With its decision in Dennis v Canada, 2017 FC 1011, the Federal Court has reaffirmed the “no costs” approach for plaintiffs who discontinue their proposed class proceedings under rule 334.39(1) of the Federal Court Rules (SOR/98-106).

Background

In 2013, Andrew Dennis filed a statement of claim with the Federal Court, seeking certification of a class action lawsuit on behalf of all Western Canadian farmers who had delivered wheat and barley to the Canadian Wheat Board during the 2010 – 2012 crop years (the “Plaintiffs”). The claim named as defendants, among others, the Canadian Wheat Board (the “Defendant”) and its successors. Specifically, the claim contended that $145 million which should have been paid to farmers was withheld and transferred to a separate contingency fund controlled by the Defendant.

In April 2017, the Plaintiffs re-filed the claim with the Manitoba Court of Queen’s Bench and sought leave to discontinue the Federal Court proceeding, as the Federal Court only has jurisdiction to hear cases relating to federal entities, not private ones like G3 Canada Limited – the company that acquired the Defendant in 2015.

Dismissal versus discontinuance

The Defendant opposed the discontinuance, and instead brought an application seeking an Order dismissing the action. Under Rule 334.3 of the Federal Court Rules relating to class proceedings, a plaintiff is entitled to discontinue a proceeding with leave of the Court, without the consent of the opposing party. The party discontinuing may also face an award of costs. Justice Barnes stated that Rule 334.3 should be read in light of Rule 165, which provides that neither the consent of the Court, nor that of the opposing party is needed to discontinue a (non-class) proceeding. Justice Barnes held therefore that the purpose of the class proceeding rule is to protect the interests of the putative or actual members of the class, and not to enhance the interests of the defendants. In the absence of bad faith or misconduct, the Plaintiffs were entitled to discontinue the proceeding. Nothing in the Rules authorized the Court to substitute a dismissal for the requested discontinuance. Justice Barnes also noted that there was a valid reason for the discontinuance as the claims would continue at the Manitoba Court of Queen’s Bench. In these circumstances, forcing the Plaintiffs to proceed with the action would amount to a “waste of judicial resources”.

Costs on discontinuance

The Defendant sought costs of the proceedings and motion for discontinuance. In declining to award costs (other than those of an earlier motion to strike), Justice Barnes referred to Rule 334.39(1) which provides that:

[N]o costs may be awarded against any party to a motion for certification of a proceeding as a class proceeding, to a class proceeding or to an appeal arising from a class proceeding, unless

(a) the conduct of the party unnecessarily lengthened the duration of the proceeding;

(b) any step in the proceeding by the party was improper, vexatious or unnecessary or was taken through negligence, mistake or excessive caution; or

(c) exceptional circumstances make it unjust to deprive the successful party of costs.

In examining this Rule, Justice Barnes referred to the Federal Court of Appeal’s decision in Campbell v Canada, 2012 FCA 45. In Campbell, the Court adopted an expansive interpretation of the Federal Court's “no costs” approach in class proceedings, stating that the purpose of Rule 334.39(1) was to limit the role of costs as a disincentive to class action plaintiffs. Absent improper or abusive behaviour, or “exceptional circumstances”, no costs would be payable for steps taken upon or after the filing of a motion to certify.

Justice Barnes held that, aside from the motion to strike, all material steps taken in the proceeding for which costs were sought took place after the filing of the Plaintiffs’ motion to certify. Nothing on the record could be characterized as improper, abusive or vexatious. Consequently, the Defendant was not entitled to any costs beyond those for the motion to strike.

Key takeaways

Defendants frequently seek a dismissal of a proceeding rather than a discontinuance, on the premise that a dismissal provides greater finality. In a non-class proceeding, plaintiffs will often consent to a dismissal and the court will grant a dismissal order. However, the Dennis decision holds that, prior to certification in a class proceeding, the court does not have the jurisdiction to order a dismissal, even with the consent of the representative plaintiffs.

On the subject of costs, with the Federal Court’s confirmation of the prima facie “no costs” approach, it is clear that there will be limited situations in which costs will be awarded where plaintiffs seek to discontinue Federal Court class proceedings. While it remains theoretically possible for a defendant to obtain costs upon filing of a discontinuance is filed prior to the motion to certify, the spirit of the Federal Court Rules and case law lean heavily in favour of a “no costs” approach.