Canadian Class Actions

A Plaintiff's Paradise?

Written Materials By:  Howard Borlack

McCague Peacock Borlack McInnis & Lloyd LLP

Presented by:  Howard Borlack

INTRODUCTION

We have prepared this paper for the benefit of those who have experience with class actions in the United States, but who may not be familiar with Canadian class actions, to assist in a general understanding of class actions north of the U.S. border.[1] 

This overview of class actions in Canada, and particularly in the province of Ontario, discusses the statutory framework, procedures and practicalities of class actions in Canada and also highlights several significant differences between class actions in Canada as opposed to those in the U.S. Specifically, this paper discusses the differences between the Canadian standard for class certification, which is arguably more permissive than the U.S. standard, and Canada's ‘loser pays' cost award system, which can create significant costs exposure for defendants.

Following Quebec in 1978 and Ontario in 1992, most of Canadian provincial jurisdictions have subsequently enacted their own respective class action statutes. In addition, class actions may proceed in the Canadian federal court. However, by contrast to the broad jurisdiction of the U.S. federal court, the Federal Court of Canada has very limited subject matter jurisdiction.  Provincial law and procedure governs most class actions. Class actions that are national in scope may result in the filing of separate class actions in various provinces. Such class actions may take place concurrently or one provincial court may in effect, take the lead. The legislation of Ontario and of Quebec is silent regarding issues of national class actions, but there have been decisions from the courts of each province certifying classes to include members from outside its provincial bounds.[2] Other provincial statutes, such as those enacted in British Columbia, Saskatchewan, Newfoundland, Alberta and New Brunswick require non-resident members of the class (i.e. affected parties who lie in other jurisdictions, in Canada or elsewhere) to opt-in.

This paper will focus on class actions in Ontario. Ontario is the most populous province and economically the most important province. Although there are significant similarities in the class action provisions of the various provinces, there are important variations that need to be considered in dealing with class actions emanating from provinces other than Ontario.

ONTARIO

Ontario operates under comprehensive class action legislation, the Class Proceedings Act, 1992 (the "CPA"). One of the purposes of the statute is to provide a mechanism whereby mass tort claims (including environmental claims) can be litigated effectively and efficiently. Class actions were designed to improve access to justice by making economical the prosecution of claims that would be too expensive to prosecute individually. In addition to judicial efficiency and access to justice, the CPA was enacted to inhibit misconduct by potential wrongdoers who might be tempted to ignore their obligations to the public because claims by the injured were too small or difficult to assert (referred to as behaviour modification in the case law).

A class proceeding is initiated by way of a statement of claim, which states that it is a proceeding commenced under the CPA. The CPA stipulates special procedural requirements, including conditions for notification of the class action to potential class members, opting out by potential class members and court approval for any settlement agreements. The Ontario Rules of Civil Procedure apply to class actions. 

As in U.S. proceedings, a potential class action must be ‘certified' as a class proceeding before it can proceed as class action through to trial. Certification is a crucial stage in a class proceeding, because once a class certification order is granted, many defendants are pressured into settlement given the magnitude of the potential exposure if the matter were tried on the merits. The process and criteria for certification are discussed further below.

One of the first steps in a class proceeding, once a claim has been issued, is for the appointment of a case management judge, who will hear any preliminary motions and assist the parties with setting timelines and other procedural issues. 

One such preliminary motion, particularly in mass torts cases, where there are numerous parties and competing groups of plaintiffs' counsel involved, is a motion for carriage. Carriage motions are conducted to determine which plaintiffs' counsel is best suited to represent a particular class. Six factors have been considered by Canadian courts generally, when determining who should be appointed as solicitors of record for the plaintiff in a class action. These factors are:

•1.      The nature and scope of the causes of action advanced;

•2.      The theories advanced by counsel as being supportive of the claims advanced;

•3.      The state of each class action, including preparation;

•4.      The number, size and extent of involvement of the proposed representative plaintiffs;

•5.      The relative priority of commencing the class actions; and

•6.      The resources and experience of counsel.

Because certification of class proceedings is expensive and time consuming, defendants often bring a pre-certification motion under Rule 21 of the Rules of Civil Procedure seeking a dismissal of the claim or at least part of the claim at the outset. A Rule 21 motion may also help to narrow the issues at dispute in a class proceeding.

