B.C. – unlike agreement to arbitrate, class action waiver not effective to resist class action certification – #241

In Pearce v. 4 Pillars Consulting Group Inc., 2019 BCSC 1851, Mr. Justice Andrew P.A. Mayer declined to allow a class action waiver to override the mandatory provisions of B.C.’s Class Proceedings Act, RSBC 1996, c 50.  In contrast to cases enforcing parties’ agreements to arbitrate and thereby resist class action certification, Mayer J. determined that the waiver’s only purpose was to avoid a class action.  Though B.C. legislation did not prohibit such waivers, Mayer J. determined that the omission did not thereby constitute a legislative choice permitting class action waivers.  He had no judicial discretion once the mandatory requirements for class action certification were met.

Plaintiffs in two (2) separate actions applied under section 4 of B.C.’s Class Proceedings Act, RSBC 1996, c 50 (“CPA”) to certify their respective action as class proceedings.  Mr. Paul Pearce, Plaintiff in Pearce v. 4 Pillars Consulting Group Inc. (“4 Pillars Action”) and Mr. Darren Archer, Plaintiff in Archer v. Full Circle Debt Solutions Inc. (“Full Circle Action”), alleged that Defendants breached B.C.’s Business Practices and Consumer Protection Act, SBC 2004, c 2 (“BPCPA”), the BPCPA’s Debt Collection Industry Regulation, BC Reg 295/2004 (“DCRR”) and the Federal Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”) when providing debt restructuring services.

The 4 Pillars Action and the Full Circle Action (“Actions”) sought, among other remedies, statutory remedies for restoration of fees, damages for alleged losses stemming from breaches of the BPCPA and BIA and damages based on the claim that the fees charged were unconscionable under section 8 of the BPCPA.

The debt restructuring in the 4 Pillars Action operated through a franchise system and lead to Defendants in that action being classified into three (3) different groups identified as “Franchisors”, “Franchisees” and “4 Pillars Officers and Directors”.  See summary at para. 7.

Plaintiffs claimed: (i) under the BPCPA and at common law, recovery of fees they allege Defendants unlawfully charged in their debt restructuring businesses; and, (ii) Defendants failed to adhere to applicable regulatory schemes set out in the BPCPA and BIA and obtained fees for services Defendants were not licensed to provide and which clients could have obtained elsewhere at lower cost. Plaintiffs also argued that the actions qualified for certification as class proceedings under the CPA.

Defendants resisted the claims.  They asserted, among other grounds, that certain Defendants did not act as “debt repayment agents” in breach of the BPCPA but provided unregulated debt consulting services and that the claims made did not give rise to private cause of action under the BIA.  Defendants also argued that the claims asserted did not qualify for certification.

Defendants served a number of applications seeking, among other things, to strike portions of the claims, summary dismissal.

The 4 Pillars Franchisors and Franchisees each applied for a declaration that a class action waiver in some of the 4 Pillars’ service agreements was enforceable and justified either a stay of the proceedings or created a procedural bar precluding some of the class members from participating in the class proceeding.

The core of Mayer J.’s task concerned the requirements for certification set out in section 4 of the CPA.  At paras 15-18, Mayer J.

(i) set out the mandatory nature of the provisions in section 4 – Finkel v. Coast Capital Savings Credit Union, 2017 BCCA 361;

(ii) reiterated that certification did not test the merits or strength of the action but focused on the form, questioning not whether the claim would succeed but whether it was suitable to proceed as a class action – Hollick v. Toronto (City), [2001] 3 SCR 158, 2001 SCC 68 para. 16, Pro‑Sys Consultants Ltd. v. Microsoft Corporation, [2013] 3 SCR 477, 2013 SCC 57 para. 102, and Finkel v. Coast Capital Savings Credit Union paras 19-20; and,

(iii) cautioned that the evidentiary burden on plaintiffs might be low, the certification is not merely “symbolic scrutiny”. Deciding solely on the pleadings, plaintiffs must show “some basis in fact” to meet the certification requirements – Finkel v. Coast Capital Savings Credit Union, para. 15, Hollick v. Toronto (City), paras 21, 24-25, Pro‑Sys Consultants Ltd. v. Microsoft Corporation, paras 99-100, and N&C Transportation Ltd. v. Navistar International Corporation, 2018 BCCA 312, para. 91.

