On July 24, 2020, the Supreme Court of Canada (SCC) released its decision in Atlantic Lottery Corp. Inc. v. Babstock (Babstock). In its first definitive statement on this issue, the SCC held that waiver of tort is not an independent cause of action, putting to rest the long-running debate in Canadian jurisprudence on this topic. In this pivotal decision, a majority of the SCC held that the doctrine of “waiver of tort” is not an independent cause of action in Canadian law and the term itself is apt to generate confusion and should be abandoned. The SCC allowed the appeals of the defendant, Atlantic Lottery Corp. (ALC), from the lower courts’ decisions, setting aside the order certifying the action as a class proceeding and striking the plaintiffs’ statement of claim.
The plaintiffs in Babstock sought to certify a class action against the defendant lottery corporation based on allegations that ALC’s operation of video lottery terminal games were inherently dangerous and deceptive. The plaintiffs relied on three causes of action: waiver of tort, breach of contract, and unjust enrichment. A central issue in this case arose from the plaintiffs’ reliance on the doctrine of waiver of tort, which they asserted permitted the plaintiff to “waive” the tort of negligence in favour of claiming the gains acquired by the defendant rather than the harm suffered by the plaintiff.
ALC sought to strike the plaintiffs’ claim on the basis that it disclosed no reasonable cause of action and the plaintiffs’ applied for certification of their claim as a class action. The plaintiffs sought to rely on waiver of tort as an independent cause of action for disgorgement that allowed for a gain-based remedy to “be determined at trial on common issues without the involvement of any individual class member” and submitted that its claim for waiver of tort had at least a reasonable chance of succeeding at trial.
The Newfoundland Supreme Court dismissed ALC’s application to strike the plaintiffs’ claim and further held that the plaintiffs had satisfied the requirements necessary for certification. In particular, and because the plaintiffs intended to pursue a collective remedy (calculated on the basis of the defendant’s profits) without proving individual damage, the certification judge concluded that there were common issues among the class that would be better addressed through a class action. The Newfoundland Court of Appeal subsequently upheld the certification judge’s conclusions and allowed the plaintiffs’ claims in waiver of tort, breach of contract and unjust enrichment to proceed to trial. However, no Canadian court had affirmatively recognized such a cause of action, although the plaintiffs relied on a line of prior class action certification decisions in which Canadian courts—including the SCC—had refrained from finding that it was plain and obvious that such an action does not exist. ALC appealed the Court of Appeal’s decision to the SCC.
THE SCC DECISION
On appeal, a majority of the SCC held that the plaintiffs could not rely on the doctrine of waiver of tort as an independent cause of action for disgorgement and confirmed that the asserted novel cause of action does not exist in Canadian law and had no reasonable chance of succeeding at trial.
Justice Brown for the majority stated that the law in Canada has evolved in recent years to allow the SCC to now resolve the outstanding question of whether waiver of tort is an independent cause of action. He explained that restitution for unjust enrichment and disgorgement for wrongdoing are two types of gain-based remedies. Each is distinct from the other: disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required), while restitution is awarded in response to the causative event of unjust enrichment where there is correspondence between the defendant’s gain and the plaintiff’s deprivation. Here, the plaintiffs sought disgorgement, not restitution, submitting that they were entitled to a remedy quantified solely based on ALC’s gain, without reference to damage that any of them may have suffered. However, disgorgement, as a gain based remedy, is precisely that: a remedy, awarded in certain circumstances upon the plaintiff satisfying all the constituent elements of one or more of various causes of action (specifically, breach of a duty in tort, contract, or equity).
Justice Brown further commented that disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action. Although disgorgement is available for some forms of wrongdoing without proof of damage (for example, breach of fiduciary duty), it is a far leap to find that disgorgement without proof of damage is available as a general proposition in response to a defendant’s negligent conduct. Granting disgorgement for negligence without proof of damage would result in a remedy arising out of “legal nothingness” and would be a radical and uncharted development. This is not the type of incremental change that falls within the remit of courts applying the common law.
The SCC commented that, and as this case demonstrates, the term “waiver of tort” is apt to generate confusion and should therefore be abandoned. Further and relatedly, in order to make out a claim for disgorgement, a plaintiff must first establish actionable misconduct.
IMPLICATIONS FOR CLASS ACTIONS
Babstock is the first time the SCC has definitively stated that wavier of tort is not an independent cause of action. Plaintiffs should no longer be able to plead waiver of tort in their claims and seek to have a class action certified from “legal nothingness” on the basis of the previously uncertain status of this now abandoned legal doctrine.
For further information, please contact:
Robin Reinertson 604-631-3323
Karine Russell 604-631-3303
or a member of our Class Actions group:
Gordon McKee 416-863-3884
David Tupper 403-260-9722
Robin Reinertson 604-631-3323
Claude Marseille 514-982-5089
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