Canada’s Appeal for Class Actions

A growing gap between the US and Canada in class-action practice, procedure and substantive law threatens to overwhelm an already overburdened Canadian system by potentially ensconcing Canada as the North American jurisdiction of choice for initiating certain species of cross-border class actions.

“We have a very unique system here, in which plaintiffs don’t necessarily face the same hurdles that they face in the US,” says Paul Martin in Fasken Martineau DuMoulin LLP’s Toronto office. “American counsel are starting to understand these differences and ponder the opportunities.”

As things stand now, a substantial portion of Canada’s class-action docket falls into the “copycat” category. Cases are initiated in the US and imitated in Canada. The US proceedings drive discovery and settlement negotiations. Much of the time, Canadian proceedings remain on relative hold awaiting progress south of the border. What all this means is that US courts frequently bear the brunt of the administrative and other burdens of class-action proceedings.

But this could change for a very fundamental reason: in many ways, Canada has become more class-action friendly than the US.

To begin with, the US has stricter pleading standards that promote an emphasis on pre-certification disposition. “Canadian courts are engaged in an interesting and terrifying race to lower the certification standard to the absolute bottom,” says Jim Sullivan in Blake, Cassels & Graydon LLP’s Vancouver office.

The US also approaches expert evidence very differently by subjecting it to rigorous analysis at an early stage.

“Canadian courts have repeatedly said that they will not engage in a battle of experts at the certification stage, while US lawyers are testing methodology and tearing experts apart very early in the proceedings,” Martin says.

The low certification standards are also changing the dynamics of class-action practice. Somewhat counter-intuitively, they may prove instrumental in weeding out some of the inefficiencies and delays that have plagued the system so far.

“Because the Supreme Court of Canada has confirmed that the bar for certification is so low, you’re going to see that defense lawyers take much more creatively focused and narrow defenses to certification, seeking out only the truly legitimate arguments instead of all the viable ones,” says Sandra Forbes in Davies Ward Phillips & Vineberg LLP’s Toronto office. “Counsel are really going to have to focus.”

Mark Veneziano of Toronto’s Lenczner Slaght Royce Smith Griffin LLP agrees. “Both sides spend too much money on certification,” he says. “Certification is not the same as a trial, so you have to do it sensibly without blowing your brains out.”

Put another way, defense lawyers and their clients are discovering that settlement is not necessarily the inevitable consequence of certification.

“The premium for certification isn’t what it used to be,” says Michael Eizenga in Bennett Jones LLP’s Toronto office. “In many cases, defendants are assuming that certification of some sort of class will happen, and that impacts on the way we practice, for example, by focusing on negotiations aimed at narrowing the class as much as possible.”

In some ways, however, the Canadian system is emulating its American cousin.

Jill Yates in McCarthy Tétrault LLP’s Vancouver office predicts that the Supreme Court of Canada’s early 2014 decision in Hryniak (which was not a class-action proceeding), will encourage summary judgment motions at the certification stage and also before trial. Hryniak considerably broadened the parameters for granting summary judgment by allowing judges to determine whether summary disposition was a more proportionate way than a trial to achieve a just result in light of the evidence that was available.

“Summary judgment motions are now a much more viable alternative in class actions, one that judges have certainly shown they are willing to use in a wide range of cases since Hryniak,” she says. “It’s a process that’s a lot more appetizing than the cost and time associated with a full trial, and from defendants’ perspective, a lot more appetizing than settling.”

Forbes also predicts that de-certification motions will gain popularity.

“As more and more cases get closer to trial, it will become apparent that some of them are just not manageable as class actions,” she says. “I expect we’re going to see some decertifications, primarily on the basis of complexity, in some of the more complicated proceedings.”

Still, similarities aside, there are many other examples of the gaps that have arisen or may arise between US and Canadian class-action practice.

For example, Canadian plaintiffs so far have not had to deal with a US-style doctrine of “pre-emption,” which prohibits consumers in product liability cases from pursuing allegations that are within the realm of a regulator. While Canadian courts have recently taken a closer look at the feasibility of class actions for claims that might otherwise fall under the aegis of consumer protection legislation (the Whirlpool case in Ontario, Wakelam v. Wyeth in BC), they have not gone nearly as far as American courts.

“To some degree, we have moved into an examination of pre-emption,” Martin says. “But there’s still plenty of room for class actions in the product liability area.”

Perhaps the greatest opportunity for expansion of the Canadian class-action docket, however, is in the area of anti-trust claims. In a landmark trilogy in 2013, the Supreme Court of Canada (SCC) declared open season for direct and indirect purchasers who wish to use class actions to recover overpayments for products or services that have been the subject of price-fixing conspiracies.

“Price-fixing class actions are open for business in Canada,” says J. J. Camp of Vancouver’s Camp Fiorante Matthews Mogerman, who represented the class in Pro-Sys Consultants Ltd. v. Microsoft Corporation, one of the three cases decided by the Supreme Court of Canada. “If the court had excluded consumers, dozens of these types of cases would have been shut down, unjustly precluding consumers from recovering their losses against the wrongdoers and requiring them to disgorge their ill-gotten gains.”

More particularly, the court ruled that plaintiffs’ lawyers can lump direct and indirect purchasers into the same class action. “These decisions are, without a doubt, a big win for plaintiffs,” says Michael Osborne, a class-action defense lawyer at Toronto’s Affleck Greene McMurtry LLP. “The entire structure of competition class actions in Canada has tended to be based on the one big happy family approach where direct and indirect purchasers sue in the same proceedings — and the court has basically validated that approach.”

