In 2014, plaintiffs David Hughes and 631992 Ontario Inc. (the Plaintiffs) commenced an ultimately unsuccessful $1.4-billion class action against the Liquor Board of Ontario and four other defendants (the Defendants), alleging a decades-long criminal and civil conspiracy designed to increase the price of beer in Ontario.

After four years and six motions for summary judgement, Justice Perrell released his decision on costs in Hughes v. Liquor Control Board of Ontario, 2018 ONSC 4862 (Hughes). In awarding each of the Defendants their requested costs (in aggregate, approximately $2.3 million), and rejecting the Plaintiffs’ arguments that these costs be reduced to just $600,000, Justice Perrell noted that defendants are “as entitled to access to justice as plaintiffs,” and “there can be access to justice in having a meritless claim dismissed.” In this instance, Justice Perrell remarked that it was the Plaintiffs who “lit the costs fire” and were accordingly disentitled to “judicial disaster relief.”

Background

The Plaintiffs’ proposed class action challenged the lawfulness of the entire beer retail distribution system in Ontario and challenged as unconstitutional the 2015 legislative amendments to the Liquor Control Act that validated the legality of this system. The key allegation in the Plaintiffs’ Statement of Claim was that the Defendants were liable for civil conspiracy under the Competition Act. The Plaintiffs also pleaded unjust enrichment, waiver of tort and the “freshly-invented tort” of “Misconduct by a Civil Authority.”

In their respective motions for summary judgment, the Defendants successfully relied on the “Regulated Conduct Defence” to resist the conspiracy claim. Essentially, the Defendants argued that their conduct was sanctioned by s. 10(3) of the Liquor Control Act.

Costs analysis

The Plaintiffs argued (with support from the Class Action Fund) that the court ought to use its discretion under s. 31(1) of the Class Proceedings Act, 1992 to reduce the Defendants’ requested costs because the Plaintiffs’ proposed class action raised novel issues that it was in the public interest to resolve. To support this argument, the Plaintiffs noted that their proposed class action was the only means for the class members to achieve access to justice, behaviour modification and judicial economy.

In response to this commonly raised argument, Justice Perrell stated as follows:

“It is easy enough to say that any class action is in the public interest because it is always in the public interest that there be access to justice and it is particularly easy to say that a class action is in the public interest when a defendant is a public sector actor or a defendant is in a regulated industry, but if the Legislature wished every class action to be regarded as in the public interest, it could have introduced a no-costs regime or an asymmetric costs regime but it did neither. Rather, as the Court of Appeal noted in Pearson v. Inco Ltd., unlike other class proceedings jurisdictions such as British Columbia, Ontario has not sought to interfere with the normal rule that costs will ordinarily follow the event.” (emphasis added).”

Moreover, Justice Perrell clarified that the preferability of a class action as a means to obtain access to justice does not necessarily make the class proceeding in the public interest; rather it only means that one of the certification criteria is satisfied.

Taking a different approach, the Plaintiffs also argued that the unprecedented costs sought by the Defendants would have a significant chilling effect on future class proceedings, thus “undermining access to justice in an arena designed specifically to advance access to justice.” The Plaintiffs reasoned that if the Fund were to be exposed to such enormous cost awards, the appetite for supporting class actions would be significantly suppressed. This argument too was rejected by Justice Perrell, who emphasized the Fund’s potential for gains had the Plaintiff’s proposed class action been successful, stating:

“…the Legislature did not insulate the Fund from litigation chill or from making a poor decision in supporting a particular class action, and it should not be forgotten that in supporting the Plaintiffs’ case, the quid pro quo was a 10% mandatory share of a pleaded $3 billion damages claim.”

Lessons learned

In an era of expanding class action costs, Justice Perrell’s pointed comments in Hughes are likely to strike a chord with both plaintiffs and defendants. For plaintiffs, Hughes is a particularly sobering reminder that commencing meritless, albeit complex, class actions seeking substantial damages may result in commensurate costs. A reduction of these costs is not guaranteed by claiming the class action was brought “in the public interest”. As Justice Perrell cautioned in Hughes, the Legislature in Ontario intended that there are no class actions that are automatically excepted from the “loser pays” costs system.