Ontario Court Rules Consumers Can’t Click Away Class Action Rights

In 2004, Ian Andrews purchased a Dell laptop computer for $1,700.  About 2 1/12 years later, the computer began to malfunction, periodically shutting down unexpectedly. Stuck with a problem computer that was past the standard warranty period, Andrews complained to Dell.  The computer giant responded that the online contract governing the initial purchase required him to resolve the dispute by arbitration.

Andrews recognized this was not a realistic approach, later stating that as a university student he was not in a financial position to retain counsel to support an arbitration claim. Instead, he chose a different course of action, suing the company as part of a class action lawsuit that brought together thousands of consumers experiencing similar problems.

Dell challenged the class action suit, but as my weekly technology law column (Toronto Star version, homepage version) notes, last month the Ontario Court of Appeal sided with Andrews, ruling that it could proceed.

The case raised a wide range of legal issues from the impartiality of the proposed arbitration provider (a U.S. firm that had ceased accepting new consumer arbitrations after allegations of "serious impropriety") to the applicability of an Ontario consumer protection statute. But the heart of the case was whether consumers can click away their class action rights when they agree to online contracts mandating that disputes be resolved by arbitration.

The use of such clauses has been commonplace among many businesses that are willing to trade the higher expenses associated with a handful of individual arbitrations for the threat of a big payout in a class action lawsuit.  From businesses' perspective, the math makes sense: class actions hold the prospect of bringing together thousands of aggrieved consumers who may individually receive less, but collectively could cost the company far more.

Although quite common, contracting out of class action rights has long been a source of frustration for consumers and consumer advocates.  Conventional contract analysis posits that businesses and consumers have an equal opportunity to negotiate a satisfactory contract. Yet the practical reality is that online contracts are rarely, if ever, the product of actual negotiation.  Rather, businesses present the lengthy terms and conditions – often buried behind a link or unreadable fine print – and consumers have little choice but to accept if they want the product or service.

The Ontario government recognized the inequity of the business-consumer relationship in 2002, when it enacted the Consumer Protection Act, which outlawed mandatory arbitration clauses in consumer contracts.  The reasoning was simple: individual consumer disputes are rarely financially viable as independent legal actions and only make sense if aggregated as a class action.

Applying the law to Andrews' situation and those similarly facing the Dell arbitration clause, the unanimous court was clearly persuaded that arbitration was not an option, concluding "the choice is not between arbitration and class proceeding; the real choice is between clothing Dell with immunity from liability for defective goods sold to non-consumers and giving those purchasers the same day in court afforded to consumers by way of the class proceeding."

This latest case represents a major win for Canadian consumer groups, who have tangled with Dell before in a case that ultimately went to the Supreme Court of Canada. Businesses operating online may understandably prefer to limit their likely liability through arbitration, but the resounding response from the Ontario legislature and courts indicates that it should not be possible to force consumers to click away their class action rights.


  1. Software is even worse.
    In many cases the license document is only made available to the consumer post-purchase, and after the media has been opened, meaning that the consumer is not able to return the product if they don’t agree, even if they’ve not actually installed the software.

    However, this is a good ruling. Contracting out the rights, on their own, is neither a good nor bad thing, so long as the consumer has the opportunity to make an informed decision prior to purchase. Presenting it post-purchase denies them the opportunity to not purchase. Presenting it within a large legal document prior to purchase, in particular if the setup of the site is such that the items in the checkout basket expire after a certain amount of time, denies most the opportunity to make an informed decision. For instance, I recently purchased tickets for an Ottawa Senators game. The ticket reservation is valid only for a few minutes (7 if memory serves) before you must have completed the checkout, a real problem on a dialup link, especially since the site is graphics intensive. This leaves little time to read the document.

  2. Standardized Terms&Conditions
    I’d like to see some standardized sets of Terms & Conditions drawn up, in the same way that there are common licenses for software and content. Consumers would then just have to learn the details of a few different sets, and be able to quickly scan the few addenda made by the company they are entering into an agreement with. Of course the usefulness of such a system would be dependent on companies’ having some sort of incentive to implement it.

  3. how is this any different really from…
    …as per mentioned before…software? Windows has been a giant pile of crap since its inception…sure it does some things right occasionally…but for the most part..its crashes more than we’d like…yet…we allow it. Would you buy a car from a lot and then the wheels fell off 2 miles down the road? Would you accept that? Doubtful…most of you would run right back to the dealer and DEMAND a 2nd that WORKS. Well…even games…come out..and a patch is released a week later..that makes the game actually PLAYABLE. Never mind you got home and installed it and it wouldnt even run….yet..we accept this…whos going to do something about this? How can it be handled? Obviously Dell is in for a real ride here right away…should be interesting to watch…hopefully someone goes after the software companies too….this selling broken crap has to stop…

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