Class Actions: Key Developments in 2022
Our 2022 “roundup” of key class action decisions underscores the court’s gatekeeping function on certification motions and the importance of a proper evidentiary record. This past year further saw the interpretation and application of the recent amendments to Ontario’s Class Proceedings Act, 1992 ("CPA") concerning dismissals for delay.
This article will provide a brief overview of the following topics:
- Intrusion upon seclusion against “database defendants”
- Pure economic loss for environmental spill impacting enjoyment of public lake
- Regulatory obligation to act in clients’ best interest does not create a fiduciary relationship
- Increased risk of future harm
- No evidentiary basis that personal information was shared
- No basis in fact for allegations
- Threshold for intrusion upon seclusion not met
- Reliability as a factor in assessing materiality
- Enforcement of arbitration clause
- Recall program
- The case “shall” be dismissed, but…
- A dismissed case can rise from the ashes
- Context matters
Non-Viable Causes of Action
In 2022, courts rejected efforts to extend liability for the tort of intrusion upon seclusion, economic loss for environmental spills and investment losses, as well as claims for damages for increased risk of future harm.
Intrusion Upon Seclusion Against “Database Defendants”
In a trilogy of decisions, the Ontario Court of Appeal rejected attempts by putative class members to use the doctrine of intrusion upon seclusion to hold businesses who collect and store personal information of others in databases maintained by these businesses liable when that information is hacked by third parties.1 The tort of intrusion upon seclusion requires a defendant must have “invaded or intruded upon the plaintiff’s private affairs or concerns, without lawful excuse.” Given that the defendants were not accused of actually intruding upon or invading of the plaintiffs’ privacy, this requirement could not be met. Accordingly, the plaintiffs’ intrusion upon seclusion claims could not extend to a defendant’s mere storage of information. Negligence cannot be transformed into an intention tort, and putative class members had other causes they could pursue for any pecuniary losses. However, moral damages under intrusion upon seclusion should only apply to the entity that invaded the privacy of the plaintiff.
Pure Economic Loss for Environmental Spill Impacting Enjoyment of Public Lake
In Rieger v. Plains Midstream Canada ULC, 2022 ABCA 28, the Alberta Court of Appeal overturned certification of an action arising from the accidental release of crude oil from a pipeline into the Red Deer River which made its way to Gleniffer Lake, resulting in the closure of the river and lake for recreational use. A proposed class action was brought on behalf of a broad class for loss of use of the public waters and alleged diminution in the plaintiffs’ property values. The plaintiffs did not allege any physical damage to their property or any physical harm to them, but merely claimed damages for economic loss. The Court of Appeal found that physical proximity did not fit with any of the three recognized categories of sufficient proximity for pure economic loss and there was no relationship between the plaintiffs and defendant to establish a novel duty of care. The plaintiffs’ claim further failed to show the defendant’s conduct interfered with a legally cognizable right of the plaintiffs. Their loss of use of Gleniffer Lake was the loss of use of a public place, and their property was not physically damaged by the oil spill.
Regulatory Obligation to Act in Clients’ Best Interest Does Not Create a Fiduciary Relationship
In Boal v. International Capital Management Inc., 2022 ONSC 1280, the Ontario Divisional Court upheld the dismissal of a certification motion brought against the plaintiff’s investment advisors and investment dealer for allegedly breaching their fiduciary duty. The plaintiff’s allegation was premised on the advisors’ failure to disclose a commission they received on an investment recommended to the plaintiff. The plaintiff’s claim hinged on whether investment advisors could have an “ad hoc” fiduciary relationship with the putative class members under their professional rules and obligations outlined in the Mutual Fund Dealers Association rules and by-laws and the Financial Planners Council Code of Ethics. These professional rules set out, among other things, that investment advisors have an obligation to exercise business judgment in the “best interest of the client” in respect of any conflict of interest that may arise.
In a split 2-1 ruling, the Court stated that an ad hoc fiduciary relationship could not be established solely on the basis of professional rules or ethical codes. Instead, the existence of a fiduciary relationship for investment advisors must be assessed in reference to the multitude of factors set out by the Ontario Court of Appeal in Hunt v. TD Securities on a case-by-case basis. Accordingly, the plaintiff’s claim for the breach of fiduciary duty on the basis of regulatory obligations was not viable.
