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The Future of Canadian Class Actions
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The Future of Canadian Class Actions
PREPARED BY: CLINT G. DOCKEN, Q.C.
of Docken & Company, with the assistance of Thomas W. Buglas
presented at the "Rocky Mountain Rendesvous" in Banff, Alberta.
I. Introduction:
At present, there are three provinces--Ontario, Quebec and British Columbia--which have passed class action legislation. Quebec’s legislation has been in place since 1978; Ontario’s since 1992; and British Columbia’s since 1995. Prince Edward Island had class action legislation introduced to the legislation assembly in 1997, but the bill was not passed.
The class action experience in Canada, in our view, has been positive. To put this statement in perspective, we must be aware of the past.
II. Past experience:
Most provinces have had (and still have) provisions for "representative actions". In Alberta, Rule 42 states:
"Where numerous persons have a common interest in the subject of an intended action, one or more of those persons may sue or be sued or may be authorized by the Court to defend on behalf of or for the benefit of all."
 presented at: ROCKY MOUNTAIN RENDEZVOUS
These rules have been strictly and narrowly construed by the Courts. The Supreme Court of Canada in Naken et al v. General Motors of Canada Ltd. et al (1983) 144 D.L.R. (3rd) 385, severely limited the scope of situations to which "representative actions" might apply.
In that case, Ms. Naken and three other Plaintiffs sought to sue, as representatives of a class, General Motors and various car dealerships in Ontario. The subject of the suit was the performance of the 1971 and 1972 Firenza motor vehicles. The allegation generally was that these vehicles also masqueraded as yellow bitter tasting fruit.
The Plaintiffs claimed breach of contract. The contract with General Motors was created, allegedly, through the use of advertisements claiming the vehicle to be "durable", "tough" and "reliable". The Plaintiffs contended that these vehicles were no such thing. Relief of $1,000.00 per Plaintiff was sought due to excessive depreciation of the vehicle. Some of the alleged defects of this vehicle included: defective steering mechanism, defective braking, fuel line leakage, transmission breakdown, and faulty universal joints.
There was indication that over 4500 of these vehicles were sold in Ontario.
The Court of first instance in Ontario dismissed the application to strike the action. This was reversed on appeal to the Divisional court. That level of court dismissed the action. The Ontario Court of Appeal dismissed the Plaintiff’s appeal but, curiously, allowed thirty days for the Plaintiffs to refile an Amended Statement of Claim. The Amended Statement of Claim was to redescribe the Plaintiff class to "include only those purchasers of 1971 and 1972 Firenzas who saw the printed materials or published advertisements of General Motors and, as a result, purchased a new Firenza from a dealer" [92 D.L.R. (3rd) 100 at page 114]. The Plaintiffs appealed this decision to the Supreme Court of Canada.
The SCC unanimously held that the class action could not be maintained under Rule 75 of the Ontario Rules of Court (the near-equivalent of Alberta’s Rule 42). The SCC noted the very narrow scope of representative actions as found in English Common Law and previous Canadian cases. Also noted were pleas for legislative reform by way of specific class action legislation by the Ontario Law Reform Commission and by Arnip, J.A. of the Ontario Court of Appeal.
The Court further noted that should the proposed Naken class action proceed, it would entail three stages:
A determination of liability of GM which flowed from the advertisements and the faulty vehicles;
If there was liability, individual assessments would take place as to which Plaintiffs relied upon the advertisements of GM; and
Individual assessments of the exact measure of damages suffered by each Plaintiff positively identified in Stage 2.
The SCC noted that Rule 75 in no way precluded the Defendants from using any or all pre-trial procedures in relation to Stages 2 and 3. This included discovery of documents and discovery of each individual Plaintiff. In light of this, the SCC doubted as to whether or not "economy of time and resources" would ensue.
Other problems with the proposed representative action procedure included:
How to deal with the questions of costs;
The loss of the right of individual Plaintiffs to seek greater than $1,000.00 damages; and
Limitation period problems.
