Canada’s High Court docket Dismisses Video Lottery Class Motion And Eliminates Waiver Of Tort For Class Actions – Litigation, Mediation & Arbitration

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Canada’s Top Court Dismisses Video Lottery Class Action And Eliminates Waiver Of Tort For Class Actions

04 September 2020

Affleck Greene McMurtry LLP

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In late July the Supreme Court of Canada issued a somewhat
unexpected decision in a closely-watched class action about video
lottery terminals (“VLT“). The decision,

Atlantic Lottery Corp. v. Babstock, 2020 SCC 19, saw the
court split over whether to uphold the certification of a class
action against the Atlantic Lottery Commission (the
ALC“), which controls the operation of
VLTs across the Atlantic provinces. The class action alleged that
VLTs violated the criminal code’s prohibition of games similar
to “three card monte” and sought damages on the ground of
waiver of tort, breach of contract, and unjust enrichment. The
majority ultimately decided to reverse the lower courts’
decisions and dismiss the certification and the underlying claim
entirely; in the process the court clarified the often confusing
and unclear remedy of “waiver of tort”.

The plaintiffs’ case was unusual in that it sought a
gain-based award, based on the profit ALC earned licensing VLTs for
public use. The plaintiffs alleged that the failure to warn of the
inherent danger in VLTs was a waiver of tort. The plaintiffs also
alleged that the ALC had entered into an unwritten contract with
the public by offering VLTs to the public and that a term of this
contract was that the games were safe. The plaintiffs concluded
their claim by noting that the ALC had been unjustly enriched at
the expense of the public.

ALC claimed that the certification should be dismissed, and the
claim struck on the grounds that the plaintiffs’ claim
disclosed no cause of action. In particular, ALC alleged that the
plaintiffs could not rely on waiver of tort as an independent cause
of action. The majority of the SCC noted that, while novel claims
may survive a motion to strike, they could settle whether waiver of
tort was an independent cause of action at this point in the
proceeding. The majority noted that “failing to address
whether an independent cause of action for waiver of tort exists
will perpetuate an undesirable state of uncertainty. As Greg Weber
writes, “(w)aiver of tort has become a hollow and internally
inconsistent doctrine, leaving judges and litigants confused about
how and when a cause of action might support
disgorgement.”

The majority began their analysis by distinguishing between the
remedies of restitution and disgorgement. The court described the
difference as follows: “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 (most recently discussed
by this Court in Moore), where there is correspondence between the
defendant’s gain and the plaintiff’s deprivation.”

The majority held that the plaintiffs sought disgorgement, not
restitution in this case; their claim for waiver of tort sought the
benefit that ALC had gained from the licensing of VLTs and made no
reference to the deprivation suffered by members of the class. The
majority went on to hold that disgorgement is not an independent
cause of action, but a remedy, noting that “disgorgement
should be viewed as an alternative remedy for certain forms of
wrongful conduct, not as an independent cause of action.” The
court then addressed how the term “waiver of tort”
referred to a remedy where a plaintiff chooses to pursue a
gain-based remedy instead of restitution. In light of this
confusion, the majority argued that the term waiver of tort ought
to be abandoned in favour of disgorgement.

Having determined that the plaintiff’s claim was seeking the
remedy of disgorgement, the court held that it could not constitute
a new independent cause of action either. As it would not be
reasonable to entitle any plaintiff exposed to risk from a
Defendant to be entitled to claim the full gain realized by a
defendant absent evidence of harm to the plaintiff. The court noted
that tort law was not intended to reward a windfall to any
plaintiff who brings a claim, but instead to reimburse
“someone to whom damages are owed to correct the wrong
suffered.”

Having dismissed the availability of waiver of tort or
disgorgement as an independent cause of action, the majority then
addressed whether the remedy of disgorgement was available for the
torts of negligence or breach of contract. The majority dismissed
negligence on the basis that causation of damages is an integral
part of the negligence analysis. The majority likewise dismissed
breach of contract, noting that, though a gain-based remedy is
available in exceptional cases of breaches of contract, other
remedies must be inadequate. The majority ultimately held that
other remedies were adequate and that the case was not exceptional.
The majority also dismissed the claim that VLTs were akin to
“three card monte” and prohibited by the Criminal Code on
the basis that VLTs did not adequately resemble the original type
of card game.

At this point the majority noted that the claim could not
survive on the basis that the plaintiffs had disclaimed any
remedies based on individual loss. In light of this, the majority
dismissed the claim entirely. Having dismissed the claim, the
certification motion likewise failed on the basis of disclosing no
cause of action.

This decision continues the SCC’s recent trend towards
clarifying (or just plain eliminating) old and somewhat esoteric
legal principles such as “waiver of tort”. It is clear
throughout the decision that the court is committed to demystifying
legal terminology in favour of clear legal principles. It will be
interesting to keep an eye out for which overly complicated legal
term will be next on the chopping block.

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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