B.C. Court of Appeal Finds Class Action Waiver Clause Unconscionable and Contrary to Public Policy

On May 17, 2021, the British Columbia (B.C.) Court of Appeal released a decision in Pearce v. 4 Pillars Consulting Group Inc. (Pearce) finding a class action waiver clause unenforceable as unconscionable and contrary to public policy, largely because it would likely prevent class members from pursuing any claims at all given the small amounts at issue. Pearce is one of the few Canadian decisions addressing the enforceability of class action waiver clauses, a question the Supreme Court of Canada expressly left open in the past.

BACKGROUND

The defendants sold debt advisory services to individuals on the brink of insolvency seeking debt restructuring. The defendants charged fees upfront, regardless of whether any debt relief was obtained.

On the basis that the defendants were not licensed “debt repayment agents” pursuant to the B.C. Business Practices and Consumer Protection Act (BPCPA), or licensed insolvency trustees pursuant to the federal Bankruptcy and Insolvency Act (BIA), the plaintiff commenced an action against the defendants, applying to certify it as a class proceeding on behalf of persons who paid the defendants fees. The plaintiff alleged that the defendants contravened the BPCPA’s provisions governing debt repayment agents and its prohibition of unconscionable acts or practices. The plaintiff further alleged that the defendants’ conduct was contrary to the BIA, that the defendants’ unlawful conduct voided the applicable contracts with customers and that the fees paid are recoverable through claims for unjust enrichment and conspiracy.

The defendants took the position that their business was lawful. They applied to have the plaintiff’s and proposed class members’ claims struck, dismissed or stayed on a number of grounds, including a class action waiver clause in standard form agreements prohibiting class proceedings and requiring disputes be resolved on individual bases.

B.C. SUPREME COURT DECISION

In October 2019, the B.C. Supreme Court dismissed the defendants’ applications and certified the plaintiff’s action as a class proceeding, holding that the plaintiff’s claims were not bound to fail and that the class action waiver clause was unenforceable.

B.C. COURT OF APPEAL DECISION

The B.C. Court of Appeal dismissed the defendants’ appeal. The Court of Appeal agreed that the plaintiff’s claims were not bound to fail and that the action was appropriately certified as a class proceeding. Significantly, the Court of Appeal also agreed that the class action waiver clause was unenforceable on two independent grounds.

First, the Court of Appeal held that the class action waiver clause was unconscionable, finding an inequality of bargaining power and an improvident bargain. The inequality arose because the clause was found in standard form contracts not subject to negotiation, the class members were consumers rather than sophisticated commercial parties, the class members were distressed persons in vulnerable and difficult circumstances struggling to service and repay debt and the clause did not effectively communicate the consequences of agreeing to it. The clause was improvident because the novel and complex nature of the legal questions raised by the claims, and the relatively low monetary values involved for each class member, meant that it was unlikely class members would be able to pursue individual claims if the clause were enforced, effectively and practically blocking them from access to justice.

Second, the Court of Appeal held that the clause was contrary to public policy because it significantly interfered with the administration of justice. Its practical effect, as noted above, would be to preclude the plaintiff and class members from accessing any dispute resolution process at all, defeating the three goals of class proceedings of promoting judicial economy, access to justice and behaviour modification. While the Court of Appeal noted that there is little jurisprudence concerning the enforceability of class action waiver clauses, it cited two lower court decisions from Alberta and Ontario for the proposition that such clauses have not been enforced when considered in the past.

IMPLICATIONS

The principles in Pearce raise serious issues regarding the enforceability of class action waiver clauses, particularly where individual claims for damages can be expected to be small (as is often the case in class actions). Notably, the Court of Appeal distinguished case law involving arbitration clauses that oust the jurisdiction of the court, stating that arbitration may offer a measure of justice comparable to courts and that legislation exists directing courts to stay court proceedings in favour of arbitration.

For further information, please contact:

Josh Hutchinson          604-631-4178
Robin Reinertson        604-631-3323

or any other member of our Class Actions group.