Class Actions

By Blake, Cassels & Graydon LLP

CLASS ACTION CLIMATE IN CANADA: RECENT DEVELOPMENTS AND GROWING TRENDS

The year 2018 has already proven to be an interesting year for class actions in Canada. In the Spring, the British Columbia government passed legislation, at break neck speed, that converted their class action regime from a national opt in regime to a national opt out regime, effective October 1, 2018.1 Because the BC class action regime, unlike most other provinces, is a “no costs” rather than “loser pays” regime, at least one plaintiff’s lawyer from outside BC has said that the new legislation makes BC the “promised land” for plaintiff lawyers.

In May 2018, the Law Commission of Ontario received more than 20 public submissions in response to its Class Actions Project consultation paper. It is now working on producing an “independent, balanced and authoritative” final report on class action issues in Ontario and may make recommendations for law reform. Stakeholders are anxiously awaiting the draft report, which is hoped to be released later this year.

In Québec, a group of 10 judges has recently been designated to case manage and hear all applications for certification (authorization) of class actions in the district of Montréal, the most active jurisdiction for class actions in Québec. As a result, the judge hearing the authorization motion will no longer preside over the trial on the merits in Montréal. The stated objective of this new system is to reduce delays in obtaining class authorization, with the goal that all authorization motions will be heard within one year of filing. Québec judges have already been some of the most proactive in the country in moving class actions forward. This development may impact the parties’ ability to manage overlapping class actions across the country in relation to the same matters.

Below we discuss the state of class action law and developments in the case law over the past year in relation to the most common types of class actions being litigated in Canada. This area of practice continues to be a fertile ground for innovative and creative thinking and legal arguments, as the law continues to develop and evolve.

CYBERSECURITY

In recent years, there has been a proliferation of privacy class actions in Canada. This activity has been prompted in large part by a seminal decision of the Ontario Court of Appeal in 2012, Jones v. Tsige, confirming for the first time the existence of “intrusion upon seclusion” as a valid cause of action in Ontario. This new tort has three elements, that: a) the defendants have acted intentionally; b) the defendants have invaded the plaintiffs’ “private affairs or concerns” without lawful justification; and c) a reasonable person would regard the invasion as “highly offensive,” causing distress, humiliation or anguish. Where these requirements are met, nominal damages (up to C$20,000) may be awarded even if the plaintiff has not suffered any pecuniary loss. Intrusion upon seclusion has since been recognized as a valid cause of action in other Canadian provinces, and some other provinces have statutory privacy torts.

While Jones was an individual case involving deliberate acts of “snooping” by one individual against another, class counsel has since brought numerous class actions based upon intrusion upon seclusion in a variety of circumstances that bear very little resemblance to Jones. Privacy class actions have been commenced in cases involving snooping by rogue employees, loss of hard drives or USB keys containing personal information, unintentional disclosure of personal health information, and cyberattacks by criminal third parties. In many of these cases, there has been no evidence that any individual experienced any pecuniary loss (e.g., fraud or identity theft) as a result of the alleged privacy breach.

Several of these cases have been successfully certified over the last several years. Certification standards in Canadian class actions are relatively low compared to those in the US, and courts are not permitted to engage in meaningful consideration of the merits of an action at the certification stage. Against this backdrop, Canadian courts have appeared very willing to use intrusion upon seclusion as a springboard for the certification of privacy class actions, including by extending the tort to situations in which there is no deliberate conduct by the defendant and no “intrusion” to speak of—such as in cases where the defendant has been the victim of hacking by a third party.

Furthermore, Canadian courts have shown some willingness to take a more relaxed approach to the issue of damages. The fact that plaintiffs may be able to seek damages for intrusion upon seclusion without proof of loss means that class action plaintiffs have not faced the same challenges to standing that they have in many US jurisdictions.

It remains to be seen whether plaintiffs will ultimately be able to recover damages for intrusion upon seclusion or other privacy torts (e.g., publicity given to private life). To date, no privacy class action in Canada has proceeded to a merits determination, either by trial or summary judgment. There have been a handful of settlements, most of which have represented fairly low values per claimant. However, there have been some higher-value settlements in cases that have involved deliberate breaches by rogue employees of especially sensitive personal information, such as sensitive medical or banking records.

