Atlantic Lottery Corp. Inc. v. Babstock

Atlantic Lottery Corp. Inc. v. Babstock
Collection
Supreme Court Judgments
Date
2020-07-24
Neutral citation
2020 SCC 19
Report
[2020] 2 SCR 420
Case number
38521
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas
On appeal from
Newfoundland and Labrador
Subjects
Civil procedure
Notes
Case in Brief
SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, [2020] 2 S.C.R. 420
Appeals Heard: December 3, 2019 Judgment Rendered: July 24, 2020 Docket: 38521
Between:
Atlantic Lottery Corporation Inc.
Appellant
and
Douglas Babstock and Fred Small
Respondents
And Between:
VLC, Inc., IGT-Canada Inc., International Game
Technology, Spielo International Canada ULC and
Tech Link International Entertainment Limited
Appellants
and
Douglas Babstock and Fred Small
Respondents
- and -
Attorney General of Ontario, Attorney General of Manitoba, Attorney General of Saskatchewan, Bally Gaming Canada Ltd., Bally Gaming Inc., Western Canada Lottery Corporation, Alberta Gaming, Liquor, and Cannabis Commission, Canadian Gaming Association, Canadian Chamber of Commerce and British Columbia Lottery Corporation
Interveners
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
Reasons for Judgment: (paras. 1 to 72)
Brown J. (Abella, Moldaver, Côté and Rowe JJ. concurring)
Reasons Dissenting in Part: (paras. 73 to 173)
Karakatsanis J. (Wagner C.J. and Martin and Kasirer JJ. concurring)
Atlantic Lottery Corporation Inc. Appellant
v.
Douglas Babstock and
Fred Small Respondents
‑ and ‑
VLC, Inc., IGT‑Canada Inc.,
International Game Technology,
Spielo International Canada ULC and
Tech Link International Entertainment Limited Appellants
v.
Douglas Babstock and
Fred Small Respondents
and
Attorney General of Ontario,
Attorney General of Manitoba,
Attorney General of Saskatchewan,
Bally Gaming Canada Ltd., Bally Gaming Inc.,
Western Canada Lottery Corporation,
Alberta Gaming, Liquor, and Cannabis Commission,
Canadian Gaming Association,
Canadian Chamber of Commerce and
British Columbia Lottery Corporation Interveners
Indexed as: Atlantic Lottery Corp. Inc. v. Babstock
2020 SCC 19
File No.: 38521.
2019: December 3; 2020: July 24.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
on appeal from the court of appeal for newfoundland and labrador
Civil procedure — Class actions — Certification — Pleadings — Causes of action — Plaintiffs alleging defendants profited from dangerous and deceptive video lottery terminals — Plaintiffs relying on waiver of tort, breach of contract and unjust enrichment as causes of action and seeking gain‑based award — Plaintiffs’ action certified as class proceeding — Whether plaintiffs’ claims disclose reasonable cause of action.
ALC, constituted by the governments of the four Atlantic provinces, is empowered to approve the operation of video lottery terminal games (“VLTs”) in Newfoundland and Labrador. The plaintiffs applied for certification of a class action against ALC, on behalf of any natural person resident in Newfoundland and Labrador who paid to play VLTs in that province in the six years preceding the class action. The plaintiffs claim that VLTs are inherently dangerous and deceptive. Relying on three causes of action (waiver of tort, breach of contract and unjust enrichment), the plaintiffs seek a gain‑based award, quantified by the profit ALC earned by licensing VLTs.
ALC applied to strike the plaintiffs’ claim on the basis that it disclosed no reasonable cause of action, and the plaintiffs applied for certification of their claim as a class action. The certification judge dismissed ALC’s application, and further held that the plaintiffs had satisfied the requirements necessary for certification. The Court of Appeal substantially upheld the certification judge’s conclusions, and allowed the plaintiffs’ claims in waiver of tort, breach of contract and unjust enrichment to proceed to trial.
Held (Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. dissenting in part): The appeals should be allowed, the certification order set aside and the plaintiffs’ statement of claim struck in its entirety.
