Recent Developments in Canadian Class Actions Brad W. Dixon Borden Ladner Gervais LLP 1200 200 Burrard Street Vancouver, British Columbia V7X 1T2 604.640.411 604.622.5811 bdixon@blg.com Brad Dixon is a partner with Borden Ladner Gervais LLP, one of Canada s largest national law firms, with offices across the country. Brad is located in the firm s Vancouver office. He has defended class actions in Canada against a number of automotive manufacturers, distributors and dealers in cases alleging negligent design, breach of warranty or breach of consumer protection legislation. Introduction Modern class action legislation in the common law provinces of Canada (excluding Quebec, a civil code jurisdiction) is of comparatively recent vintage. Ontario led the way in 1992, British Columbia followed in 1995 and since that time all but one of Canada s ten provinces have enacted class action legislation. In the nature of class actions, the principal battleground has been the certification application, with cases that are certified often leading to settlements. Few cases have proceeded to common issues trials. In the result, while it may not be possible to say that Canadian class action jurisprudence is still in its infancy, it is certainly enjoying a prolonged adolescence. The last eighteen months have seen some decisions rendered on issues that will be of note to those in the automotive industry or defence bar who, by necessity or interest, follow class action developments north of the border. Defence counsel in Canada have taken heart from restrictions placed on restitution claims, brought by non-injured claimants, where vehicles were alleged to be defective. In another case, developments in the law of Ontario, Canada s most populous province, restrict purchasers of defective, but non-dangerous, products to relief under applicable warranties, if any, denying claims for damages for negligence. Further developments are expected when the Supreme Court of Canada renders judgment in appeals argued in October 2012 that may affect the evidentiary burden faced by plaintiffs on a certification application. A Brief Primer A brief description of the legal landscape in Canada will set the scene for discussion of recent developments. The impetus in Canada for modern class action legislation arose out of recognition that the previous rules of court for representative proceedings were inadequate. Those rules date back to the English Judicature Act, 1873. For present purposes, it is interesting to note that this inadequacy was demonstrated most clearly by a decision in an automotive case. In 1983, the Supreme Court of Canada dismissed a claim brought on behalf of all the owners of Firenza
vehicles purchased in Ontario in 1971 and 1972: Naken v. General Motors of Canada Ltd., [1983] 1 S.C.R. 72. Those vehicles were alleged not to answer to implied warranties of fitness for purpose and merchantable quality and express, collateral warranties, allegedly made by way of advertising, that the vehicles were, durable, tough, and reliable. The pleadings alleged defects in various components (steering mechanism, braking, fuel line leakage, transmission breakdown, etc.) and sought $1,000 for each owner for damages for loss of re-sale value. The suit was allowed to proceed at first instance in a decision touted in the press at the time as allowing U.S. Ralph Nader-type lawsuits in Canada to empower consumers (Ottawa Citizen, December 8, 1975). Wending its way, some eight years later to the Supreme Court of Canada, this initial optimism was squelched when our top court held that the representative proceeding rules of the day were totally inadequate for employment as the base from which to launch an action of the complexity and uncertainty of this one. The court urged the introduction of a comprehensive legislative scheme for the institution and conduct of class actions. The legislative schemes adopted across Canada in the wake of that call for reform drew on U.S. rules and class action experience, but were intended to adopt a more liberal approach to certification. The British Columbia Class Proceedings Act, R.S.B.C. 1996, c. 50, is typical in most respects. No requirement for numerosity was included in the test for certification. Instead, certification may be sought for any identifiable class of two or more persons. There are no typicality or predominance requirements. The pleadings must disclose a cause of action and the claims of class members must raise common (but not necessarily identical) issues of fact or law, whether or not those common issues predominate over issues affecting only individual members. There is a version of a superiority test as the court must find a class action would be the preferable procedure for the resolution of the common issues, which requires a balancing exercise considering alternatives. There is no requirement that common issues be determinative of liability; they need only be a substantial ingredient of the claim: Hollick v. Toronto (City), [2001] 3 S.C.R. 158. That damages may require individual assessment is a factor for consideration, but is no bar to certification (there are provisions for aggregate damages if these can be determined for the class, but otherwise there are procedures set out for simplifying individual assessment). There must be a representative plaintiff who would fairly and adequately represent the class, has produced a plan for the proceeding and for notifying the class and has no conflict with other class members on the common issues. The policy choices made in the crafting of our legislation in Canada have, in the view of many in the defence bar, set a somewhat tilted playing field. The test for disclosure of a cause of action on the pleadings, for instance, is not an onerous one for plaintiffs. On the assumption that the material facts pleaded are true, the claim will only be dismissed if it is plain and obvious that, as a matter of law, it cannot succeed. Our courts have often been unwilling to dismiss novel claims on this basis. Where a claim is novel, there is a judicial tendency to prefer the basis of a full trial record before making decisions on the extent to which the law will recognize such a claim. This has the obvious disadvantage for defendants that novel claims, which may in fact have very limited prospects of success, often make it through certification. A further example is the very limited evidentiary burden faced by plaintiffs on the other elements of the certification test. The certification application must be based on evidence that meets the usual criteria for admissibility: Ernewein v. General Motors of Canada Limited (2005), 46 B.C.L.R. (4 th ) 234
