Canada: The Quebec Court Of Appeal's Decision In "Lorrain v. Petro-Canada": Mere Allegations Of Damages Are Insufficient To Authorize A Class Action

The Quebec Court of Appeal recently rendered its judgment in Lorrain v. Petro-Canada¹ and confirmed the decision rendered in 2011 by the honourable Michèle Lacroix of the Superior Court of Quebec² to reject a motion to authorize a class action.

Background

In 2008, the petitioner, Lorrain, who was subsequently joined by the Automobile Protection Association (APA), filed a motion to institute a class action and to be granted the status of representative in such action. The class for which they claimed representative status was defined as comprising individuals or companies employing fewer than 50 people in Quebec who, since 1999, had purchased gasoline at gas pumps controlled by the respondent oil companies. The motion alleged that the members of the aforementioned class were entitled to compensatory and punitive damages from the respondents for amounts paid in excess for gasoline, due to the incorrect calibration of the gas pumps that the respondents controlled.

The evidence submitted by the applicants in support of their motion was essentially based on statistics published by Measurement Canada, the federal agency responsible for the enforcement of the Weights and Measures Act and its regulations. For background purposes, this Act and its regulations enact standards for monitoring the accuracy of measurements carried out in the Canadian market, including those regarding the quantities of gasoline dispensed from gas pumps and the maximum margin of error permitted in the delivery of these quantities.

It was alleged that inspections conducted by Measurement Canada had revealed calibration errors on 8% of the sampled gas pumps, which errors were unfavourable to consumers in 6% of cases, while they were to the detriment of merchants in 2% of cases. This data was allegedly analyzed by an independent statistician whose results were subsequently published in a newspaper that reported that the incorrect calibration of the pumps was unfavourable to purchasers in 74% of cases.

It was this publication that led to the filing of the applicants' motion before the Superior Court of Quebec.

The Superior Court of Quebec

Pursuant to article 1003 of the Code of Civil Procedure (CCP), four criteria must be met in order for a Court to authorize a motion to institute class action proceedings.

At first instance, the Superior Court of Quebec held that the applicants failed to meet a first criteria for authorization, as the facts alleged did not "seem to justify the conclusions sought". This reasoning was notably based on the applicants' inability to demonstrate any direct harm: none of the submitted invoices showed that the applicants had purchased gasoline at any of the gas pumps which were found to have an unfavorable calibration error towards consumers as documented by Measurement Canada following its inspections. The Court further stated that the statistical demonstration made by the applicants that the purchasers of gasoline appeared to have suffered a prejudice was not sufficient to allow the class action to proceed as, under Quebec law, a mere possibilty of a prejudice cannot give rise to civil recourse in the absence of actual damages.

Thereafter, the Court determined that the class description was overly broad and did not allow for the identification of common questions regarding each class member's respective right of action. As such, it was not possible to analyze the respondents' liability on a collective basis and therefore another required criterion for the authorization of the class action was not met.

Finally, noting the lack of seriousness of the applicant, Lorrain (who had no interest in the class action and did not seem to understand the basis behind it), the Court concluded that he could not adequately represent the interest of the members of the proposed class. As for the second applicant, the APA, it could not claim that the interests of its designated members was related to the purpose for which it was originally constituted, nor that said designated members had a personal and direct interests in the class action proceedings.

Throughout its interpretation and application of the criteria for the authorization of a class action, the Court applied Article 4.2 of the CCP, which provides that legal proceedings must be proportionate with regards to costs and time, when balanced against their nature and purpose.

The Court of Appeal

The Court of Appeal confirmed the analysis of the trial judge and found that the Superior Court of Quebec had correctly applied the principle of Article 4.2 of the CCP in its analysis of the criteria for authorization, despite the appellants' contention to the contrary.

According to the Court of Appeal, the principle of proportionality applies to the motion for authorization to institute a class action as with any other proceeding. The Court held that the Superior Court had not erred in law by considering this principle in its analysis of the criteria for authorization:

In examining the application of the criteria for authorization, the Court of Appeal confirmed the decision of the trial judge to refuse to authorize the class action.

Indeed, the Court accepted that Lorrain was not an adequate representative and confirmed that he could not be replaced by the APA, since its designated representatives had not demonstrated that they had suffered any direct damages as a result of the faults alleged. The Court of Appeal found that the trial judge had correctly decided that the scope of the damages and the effect of the miscalibration of the pumps for each member of the class was too varied for any common issues to serve as a sufficient basis to justify the authorization of a class action.

More significantly, the Court found that the applicants had not demonstrated the appearance of a right and, in applying the principle of proportionality, the Court found that the proposal of the applicants that they should be allowed to prove their damages at trial should be dismissed. The Court of Appeal ultimately upheld the decision of the Superior Court of Quebec to reject the authorization of a class action brought on the basis of evidence purely premised on hypothetical statistics, the value and methods of which were strongly disputed by the respondents.

Conclusion

This decision seems to reflect the desire of Quebec courts to clarify the application of the criteria to be met for the authorization of class actions, as well as the principles that are applicable to it, in order to avoid the institution of frivolous, hypothetical, theoretical suits or suits that would otherwise be unlikely to succeed at trial.

Although this decision does not provide for the exact scope of the burden of demonstration resting on an applicant seeking authorization to institute a class action, it does confirm that it is necessary to at least demonstrate an appearance of direct damages suffered by the designated class representative. Mere allegations of damages or the possibility that there "may" be a group of people who "may" eventually be able to establish the existence of harm or the existence of damages are not sufficient grounds for authorizing a class action.

The criterion to the effect that "the facts alleged must appear to justify the conclusions sought". under the CCP does not specifically require that evidence of damages be presented at the authorization stage of a class action. However, based on this decision, it appears that in addition to demonstrating that the proposed class representative has a personal and direct interest, the class representative must also, at a minimum, be able to demonstrate that such harm appears to have effectively been suffered. In other words, the principle of proportionality militates against the authorization of class actions in respect of which the demonstration of a right of action is based on hypothesis or, as in this instance, uniquely on statistical evidence.

In conclusion, there is hope that this decision, through its clarification of the proportionality principle in Quebec class actions proceedings, will be relied on and followed closely in order to avoid the authorization of dubious class actions and thereby save valuable judicial resources which may otherwise be unfairly solicited for excessively onerous and time-consuming trials.

Footnotes

1 2013 QCCA 332.

2 2011 QCCS 4803.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

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