The Court of Appeal for Ontario released its decision yesterday in Palmer v. Teva Canada Limited, affirming the denial of certification and dismissal of a proposed class action arising from the 2018 and 2019 recall of pharmaceutical products containing valsartan.

Background

The plaintiffs sought certification of an action seeking damages for the alleged increased risk of being diagnosed with cancer in the future as a result of exposure to impurities detected in certain products containing valsartan. Notably, however, the proposed class action did not seek compensation for consumers who have been or may be diagnosed with cancer.

The plaintiffs also sought damages for costs of medical services and monitoring, refunds for the drugs consumed, and costs for the drugs thrown away after the drugs were recalled.

The claim also sought damages for psychological injury due to the shock of the recall.

Court of Appeal affirms denial of certification

The Court of Appeal confirmed there is no liability for negligence “in the air” and no right to be free from the prospect of damage, concluding that “under s. 5(1)(a) of the Class Proceedings Act, 1992, there can be no viable cause of action in negligence without actual damage.” The Court found that, in this case, the claimed bodily injuries had not materialized and may never materialize.

On psychological injury, the Court of Appeal found that the plaintiffs failed to plead the material facts needed to support damages recoverable in tort. The Court stated that “the right to protection against psychiatric illness is limited and does not extend to an illness which would be suffered only by an unusually vulnerable person.” In addition, the Court of Appeal found it was apparent that the assessment of psychological damages in this case would require proof of the harm suffered by the individual class members because the claims are “inherently individual in nature and idiosyncratic”.

The Court of Appeal found the certification judge did not err in dismissing and declining to certify the plaintiffs’ remaining claims, including for pure economic loss.

Although the Court of Appeal disposed of the appeal by finding the certification judge did not err in dismissing the action under the s. 5(1)(a) cause of action criterion, the Court also confirmed that the certification judge correctly applied the “some basis in fact” principles for the common issues criterion under s. 5(1)(c), and committed no error in finding that the plaintiffs had failed to satisfy the common issues criterion.

The authors represented Teva Canada Limited in this action.

In a recent decision, Del Giudice v. Thompson, 2024 ONCA 70, the Court of Appeal for Ontario reaffirmed that the cause of action component of the certification test is intended to be a meaningful screening device to weed out meritless claims. It is a helpful example of how defendants can use a pleadings challenge to end a proposed class action at an early stage.

Background

The action was filed after a Capital One database stored on Amazon Web Services’ computer servers was hacked by a previous employee of Amazon Web Services. The breach was estimated to affect six million Canadians.

After four sets of pleading amendments, the plaintiffs’ statement of claim included 19 causes of action, including data misuse claims and data breach claims. Justice Perell found that the claim “egregiously” contravened the rules of pleading and failed to plead any viable cause of action. He also observed that previous amendments to the claim transformed a straightforward data breach claim into a $240 billion action for data misappropriation and misuse. Ultimately, Justice Perell struck the claim without leave to amend.

Court of Appeal confirms valuable practice points

The Court of Appeal dismissed the plaintiffs’ appeal, reaffirming that the cause of action test is designed to “weed out claims that are doomed to fail”. In doing so, the Court confirmed valuable points for defendants, including:

• The motion judge was entitled to consider contractual documents that contradicted the pleaded allegations. The Court of Appeal rejected the plaintiffs’ argument that these documents were “evidence” that could not be considered in the cause of action analysis. Rather, a statement of claim is deemed to include any document to which the claim refers — and these contractual documents, which were filed with the Court in a motion record, were incorporated by reference into the pleading. This was especially valuable for the defendants in defeating allegations that the defendants had used the plaintiffs’ information for unauthorized purposes. The Court confirmed that the contractual documents authorized multiple uses, rendering the pleaded allegations incapable of proof. The Court of Appeal found that Justice Perell made no error in finding that the documents incorporated by reference resulted in a pleaded narrative that was patently ridiculous and allegations that were mutually incapable of proof.
• The motion judge was entitled to strike out the claim without leave to amend. The Court of Appeal confirmed that this decision was discretionary and subject to deference, and deferred to Justice Perell’s decision. Even though the motion judge mentioned that the plaintiffs could have pleaded a straightforward claim for breach of contract against Capital One, those claims were never advanced. Accordingly, the Court of Appeal found that: “The appellants were given ample opportunity to advance a viable claim and are now out of runway.”

Finally, the Court of Appeal upheld the significant $1.2 million cost award granted by Justice Perell, noting that the costs appeal was filed late and the merits of the costs appeal were weak.

Conclusion

This decision is another helpful reminder that certification and, in particular, the cause of action test, is a meaningful screening device designed to dispose of claims that are doomed to fail before the parties incur the significant costs of discoveries. The Court of Appeal and the motion judge’s rigorous review of the pleadings shows that defendants have the ability in some circumstances to defeat bald or patently untrue claims, despite the position frequently put forward by plaintiff’s counsel that all pleadings must be accepted as true. The decision also reinforces that a plaintiff should not be entitled to limitless amendments and will, eventually, run out of runway.

