BC Court of Appeal – Class Action Waiver Unconscionable and Unenforceable

Important reasons for judgment were published this week by the BC Court of Appeal finding class action waivers in a standard form customer contract are unconscionable and unenforceable.

In the recent case (Pearce v. 4 Pillars Consulting Group, Inc.) the Plaintiffs sued the various Defendants to recover fees paid for services in relation to debt restructuring. The Defendant’s standard form contract had a clause precluding participation in a class proceeding.  In finding the clause unenforceable and clearing the way for the suit to continue the BC Court of Appeal provided the following reasons:

[189]     I begin with an outline of the legal principles applicable to the doctrines of unconscionability and public policy as grounds for finding a contract to be unenforceable, as recently explained in Uber.

Applicable Law – Uber

[190]     The law has long placed a high value on the enforcement of contracts, as both a moral and a social good. This is evident in the often exultant tone used to support the enforcement of contracts, which can border on the constitutional or religious, referring to the right to contract as a matter of personal liberty and freedom, with contracts reflecting the “supremacy of free will” and being something sacred, requiring respect for the “sanctity” of contract: see for example Nepean Hydro Electric Commission v. Ontario Hydro, [1982] 1 S.C.R. 347; Angela Swan, Jakub Adamski, and Annie Y. Na, Canadian Contract Law, 4th ed (Toronto: LexisNexis Canada, 2018) at ss. 9.4.

[191]     Nevertheless, the law has also long recognized situations where parties ought to be absolved from the strict application of contract terms on a number of different grounds, which have been well canvassed elsewhere and comprehensively reviewed in the leading texts: See “The Control of Contract Power”, Swan, ch 9.

[192]     The concepts of unconscionability and public policy are separate but are doctrinal cousins, each of which provides grounds for departing from the general rule that parties’ contracts should be respected. Unconscionability focuses on the vulnerability of and unfairness to the party who is seeking to void the contract. Public policy focuses on the harm to society that would flow from upholding a particular contract.

[193]     The decisions of the Supreme Court of Canada make it clear that a contract (or a clause in the contract) can be invalid and unenforceable either on the basis that it is unconscionable or on the basis that it is contrary to public policy.

[194]     In some cases, both doctrines may apply. An example can be seen in the concurring judgments in Uber. Another example can be seen in the judgments in Douez v. Facebook, Inc., 2017 SCC 33, which found a foreign forum selection clause in a standard‑form online consumer contract to be unenforceable.

Unconscionability

[195]     Two important presumptions support the doctrine of freedom to contract. First, the presumption that contracting parties are best situated to assess and protect their interests while bargaining. Second, the presumption that the contracting parties are relatively equal, and thus any contract is negotiated and agreed upon, and therefore fair: Uber at 56.

[196]     Where the facts of a case line up closely with the presumptions underlying freedom of contract, the arguments for enforcing such a contract will be at their strongest: Uber at para. 57.

[197]     Where these traditional presumptions are not true, however, the doctrine of unconscionability is available. Unconscionability is an equitable doctrine used to set aside unfair agreements that were formed due to an inequality in bargaining power: Uber at para. 54, citing John D. McCamus, The Law of Contracts, 2nd ed (Toronto: Irwin Law, 2012) at 424.

[198]     Thus, where it can be shown that an unfair bargaining process led to an unfair contract, the doctrine of unconscionability is available to prevent the “harshness of the common law” without risking undermining the core values on which freedom of contract is based: Uber at para. 59, citing McCamus at 10.

[199]     The doctrine of unconscionability is not available in cases where an unfair bargain is the result of a fair bargaining process.

[200]     The doctrine of unconscionability has two elements. First, the party claiming unconscionability must prove there was inequality of bargaining power between the parties. Second, the party must show the contractual term at issue is improvident: Uber at paras. 62–65.

[201]     Inequality of bargaining power exists where one party is unable to protect their interests in the contracting process: Uber at para. 66. Although differences in wealth, knowledge or experience can be relevant, there is no set class of inequities that will result in a finding of inequality. Importantly, the inequities do not need to be so serious as to negate the party’s capacity to enter a valid contract: Uber at para. 67.

[202]     Examples of inequality are seen in “necessity” cases, where the weaker contracting party is dependent on the stronger party and would accept almost any terms. Other examples include “where a party is vulnerable due to financial desperation” or where there is a “special relationship of trust and confidence”. Unconscionability may be established even where the circumstances of duress or undue influence are absent: Uber at paras. 69–70.