(C.A.) leave to appeal to S.C.C. refused [2005] S.C.C.A. No. 545. 1 However, the Supreme Court of Canada has held in Hollick v. Toronto (City), supra, that plaintiffs are only required to adduce evidence that shows some basis in fact for the conclusion by the court that there is an adequate representative of an identifiable class, with common issues for which a class action is preferable. On the basis of this articulation of the burden, lower courts have concluded that they are not to engage in weighing the evidence, if the defendants adduce evidence to the contrary. The courts have been unwilling to engage in any contest of expert evidence, unless it is clear that plaintiffs have adduced evidence from a witness entirely unqualified to opine on the matter. There is, in this, a very constrained role for the court as gatekeeper; this is not a rigorous analysis by any means. Contending with Non-Injured Claimants The plaintiffs class action bar in Canada has shown considerable creativity in exploiting the procedural tools provided by modern class action legislation and in exploiting the low thresholds established for certification (characteristics likely not unique to the Canadian situation). One example of this, vexing for defendants, has been the rebirth in Canada of the old common law doctrine of waiver of tort and its adoption and expansion in class actions. With roots in the common law dating back to the late 17 th century (for a thorough treatment see: Waiver of Tort, An Historical and Practical Survey, J.M. Martin, [2012] Can. Bus. L.J., Vol. 52, p. 473), the doctrine of waiver of tort was not unknown to Canadian law. It was, however, traditionally seen as allowing for an election of remedies, typically in cases involving tortious interference with property rights, to allow a claimant to elect to recover the wrongdoer s profit if that were a more favourable remedy than damages for loss sustained by the claimant. The doctrine had fallen into relative obscurity in Canada until the advent of modern class actions legislation. Waiver of tort burst back onto the Canada scene in 2004 in a claim in which certification of a class action was sought in respect of a defective medical device marketed for use in blood glucose testing: Serhan v. Johnson & Johnson (2004), 72 O.R. (3 rd ) 296. The product was admittedly defective and the defendant Lifescan, the manufacturer, had paid a large fine in the United States as a result of a plea agreement in which it admitted knowledge of the defect and the filing of false reports with regulators. However, there was no evidence of any putative class member in Canada suffering injury as a result of use of the device and no evidence that any of the putative class members had paid for the device or testing strips the cost having been covered by a provincial health benefit program. The court certified the claim on the basis that waiver of tort might apply to ground a restitutionary remedy for an accounting of profits. This decision identified, but did not resolve, certain controversial issues surrounding the doctrine of waiver of tort: Whether it is an independent cause of action (in which case proof of loss is not required) or merely an election of remedies (in which case proof of loss * The author was co-counsel for the defendants at the B.C. Court of Appeal and on the leave application to the Supreme Court of Canada.
would be required as a prerequisite where an actionable wrong is not complete without loss)? What types of wrongful conduct may ground a claim in waiver of tort, some or all tortious wrongs or other legal wrongs as well, such as breach of contract or breach of statute? The certification judge in Serhan declined to decide these questions in advance of trial, and was sustained in that regard on appeal (including by refusal of leave to appeal to the Supreme Court of Canada): 2006, 85 O.R. (3 rd ) 665, 269 D.L.R. (4 th ) 279 (Div. Ct.); [2006] S.C.C.A. No. 494. Ultimately, this case led to no answers as the claims were settled before trial. In the wake of the Serhan case, numerous class actions have been certified in various Canadian jurisdictions on the basis of waiver of tort claims, product liability cases among them. The potential for relief measured by disgorgement of wrongful profits has obviated the burden on plaintiffs to show commonality as to causation of loss and assessment of damages elements that might otherwise require individual treatment and militate against certification. Results have varied somewhat by jurisdiction, but by and large waiver of tort has been a safe harbour for plaintiffs on the certification application. In a British Columbia automotive case, Reid v. Ford Motor Co., 2006 B.C.S.C. 712, the court declined to allow a waiver of tort claim to be added in an amendment to a certified claim for negligence and failure to warn (the alleged defect was in the ignition system a distributor-mounted thick film ignition module). The court reasoned that the alleged wrongs are anti-harm torts not anti-enrichment torts and waiver of tort was traditionally only available for the latter. However, this classification has not since consistently prevailed in British Columbia and in Ontario the courts would not adopt it at certification, leaving the question to be resolved at trial. Two recent and important developments may turn the tide. In Ontario, after a 138 day common issues trial in a products class action involving a medical device (Andersen v. St. Jude Medical Inc., 2012 O.N.S.C. 3660), from which the defence bar hoped to receive some clarification of the law, the trial judge ultimately did not have to decide the nature or scope of the doctrine of waiver of tort (the case was dismissed on the basis there was no breach of the standard of care). The trial judge did, however, go to some pains to make clear that the extensive trial record had not advanced her consideration of the legal and policy issues relating to the doctrine of waiver of tort. This can be expected to encourage other courts to come to grips with the legal issues raised by waiver of tort at the certification stage, rather than leaving the matter for trial. In the British Columbia case Koubi v. Mazda Canada Inc. et al, 2012 B.C.C.A. 310, the Court of Appeal reversed certification and dismissed claims for disgorgement of profits brought against the Canadian distributor and its authorized dealers. The Supreme Court of Canada refused the plaintiff s application for leave to appeal on January 17, 2013. The author was counsel for the defendants.