A growing number of proposed class actions have been dismissed for delay since a new provision of the Ontario Class Proceedings Act (CPA) was introduced in 2020. In their wake, a question has emerged: can a class action dismissed for delay be re-filed by a different representative plaintiff? Lower court judges have disagreed on the answer in non-binding obiter comments. Recently, the Court of Appeal for Ontario weighed in for the first time on a case dealing with section 29.1, providing some insight on this question.

Background

Section 29.1 provides that a court shall dismiss a proposed class action for delay if the plaintiff has not taken certain steps within one year of filing. The provision was added to the CPA in 2020, as part of a wave of amendments aimed at managing slow-moving class proceedings.

Lower court commentary on abuse of process 

In Tataryn v. Diamond & Diamond LLP, 2023 ONSC 6165, the court dismissed a proposed class action for delay. The plaintiffs had requested a “Phoenix” order, dismissing the action but granting leave to commence a new one. The court declined, noting that this would contradict the policy goals of section 29.1, which include reducing the economic toll of slow-moving class actions, and mitigating the cost of defending them.^[1] In the court’s view: “[S]ection 29.1 would not address the problem it set out to address if a plaintiff can bring an action, delay it until it gets dismissed under s. 29.1, and then just start a new action as if nothing had happened.”^[2]

The judge also made obiter comments regarding abuse of process. He observed that the Court of Appeal has indicated that, under some circumstances, resurrecting an identical case after a dismissal for delay may be an abuse of process under the Rules of Civil Procedure.^[3]

These comments contrast with obiter commentary in Bourque v. Insight Productions, 2022 ONSC 174 and other cases. In Bourque, another judge indicated that the consequence of dismissal under section 29.1 was “not onerous”, because the action can simply be refiled by a different plaintiff.^[4]

Appellate guidance on section 29.1

The recent appellate decision in Martin v. Wright Medical Technology Canada Ltd., 2024 ONCA 1, provides some insight on the uncertainty regarding the ability to re-file. Martin concerned two proposed actions filed in 2014, related to similar subject matter. In one of the actions (the First Action), class counsel had taken an appropriate section 29.1 step. In the other (the Second Action), a section 29.1 step had not been taken and the defendants signalled their intent to seek dismissal for delay.

However, the motions judge permitted the plaintiffs to discontinue the Second Action with prejudice, and amend the First Action to add the causes of action and defendants from the Second Action. He ordered that the combined action would proceed under the amended CPA, relying on the case management powers conferred by section 12 of the CPA.^[5]

The Court of Appeal held that it was incorrect to combine the two actions and have them proceed under the amended CPA. The Court reiterated the “bright line” to be drawn between actions commenced before and after the amendments, pursuant to the transition provisions of the CPA.^[6] The First Action, which was commenced under the old CPA and had met the requirements of section 29.1, was to proceed under the old CPA. The Court also confirmed that a judge’s case management powers cannot override mandatory provisions of the CPA — including the certification criteria and dismissal for delay.^[7]

The Court concluded that the only option was for the First Action to proceed under the old CPA, alongside a “re-constituted or re-filed” version of the Second Action, to be commenced under the amended CPA.^[8] Accordingly, the Court’s reasoning is premised on the possibility that the discontinued Second Action could be re-filed. The Court described it as “common ground” that a new action could be commenced under the amended CPA after dismissal under section 29.1,^[9] and noted that the plaintiffs in the discontinued Second Action would be “entitled to ‘refile’”.^[10] It appears that an abuse of process argument was either not raised or not explicitly addressed by the Court.

Takeaways

The Court of Appeal’s analysis in Martin indicates that “Phoenix” class actions may be permissible. However, this result would not sit comfortably with the concerns expressed in Tataryn and the policy goals of section 29.1. It also raises the question of whether there is a limit on the number of times a proceeding that is dismissed for delay can be re-filed.

Ultimately, abuse of process is a discretionary remedy grounded in the court’s inherent jurisdiction to prevent the misuse of its processes, and requires a consideration of specific facts and context — which should include the purpose and requirements of mandatory dismissal for delay under the CPA. The appellate court was not required to address this question, and it remains to be seen how this issue would ultimately be resolved, if and when it directly arises.

In Boal v. International Capital Management Inc., the Court of Appeal for Ontario addressed the pleadings standard for a proposed class action asserting breach of fiduciary duty against investment advisors in relation to the recommendation and sale of a specific investment. The Court of Appeal found that the claim discloses a reasonable cause of action for breach of fiduciary duty because, taken as a whole, the claim sufficiently pleaded that the relationship between all of the proposed class members and the investment advisors was one of vulnerability, trust, and reliance, in which the investment advisors undertook to act in the proposed class members’ best interests.