[203]     Another common example of inequality in bargaining power is where only one party could understand and appreciate the importance of the contractual term at issue. For example, the contract may contain dense or difficult to understand terms, which a layperson would have difficulty understanding (so‑called “cognitive asymmetry”): Uber at 71.

[204]     The second element of unconscionability, an improvident bargain, requires either an undue advantage to the stronger party or an undue disadvantage to the weaker party. This is measured at the time the contract was entered into—if some subsequent development renders a previously fair contract unfair, the disadvantaged party will not be able to escape it through the doctrine of unconscionability: Uber at para. 74.

[205]     Assessing whether a bargain is improvident is determined in the context of all surrounding circumstances at the time the contract is entered into, including the flaw in the bargaining process: Uber at paras. 75, 79. The question for the court is “whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized.” For example, where a person is in desperate circumstances (and thus almost certain to benefit from a contract, even an unfair one), the inquiry focuses on whether the stronger party has been unduly enriched, such as where the contract price significantly departs from the market price: Uber at paras. 75–76.

[206]     Where the weaker party did not understand or appreciate the significance of the contractual term, the focus is on whether they have been unduly disadvantaged: Uber at para. 77.

[207]     It is not necessary to establish that the stronger bargaining party knowingly took advantage of the weaker in order for the doctrine to apply: Uber at para. 84. Parenthetically, the concurring judgment of Brown J. considered the elimination of at least constructive knowledge on the part of the strong party as an element of the doctrine to be an expansion of the scope of unconscionability: at paras. 164 and following.

[208]     Writing for the majority in Uber, Justices Abella and Rowe recognized that standard form contracts, or contracts of adhesion, have several features that make them more susceptible to being challenged as unconscionable:

[89]          Our point is simply that unconscionability has a meaningful role to play in examining the conditions behind consent to contracts of adhesion, as it does with any contract. The many ways in which standard form contracts can impair a party’s ability to protect their interests in the contracting process and make them more vulnerable, are well‑documented. For example, they are drafted by one party without input from the other and they may contain provisions that are difficult to read or understand (see Margaret Jane Radin, “Access to Justice and Abuses of Contract” (2016), 33 Windsor Y.B. Access Just. 177, at p. 179; Stephen Waddams, “Review Essay: The Problem of Standard Form Contracts: A Retreat to Formalism” (2013), 53 Can. Bus. L.J. 475, at pp. 475‑476; Thal, at pp. 27‑28; William J. Woodward, Jr., “Finding the Contract in Contracts for Law, Forum and Arbitration” (2006), 2 Hastings Bus. L.J. 1, at p. 46). The potential for such contracts to create an inequality of bargaining power is clear. So too is their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violate the adhering party’s reasonable expectations by depriving them of remedies. This is precisely the kind of situation in which the unconscionability doctrine is meant to apply.

[209]     In Uber, the majority found that the arbitration clause in the standard form contract between Uber and its driver was unconscionable and therefore invalid. There was a clear inequality of bargaining power: the driver had no power to negotiate the terms; there was a “significant gulf in sophistication” between the driver and the large multinational corporation; the driver could not be expected to appreciate the financial and legal implications of agreeing to the arbitration clause; and the contract did not explain these implications: Uber at para. 93.

[210]     In addition, the majority in Uber found the arbitration clause in the contract to be improvident. The fees were close to a driver’s annual income and disproportionate to the size of any potential arbitration award. The clause modified all other substantive rights in the contract and its practical effect was to make the driver’s rights under the contract unenforceable: Uber at paras. 97–98. As the arbitration clause was an improvident bargain achieved through inequality of bargaining power, it was unenforceable as unconscionable.

The Doctrine of Public Policy

[211]     Turning to the public policy doctrine, this was addressed in the concurring judgment of Brown J. in Uber. As he noted at para. 109, the public policy doctrine is a fundamental component of Canadian contract law: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 at paras. 113, 116.

[212]     The public policy doctrine recognizes that there are some contracts the courts will not enforce because there is a “paramount consideration of public policy which over‑rides the interest [in enforcing the contract] and what otherwise would be the rights and powers of the individual”: Uber at para. 108, citing In Re Estate of Charles Millar, Deceased, [1938] S.C.R. 1 at 4 [Millar Estate].

