Class Action

Costs awards could force mega class actions out of Ontario

By Staff

Ontario’s loser-pays costs regime could endanger the province’s place as the jurisdiction of choice for high-value class actions, says Toronto class-action lawyer Margaret Waddell.

In a recent ruling, Ontario’s Court of Appeal upheld a motion judge’s decision to dismiss a class action brought by restaurant and bar owners against the Liquor Control Board of Ontario, the Beer Store and certain brewers over the prices they were charged for beer.

The unanimous three-judge panel also denied the plaintiffs leave to appeal the cumulative $2.4-million costs order imposed on them by the lower court.

Waddell, partner with Waddell Phillips Professional Corporation, tells the decision is the latest in a series of cases where class-action plaintiffs were hit with significant costs orders.

In another recent decision involving victims of a building collapse in Bangladesh, the appeal court found a motion judge had taken insufficient account of the claim’s public interest component in awarding $2.3 million in costs against the unsuccessful plaintiffs. Nevertheless, it found a discount of only 30 per cent was appropriate in the circumstances, leaving the plaintiffs on the hook for $1.6 million.

“We are getting pretty clear signs that Ontario courts are not going to give you a break just because you’re a small plaintiff asserting a claim on behalf of many people when the amount at issue is massive,” Waddell says. “These cases raise complicated issues, and defendants are fighting back hard, so when you’re engaged in multibillion-dollar litigation against multiple parties, you can expect to see costs awards in seven digits.

“In the long term, it remains to be seen whether plaintiff firms will continue to advance these claims in Ontario given our costs regime. It may well be that they move to no-costs jurisdictions,” she adds, explaining that counsel often commit to indemnifying the plaintiffs from the costs consequences of class actions and multimillion-dollar cost exposures could end that practice."

Alternatively, Waddell says decisions such as these may boost the popularity of third-party funders and litigation insurance providers who take on the risk of loss and potential cost awards in return for a cut of any final award.

“Both come at an expense to plaintiffs, but they do provide a measure of protection from these kinds of crippling awards,” she says.

Waddell says the alcohol sales case should also serve as a warning to plaintiffs challenging arms of government.

“You’re taking a big risk when you take on a government body over how it carries out its legislative mandate because as this case demonstrates, it may pass legislation validating its behaviour as long as it’s not unconstitutional,” she says.

The plaintiffs in the case alleged that a contract between the defendants, which barred the LCBO from selling most popular brands of beer in bulk directly to restaurants, bars, and other licensees, violated the Competition Act.

They sued for damages under the Act, claiming the alleged conspiracy to divide the beer market allowed the Beer Store to charge them five per cent more for beer than it did normal retail consumers. In addition, they claimed the LCBO had committed a proposed new tort of “misconduct by a civil authority,” entitling licensees to damages.

Although the contractual arrangement was reached following oral instructions from a provincial minister in 2000, the licensees claimed that it was inconsistent with Ontario’s Liquor Control Act (LCA).

Following the launch of the class action, the provincial legislature amended the LCA to retroactively relieve the defendants from liability for any alleged Competition Act breaches.

On a motion for summary judgment, Ontario Superior Court Justice Paul Perell sided with the defendants, dismissing all of the plaintiffs’ claims.

The appeal court panel then upheld the ruling, concluding that Perell was right to find the regulated conduct defence applied in this case, which provides immunity from civil liability where conduct is authorized by statute or regulation.

The version of the LCA in force at the time the contract was signed authorized the arrangement, the appeal court ruled. In any case, the subsequent legislation sealed the deal.

“The purpose of extending that defence in the context of the Competition Act is to avoid criminalizing conduct that a province deems to be in the public interest. That same provincial public interest should be recognized whether it is expressed in legislation in force at the time of the impugned acts, or expressed in retroactive legislation,” the appeal court panel wrote.

Waddell says she was not surprised by the outcome.

“This was always going to be a hard case because the plaintiffs were essentially arguing that acts of the legislature were criminal,” she says. “They might arguably have had some potential for success on the second head of damages, related to differential pricing, but by the time the government enacted the retroactive corrective legislation, they had no legs left to stand on.”

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