In approving one recent settlement in a privacy class action arising out of a criminal cyberattack on the Home Depot’s payment systems, an Ontario court expressed some skepticism about the merits of the plaintiffs’ case. The judge remarked that he would have been prepared to approve a settlement involving the discontinuance of the entire proceeding without any compensation being provided to class members. The court found that the defendant was “building a very strong case” that it was the victim of a criminal act and had done nothing wrong, that no class member had been injured, and that the defendant’s customer-facing response to the breach had been “responsible, prompt, generous, and exemplary.” While these comments were arguably an aside, they are a welcome signal that judges may apply more scrutiny to causes of action pleaded in privacy class actions going forward, rather than focusing on the mere occurrence of a data breach.

Mandatory breach reporting and notification requirements for the private sector will come into effect across Canada on November 1, 2018. Under this regime, organizations will be required to notify the Privacy Commissioner and affected individuals of any breach relating to personal information that poses a “real risk of significant harm”. “Personal information” is defined very broadly in Canada and the types of harm caught by the mandatory breach reporting requirements are not limited to financial harm. We therefore expect a significant increase in the number of breaches that are reported, and additional class action activity as a result.

SECURITIES

The vast majority of transactions in publicly traded securities occur on the secondary market, generally over a stock exchange. Since Canadian provinces began enacting secondary market liability regimes in late 2005, class actions alleging misrepresentations in secondary securities markets have become an important feature of the Canadian securities litigation landscape. Today, the majority of securities class actions brought in Canada are based on secondary market liability.

Liability for Secondary Market Misrepresentations in Canada

Ontario enacted its secondary market liability regime in late 2005 as Part XXIII.1 of its Securities Act. Other provinces followed, enacting nearly identical schemes. These statutory regimes create a civil cause of action against issuers, their directors and officers, and certain other defendants, for misrepresentations in documents and oral statements that affect the price of securities in secondary markets. The statutory regimes relieve plaintiffs from the need to prove reliance on misrepresentations to recover damages.

Before the provincial regimes were enacted, Canadian courts generally did not certify securities class actions based on the common law tort of misrepresentation, which requires plaintiffs to prove reliance. Courts reasoned that requiring hundreds or thousands of plaintiffs to demonstrate reliance would make the common resolution of shareholder claims unmanageable.

These statutory reforms were intended to facilitate secondary market securities class actions. They have had that effect. As of the end of 2017, 81 secondary market class actions have been filed in Canada. However, the average number of filings per year is in decline, from approximately nine class actions per year between 2008 and 2014, to approximately five per year between 2015 and 2017. No secondary market class action has yet gone to trial in Canada.

Key Features of the Canadian Regime

The onus on plaintiffs to establish secondary market liability is arguably lower in Canada than it is in the US. Depending on the nature of the defendant and the alleged misrepresentation, a plaintiff may not be required to prove the defendant’s scienter or fraudulent intent to mislead investors in order to establish liability. While fraud can still be claimed, the onus of proof is high and liability in Canada is more typically based on the defendant’s negligence or failure to take reasonable care in making its public disclosure.

The Canadian regime affords defendants certain protections that are not present in the US regime. To some extent these counterbalance pro-plaintiff features of the regime, such as the lack of a requirement to prove individual reliance and scienter. Under the Canadian statutory regime, a plaintiff requires leave of the court to bring a secondary market claim. Plaintiffs must show that they brought the action in good faith and that there is a “reasonable possibility” that they will succeed on the merits. The leave requirement is intended to dispose of cases without a reasonable prospect of success at an early stage. In 2015, the Supreme Court of Canada set out that a reasoned consideration and weighing of the evidence proffered by the parties is required before leave is granted,2 following which an increasing number of cases have been denied leave on substantive grounds.

Defendants in Canada may also rely on statutory defenses. Among other available defenses, a statutory due diligence defense applies where the defendant was unaware that the disclosure at issue contained a misrepresentation or material omission and took reasonable steps to confirm the disclosure’s accuracy. There is also a statutory defense for claims involving forward-looking statements, where the defendant may avoid liability if it had a reasonable basis for making the statement and the statement contained cautionary language and a description of the relevant assumptions. There is a significant evidentiary burden on defendants to establish a statutory defence and it can be a challenge to do at the leave stage.3

Perhaps most significantly, the Canadian regime limits the damages that different classes of defendants are required to pay, which can severely restrict the class’s potential recovery. For issuers, damages are limited to the greater of C$1 million or 5% of the issuer’s market capitalization immediately before the alleged misrepresentation was made. The damages caps do not apply in cases where fraud is established.