The result was (again presuming the allegations to be true) that the thousands of owners of these vehicles had no cost effective legal remedy for their valid complaints. The disappointment of Naken is not that a large car manufacturer won in court, it is that the large car manufacturer never had to defend the substance of the allegations made against it. Ms. Naken, et al, were not allowed an entrance to the courtroom. The SCC recognized this and stated that the appropriate remedy was legislative reform (i.e. class action legislation).
III. The Recent Past/Present:
It is in this context, and with this problem in mind, that the legislatures in British Columbia and Ontario, passed their respective class action legislation. As will be seen, the impetus for legislative reform is access to justice. It is trite, but necessary, to reiterate the importance of keeping the doors of justice open.
For ease, this paper will deal with the British Columbia Class Proceeding Act, enacted in 1995. This Act is close in substance to the Ontario legislation. The requirements for certification of a class are described in Section 4(1) which reads as follows [writer’s comments in brackets]:
The Court must certify a proceeding as a class proceeding on an application under Section 2 or 3 if; [note the mandatory language]
the pleadings disclose a cause of action; [there is an unresolved issue as to whether class action proceedings are appropriate forums for the creation of new causes of action]
there is an identifiable class of two or more persons; [the class need not be large]
the claims of the class members raise common issues, whether or not these common issues predominate over issues affecting only individual members; [as will be discussed this language represents a major departure from the American model]
a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues; and [see 4(2) of the Act as reproduced later in these materials]
there is a representative plaintiff who:
would fairly and adequately represent the interests of the class;
has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding; and
does not have, on the common issues, an interest that is in conflict with the interests of other class members.
The equivalent Ontario provision was commented upon by O’Brien, J. of the Divisional Court of Ontario (General Division) in Abdool v. Anaheim Management Ltd. (1995), 21 O.R. (3rd) 453 at 461 as follows:
"It seems clear the three main objects of the class proceeding legislation are:
- judicial economy
, or the efficient handling of potentially complex cases of mass wrongs;
- improved access to the courts
for those whose actions might not otherwise be asserted. This involves claims which might have merit but legal costs of proceedings were disproportionate to the amount of each claim and hence many plaintiffs would be unable to pursue their legal remedies;
- modification of behavior
of actual or potential wrongdoers who might otherwise be tempted to ignore public obligations."
[Emphasis by the writer].
These three main objects have been accepted as appropriate by Smith, K. of the British Columbia Supreme Court in Endean v. Canadian Red Cross Society, et al (1997).
These three objectives are of the assistance to courts in determining the issues set out in Section 4(1). For example, 4(1)(c) states that certification requires:
"The claims of the class members raise common issues, whether or not those common issues predominate over issues effecting only individual members,...."
This subsection represents a significant departure from the American experience. Rule 23 of the U.S. Federal Rules of Civil Procedure, requires that common issues must predominate over individual issues. The three Canadian class provinces have clearly taken a different approach. The question is whether there is at least one common issue which would be appropriate to deal with by way of class proceeding. A common issue is proper if its resolution in favour of the proposed class would advance the interests of the class. The fact that many individual issues would remain is not, in and of itself, fatal to a certification. This approach appears to reflect the three main objects of judicial economy, access to the courts, and modification of behavior.
A good example of how these three legislative objects are used by courts to assist in interpretation of the factors set out in ss 4(1), is found in the Endean case. This case dealt with the application for certification of all claimants in British Columbia who contracted Hepatitis C from "tainted blood" in the time period of 1986 to 1990. The step by step discussion found therein regarding these issues is very helpful. Therein certification was allowed despite what would appear on the surface to be strong defense arguments against certification. The Canadian Red Cross argued that the state of scientific knowledge regarding Hepatitis C, and testing therefore, was in a constant state of flux. As such, the appropriate duty of care and standard of care might change from month to month. Therefore, these issues are individual to each particular Plaintiff who received blood at different periods of time. The Court did not agree with this submission. The Court found that the issue was a common one. The fact that the Court might find different time periods to invoke different standards of care, was not found to be troublesome. Individual Plaintiff’s cases could be advanced with regard to the common finding. A liability grid could be established by which individual claims could be assessed. Similar reasoning was employed in Chase v. Crane Canada (1996) 26 B.C.L.R. (30) 339 (S.C.).
