On May 17, 2021, the British Columbia (BC) Court of Appeal released a decision in Pearce v. 4 Pillars Consulting Group Inc. (Pearce) finding that a class action waiver clause was inapplicable as inadmissible and contrary to public order, in large part because it would likely prevent class members from pursuing claims given the small amounts involved. Pearce is one of the few Canadian cases dealing with the applicability of class action waiver clauses, an issue that the Supreme Court of Canada has expressly left open in the past.
The defendants sold debt counseling services to people on the verge of insolvency seeking to restructure their debt. The defendants charged an upfront fee whether or not debt relief was obtained.
On the basis that the defendants were not licensed “debt repayment agents” under the CB Commercial Practices and Consumer Protection Act (BPCPA), or federally licensed insolvency trustees Bankruptcy and Insolvency Law (BIA), the plaintiff brought an action against the defendants, seeking to certify it as a class action on behalf of the persons who paid the defendants’ fees. The plaintiff alleged that the defendants had violated the BPCPAthe provisions of the regulation governing debt repayment agents and its prohibition of unreasonable acts or practices. The plaintiff further alleged that the defendants’ conduct was contrary to the BIA, that the illegal behavior of the defendants nullified the applicable contracts with the clients and that the fees paid are recoverable through claims for unjust enrichment and conspiracy.
The defendants argued that their business was legal. They requested that the claims of the plaintiff and the proposed class members be struck, dismissed or stayed for a number of reasons, including a class action waiver clause in model agreements banning class actions and requiring that disputes be resolved on individual bases.
BC SUPREME COURT DECISION
In October 2019, the British Columbia Supreme Court dismissed the defendants’ claims and certified the plaintiff’s action as a class action, ruling that the plaintiff’s claims were not doomed and that the clause waiver of the class action was inapplicable.
BC COURT OF APPEAL DECISION
The British Columbia Court of Appeal dismissed the defendants’ appeal. The Court of Appeal agreed that the plaintiff’s claims were not doomed and that the action had been duly certified as a class action. Significantly, the Court of Appeal also agreed that the class action waiver clause was inapplicable for two independent reasons.
First, the Court of Appeal ruled that the class action waiver clause was unreasonable, finding unequal bargaining power and reckless negotiation. The inequality arose because the clause was in standard non-negotiable contracts, the group members were consumers rather than sophisticated business parties, the group members were distressed in vulnerable circumstances, and difficult struggling for the service and repayment of the debt and the clause did not effectively communicate the consequences of its acceptance. The clause was foolhardy because the new and complex nature of the legal issues raised by the claims, and the relatively low dollar values involved for each class member, meant that class members were unlikely to be able to pursue individual claims if the clause was applied, effectively and practically preventing them from accessing justice.
Second, the Court of Appeal ruled that the clause was contrary to public order because it significantly interfered with the administration of justice. Its practical effect, as noted above, would be to prevent the Plaintiff and Class Members from accessing any dispute resolution process, which would defeat the three purposes of class action lawsuits to promote advocacy. judicial economics, access to justice and behavior modification. Although the Court of Appeal noted that there is little case law regarding the applicability of class action waiver clauses, it cited two lower court decisions in Alberta and Ontario to argue that such clauses have not been applied when considered in the past.
The principles in Pearce raise serious questions about the applicability of class action waivers, particularly where individual claims for damages can be viewed as low (as is often the case in class actions). Notably, the Court of Appeal distinguished case law involving arbitration clauses which exclude the jurisdiction of the tribunal, asserting that arbitration can offer a measure of justice comparable to the courts and that there is legislation ordering the courts to suspend legal proceedings in favor of arbitration.
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Blakes periodically provides documents on legal trends and developments to those who desire them. This article is for informational purposes only and does not constitute legal advice or an opinion on any subject. We will be happy to provide you with additional details or advice on specific situations if you wish. To obtain permission to reproduce articles, please contact Blakes Marketing and Communications at 514-982-4026 or by email at [email protected]. © 2019 Blake, Cassels & Graydon LLP