There are a number of grounds on which a Rule 21 motion can be based. The most common are that the pleadings do not disclose a cause of action against the moving party defendant or that the court lacks jurisdiction to hear the claim as a class action.

While similar arguments can and should be made at a certification motion, bringing a preliminary motion is often a strategically advantageous course of action. One of the primary benefits of a Rule 21 motion is that while certification is a somewhat discretionary matter, under a Rule 21 motion the question is posed as a determination on law. It should be noted, that the court retains discretion to determine whether or not a Rule 21 motion ought to be heard in advance of certification or contemporaneously with certification.

Additionally, while no evidence is admissible on a Rule 21 motion in respect of striking a pleading for no cause of action, at certification parties are required to provide a sufficient evidentiary basis to allow the court to determine whether the test for certification has been met. In practice, plaintiffs frequently put in extensive amounts of evidence on certification. This makes the process more complicated and expensive, and puts evidence against the defendants into the public forum through the affidavits filed with the court on certification.

Courts have held that there is no requirement to serve a statement of defence prior to certification. It is the usual practice of defendants not to file a statement of defence until after the certification hearing, unless the defendant is bringing a summary judgment motion either prior to or contemporaneously with the certification motion.  

CERTIFICATION

Under the CPA in order for a class to be certified, the plaintiff must satisfy the court that the following five criteria are met;

• 1. The pleadings or the notice of application must disclose a cause of action;

• 2. There must be an identifiable class of at least two people that would be represented by the representative plaintiff;

• 3. The claims of the class members must raise common issues;

• 4. The class proceeding must be the preferable method for resolving the common issues; and

• 5. There is a representative plaintiff or defendant who,

• a) would fairly and adequately represent the interests of the class

• b) 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 proceedings, and

• c) does not have, on the common issues for the class, an interest in conflict with the interests of other class members

While the first requirement, that the pleadings disclose a cause of action, is meant to filter out frivolous claims, it is a relatively low threshold test. 

Given the enormous potential liability that attaches to successfully certified proceedings, defendants generally respond to certification motions with all available effort and resources. The result may be, as is commonly the case in the U.S., a certification battle that is both lengthy and expensive.[3]

In order for a class to be certified under U.S. Rule 23, the court must find, inter alia, that "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members."[4] By comparison, there is no predominance requirement under the Ontario CPA;[5] under the CPA the court must only find that "the claims of the class members raise common issues". Similarly, in British Columbia, the common issues requirement reads "the claims of claims members raise common issue, whether or not those common issues predominate over issues affecting only individual members."[6] Absent an explicit predominance requirement, a class action need found by the court as the "preferable" procedure for resolving the common issues, rather than the entirety of the claims.

The relationship between "preferable" procedure and predominance was discussed by the Supreme Court of Canada in Hollick v. Toronto (City)[7] in which McLachlin C.J. stated,

• 30 The question of preferability, then, must take into account the importance of the common issues in relation to the claims as a whole. It is true, of course, that the Act contemplates that class actions will be allowable even where there are substantial individual issues: see s. 5. It is also true that the drafters rejected a requirement, such as is contained in the American federal class action rule, that the common issues "predominate" over the individual issues: see Federal Rules of Civil Procedure, Rule 23(b)(3) (stating that class action maintainable only if "questions of law or fact common to the members of the class predominate over any questions affecting only individual members"); see also British Columbia Class Proceedings Act, s. 4(2)(a) (stating that, in determining whether a class action is the preferable procedures, the court must consider "whether questions of fact or law common to the members of the class predominate over any questions affecting only individual members"). I cannot conclude, however, that the drafters intended the preferability analysis to take place in a vacuum. There must be a consideration of the common issues in context. As the Chair of the Attorney General's Advisory Committee put it, the preferability requirement asks that the class representative "demonstrate that, given all of the circumstances of the particular claim, [a class action] would be preferable to other methods of resolving these claims and, in particular, that it would be preferable to the use of individual proceedings" (emphasis added): M. G. Cochrane, Class Actions: A Guide to the Class Proceedings Act, 1992 (1993), at p. 27.

