The Supreme Court of Canada recently held, in its highly anticipated decision in Telus Communications Inc. v. Wellman, that business customers of Telus cannot avoid the terms of a mandatory arbitration clause by joining a class action with consumers who are not bound by the arbitration clause. The decision has implications for franchised businesses that use arbitration clauses in their contracts and establishes that such clauses will generally be upheld as between commercial parties and can be used to avoid class actions in the commercial context.
Background
Wellman filed a class action against Telus alleging that customers of Telus had been overcharged under their per-minute plan contracts as a result of undisclosed billing practices. The contracts included a mandatory arbitration clause to resolve all claims arising out of or in relation to the contract by arbitration. The class action involved claims by both consumers and business customers.
Ontario’s Consumer Protection Act, 2002 (“Consumer Protection Act”) prohibits mandatory arbitration clauses and class action waivers in consumer agreements. However, the Act only applies to consumers (i.e., individuals acting for personal, family, or household purposes) and does not apply to persons acting for business purposes.
Section 7(1) of Ontario’s Arbitration Act,1991 (“Arbitration Act”) sets out the general rule that requires a court (subject to prescribed exceptions) to stay a lawsuit in favour of arbitration, where the parties have agreed to arbitrate in their respective agreement. Notably, section 7(1) of the Arbitration Act does not apply to lawsuits involving consumer agreements with mandatory arbitration clauses; however, it will apply if, after the dispute arises, the consumer agrees to arbitration.
Notwithstanding the general rule, the plaintiff argued that section 7(5) of the Arbitration Act gave the court the ability to allow the business customers to be part of the class action lawsuit and avoid the arbitration clause. Section 7(5) of the Arbitration Act provides an exception to the general rule so long as two requirements are satisfied: (1) the lawsuit must involve at least one matter dealt with in the arbitration agreement and at least one matter that is not dealt with in the arbitration agreement; and (2) it is reasonable to separate the matters dealt with in the agreement from other matters. Where both preconditions are not met, then the exception in section 7(5) has no application. Absent an applicable exception, the general rule in section 7(1) applies and the lawsuit must be stayed.
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