Raising the bar

By André Lepage & Louis-Philippe Constant
Illustration: Jason Schneider

Quebec and Ontario courts have sent strong messages that they will screen class actions at the certification level

As class actions become increasingly popular, Canadian courts may find themselves the targets of opportunistic forum shoppers. In the past few years it has been noted that Quebec’s class-action procedure, the oldest in Canada, is more plaintiff-friendly than regimes in other provinces. Recently, there have been concerns that with the secondary market civil rights of action granted by Bill 198, US plaintiffs might incite parallel suits in Ontario to the “strike actions” in the US. The main concern is that US plaintiffs will attempt to use the Canadian discovery process to garner sufficient evidence to allow them to meet the more stringent pleading requirements necessary to get their cases before a US jury.

Recently, Quebec and Ontario courts have sent messages that they intend to carefully screen proposed class actions at the certification level. Two recent cases focused on the role of the representative plaintiff and rejected the class actions they proposed. On October 18, 2006, the Quebec Court of Appeal rendered a highly anticipated decision having to do with class-action authorization. In Bouchard v. Agropur, the court unanimously upheld the decision of the Superior Court, rejecting the motion for authorization and confirming the necessity of a legal connection between the group representative and each of the defendant parties. This decision puts an end to the increasingly common practice in Quebec of having one sole representative plaintiff bring actions against the main players in a given industry (automobile, banking, insurance, etc.), despite the fact that this representative has a legal connection with only one of the defendant companies.

In Agropur, André Bouchard was asking to be authorized to bring a class action for $89 million in the name of Quebec consumers against 13 milk producers. According to Bouchard, the milk on the market in Quebec sometimes has a lower percentage of fat than indicated on containers. He argued that the defendant companies are being unjustly enriched to the tune of $44.5 million. Given these allegedly false representations, Bouchard was also claiming punitive or exemplary damages in the amount of $44.5 million.

The allegations in the motion for authorization as well as the out-of-court examination of Bouchard demonstrated that he had bought milk from only one of these companies, Nutrinor. In first instance, based on the principle of “sufficient interest” found in article 55 of the Quebec Code of Civil Procedure (CCP), Judge Jacques Viens concluded that Bouchard had a legal connection with only Nutrinor and therefore did not have sufficient interest to sue the other defendants with whom he had no transactions.

Although the appeal court confirmed that part of Justice Viens’ decision to do with the legal connection, it nonetheless did so by making certain nuances. According to Justice Pelletier of the Court of Appeal, having a cause of action is distinct from having sufficient interest to act. The existence of a cause of action must first be examined in the context of the article 1003 b) CCP analysis, which requires that an appearance of cause of action be apparent from the allegations contained in the motion for authorization. The notion of interest is a substantial right that applies in class actions and which, at the authorization stage, is an integral part of the criteria set out in a) and d) of article 1003 CCP. Given that the action is only that of a class once it has been authorized, the petitioner’s action, which is individual at the time of the motion for authorization, must satisfy the four conditions set out in article 1003 CCP for each of the defendants. The judge also reminds us that a person who has not lost anything has no interest to act. The Court of Appeal dissipates any ambiguity in this respect by clearly reaffirming the principle that it is necessary for a representative to have a right of action against each of the parties targeted by the class action.

The court also emphasizes that a class action is only a procedural tool and it does not bring only advantages but can sometimes result in unnecessary complications and even injustices. This necessitates a judicial filtering process that allows each case to be tested to evaluate whether it can be brought.

As for the judicial filtering, the Court of Appeal emphasizes the importance that the presentation of evidence at the authorization stage can take. Despite the fact that, since January 1, 2003, article 1002 CCP no longer gives the defendant the automatic right to examine the petitioner, the court indicated that judges will often want to favourably consider requests to carry out examinations before the motion for authorization.

Moreover, Justice Pelletier deals with the criteria set out in article 1003 d) CCP, which has to do with the petitioner’s capacity to adequately represent a group of class members. With this decision, the Court of Appeal has raised a bar that used to be considerably lower. Justice Pelletier reminds us that having the interest required to sue, competence, and an absence of a conflict of interest with the group members are all factors in light of which the court will determine whether the petitioner is an adequate representative. It is up to the judge presented with the motion for authorization to determine if the person who is asking for authorization could be the agent that all the members accepted to be represented by.

The Court of Appeal also reminds us that, since January 1, 2003, article 4.2 CCP sets out a rule of proportionality, which must be taken into consideration at the authorization stage.

Also, comments made by Justice Pelletier with respect to the Consumer Protection Act (CPA) are worthy of mention. He reiterates that, in order for punitive damages to be granted on the basis of article 272 of the CPA, compensatory damages must first be justified in the circumstances. This decision of the Court of Appeal seems to indicate that a more just and equitable balance between the interests of the petitioners and the defendants has been reached in the authorization process of class actions in Quebec.

In Ontario, in Poulin v. Ford Motor Co. of Canada, Justice MacKenzie of the Superior Court of Justice rendered a decision on November 14, 2006 with respect to a complaint made by Poulin regarding a faulty door latch. In class-action proceedings, a series of preliminary requirements must be met in order for the action to be certified as a class action. The court held that Poulin had met a number of these criteria, including: presenting a claim that was not doomed to fail on its merits, and describing an identifiable class. However, the court held that the pleadings did not identify sufficient common issues that would move the litigation forward, nor did he persuade the court that a class action was a preferable procedure to individual actions by aggrieved purchasers. The court also found that the representative plaintiff had not established that he could “fairly and adequately represent the interests of the class” or that hehad a workable plan for advancing the claim on their behalf.

A particular problem identified by the court concerned the agreement that plaintiff’s counsel had entered into with a US law firm. The defendants argued that the plaintiff was an “unwitting pawn” in an action spearheaded by the lawyers. The court pointed out that one of the requirements is that the representative plaintiff have competent counsel. In this case, the arrangement with the US law firm required Canadian counsel to obtain their consent before incurring any disbursement exceeding $2,500 and 30% of the fees would go to the US firm. The court indicated this agreement meant that US counsel were underwriting all litigation costs in exchange for a percentage of fees. The plaintiff had no responsibility for fees and had a “general lack of understanding or awareness of the primary evidence … of what constitutes a litigation plan … or … the financial arrangements … between his Canadian counsel and [the US lawyers],” which left the court with serious reservations as to whether the plaintiff has the capacity to properly instruct counsel on behalf of members of the putative class. With these considerations and the fact that the plaintiff had not produced a proper litigation plan, the court held that this last criterion had not been met. The claim was not certified to proceed as a class action.

André Lepage, LLB, is partner at Nicholl Paskell-Mede. Louis-Philippe Constant, LLB, is an associate at Nicholl Paskell-Mede

Technical editor: Mindy Paskell-Mede, BCL, LLB, partner, Nicholl Paskell-Mede in Montreal