Jurisdiction

Canadian courts have moved towards the American approach of assuming jurisdiction over a secondary market claim only if it relates to securities listed on a domestic exchange. In general, Canadian courts have jurisdiction over a secondary market class action where the issuer is resident or carried on business in the province; the misrepresentation was made in the province; or a relevant contract was made in the province. Even if jurisdiction is established under this test, however, the court may decline to assume jurisdiction if another forum is more appropriate. Canadian courts have held that the forum of the exchange where the relevant securities trade is generally the appropriate forum. Ontario courts have recently declined jurisdiction in secondary market cases against issuers whose securities traded primarily or exclusively on foreign exchanges.4

Relationship of Canadian and US Cases and Civil and Regulatory Regime

Issuers defending secondary market class actions in Canada should prepare to face scrutiny from securities regulators, who must be provided with a copy of the plaintiffs’ motion record for leave. In contrast to the US, where class proceedings often follow regulatory action, Canadian securities regulators have been increasingly influenced by class proceedings. Cross-listed issuers facing secondary market claims in the US will also often face “copycat” claims in Canada. Nearly half of the 81 secondary market class actions brought in Canada as of the end of 2017 had a parallel US proceeding, and the proportion of Canadian class actions with an American counterpart has increased over time.

EMPLOYMENT

Canada is generally seen to be an employee-friendly, rather than employer-friendly, jurisdiction when compared to its US neighbor. The concept of “at-will” employment does not exist in Canada as it does in the US. Instead, employment relationships in Canada are contractual in nature. They are governed by statute and the common law, or the Civil Code for Québec employees, which provide Canadian employees with some significant protections.

Despite these differences, class actions in the employment law context are only starting to gain steam as a trend. While initially employment-related class actions focused primarily on the denial of overtime pay, we are now seeing a wider variety of class action certifications, including in employee-contractor misclassification and wrongful dismissal damages cases.

Class Actions and Employment Standards Legislation

Each province, as well as the federal government, has enacted its own employment standards legislation as well as more generally-applicable legislation such as anti-discrimination human rights codes. As a result, employees are either governed by provincial legislation (as is most often the case) or by federal legislation (as is the case for certain industries, including airlines, banking, and telecommunications).

Though sharing many common features, differences in provincial employment legislation can have a significant impact on the scope of a class action claim. As perhaps the starkest example, the British Columbia Court of Appeal ruled in 2008 that the province’s Employment Standards Act is an exhaustive code and disputes must be submitted to the Director of Employment Standards.5 As a result, employees in British Columbia are barred from bringing civil actions (including class actions) to enforce claims for entitlements under the legislation.

However, no similar limitation exists in Ontario where employees are permitted to bring civil claims, including class actions, to enforce rights under the Ontario Employment Standards Act, 2000. A recent example is the case of Wood v. CTS of Canada Co, 2018 ONCA 758, which was decided on summary judgment. This case arose out of a plant closure and mass termination of employees of CTS Corp. The class of 74 former employees alleged, among other things, that CTS had breached the ESA by failing to submit a Form 1 (which must be posted and delivered to the Ministry of Labour) on a timely basis, and that as a result, the company should not be able to claim credit for over 12 months of working notice provided prior to submitting the Form 1. While the lower court decision found in favor of the employee class, the Ontario Court of Appeal allowed the appeal in part finding that the employer was entitled to credit for the long working notice period in respect of all employees except those who were compelled to work significant overtime.

Arbitration Agreement Enforceability

Similar to the US, provisions mandating that disputes be settled by arbitration are typically enforceable in the employment context in Canada. However, whether such agreements can act as effective bars to class action proceedings in which employees are seeking to enforce statutory rights is a nascent issue that has yet to receive appellate court treatment in Canada.

In early 2018, the Ontario Superior Court of Justice referred a pre-certification class action to commercial arbitration in the Netherlands.6 In this alleged contractor misclassification case, the representative plaintiff brought a proposed class action on behalf of Uber drivers alleging that the proposed class members are employees of Uber and entitled to benefits under the Employment Standards Act, 2000. The Court held that Ontario’s Employment Standards Act, 2000 did not override the mandatory arbitration clause in the agreement at issue. An appeal of the decision is expected to be heard in November 2018.

As the case law in this area develops, it remains to be seen whether provincial legislatures will pass laws restricting the use of arbitration agreements in the employment context (just as some provinces have passed laws preventing mandatory arbitration under consumer protection legislation).

