Date: 20100505
Docket: T-1754-09
Citation: 2010 FC 498
Montréal, Quebec, May 5, 2010
PRESENT: The Honourable Mr. Justice Mainville
BETWEEN:
CHERYL RHODES and
KERRY MURPHY
Plaintiffs
and
COMPAGNIE AMWAY CANADA and
AMWAY GLOBAL
Defendants
REASONS FOR ORDER AND ORDER
[1]
The
Plaintiffs have initiated a proposed class proceeding in this case, and for
this purpose have submitted a statement of claim challenging the Defendants’
distribution system as a multi-level marketing plan and a pyramid scheme which
does not comply with sections 52, 55 and 55.1 of the Competition Act,
R.S.C. 1985, c. C-34. They are consequently seeking to recover from the
Defendants, pursuant to section 36 of the Competition Act, their
resulting losses and damages estimated at $15,000. For the purposes of a class
action based on the same or similar cause of action, the Plaintiffs also
purport to represent all persons resident in Canada who
distributed the Defendants’ products since October 23, 2007, excluding the
Defendants’ employees and their affiliates and family members.
[2]
The
Defendants have answered these proceedings with a motion seeking an order
dismissing or permanently staying the action on the basis that the Federal
Court has no jurisdiction, as the matter is subject to compulsory binding
arbitration under the terms of an arbitration agreement subscribed to by the
parties. The Defendants seek to have this motion heard and adjudicated prior to
any other matter in these proceedings.
[3]
At
the request of the Court, the Defendants have also indicated that they intend
to bring at least three other preliminary motions in the event their motion for
dismissal based on the arbitration agreement is unsuccessful, namely a) a
motion submitting that section 36 of the Competition Act is not
applicable for constitutional reasons such that the Federal Court has no
jurisdiction to entertain the Plaintiffs’ claims; b) a motion to strike in part
the statement of claim, and seeking principally to strike the defendant Amway
Global from the action; and c) a motion to obtain further particulars.
[4]
In
response, the Plaintiffs have brought a motion for directions under Rule 54 of
the Federal Courts Rules, SOR/98-106 seeking an order setting an agenda
to hear and decide upon the Plaintiffs’ eventual motion for certification as a
class proceeding. The Plaintiffs assert they will be in a position to submit
such a certification motion sometime in June of this year. The Plaintiffs
specifically request that the Defendants’ motion to dismiss on the basis of the
arbitration agreement be heard and decided at the same time as their motion for
certification as a class proceeding.
[5]
The
parties were heard on the Plaintiffs’ motion for directions in Montréal on
April 16, 2010. This order only concerns the Plaintiffs’ motion for directions.
Position of the parties
[6]
The
Plaintiffs argue that the Defendants are seeking a system of “litigation by
instalment” with a motion to dismiss based on the arbitration agreement, and if
unsuccessful, a motion to dismiss on constitutional grounds, all to be heard in
limine litis.
[7]
The
Plaintiffs are of the view that this Court has a broad discretion to set the
agenda of the proceedings, and that it should do so in a manner which ensures a
fair and prompt hearing of all the motions and arguments of both parties. This
can best be achieved by dealing with the various motions of the Defendants at
the same time as the hearing and decision on the Plaintiffs’ motion for
certification as a class action. The Plaintiffs add that in Canadian common law
jurisdictions, the usual practice is to decide preliminary motions at the class
action certification stage of the proceedings, including motions concerning
lack of jurisdiction based on the terms of arbitration agreements. They refer
in this regard to the recent Ontario Court of Appeal decision of Griffin v.
Dell Canada Inc., 2010 ONCA 29, 64 B.L.R. (4th) 199, [2010] O.J.
No. 177 (QL).
[8]
The
Plaintiffs recognize that a legal controversy exists between the Court of
Appeal of Ontario and the
British Columbia Court of Appeal concerning the availability of class action
proceedings in common law jurisdictions where an arbitration agreement applies
to the dispute. Indeed, in MacKinnon v. National Money Mart Co., 2009
BCCA 103, 304 D.L.R. (4th) 331, [2009] B.C.J. No. 468 (QL), the
British Columbia Court of Appeal has held that the judgments of the Supreme
Court of Canada based on Quebec legislation in Dell Computer Corp. v. Union
des Consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801 and Rogers Wireless
Inc. v. Muroff, 2007 SCC 35, [2007] 2 S.C.R. 921 extend to the law in
British Columbia, and that accordingly the previous holdings of the court that
the certification of a class action renders an arbitration clause inoperative
have been effectively overturned. That issue will be finally determined soon by
the Supreme Court of Canada since the MacKinnon decision is currently
before that court. However, the Plaintiffs argue that irrespective of the
outcome of that Supreme Court of Canada appeal on the merits, in MacKinnon
the issue was heard and decided at the certification stage of the class action
proceedings and not as a preliminary matter decided before certification.
