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Waiver of Tort Gets a Reality Check at the B.C. Court of Appeal

Posted in Case Comments, Class Actions
Brandon Kain

In a certification decision released last Monday, the British Columbia Court of Appeal has significantly narrowed the scope of the waiver of tort doctrine, holding that it cannot be used to remedy breaches of a statute which itself provides exhaustive or exclusive remedies for the breach in question. The decision in Koubi v. Mazda Canada Inc. is the first case to refer to Lax J.’s common issues judgment in Andersen v. St. Jude Medical, Inc., and may signal the beginning of a trend towards greater scrutiny of waiver of tort claims in the class actions context.

Background

Koubi involved a putative class action against Mazda Canada and its B.C. dealers, on behalf of all B.C.-resident owners and lessees of Mazda3 vehicles containing a particular type of door lock mechanism. The plaintiff alleged that the door lock mechanism was defective, and that the defendants engaged in deceptive marketing by failing to provide timely notification of the defects and continuing to produce deceptive marketing information. The causes of action advanced by the plaintiff were essentially twofold:

(1) breach of the implied warranties of quality and fitness in ss. 18(a) and (b) of the B.C. Sale of Goods Act (“SGA“); and

(2) a “deceptive act or practice” contrary to ss. 4 and 5 of the B.C. Business Practices and Consumer Protection Act (“BPCPA“).

The claim was initially certified under the B.C. Class Proceedings Act in a 2010 decision by Dardi J. Though Dardi J. declined to certify a common issue regarding whether the class members were entitled to damages – finding that “[c]ausation, proof of loss and the amount of damages claimed by each class member will vary in accordance with their individual circumstances” (para. 145) – she nonetheless granted the plaintiff leave to reformulate the common issues and the pleadings based on waiver of tort. According to Dardi J., waiver of tort could potentially serve as an independent cause of action that would not require proof of individual loss by the class members, but would instead entitle them to a class-wide restitutionary remedy such as disgorgement of the profits received by the defendants through their wrongful acts. In a subsequent 2011 decision, Dardi J. approved the plaintiff’s amendments with respect to waiver of tort. The defendants appealed from both decisions.

The Decision

The B.C. Court of Appeal overturned Dardi J.’s decisions, and set aside the certification order, in a unanimous judgment delivered by Neilson J.A. The Court began by describing the nature of the waiver of tort doctrine, and identified two discrete issues it had given rise to in the case law:

Waiver of tort is a restitutionary doctrine that permits a plaintiff to recover benefits a defendant has obtained by its wrongdoing instead of damages measured by the plaintiff’s loss. …

[It] has been embraced in class actions and the doctrine has experienced a resurgence in that context, since it may be used to present damages as a common issue based on benefits obtained by the defendant through its wrongful conduct, thereby avoiding individual proof of loss by each class member.

The precise nature and scope of the doctrine is controversial, and the subject of much academic and jurisprudential debate. Two aspects of that exchange are relevant to Ms. Koubi’s claim. The first is whether waiver of tort is an independent cause of action, or whether it is “parasitic” in the sense it merely provides an alternative remedy once the plaintiff has established an actionable wrong. The significance of this distinction lies in the fact that, if waiver of tort is only remedial, the plaintiff must prove all elements of the underlying wrong, including loss, before it may elect to seek benefits in the hands of the defendant. If it is an independent cause of action, however, the plaintiff need only prove wrongful acquisition of a benefit by the defendant before claiming disgorgement of that benefit…

The second aspect of the debate relates to the scope of the predicate wrongful acts that may ground a claim for waiver of tort, and whether they are confined to tortious wrongs, or extend to any legal wrong by a defendant. (paras. 16-19)

Neilson J.A. then proceeded to consider each of these two issues in turn.

As to the first issue, Neilson J.A. declined to reach a definitive conclusion regarding whether of tort was an independent cause of action. After reviewing many of the academic and judicial authorities in this area, including Lax J.’s recent decision in Andersen, Neilson J.A. concluded that the law surrounding waiver of tort remained “unsettled”, and that Dardi J. had not erred in finding the doctrine could potentially serve as an independent cause of action at trial (para. 40). She also offered the following tentative description of the “elements” of waiver of tort qua independent cause of action:

“If the doctrine of waiver of tort is viewed as an independent cause of action, it appears to have two constituent elements: a legal wrong by the defendant, and a benefit flowing to the defendant as a result. The question is whether the statutory breaches alleged by Ms. Koubi may constitute the required legal wrong.” (para. 41)

