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The Ontario Divisional Court heard an appeal of the decision in Serhan Estate v Johnson and Johnson1 to certify a product liability class action. The motions judge held that the material facts pleaded could sustain an action based on the equitable doctrine of waiver of tort. Significantly, the motions judge found that proof of loss would not be required in such a claim. The Divisional Court upheld the appeal by a 2-1 margin, and both the Ontario Court of Appeal and the Supreme Court of Canada denied leave to appeal.
Facts
The claim in Serhan relates to defective blood glucose meters and testing strips used by diabetics to monitor their blood glucose levels. These were manufactured by LifeScan Inc, a wholly owned subsidiary of Johnson and Johnson. The defective meters failed to indicate high blood glucose levels, but instead indicated that an error had occurred. The defective strips resulted in erroneously low readings if they were incompletely inserted by one 15,000th of an inch or more. These problems were resolved by LifeScan in 1997 and 1998.
By the late 1990s a number of US federal agencies, including the Food and Drug Administration and the Department of Justice, had commenced investigations into LifeScan with respect to these products. In December 2000 LifeScan entered into a plea agreement with the prosecution and admitted knowledge of the defects dating back to 1993. Pursuant to the plea agreement, LifeScan paid a fine of US$29.4 million.
The Ontario plaintiff in this case sought damages for:
- negligence;
- negligent and fraudulent misrepresentation;
- breach of Section 52(1) of the Competition Act; and
- conspiracy to manufacture, sell and distribute defective products in Canada.
The plaintiff sought to have all the revenue generated from the sale of the defective products held in a constructive trust for the benefit of the class. It also asked for an accounting order and an order for the disgorgement of all such revenue.
Absence of Evidence of Loss
Critical to any action in tort is proof of damages. One of the primary issues in Serhan was whether a cause of action could be recognized in the absence of evidence of injury or damages. As stated by the motions judge: "[t]here is... virtually no evidence that either of the representative plaintiffs, or any other members of the putative class, suffered any injurious effects to their health by using the meter or the strips other than the pain involved in obtaining additional blood samples".2 Moreover, as a function of Canada's public healthcare system, there was "no evidence that any other member of the putative class actually paid for either the meters or the strips".3
Waiver of Tort
Waiver of tort, as it was described by the motions judge when citing a US decision, is a cause of action that is said to turn on whether the defendant:
"unjustly enriched itself by doing a wrong to [the] plaintiff in such manner and in such circumstances that in equity and good conscience [the] defendant should not be permitted to retain that by which it has been enriched."4
Justice Cullity conceded that the existence of such a tort in Canada was debatable. However, he noted that the standard for striking out a pleading is high. He observed that emerging causes of action should not be struck out before they are factually developed. A successful plaintiff claiming waiver or tort would obtain the financial benefit that accrued to the defendant as a result of the defendant's wrongful actions. Despite waiver of tort not being specifically pleaded, he found in the statement of claim allegations of material fact "that, if proven, could entitle the plaintiff to remedy on the basis of the doctrine".5
The availability of waiver of tort as a cause of action would significantly alter the legal landscape of product liability actions in Canada. Damages are an essential component for traditional tort claims. If the decision of the motions judge is upheld, a plaintiff who is unable to prove damages would nevertheless be able to proceed with his or her claim on the basis of this doctrine. Moreover, a successful claim could result in an award that is disproportionately large in comparison to the actual loss, thereby creating a windfall for the plaintiff. Finally, in the context of class actions, proof of loss is typically tried as an individual issue. Significantly different individual damage claims can derail a class action. The right to proceed without proving damages would enlarge the potential for class actions. If this cause of action is ultimately accepted, a waiver of tort would broaden the availability of class actions and significantly reduce the expense of litigating a class action for plaintiffs.
Ontario Court of Appeal Granted Leave to Appeal
The defendant sought and obtained leave to appeal the motions judge's decision. In the Ontario Court of Appeal Justice Ground granted the motion for leave to the Divisional Court. He formulated the issue as whether:
"waiver for tort constitutes a cause of action in its own right or is a principle which is applied to the choice of a plaintiff, having established an actionable wrong, to seek a remedy by way of restitution, disgorgement or an accounting rather than by way of damages to compensate the plaintiff for his or her loss."6
He conducted a review of case law from Canada and the United Kingdom, as well as various scholarly authorities. He found that Cullity's decision was in conflict with other decisions that have held that the waiver of tort is "a choice of remedies after an actionable wrong has been established."7
Divisional Court Upheld Motions Judge's Decision
The appeal was subsequently heard by the Divisional Court. Justice Epstein, writing for the 2-1 majority decision, found that Justice Cullity had not erred:
"Cullity J. was therefore correct in concluding that the issue of whether waiver of tort is an independent cause of action should be resolved in the context of a factual background of a more fully developed record."8
Justice Chapnik, dissenting, agreed on the point:
"As observed in detail by Epstein J., given the present unsettled nature of the jurisprudence in this area, there appears to be no reason why waiver of tort could not be recognized as an independent restitutionary cause of action in Canadian jurisprudence." 9
Both the Ontario Court of Appeal and the Supreme Court of Canada denied leave to appeal the Divisional Court's decision. The proceedings have thus far left open the possibility that waiver of tort may constitute an independent cause of action.
Footnotes
1 (2004) 72 OR (3d) 296 (SCJ).
2 Ibid, para 12.
3 Ibid, para 16.
4 Ibid, paras 34 and 35, quoting Maddaugh and McCamus, The Law of Restitution (2nd edition, 2004), at page 739.
5 Ibid, para 34.
6 Serhan Estate v Johnson and Johnson [2004] Careswell Ont 4511 (Div Ct) at para 4.
7 Ibid, para 7.
8 2006 CanLII 20322 (ON S.C.D.C.), para. 69
9 Ibid, para. 195.
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