Class action waiver upheld in competition case

In a recent decision, the Federal Court of Canada enforced a class action waiver and an arbitration clause in a private action under section 36 of the Competition Act.^[1]

The decision is significant because it clearly states two important principles:

• Class action waivers will be enforced unless they are contrary to statute
• Claims alleging breaches of the Competition Act are arbitrable

In 2009, disgruntled Amway "independent business owner" ("IBO"), or dealer, Kerry Murphy and his wife Cheryl Rhodes commenced a proposed class action against Amway in the Federal Court. They alleged that Amway's business model contravened the rules for multi-level schemes set out in the Competition Act and constituted an unlawful pyramid scheme. They also alleged breaches of the misleading advertising provisions of the Act.

Amway responded by disputing the jurisdiction of the Federal Court and seeking a stay of the action in favour of arbitration.

On July 2, 2010, Justice Mainville ruled on a preliminary point, holding that the dispute resolution provisions in Amway's "Registration Agreement" with its dealers excluded class actions from arbitration and stipulated that the validity of the class action waiver are to be decided by the courts. Consequently the Federal Court had jurisdiction to deal with these issues.^[2]

Justice Boivin dealt with the remaining points raised by Amway in a decision issued on November 23, 2011.

Boivin J. dealt first with the interpretation of the dispute resolution provisions in the Registration Agreement. These provisions included both an arbitration agreement and a class action waiver. In brief, they stipulated that all disputes were to be submitted to arbitration; that no claims over $1,000 could be asserted in a class action; and that class action claims were not arbitrable. These provisions were clear, Boivin J. held: Murphy's claim for $15,000 must be heard by an arbitrator on an individual, not class, basis.

Boivin J. then considered whether the class action waiver and arbitration agreement should be enforced. Pointing to a string of Supreme Court cases that "have contributed to confirming Canada’s status as an 'arbitration-friendly' jurisdicition", Boivin J. concluded that the "Court accordingly may not, absent legislative language to this effect, assert jurisdiction over a matter that is subject to an arbitration agreement". While class action waivers "are sometimes regarded with suspicion", class actions are a mere procedural vehicle that neither modifies nor creates substantive rights, Boivin J. held, citing the Supreme Court in Bisaillon v Concordia University^[3]:

[17] The class action is nevertheless a procedural vehicle whose use neither modifies nor creates substantive rights …. It cannot serve as a basis for legal proceedings if the various claims it covers, taken individually, would not do so ….

[19] Similarly, recourse to this procedural vehicle does not change the legal rules relating to subject-matter jurisdiction …

[22] In short, the class action procedure cannot have the effect of conferring jurisdiction on the Superior Court over a group of cases that would otherwise fall within the subject-matter jurisdiction of another court or tribunal. Except as provided for by law, this procedure does not alter the jurisdiction of courts and tribunals. Nor does it create new substantive rights. …

Boivin J. held that the "preferable procedure doctrine" did not apply. His reasoning suggests that the consideration of whether a class action is the “preferable procedure” mandated by class action rules does not give the court jurisdiction it otherwise would not have. This follows from the principle that class action rules are procedural, not substantive.

Nor was the class action waiver in the Amway agreement unconscionable. Thus, he held, "absent clear legislative language prohibiting class action waivers, it must give effect to the parties' agreement to arbitrate".

Next, Boivin J. considered whether the class action waiver was inconsistent with section 36 of the Competition Act, which identifies the Federal Court as a court of competent jurisdiction to hear claims under that provision. Boivin J. disagreed that section 36 is similar to the provisions of the British Columbia Consumer Protection Act that led the Supreme Court to ignore a class action waiver in Seidel v TELUS Communications Inc^[4]. Section 36 merely confers non-exclusive subject-matter jurisdiction ("ratione materiae") on the Federal Court. It does not exclude arbitration as a valid forum.

Finally, Boivin J. rejected Murphy’s appeal to subsection 7(5) of the Ontario Arbitration Act, which says that a court can stay the part of the proceeding submitted to arbitration and allow the part not submitted to arbitration to continue. Murphy argued that there were likely other class members with claims for $1,000 or less, and that it would be unreasonable to split his claim from those claims. While courts have refused to stay some class actions in favour of arbitration where there is evidence of a number of claims, here, Murphy only provided evidence of one claim: his own. Boivin J. added that Murphy’s argument

would mean that one could always defeat a class action waiver by merely invoking section 7(5) of the Ontario Arbitration Act. This would fly in the face of the Supreme Court of Canada's repeated confirmations that class action waivers are allowed and may be enforced unless prohibited by the legislator (Bisaillon, Desputeaux, Dell, Rogers, Siedel) – which as found earlier is not the case in the present circumstances.

^[1] Murphy v. Cie Amway Canada, 2011 FC 1341, http://decisions.fct-cf.gc.ca/en/2011/2011fc1341/2011fc1341.html

^[2] Rhodes v. Cie Amway Canada, 2010 FC 724

^[3] 2006 SCC 19

^[4] 2011 SCC 15