Per Abella, Moldaver, Côté, Brown and Rowe JJ.: Each claim that the plaintiffs have pleaded is bound to fail because it discloses no reasonable cause of action.
The plaintiffs cannot rely on the doctrine of waiver of tort as an independent cause of action for disgorgement. This novel cause of action does not exist in Canadian law and has no reasonable chance of succeeding at trial. In addition, the term “waiver of tort” is apt to generate confusion and should be abandoned. Despite its early acceptance, this term is a misnomer. Rather than forgiving or waiving the wrongfulness of the defendant’s conduct, plaintiffs relying on the doctrine are simply electing to pursue an alternative, gain‑based, remedy.
Restitution for unjust enrichment and disgorgement for wrongdoing are two types of gain‑based remedies. What the plaintiffs seek in this case is disgorgement, which does not require proof of deprivation to the plaintiff, and requires only that the defendant gained a benefit. Restitution is awarded in response to the causative event of unjust enrichment, where there is correspondence between the defendant’s gain and the plaintiff’s deprivation. Disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action. In order to make out a claim for disgorgement, a plaintiff must first establish actionable misconduct. By pleading disgorgement as an independent cause of action, however, the plaintiffs in this case seek to establish an entirely new category of wrongful conduct — one that is akin to negligence but does not require proof of damage. Although disgorgement is available for some forms of wrongdoing without proof of damage (for example, breach of fiduciary duty), it is a far leap to find that disgorgement without proof of damage is available as a general proposition in response to a defendant’s negligent conduct. Granting disgorgement for negligence without proof of damage would result in a remedy arising out of legal nothingness, and would be a radical and uncharted development. This is not the type of incremental change that falls within the remit of courts applying the common law.
The plaintiffs’ claim that VLTs are “similar to” three‑card monte within the meaning of s. 206 of the Criminal Code and that their operation is therefore prohibited also has no reasonable chance of success. Statutory interpretation requires discerning legislative intent by examining statutory text in its entire context and in its grammatical and ordinary sense, in harmony with the statute’s scheme and objects. In determining what games can be considered “similar to” three‑card monte, it must be kept in mind that courts cannot create common law crimes through an act of judicial interpretation. Furthermore, while expert evidence may assist in deciding whether the defined elements of an offence are made out on the facts of a particular charge, expert evidence cannot purport to define the elements of an offence. The text of the provision and its surrounding context suggest that the prohibition of games similar to three‑card monte was directed towards the game’s concrete attributes and not towards the abstract feature of deception. Had Parliament sought to prohibit broadly deceptive games, it would have straightforwardly done so. Games “similar to” three‑card monte must therefore involve, at a minimum, a player betting on the location of an object after a series of a manipulations. Nothing in the pleadings describes VLTs as operating in this manner.
The plaintiffs’ breach of contract claim is also doomed to fail. Whether this claim discloses a reasonable cause of action should be considered in light of the remedies the plaintiffs actually seek — that is, disgorgement and punitive damages — and the question of whether these remedies are available to the plaintiffs, assuming the truth of their pleadings. The ordinary form of monetary relief for breach of contract is an award of damages, measured according to the position which the plaintiff would have occupied had the contract been performed. Disgorgement for breach of contract may be appropriate in exceptional circumstances, but only where, at a minimum, other remedies are inadequate and only where the circumstances warrant such an award. As to those circumstances, courts should in particular consider whether the plaintiff had a legitimate interest in preventing the defendant’s profit‑making activity. The key to developing principles for gain‑based recovery in breach of contract is to consider what legitimate interest a gain‑based award serves to vindicate. A coherent approach that reconciles the relief awarded with the structure of breach of contract as a cause of action should be preferred. While the circumstances in which a gain‑based award will be appropriate cannot be clearly delineated in advance, one would expect future legitimate interests protected by a gain‑based award to resemble those interests that have been protected in the past. Courts have, in some exceptional circumstances, long awarded monetary amounts departing from the ordinary measure of expectation damages. An award that appears to be measured by a defendant’s gain might serve a compensatory purpose that distinguishes it from disgorgement and which therefore tends to support recovery. Where, as here, the argument is that the quantum of loss is equal to the defendant’s gain, but the plaintiff would simply rather pursue disgorgement, a gain‑based remedy is not appropriate. Further, there is nothing exceptional about the breach of contract the plaintiffs allege: once the allegations of criminal conduct are put aside, the plaintiffs’ claim is simply that they paid to play a gambling game and did not get exactly what they paid for. The plaintiffs cannot be said to have a legitimate interest in ALC’s profit‑making activity, and their claim has no reasonable chance of achieving disgorgement damages for breach of contract.