[213]     In Uber, Brown J. described the public policy grounds for setting aside specific types of contract provisions as narrow and well‑established and cautioned against expanding these grounds based on an individual judge’s idiosyncratic views.

[214]     Nevertheless, the views of what is contrary to public policy may slowly change over time, consistent with changes in larger community values. As an example, in Millar Estate a clause in a will gave the residue of the estate to the mother in Toronto who, after ten years from the testator’s death, had given birth to the greatest number of children. The Court dismissed concerns that this might cause a competition and cause “some people” to conduct themselves “in a manner injurious to wife and children”. The Court found the clause enforceable. However, the Court also interpreted the clause to not include illegitimate children. It is obvious that society’s views of such an offensive clause would be different today.

[215]     Examples of changing views of public policy can also be found in contractual clauses that operate to make distinctions based on racial or religious prejudice. Such clauses were historically enforceable but today are routinely found to be unenforceable as contrary to public policy: see for example Canada Trust Co. v. Ontario Human Rights Commission (1990), 74 O.R. (2d) 481 at pp. 495–96.

[216]     Leaving aside a review of other categories of public policy, the ground that Brown J. focused on in Uber, and which is relevant to the present case, is concerned with contract clauses that oust the court’s supervisory jurisdiction or undermine the administration of justice.

[217]     As explained in Uber, a clause that effectively prohibits a party’s ability to have recourse to a justice system to enforce their agreement undermines the administration of justice, the rule of law, democracy and commercial certainty:

[110]       The ground upon which I proceed is that which precludes an ouster of court jurisdiction or, more broadly, which protects the integrity of the justice system. As Lord Atkin stated in Fender v. St. John‑Mildmay, [1938] A.C. 1 (H.L.), at p. 12, ousting the jurisdiction of the courts is harmful in itself and “injurious to public interests” (see also Kain and Yoshida, at pp. 20‑23). A provision that penalizes or prohibits one party from enforcing the terms of their agreement directly undermines the administration of justice. There is nothing novel about the proposition that contracting parties, as a matter of public policy, cannot oust the court’s supervisory jurisdiction to resolve contractual disputes (see e.g. Kill v. Hollister (1746), 1 Wils. K.B. 129, 95 E.R. 532; Scott v. Avery (1856), 5 H.L.C. 811, 10 E.R. 1121; Deuterium of Canada Ltd. v. Burns & Roe Inc., [1975] 2 S.C.R. 124). Indeed, irrespective of the value placed on freedom of contract, courts have consistently held that a contracting party’s right to legal recourse is “a right inalienable even by the concurrent will of the parties” (Scott, at p. 1133).

[111]       This head of public policy serves to uphold the rule of law, which, at a minimum, guarantees Canadian citizens and residents “a stable, predictable and ordered society in which to conduct their affairs” (Reference re Secession of Quebec, [1998] 2 S.C.R. 217, at para. 70). Such a guarantee is meaningless without access to an independent judiciary that can vindicate legal rights. The rule of law, accordingly, requires that citizens have access to a venue where they can hold one another to account (Jonsson v. Lymer, 2020 ABCA 167, at para. 10 (CanLII)). Indeed, “[t]here cannot be a rule of law without access, otherwise the rule of law is replaced by a rule of men and women who decide who shall and who shall not have access to justice” (B.C.G.E.U. v. British Columbia (Attorney General), [1988] 2 S.C.R. 214, at p. 230). Unless private parties can enforce their legal rights and publicly adjudicate their disputes, “the rule of law is threatened and the development of the common law undermined” (Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 26). Access to civil justice is paramount to the public legitimacy of the law and the legitimacy of the judiciary as the institution of the state that expounds and applies the law.

[112]       Access to civil justice is a precondition not only to a functioning democracy but also to a vibrant economy, in part because access to justice allows contracting parties to enforce their agreements. A contract that denies one party the right to enforce its terms undermines both the rule of law and commercial certainty. That such an agreement is contrary to public policy is not a manifestation of judicial idiosyncrasies, but rather an instance of the self‑evident proposition that there is no value in a contract that cannot be enforced. Thus, the harm to the public that would result from holding contracting parties to a bargain they cannot enforce is “substantially incontestable” (Millar Estate, at p. 7, quoting Fender, at p. 12). It really is this simple: unless everyone has reasonable access to the law and its processes where necessary to vindicate legal rights, we will live in a society where the strong and well‑resourced will always prevail over the weak. Or, as Frederick Wilmot‑Smith puts it, “[l]egal structures that make enforcement of the law practically impossible will leave weaker members of society open to exploitation at the hands of, for example, unscrupulous employers or spouses.” (Equal Justice: Fair Legal Systems in an Unfair World (2019), at pp. 1‑2).

