Posted on: 9/2/2011
Kathryn Chalmers, Andrew Cunningham
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Class actions are relatively new to Canadian courtrooms. With the exception of the province of Quebec, where legislation permitted a form of class proceeding as early as 1978, the first modern class actions law in Canada was Ontario’s Class Proceedings Act, 1992, S.O. 1992, c. 6 [CPA]. Within a few years of the passage of the CPA, class actions gained acceptance nationwide and they are now provided for in the legislation or rules of court of all ten Canadian provinces. In this article we discuss the evolution of class actions in Canada, as represented by the Ontario experience, with a critical eye on the broadening scope of class proceedings—a change that is arguably transforming the CPA into quasi-regulatory legislation, even though the adversarial court system is singularly ill-suited to such a purpose.
In order to understand how the CPA may have gone astray, it is important to understand the problems that it was originally intended to remedy. Returning for just a moment to 1990—the year in which the legislation was introduced into the Ontario legislature—we find unanimous and enthusiastic support from members of all three of the province’s political parties. Indeed, the primary criticism of the New Democratic Party government during the debate on the legislation was that it was too slow to enact its own legislation (an unusual complaint in a Canadian or any other legislature!). The enactment of the CPA was almost universally seen as an imperative largely because attempts in the 1970s and 1980s to fashion class proceedings out of existing rules of court had proven futile, leaving a number of clearly wronged claimants (typically consumers who had purchased shoddy products) high and dry. Comparisons were frequently drawn to the U.S., where similarly situated plaintiffs could vindicate their rights by means of class actions. Matters came to a head in the case of owners alleging a multitude of defects in General Motors’ Firenza automobile, whose lawsuit under Ontario’s century-old joinder rule was dismissed, principally on the ground that the proposed plaintiff class’ interests were not identical, as required under the rule. The Firenza litigation—General Motors of Canada Ltd. v. Naken, [1983] S.C.J. No. 9, [1983] 1 S.C.R. 72—presented a picture-perfect case for class actions: the proposed plaintiff class included thousands of “ordinary folks” who had suffered considerable inconvenience from an unreliable product sold by a multinational corporate defendant for which few felt much sympathy.
The plight of the Naken plaintiffs was raised repeatedly in the 1990–1992 Ontario legislative debates, along with Bhopal, the Dalkon Shield, and other examples of purported corporate irresponsibility that Ontario’s archaic joinder rule would clearly have been incapable of handling. The weight of such examples, and a general sense that, in comparison with Quebec and the U.S., the province was embarrassingly behind the times, appear to have been among the primary motivations behind the creation of Ontario’s CPA. Records of the debates suggest that relatively little attention was paid to the possibility that the legislation could be pressed into the service of causes less compelling than that of the Firenza owners. One member of the legislature did express policy concerns over the abolition of the rule against champerty (in order to allow for contingency fees, an essential element in a class actions regime) and about the possibility of “opening up the floodgates totally,” but, having done so, he immediately reverted to a discussion of 1970s-era “Unsafe at Any Speed” examples—in this case, not the rusty Firenza but the exploding Pinto. On the whole, therefore, Ontario’s legislators appear to have been eager to pass any legislation that would prevent a repetition of Naken. What else it might do was not a focus of their deliberations.
Given this legislative atmosphere, it is unsurprising that relatively little attention was paid to the interests of potential defendants. For example, a 1992 conference on the new legislation, entitled "Ontario’s New Class Proceedings Act: Are You Prepared?" and sponsored by the Law Society of Upper Canada (the governing body for lawyers in Ontario), featured only one speaker whose focus was on the effect of the CPA on defendants. Indeed, the CPA appears to have been regarded not purely as a procedural statute, neutral as between plaintiffs and defendants, but rather as legislation with the specific aim of assisting “little guy” plaintiffs to achieve not only justice but “behavior modification” against deep-pocketed corporate defendants. While this focus on plaintiffs may be understandable as a function of the fact that the CPA was drafted primarily in response to genuine weaknesses in the existing justice system, as illustrated by Naken, it arguably produced legislation whose impacts on corporate defendants, judges and the court system were not given the attention they deserved.
