CONSUMER ARBITRATION: A Fair and Effective Process? Project Final Report Presented to Industry Canada’s Office of Consumer Affairs June 2009 Consumer arbitration: a fair and effective process? Report published by: Union des consommateurs members: Abitibi-Témiscamingue ACEF 6226 Saint-Hubert Street Amiante – Beauce – Etchemins ACEF Montreal, Quebec H2S 2M2 Montreal East ACEF Île-Jésus ACEF Telephone: 514-521-6820 Lanaudière ACEF Toll free: 1 888 521-6820 Estrie ACEF Fax: 514-521-0736 Grand-Portage ACEF Montérégie East ACEF [email protected] Montreal North ACEF www.consommateur.qc.ca/union Quebec City South Shore ACEF Association des consommateurs pour la qualité dans la construction Individual members Union des consommateurs is a member of the International Consumer Organization (ICO), a federation of 220 members from 115 countries. Written by • Me Yannick Labelle Acknowledgements • Consumer Protection Committee Editorial management • Me Marcel Boucher ISBN 978-2-923405-31-5 Union des consommateurs wishes to thank Industry Canada for helping to fund this research project. The views expressed in this report are not necessarily those of Industry Canada or the Government of Canada. The masculine is used generically in this report. © Union des consommateurs — 2009 Union des consommateurs page 2 Consumer arbitration: a fair and effective process? TABLE OF CONTENTS UNION DES CONSOMMATEURS, STRENGTH THROUGH NETWORKING 5 INTRODUCTION 6 CHAPTER 1: ALTERNATIVE METHODS OF CONSUMER DISPUTE RESOLUTION 7 I. Alternative Methods of Dispute Resolution 7 A. Negotiation 8 B. Conciliation and mediation 9 D. Arbitration 13 I History, types and features of arbitration 13 The history of arbitration in Canada 13 The forms of arbitration 15 The features of arbitration 15 II. The pros and cons of arbitration, and special considerations 17 The pros and cons of arbitration 17 Special considerations regarding arbitration 25 Essential guarantees of consumer arbitration 28 CHAPTER 2: ARBITRATION OF CONSUMER DISPUTES 31 I. Canadian Organizations Offering Arbitration Services 31 II. Organizations Offering Arbitration Services outside Canada 31 III. Government Recognition of Certain Arbitration Organizations 32 IV. Canada: The Canadian Motor Vehicle Arbitration Plan (CAMVAP) and the Guarantee Plan for New Residential Buildings 33 A. CAMVAP: Structure and operation 33 B. The Guarantee Plan for New Residential Buildings 36 C. Conclusion 39 IV. Consumer Sectors That most Frequently Go to Arbitration 40 A. Results of the contract analysis: prevalence of arbitration clauses 40 Cable television 40 Cellular telephony 42 Residential telephony 42 Internet access service 42 I. Online purchasing 43 V. Observance of Essential Guarantees by Organizations Currently in Place 44 Union des consommateurs page 3 Consumer arbitration: a fair and effective process? CHAPTER 3: CANADIAN ARBITRATION LEGISLATION 45 I. Canadian Arbitration Legislation: Adequate Consumer Protection? 45 A. Prohibition of arbitration clauses 45 CHAPTER 4: CONSUMER ARBITRATION IN OTHER JURISDICTIONS 48 I. Foreign Arbitration Systems 48 A. Argentina: Government intervention and effectiveness 48 B. Consumer arbitration in the United States 49 C. Europe: Regional guidelines and national initiatives 52 D. Portugal and the Centro de Arbitragem de conflitos de Consumo 52 CONCLUSIONS AND RECOMMENDATIONS: IN SEARCH OF EFFICIENT, FAIR AND IMPARTIAL CANADIAN CONSUMER ARBITRATION 576 I. The Model Organization and Its Features 58 A. Funding 58 B. Extra-judicial recourse and auxiliary services 58 C. The voluntary nature of arbitration 58 D. Consumer arbitration costs 59 E. The jurisdiction of the arbitration system 59 F. Accessibility 609 II. Respect for Essential Guarantees 610 A. The code of ethics and respect for essential guarantees 61 B. Impartiality and independence 61 C. The right to be heard 62 D. Procedural fairness 62 E. Transparency 63 III. A Body Dedicated to Consumer Disputes 64 RECOMMENDATIONS 66 MEDIAGRAPHY 71 ANNEX 1: Canadian Arbitration Organizations 80 ANNEX 2: Arbitration Organizations outside Canada 84 ANNEX 3: Use of Arbitration Clauses in Consumer Contracts 88 ANNEX 4: Canadian Arbitration Legislation 95 ANNEX 5: Small Claims Court Costs 113 ANNEX 6: Contractual Clauses Examined 116 Union des consommateurs page 4 Consumer arbitration: a fair and effective process? UNION DES CONSOMMATEURS, STRENGTH THROUGH NETWORKING Union des consommateurs is a non-profit organization whose membership is comprised of several ACEFs (Associations coopératives d’économie familiale), l‘Association des consommateurs pour la qualité dans la construction (ACQC), as well as individual members. Union des consommateurs’ mission is to represent and defend the rights of consumers, with particular emphasis on the interests of