[218]     Justice Brown in Uber recognized that arbitration can be an acceptable alternative to litigation where it provides for just dispute resolution according to law. But this will not be the case where the practical effect of the clause would be to preclude arbitration: at paras. 117–119. He considered the appropriate question in evaluating a clause that limits access to legally determined dispute resolution is whether the limitation is “reasonable as between the parties, or instead causes undue hardship”: para. 129. Undue hardship requires consideration of the kinds of disputes likely to arise, and whether the cost to pursue a claim is disproportionate to the quantum of those disputes: para. 131. What is reasonable between the parties must be considered in light of the parties’ relationship and relative bargaining strength: para. 134.

[219]     In referring to relative bargaining strength and the context of the parties’ relationship as factors, it is clear there is much overlap in the underlying concerns animating both the doctrines of unconscionability and public policy. In Douez, uneven bargaining strength, in the context of a consumer standard‑form contract, was also a factor in determining whether a forum selection clause was unenforceable for public policy reasons: see paras. 4, 33, 76.

[220]     In Uber, Brown J. concluded that the cost of proceeding with the foreign arbitration was so prohibitive that the clause in question effectively barred any claim Mr. Heller might have and was disproportionate in the context of the parties’ relationship. Mr. Heller would experience undue hardship in trying to advance a claim, regardless of its merit. The clause undermined the rule of law and was therefore contrary to public policy and invalid: at para. 136.

Is the Class Action Waiver Clause Unconscionable?

[221]     I turn to examine the class action waiver clause at issue in this case, in light of the principles stated in Uber. Starting with the doctrine of unconscionability, I will consider whether the respondent established the two components: inequality of bargaining power and a resulting improvident bargain.

Was There Inequality in Bargaining Power between the Parties?

[222]     Although the appellants recognize the parties had unequal bargaining power and the contract was a contract of adhesion, they do not accept the inequality was such that it would engage the doctrine of unconscionability. They submit the inequality is insufficient to engage the doctrine for three reasons: they are small businesses, not multinational operations; this is not a case of necessity, where the weaker party must enter into the contract or else face serious consequences; and the contract is written in plain English and reviewed with each party, thus preventing cognitive asymmetry.

[223]     On appeal, the appellants did not point to any evidence in the record as to the scale of revenues generated by the appellants in support of their submissions that they are but small businesses. The evidence established that the individual franchisees are operating as part of a national chain of franchises, using standardized policies, practices and procedures, as well as standardized contracts.

[224]     In response to the small business argument, the respondent submitted that the appellants, in the last year alone, generated approximately $20 million in fees in British Columbia for the services at issue on appeal. As well, there are just over 8,200 class members, which emphasizes the scale of the business. In reply, the appellants appeared to agree with these figures, emphasizing the threat they face because “tens of millions” of dollars of fees that were paid are being claimed by the class members.

[225]     Similar to the findings in Uber at para. 93, this was a standard form contract and there was no power on the part of the class members to negotiate the terms. The class members are consumers, not sophisticated commercial parties.

[226]     The appellants submit that the contract was not one of necessity. However, that is not determinative. Although it was not a contract of necessity, it is clear the proposed class members were in vulnerable and difficult circumstances. On the appellants’ own evidence and submissions, the class members were distressed people—on the verge of insolvency and struggling to service and repay debt—turning to the appellants for help. As the majority recognized in Uber, almost any contract entered into with a desperate party will be an improvement over the status quo: at para. 76.

[227]     The appellants further submit that the contract is written in plain English and was reviewed with each client before signing. However, plain wording is not sufficient to overcome the gulf in sophistication between the parties that is otherwise apparent on the evidence. The question is whether the weaker party understood the “meaning of clauses with unusual or onerous effects”: Uber at para. 88.

[228]     The very fact that the class members were people who had difficulty managing their debts and needed the appellants’ help in this regard indicates a significant gulf in the relative sophistication of the parties.

