In a significant class certification decision with national implications, the British Columbia Court of Appeal in Koubi v. Mazda Canada Inc.1 has curtailed the ability of class plaintiffs to rely on restitutionary doctrines such as “waiver of tort” to obtain class certification in cases grounded in alleged breaches of statute. After observing that “recent certification decisions have taken waiver of tort well beyond its historical roots,” the Court set aside certification of a range of restitutionary claims in a proposed consumer class action involving defective auto door locks. In so doing, the B.C. Court of Appeal has undermined an increasingly common tactic for obtaining class certification in Canada, and the Court’s holding will have broad implications for proposed class actions premised on a statutory breach, including class actions that involve securities, competition, products liability, employment and other claims.
Background – Waiver of Tort
In many class proceedings that involve statutory claims, plaintiffs face challenges in obtaining class certification since most statutory remedies require some form of proof of causation or harm as a component of liability, and such proof typically requires individualized inquiries that are frequently incompatible with a class proceeding. However, in recent years, class plaintiffs have had considerable success in crafting certification strategies to avoid these challenges. As one such strategy, it has become increasingly common for plaintiffs to invoke restitutionary claims such as “waiver of tort” in support of class certification.
In brief, “waiver of tort” is a restitutionary doctrine that permits a plaintiff to elect to recover benefits that a defendant has obtained by its wrongful conduct, instead of damages measured by a plaintiff’s loss. The precise nature and scope of the doctrine remains controversial, and there is considerable debate as to whether “waiver of tort” is even a cause of action under Canadian law. Similarly, to the extent that doctrine is merely a remedy that can be asserted solely in the context of other free-standing causes of action, the jurisprudence evidences significant debate as to which particular causes of action can even sustain such a remedy. However, for the purposes of obtaining class certification, it is a strategically attractive claim for a plaintiff to assert since the components of liability in restitution arguably do not require individualized proof of harm or loss. By relying on such theories, a class plaintiff can argue that the proof of its claims are focused entirely on a defendant’s conduct and profits, and that such claims can be readily adjudicated through the means of a class-wide trial without individual inquiries.
As a result, in many class proceedings, plaintiffs will assert restitutionary and “waiver of tort” claims in conjunction with statutory remedies, on the theory that a common underlying statutory breach can serve as a predicate for liability for both types of claims. While defendants have challenged these strategies in numerous forums across Canada, particularly in light of the continuing uncertainty surrounding “waiver of tort”, a growing number of courts have declined to strike such claims at an early stage. Indeed, in the recent jurisprudence, courts across Canada have certified claims of “waiver of tort” in a wide range of securities, competition, products liability, employment and other class actions.
The Mazda Case
In the Mazda case, the plaintiff claimed against Mazda Canada and a host of Mazda dealers in B.C., alleging that the locking mechanism on Mazda3 vehicles was defective and had led to widespread “keyless break-ins.” While Mazda Canada was aware of and had developed a fix for the issue at the end of 2006, it did not issue a general notification to owners or lessees of Mazda3 vehicles until 2008. Vehicle break-ins continued during this period.
In support of her claim, the plaintiff relied exclusively on the defendants’ alleged breaches of consumer legislation. In particular, the plaintiff alleged that Mazda Canada’s representations were deceptive acts by a supplier contrary to ss. 4 and 5 of the Business Practices and Consumer Protection Act (BPCPA)2 and had breached implied warranties that Mazda3 vehicles would be reasonably fit for their purpose and of merchantable quality, contrary to s. 18 of the B.C. Sale of Goods Act (SGA).3 Notwithstanding the assertion that individual owners had suffered damages as a result of the defendants’ alleged statutory breaches – such as a loss of vehicle or the cost of repairs – these losses were not pursued in the context of the litigation. Rather, the plaintiff exclusively sought “restitutionary damages” grounded in waiver of tort.