low-income households. Union des consommateurs’ activities are based on values cherished by its members: solidarity, equity and social justice, as well as the objective of enhancing consumers’ living conditions in economic, social, political and environmental terms. Union des consommateurs’ structure enables it to maintain a broad vision of consumer issues even as it develops in-depth expertise in certain programming sectors, particularly via its research efforts on the emerging issues confronting consumers. Its activities, which are nation- wide in scope, are enriched and legitimated by its field work and the deep roots of its member associations in the community. Union des consommateurs acts mainly at the national level, by representing the interests of consumers before political, regulatory or legal authorities or in public forums. Its priority issues, in terms of research, action and advocacy, include the following: family budgets and indebtedness, energy, telephone services, radio broadcasting, cable television and the Internet, public health, food and biotechnologies, financial products and services, business practices, and social and fiscal policy. Finally, regarding the issue of economic globalization, Union des consommateurs works in collaboration with several consumer groups in English Canada and abroad. It is a member of Consumers International (CI), a United Nations recognized organization. Union des consommateurs page 5 Consumer arbitration: a fair and effective process? INTRODUCTION “Arbitration presupposes a balance of power; everywhere that balance is disturbed, arbitration suffocates.”1 - Henry Motulsky. The validity and effectiveness of arbitration as an alternative dispute-resolution method are now widely recognized and accepted, commercially and internationally. This dispute-resolution method is widespread in consumer contracts; following the example of American companies, Canadian merchants and retailers are making ever-greater use, in their consumer contracts, of arbitration clauses forcing consumers to submit any eventual dispute to arbitration, to the exclusion of the courts. The Supreme Court of Canada, in the Dell2 order, has recognized arbitration as an acceptable consumer dispute-resolution method, and those who promote arbitration praise its advantages and merits. But others raise serious doubts as to the respect, in the consumer arbitration process, for essential guarantees that should be granted to the consumer in a fair and equitable dispute-resolution process. Faced with those reservations, some provincial legislators have decided to intervene to prohibit mandatory arbitration of consumer disputes. However, this doesn’t stop consumers from agreeing, once a dispute arises, to go to arbitration. Without a specific framework adapted to consumer disputes and taking into account the specific imbalance between the parties, can consumers who choose arbitration or those who, in jurisdictions where such arbitration clauses are not prohibited, are forced to submit to it, really expect to benefit from a fair, equitable process that respects certain essential guarantees? The purpose of the present study is to determine the pros and cons of consumer arbitration, notably on the basis of the essential guarantees that consumer arbitration should include to be considered a dispute-resolution method benefiting consumers. This study will also examine certain types of consumer arbitration currently offered in Canada. We will attempt to evaluate whether the systems put in place offer and respect the essential guarantees that should be provided by a dispute-resolution method acceptable to consumers. We will try to determine what features and procedures would guarantee that a consumer arbitration system is effective, protects consumers adequately, and deserves to be promoted by consumer organizations. The results of our research should also enable us to formulate recommendations on consumer arbitration and on legislative measures apt to favour essential guarantees, protect consumers adequately, and make this dispute-resolution method benefit consumers. Without attempting an exhaustive study, our research will focus on certain foreign legislative measures regarding arbitration, on the operation of arbitration systems established in certain foreign jurisdictions, and on the means taken by those systems to respect essential guarantees. The study will not discuss the issue of trans-border consumer contracts, or arbitration in the context of conflicts of jurisdiction. 1 Henry MOTULSKI, L'arbitrage et les conflits du travail, Rev.arb. 1956, 78. On justifying the prohibition of arbitration in labour relations. Our translation. 