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News and Views Issue 4: Spring 2002

Facilitating Access to the Courts through Class Actions: Canadian Developments

Introduction
These days, a person can hardly pick up a newspaper or magazine, or turn on a radio or TV broadcast without being told about another class action lawsuit. In Canada, high profile class actions have been brought for damage attributable to defective breast implants, faulty pacemakers, risky weight loss drugs, tainted blood, aboriginal residential schools, cracking toilet tanks, unpaid interest on disabled war veterans’ pensions, bogus gold mine representations, credit card and utility company over-charging, disappointing vacations, e-coli in the water supply ... the list goes on. Class actions involving water contamination have received increased media attention, including being featured in Hollywood films: A Civil Action and Erin Brockovich. Class action examples here and elsewhere include cases involving defective consumer or industrial products, misrepresentation of products or services, securities breaches, mass disasters and creeping disasters (such as injury to health over a prolonged time period or environmental damage), to name but a few. No legal cause of action is immune.

The vast majority of Canadians now have access to modern class proceedings regimes. Quebec enacted legislation in 1978 (in force January 19, 1979), [ 1 ] Ontario in 1992 (in force January 1, 1993), [ 2 ] British Columbia in 1995 (in force August 1, 1995), [ 3 ] Saskatchewan in 2001 (in force January 1, 2002), [ 4 ] and Newfoundland has declared its intention to enact class action legislation [ 5 ]. Modern class actions rules will be introduced soon in the Federal Court of Canada [ 6 ]. Class action legislation has been recommended by the Uniform Law Conference of Canada (in 1996), [ 7 ] the Manitoba Law Reform Commission (in January 1999) [ 8 ] and the Alberta Law Reform Institute (in December 2000) [ 9 ].

The Quebec legislation drew on prior experience with class actions in the United States where Rule 23 of the Federal Rules of Civil Procedure is considered to have ushered in “the dawn of the modern age of class proceedings” [ 10 ]. This Rule was first adopted in 1938, substantially broadened in the early 1950s and significantly amended again in 1966. The Ontario, British Columbia and Saskatchewan statutes, and the recommendations for class action regimes in other Canadian jurisdictions, owe their genesis to recommendations made by the Ontario Law Reform Commission in the monumental 3-volume: Report on Class Actions published in 1982 [ 11 ].

The move to enact legislation is only one component of the story. In 2001, the Supreme Court of Canada affirmed the power – indeed, the duty – of the courts to structure class proceedings where appropriate in managing individual cases [ 12 ]. Having commented that a legislative framework clearly would be advantageous, [ 13 ] the Court stated [ 14 ]:

“Absent comprehensive legislation, the courts must fill the void under their inherent power to settle the rules of practice and procedure as to disputes brought before them. ... However desirable comprehensive legislation on class action practice may be, if such legislation has not been enacted, the courts must determine the availability of the class action and the mechanics of class action practice.”

In structuring class proceedings in jurisdictions lacking modern legislation, the courts can obtain guidance from the procedures tested under the class action statutes in force elsewhere in Canada.

What is a “class action”?
A class action is a legal procedure that allows many persons having the same or similar claims against a defendant to pursue their claims through a representative party. One person, the “representative plaintiff,” brings an action on behalf of themselves and others who are in the same position in relation to the defendant [ 15 ]. Together, the representative plaintiff and other claimants form a “plaintiff class”. Parties are permitted to “opt-in” or “opt-out” of the class (depending on the requirements of the governing legislation). The representative plaintiff “represents” the interests of all of the members of the plaintiff class in the lawsuit and all of the class members are bound by the outcome. In short, instead of multiple separate proceedings brought by different plaintiffs raising the same issue against a defendant over and over again, class actions allow an issue that is common to many claimants to be decided in one courtroom at one time. The effect is that the proceedings taken by the representative plaintiff directly affect persons who are in the plaintiff class but are not actively before the court.

Why are class actions attracting interest?
The world of today is not the world of England in the 17th century when the idea of a representative action was introduced into the Court of Chancery [ 16 ]. Technological advances have contributed to the shrinking of the world. Trade is now conducted globally, not locally. Increased potential exists for devastating damage, for example, resulting from radioactive materials leaking from a nuclear plant or rail tankers spilling dangerous chemicals. Moreover, given the fast-growing size of the world population, mistakes are more likely today to affect large numbers of people. The phenomenon of many individuals having the same or similar claims against a defendant is, indeed, a modern reality. The issues that need to be sorted out can be technically complex, procedurally cumbersome and, consequently, costly to resolve. Not only are the courts hard-pressed to handle the burgeoning volume of litigation, but also access to the courts for redress frequently lies beyond the means – financial and otherwise – of ordinary citizens.