In two sets of reasons released in 2010 and 2011, the chambers judge certified the action – including the plaintiffs’ waiver of tort claims – as a class proceeding. In so doing, the chambers judge relied on a number of cases that had previously certified claims for “waiver of tort.” In reliance on this authority, the chambers judge found that “a cause of action in waiver of tort is available at common law to enforce statutorily-conferred rights” under these statutes and concluded that it was premature to strike the waiver of tort claim before trial.
The B.C. Court of Appeal’s Decision
The B.C. Court of Appeal overturned the decision of the chambers judge and set aside the order for certification of the plaintiffs’ claims for restitutionary damages, disgorgement of profits and waiver of tort as failing to disclose a cause of action.
The Court of Appeal reviewed the history and application of waiver of tort doctrine in Canada and noted the controversy surrounding the doctrine. The Court observed that while there were numerous courts that had certified claims of “waiver of tort,” there remained uncertainty as to whether it constituted a proper cause of action and “[n]o case certifying waiver of tort has proceeded to a conclusive judgment on the doctrine.” Nonetheless, given the unsettled state of the law, the Court ultimately concluded that there was an arguable claim that the doctrine might exist as an independent cause of action.
However, in the key part of its decision, the Court held that the doctrine could not be invoked as a path to certification where the legislature had already created a comprehensive statutory regime of private remedies. In particular, the Court found that “[w]here the legal wrong allegedly grounding waiver of tort is limited to a statutory breach, and the legislation from which it emanates provides an exhaustive or exclusive statutory remedies for that breach, longstanding principles of statutory interpretation militate against certification.”
More specifically, after examining the statutory scheme of the BPCPA and SGA, the Court found that the legislature did not intend to augment these regimes by permitting consumers to mount actions against suppliers for restitutionary relief on the basis of the waiver of tort doctrine. In the case of the BPCPA, the Court of Appeal found that the statute’s legislative objectives and provisions revealed a “clear intent” of the legislature to provide an exhaustive code regulating consumer transactions. The Court of Appeal noted that the BPCPA “has over 200 provisions that comprehensively establish, administer and enforce statutory rights and obligations directed to the regulation of consumer transactions in a multitude of circumstances.” Moreover, the Court of Appeal found that the plaintiff’s claim based on waiver of tort was inconsistent with the language of the BPCPA, which placed a limit on recovery for pecuniary loss to restoration of the consumer’s own damages or loss arising from the deceptive act. In these circumstances, the Court of Appeal held that the BPCPA has “occupied the field of consumer rights and remedies arising from deceptive acts by suppliers,” and therefore a breach of the statute could not serve as the legal wrong required for the plaintiff’s waiver of tort claim.
The Court’s analysis was slightly different in the case of the SGA. The plaintiff claimed breach of warranty under the SGA. While the Court of Appeal found that the SGA as a whole was not intended by the legislature to provide a complete and comprehensive code governing the sale of goods, the specific remedies for breach of warranty under the SGA were intended to be exhaustive. Those remedies are limited to the actual loss suffered from the breach of warranty. As a result, the plaintiff’s claims for extra-statutory remedies on the basis of the SGA – including waiver of tort and other restitutionary theories – were precluded by the statute.
As a result of these findings, the Court concluded that the plaintiff had failed to state a cause of action for waiver of tort based on the alleged statutory breaches. Accordingly, the Court set aside certification of the plaintiffs claims for restitutionary damages, disgorgement of profits as well as waiver of tort.
The B.C. Court of Appeal’s decision in Koubi may mark the beginning of a reversal of the pro forma practice among the plaintiff class action bar to plead waiver of tort, and the corresponding tendency of certification courts to simply defer analysis of the doctrine to a full hearing on the merits. That said, the Court stopped short of concluding that waiver of tort cannot form the basis of a free-standing claim for which certification may, in certain circumstances, be granted. Notably, the Koubi decision quotes with approval the recent comments of Justice Lax of the Ontario Superior Court of Justice in Anderson v. St. Jude Medical, Inc.4 that certification judges should engage in a summary appraisal of waiver of tort claims where circumstances permit. Significantly, the B.C. Court of Appeal also concurred with Justice Lax that the time has come for legislative intervention into the development of the waiver of tort doctrine.