2 Dell Computer Corporation v. Union des consommateurs, 2007 SCC 34. Union des consommateurs page 6 Consumer arbitration: a fair and effective process? CHAPTER 1: ALTERNATIVE METHODS OF CONSUMER DISPUTE RESOLUTION I. ALTERNATIVE METHODS OF DISPUTE RESOLUTION Disputes between merchants and consumers remain the area where consumer access to justice shows the most flagrant deficiencies3. When a justice system crisis occurred in the mid- sixties, the system was widely criticized for its slowness, long delays, costs, and the resulting overall deterioration in the image of the justice system4. In particular, the justice system was reprimanded for not being suited for consumer disputes. From the seventies to the mid-nineties, small claims divisions were established across Canada, with the main goal of increasing access to justice in cases where the amounts at stake did not justify resorting to the traditional legal process.5 In parallel, the eighties saw the emergence in Canada of new dispute-resolution methods, which aimed to lower the number of cases before the courts, whereas in the United States, proceedings called independent assessment processes (IAPs) were already well established6. Given the problems raised by access to common law courts in consumer matters, one of the main objectives of alternative methods, which make available to consumers a panoply of alternatives to legal proceedings, is to facilitate access to justice. These alternative measures include negotiation, conciliation, mediation and arbitration. The alternative dispute-resolution methods have the following features: first, since dispute- resolution is the object, remedial law is obviously involved, as opposed to preventive law7. Thus, although alternative dispute-resolution methods may defuse a conflict or prevent its aggravation, the ultimate goal of IAPs is to dejudicialize disputes and lead to resolution outside the courts8. A second fundamental feature of IAPs resides in volunteerism – the parties’ agreement to participate in a given process in order to settle a dispute. Whereas a court will debate a case whether the defendant agrees or not, the IAPs operate differently: As mentioned by the authors Jean Morin and Martine Lachance, “alternative methods could not exist without the express desire of the parties.”9 Moreover, as opposed to the courts, alternative dispute-resolution methods have the advantage, at least in theory, of being flexible enough to adapt, depending on the situation, to the parties’ needs as well as the constraints and requirements specific to the dispute10. 3 Pierre-Claude LAFOND et al., L’émergence des solutions de rechange à la résolution judiciaire des différents en droit québécois de la consommation: fondement et inventaire dans Pierre-Claude LAFOND (dir.) Mélanges Claude Masse: En quête de justice et d’équité, Cowansville, Éditions Yvon Blais, 2003, p. 191. 4 Ibid., pages 186 and 187. 5 UNION DES CONSOMMATEURS, L’accès à la justice: Comment y parvenir ?, Montreal, June 2004, page 42 and following. 6 Op. cit., note 3 (Lafond)., pages 192 and 193. 7 Jean MORIN and Martine LACHANCE, Les modes alternatifs de résolution des litiges, Montreal, Chambre des notaires du Québec, 2006, p. 3. 8 Ibid., p. 2. 9 Op. cit., note 7 (Morin and Lachance). Our translation. 10 Ibid., p. 4. Union des consommateurs page 7 Consumer arbitration: a fair and effective process? We will now discuss the main alternative dispute-resolution methods available to consumers and companies when a consumer dispute arises. A. Negotiation Negotiation can be defined as a “dynamic communication process with the goal of reaching an agreement or convincing one or more parties.”11 Two essential elements govern the progress of any negotiation: communication and agreement12. The negotiating parties attempt, through mutual concessions, to conciliate interests that, on certain points, appear incompatible, and to arrive at a satisfactory agreement on the way to resolve the dispute. Negotiation is a means of communication and transaction found in all facets of society and daily life. It can apply between two individuals or, for instance, between companies or states. Depending on the parties involved or the issues in dispute, negotiation will entail a level of complexity, costs, and an extremely variable degree of formality. A the time of their conclusion, negotiations are usually submitted to written confirmation. In some cases, they are part of a broader process that may require more or less elaborate or restrictive formality. In many cases, they are conducted by the parties’ representatives. All these requirements may be costly, but they don’t usually apply in simple consumer contracts. Still, there is one common denominator: The parties retain at all times the last word on the result of the negotiations, since no participant is responsible for deciding the outcome. Negotiation