Consequently, the same approach should be taken here to decide the Defendants’ motion
to dismiss.
[9]
The
Defendants argue that motions challenging the very jurisdiction of the Court to
hear a proceeding, be it a class action or any other action, should be and are
decided in limine litis. The Defendants refer to numerous cases in which
this principle has been upheld, most notably the decisions of this Court in Galarneau
v. Canada (Attorney General), 2005 FC 39, 306 F.T.R. 1, [2005] F.C.J. No.
42 (QL) and in Merchant Law Group v. Canada (Canada Revenue Agency),
2008 FC 1371, 338 F.T.R. 181, [2008] F.C.J. No. 1767 (QL). This is also the
principle adopted by the Quebec Court of Appeal in Société Asbestos Limitée
v. Lacroix, 2004 CanLII 21635 (Qué C.A.).
[10]
Consequently,
the Defendants argue that their motion to dismiss based on the arbitration
agreement should first be heard and decided before this Court proceeds with any
other matter in the litigation.
Analysis
[11]
Two
competing schools of thought exist concerning the proper management of class
action proceedings where the jurisdiction of the court to entertain the
proceedings is questioned. One school takes a pragmatic approach to the issue,
while the other takes a principled approach.
[12]
The
first school usually requires that the jurisdictional issue be decided at the
same time as the certification of the class action. This avoids a multiplicity
of hearings and reduces the number of eventual appeals, thus theoretically
ensuring that the proceedings are dealt with in a timely manner while also
ensuring a more efficient use of limited judicial resources.
[13]
In
general, courts of common-law jurisdiction in Canada have
favoured this approach, concluding that, having regard to the purposes and
objectives of class proceedings, motions to certify the class action should
normally take precedence over other preliminary motions, including motions
questioning the jurisdiction to entertain the class action which can be
properly decided at the certification stage. The review of the case law on this
issue carried out by Justice Hansen in Campbell v. Canada (Attorney General),
2008 FC 353, [2008] F.C.J. No. 456 is instructive in this regard, as are some
of the cases referred to by the Plaintiffs in their argument: see particularly 2038724
Ontario Ltd. v. Quizno’s Canada Restaurant Corp., [2007] O.J. No. 1136 (S.C.J.)
(QL) at para. 59. However, this is not an absolute rule in Canadian common-law
jurisdictions. Other considerations can result in a different approach in
appropriate circumstances.
[14]
The
following comments from Baxter v. Canada (Attorney
General),
[2005] O.J. No. 2165 (S.C.J.) (QL) at paras. 11, 12 and 14 summarize the
approach in Ontario and, by
extension, in other Canadian common-law jurisdictions:
Prior to
certification, an action commenced under the CPA is nothing more than an
intended class proceeding: Logan v. Canada (Minister of Health) (2003),
36 C.P.C. (5th) 176 (S.C.) at para. 23, aff'd 71 O.R. (3d) 451 (C.A.) (See also: Boulanger
v. Johnson & Johnson Corp. (2003), 64 O.R. (3d) 208 (Div. Ct); Attis,
supra at para 14.) In the pre-certification period it is not clear whether a
proceeding will ultimately be certified. Further there is an element of
fluidity in respect of the class definitions and the common issues.
Accordingly, motions brought prior to certification may turn out to have been
unnecessary, over-complicated or incomplete.
Moreover,
courts will not always have sufficient information to adequately determine
motions at the pre-certification stage. This is particularly apparent with
respect to the Jurisdictional Motions. In several recent cases it has been held
that the certified common issues in a class action can serve as a basis for the
proper assumption of jurisdiction by the court over extra-provincial parties.
(See. : Harington v. Dow Corning Corp (2000), 193 D.L.R. (4th) 67 (B.C. C.A.);
Wilson v. Servier (2000), 50 O.R. (3d) 219 (S.C.), (2000), 52 O.R. (3d)
20 (Div. Ct.), leave to appeal denied, [2001] S.C.C.A. No. 88, S.C.C. Bulletin,
2001, p. 1539.) The thrust of Harrington and Wilson, in relation
to the jurisdiction determination, is that where a class action involving
intra-provincial plaintiffs could be certified, and the common issues forming
the basis for the certification are shared by both the resident class and
extra-provincial non-residents against the defendant, the existence of such
common issues provides a "real and substantial connection" of the
non-residents to the forum in relation to the action. Thus, the underpinnings
of a successful certification motion could have a direct bearing on the
jurisdictional analysis. On the other hand, if the certification motion fails,
the jurisdictional motion will in all likelihood be rendered moot. Therefore,
it would be pointless to hear the jurisdiction motion in advance of the
certification motion in that, at least to this extent, all of the necessary
information relevant to jurisdiction is not presently available.