Punitive damage awards for breach of contract are also exceptional, but will be awarded where the alleged breach of contract is an independent actionable wrong. The actionable wrong need not be tortious: punitive damages may also be awarded where the defendant breaches a contractual obligation. Not every contract, however, imposes actionable good faith obligations on contracting parties: while good faith is an organizing principle of Canadian contract law, it manifests itself in specific circumstances and its application is generally confined to existing categories of contracts and obligations. The alleged contract between ALC and the plaintiffs does not fit within any of the established good faith categories; accordingly, their claim for punitive damages has no reasonable chance of success.
Finally, the plaintiffs’ unjust enrichment claim has no reasonable chance of success. The principled unjust enrichment framework requires establishing that ALC was enriched, that the plaintiffs suffered a corresponding deprivation, and that the enrichment and corresponding deprivation occurred in the absence of any juristic reason therefor. The juristic reason element proceeds in two stages: first, the plaintiff must demonstrate that the defendant’s enrichment cannot be justified by any of the established categories of juristic reason; and second, the defendant can rebut the plaintiff’s case by showing that there is a residual reason to deny recovery. In the present case, there is no need to go beyond the first stage. The plaintiffs’ own pleadings allege that there was a contract between ALC and the plaintiffs under which the plaintiffs paid to play VLTs, and nothing in the pleadings could serve to vitiate the alleged contract. A defendant that acquires a benefit pursuant to a valid contract is justified in retaining that benefit.
Per Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. (dissenting in part): The appeal should be allowed in part. There is agreement with the majority that a mere breach of a duty of care, in the absence of loss, cannot ground a claim for disgorgement. There is also agreement that VLTs cannot constitute “three‑card monte” as defined in the Criminal Code , and that the plaintiffs’ claim in unjust enrichment must be struck. However, there is disagreement with whether the plaintiffs’ claim in breach of contract is a reasonable cause of action, as well as the conclusion that there are no available remedies for that breach. The plaintiffs’ claim should be certified as a class action on the common issues of breach of contract, punitive damages and the appropriateness of a disgorgement remedy.
The elements of a cause of action for breach of contract are the existence of a contract and the breach of a term of that contract. Loss is not an essential element. The plaintiffs have pleaded the nature of the contract, the terms they say are implied, and the manner in which ALC breached the contract between them. The first implied term pleaded is a warranty that the VLTs were not inherently dangerous. In the alternative, the plaintiffs plead that ALC breached an implied term requiring ALC to warn the plaintiff class of any inherent danger in the consumption of the games and to satisfy itself of their safety. Finally, the plaintiffs allege that ALC breached an implied term of good faith. It is not plain and obvious that implying these terms would improperly touch on or fetter ALC’s authority as a public regulator of VLTs.
The claim for breach of contract should not be struck on the basis that it is plain and obvious that there are no available remedies. There are several remedies that are open to the plaintiffs on their pleadings, including nominal damages, declaratory relief, disgorgement, and punitive damages.
A court finding breach of contract may make binding declarations of right, whether or not any consequential relief is or could be claimed. Nominal damages are always available for causes of action, like breach of contract, that do not require proof of loss. This alone precludes striking the claim.
Whether disgorgement is an appropriate remedy for breach of contract in this case is a matter for trial that cannot be resolved on the pleadings alone. While the customary remedy for a breach of contract is compensation measured in the form of expectation damages, in some cases, disgorgement of a defendant’s profits can be an appropriate remedy for breach of contract. Disgorgement is an exceptional remedy, available where a plaintiff has shown that the ordinary remedies of contract law are inadequate to protect and vindicate their contractual right. Although compensatory damages will often help to achieve deterrence of wrongful conduct, they will not always be adequate or appropriate in the circumstances of the breach. The measure of a disgorgement award implicitly effects deterrence and is dictated by the minimum amount necessary to make the wrong unprofitable.