In the Koubi case, the plaintiff alleged that the design of the door locking mechanism was defective. The allegation was that criminal entry could be obtained by banging on the driver-side door (hard enough or long enough) to displace the linkage rods and disengage the lock. The plaintiff had not suffered such a break-in or an attempted break-in. Indeed, the manufacturer had developed a lock reinforcement and this was offered by the Canadian distributor, at its cost, in a special service program commencing before any claim was filed (ultimately retro-fitting at least 84% of the subject vehicles). The plaintiff s vehicle had the reinforcement installed. Despite all of this, she brought action. The plaintiff disclaimed any intention of pursuing claims on behalf of the putative class for property damage or loss from theft. Similarly, she disclaimed any intention to seek damages for loss of resale value. These strategic decisions were the result of an earlier case: Benning v. Volkswagen Canada Inc., et al. 2006 BCSC 1292 in which claims of negligent design in a locking system had not been certified due to the individuality of issues relating to causation and assessment of damages. The plaintiff in Koubi sought to avoid those pitfalls by seeking instead disgorgement of the distributor s profits and disgorgement of the profits of dealers on the sale of the subject vehicles. As against the distributor, the plaintiff pleaded that certain marketing representations were deceptive acts or practices under the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 and that breach of the statute entitled the plaintiff to resort to waiver of tort and claim disgorgement of profits. As against the dealers, the claim was based on the implied warranties of fitness for purpose and merchantable quality in the Sale of Goods Act, R.S.B.C. 1996, c. 410. Again, for breach of the statutory warranties the plaintiff sought a disgorgement of profits based on waiver of tort. These claims were certified at first instance. On appeal, the Court of Appeal did not resolve the unsettled state of the law as to whether or not waiver of tort may be an independent cause of action. The Court of Appeal did address the question of whether the alleged statutory breaches could provide the wrongful conduct required to ground a claim for disgorgement of profits based on that doctrine. Here, the Court of Appeal reasoned that the critical question as to whether those statutory breaches entitled the plaintiff to a restitutionary remedy is answered by an examination of legislative intent. In particular, the Court of Appeal asked whether the legislative intent was to depart from the general rule that statutory rights are enforced by statutory remedies provided in the legislation. On examination of the Business Practices and Consumer Protection Act, the Court of Appeal held that it was a comprehensive and exhaustive code, occupying the field of consumer rights and remedies arising from deceptive acts by suppliers, and leaving no room for claims for restitutionary relief based on the novel doctrine of waiver of tort. That claim was decertified and dismissed as disclosing no cause of action. With respect to the Sale of Goods Act, the Court of Appeal noted that the legislation does not purport to be a comprehensive code. The legislation preserves the applications of the rules of the common law, except in so far as they are inconsistent with the express provisions of the Act. The claims for restitutionary damages or disgorgement of profits and waiver of tort were held to be inconsistent with the remedy provided for breach of warranty, which is expressly stipulated in the Act to be damages for losses suffered. In the result, those claims as well were decertified and dismissed as disclosing no cause of action.
