Canada: British Columbia Court Of Appeal Restricts Waiver Of Tort

The British Columbia Court of Appeal has restricted the application of the doctrine of "waiver of tort" in its recent decision in Koubi v. Mazda Canada Inc. The Court held, in a unanimous decision, that alleged breaches of the Business Practices and Consumer Protection Act (BPCPA) and the Sale of Goods Act (SGA) could not provide the requisite "wrongdoing" for a claim in waiver of tort, and overturned the lower court's certification of the action. This decision is a significant blow to purported class actions based upon statutory causes of action where the plaintiffs cannot establish loss on a common basis.

Waiver of tort is a restitutionary doctrine that permits a plaintiff to recover the benefits a defendant has obtained by its wrongdoing instead of damages measured by the plaintiff's loss. The nature and scope of the doctrine is very controversial and has been the subject of much judicial and academic debate. It is routinely pleaded in class actions in an attempt to present damages as a common issue—based on the gains or benefits accruing to the defendant—rather than relying on damages to class members which, in most cases, requires individual proof.

In Koubi, the B.C. Court of Appeal conducted a detailed analysis of the waiver of tort doctrine and allowed the defendants' appeal from certification on the basis that the plaintiff's claims of waiver of tort premised on alleged statutory breaches did not disclose a cause of action. In resolving the issue at the certification stage, the Court drew support from the recent decision of Justice Lax in Andersen v. St. Jude Medical, Inc. (see Blakes Bulletin on Class Actions – Court Dismisses First Products Liability Class Action Tied to Verdict in Ontario) and, specifically, her observation that a full factual record after a common issues trial did not assist to illuminate the legal issues regarding waiver of tort. The Court in Koubi held that it was plain and obvious that the alleged breaches of the BPCPAandSGA did not provide the predicate wrongful act required for a cause of action based on waiver of tort.

Background

The plaintiff, Ms. Koubi, sought to certify a class action against Mazda Canada Inc. and Mazda dealerships on behalf of all purchasers and leasees of Mazda3 vehicles, alleging that the door locks installed on the vehicles for model years 2004 to 2007 were defective and did not protect against the possibility of keyless break-ins by way of a sharp kick to the door. A remedy for the issue was developed by Mazda and introduced to the assembly line in 2007. Remedial devices were also made available to Mazda dealers for installation into affected vehicles. Initially, however, Mazda did not issue a general notification to owners or leasees of affected vehicles of either the issue or the remedial device.

Ms. Koubi, who had leased a 2007 model Mazda3, contacted a representative of her Mazda dealership in October 2006 after hearing about break-in problems with Mazda3 vehicles. The representative denied any knowledge of the problem. In June 2007, she contacted Mazda Canada by email and was informed the following day that she could have a remedial device installed at her local dealership. Ms. Koubi had the remedial device installed in her vehicle without charge and never suffered a break-in or any other losses. In 2008, Mazda Canada advised owners and leasees of a Special Service Program to have the remedial devices installed without charge on all affected vehicles.

Ms. Koubi commenced a class proceeding in 2008, alleging that Mazda dealerships breached implied warranties contrary to section 18 of the SGA and that Mazda Canada had engaged in deceptive acts in its representations of the quality of the Mazda3 vehicles, contrary to sections 4 and 5 of the BPCPA. The claim did not seek the recovery of any losses suffered by individual owners, either losses associated with break-ins or the expenses associated with repairing damage to the vehicles or any loss of use. Instead, the claim sought restitutionary damages and the disgorgement of profits earned by the defendants on the basis of waiver of tort. Further, the plaintiff alleged that the class was entitled to recoup all profits earned by the defendants as a result of the sale and marketing vehicles that they allegedly knew were unfit.

The Supreme Court of British Columbia found that the requirements of the Class Proceedings Act had been met, and certified the action, including common issues related to waiver of tort.