[…]
Admittedly, there are instances
where, as indicated in both Attis and Moyes, there can be
exceptions to the rule that the certification motion ought to be the first
procedural matter to be heard and determined. It may be appropriate to make an
exception where the determination of a preliminary motion prior to the
certification motion would clearly benefit all parties or would further the
objective of judicial efficiency, such as in relation to a motion for dismissal
under Rule 21 or summary judgment under Rule 20. Such motions may have the
positive effect of narrowing the issues, focusing the case and moving the
litigation forward. An exception may also be warranted where the preliminary
motion is time sensitive or necessary to ensure that the proceeding is
conducted fairly. (See: Moyes, supra at para. 12; Re Holmes and
London Life v. London Life Insurance Co. et al. (2000), 50 O.R. (3d) 388
(S.C.) at paras. 7-8; Hughes v. Sunbeam Corp. (Canada) Ltd. (2002), 61
O.R. (3d) 433 (C.A.), at para. 15, leave to appeal dismissed [2002] S.C.C.A.
No. 446; Segnitz v. Royal and SunAlliance Insurance Co. of Canada,
[2001] O.J. No. 6016 (S.C.); Stone v. Wellington County Board of Education
(1999), 29 C.P.C. (4th) 320 (C.A.), leave to appeal dismissed, [1999] S.C.C.A.
No. 336.); Vitelli v. Villa Giardino (2001), 54 O.R. (3d) 334 (S.C.); Pearson
v. Inco (2001), 57 O.R. (3d) 278 (S.C)).
[15]
The
other school views the jurisdiction of a court to entertain a class action as a
fundamental matter which must be decided as soon as it is raised. In this
approach, the issue of jurisdiction is one of public order which cannot be
ignored, even if deciding the matter at a preliminary stage may result in an
appeal which will increase the time required to litigate the class action in
the event the court is found to have jurisdiction. This is so since it would be
legally unacceptable for a court to entertain an action over which it has no
jurisdiction, even if this would be more efficient.
[16]
This
second school reflects the approach applied by the courts in Quebec. The Quebec
Court of Appeal has indeed clearly taken the position that, in the context of
class action proceedings, motions challenging the jurisdiction of the court
should be decided prior to certification since they raise issues of public
order: see in particular Société Asbestos Limitée v. Lacroix, supra at
paras. 20 to 27.
[17]
I
am of the view that it is not necessary to choose between the two schools as
the parties to this litigation have implicitly invited me to do.
[18]
The
order in which motions are heard and decided within class action proceedings is
to be determined on a case by case basis taking into account the circumstances
at hand and the issues which are raised in each case. I see no reason to set
out as a predetermined principle cast in stone that motions challenging the
jurisdiction of the Court must be heard and decided prior to certification.
Likewise I see no reason to decide that such motions must always or usually be
heard at the certification stage of the proceedings. Rather, each case is to be
decided within its particular context, and this context will guide the
scheduling order of the motions raised in the course of the class action proceedings.
[19]
Rule
334.16(1)(a) of the Federal Courts Rules allows for the certification of
a class proceeding if “the pleadings disclose a reasonable cause of action”.
Rule 334.11 provides that, to the extent they are not incompatible with the
rules relating to class proceedings, the rules applicable to actions apply in
such proceedings. Rule 221(1)(a) allows for an action to be dismissed at any
time on the ground that it “discloses no reasonable cause of action [...]”. The
similarity between Rule 334.16(1)(a) and Rule 221(1)(a) leads me to conclude
that lack of jurisdiction arguments may be determined either within the context
of the hearing for certification, or as a separate matter to be heard on a
distinct motion prior to certification. There is however no rule or principle
giving priority to Rule 221(1)(a) over Rule 334.16(1)(a) or vice versa. In
these circumstances, the decision to hear and to determine the jurisdictional
issues prior to or during the class action certification stage falls under the
discretionary authority of this Court to manage the proceedings before it.
