The Law Commission of Ontario (LCO) recently released a list of issues to be considered as part of its comprehensive review of Ontario’s Class Proceedings Act, 19921 (CPA). While the saying goes, "If it ain’t broke, don’t fix it," it is apparent there are a number of issues with Ontario’s class actions regime that the LCO believes should be considered.
This will be the first review of the CPA following its enactment more than 20 years ago.
In the past 20 years, a number of cases pursuant to the CPA have made their way through the courts, raising many issues for consideration and providing a sizable sample for the review.
In addition, more recent developments, such as the emergence of commercial funding of class actions by third parties and the rise of novel causes of action that have proceeded to certification, have changed the lay of the land for class actions. These developments will inform the LCO’s review of the CPA, with a view to determining whether the CPA’s operational effect has been in line with the purposes of the CPA’s enactment.
The LCO’s review will not only address whether the CPA’s purposes are adequately supported by the statute itself, but will also examine factors extrinsic to the CPA, such as the continued viability of the Class Proceedings Fund, concerns over the possibility of self-dealing, and the potential of implementing a means for advancing nation-wide class actions. The latter issue has been the subject of ongoing review and discussion in Canada, as plaintiffs and defendants alike struggle with often overlapping class actions in various jurisdictions.
The LCO has indicated it will seek stakeholder participation throughout the review process.
Issues to be addressed in the review
Access to Justice
Access to justice was the foundational impetus for enacting the CPA. The LCO’s review will attempt to address two concerns that would seem to imply the statute is inadequate in effectively allowing plaintiffs to seek redress as a class for damages that could not be economically pursued in court on individual claim bases.
The first concerns "take-up rates." The term pertains to the proportion of class members that apply to be compensated from the funds paid as a result of a successful award or in settlement. Because the take-up rates are not required to be disclosed, it is difficult to estimate the percentage of class members that end up claiming a part of the funds paid by defendants. The LCO suggests that anecdotal evidence indicates the rates are remarkably low—in some cases, below one per cent of the class members claim their entitlements. The LCO intends to examine the reasons for, and a means to resolve, this problem.
The second issue to address will be the procedural challenges to effective access to justice. This will include reviewing the substantive provisions of the CPA and associated case law, including, among others, those dealing with the test for certification, burden of proof and evidentiary requirements, the available appeal routes, and notice provisions.
The Class Proceedings Fund
Numerous stakeholders have expressed concern about the continued viability of the Class Proceedings Fund (Fund). Established to entice plaintiffs to pursue a class action where their claim has a public interest dimension, the Fund mitigates the financial risks inherent in high-cost legal proceedings.
The Fund was intended to be self-funding: a provision was included in the CPA that imposed on successful class actions a statutory levy of 10 per cent of the plaintiffs’ award. However, the inflexible levy can result in unjustifiable downside risk for the Fund in protracted litigation, where adverse cost awards borne by the Fund can prove crippling. The LCO will conduct a "comprehensive" comparative review of the Fund’s funding framework vis-à-vis other public funding schemes.
Another important issue that will be reviewed is the possible approval of third-party funding arrangements for class actions.
Recently, Ontario courts have held that these arrangements are not inherently champertous, and may have the potential to promote access to justice. However, third-party funding arrangements are often viewed with mistrust, in part because in class actions, where settlement figures can be quite high, the plaintiffs’ interests may be misaligned with those of the third-party funder and the plaintiffs’ lawyers.
To further advance the issue of access to the class action regime, the LCO will review the more fundamental question of whether Ontario’s "loser-pays" regime remains appropriate in the context of class actions.
Issues of financing the Fund and consideration of third-party funding arrangements will only ameliorate the consequences of the cost rules on plaintiffs. The LCO cites the possibility that the costs of an unsuccessful certification motion may, in some cases, influence the plaintiff’s decision to abandon an appeal in return for a waiver of the costs award. A potential switch to a no-cost regime in the class actions context, however, could have far-reaching consequences on the number and quality of the actions as can be seen from the experience in other no-cost jurisdictions.
Remedies (waiver of tort)
The LCO plans to address the question of "waiver of tort," a claim that has been advanced in many class actions. The nature of the claim of waiver of tort is not certain; some argue waiver of tort is in fact a restitutionary cause of action that does not require proof of damages as a tort claim would. To date, none of the class actions founded on the principle has considered the issue fully at trial, although some judges have considered its scope on certification motions. As a result, the nature of the waiver of tort remains a hotly debated academic issue.
The Reversion Issue
Related to waiver of tort is the question of reversion. As noted above, take-up rates appear to be rather low in the class actions; as a result, a large portion of the often sizeable settlements or awards remains unpaid. The question arises as to what should be done with the remainder funds. Currently, the CPA requires that moneys not paid out to successful plaintiffs be returned to the defendant.
The LCO views the provision as inconsistent with the principle of behavioral modification, one of the purported goals of the statute. A potential solution to this issue is applying what the LCO terms the "cy-pres like" diversion of an award permitted by section 26(4) of the CPA. This section allows the court to "direct any means of distribution of amounts awarded [to plaintiffs] that it considers appropriate" where it is impractical or impossible to distribute the remainder of an award.
However, a lack of guidance in applying the provision means this form of re-distribution can according to the LCO be open for abuse and otherwise unsatisfactory to the plaintiffs. The LCO intends to review the "policy, procedure and jurisprudence" related to the possible alternative treatments of award remainders.
Securities Class Actions
Prompted by "recent" developments in securities class actions, such as secondary market claims and the yet-to-be-successful "fraud on the market" claims, the LCO "intends to consider securities class actions brought pursuant to the [Securities Act2], to determine whether the CPA sufficiently equips courts to effectively manage these matters." Additionally, the LCO will explore the possibilities of harmonizing the CPA with the Securities Act.
National Class Actions
Because class actions are brought in provincial superior courts, and said courts’ jurisdiction is geographically limited, many difficulties arise where class actions based on the same claims are brought in different provinces simultaneously. The rights of class members vis-à-vis the multiple proceedings are confusing and, at this point, a number of practical and constitutional difficulties have been said to prevent effective coordination of such actions. The LCO intends to consider the possible legislative tools that could afford Ontario courts a means to manage class actions occurring in multiple jurisdictions, and to provide better protection to class members in such circumstances.
LCO Publication: http://www.lco-cdo.org/class-actions-issues-to-be-considered.pdf
LCO Website: http://www.lco-cdo.org/
Nikolai Kovtouchenko and Chris Mamo