In a case decided under the civil law of Quebec, the Supreme Court of Canada has upheld the validity of an arbitration agreement contained in the hyperlinked terms and conditions of an online consumer purchase order.(1) The court also found that a commitment to arbitrate cannot be avoided by bringing class proceedings. The decision from Canada's highest court has broad implications for the arbitration of consumer disputes and class proceedings in all Canadian jurisdictions.
Facts
In 2003 Dell Computer Corporation mistakenly posted incorrect prices on the web order pages for two of its products. Dell corrected the pricing error three days later, but not before hundreds of consumers had placed online orders at the posted prices. Dell declined to process orders placed at the incorrect prices. This refusal resulted in an attempt to initiate class action proceedings against Dell in the Superior Court of Quebec by the Union des Consommateurs, a non-profit consumer organization acting upon a complaint by a consumer living in the province of Quebec - Canada's only civil law jurisdiction.
Dell resisted the proposed class action by invoking the arbitration agreement contained in the terms and conditions page hyperlinked to the Dell website order pages. Dell applied to have the claim referred to arbitration and have the application to institute a class action dismissed. Dell failed at first instance and again on appeal, but prevailed on further appeal to the Supreme Court, which received assistance not only from the parties, but also from the London Court of International Arbitration, the Alternative Dispute Resolution Institute of Canada Inc, ADR Chambers, the Canadian Internet Policy and Public Interest Clinic and the Public Interest Advocacy Centre, each of which sought and obtained intervener status on the further appeal.
Decision
A threshold issue before the Supreme Court was whether the courts or an arbitrator should rule first on a challenge to the validity or applicability of an arbitration agreement. By a majority (six to three), the court favoured the prima facie analysis test associated with the kompetenz-kompetenz principle that is applied in other jurisdictions in accordance with the United Nations Commission on International Trade Law Model Law. The court confirmed that as a general rule, in any case involving an arbitration agreement, a challenge to the arbitrator's jurisdiction must be resolved by the arbitrator first. The court held that a departure from that rule of systematic referral should be made only if the challenge is based solely on a question of law - and even then, only if the court is satisfied that the challenge is not a delaying tactic and will not unduly impair the conduct of the arbitration. The court held that, given the features of the Union des Consommateurs challenge, the matter ought to have been referred to arbitration at first instance. Nevertheless, doing so now would expose the parties to a new round of litigation and the court agreed to address the challenge on its merits.
The Union des Consommateurs challenged the arbitration agreement's validity primarily in reliance on Article 3149 of the Quebec Civil Code, which protects the jurisdiction of Quebec courts over consumer matters and invalidates any purported waiver of it. Article 3149 reads as follows:
"[a] Quebec authority also has jurisdiction to hear an action involving a consumer contract or a contract of employment if the consumer or worker has his or her domicile or residence in Quebec; the waiver of such jurisdiction by the consumer or worker may not be set up against him or her."
Although the Union des Consommateurs relied successfully on that provision at trial and on appeal, the Supreme Court reversed on the grounds that the case lacked the "relevant foreign element" needed to trigger its language. The article in question appears under a title that aims to protect the jurisdiction of Quebec courts where there is a foreign element, but the court found that an arbitration clause is not in itself a foreign element.
Having rejected the primary basis of the Union des Consommateurs challenge, the court considered and rejected each of the remaining grounds for challenging the validity of the arbitration agreement. First, the court found that the arbitration clause was not 'external' to the consumer contracts. Article 1435 of the code nullifies an external clause in a consumer contract unless the clause is brought expressly to the consumer's attention or the consumer already knows of it. The court held that the arbitration clause at issue was not external since it was reasonably accessible through the hyperlink provided. Second, the court found that class action proceedings are not a matter of public order. Article 2639 of the code precludes the submission to arbitration of disputes involving matters of public order. The Union des Consommateurs maintained that the present dispute could not be submitted to arbitration because its status as a class action rendered it a matter of public order. The court held that while a class action is clearly of public interest, it is only a legal procedure and does not create new rights. That conclusion may have implications for existing Canadian jurisprudence to the extent that it treats class certification as a reason to favour litigation of disputes that are otherwise subject to arbitration agreements.
Comment
The Supreme Court has gone a long way towards resolving issues that continue to vex the courts of other jurisdictions. Although the case was decided against the backdrop of Quebec's Civil Code, the judgment has implications for Canada's common law jurisdictions as well.
Sellers of goods and services to Canadians via the Internet will be encouraged by the court's willingness to enforce agreements - including arbitration agreements - made in an electronic environment. The court's view that the commitment to arbitrate should prevail over the procedural right to commence class proceedings will undoubtedly inspire sellers of consumer goods to include arbitration agreements in their standard-form documents. Whether such agreements will be effective to bar class proceedings may depend in part on the steps taken to bring the arbitration agreement to the consumer's attention.
After the events that gave rise to this dispute took place, two Canadian jurisdictions enacted legislation prohibiting a consumer agreement from requiring that disputes arising out of that agreement be submitted to arbitration.(2) It remains to be seen whether other Canadian jurisdictions will follow suit. As a result of these enactments, class action plaintiffs in Canada may prefer to bring proceedings in those jurisdictions that have adopted legislation prohibiting mandatory arbitration in consumer contracts.