COMPETITION


Supreme Court Set to Decide Key Issues in Godfrey

In the competition class action context, the Supreme Court of Canada is poised to rule on four key issues in Godfrey v. Sony Corporation in December, 2018: (i) whether the commonality of harm requirement for certification can be satisfied by plaintiffs presenting a plausible method for demonstrating that an overcharge reached the indirect purchaser level of the distribution channel (and not each individual within that level); (ii) whether the discoverability principle applies to the limitation period set out in s. 36(4) of the Competition Act (the “Act”); (iii) whether the Act is a complete code, or whether violations of the Act’s criminal provisions can be pleaded as the “unlawful means” for a tort claim; and (iv) whether “umbrella purchasers” can bring a cause of action under s.36 of the Act, which grants a private right of action to any person who has suffered loss or damage as a result of a conspiracy or other offence under the Act. (For context, an umbrella purchaser claim would attach liability to conspiring defendants for the higher prices paid by class members to non-defendants which, in theory, were able to raise their prices to follow price increases coordinated by the defendants in the conspiracy). Rulings on these issues will have a significant impact on competition class actions nationally.

With respect to umbrella purchasers in particular, there is a conflict among courts in different provinces. The Ontario Superior Court of Justice (Divisional Court) in Shah v. LG Chem, Ltd struck down plaintiff’s umbrella purchaser claims, primarily on the grounds that allowing umbrella purchaser claims to proceed would create indeterminate liability for the defendants. In contrast, both the British Columbia and Québec courts have certified umbrella purchaser claims.

Courts in Ontario and BC have also diverged when considering the implications of different approaches to umbrella claims in carriage battles. Class action proceedings and carriage battles are currently underway across Canada with respect to the Competition Bureau’s investigation into an alleged price fixing conspiracy relating to fresh commercial bread. To date, carriage has been decided for two provinces—Ontario and British Columbia.

In Ontario, two consortia sought carriage of the bread class action, one led by Sotos and Siskinds, which only filed an Ontario action, and a second led by Strosberg and four law firms which filed actions in five provinces and at the Federal Court (the “National Consortium”). In March 2018, Justice Morgan of the Ontario Superior Court awarded carriage to the National Consortium, noting that the issue of multijurisdictional filings would more likely be handled efficiently by the National Consortium, given their filings in other provinces. The National Consortium seeks to pursue a single proceeding in Ontario for all common law provinces, and one in Québec—to that end, the consortium has stayed its proceedings in Manitoba and at the Federal Court. The parties also took different stances on umbrella purchasers—Sotos/Siskinds had included such claims in their Statement of Claim, whereas Strosberg had not. Justice Morgan considered this to be a neutral factor, holding that in light of the current uncertainty in the jurisprudence “these alternative directions are so evenly weighted that it is difficult to see one approach being today preferable to the other.”

In contrast, in British Columbia, Justice Baker of the British Columbia Supreme Court awarded carriage to local British Columbia counsel over the National Consortium in September 2018. Justice Baker’s decision was based primarily on two factors. First, Justice Baker approved of the fact that the BC firm sought to pursue umbrella purchaser claims, which are permitted in British Columbia. In contrast, the National Consortium “submitted that the umbrella claims were too difficult to realistically pursue at this time and the percentage of the class was too small to justify the complexity and cost investment needed to attempt to properly advance such claims”. Second, Justice Baker considered the funding agreement that the National Consortium entered into to cover disbursements and provide an indemnity for any adverse costs award to be a disadvantage. The funder would potentially receive a portion of any recovery for the class by the National Consortium; whereas the BC firm had not sought outside funding.

Justice Baker ordered that the British Columbia proceedings be stayed until the Supreme Court releases its decision in Godfrey, further emphasizing Godfrey’s potential impact on the competition class action landscape.

PRODUCT LIABILITY — PHARMA

Medical device and pharmaceutical class proceedings are routinely certified in Canada. Nonetheless, defendants have experienced some recent successes in resisting certification (or “authorization” in Québec) of such actions. Despite the Courts’ reiteration that certification is not an assessment of the merits, Courts have been prepared to carefully scrutinize the sufficiency of the evidence in assessing whether there is some basis in fact to support the common issue criterion of the certification test in some cases. A few recent key decisions in respect of pharmaceutical class actions are briefly discussed below.

Recent Successes in Opposing Certification

In Batten v. Boehringer Ingelheim (Canada) Ltd., 2017 ONSC 53, the plaintiffs alleged that the anticoagulant drug, Pradaxa, carried the risk of excessive bleeding and that Boehringer breached its duty to warn that there was no antidote for the drug. The Ontario Superior Court denied certification on the grounds that there was (1) no basis in fact to conclude that the absence of an antidote was a danger in the ordinary use of the drug, and (2) even so, there was no basis in fact to conclude that the absence of an antidote was a danger common to all class members.