Disgorgement awards are not limited to situations in which they serve a compensatory purpose. A self‑interested and deliberate breach; the impracticability of calculating loss; and the plaintiff’s legitimate interest in preventing the defendant’s profit‑making activity, including where the defendant had a quasi‑fiduciary duty to the plaintiff, weigh in favour of a disgorgement remedy. No single factor is necessarily crucial or dispositive. The plaintiffs’ pleadings in this case correspond with several factors that, if established at trial, may point to a disgorgement remedy, including that the plaintiffs were vulnerable to ALC’s abuse of its power and that ALC’s breach was self‑interested, deliberate, and in bad faith. A trial judge may also find that ascertaining the actual amount lost is impracticable since VLTs are designed not to create records of who uses them and how much money they have lost.
The plaintiffs have also pleaded a sufficient basis to support a claim for punitive damages. The focus of punitive damages is on the defendant’s misconduct, not the plaintiff’s loss, and injury to the plaintiff is not a condition precedent to an award of punitive damages. The plaintiffs have pleaded a breach of the duty of honest performance, which can constitute an actionable wrong to ground a claim for punitive damages.
With regard to certification, the class representative must show that there is some “basis in fact” that there is an identifiable class of two or more persons, that there is at least one common issue, and that the class action is the preferable procedure. This standard ensures that there is an evidentiary foundation to support the certification order.
The proposed class definition uses objective criteria that will allow for identification of those who can attest to playing the games, and there is a basis to believe that at least two persons will be able to establish that they paid ALC to gamble on VLT games during the proposed class period.
An issue is common where its resolution is necessary to the resolution of each class member’s claim. The issues relating to breach of contract, disgorgement, and punitive damages are appropriate common issues, but the issue relating to aggregate monetary relief is not. On breach of contract, the pleadings assert a civil wrong that is common to each member of the class: whether the terms alleged by the plaintiffs are in fact implied, and whether the functioning of the VLTs routinely violates those terms, would be the same for every consumer. On disgorgement, determining whether the circumstances of this case are exceptional, such that other contractual remedies are inadequate, is a substantial ingredient of each member’s claim and will benefit all members of the class. For punitive damages, ALC’s conduct and the alleged breach of the duty of good faith would be common to all class members.
But there is no basis in fact to certify aggregate monetary relief as a common issue. Before making an award of disgorgement, the court must be satisfied that the breach of contract is causally connected to the gain to be disgorged. To ensure that ALC’s total liability is limited to that flowing from the breach, some plausible methodology is needed to estimate ALC’s liability from its breach of contract, including what its profits might have been had it not breached its contractual obligations. No methodology has been suggested.
Finally, with regard to preferability, the keystone of the plaintiffs’ action is a deception common to each member of the class. Determining the content of a contract entered into by each member, and whether that contract was systematically breached, does not require individualized assessments and is more practical and efficient than individual actions. A class action has the potential to acknowledge, vindicate and protect individual players’ contractual interest in a safe and fair game.
Cases Cited
By Brown J.
