Class Actions: New Order

The rules around Canadian class actions — for decades, a work in progress — have finally found some measure of clarity. Could the Wild West era be over?
CLASS ACTION LAWYERS HAVE BEEN FOND of pointing to the swinging pendulum of jurisprudence that shifts its ever-roving eye over the class-action battleground. In recent years, however, that pendulum may have begun to settle down, as definitive rulings pile up and legal principles become entrenched.

It’s been almost a quarter of a century since Ontario became the first common-law province to adopt class-action legislation, and almost 40 years since Q
uébec laid the groundwork for the rest of the country. The pendulum is still shifting, but there’s a difference: it now hovers over a battleground that has started to take real shape, developing defined parameters within which the pendulum moves.

So while it may be easy to say that the past year has been less than ideal for class-action plaintiffs, and that the pendulum has swung over to the defence side, it’s also a simplistic approach. The truth is that the jurisprudence is increasingly refining the parameters, with less need to define them.

“We used to be all over the map, but now we’re getting closer to knowing what’s a blip and what is permanent and how it’s going to work,” says Tristram Mallett of Osler, Hoskin & Harcourt LLP in Calgary. “We’re not all the way there yet but we’re getting closer. What’s gone for sure are the days when lawyers would spend two days arguing about what the test for certification is.”

Daniel Bach of Siskinds LLP in Toronto says the evolution of the summary judgment procedure in the class-action context also demonstrates the emerging maturity of the jurisprudence. We’re at the point now, he says, where summary judgments in class actions are going to the Court of Appeal, where substantive legal questions can get the attention they deserve. Ultimately, what seems to be shaping up is a healthy balance that augurs well for resolution of the issues that still need clarification.

On the defence side of the ledger, courts have increasingly questioned practices that have until now benefitted plaintiffs. They have, for instance, given real teeth to the leave provisions that govern the commencement of statutory secondary-market misrepresentation proceedings. They’ve also questioned the historic characterization of product-liability cases as “quintessential” class actions, and set the stage for a final ruling by the Supreme Court of Canada on whether the Competition Act and other statutes constitute a “complete code” that govern civil claims arising from breaches of their provisions.

Plaintiffs’ lawyers, for their part, got a boost from the Ontario Court of Appeal’s ruling in Ramdath v. George Brown College, which gave the concept of “aggregate damages” a definitive nod. “Ramdath is probably one of the most important class-action decisions ever because it confirms that individual damages need not be proven in certain cases,” says Won Kim of Kim Orr Barristers P.C. in Toronto, who represented the class.

Plaintiffs are also discovering fertile new ground in a host of other areas. Privacy and cybersecurity breach proceedings are flourishing. Judges are coming down harder on abuse and delay by defendants. The SCC is poised to pronounce on national class actions. The administration of settlements is achieving new levels of maturity. And more and more cases are making their way to trial, proving that many class actions are in fact “manageable” and chipping away at defence arguments that certification should not be granted because of procedural hurdles.

With all these countervailing trends competing for permanence, there’s certainly no paucity of controversy or issues on the substantive side of class actions — and the ingenuity of counsel on both sides is thriving as they learn to work within, and around, new legal frameworks — but with all these developments, it may just be that the Wild West era of Canadian class actions has finally faded into the past.

As Wendy Berman of Cassels Brock & Blackwell LLP puts it, “Our system has definitely grown up.”

LEAVES WITH TEETH

For securities class actions, the elusive standard for granting leave to commence secondary-market misrepresentations has long played head games with judges as well as lawyers on both sides of the fence. Here, perhaps, is where the jurisprudence has seen the most dramatic change.

The SCC released two landmark securities class action decisions in 2015: Theratechnologies v. 121851 Canada Inc., which dealt with the leave test in Q
uébec’s Civil Code, and the trilogy around CIBC v. Green, which dealt with the corresponding provision of Ontario’s Securities Act. As it turns out, the language in the Québec Code is substantially the same as the language that populates the corresponding provisions in the common-law provinces.

The appellate decisions that preceded these two cases set a very low standard for meeting the key requirement of the leave test that there be a reasonable possibility of success for the plaintiff. Put simply, plaintiffs had only to show that they had “some chance of success.” The environment was definitely plaintiff-friendly.