Of the three cases that made up the trilogy, Microsoft was a BC case involving operating systems. The second case, Sun-Rype Products Ltd. v. ADM, was also a BC case but involved high-fructose corn syrup. The third, Infineon Technologies v. Option Consommateurs, originated in Québec and dealt with DRAM memory chips.

The court unanimously (9-0) certified the indirect purchaser classes in Microsoft and Infineon, but in a split decision (7-2) rejected certification for both direct and indirect purchasers in Sun-Rype. The rejection of the indirect purchasers was based on the plaintiffs’ inability to offer any evidence showing that at least two individuals (two being the minimum number for a class) could “self-identify” by proving they purchased a product that actually contained the impugned syrup, which tended not to be identified on product labels.

What is salient for the purposes of cross-border litigation in anti-trust cases, however, is that in all three cases the court rejected the 1977 US Supreme Court decision in Illinois Brick Co. v. Illinois, which has served to bar indirect purchaser claims in federal courts (but not in state courts) for more than three decades.

“Despite recognizing that there were complicated issues of multiple and double recovery in allowing indirect purchaser claims to proceed, the SCC clearly believed that trial judges would be able to sort these things out,” says Adam Fanaki in Davies Ward’s Toronto office, who represented the Canadian Chamber of Commerce, an intervenor in Sun-Rype.

The upshot may be that US counsel may see Canada as a more favorable jurisdiction in which to initiate cross-border anti-trust class actions. “Everything is pointing in that direction,” says Monique Jilesen of Lenczner Slaght in Toronto.

Otherwise, while arbitration clauses ousting the right to bring class actions have found considerable favor in American courts, Canadian courts have taken a more circumspect approach to invalidating arbitration clauses. Indeed, some Canadian provinces, including Ontario, have prohibited such clauses in consumer contracts.

“The message we’re getting from our Supreme Court is very different from the messages the Roberts court is sending, which may be part of a concerted effort at tort reform in the US as well as a conservative attack on the class-action mechanism,” Martin says.

Finally, the existing system appears to be evolving toward a welcome degree of maturity at an ever more rapid pace.

Consider, for example, the vexing and ubiquitous issue of national class actions, with which the SCC at last seems poised to deal. In February 2014, the court granted leave to appeal the decision of the Manitoba Court of Appeal in Meeking v. Cash Store Inc. At issue is the scope of a provincial superior court’s jurisdiction in a class proceeding over residents of other provinces.

“The SCC has recently shown more interest than ever in class actions and continues to grant leave in these types of cases,” Yates says.

Should the parameters of national class actions be institutionalized by way of Meeking or otherwise, it may well be that lawyers in Québec will benefit most. In its recent decisions in Vivendi Canada Inc. v. Dell’Aniello and in Infineon Technologies v. Options Consommateurs (part of the indirect purchaser trilogy), the SCC confirmed that the bar for certification in Québec is lower than in the common-law provinces.

The decision came in the case of a retired Vivendi worker who sought authorization for a class action after a new employer unilaterally amended the company’s private health insurance plan. The Québec Superior Court refused to authorize the class action, but the Québec Court of Appeal overturned that decision.

A condition of bringing class actions in Québec is that at least one common question must exist that advances every class member’s claim. The principle is known as “commonality.”

The SCC ruled that the requirement to advance the resolution of every class member’s claims did not mean that the answer to the common question must be identical for each individual or benefit them similarly.

The court held that to “meet the commonality requirement of article 1003 (a) of the Québec Code of Civil Procedure, the applicant must show that an aspect of the case lends itself to a collective decision and that the parties will have resolved a not insignificant portion of the dispute. It is enough that the answer to the question does not give rise to conflicting interests among the members,” write André Durocher and Enrico Forlini of Montréal in Fasken Martineau’s Litigation & Dispute Resolution Bulletin. ”In short, at the authorization stage, the approach to be taken to the commonality requirement in Québec civil procedure is a flexible one.”

The SCC was also careful to point out that the commonality requirement in the Québec legislation was broader than corresponding provisions in Canada’s other class action provinces.

“The situation in Québec now is that plaintiffs are not required to show that class actions are the best procedure, or that any common questions have a common answer,” says Christine Carron in Norton Rose Fulbright Canada LLP’s Montréal office. “All plaintiffs need is a common question, which amounts to no more than a question of fact or law that’s not negligible and somehow advances the resolution of the issues for class members.”

In Québec and elsewhere, however, all of this is ripe for significant legislative reform. After all, Québec has 35 years’ experience with class actions while the common-law provinces now have two decades of such experience.

The first concrete sign of this type of change came in January 2014, when the Law Commission of Ontario (LCO) announced a sweeping framework for an ambitious review of the province’s class-action legislation.

What is apparent from the LCO’s announcement of its framework for class-action review is that tinkering is not on the agenda. While concerns about self-dealing by plaintiffs’ counsel and the dangers of third-party funding permeated the announcement, the list of core issues include access to justice, whether Ontario should become a “no-costs” class-action regime, and the shape and sustainability of the Class Proceedings Fund. The list goes on to embrace other procedural, substantive and costs matters, including national classes, procedural efficiency, certification and evidentiary requirements, take-up rates, the cy-près doctrine, the interaction of common-law and statutory causes of action, and the treatment of waiver of tort. The LCO also cautions that “the list is far from exhaustive” and promises consideration of additional issues that arise as the project proceeds.

It is of course too early to speculate about precisely what the LCO or similar bodies may do. But whether the discussion focuses on jurisprudential or legislative change, one thing is clear: American eyes should be watching the Canadian class-action scene very closely.

Julius Melnitzer is a freelance legal-affairs writer in Toronto.