B.C. Court of Appeal Decision

Although the appellants raised a number of grounds of appeal, Justice Neilson found that "this matter may be determined solely on the issue of whether Ms. Koubi's claim for restitutionary damages, disgorgement of profits, and waiver of tort, arising from statutory breaches of the SGA or BPCPA, discloses a cause of action." Ultimately, she determined that they do not.

Justice Neilson first addressed the issue of whether waiver of tort is an independent cause of action or a remedy. She described the significance of the distinction between these two as follows:

[I]f waiver of tort is only remedial, the plaintiff must prove all elements of the underlying wrong, including loss, before it may elect to seek benefits in the hands of the defendant. If it is an independent cause of action, however, the plaintiff need only prove wrongful acquisition of a benefit by the defendant before claiming disgorgement of that benefit.

She conducted a review of numerous British Columbia and Ontario authorities, noting that waiver of tort has been certified in many cases, but generally without a great deal of analysis of its scope or fundamental characteristics. There has been no judgment on the doctrine of waiver of tort rendered after trial. Given the unsettled case law, Justice Neilson concluded that the chambers judge had not erred in finding that Ms. Koubi has an arguable case that the doctrine may provide an independent cause of action and may, therefore, permit the class to recover the profits earned by the defendants without having to prove individual harm or damages. Notably, the Court of Appeal did not decide the issue either way but merely found that the chambers judge had not committed an error of law in holding that it is not plain and obvious that waiver of tort is not a distinct cause of action.

Justice Neilson next turned to the issue of the scope of the predicate wrongful acts that may ground a claim for waiver of tort, specifically whether it is limited to traditionally tortious conduct or whether allegations of statutory breaches of the BPCPA and/or SGAcan provide the predicate wrongdoing necessary for such a claim. The general rule is that there is no tort of statutory breach and no cause of action at common law to enforce statutory rights; they are enforced via the remedies expressly provided for by the statute. Where the statutory remedy is inadequate, there may arguably be a basis for a common law right of action, but when the statute is "exhaustive" in the sense that it is "an intent to provide a complete and comprehensive statement of the law governing a matter" and offers comprehensive regulation of the subject matter, a violation of a statutory right will not give rise to an independent civil cause of action.

Following a careful review of the legislative objectives and provisions of the BPCPA, Justice Neilson found that the BPCPA is an attempt to "provide an exhaustive code regulating consumer transactions, directed to both protection of consumers and fairness and consistency for all parties in the consumer marketplace." In concluding that the allegations of Mazda's statutory wrongdoing under the BPCPA does not give rise to an independent cause of action, she stated:

I discern nothing in the BPCPA to support the view that the legislature intended to augment its statutory remedies by permitting consumers to mount an action against a supplier for restitutionary relief based on the novel doctrine of waiver of tort. Such a conclusion is inconsistent with the express language of ss. 171, 172(3)(a) and 192, which clearly limit recovery for pecuniary loss to restoration of the consumer's own damages or loss arising from a deceptive act.

With respect to the claims against the Mazda dealerships under the SGA,Justice Neilson found that the SGAis not an exhaustive code, but claims for restitutionary damages, disgorgement of profits and waiver of tort are clearly inconsistent with the express provisions of the statute and the remedies provided therein.

As a result of the conclusions that she reached, Justice Neilson decertified the class proceeding against the defendants, stating that a review of the relevant legislation was sufficient to determine the legal issues and that it was not necessary to have an entire factual record.

Conclusion

Until recently, courts have been unwilling to conduct a summary appraisal of claims in waiver of tort, finding instead that since it is not plain and obvious that waiver of tort is not a cause of action, the action must be certified and the waiver of tort issue be resolved at a common issues trial on a full evidentiary record. However, the B.C. Court of Appeal decision in Koubi and the recent Ontario trial decision in Anderson v. St. Jude Medical, Inc. have brought this practice into question. Both decisions indicate that a summary appraisal of whether waiver of tort is a cause of action may be appropriate and the question may be determined on an application for certification. The Koubi decision is also a significant blow to future class actions for restitutionary damages premised on breaches of a statute rather than traditional tort claims, where the individual class members have suffered no loss or cannot establish loss on a common basis.

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