Objectives of modern class actions
Enter the modern class action. After thoroughly canvassing the possibilities, the Ontario Law Reform Commission identified three objectives of modern class actions [ 17 ]. The objectives are consistent with the reasons for the growing interest in this procedural mechanism. Courts look to the objectives in making a determination of whether a class action is the preferred procedure in a particular case. The Supreme Court of Canada has recognized these objectives in describing three important advantages of class actions over a multiplicity of individual suits [ 18 ]:

First, by aggregating similar individual actions, class actions serve judicial economy by avoiding unnecessary duplication in fact-finding and legal analysis. Second, by distributing fixed litigation costs amongst a large number of class members, class actions improve access to justice by making economical the prosecution of claims that any one class member would find too costly to prosecute on his or her own. Third, class actions serve efficiency and justice by ensuring that actual and potential wrongdoers modify their behaviour to take full account of the harm they are causing, or might cause, to the public.

Distinguishing features of a modern class action
A number of features distinguish a modern class action from an historic class action and from an ordinary action (i.e., an action in which each litigant is a party in their own right). It should be emphasized that class actions are a procedural device; they do not confer new causes of action. Legislated safeguards and an expanded role for the court help to ensure that the procedure will be fair not only to the parties (representative plaintiffs, defendants) but also to the members of the plaintiff class. In the class action model adopted in four Canadian jurisdictions and recommended in others, the distinguishing procedural details include the following five elements [ 19 ]:

1. Certification. A court must approve (“certify”) a proceeding as a class proceeding before it can go forward. The criteria are important. They are [ 20 ]:
   1. the pleadings disclose a cause of action,
      
      
   2. there is an identifiable class of 2 or more persons,
      
      
   3. the claims of the class members raise a common issue, whether or not the common issue predominates over issues affecting only individual members,
      
      
   4. a class proceeding would be the preferable procedure for the resolution of the common issues, and
      
      
   5. there is a representative plaintiff who
      
      
      1. would fairly and adequately represent the interests of the class,
         
         
      2. has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and
         
         
      3. does not have, on the common issues, an interest that is in conflict with the interests of other class members.
         
         
2. Class membership. Potential class members are notified of certification and given an opportunity to decide whether or not they want to be part of the class. Subclasses may be formed in situations where some members of the main class share issues that are not common to other members. Each subclass has its own representative plaintiff.
   
   
3. Court Role. The court actively case manages the proceeding. The court’s role includes:
   1. certification of the proceeding as a class action;
      
      
   2. approval of
      
      
      1. notices to class members (certification of the proceeding, opportunity to decide whether or not to be in the class, resolution of the common issues, whether by settlement or judicial disposition),
         
         
      2. the settlement or discontinuance of the action, and
         
         
      3. any agreement between the representative plaintiff and class counsel for the payment of lawyer fees and disbursements;
         
         
   3. exercise of judicial discretion to allow class members to participate in the proceeding; and
      
      
   4. making provision for the determination of individual issues separate from the common issues.
      
      
4. Monetary relief. Class action statutes permit damage awards to be assessed on an individual or aggregated basis (in which case provision is made for subsequent distribution to class members).
   
   
5. Limitation periods. Limitation periods that would otherwise run against plaintiff class members are suspended during a class proceeding.

Do class actions achieve their objectives?
Some data is available on the number of cases being brought in Quebec, Ontario and British Columbia and the results in those cases [ 21 ]. To a large extent, however, discussion of the experience under modern Canadian regimes is hampered by the lack of “much systematic compilation of information.” [ 22 ] Instead, colourful anecdotes pepper discussions about the merits of class action lawsuits. These anecdotes fuel heated debates about the achievements of class actions, debates in which perceptions vary depending on the source of the information and on the ideological preferences of the observer [ 23 ]. It is, however, useful to examine the Canadian approach by looking at each of the objectives as identified by the Supreme Court.

Objectives: Access to justice
Of the three objectives recognized by the Supreme Court of Canada, the argument that a class action will enhance access to justice has been the most persuasive in convincing courts that a class action is the preferred procedure [ 24 ]. Access to the courts to redress civil wrongs is often beyond the financial means of individual citizens. Allowing many persons who are similarly situated to seek relief in a single action facilitates access to justice by eliminating the need for each class member individually to bear the cost of proving all of the facts and making the arguments necessary for the claim to succeed. The courts have considered the prospect that a class action will put the parties on a more even economic footing when deciding whether or not to certify an action [ 25 ].

In assessing the extent to which an action will satisfy access to justice objectives, courts have also compared the size of the individual claims, and the likelihood of recovery if the action is successful, to the expense of the litigation. Class actions are especially appropriate where the amounts of individual claims are small and the case raises difficult technical issues that will require highly skilled investigators and expert witnesses to prove liability. Where each class member’s claim is sufficiently large that it could be brought economically on an individual basis, access to justice is less of a concern and the court may be less likely to certify a class action [ 26 ].