remains the primary alternative dispute-resolution method available to consumers, and the one to which they often resort before any other. Consumers most often undertake on their own any negotiations with the merchant; at times they call upon a third party to enter in communication with the merchant on their behalf. Negotiation enables the parties to manage the issue opposing them and aims to give them better control over the monetary impact of the dispute, in a context they have established themselves13. This procedure may prove more satisfactory to the parties than if they go to court, where a third party would impose a decision on their rights and obligations. Ideally, rather than determining a winner and a loser, as the courts most often do, negotiation searches for a win-win formula, whereby each party finds satisfaction following mutual compromises. Negotiation undeniably has many advantages: no formality or regulation over the negotiation itself, no obligation to have a third party intervene during the negotiation, no fees, each party’s freedom over its actions and decisions without being subjected to a binding decision imposed by a third party. In addition, as opposed to court proceedings, reaching an agreement together enables the parties to retain a mutual understanding. However, with regard to these admitted advantages, a few determining factors should be emphasized: The parties’ unequal balance of power plays an essential role in the progress and outcome of any negotiation – that imbalance involves each party’s skill and experience, margin of manœuvre, and resources to pursue its own interests if negotiations fail. In addition, each party’s level of knowledge – of a given market’s usual practices, applicable legislation, and the 11 Pierre CARDINAL, Les modes de résolution alternative des conflits: Introduction à la médiation commerciale, (1993) 1 C.P. du N. 1, 23 and 24. Our translation. 12 Op. cit., note 7 (Morin and Lachance), p. 4. 13 Martine LACHANCE, Le contrat de transaction: étude de droit privé comparé et de droit international privé, Cowansville, Éditions Yvon Blais, 2005, p. 4 and 5. Union des consommateurs page 8 Consumer arbitration: a fair and effective process? way a court would have handled such a dispute – will affect the concessions that may be deemed reasonable. In the event that the dispute cannot be settled by negotiation or is aggravated, the parties to a consumer dispute may resort to other alternative dispute-resolution methods, such as conciliation or mediation. B. Conciliation and mediation As with negotiation, the goal of conciliation and mediation is to reach a compromise and thus resolve a dispute, while respecting the interests of each party. As with negotiation, these informal resolution methods aim both to help the parties arrive at a satisfactory solution and to maintain or re-establish mutual understanding between them. As opposed to negotiation, these processes generally require the presence of a third party who will intervene between the disputing parties to put things in perspective and help them arrive at an agreement, by providing them with relevant information on the context of their dispute and, eventually, by suggesting an appropriate solution to them. Basically, the difference between negotiation and these two dispute-resolution methods, conciliation and mediation, is thus the presence of a third party – the conciliator or mediator – who will assist the parties in the search for a settlement that is suitable to them. What is the specific purpose of either method, and its degree of intervention by a third party? We hoped, as part of this study, to present the features that distinguish these two dispute-resolution methods; however, it must be admitted that they are often conflated and that no consensus exists on a precise definition. To some authors, the difference between these two processes is fundamental: Théodore Garby explains that mediation is less interested “in disputes than in underlying conflicts, while conciliation deals with the dispute itself, i.e., the parties’ mutual claims”14. Conciliation has been defined, in the international context, as a process to “have a dispute examined by a body accepted by the parties and authorized to present proposals to them in view of an arrangement.”15 Traditional conciliation assigns the conciliator to search for relevant facts and analyse the resulting legal situation, in a role that resembles that of a judge, except that the latter could not impose a decision. In traditional mediation, the mediator brings out the parties’ emotions, needs and interests to enable the parties to find their own solution themselves. Conciliation traditionally focuses on the facts, mediation on the persons. Based on the parties’ common interests, mediation opens a path to the future, whereas, based strictly on a solution to the dispute, conciliation resolves the past. In this view, the conciliator’s task, as part of a dispute-resolution process, is to suggest a solution to the parties if they have not reached one themselves; for his part, the mediator provides support, as part of a communication management process whereby the parties search for their own solution. As opposed to the conciliator, the mediator is not responsible for issuing 14 Théodore GARBY, La gestion des conflits, CMA Economica, Paris, 2004; cited in Jean A. MIRIMANOFF and Sandra VIGNERON-MAGGIO-APRILE, LA GESTION DES CONFLITS Geneva, February 19, 2009. Our translation. 