Federal appeal Court Confirms Validity of Arbitration Agreement and Class Action Waiver

The Federal Court of Appeal unanimously affirmed a Federal Court decision declining jurisdiction to hear a motion to certify a class action in the presence of a binding arbitration agreement and class action waiver, in Murphy v. Amway Canada Corporation — with reasons by Justice Nadon, Justices Gauthier and Trudel concurring.

On October 23, 2009, Kerry Murphy (the Plaintiff), an independent business owner who distributed Amway's products, instituted a proposed class action before the Federal Court of Canada on behalf of all Canadian residents who distributed Amway's products starting October 23, 2007. Murphy claimed that Amway had breached various dispositions of the Competition Act of Canada (the Act) and sought damages of $15,000 under s. 36 of the Act.

Amway filed a motion to stay and to compel arbitration on the basis that the contract with its distributors contains an arbitration agreement and a class action waiver, so that the action had to be stayed and the matter referred to individual arbitration. The class action waiver provides, notably, that neither party is to “assert any claim as a class, collective or representative action if (a) the amount of the party's individual claim exceeds $1,000 ...”

The motion to stay and to compel arbitration was heard by Justice Boivin of the Federal Court in the context of a three-day hearing which included the hearing of the Plaintiff's motion to certify a class action. The Court found it unnecessary to rule on this motion given its decision to grant Amway's motion to stay, to compel arbitration, and permanently stay the Plaintiff's action.

In a decision rendered on November 23, 2011, Justice Boivin found that the wording of the arbitration agreement and class action waiver was clear, and thus prohibited the Plaintiff from bringing his $15,000 claim (a) before a court and (b) as a class action. Rather, it had to be submitted to individual arbitration.

The Court relied on a series of decisions from the Supreme Court of Canada that confirm the validity and enforceability of arbitration agreements, including most recently, Seidel v. TELUS Communications Inc.

On the basis of these decisions, Justice Boivin concluded that class actions are a procedural vehicle whose use neither modifies nor creates substantive rights, that arbitration agreements and class action waivers must be enforced by courts absent specific legislative language to the contrary, and that such language was nowhere to be found in the Act.

On appeal, the Plaintiff argued, notably, that a private claim for damages pursuant to s. 36 of the Act would not be compatible with private arbitration in light of the legislative objectives of the Act, which are of public order. Put another way, s. 36 claims under the Act would not be arbitrable under any circumstances.

The Court of Appeal, on a thorough analysis of Seidel, found that, despite its public interest objectives, there is nothing sacrosanct about competition law that trumps an arbitration agreement, in keeping with the jurisprudence of the Supreme Court that matters of public order are capable of being the object of arbitration. The Court held that there was no basis to conclude that claims brought under s. 36 cannot be determined by arbitration, and that it is only where the relevant statute contains language prohibiting arbitration that courts will refuse to give effect to valid arbitration agreements.

Amway was represented by Blake, Cassels & Graydon LLP with a team consisting of Claude Marseille, Robert Torralbo and Adam Spiro.

The Plaintiff was represented by André Lespérance of Lauzon Bélanger Lespérance and Bruce Johnston of Trudel Johnston.