The issue

The central issue before the Court of Appeal was whether the statement of claim disclosed a cause of action on behalf of the proposed class members for breach of fiduciary duty — and, accordingly, whether the plaintiff met the pleadings requirement of the class certification test (s. 5(1)(a) of the Class Proceedings Act, 1992). The claim alleges that the investment advisor defendants owed their investment clients an ad hoc fiduciary duty and, further, that the investment advisors breached those fiduciary duties by recommending the purchase of certain promissory notes without disclosing that:

1. The investment advisors and their immediate family members owned 75% of the shares in the company issuing the promissory notes.
2. The investment advisors received commissions for each promissory note, and
3. The promissory notes were high-risk investments.

In Ontario, although the relationship between professional financial advisors and their clients is not always fiduciary in nature, investment advisors may owe their clients ad hoc fiduciary duties in some circumstances. The Supreme Court of Canada has directed that the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former's best interests with respect to the subject matter at issue. Ontario courts typically use a multi-factor analysis to determine whether an ad hoc fiduciary duty should be recognized in the particular circumstances of a case.

The lower court decisions

Certification motion judge

The certification motion judge, Justice Perell, found that the claim failed to disclose a reasonable cause of action for breach of fiduciary duty because it failed to plead material facts establishing the existence of an ad hoc fiduciary duty. Justice Perell also reasoned that the existence of such a duty depends on the particular factual circumstances of each advisor-client relationship (such as financial circumstances, net worth, sophistication and expertise), and stated that, “in each individual case, it is contestable whether the relationship with the investor was a fiduciary relationship and, in each individual case, the breach of any fiduciary duty is idiosyncratic and not common.” Accordingly, he dismissed the plaintiff’s certification motion.

Initial appeal to the Divisional Court

On appeal, a majority of the Divisional Court affirmed Justice Perell’s decision, finding that the claim of breach of fiduciary duty is “essentially and in its entirety” based on professional rules, regulations, and bylaws, such as those of the Mutual Fund Dealers Association of Canada. The majority reasoned that recognizing a class-wide fiduciary duty based upon the pleaded claim would have “inappropriately” turned the existence of professional rules into the sole factor in determining whether an ad hoc fiduciary duty exists.

In dissent, Justice Sachs found that it was not plain and obvious that the pleaded breach of fiduciary duty claim could not succeed. Justice Sachs concluded that — in addition to the professional standards — the plaintiff sufficiently alleged that the investment advisors were more than mere “order-takers”. She found that, in relation to all the proposed class members, the statement of claim pleaded that the defendant investment advisors solicited and recommended the investment, profited from that investment, and had access to all of the information about the investment. Justice Sachs also found that, despite the motion judge’s comments on the need to consider the individual circumstances of each client, fiduciary obligations have been found in some cases “without regard to the sophistication of the client and in spite of the fact that the ultimate decision with respect to the investment rested with the client.”

The Court of Appeal

The Court of Appeal allowed the appeal, substantially for the dissenting reasons of Justice Sachs. The Court of Appeal found that, taken as a whole, the pleaded relationship between the proposed class members and the investment advisors was one of vulnerability, trust, and reliance, in which the investment advisors undertook to act in their clients’ best interests.

Accordingly, the Court of Appeal found that the claim met the pleadings threshold for the certification stage and remitted the action to the Superior Court of Justice for a fresh determination of the common issues and preferable procedure certification criteria. The Court of Appeal agreed with Justice Sachs that those non-pleadings criteria should be determined by a court of first instance; if an appellate court made the fresh determination, it could interfere with the parties’ future appeal rights regarding those matters.

Takeaways

The pleadings requirement of the class certification test is not a high hurdle: the plaintiff must establish that it is not “plain and obvious” that the claim has no reasonable prospect of success. However, this case helpfully demonstrates why that can be a difficult standard to apply in the class actions context to determine whether the pleading is sufficiently alleged not only in the circumstances of the proposed representative plaintiff, but also on behalf of all the proposed class members. And, although the Court of Appeal ultimately found that the action got past the pleadings threshold for certification, it remains to be determined by the Superior Court whether the evidence satisfies the commonality and preferability requirements.

In the recent judgment Duguay c. General Motors du Canada ltée^[1] (Duguay) rendered on the merits of a class action, the Superior Court of Québec (the Court) highlights the risks of relying solely on factual presumptions to prove consumer awareness. The Court reminds plaintiffs to present strong evidence of alleged prohibited practices to obtain a favourable judgment in class action proceedings. This judgment is particularly interesting for class action defendants as it reaffirms that not all class actions will have a positive outcome for plaintiffs.