Applied: Attorney General v. Blake, [2001] 1 A.C. 268; considered: Nunavut Tunngavik Inc. v. Canada (Attorney General), 2014 NUCA 2, 580 A.R. 75; referred to: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45; Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477; Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303; Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87; Das v. George Weston Ltd., 2018 ONCA 1053, 43 E.T.R. (4th) 173; R. v. Salituro, [1991] 3 S.C.R. 654; Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Andersen v. St. Jude Medical, Inc., 2012 ONSC 3660; Serhan (Estate Trustee) v. Johnson & Johnson (2004), 72 O.R. (3d) 296; Ewert v. Nippon Yusen Kabushiki Kaisha, 2019 BCCA 187, 25 B.C.L.R. (6th) 268; Authentic T‑Shirt Co. ULC v. King, 2016 BCCA 59; Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601; Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3; Peel (Regional Municipality) v. Canada, [1992] 3 S.C.R. 762; United Australia, Ltd. v. Barclays Bank Ltd., [1941] A.C. 1; Arrow Transfer Co. Ltd. v. Royal Bank of Canada, [1972] S.C.R. 845; Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511; Clements v. Clements, 2012 SCC 32, [2012] 2 S.C.R. 181; The Queen v. Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402; R. v. Levkovic, 2013 SCC 25, [2013] 2 S.C.R. 204; The King v. Rosen and Lavoie (1920), 61 D.L.R. 500; R. v. Heywood, [1994] 3 S.C.R. 761; Rogers & Rogers Inc. v. Pinehurst Woodworking Co. (2005), 14 B.L.R. (4th) 142; Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; One Step (Support) Ltd. v. Morris‑Garner, [2018] UKSC 20, [2018] 3 All E.R. 659; RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, [2008] 3 S.C.R. 79; Norberg v. Wynrib, [1992] 2 S.C.R. 226; Sunshine Exploration Ltd. v. Dolly Varden Mines Ltd. (N.P.L.), [1970] S.C.R. 2; Wrotham Park Estate Co. v. Parkside Homes Ltd., [1974] 2 All E.R. 321; Smith v. Landstar Properties Inc., 2011 BCCA 44, 14 B.C.L.R. (5th) 48; Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158.
By Karakatsanis J. (dissenting in part)
R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959; Operation Dismantle v. The Queen, [1985] 1 S.C.R. 441; Montreal Trust Co. of Canada v. Hickman, 2001 NFCA 42, 204 Nfld. & P.E.I.R. 58; Holland v. Saskatchewan, 2008 SCC 42, [2008] 2 S.C.R. 551; Anderson v. Bell Mobility Inc., 2009 NWTCA 3, 524 A.R. 1; Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94; Minnes v. Minnes (1962), 39 W.W.R. 112; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Andrews v. Canada (Attorney General), 2014 NLCA 32, 354 Nfld. & P.E.I.R. 42; Levy v. British Columbia (Crime Victim Assistance Program), 2018 BCCA 36, 7 B.C.L.R. (6th) 84; Native Women’s Assn. of Canada v. Canada, [1994] 3 S.C.R. 627; Owners of the Steamship “Mediana” v. Owners, Master and Crew of the Lightship “Comet”, [1900] A.C. 113; Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada Ltd. (2006), 211 O.A.C. 141; Saskatchewan Government Insurance v. Wilson, 2012 SKCA 106, 405 Sask. R. 8; Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601; Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; Robinson v. Harman (1848), 1 Ex. 850; Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3; IBM Canada Limited v. Waterman, 2013 SCC 70, [2013] 3 S.C.R. 985; Semelhago v. Paramadevan, [1996] 2 S.C.R. 415; Attorney General v. Blake, [2001] 1 A.C. 268; Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595; Attorney‑General v. Observer Ltd., [1990] 1 A.C. 109; Royal Bank of Canada v. W. Got & Associates Electric Ltd., [1999] 3 S.C.R. 408; One Step (Support) Ltd. v. Morris‑Garner, [2018] UKSC 20, [2018] 3 All E.R. 659; Nunavut Tunngavik Inc. v. Canada (Attorney General), 2014 NUCA 2, 580 A.R. 75; Cassell & Co. Ltd. v. Broome, [1972] A.C. 1027; Esso Petroleum Co. Ltd. v. Niad Ltd., [2001] EWHC Ch. 458; Experience Hendrix LLC v. PPX Enterprises Inc., [2003] EWCA Civ. 323; RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, [2008] 3 S.C.R. 79; Vercoe v. Rutland Fund Management Ltd., [2010] EWHC 424; Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158; Taub v. Manufacturers Life Insurance Co. (1998), 40 O.R. (3d) 379; AIC Limited v. Fischer, 2013 SCC 69, [2013] 3 S.C.R. 949; McCracken v. Canadian National Railway Co., 2012 ONCA 445, 111 O.R. (3d) 745; Pro‑Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503, 312 D.L.R. (4th) 419; Sun‑Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58, [2013] 3 S.C.R. 545; Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534; Jiang v. Peoples Trust Co., 2017 BCCA 119, 408 D.L.R. (4th) 1; Williams v. Mutual Life Assurance Co. of Canada (2000), 51 O.R. (3d) 54, aff’d (2003), 226 D.L.R. (4th) 112; Pioneer Corp. v. Godfrey, 2019 SCC 42, [2019] 3 S.C.R. 295; Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401; Ramdath v. George Brown College of Applied Arts and Technology, 2015 ONCA 921, 392 D.L.R. (4th) 490; Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, [2004] 1 S.C.R. 902; Rumley v. British Columbia, 2001 SCC 69, [2001] 3 S.C.R. 184; Chace v. Crane Canada Inc. (1997), 44 B.C.L.R. (3d) 264; Pederson v. Saskatchewan, 2016 SKCA 142, 408 D.L.R. (4th) 661; Chalmers v. AMO Canada Co., 2010 BCCA 560, 297 B.C.A.C. 186; Fakhri v. Capers Community Markets, 2004 BCCA 549, 203 B.C.A.C. 227.