Indeed, after 20 years of vigorous advocacy by the class action plaintiffs’ bar, the CPA has been stretched, in our view, beyond what was contemplated by the legislature in 1990-92 and beyond what a reasonable conception of the demands of justice would require. In particular, expansive interpretations of waiver of tort, aggregate damages and cy pres damages distributions, among other developments, have occasionally (and increasingly) appeared to turn the courts into quasi-regulators—a function for which they are institutionally unsuited. They have also turned plaintiffs into “private attorneys general” and have arguably turned procedural legislation into something that significantly affects substantive legal rights. As a result of this tension between judicial and regulatory roles, the class action system may be at risk of providing neither good justice nor good regulation. We conclude that the best solution is to limit—and, to the extent necessary, reverse—the growth of the regulatory function of the courts under the CPA.
An Evolving Story: Ontario’s Class Actions Regime as a Regulatory Instrument
The Rise of the “Private Attorney General”
The CPA’s evolution as a quasi-regulatory statute is the result of a number of discrete steps that have collectively weakened the traditional links in the litigation process among parties, harm and remedy. Among these is a clear connection between the plaintiff’s instigation of an action and an (alleged) antecedent injury or loss to the plaintiff. Under the CPA, the plaintiffs’ role as “driving force” of an action (having already been formally delegated in the legislation to a “representative plaintiff”) has often in practice been usurped by the plaintiffs’ class action counsel. Traditionally, a representative plaintiff or a lawyer who assumed such a role would have risked running afoul of rules against champerty and maintenance, but the CPA exempts class actions from those prohibitions, following a contemporary trend (also seen in the acceptance of “intervenors” in constitutional law cases) toward allowing a greater role in the litigation system to those whom Anglo-Canadian courts might once have derided as “officious.”
While champerty and maintenance may sound obscure, they reflect a fundamental conviction that civil suits are intended to provide parties with an orderly means of resolving disputes that have affected them to the point that they are motivated to seek such a resolution. Traditionally, the principal exceptions to the idea that the “injured” party itself ought to be the motivating force of legal proceedings have been criminal and regulatory law. In criminal law, for example, misconduct serious enough to strike at the fabric of the social order is prosecutable by the state (through the agency of the Attorney General) with little or no regard for the opinions or wishes of the party or parties alleged to have been directly harmed, and usually without a compensatory element. Regulatory law deals similarly with conduct that, while not necessarily bad in itself or the product of an “evil mind”, nevertheless also causes (or has the potential to cause) harm to health or social order in the context in which it takes place. That the CPA might turn the courtroom into a place in which private parties could pursue what were essentially regulatory goals was clearly the concern of Ian Binnie, Q.C., (a prominent Toronto litigator later appointed to the Supreme Court of Canada) when he observed at the Law Society of Ontario’s "Are You Prepared?" conference that the representative plaintiff contemplated under the new Act amounted to “a kind of private Attorney General” who would “perform a quasi-regulatory function.”
To the Ontario legislators of all parties who supported the CPA, allowing the representative plaintiff to assume an “attorney general” role undoubtedly sounded sensible insofar as it permitted the courts to deal more effectively with situations similar to Naken. So conceived, this private attorney general would have would have been limited to playing the part of a “litigation quarterback” who would overcome the traditional “co-ordination problem” among defendants by bringing before the court a wrong that had created a broadly distributed, but individually small, harm (doing so on behalf of others who had been harmed by it but who, like him or her, did not suffer a loss sufficiently large to justify the cost of a court action on an individual basis). Unless such a representative plaintiff were (improbably) unlucky enough to suffer a second such injury, he or she would not likely be a recurring participant in class actions and would not be in any danger of becoming, over time, a private attorney general in the much broader sense of a maker and implementer of policy who—among other things—is trusted by society with the exercise of prosecutorial discretion.