The immediate significance of the decision in Koubi is that it limits the prospects for certification or narrows the scope for certified common issues in any future claims that might be brought under the Business Practices and Consumer Protection Act or the Sale of Goods Act. In such claims, it will not be possible for plaintiffs to avoid the individuality of causation or damage assessment on certification applications. The British Columbia Business Practices and Consumer Protection Act is similar in many respects to consumer protection legislation in other Canadian jurisdictions. The Sale of Goods Act in British Columbia is patterned on the English Sale of Goods Act, as is similar legislation in all other Canadian common law provinces. For these reasons, it is to be expected that the Koubi decision will have application in other jurisdictions. By extension, it is expected that the case may have application where other statutory causes of action are pleaded. In any case in which the statute relied upon is a comprehensive code, specifying its own remedies, or where it specifies remedies that are not consistent with waiver of tort and disgorgement remedies, there is a prospect that such claims will be dismissed as disclosing no cause of action. Limiting Claims for Pure Economic Loss Claims for recovery of pure economic loss (not consequential on injury to a plaintiff s own person or property) have not met in Canada with entirely uniform treatment. In Ontario, despite binding authority to the contrary, some lower courts had certified product liability claims in negligence for pure economic loss based on allegations of defective, but non-dangerous products: for example, Bondy v. Toshiba of Canada Ltd., [2007] O.J. No. 784 (S.C.J.) and Griffin v. Dell Canada Inc., [2009] O.J. No. 418 (S.C.J.). These decisions had interpreted higher authority as leaving the question of the scope of recoverable pure economic loss claims in negligence open, unsettled or developing, such that the issue should not be decided at the certification application on the pleadings only. In a recent products case in Ontario, involving front-loading washing machines, certification was denied on the basis that these earlier authorities are distinguishable or incorrect: Arora v. Whirlpool Canada LP, [2012] ONSC 4642. The Court held that it is plain and obvious that there is no product-liability negligence action for pure economic losses against a manufacturer for negligently designing a non-dangerous consumer product. This is a significant development of the law, with important practical consequences. This will assist manufacturers in resisting certification of product liability claims alleging non dangerous defects. Unless they can be framed as warranty claims, these actions will be subject to dismissal as not disclosing a cause of action at law. An appeal has been heard, but at the time of writing the appeal judgment is under reserve. If this result is sustained on appeal, the law of Ontario will be confirmed on a basis that brings it into line with other Canadian jurisdictions, including British Columbia: see for example M. Hasegawa & Company Co. v. Pepsi Bottling Group (Canada) Co., [2002] B.C.J. No. 1125 (C.A.), though there may be lingering uncertainty elsewhere such as in Nova Scotia: Sable Offshore Energy Inc. v. Ameron International Corp., 2007 NSCA 70. Borden Ladner Gervais LLP is co-counsel for the defendants.
Evidentiary Burden What the Future May Hold A trio of cases, two from British Columbia and one from Quebec, were heard by the Supreme Court of Canada in October 2012 and judgment remains under reserve at the time of writing: Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Ltd. v. Archer Daniels Midland Company and Option Consommateurs v. Infineon Technologies AG. The substantive issue of law to be addressed is whether or not Canada should adopt the United States Supreme Court s Illinois Brick doctrine and disallow any claims for damages for price fixing by indirect purchasers. As important as that decision will be to competition law class actions in Canada, the significance of these appeals may reach further yet. An issue on appeal is whether the Supreme Court of Canada should address its earlier articulation of the evidentiary burden on plaintiffs to show some basis in fact for the certification requirements (other than disclosure on the pleadings of a cause of action). Of course, the court may decline to alter the landscape, but there is some reason for optimism that we may see something more akin to a standard of rigorous analysis introduced in Canada. Without turning the certification application into a merits hearing, the evidentiary standard for satisfaction of the certification test could be clarified by the Supreme Court of Canada to require proof on the balance of probabilities. This is a possibility that will have obvious practical implications for companies faced with certification applications in Canada. It would introduce a more robust gatekeeper role for the courts than we have to this point enjoyed. Cross-border Evidence Gathering With significant operations on both sides of the border, automotive industry clients and counsel should be aware of the ability of plaintiffs in either jurisdiction to look across the border for evidence. The Ontario Court of Appeal recently dealt with a letter of request for deposition of the former chairman of a manufacturer sought by U.S. class action plaintiffs in an anti-trust matter: Treat America Ltd. v. Leonidas, 2012 ONCA 748. Stressing the importance of international comity, the Ontario Court of Appeal affirmed the ability of U.S. class action plaintiffs to gather evidence from the Canadian resident, even though there would not have been similar discovery rights, before certification, had the action been commenced in Canada. It is also notable that Canadian class action plaintiffs seem, increasingly, to look to disclosure and depositions in parallel U.S. litigation as a source of information to assist their efforts north of the border. Protective orders should be drawn with this possibility in mind. Conclusion For those in the automotive industry who must assess risks that span the border and often contend with parallel claims, the past eighteen months have seen a little more certainty achieved and some traction gained in defence of product liability and consumer law claims. The litigation landscape in Canada seems to have shifted, to some extent, to a more level field for defendants. The possibility of yet further improvements is held out by pending appeals before the Supreme Court of Canada. We may be seeing Canadian class action jurisprudence coming of age. With maturity, defendants can hope for more balance than achieved during the exuberance of youth.