'Smith Estate V. National Money Mart Co': What You Need To Know About The Conflict Between Arbitration And Class Proceedings Statutes In Ontario

The following recent Ontario Court of Appeal decision will be of

interest to financial services industry participants who have been

tracking class action trends in the financial services sector. The

decision addresses the trend in the context of arbitration

clauses.

Smith Estate v. National Money Mart is a class action

where the plaintiff class asserts that Money Mart was charging

illegal rates of interest on payday loans.1 The

contracts contained an arbitration clause, which, if upheld, would

have denied the plaintiffs an opportunity to bring a class action

against the company. Prior to the class certification motion, the

defendants brought a motion for a stay of proceedings and to have

the claims referred to arbitration. This motion was denied. On

appeal, Justice Weiler held that the question whether or not an

arbitration clause is to be enforced should be considered as part

of the preferable procedure analysis on a motion for class

certification. Ultimately, the action against Money Mart was

certified as a class proceeding.

After the Supreme Court of Canada's decisions in Union

des consommateurs v. Dell Computer Corp. ("Dell") and

Muroff v. Rogers Wireless Inc. ("Rogers"), the

defendants moved a second time for a stay of proceedings. It was

argued that the law in Ontario had been overturned and that class

proceedings must be set aside when there is a binding arbitration

agreement.2

In the second stay of proceedings motion, the court addressed

three questions pertaining to consumer protection, arbitration and

class proceedings legislation in Ontario.

What is the relationship between the Class Proceedings Act,

1992, which compels a court to certify an action as a class

proceeding when the criteria for certification have been satisfied,

and the Arbitration Act, 1991, which compels a court to stay

proceedings when the parties have agreed to submit their dispute to

arbitration?

Do sections 7 and 8 of the Consumer Protection Act, 2002, which

preclude contracting out of class proceedings, apply

retroactively?

What is the significance to the law of Ontario and other common

law provinces of the Supreme Court of Canada's decisions in

Dell and Rogers?

Retroactive Application of Sections 7 and 8 of the Consumer

Protection Act, 2002

Sections 7 and 8 of the Consumer Protection Act, 2002

permit consumers to participate in a class action, even if the

contract at issue contains an arbitration clause. Money Mart argued

that these provisions did not apply retroactively. And, as a

result, its clients who had signed contracts prior to the

provisions coming into force were bound by the arbitration

agreement and could not join the class action.

Justice Perell approached the problem as a matter of statutory

interpretation. He found that these provisions were enacted in

reaction to the decision in Kanitz v. Rogers Cable Inc.

("Kanitz"), where the court stayed a class

proceeding because the consumer contract contained an arbitration

agreement.3

In my opinion, these sections were

passed to...