What has actually transpired, however, is not quite what the future Justice Binnie foresaw. The attorney general function has not been filled by the representative plaintiff so much as by his or her counsel, who is typically a member of the specialist class actions bar that has developed since 1992. One consequence that we might expect to result from this is that, through repeated involvement in instigating and litigating class actions, such plaintiffs’ counsel would progressively push the limits of the CPA, arguing for reduced burdens of proof and relaxed standards for awards of damages—a campaign that could be expected to enjoy better than average success given that it related to a novel and untested area of law. The pressure applied by determined class counsel would be (and has been) particularly effective in the case of the CPA, which in the view of many (including many judges) exists to a significant degree for the express purpose of helping “little guy” plaintiffs to impose behaviour modification on “bad guy” corporate defendants.
Waiver of Tort: As Courts Waver, Defendants Settle
As a consequence of rulings giving ground to the expansive arguments of plaintiffs’ counsel, the traditional burdens of proof and standards for awarding damages have shown signs of wear. The rise of the “waiver of tort” doctrine—which if established in Canadian law would considerably relax standards of proof in class action negligence cases, among others—is an excellent example. Waiver of tort can be traced back through the centuries to the common law form of action called assumpsit, but it stepped into the class actions limelight only in 2004, when Justice Cullity identified it in Serhan Estate v. Johnson & Johnson, 2004 CanLII 1533 (ON S.C.), as the proper legal characterization of that aspect of the plaintiffs’ claim that attempted to establish liability in the absence of proof of individual reliance and damages. Because waiver of tort has those characteristics, and because it would also arguably relieve the plaintiff of any requirement to prove a loss, the job of plaintiffs’ class action counsel would be made much easier were it to be recognized as an independent cause of action. But at the same time it made the plaintiffs’ case easier to establish, waiver of tort would shift the class action regime further into the quasi-regulatory realm, with defendants required to pay “damages” (in addition to substantial legal fees) in the absence of proof of harm or loss to any member of the plaintiff class.
In his 2004 ruling, issued in the context of a certification motion, Justice Cullity acknowledged only the bare possibility that waiver of tort could constitute a stand-alone cause of action (a decision upheld in 2006 by a divided divisional court panel). Because Serhan subsequently settled before the common issues were determined, counsel are still waiting (as of mid-2011) for a Canadian court to definitively decide whether waiver of tort is, or is not, an independent cause of action. (Serhan v. Johnson & Johnson, 2011 ONSC 128 (CanLII) (“Serhan settlement”)) Although there is reason to doubt that such an unorthodox cause of action will ultimately be sustained, real-life defendants still must decide whether to invest the time and money required to defend a waiver of tort claim that, if successful, would give the plaintiff class the advantage of skirting most of the usual requirements of proof in negligence law (and which, if unsuccessful, would likely still cost the defendant years of effort and a considerable amount of money). The natural result, for corporate defendants that put a premium on certainty, is settlement.
By way of digression, it is important to note that the waiver of tort issue illustrates a key problem that can arise whenever courts become quasi-regulators. The uncertainty and duration of the litigation process, combined with its considerable up-front costs (in both defence-related expenses and publicity) create a “vicious circle” in which risk-averse (and typically deep-pocketed) corporate defendants, unable to evaluate the strength of their legal position with sufficient confidence to proceed to trial, settle at an early stage, thereby perpetuating the very doctrinal indeterminacy that motivated the settlement. Looked at another way, one could say that the CPA has replaced a plaintiff-side coordination problem with a defendant-side coordination problem. Before the CPA was enacted, there was often no practical means by which plaintiffs could cooperate in the litigation of broadly distributed harms – a problem that the CPA has solved, but only at the cost of incentivizing defendants faced with novel claims (such as waiver of tort) to settle without resolving the novel issue. They are incentivized to do so because it is unlikely to be in the individual interest of any particular defendant to take such a claim through a trial and years of costly appeals, even though it would be very much in the interest of all such defendants and potential defendants collectively that one of them should do so.
About the authors: Kathryn Chalmers is a partner and Andrew Cunningham is an associate at Strikeman Elliott LLP, Toronto, Canada. Stikeman Elliott LLP is one of Canada's leading business law firms, with offices in Toronto, Montreal, Ottawa, Calgary and Vancouver, as well as in London, New York and Sydney.
Excerpted from and reprinted by permission of LexisNexis Canada Inc., from the Class Action Defence Quarterly, edited by Kathryn Chalmers. © 2010/2011