[20]
I
find support for this approach in the decision of this Court in Campbell v. Canada (Attorney
General),
supra. In Campbell, a case similar to the one here, a motion
to strike a statement of claim prior to the certification of a class action was
brought forward, and the issue to be decided, as here, was whether that motion
to strike should be heard prior to the motion for certification. Though Justice
Hansen did conclude that the motion to strike should be heard and determined
prior to the certification motion, she so decided on the basis of the
particular circumstances of the case and not on the basis of some overriding,
preordained legal principle. As noted by Justice Hansen at paragraph 23 of that
decision:
It is evident from the jurisprudence that although, in principle,
a certification motion ought to take precedence over other preliminary motions,
in the end, the order of the proceedings will be determined on the basis of the
circumstances of the particular case.
[21]
The
decisions of this Court in Galarneau v. Canada (Attorney General), supra,
and in Merchant Law Group v. Canada (Canada
Revenue Agency), supra, have also concluded that a motion to strike
on jurisdictional grounds should be heard prior to the motion for
certification. Though these cases did refer approvingly to the Quebec Court of
Appeal decision in Société Asbestos, supra, they did so not because that
decision was binding, but rather on the basis that its reasoning “is persuasive
and applicable in the case at bar”: Merchant Law Group¸ supra at para.
19. These decisions can thus be viewed as haven been decided on the basis of
the circumstances at hand in each case.
[22]
There
can indeed be circumstances where it would be preferable to decide a
jurisdictional challenge at the certification stage of a class action or even
after the class action has been certified. As an example, in this case, it may
well be preferable to have the Defendants’ proposed jurisdictional challenges based
on constitutional considerations decided, if need be, after the certification
of the class action has been determined, since this could avoid a
constitutional debate at the certification stage, with attending interventions
of the Attorney General of Canada and perhaps provincial attorneys-general, on
a matter which may never be certified.
[23]
Consequently,
I am strongly of the view that the order in which motions are heard and decided
within class action proceedings, including motions challenging the jurisdiction
of the Court to entertain the proceedings, is to be determined on a case by
case basis taking into account the circumstances of each case and the issues
which are raised in each case.
[24]
In
this case, the Defendants have convinced me that their preliminary motion
challenging the jurisdiction of the Court on the basis of the arbitration
agreement should be heard prior to the motion for certification of the class
action.
[25]
Indeed,
the Plaintiffs filed their statement of claim as a proposed class action on
October 23, 2009, but have not acted upon that claim since its filing. The
Plaintiffs could have submitted their motion for certification as a class
action, but they have chosen not to do so. Counsel for the Plaintiffs now
asserts that such a motion may be submitted next June; however, there is no
certainty this will indeed be done. Had a motion for certification as a class
action been submitted in this case and a date set for a hearing on that motion,
I may have been inclined to decide the motion to dismiss on jurisdictional
grounds at the same time as the motion for certification. However, these are
not the circumstances at hand, and I fail to see why the Defendants should be
impeded from having their motion to strike heard by this Court when the Plaintiffs
have yet to submit their motion for certification.
[26]
In
addition, the Defendants’ motion may bring an end to the proceedings in their
entirety or may result in a narrowing of the scope of the case for
certification. The Plaintiffs themselves recognize that if the Defendants are
successful in having the arbitration agreement applied to their claim, they may
be required to limit their damages in a class action to an amount not exceeding
$1,000.
[27]
For
these reasons, I conclude that the motion to dismiss should be heard and
determined as soon as practicable, and in any event prior to the hearing of the
eventual motion for certification the Plaintiffs may be submitting in this
case.
[28]
An
order will consequently issue regarding the scheduling of the motion to dismiss.
[29]
Costs
on this motion shall follow the cause.
ORDER
THIS COURT ORDERS that:
1. Unless otherwise directed by a
judge of this Court, the Defendants’ Motion to Stay and to Compel Arbitration
dated April 7, 2010 shall be heard in Montréal on Friday, June 18, 2010
at 9:30 am for a maximum duration of three and a half hours.
2. The Defendants’ Amended Motion
Record as filed in the records of the Court is recognized as filed with the
Court and served on the Plaintiffs.
3. The Plaintiffs shall complete
all cross examinations, if any, on affidavits included in the Defendants’
Motion Record on or before May 21, 2010 and shall submit to the Court and
provide a copy to the Defendants’ counsel of their Respondents’ Motion Record
on or before May 28, 2010.
4. The Defendants shall complete
all cross-examinations, if any, on affidavits included in the Plaintiffs’
Motion Record on or before June 11, 2010.
“Robert
M. Mainville”
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