[229]     To repeat, the text of the class action waiver reads:

11(c)  To the extent permitted under applicable law, you may only resolve disputes with us on an individual basis, and may not bring a claim as a plaintiff or a class member in a class, consolidated, or representative action. Class arbitrations, class actions, general actions, and consolidation with other arbitrations are not allowed.

[230]     I am of the view that this clause does not effectively communicate the consequences of agreeing to it. A layperson signing a contract of adhesion cannot be expected to fully understand the consequences of waiving their right to bring a claim in a “class, consolidated, or representative action”. The clause does not explain what it means by precluding “general actions” and it is far from obvious what it means (a term that the respondent speculates might have been copied from standard form contracts in the United States). The clause does not communicate that a class action may be the only economic and viable way to bring claims arising from wrongs committed by the appellants and that the application of this clause may have the practical effect of barring recovery for damages.

[231]     Unlike a foreign forum selection clause, where an argument might be made that the foreign forum is more convenient to the stronger party and has a connection with the dispute, thereby providing a commercial reason for the clause, the appellants are unable to point to any commercial reason for the class action waiver clause here. The only possible reason is to impede their customers’ rights to access justice.

[232]     The appellants submit that it would be an undue burden on the franchisees, and contrary to their contractual expectations, to be subject to a class action because these types of proceedings are lengthy and expensive and they will face a larger scale of potential liability. Yet they devote no submissions to the burden on them if they were to be sued in 8,200 separate lawsuits. Surely if individual actions were a realistic option for customers of the appellants to pursue, that would be far more complex and burdensome for the appellants to manage and would pose a threat to the appellants in terms of potential liability equal to that of a class proceeding.

[233]     The true expectation of the appellants, and reason for their wish to enforce the class action prohibition is obvious: the appellants expect that, if enforced, the clause will protect them from being sued at all.

[234]     In the present case, the appellants claim that their standard practice was to review all terms of the agreement with customers. There is no evidence the review of the contract did more than point out or read the terms. There is similarly no evidence that the review provided any advice to clients as to the implications of the class action waiver and the fact it would likely impede their ability to advance any claim.

[235]     Reviewing the contract with the party is relevant only to the extent that it ameliorates the inequality in bargaining power between the parties: Uber at para. 83. Ineffective or pro forma advice may not improve a party’s ability to protect their interests: Uber at para. 83.

[236]     I am of the view that the evidence establishes inequality of bargaining power as between the appellants and Mr. Pearce and the class members in the context of the agreement to waive rights to bring a class action. The contract was one of adhesion, imposed on the proposed class members without the opportunity to negotiate it. The proposed class members entered the agreement as persons in financial distress, while the appellants are sophisticated business owners who use a standardized contract across a national chain of franchises. The agreement does not explain the unusual and onerous effects of the class action waiver, which renders it practically impossible for the proposed class members to pursue claims against the appellants arising from the agreement and their relationship.

Was There an Improvident Bargain?

[237]     The second requirement of unconscionability is an improvident bargain. An improvident bargain requires either an undue advantage conferred upon the stronger party or an undue disadvantage upon the more vulnerable party: Uber at para. 74.

[238]     It seems the appellants’ argument on this point is essentially that the class action waiver does not absolutely restrict access to justice for the proposed class members, and thus the waiver does not provide an undue advantage to the appellants nor a disadvantage to the class members.

[239]     The appellants suggest that the respondent and the proposed class members were not precluded from bringing individual actions in the Supreme Court of British Columbia, in the Provincial Court as a small claims matter, or before the Civil Resolution Tribunal (“CRT”) for claims no greater than $5,000.

[240]     In response, the respondent submits the class action waiver removes the proposed class members’ only practical way of seeking a remedy for the appellants’ wrongs.

[241]     It is important to remember that one of the key purposes of allowing representative and class proceedings is to provide access to justice for people whose claims would otherwise be too small to be economical to prosecute: see Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46 at para. 28 [Dutton]. Allowing a number of people with common issues to band together in a single lawsuit gives them the leverage to vindicate their rights. As a group, they are able to afford legal representation (either through their shared resources or more commonly through a contingency fee that their group representation makes feasible), and they are able to prosecute civil claims that would be too costly or complex to pursue as individuals.

[242]     As for the option of individual claims being pursued by class members in the Provincial Court or CRT, other than making the bald assertion that this was possible and that the procedures in these forums are designed for lay litigants, the appellants provided this Court with no analysis of whether the claims being presently advanced would even be within the respective jurisdictions of the Provincial Court or CRT. Given that the plaintiff claims equitable relief in the form of restitution and declarations, it is far from clear that either the small claims court or CRT would have jurisdiction over these claims.

