Class action legal landscape in Canada is maturing

Class action lawsuits appear to be an increasingly pervasive force in today’s business world, with organizations of all stripes, from top publicly-traded companies to small regional enterprises, looking over their shoulders, anxiously watching an ever-evolving legal landscape to see where things are heading next.

And it’s not necessarily looking good as recent rulings appear to be favouring consumers, and not companies.When a deeply divided Supreme Court of Canada recently held that disgruntled customers in British Columbia can launch class action proceedings even though the fine print of their contracts calls for disputes to be settled through private and confidential mediation and arbitration, it seemed that the long-awaited decision in Seidel v. TELUS Communications Inc. 2011 SCC 15 was but the latest in a growing line of cases that highlights the growing exposure Corporate Canada faces over class action proceedings.

No less than 95 new class actions were filed across the country last year, 47 alone in Quebec, a trend that shows no signs of abating as 17 new class actions were launched in the first three months of this year, according to the Canadian Bar Association’s National Class Action Database. In 2005, only 29 class actions were filed, prompting some legal observers to speculate that the Canadian class action legal landscape is beginning to follow in the footsteps of the United States where a staggering 30 per cent of U.S. companies had a class action filed against them in 2009, revealed a report published in the legal publication L.A. Daily Journal. Statistics from the U.S. Federal Judicial Center suggest that new class action cases filed in or removed to federal court increased 72 per cent between 2001 and 2007, reaching approximately 4,000 to 5,000 annually as of mid-2007 (the last period for which data are available).

“What we’re seeing is an extension of what’s been happening in the U.S. for decades,” remarked Adrian Lang, a partner specializing in class actions at Stikeman Elliott in Toronto. Indeed, class actions are now stretching their reach beyond traditional areas such as consumer protection and product liability, and have begun targeting, with growing success, areas once deemed unassailable such as securities, competition law and employment law as well as franchisors and polluters. “All we’re seeing is the evolution of a healthy and robust plaintiff class action bar, and so an increase in the types of claims we see,” added Lang.

Class actions OntarioMore worrisome still for in-house counsel is the shifting legal landscape, with rulings particularly emanating from Ontario and British Columbia courts that appear to have lowered the bar for certification. That certainly appears to be the case with securities class actions. When an Ontario Superior Court certified this past March a $165-million class-action against Arctic Glacier Income Fund by investors who suffered losses after a U.S. antitrust investigation, it was the latest of the first generation of cases that examined relatively recent investor protection legislation. While Bill 198, the Ontario statutory remedy for secondary market liability, has been in force for more than five years, the Dobbie v. Arctic Glacier Income Fund et al, 2011 ONSC 25 case marked only the second time that a securities class action has been given the green light under the new legislation.

In the first Bill 198 action, a groundbreaking case that still has legal circles buzzing, Ontario Superior Court Justice Katherine M. van Rensburg in Silver v. Imax Corporation, 2009 72342 by all accounts setting a low bar, ruled that directors and officers were required to answer every question relevant to allegations made in the draft claim, and certified common law misrepresentation claims alongside statutory claims. Before Bill 198 was enacted it was “very difficult” to certify common law misrepresentation claims because each member of the proposed classcom had to establish that they read and relied on the alleged misrepresentation, noted Alexandra Kindbom, a senior vice-president at insurance broker and risk advisor Marsh Canada Ltd. The Imax Corp. ruling is also “problematic” because it may lead to the disclosure of confidential corporate information at a “very preliminary stage” in proceedings, adds Kindbom. “The problem of course is with that kind of early disclosure, particularly if there are concurrent proceedings, litigants can go on a fishing expedition and go to Canada to obtain information to use it in other proceedings, particularly in the U.S.,” said Kindbom, a non-practising lawyer. “That was a decision that was not terribly beneficial to corporations in Canada that potentially face this type of litigation.”

Franchisors in Canada too are concerned. Though franchise disputes are well suited to be resolved through alternative means of dispute resolution, franchisees will more than likely be pursuing class proceedings in the future, asserts Jennifer Dolman, a partner with Osler, Hoskin & Harcourt LLP who specializes in franchise litigation for franchisors. A frail economy, franchise-friendly provincial legislation that aims to counteract a “power imbalance” between franchisors and franchisees, and an often-cited passage by the Ontario Court of Appeal in Quizno’s Canada Restaurant Corporation v. 2038724 Ontario Ltd., 2010 ONCA 466 that declared that “a dispute between a franchisor and several hundred franchisees is exactly the kind of case for a class proceeding” will likely fuel growing numbers of franchise class proceedings. So too will a ruling by the Ontario Court of Appeal in 405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478 that confirmed that the statutory right of association in s. 4 of the Arthur Wishart Act includes the right to bring a class action in relation to alleged systemic breaches by franchisors. The TELUS ruling by the SCC also appears to have given more ammunition to franchisees seeking certification, as it will give litigants a greater opportunity to “attack the arbitration process” and pursue their disputes before the courts, said Dolman.