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Class Actions Act, S.N.L. 2001, c. C‑18.1, ss. 5, 8(d), 29(1), 37.
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APPEALS from a judgment of the Newfoundland and Labrador Court of Appeal (Green, Welsh and Harrington JJ.A.), 2018 NLCA 71, 29 C.P.C. (8th) 1, 53 C.C.L.T. (4th) 12, [2018] N.J. No. 383 (QL), 2018 CarswellNlfd 470 (WL Can.), affirming in part decisions of Faour J., 2016 NLTD(G) 216, 93 C.P.C. (7th) 307, [2016] N.J. No. 443 (QL), 2016 CarswellNfld 532 (WL Can.), and 2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293, 1108 A.P.R. 293, [2014] N.J. No. 288 (QL), 2014 CarswellNfld 281 (WL Can.). Appeals allowed, Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. dissenting in part.
Julie Rosenthal, Mike Eizenga, Sarah Stothart and Jonathan G. Bell, for the appellant the Atlantic Lottery Corporation Inc.
Ian F. Kelly, Q.C., and Daniel M. Glover, for the appellants VLC, Inc., IGT‑Canada Inc. and International Game Technology.
Colm St. R. Seviour, Q.C., and Koren A. Thomson, for the appellant Spielo International Canada ULC.
Jorge P. Segovia, for the appellant Tech Link International Entertainment Limited.
Kirk M. Baert and Celeste Poltak, for the respondents.
Brent Kettles and Tom McKinlay, for the intervener the Attorney General of Ontario.
Denis Guénette and Tom Dobson, for the intervener the Attorney General of Manitoba.
Jared G. Biden, for the intervener the Attorney General of Saskatchewan.
Paul D. Dicks, Q.C., Michael D. Lipton, Q.C., and Kevin J. Weber, for the interveners Bally Gaming Canada Ltd. and Bally Gaming Inc.
Keith Kilback, Q.C., and Alexander Shalashniy, for the intervener the Western Canada Lottery Corporation.
Mandy L. England and Michael Sobkin, for the intervener the Alberta Gaming, Liquor and Cannabis Commission.
Brandon Kain, Gillian P. Kerr and Adam Goldenberg, for the intervener the Canadian Gaming Association.
Matthew Milne‑Smith, for the intervener the Canadian Chamber of Commerce.
K. Michael Stephens, Shannon Ramsay and Aubin Calvert, for the intervener the British Columbia Lottery Corporation.
The judgment of Abella, Moldaver, Côté, Brown and Rowe JJ. was delivered by
Brown J. —
I. Introduction
[1] The appellant Atlantic Lottery Corporation Inc. (“ALC”), constituted by the governments of the four Atlantic provinces, is empowered to approve the operation of video lottery terminal games (“VLTs”) in Newfoundland and Labrador by the Video Lottery Regulations, C.N.L.R. 760/96. The respondents Douglas Babstock and Fred Small (“the plaintiffs”) applied for certification of a class action against ALC, on behalf of any natural person resident in Newfoundland and Labrador who paid to play VLTs in that province in the six years preceding the class action, or on behalf of the estate of any such person. The other appellants are suppliers of VLTs that ALC has added to the action as third‑party defendants.