[243]     Furthermore, the BPCPA requires that any claim for relief under s. 172 must be brought in the Supreme Court of British Columbia, as confirmed in Seidel v. TELUS Communications Inc., 2011 SCC 15 at paras. 33–34. This excludes the Provincial Court or the CRT as venues for this important aspect of the class members’ claims. It is not reasonable to argue the class members should simply abandon this important aspect of their claim.

[244]     Regardless, the judge found that the proposed class members would likely not be able to pursue their claims individually because of the novel and complex nature of the legal questions and the relatively low monetary value of the claims, where individual claims were at most in the range of $5,000: at para. 253. These findings are not challenged on appeal. This was in part why the judge concluded that a class proceeding, in the Supreme Court, is the preferable procedure for the fair and efficient resolution of the common issues arising out of the claims: at para. 255.

[245]     The facts of this case are analogous to the foreign arbitration clause found to be unconscionable in Uber. While on paper it might appear that a pathway to dispute resolution exists, the practical effect of the clause so narrowly defines that pathway as to effectively and practically block access to justice and as such it is unconscionable.

[246]     As in Uber, the class action waiver in this contract essentially modifies all the substantive rights of the proposed class members. Their rights are subject to the caveat that if they wish to enforce any of them, they will be denied a critical tool designed to provide them with a path to access justice, namely, class or representative proceedings. No reasonable person who understood the implications of the class action waiver would have agreed to be denied one of the single most important tools available to allow them to vindicate their rights.

Conclusion on Unconscionability

[247]     Based on both the inequality in bargaining position between the parties and the improvidence of the bargain, I conclude that the class action waiver is unconscionable and therefore invalid.

Is the Class Action Waiver Clause Unenforceable Due to Public Policy Considerations?

[248]     Although it is unnecessary to determine the issue given the above conclusion, I am of the view that the class action waiver clause is also unenforceable as being contrary to public policy. I reach this conclusion because I am of the opinion that the class action waiver significantly interferes with the administration of justice. It has the practical effect of precluding the respondent, and class members, from having access to a dispute resolution process in accordance with the law for claims arising from the relationship between these parties.

[249]     In determining that the class action waiver offends public policy considerations, I have considered the three purposes of class proceedings. While these purposes are reflected in the CPA and other modern‑day class proceedings legislation, these values have also existed for hundreds of years in the courts of equity as a basis for representative proceedings, as observed in Dutton at paras. 19–24.

[250]     The clause at issue bars representative proceedings and consolidation of claims, as well as class actions. When I refer to the clause as being a “class action waiver clause,” this is short form for a clause that bars all types of proceedings where two or more plaintiffs seek to join together in advancing claims within a single proceeding.

Purposes of the Class Proceedings Act and the Effect of the Waiver

[251]     In Dutton, the Supreme Court of Canada recognized three important advantages of class or representative actions over multiple individual actions.

[252]     First, class actions preserve judicial resources by avoiding unnecessary duplication in fact‑finding and legal analysis: Dutton at para. 27.

[253]     Second, and I have touched on this above in the analysis of unconscionability, class actions improve access to justice by sharing legal costs across a large number of plaintiffs: Dutton at para. 28. This makes claims that would otherwise be too costly to prosecute economical and thus grants plaintiffs access to the courts even where their individual claims would not be worth pursuing.

[254]     Finally, class actions ensure actual and potential wrongdoers do not ignore their obligations. Without class actions, wrongdoers could cause widespread but individually minimal harm to a large class of individuals without fearing litigation, because the cost for one plaintiff to bring the suit would exceed the likely recovery: Dutton at para. 29.

The Waiver Offends the Public Policy Purposes of the Class Proceedings Act

[255]     The class action waiver in this case seeks to defeat all three benefits of class and representative proceedings identified by the Court in Dutton.

[256]     First, the class action waiver negatively affects the administration of justice. If enforceable, and, as the appellants suggest, if the respondent and other class members would still be able to pursue individual claims, it would lead to the wasting of judicial resources and the problems of duplication of fact‑finding and the potential for inconsistent results. Instead of litigating the complex legal issues raised in this single proceeding in front of one judge, who could make findings of fact and law that bind all the proposed class members, the appellants seek to require each member of the proposed class of over 8,000 persons to bring a claim individually.

