BC Court of Appeal rules class action waiver clauses unenforceable and against public policy

In a recent decision, the British Columbia Court of Appeal confirmed that contractual terms that purport to limit a party’s access to class action or representative proceedings will almost always be unenforceable, if not due to unconscionability, then as contrary to public policy.

Background

Paul Pearce was the proposed representative plaintiff for a class of “customers” who had paid the defendant, 4 Pillars Consulting Ltd., for various insolvency-related services. Pearce sought to certify a class action pursuant to s. 4 of the Class Proceedings Act ¹(CPA) alleging that 4 Pillars’ business was being operated in violation of the Bankruptcy and Insolvency Act² (BIA) and the British Columbia Business Practices and Consumer Protection Act.³  

4 Pillars argued that customers who had signed a standard form agreement were barred from being class members on the basis of a clause in the agreement that purported to waive the right of clients to participate in class action proceedings. 

At first instance,⁴ the British Columbia Supreme Court held that the class action waiver clause was unenforceable. The court noted that if the clause were enforced, it would override the mandatory language of s. 4 of the CPA, which provides that the court “must” certify a class proceeding if the requirements of s. 4 are met. The court also held that the clause was contrary to public policy because it blocked access to the justice system. A class was certified, including 4 Pillars’ clients who had signed the standard form agreement. 

4 Pillars appealed.

Decision

In Pearce v 4 Pillars Consulting Group Inc.⁵, a panel of the Court of Appeal unanimously upheld the judgment below and found that 4 Pillars’ class action waiver clause was unenforceable. In coming to this conclusion, the court relied on the 2020 Supreme Court of Canada decision Uber Technologies Inc. v. Heller,⁶ in which the Supreme Court ruled that contractual terms that limit avenues of dispute resolution will not be enforced if the term in question is unconscionable or contrary to public policy. 

The Court of Appeal reiterated that standard form agreements are susceptible to being challenged as unconscionable, as such agreements are often characterized by an inequity in bargaining power and may constitute improvident bargains. Like many other standard form agreements, the 4 Pillars agreement was drafted by 4 Pillars without input from its customers. The Court of Appeal noted the “gulf of sophistication” between the nation-wide franchise and its customer base, all of whom were vulnerable and on the verge of insolvency. Further, despite 4 Pillars’ assertions that the agreement was drafted in plain language, the court nevertheless found it was likely the customers did not understand the unusual or onerous effects of the clause limiting their access to class action proceedings. 

The Court of Appeal also held that a contractual limitation on the right of customers to access the justice system through a class action proceeding was contrary to public policy. In doing so, the court noted three aspects of class actions that make them critical to our justice system: 

• preserving judicial resources by avoiding unnecessary duplication in fact-finding and analysis; 
• improving access to the judicial system by sharing legal costs across the class; and
• safeguarding against widespread but individually minimal harm to large classes of individuals.

According to the Court of Appeal, enforcing the class action waiver clause would encroach upon the very purpose of class proceedings. Not only would a vast majority of the class members be left without meaningful access to the justice system, but forcing the claims to be tried individually would lead to duplication of efforts and the potential for inconsistent results. Both the Court of Appeal and the SCC in Uber found that even if a contractual term contemplates a form of dispute resolution, the term may nevertheless be unconscionable and offensive to public policy if it impedes accessing the justice system.

Key takeaways 

Pearce reminds us that freedom of contract is not unlimited and may be overridden where certain conditions exist. The decision recognizes the importance of class proceedings in the Canadian judicial system and suggests that any contractual term that precludes such proceedings will never be enforceable. Where the criteria for certification pursuant to s. 4 of the CPA are otherwise met, a class action is unlikely to be dismissed on the basis of a class action waiver clause alone, particularly if it is found in a standard form agreement with unsophisticated counterparties.

Alongside Uber, Pearce indicates that parties should carefully consider the extent to which they are relying on contractual terms that purport to restrict access to class action proceedings.

The authors wish to thank articling student Jenine Urquhart and associate Sarah Ivany for their help in preparing this legal update.