But the Supreme Court set a considerably higher standard — one that created a meaningful screening mechanism. The threshold, the court concluded, was more than a “speed bump”: plaintiffs had to provide credible evidence that withstood reasoned consideration from the court to demonstrate that they had a reasonable or realistic chance of success.

Lower courts have since put real teeth into the standard. Coffin v. Atlantic Power, an Ontario Superior Court of Justice decision that considered Theratechnologies before the SCC decided Green, set the stage by confirming that courts would scrutinize not only the pleadings, but the evidence, on a leave application.

Another decision, Rahimi v. SouthGobi Resources (also decided after Theratechnologies but before Green), established that defendants could use statutory defences on leave applications to considerable effect. In Rahimi, Justice Edward Belobaba of the Ontario Superior Court of Justice refused leave for the plaintiff to proceed against individual corporate defendants. He reasoned that these defendants had established that there was no reasonable possibility that the plaintiffs could overcome the Securities Act’s “reasonable investigation” defence at trial.

What’s compelling is that Justice Belobaba went into the evidence presented on the leave motion at considerable length. “When the leave test was combined with the requirements of the reasonable investigation defence, the court was required to consider the ‘compelling and voluminous evidence of the defendants’ under a high-powered microscope,” says John Campion of Fasken Martineau DuMoulin LLP in Toronto, who represented SouthGobi and five of the six individual defendants.

More recently, defendants have been further heartened by the decision of Justice Helen Rady in Bradley v. Eastern Platinum Ltd., released after the SCC’s ruling in Green. Brian Bradley, the proposed representative plaintiff, alleged that Eastern had failed to disclose a complete or partial shutdown of its platinum mine in South Africa in 2011. The claim was then amended to allege that the introduction of certain support technologies at the mine had caused the decreased production.

Eastern responded with uncontradicted affidavit, documentary and transcript evidence from employees showing that there had been no mine shutdown or introduction of new technology at the relevant time. Instead, the evidence revealed that the decreased production had been caused by unforeseen rock falls.

Justice Rady concluded that the plaintiff’s interpretation of events was “simply not supported by the overwhelming weight of the evidence that points to the opposite conclusion.” She was not prepared to “disregard what I view to be very compelling and persuasive evidence” that could be undermined only by the unproven conclusion that Eastern’s witnesses gave or fabricated false evidence.

Justice Rady ruled that Green required courts to undertake “a robust, meaningful examination and critical evaluation of the evidence (or absence of evidence)” in order to determine whether the action had some merit. As Justice Rady saw it, the test for leave was more akin to a motion for summary judgment, which required judges to weigh the evidence, than a motion to strike, which had to be decided on the pleadings.

Eastern Platinum makes it clear that the leave threshold is going to be a meaningful merits test, which is what the leave test was always intended to be,” says Alan D’Silva of Stikeman Elliott LLP in Toronto, who represented the defendant company.

“The upshot is that motions for leave will result in a comprehensive analysis on the merits, forcing parties to lead with their best foot,” says Kevin O’Brien in the Toronto office of Osler, Hoskin & Harcourt LLP. “That’s not to say that the plaintiffs will have to prove their case, but they will have to show a realistic possibility that they will ultimately be successful.”

Siskinds’ Bach, who represented Bradley, acknowledged his client’s disappointment in the result. “It’s a case where the court decided to prefer one side’s evidence over that of the other,” he says. “We believe, however, that it will be some time before the courts have enough experience to come up with a definitive approach where there are competing evidentiary narratives.”

However that may be, Bradley does demonstrate the importance of presenting defence evidence. “Defendants are going to have a hard time defeating leave applications if they fail to put forward rebuttals to the plaintiff’s case,” D’Silva says.

This could represent an innovative litigation strategy, given that such challenges haven’t always been seen as the most prudent course of action. “When courts were treating leave applications like rubber stamps, there was always a real discussion as to whether the defence should consent to leave instead of subjecting clients to invasive cross-examinations,” says Andrea Laing in the Toronto office of Blake, Cassels & Graydon LLP. “But now that the test has teeth, there’s more upside to fighting leave vigorously.”

The leave application, Laing maintains, has become a predominant strategic consideration for defendants in secondary-market cases. “It’s fair to say that certification pales by comparison,” she says. “Once leave is granted, it will be very difficult to deny certification. But facilitating certification in appropriate cases was really part of the purpose of the legislation enacting the leave requirement.”

