No "Piggybacking" to Avoid B2B Arbitration: Supreme Court of Canada Affirms Enforceability of Arbitration Clauses despite Related Class Action
By Robert Wisner
In its recent 5-4 decision in Telus Communications Inc v. Wellman,1 the Supreme Court of Canada ruled that courts must enforce valid arbitration agreements between businesses despite the existence of parallel litigation by other plaintiffs against the same defendant - even where that litigation is a class action raising identical issues.
The decision is an important victory for Canadian businesses that rely on arbitration clauses in either standard form B2B agreements or carefully negotiated commercial contracts between sophisticated parties. In order to take full advantage of this important decision, Canadian businesses should review their contracts to ensure that their arbitration clauses cover a broad range of claims and can efficiently address the risk of parallel proceedings.
The Dilemma of Arbitration and Third Party Litigation
Should a court enforce a valid arbitration clause between two parties if one of them is involved in related litigation with a third party? On the one hand, courts usually enforce valid contracts. Doing so for an arbitration clause gives effect to the parties’ choice of an alternative dispute resolution method that offers procedural flexibility, a chance to select an expert decision-maker and other advantages. On the other hand, enforcing an arbitration clause where there is related litigation may give rise to multiple proceedings and potentially inconsistent results. Some claims are also too small to arbitrate individually and can only be prosecuted by a class action. While courts respect freedom of contract, they also try to avoid inefficient overlapping proceedings and ensure access to justice.
Prior to Telus, Canadian courts in most common law provinces were often reluctant to allow multiple proceedings or restrict access to class actions. However, the Telus case should lead lower courts to favour party autonomy and enforce valid arbitration clauses.
The Telus Business and Consumer Contract Claims
The Telus case involved a proposed class action of Ontario residents who entered into per minute billing plans for mobile phones. The plaintiff alleged that Telus’ terms and conditions made no mention of a practice of “rounding up” calls to the next minute, resulting in overbilling. He sought to certify a proposed class consisted of about 1,400,000 consumers and 600,000 businesses.
Although the arbitration clause in Telus’ standard terms and conditions covered the plaintiff’s claims, Ontario’s Consumer Protection Act2 invalidated the clause in agreements with consumers. As result, at least 70% of the claims would proceed in court under the Class Proceedings Act.3 The issue was whether Ontario’s domestic Arbitration Act4 gave the courts discretion to refuse a stay of the proposed class proceeding for the remaining 30% of Telus’ business customers. Refusal of the stay of proceedings would effectively invalidate the otherwise binding arbitration clauses in the business agreements.
The plaintiff relied on a long line of cases in which Canadian courts refused to stay court proceedings in favour of arbitration on the basis that only some