Comparing certification under the Ontario CPA to certification under the U.S. Federal Rules of Civil Procedure, the court in Bendall v. McGhan Medical Corp. observed that "Federal Rule 23 is more restrictive regarding class certification than the Ontario Class Proceedings Act."[8]  

However, even in the face of such difference, an abundance of individual issues has been found by the court as sufficient grounds to reject certification of a class.[9] Conversely, in other cases the court has certified classes where it has found that not all class members were necessarily able to demonstrate that they sustained injuries and losses, or that they necessarily stood to recover damages at the same level.[10] 

Thus, while the Canadian courts certainly consider predominance, it does not play the central role in the certification of a Canadian proceeding that it does in the U.S. As a result, it may be argued that Canadian class actions are more readily certified than those in the U.S.

COSTS

In contrast to the "American Rule," under which attorneys are paid according to contracts with their clients (subject to numerous exceptions), in Canada there are two basic systems for the award of costs in class proceedings.[11] The legislatures of Ontario,[12] Alberta and New Brunswick have maintained the traditional English rule of costs, wherein the losing party must pay the winning party's legal costs, subject to the discretion of the judge to make an award of no costs in certain circumstances.[13] In Quebec, while the traditional cost rules still apply, they may only be awarded on a nominal basis determined according to the Small Claims Court costs scale.[14] 

Elsewhere in Canada, notably before the courts of British Columbia, Saskatchewan, Manitoba, Newfoundland, and before the Federal Court, the Ontario Law Reform Commission's proposed "no costs rule" has been adopted.[15] Under these statutes,[16] both plaintiffs and defendants are given relief from the traditional costs rules, and are not generally liable for costs unless it is found that there has been vexatious, frivolous or abusive conduct by a party, there has been an improper or unnecessary application, there has been some other step taken for the purpose of delay, increasing costs or for any other improper purpose, or where there are exceptional circumstances. Significantly, though not necessarily an issue unique to class actions, due to significant differences in the law of damages between Canada and the U.S., Canadian class actions are far less likely than U.S. class actions to attract significant punitive damages.

Under the CPA one or more "representative" plaintiffs initiate an intended class proceeding on behalf of similarly situated members of the public (referred to as a "class") against one or more defendants. In all jurisdictions in Canada, class members (other than the representative plaintiff) face no cost consequences for costs awarded in relation to the trial of common issues.[17] As the CPA permits contingency fees and agreements to increase the fees of a plaintiff's lawyer by a multiplier of the value of fees charged on an hourly basis, class actions can be extremely lucrative for plaintiffs' counsel and can result in the proliferation of class proceedings commenced by different plaintiffs' counsel with respect to an incident. 

However, agreements respecting fees and disbursements between a solicitor and a representative party are not enforceable unless approved by the court.[18] While court approval may be characterized as a potential check on the fees charged by plaintiff's counsel, it should also be noted that the courts have approved significant class counsel fees. For example, Saskatchewan class action lawyer, Tony Merchant, was awarded $25 to $40 million in costs for his firm's work on a settlement involving issues surrounding the abuses suffered by Canada's aboriginal peoples in residential schools.[19] Under such fee arrangements plaintiff's counsel generally receive no compensation for an unsuccessful class action.

Under the traditional "loser pays" costs doctrine employed in Ontario, a representative plaintiff stands only to gain her proportional share in the outcome of a successful class action. However, at the same time a representative plaintiff is potentially liable for the entirety of a cost award in the event of an unsuccessful class action.[20] As a practical matter, the potential liability of a representative plaintiff has generally been addressed though the indemnification of representative plaintiffs by either class counsel or through the Class Proceedings Fund.

Ontario established The Ontario Class Proceeding Fund (the "Fund") operated by the Law Foundation of Ontario and governed by the Law Society Act[21] as an access to justice initiative in recognition of the possible implications of the liability of representative plaintiffs for costs. While the fund does not cover a plaintiff's legal fees, it provides plaintiffs with assistance in covering costs and disbursements. Significantly, the Fund also indemnifies representative plaintiffs against adverse costs orders. Funding by the Law Foundation is provided upon successful application, and is paid in exchange for a 10% stake in the returns of any successful action or settlement. Quebec has a similar fund into which all successful plaintiffs must pay, regardless of whether they receive funding or not.[22] This fund provides assistance with both legal fees and disbursements and does not provide indemnity to funded plaintiffs who face adverse costs awards.[23]

In Ontario, a successful defendant may be denied costs where the court determines that in accordance with section 31(1) of the Ontario Class Proceedings Act, the plaintiff's claim was a test case, raised a novel point of law, or involved a matter of public interest.  