From plaintiffs’ perspective, the hurdles now built into the requirement for statutory action may also portend a change in their approach to misrepresentation cases. Kirk Baert of Koskie Minsky LLP in Toronto believes that what may emerge is a trend to filing common-law misrepresentation cases without resort to the Class Proceedings Act — despite the fact that common-law claims would require proof of reliance on the misrepresentation. “A common-law misrepresentation action that had a large number of institutional plaintiffs affected by the misrepresentation could be financially viable, and it could proceed without the various statutory restrictions,” he says.

Baert doesn’t see proof of reliance as a significant hurdle. “Reliance can be proven at trial like any other issue,” he says. “It won’t be that hard if a bunch of pension funds come forward and say ‘of course we relied on the misrepresentation.’”

If Baert’s prognostication is correct, the euphoria the defence Bar may be enjoying about the raised standard for leave may be vulnerable to an old adage about being careful what you wish for. But that’s for another day. “For the time being, there’s definitely a chill on securities class actions,” Berman says.

HEIGHTENED SCRUTINY

Plaintiffs are also facing challenges in product-liability and consumer class actions, two fields that their lawyers have traditionally ploughed to fertility with a fair degree of success. The challenges are perhaps most significant with regard to product-liability cases. “These cases are getting a lot more scrutiny, even though judges have in the past referred to them as quintessential class proceedings,” says Michael Eizenga of Bennett Jones LLP in Toronto.

One key issue is whether courts should allow certification of class proceedings by genre, where plaintiffs combine claims against multiple products in a case without showing a common design defect. Here, the law remains unclear. “Judges are moving down different tracks,” says Derek Ricci of Davies Ward Phillips & Vineberg LLP in Toronto.

Ricci cites a number of conflicting decisions in Ontario arising from Superior Court Justice Edward Belobaba’s certification of a class in Dine v. Biomet, in which Ricci was co-counsel with colleague Kent Thomson (leave to appeal denied), and Justice Paul Perell’s refusal to grant certification in O’Brien v. Bard Canada and in Vester v. Boston Scientific. “In some cases, judges are taking a hard look at the evidence to see whether the products are similar enough,” Ricci says. “In others, judges are criticizing counsel for even leading evidence on the issue.”

Plaintiffs are also coming up against the “complete code” principle in product-liability cases and in consumer class actions generally. The principle states that if Parliament intends a statutory cause of action to be the sole remedy for a statutory breach, common-law and equitable claims are barred.

The British Columbia Court of Appeal has been particularly supportive of the complete code defence. In three separate cases, the court held that the availability of statutory remedies in the BC Business Practices and Consumer Protection Act (Koubi v. Mazda Canada), the federal Competition Act (Wakelam v. Wyeth Consumer Healthcare) and the federal Patent Act (Low v. Pfizer Canada) barred claims for other types of relief.

In Koubi, the BCCA decertified a waiver of tort claim; in Wakelam, the court extended Koubi to restitutionary misleading advertising claims; and in Low, the court held that the patent regime, despite the fact that it did not provide consumer remedies, was a complete code that foreclosed civil claims for unlawful interference with economic relation and unjust enrichment.

The scope of the principle, however, is yet to be determined, particularly as it applies to competition law. In Watson v. Bank of America, for example, the BCCA agreed that the Competition Act did not bar conspiracy claims based on breaches of the Competition Act. But in Ontario, Justice Paul Perell disagreed. In Shah v. LG Chem, he opined that the BCCA had applied the wrong test in Watson. “Bringing some clarity to these issues is important because competition law is a very significant part of the class-action landscape,” says Louis Sokolov of Sotos LLP in Toronto.

Indeed, the effect of the “competition trilogy” released by the SCC in 2013 is emerging. “I see a lot of pent-up activity in competition class actions because of the trilogy’s release,” says Cheryl Woodin of Borden Ladner Gervais LLP. “We now see about 50 cases moving through the civil courts at the same pace. The meat of these cases is in a very fluid state and there’s a lot of new law being generated.”

