LOCAL REPRESENTATION AND LITIGANT VOICE: THE STORY OF CLASS ACTIONS IN NEWFOUNDLAND AND LABRADOR.

• Author: Chiodo, Suzanne
• Position: Canada

Introduction

Three provinces have dominated the development of class actions in Canada. Quebec was the first province to adopt the procedure in 1978, followed more than a decade later by Ontario. In 1996, British Columbia became the third province to enact class actions legislation. The influence of these three provinces on the genesis of class action case law and policy in Canada is widely accepted both in this country and in other jurisdictions. (1) All the Canadian provinces, with the exception of Prince Edward Island, have now enacted generic opt-out class actions legislation. (2) Because Ontario, British Columbia, and Quebec were the first to enact class actions legislation and have dominated the field since, the presumption is that the other provinces simply followed their lead. The historical record shows this presumption to be false.

Around the turn of the millennium, between the introduction of class actions in British Columbia in 1996 and the Supreme Court of Canada's decision in Western Canadian Shopping Centres Inc v Dutton (3) in 2001, several provinces engaged in lively debates as to whether they should introduce class actions. These debates were influenced by developments elsewhere in Canada, but also arose from developments within and unique to the provinces themselves. (4) This phenomenon is clearly seen in the fourth Canadian province to enact class actions legislation: Newfoundland and Labrador. (5)

This article demonstrates that, while the debate on class actions in Newfoundland and Labrador was partly the manifestation of a national phenomenon, the province did not enact legislation simply because Ontario, British Columbia, and Quebec had. The historical record shows that class actions in the province arose from grass roots activism that reflected the needs of its people. To a large extent, that remains true in the practice of class actions there today. This unique aspect of the province's procedural story has never been told.

The movement for class actions in Newfoundland was led by two key figures in the province's recent history: Bill Kelly and Chesley Crosbie. The impetus for change arose from the Hiland Insurance bankruptcy, an insurance scandal that affected tens of thousands of people in the province and led to calls for a public inquiry into the government's failure to protect policyholders. In November 2001, Bill 34, "An Act To Permit An Action By One Person On Behalf Of A Class Of Persons" was introduced and, after less than a month of debate in the legislature, the Newfoundland Class Actions Act (6) received Royal Assent on December 13, 2001 and came into force on April 1,2002.

In July 2001, with the Supreme Court of Canada's decision in Dutton, (7) class actions became available at common-law and, within a few years, most provinces had enacted legislation. Since then, class action activity in Newfoundland has been dwarfed by that of Ontario, British Columbia, and Quebec. This is not simply because of the population difference, but also because national opt-out classes (commenced largely in Ontario) have proven far more lucrative than local actions. Nevertheless, despite the prevalence of national opt-out class actions, local class actions have continued and are, in many ways, more representative of provincial concerns. An investigation of the history of class actions in these provinces illustrates the importance of local representation and litigant voice, two crucial considerations that need to be borne in mind as class actions in Canada become increasingly national in scope.

The history of class actions in Canada has, until recently, only been investigated at a fairly superficial level. My book on class actions in Ontario was the first serious historical treatment of this area of the law, (8) and my research has now turned towards the history of all the Canadian provinces and territories. This includes Newfoundland, where the history of class actions has not been investigated at all. (9)

This article will proceed in three parts. Part I looks at the representative action, which forms the roots of class actions in Canada. The limitations of the representative action gave rise to concerns in Canada that significant claims, especially consumer claims, were going uncompensated. Part II investigates this phenomenon in Newfoundland, where the Hi land Insurance bankruptcy and the inability of consumers to obtain redress in the courts led to calls for class action reform. Part III looks at the evolution of class actions in Newfoundland since the passage of the legislation, and the nature and effect of the class actions that have been litigated in the province in the past two decades.

