Significant Costs Can Curb Complex Class Actions

Class proceedings were introduced, in part, to promote access to justice, and continue to play an important role in addressing social wrongs. The Supreme Court of Canada described this in Western Canadian Shopping Centres Inc. v. Dutton as follows,

28 …by allowing fixed litigation costs to be divided over a large number of plaintiffs, class actions improve access to justice by making economical the prosecution of claims that would otherwise be too costly to prosecute individually. Without class actions, the doors of justice remain closed to some plaintiffs, however strong their legal claims. Sharing costs ensures that injuries are not left unremedied…

Although they have also proven financially lucrative for plaintiff’s counsel, thereby ensuring they remain an appropriate mechanism to advance some claims, the potential for adverse costs has always remained a potential deterrent. Ontario, unlike British Columbia, Manitoba and Newfoundland, maintains a two-way cost rule, creating this type of exposure for plaintiffs in class proceedings. The province adopted this approach despite a recommendation against a two-way cost rule by the Ontario Law Reform Commission report of 1982, but introduced the Class Proceedings Funds to offset any chilling effects that an adverse costs award might create.

An unprecedented cost award on a summary judgment motion recently in Hughes v. Liquor Control Board of Ontario helps illustrate these issues, where the court awarded nearly $2.8 million, after the plaintiffs had already expended their own costs of $1.8 million. The action was a complex one, involving allegations of long-standing criminal and civil conspiracies around the price of beer in Ontario.

The plaintiffs sought $2.0 billion in damages, and another billion in pre-judgment interest. Not only did the action challenge the entire legality of retail beer distribution in Ontario, it disputed the constitutionality of legislative action of the government in their claim as follows:

[47] In their proposed class action, the Plaintiffs sought damages of $1.4 billion, and punitive damages of $5 million for the following causes of action: (a) damages pursuant to s. 36 of the Competition Act[7] for contravention of s. 45 of the Act, which has two versions over the class period; (b) civil conspiracy for breach of s. 45 of the Competition Act; (c) unjust enrichment for breach of the Uniform Price Rule of the Liquor Control Act;[8] (d) waiver of tort; and (e) the freshly-invented tort of “Misconduct by a Civil Authority,” which is based on obiter dicta in Paradis Honey Ltd. v. Canada (Minister of Agriculture and Agri-Food).[9]

[48] In their Statement of Claim, the Plaintiffs alleged two conspiracies by all the Defendants. Of the two, the Plaintiffs abandoned the “Prices and Fees Conspiracy” and focused on the “Market Allocation Conspiracy”, which they pursued with a statutory cause of action pursuant to sections 36 and 45 of the Competition Act and with a concurrent common law civil conspiracy tort claim. The Plaintiffs’ civil conspiracy claim was based on the same allegedly anticompetitive behavior that is contrary to the Competition Act. The Plaintiffs alleged a conspiracy based on the predominant purpose branch of the tort of civil conspiracy.

[49] In addition to two versions of the Competition Act, the Plaintiffs’ case involved an examination of several iterations of the Liquor Licence Act[10]and the Liquor Control Act, along with their regulations and also the the Alcohol and Gaming Regulation and Public Protection Act, 1996,[11] the Importation of Intoxicating Liquors Act,[12] and the Management Board of Cabinet Act.[13]

[50] The Plaintiffs’ causes of action were built on five alleged wrongdoings; namely: (1) the Defendants conspiring to enter into the 2000 Beer Framework Agreement, an agreement that was signed by the LCBO and by Brewers Retail on June 1, 2000 and that allegedly contravened both versions ofs. 45 of the Competition Act; (2) the Defendants agreeing in the 2000 Beer Framework Agreement that the LCBO would not in its “Ordinary Stores” sell beer in packages greater than six containers; (3) the Defendants agreeing in the 2000 Beer Framework Agreement that the LCBO would not sell any beer product that was exclusively sold by Brewers Retail; (4) Brewers Retail, Labatt, Molson, and Sleeman unjustly enriching themselves by selling beer to Licensees in contravention of the Liquor Control Act’s Uniform Price Rule; and (5) the LCBO misconducting itself as a public authority by entering into the 2000 Beer Framework Agreement.

Although costs remain discretionary in class proceedings, and the plaintiffs and the Class Proceedings Fund submitted that the action was in the public interest and no costs should be awarded, Justice Perell rejected this submission, providing some important insight into the legal understanding of the public interest in the context of class actions:

[94] It is easy enough for the Plaintiffs and the Fund to say that the summary judgment motion in the immediate case was not complex and that this circumstance alone warrants a reduction in fees. More precisely, the Plaintiffs and the Fund, in paragraph 6 of their costs submission, stated:

The chilling effect of a costs order of this magnitude would be contrary to the fundamental objective of access to justice – especially in a case that boiled down to a handful of discrete legal issues with largely uncontested facts, a modest record, minimal expert evidence and minimal cross-examinations. On that basis alone, the quantum of any costs ordered must be substantially reduced from the quantum claimed.