[257]     As the Court recognized in Dutton, class proceedings not only protect the rights of the litigants, but also protect the rights of all Canadians by freeing up judicial resources to resolve other conflicts.

[258]     As observed in Douez, court adjudication is a public good; everyone has a right to bring claims before the courts, and the courts have an obligation to hear and determine those claims. Clauses that impact the right to access justice impact the courts in their functions of “public norm generation and legitimation, which guide the formation and understanding of relationships in pluralistic and democratic societies”: T.C.W. Farrow, Civil Justice, Privatization, and Democracy (Toronto: University of Toronto Press, 2014) at p. 41; Douez at para. 25.

[259]     Second, the class action waiver would limit access to justice by preventing the proposed class members from sharing legal costs in the manner discussed in Dutton. The chambers judge found that, in the absence of a class proceeding, the individual plaintiffs would be unlikely to pursue their claims because of their relatively low monetary value and the complexity of the legal issues: at paras. 179, 253.

[260]     The appellants did not challenge this finding of fact on appeal. Instead, they simply repeated their submission that the plaintiffs are free to pursue their claims in small claims court or at the CRT. This ignores the very concern recognized by the Court in Dutton—plaintiffs may be denied access to justice because the value of their claims does not justify commencing individual proceedings, even though the collective value does. It also simply assumes that all the claims could be brought in these other venues, an unsound proposition, as I have noted above.

[261]     As Brown J. held in Uber, a contract that functionally prohibits access to the courts is just as offensive to public policy as those that explicitly do so.

[262]     Third, given the unchallenged finding of the chambers judge that it was unlikely the plaintiffs would pursue their claims individually, the class action waiver would frustrate the behavioural modification purpose of class proceedings. The defendants would be allowed to operate in a way that is contrary to law, causing widespread harm without fear of consequences, so long as they kept the monetary value of the harm to each customer relatively low. A substantive practical barrier to accessing the courts as is presented by the clause will thereby have a negative impact on society at large.

[263]     The appellants raise additional points in support of their argument that the class action waiver clause is enforceable and not contrary to public policy.

[264]     The appellants rely on the fact that under the CPA a class member may opt out of a class proceeding, after certification. They suggest that the freedom of an individual to opt out of a class proceeding after certification, a choice given to the individual by the legislature, is no different than the freedom of an individual to opt out before certification at the time the contract is entered into.

[265]     What this argument blurs is the difference between an informed choice between two viable options, and an uninformed choice that leaves the consumer with no options. The choice to opt out is made after a class proceeding has been certified and the consumer has received court‑approved notice. At that time, the consumer is informed of the alleged wrongs by the defendants and can make an informed choice between the benefits of continuing as part of the class or opting out to simply not pursue a claim or, less likely, to pursue a claim on their own.

[266]     The choice to agree not to pursue class proceedings at the time the person enters the contract is before there has been any alleged wrong. In the present context of a consumer standard‑form contract, it is made in the context of a stark inequality of bargaining power where the person has no right to negotiate the terms and nothing in the contract informs them as to the negative implications this clause will have on their practical ability to sue to vindicate their rights. When later the person does realize they have been wronged and they have a potential claim, if the clause is enforceable it will be too late for them to make a choice as to how they will pursue their claim. As noted above, they will be practically precluded from advancing any claim.

[267]     The appellants also argue that because the BC legislature has not enacted a provision that prohibits contracting out of the CPA, it must be concluded the legislature has made a public policy choice to permit such a contracting‑out term. The suggestion here is that any court conclusion that such clauses are unenforceable is contrary to express legislative intention.

[268]     In support of their argument, the appellants rely on the fact that Ontario and Quebec have enacted legislation to expressly prohibit class action waiver clauses: Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A, s. 8; Consumer Protection Act, C.R.S.Q., c. P‑40.1 (5 May 2021), s. 11.1.

[269]     The appellants submit that because BC has enacted some amendments to the CPA after the enactment of these other province’s legislative prohibitions on class action waiver bans, it has to be concluded that the legislature made a conscious choice not to prohibit class action waiver clauses.

[270]     There is a logical flaw in this argument. The absence of one thing does not prove the existence of something opposite. There is nothing in the CPA that indicates the legislature made a choice to allow parties to contract out of the CPA by way of including class action waiver clauses in standard‑form agreements. The appellants point to no evidence that the legislature ever thought about class action waiver clauses at the time it was amending the CPA for other purposes: no law reform report, legislative debate, or any other form of evidence.