An example of a case where certification was not allowed due to lack of an appropriate common issue is Tiemstra v. I.C.B.C. (1996), 22 B.C.L.R. (3d) 49 (S.C.) aff’d (July 07, 1997) B.C.C.A. (Unreported to writer’s knowledge). In that case a number of British Columbia residents were aggrieved at the policy of I.C.B.C. to refuse to pay bodily injury damages in cases where an accident resulted in no physical damage to the vehicles involved ("no crash - no cash"). The B.C. Court of Appeal found that even if the class proved that I.C.B.C. treated these claim in bad faith, all the Plaintiffs would have is the ability to do what they already could do – sue on merits of their respective individual cases. Thus the successful resolution of the common issue would not advance the interests of the class.
The next consideration in a certification proceeding is whether a class action is the preferable procedure. Section 4(2) of the Act sets the test as follows:
In determining whether a class action proceeding would be the preferable procedure for the fair and efficient resolution of the common issues, the Court must consider all relevant matters including:
whether questions of fact or law common to the members of the class predominate over any questions effecting only individual members;
whether a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions;
whether the class action proceeding would involve claims that are or have been the subject of other proceedings;
whether other means of resolving the claims are less practical or less efficient; and
whether the administration of the class proceeding would create greater difficulties than those likely to be experienced if relief were sought by other means.
The argument put forward by the Canadian Red Cross in Endean was that the individual issues outweighed the common issues. Counsel for the Red Cross pointed out the individual nature of:
causation;
comparative fault as between class members;
comparative fault as between defendants and third parties;
assessment of damages; and
limitation periods.
It should be noted that in this case the Defendants Red Cross Society, the Queen in Right of British Columbia, and The Attorney General third partied various hospitals, doctors and John Does.
The Court, while acknowledging the power of this submission, made two observations. Firstly, it observed that American authorities on this point were not helpful for the reason, as already mentioned, that American legislation requires that common issues predominate over issues affecting only individual plaintiffs. The Court also noted that:
"The intention behind these provisions of the Act is to put more emphasis on the goal of access to justice then on that of judicial economy. That was the approach taken in Harrington, supra, where a class proceeding was certified despite the many unresolved, difficult, individual issues associated with establishing claims, arising out of allegedly defective breast implants. Accordingly, the undoubted predominance of individual issues here is not in itself fatal to the application...The object of the act is not to provide perfect justice, but to provide a "fair and efficient resolution" of common issues. It is a remedial, procedural statute and should be interpreted liberally to give effect to its purpose. It sets out very flexible procedures and clothes the Court with broad discretion to ensure that justice is done to all parties."
The Court found that the concerns of third parties could be accommodated by allowing them to participate in the trial of the common issues. Interestingly, the Court also expected that the present third parties would competently protect the interests of any as yet unidentified third parties. The Court summed up as follows:
"The controlling consideration here is that the complexity and cost of establishing liability are such as to effectively preclude the large majority of class members from access to the Court in individual actions. The likelihood that they will recover only modest damages if successful would militate against the expenditure necessary to prove their claims. The following remarks of McKenzie, J. in Harrington, supra, at 113 are apposite here:
"Class proceedings will still remain the only practical and efficient means of resolution for [Plaintiffs] where claims have modest damage potential and for whom separate proceedings would not be feasible. Greater difficulties would be experienced in administering separate claims unless those claims were simply not pursued at all, which would defeat the whole purpose of class proceedings.""
