Consider the following: What if the plaintiffs could raise a cause for negligence without demonstrating or even claiming actual damage? And what if the remedy for this damages action was to worsen profits allegedly made by breach?
This may seem alien to American delinquency attorneys, but to Canadian litigants, this plea has a name, albeit a confusing one: delinquency. It is often referred to as a stand-alone, for-profit reason for action and is a source of frustration and controversy for our friends in the True North. Indeed, class certification, which is based on tort waiver, forces the defendants to face the prospect of disgorgation without demonstrating evidence that any class member actually suffered harm, even though these general claims never made in Canada have been fully checked. Canadian scholars have suggested that this uncertainty has the potential to unfairly advance settlement negotiations in a class context.
That is, until the Supreme Court of Canada got involved two weeks ago. In the Atlantic Lottery Corp. Inc v. Babstock, plaintiffs alleged that the video lottery terminal games (VLTs) operated by the defendant Atlantic Lottery Corp. Inc. (ALC) are inherently dangerous and misleading. The plaintiffs put forward three pleas – waiver of tort, breach of contract and unjust enrichment – and applied for certification of a class based, among other things, on waiver of tort. ALC decided to completely remove the class action lawsuit, but plaintiffs succeeded in obtaining certification. ALC then took the matter to the Supreme Court in Canada, marking for the first time that the viability of tort waiver as an independent plea was ripe for decision. The Supreme Court of Canada took this opportunity to “make a final determination as to whether the novel cause of action proposed by the plaintiffs exists under Canadian law”. Spoiler alert: it doesn’t.
The Court ruled that the plaintiffs could not rely on the waiver of tort as an independent plea. In fact, the Court made it clear that “this novel plea does not exist in Canadian law”. The Court ruled that disgorgation should be seen as an alternative remedy against certain forms of wrongdoing, but not as a separate plea. According to the court, the plaintiffs wanted to introduce a completely new category of negligent misconduct, which, however, did not require proof of damage. The Court has made it very clear that, while disgorgation is an adequate remedy for some forms of wrongdoing, it is not available as general harm in response to negligence: “Granting disgorgation for negligence without evidence of harm would lead to an appeal the resulting legal nothing and would be a radical and unexplored development. “
Ultimately, the Supreme Court of Canada fully upheld plaintiffs’ claims on the grounds that any claim made “does not reveal any reasonable cause for action.” In addition to rejecting the waiver of unlawful acts, the court also dismissed the plaintiffs’ claims for breach of contract, unjust enrichment and punitive damages. The court found that plaintiffs would need to demonstrate that ALC was enriched and that plaintiffs had been deprived in order to enforce their claims. Plaintiffs have not drafted a withdrawal justifying such loss of profit and have incurred the death penalty for their class action lawsuit.
Bottom line: Plaintiffs’ claims will not live to see another day, nor will they waive tort in Canada. We are not sad to see them go.
© 2020 Faegre Drinker Biddle & Reath LLP. All rights reserved.National Law Review, Volume X, Number 220