[271]     The only measure of the legislature’s intention runs against the appellants’ arguments. That intention is reflected in the mandatory language requiring a judge to certify the proceeding as a class proceeding if the requirements of the CPA are met.

[272]     In Millar Estate, one of the questions the Court asked itself when considering whether the objected‑to clause in the will would be contrary to public policy was whether there was “general agreement upon the point among judges of this country”.

[273]     There is little jurisprudence to date on the enforceability of class action waiver clauses as stand‑alone clauses where they are not combined with a valid domestic arbitration clause in the context of legislation that mandates courts grant stays in favour of arbitration. However, as noted by the judge below, where the issue has been considered, the courts have found the clauses to be unenforceable and to not justify a stay of proceedings: 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation (2008), No. 89 O.R. (3d) 252 (S.C.J.) [Quizno’s], rev’d on other grounds (2009), 96 O.R. (3d) 252 No. (Div. Ct.), aff’d 2010 ONCA 466; Young v. Dollar Financial Group Inc., 2012 ABQB 601 [Young], aff’d 2013 ABCA 264, leave to appeal ref’d [2013] S.C.C.A. No. 400.

[274]     In Young, Macleod J. noted that class proceedings serve the three public policy factors identified by the Supreme Court of Canada in Dutton. The claims in Young were small and the judge found that there was little doubt they would not be advanced unless aggregated. The judge considered it unjust to allow the defendants to avoid certification based on the class action waiver clause and refused the stay application. It appears that the determination of this issue was not appealed.

[275]     In Quizno’s, Perell J. refused to grant a motion for a stay based on a class action waiver clause. He found that such a clause interferes with the administration of justice and is contrary to the three policy goals of class proceedings identified in Dutton. He held that such a clause should be read down so that it is not a prohibition to a class proceeding, but a “strong factor in determining whether a class proceeding is the preferable procedure” for the resolution of the common issues. He held that if the criteria for certification were otherwise met, he would not grant a stay based on the class action waiver clause. There was no appeal from the refusal to grant a stay, and so this issue was not dealt with when the appeal from the dismissal of the certification application was allowed.

[276]     Both Quizno’s and Young were decided before Uber. However both cases reflect a similar understanding of the public policy objectives of class or representative proceedings and the objectionability of a clause that would preclude such proceedings where they are suitable and may be the only true recourse for members of the class to vindicate their rights.

[277]     I acknowledge there is a line of cases, cited by the appellants, dealing with the enforceability of domestic arbitration clauses where the clause is found to oust the jurisdiction of the court, thereby preventing all or some claims going forward as a class proceeding: SeidelMacKinnon v. National Money Mart Co., 2009 BCCA 103.

[278]     The appellants rely on the arbitration clause cases as analogous and as supporting their position that the class action waiver is enforceable. In my view, these cases are of little assistance. As is clear from Uber, a valid arbitration agreement may provide a comparable measure of justice to the superior courts: Brown J. at para. 120. The arbitration cases involve legislation that directs the court to stay any legal proceedings where there is a valid arbitration agreement. As the judge observed, there is no similar legislation requiring courts to stay legal proceedings where there is a class action waiver clause (at paras. 155, 156). Additionally, the majority in Seidel explicitly left open the question of whether stand‑alone class action waiver clauses are unenforceable: at para. 45.

Conclusion on Public Policy Doctrine

[279]     The classic action waiver clause at issue in this appeal so functionally interferes with access to the courts that it is contrary to public policy and unenforceable.

Other Arguments Concerning the Class Action Waiver Clause

[280]     Having determined that the class action waiver clause is both unconscionable and contrary to public policy, it is unnecessary to consider the judge’s additional ground for determining the class action waiver clause unenforceable, that is, because it had the effect of contracting out of a mandatory statute.

[281]     I also do not see any merit in the appellants’ argument that even if the class action waiver clause is unenforceable, it ought to be considered as a factor when determining whether a class action is the preferable procedure.

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ERIK
MAGRAKEN

Personal Injury Lawyer

When not writing the BC Injury Law Blog, Erik is the managing partner at MacIsaac & Company, based in Victoria, B.C. He is also involved with combative sports regulatory issues and authors the Combat Sports Law Blog.

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