Mandatory Arbitration

Executive Summary

A. Introduction

This report examines mandatory arbitration clauses in consumer contracts that purport to bar consumers from commencing court actions, including class proceedings. When mandatory arbitration clauses are imposed upon consumers, tension arises among class proceedings, arbitration and choice of forum for dispute resolution. This report reviews the impact and judicial consideration of mandatory arbitration clauses in Canada, and examines whether two recent decisions from the Supreme Court of Canada have provided clarity or resolution to this issue. This report further reviews the statutory regime in Manitoba regarding class proceedings, arbitration and consumer protection, and compares it with regimes in other jurisdictions in order to assess whether legislative reform is necessary to ensure that consumers in Manitoba are provided with adequate protection.

B. Mandatory Arbitration Clauses in Canada

Mandatory arbitration clauses often appear as pre-dispute provisions in standard form contracts and generally are not negotiable by consumers. Consumers may not be aware of the arbitration process and may be reluctant to initiate arbitration given the uncertain costs associated with this process.
Mandatory arbitration clauses deny consumers access to class proceedings, and class proceedings can be the most viable prospect for consumers to obtain remedies. Moreover, class proceedings enable the pooling of resources, which is particularly significant when the individual monetary amount in dispute is modest, they allow consumers to obtain information through the court discovery process and they facilitate a public challenge of consumer concerns, which can have a wide impact upon consumers generally.
The Commission is concerned that the disadvantages of mandatory arbitration clauses upon consumers can be severe, and that they may ultimately deny consumers from obtaining any remedy at all.

C. Judicial Consideration of Mandatory Arbitration clauses and consumer class proceedings in Canada

This report reviews two recent decisions from the Supreme Court of Canada in Dell Computer Corp. v Union des consommateurs, 2007 SCC 35 and Rogers Wireless Inc. v Muroff, 2007 SCC 35 (hereinafter referred to as Dell and Rogers), where the validity and enforceability of mandatory arbitration clauses in consumer agreements arising from Quebec consumer disputes were upheld. Some commentators have suggested that the impact of these cases could be limited to Quebec, and other commentators have suggested that these cases have jeopardized consumer class proceedings in Canadian jurisdictions, at least in those jurisdictions which lack statutory provisions prohibiting mandatory arbitration in consumer agreements. To date, the concern that Dell and Rogers will endanger consumer class proceedings has already come to fruition in the decision of Frey v Bell Mobility Inc. [2008] S.J. No. 105 (Q.B.) (QL).

D. Class Proceedings in Manitoba

In Manitoba, The Class Proceedings Act governs the certification and conduct of class proceedings. The statutory scheme is broad and is designed to facilitate class proceedings. The Commission examines the public policy goals and benefits of class proceedings, with particular regard to consumer class proceedings.

E. Arbitration in Manitoba

In Manitoba, The Arbitration Act governs the conduct of arbitrations. The statutory scheme is designed to limit judicial intervention and generally encourages stays of proceedings in the face of valid arbitration agreements. The Commission makes the distinction between arbitration as a voluntary dispute resolution mechanism and consumers being bound by mandatory arbitration pursuant to contractual provision.

The Commission examines the public policy goals and benefits of arbitration and gives consideration to primacy issues respecting mandatory arbitration and class proceedings.

F. Customer Protection Legislation

In Manitoba, The Consumer Protection Act and The Business Practices Act provide extensive consumer protection, as well as investigative and remedial actions. Neither of these statutes contains provisions pertaining to mandatory arbitration clauses in consumer contracts.

In this report, the Commission reviews consumer protection schemes with respect to mandatory arbitration and consumer class proceedings in other Canadian jurisdictions. In recent years, legislative reform has taken place to consumer protection legislation in Ontario and Quebec, whereby specific statutory provisions invalidate or prohibit mandatory arbitration clauses that preclude consumer class actions. Alberta has a limited form of consumer protection from mandatory arbitration in the context of unfair trading practices.

The Commission also provides examples of consumer protection regimes from international jurisdictions. In the United States, there is not any federal legislation prohibiting mandatory arbitration clauses in consumer contracts. The enforceability of mandatory arbitration clauses in the face of proposed class proceedings is determined by the courts on a case by case basis. In the European Union, a directive was issued by the European Communities that indicates it is the responsibility of member states to ensure that consumer contracts do not contain unfair terms, and mandatory arbitration is specified as a terms which may be regarded as unfair. In New Zealand, the Arbitration Act 1996 states that an arbitration clause in a consumer agreement is not enforceable unless a consumer agrees, in writing, to be bound by the arbitration agreement. In Australia, there is not any legislation prohibiting mandatory arbitration clauses. However, given the widespread use of alternative dispute resolution in Australia, mandatory arbitration is not particularly popular.

G. Proposed Reforms

The threshold issues considered by the Commission are whether the recent Supreme Court of Canada cases of Dell and Rogers have jeopardized consumer class proceedings in Manitoba and whether legislative reform is appropriate in order to provide clarity, consistency and better protection for Manitoba consumers from mandatory arbitration clauses.

The Commission takes the position that legislative intervention is necessary to ensure that Manitoba consumers retain access to their choice of court proceedings, including class proceedings.

The Commission recommends that concurrent statutory amendments should be enacted to The Consumer Protection Act and The Business Practices Act, which stipulate that a mandatory arbitration clause in a consumer agreement is invalid or prohibited. The Commission further recommends that statutory amendments should be enacted which stipulate that a consumer may commence or become a member of a class proceeding despite any consumer clause or agreement to the contrary.

Finally, the Commission recommends that recent statutory reforms to the Ontario Consumer Protection Act regarding the invalidation of mandatory arbitration in consumer agreements form the model for similar reforms to consumer protection legislation in Manitoba.

Mandatory Arbitration Report,
2008