For the London Free Press – March 1, 2010

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Companies have been sent a clear message — deal with complaints because dispute resolution is too impractical to pursue.

A recent Ontario Court of Appeal ruling confirms an evolving trend to protecting consumers from enforcement of mandatory arbitration clauses in consumer agreements.

The plaintiff in Griffin v. Dell Canada alleged Dell had sold computers with latent defects that made them prone to overheating, power failure, inability to “boot up” and unexpected shutdowns.

Griffin sought certification of the case as a class action. In reply, Dell moved to stay the proceeding in favour of private individual arbitration under the mandatory arbitration clause in each consumer contract. The arbitration clause directed that complaints must be taken to the (now defunct) National Arbitration Forum in Minnesota.

Dell relied on sec. 7(1) of the Ontario Arbitration Act, which requires the court to stay a proceeding where there is a valid mandatory arbitration clause.

A lower court had dismissed Dell’s motion and conditionally certified the case as a class action. The appeal court dismissed Dell’s appeals and refused to stay the class proceeding.

The appeal court relied on provisions of the Consumer Protection Act that invalidate mandatory arbitration clauses in consumer contracts. These provisions took effect in 2005, after the consumer contracts with Dell were entered into. But the court chose to rely on them because damages did not arise until after the provisions took effect.

Interestingly, the court also ensured the rights of non-consumers within the class were protected. The Consumer Protection Act restricts the definition of a “consumer” to an individual who “acts for personal, family or household purposes and does not include a person who is acting for business purposes”. But the court found it unreasonable to separate the claims of consumers and non-consumers.

In applying the consumer protection law, the appeal court made a point of noting that Dell’s mandatory arbitration clauses were simply unfair to Canadian consumers.

Writing for the court, Justice Robert Sharpe said: “In my view, it is clear beyond any serious doubt on this record that staying any claims advanced in the action will not result in any of the stayed claims being arbitrated. I agree with the motion judge that there is a lack of reality to Dell’s argument that the claim should proceed by way of arbitration. There will be no arbitration. The choice is not between arbitration and class proceeding; the real choice is between clothing Dell with immunity from liability for defective goods sold to non-consumers and giving those purchasers the same day in court afforded to consumers by way of the class proceeding.”

The appeal court has sent a clear message that consumer rights must be taken seriously. Large corporations will now have more difficulty avoiding responsibility for addressing consumer complaints by making dispute resolution too impractical to pursue.

For the London Free Press – October 6, 2008

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In a major victory for American consumers, the Washington state Supreme Court, following in the footsteps of Ontario consumer protection laws, has held AT&T cannot remove a consumer’s right to file a class-action lawsuit.

The court in McKee vs. AT&T Corp. held that under the particular facts at hand and where the laws of Washington state apply:

“AT&T’s Consumer Services Agreement is substantively unconscionable and therefore unenforceable to the extent that it purports to waive the right to class actions, require confidentiality, shorten the Washington Consumer Protection Act statute of limitations, and limit availability of attorney fees.”

This case arose over disputed charges that added up to little more than $2 a month. So why make such a big deal over such a small amount? Given the number of years AT&T has been in business and the number of cust-omers it serves, the potential impact of seemingly minimal overbilling is significant.

After attempts to resolve his billing issues failed, McKee decided to take on AT&T. He filed a class-action lawsuit, alleging violations of Washington’s Consumer Protection Act, as well as breach of contract and negligence. In response, AT&T tried to enforce an arbitration clause in its consumer services agreement that prohibited class actions.

Consumer services agreements, also known as end-user licence agreements (EULAs), are widely used in the service industry. Everything from phone services to software licences are subject to EULAs. They are usually not signed by consumers and the terms are set by the service providers. That’s not necessarily a bad thing. Commercial certainty depends on it.

The U.S. Court found that the arbitration clause in AT&T’s consumer service agreement removing a consumer’s right to file a class action was unconscionable and therefore unenforceable.

Ontario consumers enjoy similar protection from EULAs that purport to remove the right to commence class actions.

Ontario consumer protection laws prevent companies from enforcing such clauses. Under the Consumer Protection Act, 2002, “any term in a consumer agreement that requires or has the effect of requiring that disputes arising out of the consumer agreement be submitted to arbitration is invalid” if it prevents a consumer from bringing an action in court.

The Act also permits consumers to commence or become members of class actions relating to disputes arising from consumer agreements even if the agreement attempts to prevent such a measure.

So why is the right to file class actions such a big deal for consumers?

In cases where the violations are small, but a large number of consumers are affected, class actions may be the only way to redress wrongs effectively. Without the right to commence class actions, consumers may not be able to obtain effective legal representation.

The court also felt the EULA’s requirement to keep arbitration results secret “hampers plaintiffs in learning about potentially meritorious claims and serves no purpose other than to tilt the scales in favour of (the service provider).”