[2] The plaintiffs’ essential claim is that VLTs are inherently dangerous and deceptive. Indeed, they say that VLTs are so deceptive that they contravene the Criminal Code ’s prohibition of games similar to “three‑card monte” (Criminal Code , R.S.C. 1985, c. C‑46, s. 206 ). Relying on three causes of action (“waiver of tort”, breach of contract and unjust enrichment), the plaintiffs seek a gain‑based award, quantified by the profit ALC earned by licensing VLTs.[1]
[3] More particularly, and as to waiver of tort, the plaintiffs allege that ALC breached a duty to warn of the inherent dangers associated with VLTs, including the risk of addiction and suicidal ideation. This, they say, supports their claim in waiver of tort, which they also say is an independent cause of action that allows for a gain‑based remedy to “be determined at trial of common issues without the involvement of any individual class member” (A.R., vol. II, at p. 104).
[4] As to the claim for breach of contract, the plaintiffs allege a contract arising from ALC’s offer of VLTs to the public, and the plaintiffs’ corresponding acceptance by paying to play. As an implied term of this contract, they say that ALC was required to provide safe games that were fit for use and of merchantable quality, to use reasonable skill and care in its provision of VLT gaming, and to act in good faith. ALC breached these terms, they say, by supplying deceptive VLTs.
[5] Finally, the plaintiffs say that ALC has been unjustly enriched at their expense.
[6] The plaintiffs succeeded in obtaining certification at the Supreme Court of Newfoundland and Labrador, and that result was substantially affirmed by the Newfoundland and Labrador Court of Appeal. In my respectful view, however, none of these claims have any reasonable chance of success. I would therefore allow the appeals, set aside the certification order, and strike the plaintiffs’ claims against ALC.
II. Overview of Proceedings
A. Supreme Court of Newfoundland and Labrador — 2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293; 2016 NLTD(G) 216, 93 C.P.C. (7th) 307
[7] The matter came before the certification judge in the form of two applications: (1) ALC’s application, made under r. 14.24(1)(a) of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D (2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293), to strike the plaintiffs’ claim on the basis that it disclosed no reasonable cause of action, and (2) the plaintiffs’ application for certification of their claim as a class action under the Class Actions Act, S.N.L. 2001, c. C‑18.1. The parties agreed that the certification judge’s decision on ALC’s application would also determine whether the plaintiffs had satisfied the first criterion for certification in s. 5 of the Class Actions Act — that “the pleadings disclose a cause of action”.
[8] The certification judge dismissed ALC’s application, and further held that the plaintiffs had satisfied the requirements necessary for certification. In particular and because the plaintiffs intended to pursue a collective remedy (calculated on the basis of ALC’s profits) without proving individual damage, he concluded that there were common issues among the class that would be better addressed through a class action.
B. Newfoundland and Labrador Court of Appeal — 2018 NLCA 71, 29 C.P.C. (8th) 1
[9] ALC appealed the certification judge’s decisions on both applications. Writing for the majority, Green J.A. substantially upheld the certification judge’s conclusions, and allowed the plaintiffs’ claims in waiver of tort, breach of contract and unjust enrichment to proceed to trial.
[10] Regarding waiver of tort, the majority concluded that the doctrine could operate as an independent cause of action for disgorgement, where it would serve the purpose of deterring wrongful conduct. Further, according to the majority, plaintiffs alleging negligence need not prove damage to establish an entitlement to disgorgement. All this led the majority to conclude that the plaintiffs’ claim for waiver of tort — that is, for disgorgement as a remedy for negligence in the absence of demonstrated damage — disclosed a reasonable cause of action (paras. 185 and 189).
[11] Addressing the plaintiffs’ allegations of criminal conduct, the majority concluded that expert evidence would be required to conclude whether VLTs are similar to three‑card monte and therefore prohibited by s. 206 of the Criminal Code . Such claims, said the majority, would have to be determined at trial.
[12] Finally, the majority held that the pleaded facts, particularly considering the allegations of criminal conduct, could reasonably support a