[95] I was there. The summary judgment motions did not boil down to a handful of discrete legal issues. And if discrete is intended to mean simple legal issues, there was little simple about the legal issues, which were synthesized into nine factums, some of them jointly written factums, and case books comprising approximately 7,000 pages and which involved an analysis of a lengthy factual history, an analysis of a lengthy judicial history associated with the Regulated Conduct Defence, an analysis of constitutional law and statutory interpretation principles associated with retroactive enactments, and an analysis of the Competition Act, the Liquor Licence Act, the Liquor Control Act, the Alcohol and Gaming Regulation and Public Protection Act, 1996, the Importation of Intoxicating Liquors Act, and the Management Board of Cabinet Act.

[96] There is no merit to the Plaintiffs’ and the Funds’ argument that the summary judgment motions were so straight-forward that the Defendants’ costs requests are unjustified.

[97] As may be seen from reading my Reasons for Decision, the court was called on to address, among other – not simple – legal issues: (1) What is the Regulated Conduct Defence? (2) Does the Regulated Conduct Defence apply in civil claims for breach of s. 45 of the Competition Act in its two iterations? (3) Does the Regulated Conduct Defence apply to the 2000 Beer Framework Agreement? (4) Is s. 10(3) of the Liquor Control Act constitutional? (5) May the Defendants rely on the Regulated Conduct Defence in the immediate case? (6) Did the Defendants breach s. 45 of the Competition Act? (7) Did the Defendants, other than the LCBO, breach the Uniform Price Rule of the Liquor Control Act? (8) Did the Defendants properly apply the Uniform Price Rule of the Liquor Control Act? (9) Does s. 3(1.1) of Liquor Control Act codify and cure any breach of the Uniform Price Rule? (10) Do the Defendants have a juristic reason defence to the unjust enrichment claim? and (11) Did the LCBO commit the tort of Misconduct by a Civil Authority?

[98] It is not possible to say that the facts were uncontested unless one ignores the huge amount of work undertaken by the Defendants in marshalling a documentary record and in responding to the Plaintiffs’ requests for production and unless one ignores the controversies about what factual inferences to draw and legal conclusions to reach from those documentary records that spanned a legislative and policy history from the repeal of Prohibition in 1927 prohibition to legislation and policy changes made after the Plaintiffs’ action was underway.

[99] Maybe on Jupiter a 14,000-page record assembled for the court (from the who knows how large a data base examined for relevancy by the Defendants) is “modest,” but it is not modest on planet Earth.

[100] It is easy enough for the Plaintiffs and the Fund to say that the Plaintiffs’ action was in the public interest and raised novel issues that it was in the public interest to resolve. More precisely, the Plaintiffs and the Fund submitted that the costs award in this case must reflect the fact that the case involved a matter of public interest and raised novel points of law, within the meaning of s.31(1) of the Class Proceedings Act, 1992.

[101] Notwithstanding the Plaintiffs’ and the Funds’ argument, in my opinion, the proposed class action was not in the public interest in the requisite legal sense. In my opinion, the case at bar, the case at bar was commercial litigation to relocate $3.0 billion of money belonging to the taxpayers of this province to a subset of Class Counsel and Class Member taxpayers who allegedly paid too much for beer as a result of a government policy that had been in existence for decades.

[102] It is easy enough to say that any class actions is in the public interest because it is always in the public interest that there be access to justice and it is particularly easy to say that a class action is in the public interest when a defendant is a public sector actor or a defendant is in a regulated industry, but if the Legislature wished every class action to be regarded as in the public interest, it could have introduced a no-costs regime or an asymmetric costs regime but it did neither. Rather, as the Court of Appeal noted in Pearson v. Inco Ltd.,[51] unlike other class proceedings jurisdictions such as British Columbia, Ontario has not sought to interfere with the normal rule that costs will ordinarily follow the event. The Plaintiffs and the Fund have not persuaded me that there should be some departure in whole or in part from the normal cost rules.

[119] Any time when a class action fails, like death, and taxes, it is inevitable that the representative plaintiff, class counsel, and the Fund, if it is involved, will say that the case was in the public interest. But the Legislature did not insulate the Fund from litigation chill or from making a poor decision in supporting a particular class action, and it should not be forgotten that in supporting the Plaintiffs’ case, the quid pro quo was a 10% mandatory share of a pleaded $3 billion damages claim. And, in any event, in assessing costs, the court is required to ignore the Fund’s exposure to an adverse costs award and continue on with the legal fiction that it is the representative plaintiff who will be paying the adverse costs award.

Defendants in class proceedings have repeatedly warned of the significant burden on the economy and the private sector. Justice Perell even cited his decision earlier this year in Heller v. Uber Technologies Inc., where he stated,

[1] Like a forest fire in this era of climate change, costs in class proceedings have gotten out of control.

