Canada: Procedural Fairness - Is It Getting Harder To Amend A Class Action Claim?

Last Updated: January 30 2015
Article by Angus T. McKinnon

Lawyers practicing class action litigation in Canada will be familiar with the constantly moving target of the amended Statement of Claim.  It is not unusual for a claim to be amended three or four times prior to the certification hearing or even while the matter is under appeal if certification fails.  There have been numerous instances where the Court itself suggests the amendment.  Now in a pair of recent decisions, Justices Belobaba and Perell may be signalling an end to the practice.

In his recent decision[1] in the long running battle between Pet Valu and a group of its former franchisees, Justice Belobaba refused to allow a last minute amendment to the claim citing prejudice to the defendant arising from the Court's role in encouraging the proposed amendment.

Pet Valu's franchisees commenced a proposed class action in 2009 alleging that the franchisor had failed to share with its franchisees volume rebates and discounts it had obtained from its suppliers.  The action was certified in 2011 following which an aggressive opt out campaign by a group of current franchisees lead  to all or nearly all of the current franchisees opting out (and an unsuccessful effort by the plaintiffs to have the opt out process set aside).  Pet Valu then moved for summary judgment on the seven certified common issues seeking the dismissal of the action on the basis that it had in fact shared its rebates and discounts with its franchisees.  When plaintiffs then changed their focus to argue that Pet Valu had falsely represented that its purchasing power was such that it could obtain significant value discounts, Justice Belobaba suggested that the plaintiffs seek to amend the claim and add a new common issue to include a claim that Pet Valu had falsely represented its purchasing power in its disclosure documents.  In an October 2014 decision[2], His Honour allowed Pet Valu's summary judgment motion dismissing the plaintiffs' claim relating to volume rebates but declining to dismiss the balance of the action until the hearing of the plaintiffs' motion to add the purchasing power complaint and his decision on two common issues that he had deferred determining following the original hearing.

In a surprising decision released January 2015, Justice Belobaba refused leave to amend the claim to add the purchasing power complaint despite finding that Pet Valu had misrepresented the significance of its purchasing power in its disclosure documents.  In doing so he found:

The defendant's motion for summary judgment should have been concluded in full without this court suggesting and encouraging this motion to amend the pleadings and add a new common issue.  Absent my judicial intervention, the summary judgment motion would have concluded and the defendant would likely have prevailed on most of the common issues.

I am therefore satisfied that there is actual prejudice to Pet Valu in respect of the proposed amendments and new common issue.  Pet Valu was in a position to obtain complete summary judgment on the existing common issues as well as a probable cost award against the representative plaintiff.  This would have ended the litigation.

Despite refusing to allow the amendment, Justice Belobaba proceeded to find in the plaintiffs' favour on the deferred common issues relating to the receipt of volume rebates and whether damages were payable for failure to disclose the low volume of rebates actually received finding that, "The point, however, is ... that Pet Valu was unable to obtain a meaningful or significant measure of volume discounts from its suppliers, contrary to what was represented in the disclosure document".

In the result, the plaintiffs were successful in the action albeit on a theory dramatically different from the one they had been pursuing for over four years.  What is significant about the decision, is the basis on which the plaintiffs' motion to amend was dismissed.  Relying on the Ontario Court of Appeal's 2011 decision in Marks v. Ottawa[3], Justice Belobaba found that the "court has a residual right to deny amendments where appropriate" and that the procedure leading to the proposed amendment was, in the circumstances, prejudicial to the defendants.

The question is what was Justice Belobaba up to?  Was he finding an ingenious means to bring the long running and highly adversarial litigation to an end while still finding for the plaintiffs or was he truly signalling an end to the at times judicially inspired, constantly moving target of amended claims in class action proceedings.  His Honour gives no hint in his reasons beyond his reference to a decision in the Quizno's Canada litigation[4] where Justice Perell referred to class action procedure being intended "to level the playing field, not tip the balance in the favour of plaintiffs."

In a decision released six days after the decision in Pet Valu, Justice Perell refused to permit certain amendments to the claim in the SNC-Lavalin securities litigation[5] citing procedural unfairness to the defendants.

The action was commenced in early 2012 and claimed damages for negligent misrepresentation and relief under Part XXIII.1 of the Ontario Securities Act.  The plaintiffs moved quickly to obtain the necessary leave to proceed with the Securities Act claim and to certify the action.  Defendants did not oppose the application with the result that leave was granted and the claim was certified.[6] The plaintiffs' claim alleged misrepresentations concerning SNC-Lavalin's payment of some U.S. $56M in bribes to secure foreign contracts.  Following leave being granted and the action being certified, the plaintiffs amended their Statement of Claim on three occasions.  When they sought to do so on a fourth occasion, the defendants objected arguing that many of the newly proposed allegations constituted allegations of misrepresentations different from those for which leave had previously been granted and that they were now time barred.

In his decision released January 13, 2015, Justice Perell sided with the defendants finding the plaintiffs' argument that the proposed amendments did not raise new causes of action to be "an exercise in sophism".  He found that many of the proposed amendments constituted misrepresentations different from those for which leave had been granted and that to permit the amendments would render the Securities Act leave requirement "illusionary and easily capable of abuse".  Because the time had expired for obtaining leave, the granting of the amendments would have been "procedurally unfair" to the defendants in His Honour's view.

It is too early to tell whether this pair of decisions will lead to reform in the "plead and amend" mentality of the plaintiffs' class action bar.  What is clear is that both decisions focused on procedural fairness and the rights of defendants recognizing those to be of the same value as the rights of the so-called absent class members.

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice.  If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

[1] 125064 Ontario Inc. v Pet Valu Canada, 2015 ONSC 29 (CanLII).

[2] 125064 Ontario Inc. v. Pet Valu Canada, 2014 ONSC 6056 (CanLII).

[3] Marks v. Ottawa (City), 2011 ONCA 248 (CanLII).

[4] 2038724 Ontario Limited v. Quizno's Canada Restaurant Corporation, 2010 ONSC 5390 (CanLII).

[5] Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2015 ONSC 256 (CanLII).

[6] Drywall Acoustic Lathing and Insultation, Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2012 ONSC 5288 (CanLII).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Angus T. McKinnon
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