Factual background

On April 8, 2016, the Court authorized a class action against the defendants, General Motors of Canada (GMC), distributor and marketer of the Chevrolet Volt electric car (the Volt) in Canada, and General Motors LLC (GM) manufacturer of the Volt. The class action was brought on behalf of all persons who purchased or leased a Chevrolet A Volt model motor vehicle in Canada. Although the class description did not have a determined temporal scope, the evidence presented at trial only covered the years 2012 to 2019. In addition, although the class description was national, the parties waived the right to allege and establish the law outside Québec, inviting the Court to apply Québec law in accordance with article 2809 of the Civil Code of Québec.

This class action revolved around alleged prohibited commercial practices by defendants pursuant to Title II of the Consumer Protection Act (the Act) in the advertising of the Volt in the Canadian market. It was alleged that defendants falsely advertised the Volt as a car that could, without exception, make daily trips without using gasoline or emitting greenhouse gases when its battery was fully charged. Plaintiffs sustained that such representation was false because the Volt’s gasoline generator activated to heat the cabin during cold weather. Defendants claimed that they were not trying to hide anything from consumers, as the use of gasoline generator in cold weather was openly disclosed to consumers.

Plaintiff claimed a reduction for all class members in the sale or rental price of the Volt, and subsidiarily, an award of damages representing the excess of gasoline costs incurred by the class members because of the unexpected activation of the gasoline generator in cold weather. Plaintiff also claimed punitive damages in the amount of $4 million based on article 272 of the Act.

Analysis

The key questions addressed in this judgment sought to determine whether the defendants had made false or misleading representations, and if they hid a material fact by failing to disclose certain information relating to the Volt’s fuel consumption.

If false or misleading representations are established, the Court would need to determine if class members are entitled to claim damages from defendants, and if punitive damages should be awarded.

The Court analyzed plaintiff's evidence on the alleged misrepresentations and held that plaintiff had not specifically identified the representations it alleged to be false or misleading. Rather, the plaintiff referred to selected excerpts from defendants’ promotional material which included annual brochures and their website. Plaintiff invited the Court to consider the central message of this material which promotes the Volt as an extended-range electric car. The plaintiff alleged that this central message falsely represented that the Volt can be used for short daily trips without consuming gasoline or emitting greenhouse gases. Plaintiff asked the Court to infer a presumption of fact that class members were aware of the central message prior to their respective purchases.

The Court concluded that the plaintiff had failed to prove by factual presumption that consumers were aware of the central message in the defendants' brochures and website before purchasing the Volt. This is because the mere existence of the brochures and the website containing the selected extracts during the relevant period could not, by itself, establish a presumption that class members were aware of the message.

The Court considered the overall impression of the brochures and website during the relevant period, and ultimately found that the allegation of false or misleading representation could not succeed. The Court concluded that a gullible and inexperienced consumer reading the complete advertising would be likely to infer that the Volt can travel a significant distance in electric range mode, while realizing that the distance travelled depends on numerous external factors, and defendants did not attempt to conceal the functionality of the gasoline generator in cold weather.

Finally, as to the remedies sought by the plaintiff, no compensatory damages could be awarded because defendants did not engage in any prohibited practices. Punitive damages were not awarded, as defendants were found to have been transparent with their customers and to have acted in good faith.

Key takeaways

The analysis and conclusions reached by the Court in Duguay serve as a reminder that class action plaintiffs should not solely rely on factual presumptions and must present strong evidence to support their claim. Despite the very few class action trials proceeding on their merits, they nevertheless entail serious risks that need to be properly assessed by plaintiffs. 

As for class action defendants, this case is a welcome example that transparent business practices will be recognized and acknowledged by Québec courts.

In Gebien v. Apotex Inc., the plaintiff asked the Ontario Superior Court of Justice to approve a third-party funding agreement in a putative class action seeking more than $1 billion against opioid manufacturers and distributors.

The defendants raised a number of objections to provisions of the agreement that were potentially prejudicial to the defendants’ legitimate interests. As the Court noted, the most important objection involved the funder’s use and distribution of the defendants’ confidential documents. The Court found this objection and others “justified and substantial”.

Background

The proposed class action names 17 groups of pharmaceutical companies^[1] that manufacture or distribute opioids in Canada. The plaintiff seeks to represent a class of all persons in Canada who were prescribed opioids and suffered from Opioid Use Disorder.

To address the significant expenses and exposure to potential adverse costs, the plaintiff and his counsel sought court approval of its third-party funding agreement (or Agreement).

In general, third-party funding of class proceedings has been recognized as lawful in Canada and been justified as a means to promote access to justice. The general test for approval of a third-party funding agreement is that the agreement should not be “champertous or illegal and it must be a fair and reasonable agreement that facilitates access to justice while protecting the interests of the defendants” (emphasis added). Defendants may raise objections based on their legitimate interests.