[2] The tendency of Class Counsel or Defence Counsel to exercise little restraint because the courts will not second-guess either side’s allocation of legal resources needs to be stopped because it is not fair to the litigants and because runaway legal expense is an obstacle for access to justice for both plaintiffs and defendants.

[3] The court is part of the problem. The court’s failure to rein in the expectations of the parties to what is a genuinely reasonable allocation of legal resources, even for a high risk-and-reward class action, just fuels the fire storm. It requires no change in the law to bring some control, proportionality, and reasonableness back. All it requires is for the court to do its job and not leave it to the lawyers to unreasonably determine what is a reasonable costs award in a class action.

Despite this statement, Justice Perell found that the cost award here was warranted because “the Plaintiffs knowing took on the risk of an adverse costs award for a reward commensurate with the risk.” In most class actions these days, the representative plaintiff’s exposure to costs is covered by counsel.

The quantum of costs in class actions appears to be rising over the past few years. In

Crisante v. DePuy Orthopaedics, Justice Belobaba stated,

[1] Over the past several months, I have released five decisions certifying proceedings as class actions that now require costs awards.[1]Normally, costs awards are routine and can be easily adjudicated. Not so in the world of certification motions. Here, excess appears to be the norm in every aspect of the proceeding – in the time spent by legal counsel, the volume of material filed with the court, the number of days scheduled for the oral hearing and the over-litigation of most issues. No wonder, then, that the costs that are typically sought by the successful party are in the hundreds of thousands of dollars. No wonder, also, that the number of class actions on an annual basis is declining. Access to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive.

He proposed a procedure to asses costs to facilitate the access to justice objectives of the Act, and in the hopes of leaner and more focused certification motions, but also expected it would provide lower than expected costs awards. This hasn’t always played out in this way.

In Das v. George Weston Limited, Justice Perrell awarded over $2.3 million in costs on a certification motion, also rejecting the public interest argument of the plaintiffs,

[123] I respect the empathy, faith, fortitude, kindness, and pursuit of justice of the Plaintiffs’ lawyers and of the Class Proceedings Fund in taking on the case for the citizens of a foreign land, but a significant motivator in this proposed class action was money, independent of public policy, and the Plaintiffs were intent on intensifying the pressure and risks on the Defendants and to motivate them to settle and to pay a substantial award. This proposed class action was not purely altruistic and the Plaintiffs’ lawyers must be taken to have weighed the awards along with the risks when they decided to take on a case that they litigated with little or no mercy, temperance, or proportionality.

[124] The Plaintiffs pleaded and prosecuted their case in a way that indicated that they expected to be paid costs. They telegraphed that they would rebuff any argument that there should be no order as to costs because the case was novel or in the public interest. The Plaintiffs pleaded and prosecuted their case in a way that they should and would have reasonably expected: (a) to pay costs; and (b) that they would not be able to use the argument that the case was novel or in the public interest.

[128] Virtually every proposed class action is in the public interest in the sense of being something that may beneficially or adversely affect the personal, ideological, or financial interests of some portion of the public. This is also true of much of the court’s services in administering justice in civil cases outside of the Class Proceedings Act, 1992. In this general sense, the immediate case was and is in the public interest. However, it does not follow that a case in the public interest (or a case that is just interesting for the public to observe) will justify departing from the normal rules of a loser-pays adversarial system for the administration of justice.

[129] At its fundamental core, the Class Proceedings Act, 1992 is a public law statute. The Legislature has outsourced to entrepreneurial lawyers the prosecutorial function of civil claims against wrongdoers that harm groups and the Act claws back for the courts an administrative law jurisdiction that the Legislature otherwise has assigned to tribunals and regulators dealing with labour law, health law, securities law, consumer law, and competition law. But in designing this public law statute, the Legislature and the Court of Appeal in Pearson v. Inco Ltd., supra, at para. 13 established that while the court should be open to making an exceptional no costs order, the normal rule was that costs will ordinarily follow the event.

[130] I accept that the case at bar was in the public interest in the senses that the public would find it interesting and that the outcome would and does affect the personal, ideological, and financial interests of the public, but having regard to the way the case was pleaded and prosecuted, it would not be just or fair to regard it as one of the exceptional cases where either party should be exempt from the normal rule that costs will follow the event. I conclude that the Plaintiffs’ claims were not in the public interest in the requisite legal sense that would justify no award as to costs.

Quebec provides a limit on the costs provided in class actions, which can be perceived as creating a plaintiff-friendly jurisdiction. Although this unprecedented cost award may deter some future class actions from proceeding, it will also achieve the other goals of costs in discouraging frivolous and speculative claims. The access to justice goals envisioned by the Act are not a mechanism intended to facilitate economic prospecting by litigation.

The issue of costs, and its potential to impact access to justice, will continue to be explored by the Law Commission of Ontario’s ongoing study on class actions, and is likely to be addressed by their upcoming future report. This decision will certainly impact that analysis.

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