Consider this: What if plaintiffs could assert a cause of action for negligence without proving, or even pleading, any actual damages? And what if the remedy for this damage-free tort claim were disgorgement of profits allegedly acquired by a breach?
This may seem foreign to American tort lawyers, but for Canadian litigants this cause of action has a name, albeit a confusing one: waiver of tort. It is often pled as an independent, gain-based cause of action, and it is a source of frustration and controversy for our friends in the True North. Indeed, class certification grounded in waiver of tort forces defendants to face the prospect of disgorgement without proof that any class member actually suffered damage, even though these commonly advanced claims have never fully been tried in Canada. Canadian scholars have suggested that this uncertainty has the potential to drive settlement negotiations unfairly in the class context.
That is, until the Supreme Court of Canada got involved two weeks ago. In Atlantic Lottery Corp. Inc v. Babstock, the plaintiffs alleged that the video lottery terminal games (VLTs), the operation of which is approved by the defendant Atlantic Lottery Corp. Inc. (ALC), are inherently dangerous and deceptive. The plaintiffs pled on three causes of action – waiver of tort, breach of contract and unjust enrichment – and sought certification of a class based on, among other things, waiver of tort. ALC moved to strike the class action in its entirety, but the plaintiffs succeeded at certification. ALC then pressed the issue all the way to the highest court in Canada, marking the first time the viability of waiver of tort as an independent cause of action was ripe for decision. The Supreme Court of Canada took this opportunity to “definitively resolve whether the novel cause of action proposed by the plaintiffs exists in Canadian law.” Spoiler alert: It does not.
The Court held that plaintiffs cannot rely on waiver of tort as an independent cause of action. In fact, the Court clarified that this “novel cause of action does not exist in Canadian law.” The Court held that disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, but not an independent cause of action. What plaintiffs sought to do, according to the Court, was establish an entirely new category of wrongful conduct akin to negligence but requiring no proof of damage. The Court made very clear that while disgorgement may be an appropriate remedy for some forms of wrongful conduct, it is not available as a general damage in response to negligence: “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.”
Ultimately, the Supreme Court of Canada struck the plaintiffs’ claims entirely on the grounds that each claim asserted “discloses no reasonable cause of action.” In addition to dismissing the waiver of tort claim, the Court also dismissed the plaintiffs’ claims for breach of contract, unjust enrichment and punitive damages. The Court noted that in order to prevail on any of their claims, the plaintiffs would have to prove that ALC was enriched and the plaintiffs suffered a corresponding deprivation. Plaintiffs did not articulate a deprivation warranting such gain-based damages, sounding the death knell on their class action.
Bottom line: The plaintiffs’ claims won’t live to see another day, and neither will waiver of tort causes of action in Canada. We aren’t sad to see them go.
© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 220