Defendants' objections

In this case, some defendants objected to clauses of the third-party funding agreement. The Court did not agree with all the objections; however, three objections that the Court agreed with are discussed below.

1. The confidentiality objection was the most important

The defendants argued the Agreement did not adequately protect their rights to confidentiality, as it allowed disclosure beyond the funding entity to “Affiliates” and “Permitted Persons”. These included, among others, subsidiaries and representatives of the funding entity.

The Agreement also failed to impose limits on the use of the confidential information.

Considering this the most important and serious objection, the Court adjourned the motion to give the plaintiff an opportunity to justify the existing provisions or submit another proposal that would resolve the objection.

2. The post-termination confidentiality objection had merit

The defendants objected to a clause which entitled the funding entity to keep copies of the defendants’ confidential information provided to it after the termination of the Agreement.

The Court opined that retention of documents could be justified in some cases but not others. Therefore, it wrote, (a) the Agreement should contain some provision to justify document retention post termination; and (b) the question of how the defendants’ documents should be treated as a consequence of termination should be addressed before approval of the Agreement.

3. The attornment clause was insufficient

The funding entity undertook to obtain an undertaking from its ultimate parent company, Omni Bridgeway Ltd., that the parent company would attorn to the jurisdiction of the Ontario court. The Court agreed with the defendants that the parent company was required to attorn to the jurisdiction of the Ontario court for “all purposes”. As drafted, the attornment undertaking was insufficient because it only applied to payments of costs.

Key takeaway

This decision is a valuable indication of a defendant’s rights and roles in a motion to approve third-party funding. The Court confirmed that a defendant is entitled to make objections to the approval of the agreement that has been submitted — particularly where the agreement would affect the defendant’s legitimate interests.

A revised third-party funding agreement has since been submitted and approved by the Court.

While class actions continue to play a significant role in Québec’s judicial landscape, courts are increasingly scrutinizing fee agreements submitted by plaintiffs’ lawyers, placing greater importance on fairness and proportionality. This blog explores the Quebec courts’ increasingly interventionist approach to class counsel fees, as well as the key drivers that appear to underpin this recent trend and the implications for class action defendants.

Background

Since 2017, the Superior Court of Québec has consistently noted a “certain inflation in fee agreements” proposed by plaintiffs’ lawyers involved in class actions. This observation marked the beginning of a series of judicial decisions ordering the reduction of such fees, a trend that has persisted and intensified, particularly over the past two years. Indeed, since 2021, an increasing number of judges have asserted their role in ensuring the reasonableness of plaintiff’s counsel fees. The key factors taken into account by the courts are detailed below.

Low risk and limited involvement

The “risk premium” is a financial compensation that lawyers can seek for bringing a class action with a high level of risk, considering various factors such as the complexity of the case, the level of expertise required, the resources invested, and the likelihood of success. Judges ensure that this premium – usually a multiplier applied to docketed time – is justified and proportionate to the actual risk of the case. In the recent Clercs de Saint-Viateur^[1] case, the Québec Court of Appeal determined that, in the face of “average difficulty and risk”, the claimed fees included an overly high risk premium, which was subsequently reduced. Similarly, in the Navistar^[2] case, the Superior Court found that the modest volume of work performed justified lower fees, given that the case was a copycat suit of proceedings initiated in the United States.

The limited involvement of class counsel was also cited as a reason for fee reduction. In a recent case, the Superior Court lowered the proposed fees as the lawyers’ efforts had "essentially focused on the authorization stage," not justifying an unusually high 30% rate. In a similar context, the judge in Dallaire c. Kobe Steel Ltd.^[3] reduced the fees claimed, partly because most of the necessary work had been carried out in a parallel action initiated in British Columbia and considering that, in this parallel action, the British Columbia judge had found that the fees had to be reduced in light of the stage at which the litigation was settled and the result obtained.

Take-up rate

In the recent Ticketmaster^[4] case, the Superior Court emphasized plaintiff’s lawyers’ responsibility to ensure that their fees remain proportionate, especially when the class action does not elicit a “significant response” by class members. Furthermore, in the Sunwing^[5] case, the same court adopted an innovative approach by withholding half of the lawyers' extrajudicial fees, tying the remainder to a certain threshold of class member claims^[6].

Fees considered excessive or disproportionate to the benefits achieved by the class action further justify review and reduction.

Conclusion

In summary, recent decisions highlight the growing imperative for class counsel to ensure transparency, justification, and reasonableness in the amounts they claim when setting their fees, and for defendants entering into settlements to ensure such settlements are not conditional upon Court approval of class counsel fees. This recent trend is a further demonstration of Québec Courts’ objective of preserving the integrity of the procedural vehicle of class actions and maintaining a balanced and transparent justice system for the benefit of all stakeholders.

