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Fridays With Rogers Partners

This morning, at our weekly firm meeting, Athina Ionita discussed the Supreme Court of Canada’s decision in Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19. This case dealt with a number of issues, including whether waiver of tort is a valid cause of action, the remedy of disgorgement, and the breadth of motions to strike.

This case was an appeal of a motion to strike in a class action suit. The plaintiff s sued the defendant, Atlantic Lottery Corp., over their use of video lottery terminals (VLTs) alleging that they are deceptive, addictive and dangerous. The plaintiff relied on waiver of tort and breach of contract as their causes of action.

Among other allegations, the plaintiffs alleged that Atlantic Lottery breached its duty to warn about the dangers of VLTs, including the risk of addiction and suicidal ideation. Further, they argued that by paying-to play the VLTs, this formed a contract between the player and Atlantic Lottery, which contained several implied terms, including that Atlantic Lottery would provide safe games and act in good faith. The plaintiffs sought disgorgement of profits.

The defendant sought to strike the statement of claim on the basis that there was no reasonable cause of action. The application was denied. The plaintiffs then successfully applied to certify the class action, with the defendant failing on its counter-application.

Atlantic Lottery appealed both the certification order and the dismissal of the application to strike. The Court of Appeal sided with the trial judge, refusing the defendant’s motion to strike and upholding the certification.

In a five to four decision, the Supreme Court allowed the appeal, setting aside the certification order and also struck the plaintiffs’ claims against Atlantic Lottery.

The majority, written by Justice Brown, first addresses the issue of waiver of tort and whether it stands as a valid cause of action. The court was unanimous in deciding that the term should be abandoned. Waiver of tort has historically been used by plaintiffs as an independent cause of action. However, what waiver of tort actually refers to is an election for a particular remedy and is, thus, not in and of itself a cause of action.

The majority then deals with the question of whether there were any remaining valid causes of action. The plaintiffs seemed to plead negligence, but expressly excluded causation. The majority found that negligence pled in this way must fail because causation is an essential element of negligence. The pleadings of the plaintiffs allege dangers of addiction and suicide, but exclude any reference to those dangers actually materializing.

The majority also rejects there being a breach of contract, reasoning that there would be no remedies available to the plaintiff. Disgorgement would only be available in exceptional circumstances, which is not the case here, and only where damages, specific performance and injunction are inadequate.

Punitive damages would also be unavailable as there would need to be a duty of good faith, which is not the situation here. A duty of good faith only arises under an established set of categories, which the contract in question does not fall under.

The dissent, written by Justice Karakatsanis, agrees with the majority on the question of waiver of tort. However, the dissent differs on the issue of breach of contract and available remedies to the plaintiffs.

The dissent affirms that the standard on a motion to strike is high, stating that the statement of claim should be read as generously as possible.

With this high standard for motion to strike in mind, the dissent reasons that breach of contract here is possible and is available to the plaintiffs as a cause of action.

The plaintiffs argued that there is an implied contract between game players and Atlantic Lottery, which contains several implied terms, including that the terminals are safe to use, that Atlantic Lottery would use reasonable care and skill, and Atlantic Lottery would implicitly act in good faith. The plaintiffs alleged that the terminals were intentionally deceitful and unsafe for use and thus breached the implied terms.

Justice Karakatsanis concludes that there is no reason why the implied contract and terms may be unavailable at law, thus the high standard for a motion to strike would not be met. The implied contract along with its implied terms would have to be tested at trial. Thus, the plaintiffs have pled a valid cause of action.

On the issue of remedies, the dissent found that both disgorgement and punitive damages are available. Disgorgement is useful in that it may deter wrongful conduct and may be an appropriate remedy when the plaintiff suffers no loss.

The plaintiffs here may succeed on a disgorgement argument since they pled that Atlantic Lottery’s breach was self-interested, deliberate and in bad faith, in addition to mentioning abuse of power and public trust. These are all terms that point to disgorgement being available.

On the question of whether this is an exceptional case that warrants disgorgement, the dissent said that this should be left for the trial judge to determine. Pleadings are not required to set out the evidence on which parties will rely, so it is acceptable to leave this question for trial.

The dissent also finds that punitive damages would be available, since the plaintiffs pled that the defendant had a duty of honest performance, and alleged dishonesty, deception and manipulation on the part of the defendant.

The key takeaways from this case are that waiver of tort is not a cause of action and that motions to strike may be broader than initially thought.  Waiver of tort was traditionally used by plaintiffs to have their class actions certified, and plaintiffs in turn leveraged that certification in their settlement negotiations.  

This decision hurts plaintiffs by expanding the application of motions to strike. The majority favoured striking claims to promote efficiency and access to justice over giving plaintiffs the opportunity to try their case. The dissent disagreed on this issue, emphasizing the high standard that must be met in order to strike a pleading. The majority narrowly won on this issue, given that this was a five to four decision.

Thus, there may be room for plaintiffs to challenge the court’s ruling on this issue in the future. The divided court is symbolic of the tension between the value placed on speedy resolutions and giving plaintiffs a fair opportunity to have their case tried.