Class Proceedings, Gains-based Claims, and Deterrence

• Author: John J. Chapman & Patti Shedden
• Pages: 47-82

47

CLASS PROCEEDINGS, GAINS-BASED

CLAIMS, AND DETERRENCE

John J. Chapman and Patti Shedden1

The common law knows individuals only … It tries questions of the

highest social import as mere private controversies between John Doe

and Richard Roe. And this compels a narrow and one-sided view …2

Class proceeding legislation creates no new cause of action. It is solely

procedural.3

Class proceeding legislation is solely procedural and does not supple-

ment or derogate from the substantive rights of the parties.4

A. INTRODUCTION

The proposition that class proceeding legislation does not alter the sub-

stantive law has been so frequently repeated5 in the case law that it might

1 John J. Chapman and Patti Shedden, Miller Thomson LLP. A draft of this

article was presented as part of a Law Society of Upper Canada continuing legal

education seminar, “Remedies and Damages,” on 6 March 2007. This article

was finalized before the release of the Ontario Court of Appeal’s decision in

Markson v. MBNA Canada Bank, [2007] O.J. No. 1684 (C.A.), and does not

incorporate its comments on aggregate assessment damages. Many of the issues

discussed in this paper are far from settled in the law. This article should thus

be viewed with more than the normal caution.

2 Roscoe Pound, “Do We Need a Philosophy of Law?” (1905) 5 Colum. L. Rev.

339 at 346, quoted in “Developments in the Law: Class Actions” (1976) 89

Harv. L. Rev. 1318 at 1353 [“Developments in the Law”].

3 Bendall v. McGhan Medical Corp (1993), 14 O.R. (3d) 734 at 739 (Gen. Div.).

4 Ontario New Home Warranty v. Chevron (1999), 46 O.R. (3d) 130 at para. 50

(S.C.J.).

5 The Supreme Court has recently also said this in Bisaillon v. Concordia

University, 2006 SCC 19 at para. 17 [Bisaillon]. See also, to the same effect,

Millgate Financial Corp. v. B.F. Realty Holdings Ltd., [1998] O.J. No. 4537;

Anderson v. Wilson, [1997] O.J. No. 548 (Gen. Div.), var’d (1998), 37 O.R. (3d)

235 (Div. Ct.) [Anderson]; Abdool v. Anaheim Management, [1993] O.J. No. 1820

(Gen. Div.); Price v. Panasonic Canada, [2002] O.J. No. 2362 (S.C.J.); Chadha

48 THE CANADIAN CLASS ACTION REVIEW

now be thought by some to be cast in stone. There is little doubt that on

one level the statement is entirely correct: a simple reading of the Ontario

Class Proceedings Act, 19926 will quickly convince any lawyer that it does

not purport to change the substantive law in any particular area. Statutory

interpretation, however, has its limits. Indeed, from time to time it can

be positively misleading if it is not tempered by some considerations of

how the court process actually works. In the authors’ view it is wrong to

suggest that the advent of class proceedings will not powerfully impact

on the development of many areas of our substantive law.

There are a number of factors that lead to this. First, prior to class

proceeding legislation there were entire areas of our substantive law that

could never be explored by our courts because cases could not practically

be brought.7 This is no longer the case. Blank areas in our law will be

filled in as previously undiscussed legal issues come forward for decision.

Second, in class proceedings there will be unexpected impacts of legal

doctrines developed elsewhere in our private law of obligations. We may

need to re-examine the foundation and boundaries of those doctrines to

judge their worth in a new setting. As a form of public litigation, class

proceedings sometimes raise considerations over and above those that

emerge in traditional litigation. A balancing of concerns amongst differ-

ent segments of society may be involved. One who is optimistic about our

court system might say that courts in class proceedings “are more likely

to see both the significance of the claims of a plaintiff and the conse-

quences of imposing liability on a defendant, and thus are more likely to

arrive at a substantively just conclusion.”8 Our substantive law has always

developed in response to perceived societal needs. As society changes,

v. Bayer, [2001] O.J. No. 1844 (Div. Ct.), aff’d (2003), 63 O.R. (3d) 22 (C.A.)