On May 30, 2023, the Québec Court of Appeal accepted to hear an appeal from the Fonds d’aide aux actions collectives (the FAAC) of a judgment approving a class action settlement where the settlement agreement was drafted in English only.^[1] The FAAC is a public interest governmental agency whose primary purpose is to provide financial assistance to class action plaintiffs.^[2] In seeking to appeal the judgment approving the settlement, the FAAC argues that the drafting of the settlement agreement exclusively in the English language contravenes the Charter of the French Language.^[3]

Judgments under appeal

The plaintiff in this class action alleges that the defendants participated in an international cartel to inflate the prices of automotive parts. The class action was authorized in 2020.

In December 2022, the plaintiff, Serge Asselin, and the defendants, AB, SKF, SKF USA, Inc. and SKF CANADA Limited (collectively SKF) executed a settlement agreement drafted in English. The Superior Court authorized the publication of a notice in the media to inform potential class members of the upcoming settlement approval hearing.

The settlement agreement provided that, if so ordered by the Court, class counsel would prepare a French translation. The FAAC requested that the settlement agreement be translated, and class counsel consequently applied to the Court for directions regarding the need for a translation of the settlement agreement.

On March 17, 2023, Justice Clément Samson ruled that it was not necessary for class counsel to prepare a translated version of the settlement agreement. Justice Samson firstly noted that the obligation introduced by Bill 96^[4] to provide a French translation of court documents has been suspended pending final adjudication by the Court of a constitutional challenge, which means that it is currently inapplicable.^[5] He also determined that a translation was not necessary in this particular file. The settlement agreement was similar to several other settlement agreements that had already been approved, all drafted in English, and no class member had challenged these settlements.

Following this decision, on April 5, 2023, Justice Samson approved the settlement agreement.^[6] On May 30, 2023, the Court of Appeal granted leave to the FAAC to appeal both these judgments.

Parties’ arguments in relation to the Charter of the French Language

The FAAC alleges that the lack of a French version of the settlement agreement violates class members’ fundamental rights under the Charter of the French Language. It contends that the plaintiff did not have the authority to waive the class members’ right to a French version of the settlement agreement, given that the class is composed of millions of Québecers, the majority of whom are French-speaking.

In addition, the FAAC asserts that it is not sufficient to provide bilingual notices to class members. They should have access to a French version of all documents pertaining to the class action, including the settlement agreement. This would allow class members to consult the settlement agreement and contest it at the settlement approval hearing if they wish to do so.

Class counsel argues that there are no fundamental rights violations and that the March 17, 2023 judgment by which the Court declared itself satisfied with the settlement agreement prepared in English only is a management decision for which deference is due. The plaintiff also alleges that the dissemination and availability of detailed explanatory notices in French to class members allow any Québec class member to understand the scope and substance of the settlement agreement.

What to expect from the Court of Appeal 

The debate before the Québec Court of Appeal will likely help determine whether there is an obligation under the Charter of the French Language to provide class members with a French version of the settlement agreement. This issue has been identified by Justice Guy Gagnon as deserving consideration from the Court of Appeal. The Court of Appeal may also consider whether a case management judge has discretion to determine whether it is necessary to provide class members with a translated settlement agreement in the context of a given class action.

We await the Court of Appeal’s determination and will provide a further update in this regard. In the interim, it would be prudent for defendants and plaintiffs to draft settlement agreements in both French and English to avoid potential delays in obtaining approval.

The Court of Appeal of Ontario’s recent decision in Davies v. Clarington (Municipality) highlights that defendants may not be able to recoup their costs from non-party litigation lenders. In this instance, the Court confirmed that the lenders financing the plaintiff’s litigation were not liable to pay the significant costs awarded to the successful defendants.

Background

Mr. Zuber was the only outstanding claim in a broader certified class action brought by passengers who were travelling on a Via Rail train when it collided with a stopped tractor-trailer. Mr. Zuber sought $50 million for his claim.

Certain lenders (distinct from litigation funders) separately made high-interest loans to help finance Mr. Zuber’s individual assessment of his damages. The loans in this case preceded the enactment of section 33.1 of the Class Proceedings Act (CPA), which now governs the requirements for court approval of third-party funding agreements. Mr. Zuber did not obtain court approval of his litigation loans.

Before trial, he rejected an offer of $500,000, at a time when the loans (with interest) significantly exceeded that amount - meaning, if Mr. Zuber accepted the defendants’ offer, it would have left him with a net loss.

After a lengthy trial, he only recovered $50,000. The defendants were awarded costs against Mr. Zuber of more than $3.4 million, which he could not, or would not, pay. The defendants sought an order that the lenders, non-parties to the litigation, pay the costs awarded against Mr. Zuber.

