The British Columbia Court of Appeal has released an important new judgment overturning the certification of a medical products class action: Wakelam v. Wyeth Consumer Healthcare/Wyeth Soins de Sante Inc., 2014 BCCA 36.  The decision in Wakelam holds that common law restitutionary remedies, including waiver of tort, are not available for breaches of either the CompetitionAct or the B.C. Business Practices and Consumer Protection Act (“BPA“), and confirms that proof of causation is required to obtain damages under each of these statutes.  At the same time, Wakelam rejects the argument that the BPA is constitutionally inoperative under the doctrine of federal legislative paramountcy, based on conflict with the Food and Drugs Act (“FDA“).  While the result is something of a mixed blessing for defendants, the decision is notable for the Court of Appeal’s willingness to tackle substantive legal issues on certification in the wake of the Supreme Court of Canada’s recent class actions trilogy.

Background

The Wakelam case involved a class action against the manufacturers of children’s cough medicines, which were alleged to be ineffective and unsafe for children below the age of six.  The plaintiff did not assert that the medicines actually caused harm to any member of the class.  Instead, she claimed that the defendants made misrepresentations regarding the efficacy and safety of the medicines, and sought: (1) damages that reflected the ”waste of money” suffered by class members who purchased the medicines based on the misrepresentations;  (2) alternatively, restitution of all revenues received by the defendants as a result; and (3) the non-monetary remedies of a declaration, injunction and “advertising order” available under the BPA.  The plaintiff’s claims were based upon the “deceptive practices” provisions of the BPA, ss. 36 and 52 of the Competition Act, and the restitutionary theories of unjust enrichment, waiver of tort and constructive trust (together with an allegation of intentional interference with economic relations which was later struck out).  The class action was certified by the B.C. Supreme Court in 2011.

The Appeal Decision

The Court of Appeal unanimously overturned certification after finding that: (1) common law restitution was unavailable for breaches of the Competition Act and BPA; and (2) the plaintiff failed to plead any causal connection between her alleged loss and the defendants’ alleged breaches of these statutes.  Three aspects of Newbury J.A.’s reasons are particularly noteworthy (though the Court also addressed additional issues  of significance not discussed here, such as the inability to found restitutionary claims upon the aggregate damages provisions of the Class Proceedings Act).

First, the Court rejected the defendants’ argument that the BPA was inoperative under the second branch of the paramountcy doctrine, based on its conflict with the purposes of the FDA.  According to Newbury J.A., the primary purpose of the FDA in relation to pharmaceuticals “is to protect Canadians against unsafe or ineffective drugs”.  While the BPA adds an additional layer of regulation to this regime, that does not frustrate the object of the FDA, particularly given that “the FDA does not compel the defendants to market their medicines; it only permits them to do so under specific conditions”.  Interestingly, however, Newbury J.A. did not rule out the possibility that the BPA and FDA could be found inconsistent in the future:

Having said this, I do not foreclose an inconsistency arising, at a future time and on different facts, between the FDA and BPA. At present, however, no “real conflict” (see Spraytech at para. 41) has in my view been demonstrated. (para. 43)

Second, the Court extended its earlier judgment in Koubi v. Mazda Canada Inc., 2012 BCCA 310 (discussed here) - which held that restitutionary remedies based on waiver of tort are unavailable for breaches of the BPA – to the Competition Act.  In doing so, Newbury J.A. confirmed that Koubi applies not only to waiver of tort itself, but also to other common law restitutionary claims (e.g., unjust enrichment and constructive trust) to the extent they are based upon alleged breaches of either the Competition Act or the BPA.  With respect to the Competition Act, Newbury J.A. noted:

Section 36 clearly limits recovery for pecuniary loss to “the loss or damage proved to have been suffered” by the plaintiff, together with possible investigatory costs incurred by the plaintiff. I see nothing in the Competition Act to indicate that Parliament intended that the statutory right of action should be augmented by a general right in consumers to sue in tort or to seek restitutionary remedies on the basis of breaches of Part VI. It follows in my view that the certification judge did err in finding that the pleading disclosed a cause of action under the Competition Act for which a court might grant restitutionary relief; and that accordingly, paras. 34-38 of Ms. Wakelam’s statement of claim do not disclose a cause of action. (para. 90)

While Newbury J.A. also recognized that a restitution-like order requiring the restoration of money in which the plaintiff has an interest can issue under s. 172(3)(a) of the BPA, she found the pleadings did not suggest that the plaintiff had any such interest in Wakelam itself.

