Canada: Supreme Court Of Canada Rejects Waiver Of Tort As Cause Of Action

The Supreme Court of Canada emphatically rejected the doctrine of waiver of tort as a cause of action and as a gains-based remedy in Atlantic Lottery Corp Inc. v Babstock, 2020 SCC 19.¹ This decision will have a direct and significant impact on class actions, as it shuts down plaintiffs' ability to certify claims which, absent waiver of tort, would not be certifiable.

Background

Atlantic Lottery is an appeal from a decision of the Newfoundland and Labrador Court of Appeal.  The Court of Appeal had upheld the motion court's decision granting certification and dismissing an application to strike the plaintiffs' claim on the basis that it disclosed no reasonable cause of action.  In this proceeding, the plaintiffs alleged that video lottery terminal games licensed by the Atlantic Lottery Corporation were inherently dangerous and deceptive, and sought to recover the profits gained by the lottery corporation on the basis of unjust enrichment and waiver of tort.

Waiver of tort as a gains-based remedy of "disgorgement"

The Supreme Court held that the plaintiffs failed to meet the criteria for certification because they failed to establish a cause of action that would have a reasonable chance of succeeding at trial. In particular, the Court held that waiver of tort is not a valid cause of action.²

In reaching this conclusion, the Supreme Court reviewed prior jurisprudence and scholarship, including a 2015 article penned by Gowling WLG lawyers Sandra Barton, Mark Hines, and Shawn Therien³ in which the authors argued that waiver of tort should not be recognized as a stand-alone cause of action or as a remedy.  The authors urged courts to abandon the term waiver of tort altogether, and instead to focus on defining circumstances in which disgorgement (or other gains-based remedies) might be awarded to a plaintiff.  Barton et al. noted that certifying class actions premised on a waiver of tort claim makes little sense, particularly in a post-Hryniak era in which the Court has sent a clear message that inefficient, unnecessarily complex civil proceedings are no longer acceptable.⁴

The Court agreed, and concluded that the term "waiver of tort" should be abandoned as a stand-alone cause of action, and should not be used to describe the remedy of disgorgement.⁵ The Court also confirmed that although disgorgement can be awarded as a remedy, it is not itself a standalone cause of action, but instead can only be awarded if "all the constituent elements of one or more causes of action (specifically, breach of a duty in tort, contract, or equity)" have been proven.⁶

The Court also held that with respect to breach of contract claims, disgorgement is only available in exceptional circumstances where other remedies are inadequate, and the circumstances themselves justify such an award. Because disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required) the Court noted that a plaintiff must establish a "legitimate interest in preventing the defendant's profit-making activity" before this exceptional remedy will be awarded.⁷

The consequences of Atlantic Lottery

The Supreme Court of Canada's decision in Atlantic Lottery will have broad implications in class actions in Canada.  Plaintiffs can no longer certify class actions based on a plea of waiver of tort. By confirming that waiver of tort is not a recognized cause of action, the Supreme Court of Canada has taken a meaningful step towards ensuring that only those claims that disclose a valid cause of action and are well-suited to proceeding as a class action will survive certification.

Footnotes