Mayer J. analysed each of the requirements in section 4 CPA and, under the second requirement at 4(1)(b) CPA, at paras 116-188 considered whether Plaintiffs had demonstrated an identifiable class of two (2) or more persons.  He referred to Jiang v. Peoples Trust Company, 2017 BCCA 119, para. 82 for the principles governing the requirement that there be an identifiable class:

Defendants sought to delimit the definition of the proposed class by applying June 14, 2017 as a cut-off date.  That date was when 4 Pillars began to include a class action waiver in its service agreements.  That waiver read as follows:

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, general actions, and consolidation other arbitrations are not allowed.

Within the context of determining, at the certification stage, whether the proposed class was identifiable under section 4(1)(b) CPA and the principles discerned by the case law, Mayer J. had to consider the role of the class action waiver. 

Mayer J.’s analysis is set out at paras 128-183 in his section entitled “Is the Class Action Waiver Clause Enforceable?” Further to his analysis, which he divided into two (2) parts, Mayer J. determined that the (i) class action waiver was inoperative and, (ii) if the waiver was valid, he found strong cause not to enforce it.

He set out the parties’ competing arguments at paras 128-135. 

The Franchisees argued that, absent legislation, nothing prevented their clients from agreeing to waive their right under the CPA to seek a remedy by way of class action.  There was no express or implicit prohibition in B.C. legislation preventing agreement to such waivers and the courts should enforce them.  The Franchisees’ waiver was only procedural and did not affect their substantive rights which could still be pursued. 

Plaintiff Pearce argued that the court must give effect to the legislative intent in the CPA that certification includes all relevant class members.  Plaintiff Pearce argued that no Canadian court had enforced a standalone class action waiver and distinguished MacKinnon v. National Money Mart Company, 2009 BCCA 103.  Plaintiff Pearce cited two (2) cases in which the courts found such clauses unenforceable: 038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp. (2008), 2008 CanLII 8421 (ON SC), 89 O.R. (3d) 252, rev’d on other grounds 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation, 2009 CanLII 23374 (ON SCDC), 96 O.R. (3d) 252 (Div. Ct.) and Young v. Dollar Financial Group Inc., 2012 ABQB 601, aff’d Young v. National Money Mart Company, 2013 ABCA 264, leave to appeal to S.C.C. ref’d, [2013] S.C.C.A. No. 400

Having identified the arguments, he then stated and determined the two (2) following issues:

(a) does s. 4(1) CPA negate or make inoperative application of the class action waiver clause?  Mayer J. held yes. The mandatory provisions of sections 4(1) and 4(2) CPA render the class action waiver clause inoperative.  See paras 139-166.

(b) even had he answered the first issue otherwise, is there a strong cause not to enforce the class action waiver clause?  Mayer J. held yes.  He determined that the administration of justice would be frustrated if the class action waiver was enforced and this determination was strong cause not to enforce the clause.  See paras 167-183. 

(a) Class action waiver inoperative – Mayer J. determined that the CPA’s mandatory language left no judicial discretion to not certify the class action once the requirements under the CPA had been met.

Mayer J. agreed that the absence of a provision in the CPA prohibiting waivers did not, by itself, mean the court can refuse to follow the CPA. “That is, the absence of such an express prohibition cannot properly be regarded as a positive legislative choice to permit class action waivers.

Underling the mandatory wording in the CPA, including the word “must” in his own summary of the process at para. 143 of his reasons, Mayer J. concluded he had no discretion to do otherwise than what the legislation required.

[144] Enforcing the class action waiver would mean that I could conduct the entire analysis, come to the conclusion that under the CPA the proceeding must be certified, and yet be precluded from certifying the proceeding for a portion of the proposed class. Such a result would undermine the mandatory language of the CPA and would result in the same causes of action being decided in multiple proceedings.

At paras 146-154, Mayer J. distinguished both the majority and the dissent reasoning in Seidel v. TELUS Communications Inc., [2011] 1 SCR 531, 2011 SCC 15, pointing out that the parties in that case were bound to a contract which included an arbitration clause.  Thought the majority did hold that the arbitration clause was unenforceable, the majority had declined to determine whether class action waivers were in and of themselves unconscionable. See Seidel v. TELUS Communications Inc., para. 45.  Mayer J. determined that the arbitration clause “engages a host of different considerations than the class action waiver at issue here”.