Part I--The Representative Action

The representative action is a creature of equity with its roots deep in English history. Following the fusion of the courts of law and equity, representative actions could be brought at common law in England and in the Canadian jurisdictions that had inherited the English system: that is, all the provinces except Quebec. (10) However, the restrictive interpretation of the "same interest" test that the English courts applied after Markt (11) was also applied by the courts of the Canadian provinces. Few representative actions could satisfy the three-part test articulated in Ellis: (12) common interest; common grievance; and relief beneficial to all. In particular, actions that were based on separate contracts, or where damages were individual to each class member, were generally not allowed to proceed as representative actions. (13)

This remained the same throughout Canada until the 1970s, when the courts in British Columbia (14) and Ontario began to be more receptive to group litigation following the introduction of class actions south of the border and in Quebec, and as the need for a mechanism to provide legal redress for groups became more apparent. The more expansive interpretation of the representative action rule took two forms. First, the bifurcated approach whereby a declaration of liability was obtained that could then form the basis for subsequent actions for monetary damages; and second, the liberal interpretation of the "same interest" test. (15)

In Chastain v British Columbia Hydro and Power Authority, (16) the plaintiff sought a declaration that the defendant had no authority to request a security deposit from new customers with low incomes, as well as an injunction forbidding the defendant from keeping deposits already collected. The Court found that the group members all had the "same interest" in the success of the action even though different amounts of money would be returned to each customer. (17) In Shaw v Real Estate Board of Greater Vancouver, (18) the group members' common interest in the success of the action was found to meet the "same interest" requirement (even though calculating their individual entitlements by way of an accounting would be "long, detailed and difficult"), (19) and the Court of Appeal held that the money owed to class members could be calculated following a finding of liability. (20)

This approach influenced the limited case law in Newfoundland, where Rule 7.11, the Newfoundland rule that permitted representative actions, was worded in a similar way to its Ontario and BC equivalents, with the same requirement that "numerous persons have the same interest" in a proceeding. (21) One of the few representative actions to be brought around this time was allowed to proceed, based on the test of the British Columbia Court of Appeal in Shaw. In Hillyard v St John's (City), (22) the plaintiff purported to represent 775 taxpayers in an area of St. John's, who had formed themselves into a group called "'The Anspach Neighbourhood Citizens' Committee". He sought an injunction against the Municipal Council of St. John's to restrain it from issuing a permit for the construction of town houses and other buildings in the area. (23) The Newfoundland Supreme Court (Trial Division) applied the reasoning in Shaw and found that, "the intended plaintiffs have a common interest and a common grievance, [so that] a representative suit is in order because the relief being sought is in its nature beneficial to all whom the plaintiff proposes to represent." (24) Because the group did not claim monetary damages, and success for the plaintiff meant success for the rest of the group, a representative action was found to be appropriate in this case. (25)

This reasoning also influenced the evolution of the case law in Ontario, (26) where representative actions were available under Rule 75. GM (Canada) v Nakeri (27) similarly attempted to circumvent the barriers of individual contracts and individual damages. The representative action was brought on behalf of nearly 5,000 purchasers of the 1971 and 1972 models of the General Motors Firenza, which were notoriously unreliable. The plaintiffs sought damages for the reduced resale value of each vehicle on a pro-rata basis in the amount of $1,000 per class member. The defendants moved to strike the action on the basis that reliance on the manufacturer's representations was an individual issue, and that damages would have to be individually assessed. The Court of Appeal allowed the case to proceed as a representative action, holding that aggregate damages could be awarded because each class member's monetaiy claim was the same, and that individual issues regarding reliance could be determined in subsequent individual trials. (28)

Naken proceeded to the Supreme Court of Canada, (29) where those expecting the Court to reform the law on class actions were sorely disappointed. Justice Estey held, as prior case law had, that representative actions under Rule 75 could not proceed where, as here, they involved separate contracts and individualized damages (30) because they did not meet the "same interest" test. (31) He concluded that Rule 75, "consisting as it does of one sentence of some 30 words, is...