It thus appears at present that Quebec, British Columbia and Ontario Courts are prepared to venture forth with certification, despite the existence of significant individualization specific issues. New ground is being broken in the name of access to justice. Indeed it appears that access issues predominate over judicial economy issues.
IV. In the Future:
The future of class actions in Canada will depend upon three groups:
Provincial legislatures;
The Judiciary; and
Class Counsel.
The Legislatures:
In most jurisdictions in Canada, Naken is still the law. Practically speaking, class actions do not exist in these Provinces. In Naken, the Supreme Court of Canada made it clear that Ontario’s Rule of Court 75 (the near-equivalent of Alberta’s present Rule 42) could not provide foundation for class actions which involve individual issues. The Supreme Court of Canada suggested that legislation would be required. Clearly, Quebec, Ontario and British Columbia have met that challenge. Alberta has steadfastly refused to do so. The present Government does not recognize the need for such legislation. Although the Opposition has expressed interest in the issue, and indeed asks the Government in the Legislature from time to time about class action legislation, it appears such legislation will not be found in Alberta in the near future.
What does this mean for Albertans who have been mass aggrieved or harmed by a similar cause? These Albertans presently have three options:
Attempt a Rule 42 Representative Action;
Attempt a group action with all plaintiffs on a single Statement of Claim; and
Attempt to seek out a jurisdiction which will allow Albertan plaintiffs to sue as a non-resident.
Only the British Columbia class action legislation specifically allows for certification of classes which include non-resident plaintiffs. As well, in a proper case, an American jurisdiction such as Texas can be sought. This is what our firm is doing in the Bre-X fiasco.
It is our view that there is no good reason why Alberta does not pass class action legislation. This is an access to justice issue. Indeed, the embarrassment cannot be more acute than in the Bre-X case. The jurisdiction where Bre-X had head offices, began trading its shares, and made most of its pronouncements, cannot handle the significant lawsuits arising therefrom. The aggrieved Albertans in this matter must seek assistance from either Texas, British Columbia or Ontario courts. Should an aggrieved Albertan wish to have "his day in court" in Alberta, the suit must be prosecuted individually. This is not viable and underlines the need for this type of legislation.
Class Counsel
In the field of class action proceedings, it has always been recognized that the capability of plaintiffs’ class counsel is key. In the United States it is one of the factors to be considered for certification. The counsel must bring forward a resume, so to speak, to persuade the certification judge that should there be certification, the counsel will indeed adequately represent the class. There is some authority in the United States that class counsel acts in a fiduciary role vis-a-vis all class members.
Clearly, this is an area of law which is open for abuse by plaintiffs’ counsel. For example, it is open for plaintiffs’ counsel to get a certification and accept a "go away" offer from a large defendant. This results in a very poor recovery for the individual plaintiffs, but nonetheless a fee to plaintiffs’ counsel. Should this situation occur repeatedly, it might be the plaintiffs themselves who give up on the process. We have seen indications from the United States of the cynicism which some people hold for class action lawsuits. It is the feeling of some that the only people who do well in these proceedings are the lawyers.
Another area where capability of counsel is of the utmost importance is the certification hearing itself. Drafting an appropriate statement of claim is crucial. An example might be found in the tainted blood cases. All three class action provinces have certified classes of plaintiffs who were recipients of the Hepatitis C virus from blood. British Columbia counsel took a practical approach. They realized that they could not use the "shotgun" method. This approach, almost by definition, creates a host of individual issues. It then becomes difficult to persuade a court to certify the proceeding. Therefore, in the Hepatitis C case, only the Canadian Red Cross, the provincial government and the federal government were sued. Certainly, if a plaintiff wished to sue individually, hospitals and doctors would be natural defendants. However, one must give up something to gain something in return. In this case, access to justice and an efficient means by which to prosecute the case was the reward. To achieve this reward, the plaintiffs had to collectively walk away from some potential avenues of recovery. These cases require a recognition that it is impossible to get perfect justice in an imperfect world. It is better to take a focused approach against a small number of defendants and achieve certification than attempt to explore every issue and every avenue of recovery, but be required to litigate each claim individually.