CONCLUSION

In conclusion, in the assessment of pending Canadian class action exposure, it should be kept in mind that there are a number of key factors that make exposure to Canadian class actions different than exposure to American class actions. As discussed above, these key differences include:

• Most class actions in Canada are conducted under provincial legislation

• Because of this, class actions in Canada that are national in scope may be commenced simultaneously in numerous provinces

• Canadian class actions are less likely to attract significant punitive damages

• The Canadian standard for class certification is arguably more permissive than the U.S. standard

• Canada's loser pay cost award system can create significant costs exposure for both defendants and plaintiffs

[1] This paper is only intended to provide a general overview and does not constitute legal or professional advice. The reader is advised to seek specific legal advice by contacting McCague Peacock Borlack McInnis & Lloyd LLP (or their own counsel) regarding specific legal issues.  McCague Peacock Borlack McInnis & Lloyd LLP cannot provide advise with respect to U.S. law. We would be pleased to recommend U.S. counsel.

[2] See for example, Nantais v. Telectronics Proprietary (Canada) Ltd., 1995 CanLII 7400 (Ont. S.C.J.).

[3] See for example references to parallel contested Canadian and U.S. certification decisions as referenced by Nordheimer J in Hague v. Liberty Mutual Insurance Co. [2004] O.J. No. 3057 (Ont. S.C.J.), and Montgomery J. in Bendall v. McGahn Medical Corp. [1993] O.J. No. 1948 (Gen. Div.).

[4] Federal Rules of Civil Procedure, Class Actions, Rule 23 (b) (c).

[5] See for example: Carom v. Bre-X Minerals Ltd., 1998CanLII 14705 (ON S.C.) at para. 48.

[6] British Columbia Class Proceedings Act RSBC 1996 CHAPTER 50, S. 4 (1) (c) see also Alberta Class Proceedings Act, S.A. 2003, c. C-16.6 s 5 (1) (c).

[7]  2001 SCC 68 (CanLII) at para. 30.

[8]  1993 CanLII 5550 (Ont. S.C.J.) at paras 30 & 36.

[9] See for example: Gariepy v. Shell Oil Co., 2000 CanLII 22706 (Ont. S.C.J).

[10] See for example: Bendall v. McGhan Medical Corp. [1993] O.J. No. 1948 (Ont. Gen. Div.) and Boulanger v. Johnson & Johnson 2007 CanLII 735 (Ont. S.C.J.).

[11] Conte & Newberg, Newberg on Class Actions, 4^th ed. (Danvers MA: West Group, 2002) at 504.

[12] In Ontario this rule is subject to section 31(1) of the C.P.A.  Alberta does not have an equivalent to Section 31, but as held in Pauli v. ACE INA Insurance Co., 2004 ABCA 253, similar conditions, though not legislated, are relevant to the Court's broad discretionary power to award costs. New Brunswick does not have a provision similar to Section 31 under its Class Proceedings Act.

[13] Though similar in approach, there remain individual differences between these jurisdictions. 

[14] Code of Civil Procedure, R.S.Q. c. C-25, 1050.1.

[15] Ontario, Ontario Law Reform Commission, Report on Class Actions, vol. II (Ministry of the Attorney General,1982) at 647., Ontario chose to maintain the traditional costs rule in keeping with the recommendations of the Attorney General's report (1990). See the Report of the Attorney General's General Advisory Committee on Class Action Reform, February 1990.

[16] See for example, Class Proceedings Act [RSBC 1996] Ch. 50, s. 37.

[17] C.P.A. 31 (2) 1992, S.O. 1992, c. 6.

[18] C.P.A. 32 (2) 1992, S.O. 1992, c. 6.

[19] Canada (Attorney General) v. Sparvier, 2007 SKCA 37 (CanLII).

[20] C.P.A. 31 (2), 1992, S.O. 1992, c. 6.

[21] R.S.O. 1990, Chapter L. 8.

[22] MacMaster & Branch, Financing Class Actions, <http://www.branmac.com/go/download/classactions_financing.pdf> at p. 5.

[23] MacMaster & Branch, Financing Class Actions, <http://www.branmac.com/go/download/classactions_financing.pdf> at p. 5.