JURISDICTION FRICTION

While class-action lawyers in common-law jurisdictions struggle to keep up with the changes, the Québec Bar is wrestling with the nuances of the new Code of Civil Procedure, which came into force on January 1, 2016, and brought significant changes to the rules governing class actions in the province. Most importantly, defendants will for the first time have the right to seek leave to appeal a judgment granting authorization of a class action. Plaintiffs may continue to appeal as of right.

At press time, defendants are seeking leave in three cases: DuProprio c. Fédération des chambres immobilières; Énergie éolienne des Moulins c. Labranche; and Centrale des syndicats c. Allen. Counsel in each of these cases have been invited to submit a brief before a special panel of three judges as to the criteria that should guide the Court of Appeal in allowing leave.

“It is an open question,” says Jean Saint-Onge in the Montréal office of Lavery, de Billy L.L.P., as to “whether the Court of Appeal will adopt a restrictive approach by limiting defendants’ right of appeal only to cases where, as the plaintiffs are likely to argue, the judgment of the Superior Court would cause serious injustice if not appealed.” Other changes to the Civil Code affect standing to commence a class action, no longer limited to companies with less than 50 employees, and multijurisdictional proceedings.

Lawyers both in and outside la belle province will agree, any legislative guidance on multijurisdictional issues would be welcome. Some order to a chaotic situation has likely been restored by decisions from five appellate courts shutting down duplicative class actions as an abuse of process. “In the last year, counsel have been able to collaborate by mutual agreement to avoid multiple proceedings in multiple jurisdictions,” Woodin says, citing the telecommunication cases relating to system access fees and the Volkswagen emission litigation.

Even the top court has weighed in with a novel approach to multiple jurisdictions. In two cases, Parsons v. The Canadian Red Cross Society and Endean v. Canadian Red Cross Society, the SCC has granted leave to hear arguments on whether judges from one province can sit with judges from other provinces to hear arguments on multijurisdictional class actions.

The entire class-action Bar is hopeful that the SCC will provide guidance on steps that could further facilitate dealing with such cases. “The uncertain situation in Canada is ridiculous in this world of multijurisdictional litigation,” says Sokolov. “It doesn’t serve anyone, including the courts and especially the class members.”

Compounding the problem are carriage issues, which have become more heated than ever. “There is definitely a rise in carriage fights,” Berman says. “The problem is that counsel appear to be moving away from their prior approach of working out carriage disputes [amongst themselves] to letting the courts sort them out.”

As Baert sees it, the courts aren’t doing enough to sort out the mess. Despite the fact that his firm was part of the consortium appointed as class counsel, he cites the most recent decision on carriage, Kowalyshyn v. Valeant Pharmaceuticals International as indicative of the problematic nature of the issue. “Carriage motions continue to be expensive, complex and hard fought, as evidenced by the fact that the Kowalyshyn ruling is 250 paragraphs long,” he says. “We need a better, more objective system to determine carriage.”

GLIMPSES OF CLARITY

Not every procedural issue around class actions is fraught with uncertainty. Judges, for instance, are scrutinizing settlements more closely and settlement administration is sorting itself out. “In Ontario, courts have been giving settlements a lot of healthy scrutiny,” Sokolov says. “They’re taking their role as guardians of the class very, very seriously.”

So much so that the Ontario Divisional Court recently appointed Eizenga as amicus curiae in Waldman v. Thomson Reuters Canada (publisher of Lexpert), a case in which the court ultimately overturned Justice Paul Perell’s refusal to approve a settlement in a copyright-infringement case. “There is some suggestion that an amicus should be appointed in all cases, and we may see more of that,” Sokolov says.

The effort by plaintiffs’ counsel to increase class participation rates puts even more emphasis on settlement approval. In the litigation relating to the DRAM memory chips, J.J. Camp and his team at Camp Fiorante Matthews Mogerman LLP in Vancouver used radio, TV and social media advertising to publicize an $80-million settlement. “To my knowledge, 17,000 was the largest number of consumers who participated in a price-fixing class action before this particular settlement,” Camp says. “We mailed out some 880,000 cheques to Canadian households.”

That kind of uptick — driven by the power of social media to connect millions of plaintiffs — is one that’s likely to send a chill down the spine of defendant corporations and their counsel. So, when it comes to class actions, the West may not be as wild as it once was — but neither has it been won outright.


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