Mayer J. found the majority’s reasoning in Seidel v. TELUS Communications Inc. have “somewhat remote” application to the case before him. “The majority did not address the validity of the class action waiver on its own. Instead, they found that the waiver was inoperative on the basis that it was intrinsically linked with the arbitration clause”.

A key distinction for Mayer J. arose on the different procedural roles of the impugned arbitration clause in Seidel v. TELUS Communications Inc. and the class action waiver in his case.

However, the majority’s comments on freedom of contract must be situated within the context of [Seidel v. TELUS Communications Inc.], in that it concerned arbitration and the parties’ choice to opt for that particular forum. In the present case there is no arbitration clause sought to be enforced. Instead, the Franchisors and Franchisees seek to enforce a restriction on the Plaintiff Pearce’s right to commence a class proceeding.

The arbitration clause required a court to consider section 15 of B.C.’s Arbitration Act, RSBC 1996, c 55 whereas the CPA contained no comparable provision requiring the court to give effect to a class action waiver.

[157] There is no comparable provision in the CPA, BPCPA, or BIA that requires me to give effect to the class action waiver clause. If such a provision were present, I agree that it would indicate a legislative choice that such waiver clauses should be respected. However, what I am left with is the legislative mandate to certify a class proceeding once I am satisfied that the requirements under s. 4(1) of the CPA are met and a conflicting contractual term – the class action waiver clause. There is no comparable provision carved out in the application of the CPA in either the CPA or the BPCPA to mandate compliance with a class action waiver clause in a private contract.

At paras 158-165, Mayer J. distinguished MacKinnon v. National Money Mart Company on grounds similar to Seidel v. TELUS Communications Inc.  See his four (4) point summary of distinctions at para. 165.

(b) Strong cause not to enforce class action waiver – Mayer J. provided a further analysis, applicable had he determined that the waiver was enforceable.   The principle that parties should be kept to their bargain “is not absolute” he observed, referring to Douez v. Facebook, Inc., [2017] 1 SCR 751, 2017 SCC 33, para. 52.

Mayer J. determined that the cases relied on by Franchisees and Franchisors involved the enforcement of an arbitration clause or a hybrid as in Murphy v. Compagnie Amway Canada, 2011 FC 1341, aff’d by Murphy v. Amway Canada Corporation, 2013 FCA 38.  See Mayer J.’s analysis of the latter case at para. 172.

Mayer J. identified the important public policy in supporting arbitrations.

[173] I would add that, in my view, consideration of the enforceability of an arbitration clause involves different public policy considerations than the enforceability of a class action waiver. Arbitrations are intended to be faster, more cost effective and often involve specialized tribunals familiar with the subject matter at hand. Therefore, there is a public policy argument justifying the enforcement of arbitration clauses. It is difficult to construe a similar public policy argument that would justify preventing a consumer from advancing a class action proceeding for claims under consumer protection legislation.

The courts have offered different statements about the policy supporting access to class actions and the judicial economies and access to justice issues raised when such economies and access risk being thwarted.  See paras 176 and 177.

Mayer J. agreed with such observations including the inability to see a purpose in class action waivers other than to avoid class actions.

This is not like a forum selection or an arbitration clause where the parties have agreed to have their disputes heard in a particular place and under a particular procedure. Those clauses still enable the parties to be heard. Conversely, the only possible objective of the class action waiver is to try to avoid having to respond to a class proceeding, thereby interfering with the Court’s ability to administer justice.

Mayer J. concluded that, based on the above, the application to stay the claims in the 4 Pillars Action by class members who signed contracts on or after June 15, 2018 containing a class action wavier was dismissed.

The reasons continue on to discuss the remaining issues raised in certification and lead to Mayer J. concluding that   See paras 184-281.

urbitral note – Mayer J.’s comments at para. 173 on the public policy supporting arbitration introduce a counterpoint to equally valid comments made in support of class action’s access to justice.  The comments contrast (i) enforcing a contract which makes a positive choice in favour of a particular procedure (arbitration) or venue and (ii) invalidating clauses which simply deny the access to justice policies underlying class action legislation. Mayer J.’s comments apply when the applicable legislation itself introduces no solution by either (a) prohibiting arbitration or (b) omitting to address class action waivers.