The plaintiffs appealed the motion judge’s decision on the basis that he improperly considered the merits of the proceeding in determining whether the proposed duty to warn issue met the criteria for certification. The Divisional Court (2017 ONSC 6098) dismissed the appeal, and held that the motion judge correctly relied on undisputed evidence in support of his conclusions that the low threshold for common issues had not been met.

In Price v. H. Lundbeck A/S, 2018 ONSC 4333, the plaintiffs alleged that the SSIR, Celexa, could cause an open-ended list of congenital malformations resulting in either spontaneous abortion or a child born with birth defects, and sought to certify a common issue at the certification hearing regarding whether the defendants breached a duty to warn. The Court found that the proposed duty to warn issue did not satisfy the test for commonality, because congenital malformations present a broad range of potential hazards ranging from the risk of minor human imperfections of a cosmetic nature to major imperfections. Furthermore, the Court found that the duty to warn issue was not common, because its resolution would not advance class member’s claims, as extensive individual inquiries would be required for each class member.

In Québec, however, the Court of Appeal recently allowed a pharmaceutical class action to proceed in Baratto v. Merck Canada Inc., 2018 QCCA 1240, overturning the lower court’s decision. The plaintiff alleged that Merck breached its duty to warn that Proscar, which is used to treat hair loss, would cause a range of “persistent” side effects such as erectile dysfunction, decreased libido, and depression. The Superior Court of Québec had dismissed the motion to authorize the class action on the grounds that (1) there was a lack of commonality, since the evidence showed that there were too many circumstances varying from member to member for a class action to meaningfully advance their individual cases, and (2) there was no arguable case, since the claim was based on bare allegations. The Court of Appeal reversed the judgement, concluding that the lower court delved too deeply into the merits at the authorization stage. The Court of Appeal redefined the class during oral arguments on appeal by adding new common issues to be tried collectively, and lowered the threshold significantly on the conditions of commonality and the existence of an arguable case.

Summary Judgment as a Potential Tool in Class Proceedings

Summary judgment (or summary trial in some provinces) is becoming a more common feature of the class action landscape in this area, and can be requested both before and after the class certification question is resolved, as a means of expeditiously ending the case. For example, summary dismissal was granted in two product liability class actions before the certification hearing—Player Estate v. Janssen-Ortho Inc., 2014 BCSC 1122 on the question of whether there was negligence in the design of the product, and Wise v. Abbott Laboratories, 2016 ONSC 7275 on whether general causation could be established. Of course, trial is also an option, with a successful defence verdict in Brousseau v. Abbott Laboratories, 2016 QCCS 5083, the first ever decision of a Canadian court ruling on the merits of a pharmaceutical product liability common issues trial.

Settlement Approval is not a “Rubber Stamp” Process

There has been something of a trend towards more scrutiny of class action settlements. One recent case serves as an example of that trend. In Perdikaris v. Purdue Pharma Inc., 2018 SKQB 86, the Saskatchewan Queen’s Bench refused to approve a C$20M settlement of a class action against the manufacturer of Oxycontin, which had been brought on behalf of persons who became addicted to the drug prescribed by their physicians. The Court expressed concerns that class counsel had failed to use appropriate estimates when calculating the number of class members and expected damages, and put forward limited evidence regarding the likelihood of success should the action proceed to certification and trial. The Court concluded that the settlement was not fair, reasonable or in the best interests of the class. Furthermore, the Court held that where a class action settlement resolves or releases claims of all provincial health insurers (PHIs), it must be approved by all PHIs in accordance with their respective provincial/territorial subrogation legislation. The decision is under appeal.

CONCLUSION

As can be seen from the discussion above, there have been a host of important class action decisions rendered in 2018 by courts across Canada. Given some of these cases will be argued before provincial appellate courts or the Supreme Court of Canada in the coming months, readers will want to watch for further developments in this area.


  1. Class Proceedings Amendment Act, 3rd SESS., 41st Parl., B.C., 2018 and B.C. Reg. 129/2018.
  2. CIBC v. Green, 2015 SCC 60 and Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18.
  3. See Rahimi v. SouthGobi Resources Ltd., 2017 ONCA 719 and Wong v. Pretium Resources, 2017 ONSC 3361.
  4. See Yip v. HSBC Holdings PLC, 2018 ONCA 626 and George Leon Family Trust (Trustee of) v. Volkswagen Aktiengesellschaft, 2018 ONSC 4265.
  5. Macaraeg v. E Care Contact Centers Ltd., 2008 BCCA 182.
  6. Heller v. Uber Technologies Inc., 2018 ONSC 718.