15 L. Yves FORTIER, La diplomatie et l’arbitrage, (1998) 11.1 R.Q.D.I. 327, p. 330. Available on the website of the Société Québécoise de Droit international, [Online] http://www.sqdi.org/volumes/pdf/11.1_- _fortier.pdf (Page consulted on April 17, 2008). Our translation. Union des consommateurs page 9 Consumer arbitration: a fair and effective process? recommendations and propose solutions he believes favourable to the attainment of an eventual settlement. In this view, mediation’s main purpose is to preserve relations between the parties, without relying “on purely legal considerations” 16. However, some authors state that the conciliator is not responsible for suggesting solutions to the parties to conciliation or for participating in the recommendations. In this view, the conciliator’s role is limited essentially to that of a facilitator17. In a guide intended for Swiss practitioners, Lausanne University researchers identified these definitions retained by the Groupement suisse des Magistrats pour la Médiation et la conciliation, while observing that in both cases confidentiality has been omitted – because it goes without saying: “1. By mediation is meant … a formal communication management process, freely agreed to by the parties and supported by an independent, neutral and impartial mediator – non-magistrate – freely named by the parties; through this process, the parties search for their own solution. 2. By conciliation is meant … an informal dispute-resolution method, either mandatory or optional, led by a named conciliator – an independent, neutral and impartial magistrate; during this process, he may suggest a solution to the parties if they have not reached one themselves.”18 It remains that the terms mediation and conciliation appear at times to be used interchangeably to mean the same dispute-resolution process. In Quebec, for example, it is possible to have access to a mediation service at the small claims division, the family section of the Superior Court or the Court of appeal, and a conciliation service at the Tribunal administratif du Québec or the Régie du logement, without the mandates for those services differing significantly. In Ontario, the Mandatory Mediation Program for civil proceedings other than those of family law was established in late 2002 in three large cities, Toronto, Ottawa and Windsor. The purpose of this program is to enable the parties to a civil dispute or those who wish to resolve estate issues to “attempt to settle their cases before they get to trial, thereby saving both time and money”.19 Although it is quite easy to note features common to these two processes, it thus seems arduous to distinguish features exclusive to each one. The information issued about these services, whether for mediation or conciliation, presents them as flexible, simple and free-of-charge processes20 enabling the parties to play an active 16 Op. cit. note 3 (Lafond), page 203. Our translation. 17 Op. cit. note 7 (Morin and Lachance), page 5. 18 Jean A. MIRIMANOFF and Sandra VIGNERON-MAGGIO-APRILE, La gestion des conflits, Geneva, February 19, 2009. [Online] http://www.gemme.ch/rep_fichier/nouvelle_conciliation_judiciaire.pdf (Page consulted on May 12, 2009). Our translation. 19 Ministry of the Attorney General, Courts. Mandatory Mediation, available [Online] http://www.attorneygeneral.jus.gov.on.ca/english/courts/manmed/notice.asp (Page consulted on April 22, 2009). 20 This is notably the case for mediation at the Small Claims Division in Quebec. See the La presse newspaper: Section Lapresse affaires, La médiation aux petites créances est à votre portée. March 11, 2009. Available [Online] http://lapresseaffaires.cyberpresse.ca/dossiers/affaires- juridiques/publireportage/200903/11/01-835493-la-mediation-aux-petites-creances-est-a-votre- service.php (Page consulted on May 4, 2009). For conciliation at the Régie du logement, see: Régie du logement. The Régie du logement’s Conciliation Service. [Online] http://www.rdl.gouv.qc.ca/en/outils/servconc2009.asp. (Page consulted on May 4, 2009). Union des consommateurs page 10