“Franchisors are worried,” noted Dolman. “The franchise model lends itself well to what the courts are looking for by way of common issues. The courts also very much see their role when it comes to franchises to ensure that the power imbalance is redressed as much as possible thanks to the Arthur Wishart Act. So the body of jurisprudence that has been built up under the Arthur Wishart Act is a perfect foundation for franchise class actions. It is the perfect mesh.”

But while a growing number of suits have been certified and the common features of a franchise agreement may work to a franchisor’s detriment in resisting class action certification, franchisees “should not assume” that they have victory in the bag or that a handsome out-of-court settlement is within reach. Though a trial date has yet to be set for any franchise class action suit, Dolman believes that franchisors are prepared to “fight things” on their merits. “It’s going to be very determinative when we get that first trial,” said Dolman.

Competition class actions also face a lower bar. Coming on the heels of amendments to the federal Competition Act, which removed some hurdles antitrust class action plaintiffs faced, rulings by Ontario Superior Court and the B.C. Court of Appeal veered away from a well-entrenched body of Canadian certification decisions in competition class actions. Indeed, while plaintiffs have been successful in negotiating several settlements, only a handful of antitrust class actions in Canada proceeded to a contested certification motion, and in virtually all cases the courts denied certification. Anti-trust class actions rarely got off the ground because plaintiffs were seldom capable of making a case that demonstrated on a class-wide basis that an overcharge paid by direct purchasers was absorbed or “passed through” or “passed on” from the direct purchaser down through the chain of distribution to indirect purchasers.

Now all that has changed. In both Irving Paper Ltd. v. Atofina Chemicals Inc., [2009] O.J. 4051 (S.C.J.) and Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503, the courts appear to have lowered the applicable threshold used in the assessment of a plaintiff’s proposed expert evidence, side-stepped the issue of pass-through, and essentially deferred to the trial judge. Moreover, neither court required the plaintiff to demonstrate liability as a common issue for all members of the class. “Competition class actions in the last couple of years have suddenly been certified where they hadn’t been certified before,” observed Lang. “They were viewed as one of the last areas where defeating certification was quite likely, and then we started to see the trend go the other way – and now they are quite likely to be certified.”

Class actions QuebecExcept in Quebec. Though the Quebec Court of Appeal was beginning to demonstrate signs that it was putting to rest the province’s deserved reputation as a class action haven, it was not until a landmark ruling that raised the bar for certification in competition class proceedings that this was made plain. In a ruling praised by class action defence lawyers and bemoaned by class action plaintiffs, the court held in Harmegnies c. Toyota Canada inc., 2008 QCCA 380 that it is not enough for class action plaintiffs to establish an alleged infringement of the Competition Act. Plaintiffs instead must also demonstrate prime facie that the representative plaintiff and those he or she intends to represent also suffered a loss due to the alleged infringement. The appeal court held it is essential to demonstrate the collective nature of the damages suffered, pointing out that a class action is not appropriate where it would give rise to “a multitude of small trials “The jurisprudence in Quebec has evolved, and it can no longer be said that Quebec is a class action haven,” said Jean Saint-Onge, a Montreal class action expert. “Even if it is easier to launch class actions in Quebec, making it more accessible to consumers and by reducing the procedural barriers, the Quebec Court of Appeal has adopted a more rigorous approach to certification.”

All of which leads Ward Branch to conclude that the class action legal landscape in Canada, while still evolving, is maturing. The signs are evident: the overwhelming majority of class action suits are either launched or defended by a handful of law firms, “crazy and unique actions” are a thing of the past, and there is now “relative equality” in the tests for certification across the all provincial jurisdictions, argues Branch, a leading class action lawyer with Branch McMaster LLP. In yet another unmistakable sign of a “maturing market,” Branch out points that defendants are now even beginning, in certain types of cases, to consent to certification, something that was “absolutely unheard of” previously. “There have been periods in the past when one province has been very liberal and another province very conservative but I don’t see that right now,” said Branch. “There are some new areas that people are testing but even there it’s starting to settle down a little bit, like securities class actions. Defendants will probably fight a few more of them to make sure but then they will be consenting to certification.”

As Canada’s class action matures, in-house counsel have to ensure their organization adapts accordingly. If one goes by recent cases, corporate counsel need to batten down the hatches and prepare for a storm of class actions going forward.

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