The legislative treatment of costs and methods of financing class actions are other areas that affect access to justice for potential plaintiff classes. Quebec, Ontario and British Columbia take different approaches to costs. These are discussed in the ALRI Report [ 27 ]. As for financing the class action, it is not unusual for the law firm retained by the representative plaintiff to make its fee contingent on the success of the action and to pay the out-of-pocket disbursements necessary to proceed with the action as part of the agreement [ 28 ]. This development ties access to the courts to the lawyer’s estimate of the likelihood of success in the action.

Objectives: Judicial economy
The second objective is judicial economy. According to the Supreme Court of Canada, the important question here is practical: will “allowing the suit to proceed as a representative one ... avoid duplication of fact-finding or legal analysis.” [ 29 ]

Judicial economy can be viewed from three perspectives: a) the cost to the litigants, b) the cost to the civil justice system, and c) the cost to society. Data on the actual economy achieved by class actions is almost non-existent.

a) Cost to the Litigants

For plaintiffs, the cost of going to court for redress is directly related to access to justice and was discussed above in conjunction with that objective. For some defendants, at least where litigation is inevitable, it would seem desirable to deal with allegations that are common to a number of plaintiffs in one proceeding rather than over and over again. In fact, defendants may consent to certification for this reason, or request that class actions commenced by different persons be certified and managed in one proceeding [ 30 ]. Traditionally, however, the high cost of complex litigation has militated in favour of defendants: put simply, plaintiffs typically can’t afford it, and defendants know this.

b) Cost to the Civil Justice System

Requiring persons to bring individual actions seeking relief for conduct or occurrences that have affected many people in the same or similar ways is uneconomical and inefficient not just for the individuals involved but also for the justice system. As stated in an Ontario case, when it comes to procedure, the “underlying policy of our laws is to resolve disputes in the most just, expeditious and inexpensive manner” [ 31 ]. It is the express policy in most jurisdictions to avoid a multiplicity of proceedings.

Do class actions increase or reduce the demands on the courts? On the one hand, if potential compensation is high enough to make it financially possible to bring individual actions, combining those actions into a class action would reduce the total number of cases. It is reasonable to expect that the administration costs attributable to multiple separate claims would be higher than those attributable to one class action conducted by a representative plaintiff. On the other hand, class actions make claims possible that would otherwise not be brought by individuals because the cost of going to court would be prohibitive. In this sense, class actions add to litigation.

Some data exists on the number of class actions being brought [ 32 ]. Despite concern expressed by class action opponents that the enactment of class action legislation serves to encourage litigation, the numbers to date do not appear to indicate large increases in litigation in jurisdictions where class action legislation has been implemented. As is true of litigation generally, very few class actions proceed to trial, and not all plaintiffs are successful. Some actions that are commenced are disposed of by motions brought prior to the certification application (e.g. failure to state a cause of action, motions for summary judgement); others are settled before or during the certification process; not all certification applications succeed; and, settlement post certification is common. (In Quebec between 1979 and 1997, 396 certification motions were initiated yet only 35 actions were tried [ 33 ].) Most of the contention occurs at the certification stage. If the certification succeeds, settlement negotiations usually begin. Sometimes the parties have already reached a settlement and the defendant wants the certification in order to bind all class members to the settlement terms (known as a “settlement class”).

Another consideration affecting judicial economy is the manageability of the litigation. As noted above, in order for a class action to be certified there must be a common issue even if there are also individual issues. If the individual issues are numerous, they may outweigh the advantages of determining the common issues in one proceeding [ 34 ]. However, the “predominance” of individual issues “is not in itself fatal to the application” [ 35 ]. That is to say, in deciding whether an action should proceed as a class action or as individual actions, the courts weigh the impact of numerous individual issues against other factors such as:

1. the extent to which the common issues will advance the litigation;
   
   
2. the potential the class action has to become a “monster of complexity” and cost; [ 36 ] and
   
   
3. the size of the claims compared to the complexity, length and individualistic nature of the procedures required to resolve the individual issues [ 37 ].

Judicial economy may be promoted by other procedural efficiencies that are made possible in the class action regime. For example, in deciding whether a class action should be certified, the court is able to consider the availability of alternate means of adjudicating the dispute [ 38 ]. Also, the court has considerable latitude when it comes to directing how individual damages will be determined and distributed. Various examples are available, including Webb v. K-Mart Canada Ltd [ 39 ]. Webb involved claims for compensation by 3,000 to 4,000 persons who lost their jobs when the K-Mart corporation merged its retail chain with Zellers and the Bay. The representative plaintiff sought a judgement on the common issues so that the court could direct that “individual issues of entitlement to compensation” be dealt with by references [ 40 ]. This “expedited process” included “provision for mandatory mediation and, if unsuccessful, summary hearings” [ 41 ].

