Canada: Consumer Class Actions: BCCA Limits Availability Of "Waiver Of Tort" Claims But Expands Jurisdictional Reach In Conspiracy Claims

Last Updated: February 14 2013
Article by Laurie Baptiste

Most Read Contributor in Canada, September 2018

Introduction

The SCC recently dismissed two leave applications from important (but unrelated) decisions of the BCCA in the consumer class action realm. One decision, in a rather noteworthy step, engages in an extensive analysis of and narrows the availability of the "waiver of tort" doctrine in claims based on alleged breaches of consumer protection type legislation.

The second decision is significant from a jurisdictional point of view and also because it ties in with certain potentially pivotal cases on indirect purchasers which will be heard by the SCC later this year. It permitted a class action alleging a competitive conspiracy resulting, ultimately, in consumers paying higher prices in BC. The action was allowed solely on the basis that there was alleged damage to the purchasers in BC. Notably, there was no allegation of any wrongful conduct in, or any other real or substantial connection to, BC.

Koubi v. Mazda – Limitations on Waiver of Tort

This action arose from defective door locks installed in certain Mazda3 vehicles. The appellants, Mazda Canada, the distributor of the vehicles in Canada, and the authorized Mazda dealers in BC, who sold or leased the vehicles to the public, sought to set aside the certification order.

The focus of the appeal was whether Koubi's pleadings disclosed a cause of action. That issue turned on whether statutory breaches of certain consumer protection legislation could provide a foundation for a claim in waiver of tort for restitutionary damages and disgorgement of the defendants' profits. Madam Justice Neilson, for the Court, found they could not and allowed the appeal, decertifying the waiver of tort claim.

Neilson J. noted that waiver of tort is an emerging restitutionary doctrine that permits a plaintiff to recover benefits a defendant has obtained by its wrongdoing instead of damages measured by the plaintiff's loss. She discussed the doctrine at length, from its relatively recent origin to ongoing academic and judicial debate over the precise nature and scope of the doctrine – whether it merely provides an alternative remedy after a plaintiff has established all the elements of an actionable wrong or whether (as Koubi claimed) it can be an independent cause of action, requiring the plaintiff to prove only a legal wrong by the defendant and a benefit flowing to the defendant as a result.

Neilson J. also discussed what type of wrongful acts could ground a claim for waiver of tort, acknowledging the great uncertainty in this area – whether they were confined to tortious wrongs or extended to any legal wrong by a defendant. Koubi's claim was rather unique in that the only predicate legal wrongs she alleged were the statutory breaches.

After a detailed analysis, Neilson J. fashioned some limitations and clarified when there would be "no hope of success" for such a claim. Specifically, she clarified that the "critical question" of whether statutory breaches would entitle a plaintiff to a restitutionary remedy could only be answered by a close examination of the legislation and its intent. The restitutionary remedy would only be possible if the legislation was not an "exhaustive code" on a given matter or if the provisions at issue were not inconsistent with a claim for restitutionary damages.

An earlier post on Koubi was penned by my colleague and can be read here.

Potential Significance

In concluding remarks, Neilson J. noted many decisions acknowledged the need for eventual restrictions on the ambit of this new doctrine. This decision makes some strides in that regard, at least where "the legal wrong allegedly grounding a waiver of tort claim is limited to a statutory breach and the legislation from which it emanates provides exhaustive or exclusive statutory remedies for that breach". Her decision also suggests there is a role for the legislature in developing the doctrine.

So far, Koubi v. Mazda has been relied on by the ONSC (in Frank v. Farlie), as support for the conclusion that it was "plain and obvious" that an (analogous) claim of punitive damages could not succeed as it was based only on the predicate wrongdoing of a breach of the Ontario Securities Act, which clearly precluded punitive damages.

De Beers v. Fairhurst – Expansion of Jurisdictional Reach in Conspiracy Claims

This case involved allegations of a criminal anti-competitive conspiracy of (what the court called) historic and global proportions. The plaintiff alleged that she and other residents of BC "directly or indirectly" purchased hundreds of millions of dollars of diamonds manufactured and distributed by the defendants. She alleged the defendants conspired to fix prices illegally, resulting in class members paying more than they otherwise would have and suffering damage. (The plaintiff also claimed, in the alternative, restitution based on waiver of tort, but that was not at issue in this case).

The defendants disputed the BC Court had jurisdiction over the matter. Notably, the only BC "connections" asserted were that the class members were resident in BC and incurred damage there. Otherwise, only one corporate defendant had some (tenuous) connection to BC via extra-provincial registration there, but it did not carry on business there and had never sold diamonds directly in or into BC. No defendant was involved in any stage of production beyond selling "rough diamonds", several levels removed from any activity in BC including ultimate sale to consumers.

The law on territorial competence in BC has been codified in the Court Jurisdiction and Proceedings Transfer Act (the Act) but both that Act and the common law mandate application of the "real and substantial connection" test and set out certain circumstances which constitute the requisite connection, including if the proceedings concern a tort committed in BC (one of the central issues in this appeal).

Newbury J., for the Court, found there was a "good arguable case" that any conspiracy entered into or formed abroad that fixes prices (ultimately) in BC, creating loss and injury in BC through artificially higher prices, gives rise to the tort of civil conspiracy in BC. She found there was a presumption that any price-fixing scheme would cause damages to the ultimate purchasers. Newbury J. noted that in negligent manufacture cases, damage was an essential element of the tort and there is jurisdiction over the tort where the damage occurs. She found similar reasoning had been adopted in cases of alleged conspiracy by courts in Ontario, BC and Quebec.

Potential Significance

This decision raises concerns about its potential to create an "unbounded jurisdiction test" under which a plaintiff need only vaguely plead a conspiracy to establish territorial competence. There is also the potential for plaintiffs to try to extend the reasoning in De Beers to other tort claims such as negligence, as occurred (albeit unsuccessfully) in Central Sun Mining Inc. v. Vector Engineering Inc.

Despite the SCC dismissal of the application for leave in De Beers, this issue is bound to be the subject of further debate. An important and major assumption made by the court in De Beers is that the "situs" of a tort is, at least in claims of conspiracy, the location where the damage is sustained. The BCCA noted the recent SCC decision in Club Resorts Ltd. v. Van Breda, and that it set out four "presumptive connecting factors" giving rise to jurisdiction in tort cases, including that the tort was committed in the province. However, it is interesting what was not mentioned – that in Van Breda, the SCC expressly warned that the jurisdiction in which damages have been sustained does not serve as a reliable indicator of a real and substantial connection – the problem being that this would "risk sweeping into that jurisdiction claims that have only a limited relationship with the forum". As a result, the SCC held that "presumptive effect cannot be accorded to this connecting factor", i.e., the location where damage is sustained.

Finally, Newbury J. also noted that a separate motion as to whether the pleadings disclosed a cause of action was being held in reserve until the SCC decides appeals later this year in two "indirect purchaser" cases also out of BC – Sun-Rype Products Ltd. v. Archer Daniels Midland Company and Pro-Sys Consultants Ltd. v. Microsoft Corporation. Both of these cases note that this question has been left wide open in Canada and the finding in both was that "indirect purchasers" do not have a cause of action to claim for the overcharges.

Case Information

Koubi v. Mazda Canada Inc., 2012 BCCA 310

SCC Docket No: 35017; leave to appeal dismissed on January 17, 2013

Fairhurst v. De Beers Canada Inc., 2012 BCCA 257

SCC Docket No: 34964; leave to appeal dismissed on January 17, 2013

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