Trial decision

The trial judge acknowledged that he had discretion to order costs against a non-party under the Courts of Justice Act, or as part of the court’s inherent jurisdiction. However, he was not prepared to do so, in this case, because it did not meet the limited circumstances outlined in 1318847 Ontario Ltd v. Laval Tool & Mould Ltd:

1. The non-party had status to bring the litigation, was the true litigant, and put forward the named party as a person of straw to protect the true litigant against liability for costs, or
2. The non-party initiated or conducted the litigation in such a manner as to amount to an abuse of process.

The trial judge observed that Mr. Zuber’s loans, which resulted in excess debt over the defendants’ offers, were a “massive impediment” to settlement (along with his own unrealistic expectations). Nevertheless, the loan agreements did not provide that the lender would indemnify him for any costs awarded against him, did not give the lender a share of any monetary award or settlement that Mr. Zuber might obtain, and did not give the lenders direct control over the litigation or the acceptance of any settlement. Certain loans were repayable regardless of whether his claim succeeded.

The defendants appealed the decision, arguing that the trial judge erred in confining his analysis of the abuse of process doctrine to situations where the non-party directly controls the litigation. In their view, the lenders’ business decision to advance loans with uncapped compound interest exerted influence on Mr. Zuber and his counsel, such that their involvement should have been seen as “conducting” the litigation within the meaning of Laval Tool.

Appeal decision

On appeal, the Court rejected the arguments advanced by the defendants and ultimately upheld the trial judge’s decision.

The Court held as follows:

• First, the mere fact that a loan’s principal is used to pay for unsuccessful litigation should not render the lender liable for the costs of that litigation, absent evidence that the lender exercises control over the conduct of the litigation in a manner that constitutes an abuse of process.
• Second, the lenders could not be considered the cause of Mr. Zuber’s refusal to accept the settlement offers, despite the high rates of compounding interest on the loans that contributed to Mr. Zuber’s indebtedness.
• Third, Mr. Zuber should have obtained court approval for the loans (as required by the common law, and now by section 33.1 of the CPA) and, if he had, the loans would not have been approved by the court because they limited access to justice. However, this ultimately did not relate to the question of whether the lenders controlled the litigation.

Key takeaways

The Court’s decision reflects the narrow circumstances under which a court will exercise its discretion to order a non-party to pay costs. However, this does not mean lenders are immune if the conduct falls within the parameters set out in Laval Tool.

Parties obtaining funds to pursue litigation should be independently advised and consider alternatives, while those on the opposing side should consider proactively addressing any circumstances where they are aware of funding that has not been court-approved pursuant to section 33.1 of the CPA, to avoid the circumstances that ultimately arose in Davies.

Section 33.1 of the CPA now requires that all third-party funding agreements be court-approved. To obtain approval, the court must be satisfied of certain factors, including that the agreement (and the indemnity for costs and amounts payable to the lender under the agreement) is fair and reasonable, and that the lender is financially able to satisfy an adverse costs award in the proceeding, to the extent of the indemnity provided under the agreement.

The Ontario Superior Court’s ruling in Price v. H. Lundbeck A/S, 2022 ONSC 7160 (Price) highlights the perils of over-generalized “failure to warn” allegations in the context of formulating common issues for the purposes of a proposed class proceeding. In particular, Justice Glustein’s findings in Price remind plaintiffs of the necessity to articulate sufficiently narrow and appropriately specific proposed common issues for certification. This is welcome news for defendants to putative class actions, insofar as it reaffirms the obligations of plaintiffs to clearly articulate the case that has to be met.

Factual background

This certification motion arose in the context of an allegation by the plaintiffs, Jennifer Price and her son, Matthew Janzic, that the anti-depressant drug Celexa® is a “teratogen” that causes congenital malfunctions through its active ingredient, citalopram. It was alleged that a teratogen is an agent that can, under reasonable circumstances of exposure, disturb the development of an embryo or fetus and thereby cause congenital malformations.

The plaintiffs brought the action against H. Lundbeck A/S and Lundbeck Canada Inc., who they allege manufactured, distributed and marketed Celexa®. However, rather than seeking to certify a common issue related to general causation (linking Celexa® to any particular congenital malformation) or the defendants’ alleged failure to warn of such a causal link, the plaintiffs proposed the following common issue: “From 1999, did the defendants breach their duty to warn Canadian physicians and patients that Celexa® is or may be teratogenic?” (the Proposed Common Issue).

Procedural history

The proceeding dated back to December 2014, following which the Proposed Common Issue underwent an evolution before the formulation presented to Justice Glustein. At the original certification hearing , the plaintiffs initially proposed two common issues: (1) is citalopram or may citalopram be teratogenic; and, if so, (2) did the defendants breach a duty to warn Canadian physicians and patients that citalopram is or may be teratogenic. After receiving the defendants’ materials, the plaintiffs subsequently abandoned the first issue and focused their efforts on the duty to warn angle.