Also, and significantly, fairness issues must be weighed in the balance when considering the cost to the civil justice system. One factor the courts have considered is the risk of inconsistent findings of liability in separate litigation if multiple actions are not certified, especially where the question of liability will be a “battle of the experts” [ 42 ]. Another factor is the converse possibility of loss of procedural safeguards for the defendant (including discovery of all individuals, and the opportunity to bring in possible third party indemnitors) if a class action is certified [ 43 ]. Either of these occurrences - inconsistent findings or the loss of procedural safeguards - might have a negative effect on public perceptions of the administration of justice, and must be guarded against.

c) Cost to Society

Little research has been done on the complex social, economic and political analysis that would be required to assess the cost of class actions to society. As just noted, the availability of class actions may contribute to improved public perceptions of fairness in the administration of justice. On the other hand, the cost to defendants of paying out huge awards to injured individuals may ultimately be a cost to society. For example, if the government is the wrongdoer, the award is likely to be paid with public tax dollars; if a corporation is the wrongdoer, the public may have to pay a higher price for products or services in the future; if the corporation goes bankrupt, a wide range of creditors may suffer losses because of the company’s inability to pay the litigation claims and other debts. Insurance against class action litigation is becoming an issue in the business community, with cost consequences for the public.

Objectives: Deterrence of wrongful conduct
The third objective of a class action is to deter wrongful conduct by making sanctions available. Making relief accessible to persons who would not otherwise be able to sue may sanction conduct that might otherwise go unchecked. To illustrate, if one drug company is required to pay persons who suffer (eg., because it has not taken proper precautions in testing the drug before putting it on the market or has failed to warn consumers of various risks), this company (and others) will likely take more care in the future [ 44 ].

Shortcomings of modern class action regimes

Objections made by class action detractors

Support for the enactment of modern class action laws is not universal. In fact, class actions are a flashpoint for two opposing ideological perspectives: [ 45 ]

[Critics] believe that the social costs of class actions outweigh their social benefits. They argue that reliance should be placed on individual litigation to secure financial compensation for individual losses and on government regulations to prevent wrongs. Those persons holding the other view believe that the social benefits of damage class actions outweigh their costs. They argue that the cost of individual litigation deprives many people of a remedy because they can’t afford to go to court. They are not prepared to leave the enforcement of standards to government. Collective action is the only practical way for them to assert their rights.

Supporters of class action proceedings have responded to these criticisms. The now generally accepted wisdom is not to do away with class actions. It is, instead, to focus attention on improving procedural safeguards and better regulating actionable conduct in order to minimize the grounds for concern.

Mass non-class Litigation
Another shortcoming of the class action is that it does not allow for multiple party litigation involving similar claims against a variety of defendants in the absence of a “common issue”. For the issue to be “common”, the “answer to the question must, at least, be capable of extrapolation to each member of the class or subclass on whose behalf the trial of the common issue is certified for trial by a class proceeding.” [ 46 ] The answer must also “of necessity ... be capable of extrapolation to all defendants who will be bound by it.” [ 47 ] This inability to accommodate all multiple party litigation situations was one of the considerations that led legislators in England to reject the idea of introducing “American-style class actions” [ 48 ]. Instead, England has adopted a scheme based on judicial discretion to fashion procedures that fit the needs and circumstances of the particular litigation.

Inter-jurisdictional concerns
Modern wrongs do not stop at provincial or even national borders. Requiring persons in different jurisdictions to bring actions seeking relief with respect to the same conduct or event is also uneconomical and inefficient. Therefore, whenever possible, it makes sense for an action commenced in one jurisdiction to allow persons in other jurisdictions to become part of it, and for courts in other jurisdictions to honour the decision.

The British Columbia legislation permits non-residents to join the class action by opting into it. The Ontario legislation is silent about the status of non-residents in class actions brought in that province. The Ontario courts have filled this silence by allowing “national class actions”, that is, class actions in which the class encompasses persons resident anywhere in Canada who do not choose to opt out. The effect of a judgement on non-resident national class members will depend on the willingness of courts in a non-resident’s home jurisdiction to recognize it as binding. Procedural cooperation between jurisdictions is also desirable [ 49 ]. These are next-generation law reform issues.

Conclusions
The growing complexities of litigation in modern times pose challenges for the civil justice system – challenges involving issues of access to justice, judicial economy, and respect for the administration of justice. Jurisdictions in Canada and beyond are experimenting with new approaches to meet those challenges. Modern class actions are one procedural mechanism that is showing promise. However, the legislation providing for class actions is relatively new. In order to ensure its continuing success, it will be important to collect empirical data that will allow us to monitor its workings and assess its effects over time.

Endnotes

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