Clearly, the demands of class action litigation are high. The highest standards of integrity must be met. As well, a full understanding of the law must be mixed with a keen eye for practicality. The lawyer should be one part saint, one part scholar and one part riverboat gambler.
The Judges
The Canadian judiciary will significantly determine the future of Canadian class action lawsuits. Should judges continue with the present trend of prioritizing "access to justice" issues, then certifications will continue to occur. However, notwithstanding this judicial attitude, there are clouds on the horizon. We are entering into uncharted territory and can only hope that a certified class action does not spin so out of control that it taints all future proposed class actions.
For example, what if – as defence counsel invariably argue at certification proceedings – there is no settlement after the common issues are settled? Let’s take the present Hepatitis C case as an example. Let us assume that the Canadian Red Cross and the two levels of government are found negligent for not implementing surrogate testing. Let us also assume that these defendants do not wish to enter into a voluntary compensation package. What if they wish to pursue third parties to contribute to the liability? What if they wish to suggest that many of the plaintiffs contracted Hepatitis C from causes other than the transfusion of blood and blood products? What if they wish to contest individual limitation periods? What if they wish to contest individual damages? What if a third party gets brought into the matter after the common issues have been decided? Is that third party bound by the findings of fact and law made therein?
The role of the judiciary in answering these questions is of the utmost importance. It is our opinion that if the judges understand that this is an imperfect procedure put into place for access-to-justice reasons, then "rough and ready" solutions can be found. It is interesting to note that this doomsday scenario has not occurred in the United States. It appears that properly certified cases which result in liability findings in favour of the plaintiffs, tend to be settled in one way or another. However, the danger does exist that the proceedings after the common issues are determined could spin out of control, clog up the courts, and result in no cost or resource savings.
The judiciary will also be important in dealing with some of the jurisdictional issues arising from Canadian class action legislation. British Columbia’s legislation allows for non-residents to "opt in" to class action proceedings. There appears to be no constitutional or jurisdictional difficulty with this. The defendants are aware of the case and are in a position to defend it. The out-of-province plaintiffs, by opting in, attorn to the British Columbia jurisdiction. However, Ontario and Quebec have an "opt out" plans. Should a national class be certified in those provinces, it would be up to individual non-resident plaintiffs to "opt out" of the plan. This leaves the possibility that an Albertan who had no notice of the Ontario/Quebec proceedings could be bound by those proceedings. Is this constitutional? What would happen if the Albertan started an individual suit in Alberta? Could the defendant plead res judicata due to the Ontario proceedings? Would an Alberta court uphold the res judicata defence?
The only instance where a national class has been certified is Nantais v. Telectronics Proprietary Ltd. (1995) 25 O.R. (3d) 331 (Gen. Div.), leave to appeal dismissed (1995), 25 O.R. (3d) 347 (Div Ct.). The Ontario Court allowed national certification for all Canadian plaintiffs who received a specific brand of pacemaker. The class members were easily identified. The Court found that notice provisions would be highly effective in alerting all possible claimants. Thus the concerns raised above would be avoided.
In our view, the Telectronics case is fact specific. It will be rare that an issues arises with such a readily identifiable group of claimants across Canada. For the majority of fact situations, the preferable approach is multiple certifications throughout Canada. For example, in the Hepatitis C dispute, there are co-existing certifications in all three class action provinces.
These and other issues require direction from the courts.
Conclusion
It appears that Canadian class action is in a state of expansion. Our judiciary have defined class action as primarily an "access to justice" issue. As well, not to be forgotten, is the truth that in some circumstances, the threat of civil remedy is the only means by which society can induce positive behavior modification of large and uncaring actors in our jurisdiction. If the present and near-future class action proceedings are handled appropriately by all parties involved, the use of the class action procedure should thrive.
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