Increased Risk of Future Harm
In Palmer v. Teva Canada Ltd., 2022 ONSC 4690, Justice Perell of the Ontario Superior Court of Justice denied certification of a proposed class action brought on behalf of persons who were prescribed a particular hypertension medication following the discovery that this prescribed drug manufactured by the defendants may have been contaminated with certain chemicals, which have been known to cause health issues in rats. The proposed class action centred around the increased risk of being diagnosed with cancer, with the plaintiffs claiming psychological harm arising from the contaminated drug being recalled, and being advised the contaminants are possibly carcinogens, increasing the risk that class members will be diagnosed with cancer. The plaintiffs also claimed pure economic losses of medical bills, medical monitoring, refunds and costs for the drugs thrown away.
Justice Perell rejected the claim for psychological harm, holding that “legally culpable wrongdoing cannot be based just on conduct increasing the plaintiff’s risk of harm, and that for a legally viable tort claim, there must be actual physical injury to person or property or psychological harm to person that has actually materialized.” The claim for damages for psychological harm was held to not be certifiable as neither the risk of future physical or psychological harm nor the present anxiety, occasioned by the risk of future physical or psychological harm, is a compensable harm. In terms of the claim for economic loss, the Court noted that a predicate for recovery for pure economic loss is that the goods present an imminent real and substantial danger to health and safety, which could not be established in this case. There is no compensation merely for an increase in the potentiality of harm.
Privacy Class Actions
No Evidentiary Basis that Personal Information was Shared
In Simpson v. Facebook, Inc., 2022 ONSC 1284, the Ontario Divisional Court upheld a decision to deny certification of a privacy class action alleging that Facebook improperly shared Canadian Facebook users’ information with Cambridge Analytica. The motion judge held that the plaintiff failed to provide some evidentiary basis to support the allegation that Facebook actually shared users’ information. On appeal, the Divisional Court upheld the motion judge’s decision and clarified that while the plaintiff did not need to prove there was an actual breach of privacy, the plaintiff still needed to show some basis in fact for the “core allegation on which the claim and the proposed common issues depend.”
No Basis in Fact for Allegations
In Chow v. Facebook, Inc., 2022 BCSC 137, the Supreme Court of British Columbia declined to certify a breach of privacy claim against Facebook because the plaintiffs failed to provide any basis in fact to support their core allegations or that they suffered compensable harm. The plaintiffs alleged that “Facebook collected, used, retained and commercialized… call and text message data it obtained from users, and profited from that collection at users’ expense.” Similar to the Divisional Court’s ruling in Simpson, the Supreme Court of British Columbia held that there was no evidence to substantiate these core allegations. Further, the plaintiffs failed to show that they suffered any actual compensable harm by Facebook’s alleged misconduct. The Court concluded that certification in such circumstances would not be appropriate because allowing the class proceeding to proceed would not be an efficient use of judicial resources in the absence of such key evidence.
Threshold for Intrusion Upon Seclusion Not Met
In Stewart v. Demme, 2022 ONSC 1790, the Ontario Divisional Court denied certification of a class action alleging intrusion upon seclusion based on the defendant’s illegal access to thousands of patients’ hospital records. Certification was rejected on the basis that the defendant’s conduct failed to meet the threshold of “intrusion” necessary to establish the claim. The defendant, a nurse employed by the defendant hospital, accessed patients’ records through a “medication automated dispensing unit” for the purpose of stealing prescription opioids. The defendant was using the patients’ limited information as a “key” to find patients who were prescribed opioids in order to dispense the drugs she was after.
The Divisional Court determined that the defendant’s intrusion into health records was not “highly offensive, causing distress, humiliation or anguish,” which is a required element for intrusion upon seclusion. The Court clarified that the level of the intrusion in such a claim must be assessed individually, not collectively. It made no difference that thousands of records were accessed, since each individual intrusion was insignificant and fleeting. Further, given that the defendant was not “after” the information and only temporarily accessed the health records as a means to carry out her theft, the Court held that the intrusion was not sufficiently serious to disclose a tenable claim.
