherent in this complex product liability case, Justice Lax thought it was unlikely that class members would realistically commence individual and separate arbitration proceedings before NAF to assert their rights. As a result, she concluded that a class proceeding, not arbitration, was the preferred procedure. Accordingly, the class action against Dell was certified on February 3, 2009. In April 2009, Dell brought a motion asking Justice Lax to reconsider her decision. Justice Lax dismissed the motion and confirmed her prior decision.

The appeal from Justice Lax's decisions was dismissed on January 10, 2010. The Court of Appeal considered the Ontario Consumer Protection Act ("CPA") determinative of Dell's stay request. Unlike the consumer protection statutes in other common law provinces in Canada, Ontario's CPA expressly invalidates mandatory arbitration clauses in consumer contracts and , at the same time, specifically preserves a consumer's right to commence, or participate in, a class proceeding despite any class action waiver in the consumer agreement. Accordingly, Dell could not rely on the arbitration clause in the Terms and Conditions to stay the class action.