[Chadha]; Serhan Estate v. Johnson & Johnson (2004), 72 O.R. (3d) 296 (S.C.J.),

aff’d [2006] O.J. No. 2421 (Div. Ct.), leave to appeal dismissed to both the

Court of Appeal (16 October 2006) and the Supreme Court of Canada, [2006]

S.C.C.A. No. 494 [Serhan]; Reid v. Ford Motor Co., [2006] B.C.J. No. 993 (S.C.).

6 Class Proceedings Act, 1992, S.O. 1992, c. 6 [Ontario Class Proceedings Act]. The

Acts in the other common law provinces are broadly similar to the Ontario Act,

for the purposes of this article, although there will be some technical differ-

ences.

7 The provision creating civil liability for prospectus misrepresentation was put

into the Ontario Securities Act, R.S.O. 1990, c. S.5, in 1978. There were no

civil cases considering the proper application of the relevant sections of the

Securities Act until Danier Leather, [2004] O.J. No. 1916 (S.C.J.). A number of

significant legal questions emerged as a result of the trial. These questions will

not finally be answered until the Supreme Court of Canada delivers its reasons.

8 “Developments in the Law,” above note 2 at 1353.

VOL UME 4, No 1, JUlY 2007 49

and as the types of claims before our civil courts change, the law adapts

to new challenges and realities. Just as courts have in the past altered the

substantive law in the context of individual disputes to correct perceived

injustices, there is no reason to expect that they will not do so when

faced with mass wrongs which they believe call for a remedy. A court, if

left with a choice of throwing up its hands in despair or protecting the

public,9 may opt to change the law in a way that protects the public.

The courts have unanimously held that one of the goals of class

proceeding legislation is behaviour modification.10 The goal of behav-

iour modification is a wide one — it is directed both specifically at the

defendant who is before the court and more generally at other similarly

situated actors in society.11 Behaviour modification is a substantive value.

What is more, it is “a significant departure from the traditional view in

which the more or less exclusive purpose of a civil proceeding is to afford

injured parties a means to compensation.”12 To be sure, by compelling the

wrongdoer to pay for the damages it has caused, a deterrent effect is also

indirectly created. However, in most areas of civil obligations this is an

ancillary benefit rather than the purpose of the law.13 There are, of course,

9 Barrick Gold Corp. v. Lopehandia (2004), 71 O.R. (3d) 416 (C.A.).

10 Western Canadian Shopping Centres v. Dutton, [2001] 2 S.C.R. 534 at paras. 27–

29: “Without class actions, those who cause widespread but individually mini-

mal harm might not take into account the full costs of their conduct because

for any one plaintiff the expense of bringing the suit would far exceed the

likely recovery. Cost sharing decreases the expense of pursuing legal recourse

and accordingly deters potential defendants who might otherwise assume

that minor wrongs would not result in litigation.” The Ontario Law Reform

Commission in its Report on Class Actions (Toronto: Ministry of the Attorney

General, 1982) [OLRC Report] had expressed similar sentiments.

11 Pearson v. Inco, [2005] O. J. No. 4918 at paras. 85–91 (C.A.), leave to appeal to

S.C.C. refused, [2006] S.C.C.A. No. 1 [Pearson].

12 Hon. Robert J. Sharpe, “Commercial Law Damages: Market Efficiency or

Regulation of Behaviour?” in Law Society of Upper Canada Special Lectures

2005: The Modern Law of Damages (Toronto: Irwin Law, 2006) at 348.

13 In the tort context, see Allen M. Linden & Bruce Feldthusen, Canadian Tort

Law, 8th ed. (Markham, ON: LexisNexis Butterworths, 2006) at 6–13 for a dis-

cussion of compensation and deterrence. In contract, see S. Waddams “Breach

of Contract and the Concept of Wrongdoing” (2000) 12 Sup. Ct. L. Rev. (2d)

1 at 7–13. In British Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R.

74 at para. 59 [Canadian Forest] the Court stated: “in assessing compensatory

damages for environmental loss, the Court ought not to be engaged merely in

punishment of the wrongdoer (which is the domain of regulatory offences)

or imputing losses based on little more than a generalized desire to mete out

rough justice to a tortfeasor.”