Third, the Court held that a causal connection is required for damages claims brought under both s. 171 of the BPA and s. 36 of the Competition Act.  In doing so, the Court adopted the following observations from Singer v. Schering-Plough Canada Inc., 2010 ONSC 42, where Strathy J. (as he then was) suggested that causation in the context of a damages claim for misrepresentation under the Competition Act requires proof of reliance:

Section 52(1.1) only removes the requirement of proving reliance for the purpose of establishing the contravention of s. 52(1). The separate cause of action, created by s. 36 in Part IV of the Competition Act, contains its own requirement that the plaintiff must have suffered loss or damage “as a result” of the defendant’s conduct contrary to Part VI. It is not enough to plead the conclusory statement that the plaintiff suffered damages as a result of the defendant’s conduct. The plaintiff must plead a causal connection between the breach of the statute and his damages. In my view, this can only be done by pleading that the misrepresentation caused him to do something – i.e., that he relied on it to his detriment. (Singer, para. 108; Wakelam, para. 91)

Newbury J.A. in Wakelam did not suggest that these comments were restricted to the Competition Act.  Instead, she cited from earlier B.C. case law (specifically, Knight v. Imperial Tobacco Canada Ltd., 2005 BCSC 172, var’d, 2006 BCCA 235) which held that reliance is a necessary element of a claim for damages in relation to a deceptive practice under the BPA.  This suggests that the Court is returning to the view that proof of reliance is a requirement for damages claims under the BPA, which must be addressed in some measure at certification.  Such a development is significant given the Court’s recent comments in Jones v. Zimmer GMBH, 2013 BCCA 21 at para. 57 that “[i]t may be that class members who claim compensatory damages pursuant to the [BPA] will have to prove reliance to recover them [but] that question does not arise at the certification stage”.

Significance

The Wakelam decision is likely to be an important one for defendants responding to class actions in British Columbia, and indeed throughout Canada as a whole.  As my colleague Jill Yates noted in a recent post on Canadian Class Actions Monitor, the certification rate for B.C. class actions with published reasons has approached 100% in recent years.  Many B.C. class actions have been certified on the basis of claims brought under the BPA.  For this reason, Newbury J.A.’s suggestion that plaintiffs must prove causation – and thus, for misrepresentation-based claims, reliance - in order to recover damages under the BPA is significant, particularly given the difficulties that have traditionally been associated with certifying reliance-based common issues.  Further, the Court’s rejection of common law restitutionary based claims under both the BPA and the Competition Act shuts the door to a key theory of liability.

Yet perhaps the most important aspect of Wakelam is its willingness to address these issues in the context of a certification motion.  The Supreme Court of Canada’s recent class actions trilogy, coupled with its subsequent rulings in AIC Limited v. Fischer, 2013 SCC 69 and Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, suggest a trend away from rigorous scrutiny at certification.  What Wakelam demonstrates is that this trend does not deprive certification judges of their jurisdiction to resolve difficult questions of law.  As Newbury J.A. observed:

…[S]carce judicial resources may be squandered when difficult questions of law are continually side-stepped in the class action context. Certainly the Hunt v. Carey test is an easy one to meet, but it is not surmounted in all cases. As recent decisions of the Supreme Court of Canada discussed below illustrate, it is likely to be beneficial to all concerned, including the justice system, if such questions are directly addressed when raised at an early stage, rather than left for a trial that may never take place, or for another court in another case. (para. 64)