Despite this revision, Justice Perell nonetheless initially denied certification, concluding that: (i) the alleged “failure to warn” did not meet the commonality requirement, and (ii) even if it did, a class action would not be the preferable procedure.

Justice Perell’s findings were subsequently appealed and overturned. In that decision, the Divisional Court found that the failure to warn issue advanced by the plaintiffs “always contained an aspect of causation despite counsel’s concession.” The Divisional Court did not make a determination about whether the “duty to warn causation issue” (i.e., the Proposed Common Issue ultimately presented in the Price decision before Justice Glustein) satisfied the conditions for certification under the Class Proceedings Act, 1992 (the CPA). Accordingly, it was ordered that the certification motion be reheard by a different judge.

Analysis

Once remanded back to the Superior Court, Justice Glustein considered the two-staged nature of the Proposed Common Issue as it was framed by the plaintiffs:

1. The “general causation” proposed common issue of whether Celexa® is or may be teratogenic, and, if so,
2. The “duty to warn” proposed common issue of whether the defendants breached their duty to warn Canadian physicians and patients of that teratogenicity.

After providing an overview of the applicable law on the test for certification, Justice Glustein considered the objections that the defendants raised in response to the PCI pursuant to sections 5(1)(c) and (d) of the CPA.

In considering the first aspect of the Proposed Common Issue, relating to causation, the Court found that the issue, as it was framed, could not possibly and sufficiently advance the litigation, even if answered in the affirmative. This is because liability could only properly exist if each class member could establish general causation that Celexa® could have caused their specific congenital malformation. However, the Proposed Common Issue, as it was formulated, could not achieve that end. Rather than seek any linkage to a particular congenital malfunction, the question merely asked the Court to answer the general inquiry of whether Celexa® is or may be a teratogen. The plaintiffs led no evidence of a methodology to establish, on a class-wide basis, that the drug could cause any particular congenital malformation. Citing McCracken v. Canadian National Railway Company, 2012 ONCA 445, the Court found that the plaintiffs’ position “seize[d] on the superficial commonality” that citalopram is or may be a teratogen, using a “common label [to] conve[y] a false impression of commonality.’” The Court ultimately found that this class proceeding, if accepted as framed, would amount to little more than a general commission of inquiry into whether citalopram is a teratogen.

The Court went on to nonetheless consider the second aspect of the Proposed Common Issue, relating to the duty to warn, ultimately finding that this proposed question also failed, for two reasons. Firstly, and most obviously, given that the first part of the Proposed Common Issue could not succeed, the corresponding inquiry relating to the underlying duty to warn also failed, particularly in view of the fact that general causation could not be established without individual trials based on the particular congenital malformation.

Secondly, the Court held more generally that the duty to warn applies only to specific risks. Accordingly, the jurisprudence did not impose a duty to warn of general “harm” or general “teratogenicity”, which does not disclose the particular risk at issue. Citing the leading case on duty to warn— Hollis v. Dow Corning Corp., 1995 CanLII 55 (SCC) (Hollis)—the Court noted that a duty to warn can only arise with respect to specific risks and can only arise for material risks “of which [the manufacturer] has knowledge or ought to have knowledge.” With respect to reasonable foreseeability, the Court found that any particular congenital malformation would require analysis of the etiology for each such malformation. The Court in Hollis also established that, even where a duty to warn exists, the required explicitness of the warning varies with the danger. A general statement of a risk of harm or a risk of congenital malformations, such as that advanced by the plaintiffs in Price, cannot provide the court with the ability to assess the gravity or probability of the risk. As such, in the case of pharmaceutical product liability, the explicitness of the product monograph warning cannot be considered.

The Court ultimately concluded that neither of the two proposed inquiries gave rise to common issues that could be certified under section 5(1)(c) of the CPA. In the alternative, the Court denied certification on the basis that the class action was not the preferable procedure, given that individual issues would overwhelm any benefit from a common determination of teratogenicity and a concomitant duty to warn of such teratogenicity.

Takeaways

The analysis and conclusions reached by Justice Glustein in Price are notable for several reasons. Firstly, this decision establishes that a proposed common issue must be framed in a manner that can, if accepted, sufficiently advance the litigation. Without seeking to establish some form of general causation, a class proceeding amounts to nothing more than a commission of inquiry that fails to advance the positions of the parties in any meaningful way. Secondly, the Price decision clarifies that a duty to warn cannot give rise to a common issue if general causation cannot first be established. Finally, Justice Glustein’s findings reaffirm that an allegation of a duty to warn can only apply to specific risks – whether identified narrowly or broadly. Without disclosing the specific risk at issue, a Court cannot impose a generalized duty to warn.

This decision is critical in reminding plaintiffs of the necessity of carefully formulating their proposed common issues in a class action, thus allowing defendants to properly understand the scope of the case they must meet.