Securities Class Actions
Reliability as a Factor in Assessing Materiality
In Wong v. Pretium Resources Inc., 2022 ONCA 549, the Ontario Court of Appeal upheld the dismissal of a class action alleging Pretium’s delay in disclosing concerns about previously disclosed resource estimates conveyed by a mining consulting firm Pretium hired to oversee a bulk sample program based on early testing. The program’s purpose was to test and verify the resource estimate. On appeal, it was argued the motion judge erred in treating reliability of the concern as a factor in assessing materiality. The Court of Appeal found reliability was a relevant factor in this case, as the expressed concern was an opinion and not an undisputed fact.
Significantly, Pretium’s impugned representations all stated that the results of the bulk sample program would not be disclosed until it was completed, and the final report submitted. The evidence established that the market adopted a “wait and see” approach from the disclosures. Pretium also never said that the consulting firm would be providing an opinion on the resource estimate, and Pretium had planned from the outset for another firm to interpret the program results. Therefore, it was relevant that Pretium considered the consultant’s opinion to be premature and unreliable, and the evidence on the summary judgment motion supported the reasonableness of that view (including that the consultant’s opinion was based on testing that failed to properly account for the non-linear nature of the deposits). As an aside, following the completion of the bulk sample program, the previously disclosed resource estimate was confirmed (and actually exceeded).
The decision reinforces three important points:
- Disclosure obligations under securities litigation do not impose an obligation to disclose all facts and leave to an investor to sort out what is and is not material.
- Materiality is contextual and influenced by how representations have been framed. For example, the Court of Appeal noted that had Pretium’s disclosure suggested that the consultant was expected to express its views on the resource estimate as its work on the bulk sample program progressed, then the failure to disclose its concerns may have constituted an omission of material information, irrespective of its reliability.
- A drop in share price following a news release, by itself, is not evidence of a materiality, and backwards reasoning from such a decline cannot be used to support the finding of a materiality. This point was also made in Markowich v. Lundin Mining Corporation, 2022 ONSC 81 in rejecting arguments that the failure to promptly disclose a known incident of pit wall instability and a rock slide in relation to an open pit mining operation were a breach of the duty to disclose a material change.
Mitigating Class Action Risk
Enforcement of Arbitration Clause
In jurisdictions where consumer protection legislation does not invalidate mandatory arbitration clauses in consumer agreements, two decisions from the past year stayed proposed class actions because of arbitration clauses.
In Petty v. Niantic Inc., 2022 BCSC 1077, the proposed class action was brought on behalf of residents in Alberta and British Columbia who paid for “loot boxes” in the defendants’ mobile games. The plaintiffs alleged that the loot boxes, which offered a chance to win virtual prizes in the games, were an illegal and unlicensed form of gambling. Justice Mayer of the Supreme Court of British Columbia granted the defendants’ application for a partial stay of a class action based on the arbitration clause contained in the “Terms of Service” of their mobile games. Specifically, the arbitration clause stated that any disputes between the parties will be settled by binding arbitration to be conducted in the customer’s country of residence. It further stated that the customer could opt out of the arbitration clause if they provided an opt-out notice in the 30 days following acceptance of the Terms of Service. The clause did not preclude the customer from bringing individual claims in small claims courts or from seeking certain injunctive relief, and indicated that the defendants agreed to pay the entire cost of arbitration for claims under $75,000, and that they would not seek any legal fees from the customer, subject to certain exceptions.
The plaintiffs relied on a previous Supreme Court of Canada decision, Uber v. Heller, to argue that the arbitration clause in the case was unenforceable. Justice Mayer held that the problems with the arbitration clause in Uber were distinguishable. The relationship between the defendants and its customers who purchased loot boxes was not premised on the same elements of dependence and vulnerability that existed in the employment relationship in Uber. Also, elements of the arbitration clause in question did not rise to the level of “undue” unfairness or hardship to warrant rendering it unenforceable.