However, as to the second issue, being whether the alleged breaches of the SGA and BPCPA could satisfy the “legal wrong” element of waiver of tort, the Court of Appeal was less circumspect. Neilson J.A. held that a breach of statute cannot ground a waiver of tort claim if the statute itself creates exhaustive or exclusive remedies for the breach in question. Further, referring to Lax J.’s judgment in Andersen as “encourag[ing] a summary appraisal of a claim in waiver of tort where circumstances permit” (para. 81), Neilson J.A. held that the degree to which a statute is “exhaustive or exclusive” in this sense is a question of law which can be resolved on the certification motion. As Neilson J.A. concluded:

… Where the legal wrong allegedly grounding waiver of tort is limited to a statutory breach, and the legislation from which it emanates provides exhaustive or exclusive statutory remedies for that breach, longstanding principles of statutory interpretation militate against certification. An examination of the relevant legislation in the face of such a claim is a matter of law alone, and does not require a factual record for determination…. (para. 80)

Applying this principle to the statutory breaches alleged by the plaintiff, Neilson J.A. found that the BPCPA “reveals a clear intent to provide an exhaustive code regulating consumer transactions” through its “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”. (para. 63) Interestingly, in arriving at this finding, Neilson J.A. highlighted not only the civil provisions allowing consumers to bring court actions to recover pecuniary loss, but also the regulatory provisions empowering the director and investigative staff to ensure compliance with the statute, and creating sanctions for offenders.

Neilson J.A. reached a similar conclusion regarding the SGA. She began by acknowledging that, unlike the BPCPA, the SGA was “not intended to be an exhaustive code”. (para. 72) Nonetheless, Neilson J.A. held that s. 56 of the SGA, which sets out the remedy for breach of the implied warranties in s. 18, still intended those remedies to be exclusive. In her words, “[n]othing in s. 56 suggests a legislative intent to give the court discretion to award a remedy for breach of warranty beyond those stipulated”. (para. 76)

Potential Significance

The decision in Koubi is significant in that it narrows the types of conduct which can serve as the alleged “legal wrong” necessary to certify a waiver of tort claim in a class action. The Court’s reasons suggest that a breach of statute will fail to qualify as a sufficient “legal wrong” where the statute either:

(1) serves as an “exhaustive code” for regulating the statutory rights it creates (like the BPCPA); or

(2) creates an “exclusive” remedy in respect of those rights (like the SGA).

Many statutory breaches which have previously been found capable of supporting waiver of tort claims on certification may need to be revisited to determine whether they meet the Koubi test.

In addition, however, Koubi is significant in that it suggests class action judges are beginning to take a more critical approach to waiver of tort at the certification stage. Less than one month prior to Koubi, Lax J., speaking after a full common issues trial in Andersen, observed that “[m]y experience from this trial suggests that deciding the waiver of tort issue does not necessarily require a trial and that it may be possible to resolve the debate in some other way.” (para. 587) Similarly, in Parker v. Pfizer Canada Inc., a case decided just prior to Andersen and Koubi but not referred to in either of them, Perell J. stated:

Starting with Serhan, the theory goes that since it is not plain and obvious that waiver of tort is not available, it is appropriate to certify waiver of tort as a common issue. However, in my opinion, it is not necessary to wait for a trial judgment. The answers to questions about the scope of waiver of tort are purely matters of legal policy that do not require an evidentiary record and, indeed, the questions would be better answered by posing hypothetical questions not confined to a particular evidentiary record. Hypothetical questions that would be relevant are whether, when and to what extent a restitutionary award should circumvent established principles of tort, contract, and property law that limit the extent of a wrongdoer’s liability.

In the case at bar, because certifying waiver of tort has become fashionable, neither party argued the point, so I will say nothing more about how waiver of tort policy questions should be answered and I simply say that in the immediate case or in other cases, the certification of waiver of tort questions should be revisited. (paras. 111-112)

These cases indicate that courts are no longer willing to permit waiver of tort claims to shelter behind the “plain and obvious” test for disclosing a cause of action at certification. Instead, waiver of tort must now face a “reality check”. If the decision in Koubi is any indication, that reality check is unlikely to bode well for waiver of tort in the future.

Case Information

Koubi v. Mazda Canada Inc., 2012 BCCA 310

BCCA Court File No.: CA038143

Date of Decision: July 16, 2012