The Alberta Court of Appeal recently overturned a class certification order and made important comments on a representative plaintiff’s evidentiary burden at the certification stage, as well as on the viability of claims for gain-based remedies (i.e., restitution and disgorgement) in the context of product liability class proceedings.
In particular, the decision, Spring v. Goodyear Canada Inc, 2021 ABCA 182, is significant for reaffirming the rigorous analysis required to establish a common issue in product liability cases that concern a range of products. In addition, the Court clarified that the web of contracts in the supply chain constitute legal justifications (or “juristic reasons”) which effectively forecloses an action by a consumer against a manufacturer for unjust enrichment – absent a legal basis for disregarding these contracts. Further, the decision also sets a high bar for obtaining disgorgement in product liability cases, as the Court held the remedy will be unavailable where the ordinary measure of damages in tort is likely to provide an adequate remedy for the alleged harm.
Background facts and procedure
The representative plaintiff commenced a class proceeding in Alberta against the defendants on behalf of all persons who bought tires that, it was alleged, suffered from a manufacturing or design defect. The representative plaintiff pleaded claims in negligence, failure to warn, and unjust enrichment, and sought compensatory damages for alleged injuries suffered by the class as well as restitution, disgorgement, aggravated damages, and punitive damages.
In the Court of Queen’s Bench, the case management judge certified the action with the common issue being the existence of a common defect across the range of different types of tires sold by the defendants.
The Court of Appeal’s decision
On appeal, the primary issues discussed by the Court of Appeal were:
- whether there was sufficient evidence or “some basis in fact” to show a common defect between the various types of tires covered by the class proceeding; and
- whether a gain-based remedy – either restitution or disgorgement – was legally available to the class.
The Court answered both questions in the negative and set aside the lower court’s order certifying the class proceeding.
No evidence of common defect
The Court first turned to consider whether there was sufficient evidence to conclude there was a common defect in the range of products covered by the class proceeding. The Court commented that, although the evidentiary threshold for certification is a low hurdle, it nevertheless remains “a hurdle” that requires “more than symbolic scrutiny”. The Court went on to conduct a rigorous analysis of the evidence tendered by the representative plaintiff and concluded as follows:
- A few incidents of tread separation on some of the tires was consistent with normal wear and tear of the product overtime and was not evidence of a defect.
- Although the defendants issued a recall for a narrow subset of its products, this was not, in itself, sufficient evidence of a common manufacturing or design defect among the wider range of products covered in the class proceeding.
- The fact that customer returns of products not covered by the recall were elevated around the time of the recall was not evidence of a common defect because two clusters of abnormal levels of returns may result from two distinct causes.
As a result of this analysis, the Court found there was no basis to find a certifiable common issue concerning a defect in the products. The Court concluded that the certification judge erred by certifying the proceeding in the absence of some basis to find such a common defect.
Gain-based remedies not available here
The Court also found that the representative plaintiff’s claims in restitution for unjust enrichment and disgorgement of profits for tortious wrongdoing should not have been certified because the pleadings did not disclose a valid legal basis for the class to obtain either remedy.
The claim for restitution was founded on an allegation that the defendants had been unjustly enriched by selling the proposed class members allegedly defective, dangerous, and unfit products to the deprivation of the class “and at risk to the general public”.
The Court first commented on the above-mentioned allegations of risk of harm to the “general public”. The Court found that the class could not claim remedies for wrongs suffered by the public at large, because any remedy granted either as restitution or disgorgement had to be linked to a wrong suffered by an actual class member. The Court also noted that merely exposing the public (or a class member) to the “risk” of harm does not, in itself, constitute a cause of action. In short, the remedies pursued by the class had to be directed at curing actionable wrongs suffered by the class, as opposed to unactionable risks allegedly borne by the public as a whole.
The Court then considered whether the class could pursue personal claims for restitution based on alleged wrongs suffered by the class. The Court found that the class did not suffer any deprivation as a result of the defendants’ enrichment because they received the products that they bargained for in exchange for the purchase price. In the Court’s view, the lack of deprivation was sufficient to dispense with the restitution claim. The Court went further and held that the web of contracts in the supply chain that indirectly link the defendants to the class provide a legal justification (or “juristic reason”) for the defendants’ enrichment.
Having dispensed with the restitution claim, the Court finally turned its analysis to the disgorgement claim. The Court held that the class members could not claim disgorgement for the totality of the defendants’ profits arising from the sale of the products. They could only claim disgorgement of the defendants’ profits arising from each individual class member’s purchase of the defendants’ product. The Court was of the view that the class members could recover the same sum through the ordinary measure of compensatory damages in tort and, as a result, the exceptional remedy of disgorgement could never be an appropriate remedy on these facts because the class already had an adequate remedy.
The Court of Appeal’s decision provides helpful guidance in product liability class actions in at least three different ways.
First, the effect of the Court’s decision is that in an action based on alleged manufacturing or design defects it is not sufficient to tender evidence of a defect in only some of the products. The plaintiff must demonstrate some basis to find a common defect across the range of products covered by the proceeding to meet the criteria for certification.
Second, a contract or contracts may provide a legal justification for an enrichment even where the class members and the defendants are not in privity with one another. As a result, restitution for unjust enrichment should not usually be available in product liability cases in the absence of legal grounds that would render a contract invalid or unenforceable.
Third, the Court has provided helpful guidance on the availability of disgorgement in product liability class actions by extending to tort cases the principle that disgorgement is not available when the ordinary measure of damages is adequate to repair the wrong. Thus, the Court has affirmed that disgorgement is an exceptional remedy, whether pursued in contract or in tort.