In Difederico v. Amazon.com, 2022 FC 1256, the Canadian Federal Court granted the defendants’ motion to stay the proposed class action in favour of binding arbitration. The plaintiff alleged that the defendant, the online retailer and e-commerce company Amazon, engaged in criminal price fixing under the Competition Act. Amazon successfully brought a motion to stay the proceeding because the plaintiff agreed to settle the dispute through arbitration by agreeing to the Conditions of Use on Amazon’s website.
Among other things, the plaintiff argued that the stay ought to be denied because the Conditions of Use restricted the arbitration to U.S. law, which restricted the plaintiff and proposed class from seeking a remedy under the Canadian Competition Act. However, the Court found no basis that the choice of law clause would restrict the plaintiff from appropriate relief under arbitration. Further, given that the Competition Act does not restrict the use of arbitration clauses in respect of allegations of anti-competitive behaviour, the Court did not find there was a principled public policy reason to decline the stay. Accordingly, the plaintiff’s claim was stayed.
In Coles v. FCA Canada Inc., 2022 ONSC 5575, Justice Perell of the Ontario Superior Court of Justice denied certification of a proposed class action on the grounds that it was not the preferable procedure compared to the defendant’s robust recall program. Coles was one of six national class actions arising from the installation of defective airbags in the plaintiffs’ vehicles.
The representative plaintiff and putative class members did not allege having been harmed by the airbags. Hence, the only damages that could be compensated for were those that would be incurred in removing the real and substantial danger presented by the airbags (i.e., removing and replacing the airbags). Justice Perell determined that Chrysler’s recall program, which had been significantly underway by the time the case was heard, would compensate the plaintiffs and potential class members for those losses, and the recall program could also compensate class members much more expeditiously than the resolution of the class action would have. Accordingly, certification of the class action was denied.
Mandatory Dismissal for Delay
Following the significant amendments made to Ontario’s Class Proceedings Act, 1992 in 2020, the first reported judicial interpretation of the mandatory dismissal for delay provision, section 29.1, occurred in 2022. Under section 29.1, the Court “shall” dismiss a proceeding for delay if at least one of the specified steps have not been completed within one year of the proceeding being commenced, such as the representative plaintiff has filed a final and complete motion record for certification, an agreed-to timetable for service of the motion record or other step that would advance the proceeding, or a timetable has been established by the Court.
The Case “Shall” Be Dismissed, But…
In the first reported decision on section 29.1, Bourque v. Insight Productions, 2022 ONSC 174, Justice Belobaba of the Ontario Superior Court of Justice granted the defendants’ motion to dismiss the case for delay. His Honour emphasized that the plain language of the CPA was clearly mandatory and that the Court “shall” dismiss for delay when the requirements under section 29.1 have not been met. Given that none of the specified criteria were met by the one-year deadline, Justice Belobaba dismissed the proceeding. However, the dismissal was made with the caveat that class counsel could refile the action with a different representative plaintiff.
A Dismissed Case Can Rise From the Ashes
In D’Haene v. BMW Canada Inc., 2022 ONSC 5973, Justice Perell stated that the mandatory language of the CPA does not provide the court with the ability to refrain from dismissing a proceeding where the criteria of section 29.1 have not been strictly adhered to. Justice Perell also clarified that the Court has the power to dismiss proceedings against some defendants while allowing the case to continue against others. However, his Honour held that the Court has the jurisdiction under the CPA to allow a dismissed action to “rise like the mythical phoenix from the ashes of its predecessor.” Although his Honour determined that the proceeding should be dismissed in favour of the moving parties, Justice Perell made a “Phoenix Order” that allowed the action to be revived against those parties if the plaintiffs filed a final certification motion record within 30 days of the order.
In Lubus v. Wayland Group Corp., 2022 ONSC 4999, Justice Morgan took a less stringent approach in interpreting section 29.1, stating that context matters in deciding whether a case has met the requirements of the statutory provision. His Honour disagreed with the strict mandatory interpretation of section 29.1 that was articulated in Justice Belobaba’s decision in Bourque. Taking a contextual approach to the facts of the case, Justice Morgan determined that, at the initial case conference in July 2021, the Court had established a form of a timetable by directing next steps that had to be taken “as soon as practicable.” Given that the so-called “timetable” was adhered to, his Honour held the plaintiffs were not offside section 29.1 and therefore dismissed the defendants’ motion.
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