Canada: New Class Actions

Last Updated: July 3 2017
Article by Jennifer McKenzie

The Consumer Law Group, a Canadian law firm, has recently launched three new national class action lawsuits in the field of product liability, privacy and consumer protection. These class actions demonstrate a trend that we touched on earlier namely, that they are playing an increasingly significant watchdog role. They also demonstrate that the country, whose identity is often wrapped up in the word "sorry", may no longer be able to boast that it is not litigious.

WEN Hair Care Products

Following on the heels of the U.S. class action deadline to opt out or object to the settlement (February 10, 2017), a class action was issued in Ontario Superior Court on February 17, 2017 against the makers and marketers of the WEN Hair Care Products alleging, among other things, breach of the Competition Act, the Consumer Packaging and Labelling Act and Food and Drugs Act.

WEN hair care products became popular through infomercials featuring Allysa Milano and Brooke Shields, two celebrities known for their lustrous manes. The manufacturers made several performance claims including that "WEN is gentle enough to use every day", "WEN isn't like an ordinary shampoo so you want to use more of it, not less" and will leave give "fuller, stronger, healthier-looking hair". However, starting at early as 2011, consumers reported adverse events from the use of the products including hair loss and breakage and irritation to the scalp and skin and even eczema, dermatitis and blistering.

In July 2016, the USFDA announced its investigation following receipt of "the largest number of [safety] reports ever associated with any cosmetic hair cleansing product." However, U.S. litigators had already taken action ahead of the regulators by commencing a class action in December 2015. Based on a settlement of the U.S. class action, a total of $26,250,000 USD is available to fully settle and release claims of U.S. consumers who purchased and/or used WEN hair care products. The deadline to submit a Tier 1 (purchasers of the product) or Tier 2 (those alleged to have suffered personal injury including hair loss, hair damage, scalp irritation and emotional distress) claim form was April 28, 2017. The flat rate amount available to Tier 1 claimants is $25 USD, however, if the number of claimants exceeds $5,000,000 allotted fund for this Tier, then the amount will be shared pro rata. The maximum amount for Tier 2 claimants is $20,000.00 USD. The final approval hearing before the U.S. District Court for the Central District Court of California was June 5, 2017.

Now Canadian consumers have their turn to seek damages for harm suffered from the claims. The Canadian law suit is based, in part, on section 36 of the Competition Act, which gives a private right of action to recover loss or damages incurred as a result of conduct contrary to Part VI of the Act. Under section 52 of Part VI, it is a criminal offence to knowingly or recklessly make a representation to the public that is false or misleading in a material respect for the purpose of promoting the use of a product. The lawsuit alleges that the defendants made the representations about the safety and efficacy of the WEN hair care products.

Amazon

In March 2017, a class action was commenced against Amazon and related companies in the Ontario Superior Court of Justice for charging and collecting federal and/or provincial sales tax on goods for which sales tax does not apply, and for making false, misleading and deceptive representations that certain goods were subject to federal and/or provincial sales tax when they were not.

In Canada, federal and provincial laws regulate whether a particular product or category of products is subject to federal and/or provincial tax. The goods with a zero tax rate federally are principally food and beverage products defined as "Basic Groceries" and "Other Products" namely, products marketed exclusively for feminine hygiene. Separately, provinces identify goods for which sales tax does not apply. For example, children's clothes and children's footwear are not subject to tax in certain provinces.

"Basic Groceries" are defined as those food and beverage products purchased for human consumption but exclude items such as alcohol and snack foods such as candy, chips, and fruit bars or similar fruit-based snack foods). Regarding "Basic Groceries", the claim alleges that on October 31, 2013, Amazon launched a "Grocery and Gourmet Food" section on amazon.ca, where it initially offered 15,000 non-perishable, non-refrigerated grocery products. In the launch year, Amazon had sales of over $1.5 billion, with a market share of 7% of total online sales, and has grown exponentially since then.

The claim alleges that Amazon's tax collection practices are at odds with applicable sales tax laws, and that it has been applying and collecting tax on goods, and in so doing, it made false, misleading or deceptive representations that it had a right and even a duty to collect the tax. Although the claim refers to Amazon's practice of disclosing that taxes at "check out" are only "estimated" and may be changed by the time of the order ships, it alleges that Amazon "never properly corrects and calculates the final sales tax amount in accordance with applicable federal and provincial legislation". Moreover, the claim alleges that the actual "tax calculated" in the shipping confirmation and subsequent emails is shown as a lump sum for the order and not broken down by item "making it highly difficult, if not impossible for a customer to even realize, both before placing the order and afterward, that they will be and/or have been taxed incorrectly".

The causes of action identified in the statement of claim include breach of the Competition Act. As with the WEN hair products case, the claim is seeking damages under sections 36 and 52 of the Competition Act arising from false or misleading representations made knowingly or recklessly. As for damages, the claim alleges that in November 2016, the representative plaintiff purchased various food items i.e. "Basic Groceries" totalling $32.06. The claim alleges that she was charged sales tax of $4.16.

We-Vibe Products

Again on the heels of a $5,000,000 USD settlement of a class action in the U.S., a class action was commenced in April 2017 in the Ontario Superior Court of Justice against the makers of a Bluetooth-enabled vibrator called We-Vibe, and the We-Connect mobile app that enables the app user to remotely control the vibrator. The defendant marketed the unique ability for couples to communicate with each other remotely through the "connect lover" feature on the app through text messages, video chats and control the vibrator: "Turn on your lover when you connect and play together from anywhere in the world".

Two computer hackers discovered that the Internet connection between the vibrator and the app was not secure and that when the vibrator was in use, it sent personal information back to the defendant, including the date of time of use of the vibrator, the chosen settings and the vibrator's temperature, which could be linked to identifiable information. Following the discovery, the defendant made successive statements about its privacy practices admitting that information was collected for "market research purposes" and "hardware diagnostic purposes". It later stated that the information was collected in the aggregate, non-identifiable form and then further included an option on the app for users not to provide any identifying information.

The basis for the class action is that the collection was "clandestine" and therefore without the knowledge or consent of the users. The causes of action are numerous but again include a claim of breach of sections 36 and 52 of the Competition Act for representations that fail to disclose a material fact namely, the collection and use of personal information.

What these class actions tell us

These class actions were only just filed and thus the Canadian outcome is not certain. However, one thing is certain namely, that the increase in the number of class actions should send a clear message to companies that litigators and consumers are willing to step in to challenge any wrongdoing, even when their competitors and regulators have not.

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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