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Canada’s top court dismisses video lottery class action and eliminates waiver of tort for class actions

In late July the Supreme Court of Canada issued a somewhat unexpected decision in a closely-watched class action about video lottery terminals (“VLT”). The decision, Atlantic Lottery Corp. v. Babstock, 2020 SCC 19, saw the court split over whether to uphold the certification of a class action against the Atlantic Lottery Commission (the “ALC”), which controls the operation of VLTs across the Atlantic provinces. The class action alleged that VLTs violated the criminal code’s prohibition of games similar to “three card monte” and sought damages on the ground of waiver of tort, breach of contract, and unjust enrichment. The majority ultimately decided to reverse the lower courts’ decisions and dismiss the certification and the underlying claim entirely; in the process the court clarified the often confusing and unclear remedy of “waiver of tort”.

The plaintiffs’ case was unusual in that it sought a gain-based award, based on the profit ALC earned licensing VLTs for public use. The plaintiffs alleged that the failure to warn of the inherent danger in VLTs was a waiver of tort. The plaintiffs also alleged that the ALC had entered into an unwritten contract with the public by offering VLTs to the public and that a term of this contract was that the games were safe. The plaintiffs concluded their claim by noting that the ALC had been unjustly enriched at the expense of the public.

ALC claimed that the certification should be dismissed, and the claim struck on the grounds that the plaintiffs’ claim disclosed no cause of action. In particular, ALC alleged that the plaintiffs could not rely on waiver of tort as an independent cause of action. The majority of the SCC noted that, while novel claims may survive a motion to strike, they could settle whether waiver of tort was an independent cause of action at this point in the proceeding. The majority noted that “failing to address whether an independent cause of action for waiver of tort exists will perpetuate an undesirable state of uncertainty. As Greg Weber writes, “[w]aiver of tort has become a hollow and internally inconsistent doctrine, leaving judges and litigants confused about how and when a cause of action might support disgorgement.”

The majority began their analysis by distinguishing between the remedies of restitution and disgorgement. The court described the difference as follows: “disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required), while restitution is awarded in response to the causative event of unjust enrichment (most recently discussed by this Court in Moore), where there is correspondence between the defendant’s gain and the plaintiff’s deprivation.”

The majority held that the plaintiffs sought disgorgement, not restitution in this case; their claim for waiver of tort sought the benefit that ALC had gained from the licensing of VLTs and made no reference to the deprivation suffered by members of the class. The majority went on to hold that disgorgement is not an independent cause of action, but a remedy, noting that “disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action.” The court then addressed how the term “waiver of tort” referred to a remedy where a plaintiff chooses to pursue a gain-based remedy instead of restitution. In light of this confusion, the majority argued that the term waiver of tort ought to be abandoned in favour of disgorgement.

Having determined that the plaintiff’s claim was seeking the remedy of disgorgement, the court held that it could not constitute a new independent cause of action either. As it would not be reasonable to entitle any plaintiff exposed to risk from a Defendant to be entitled to claim the full gain realized by a defendant absent evidence of harm to the plaintiff. The court noted that tort law was not intended to reward a windfall to any plaintiff who brings a claim, but instead to reimburse “someone to whom damages are owed to correct the wrong suffered.”

Having dismissed the availability of waiver of tort or disgorgement as an independent cause of action, the majority then addressed whether the remedy of disgorgement was available for the torts of negligence or breach of contract. The majority dismissed negligence on the basis that causation of damages is an integral part of the negligence analysis. The majority likewise dismissed breach of contract, noting that, though a gain-based remedy is available in exceptional cases of breaches of contract, other remedies must be inadequate. The majority ultimately held that other remedies were adequate and that the case was not exceptional. The majority also dismissed the claim that VLTs were akin to “three card monte” and prohibited by the Criminal Code on the basis that VLTs did not adequately resemble the original type of card game.

At this point the majority noted that the claim could not survive on the basis that the plaintiffs had disclaimed any remedies based on individual loss. In light of this, the majority dismissed the claim entirely. Having dismissed the claim, the certification motion likewise failed on the basis of disclosing no cause of action.

This decision continues the SCC’s recent trend towards clarifying (or just plain eliminating) old and somewhat esoteric legal principles such as “waiver of tort”. It is clear throughout the decision that the court is committed to demystifying legal terminology in favour of clear legal principles. It will be interesting to keep an eye out for which overly complicated legal term will be next on the chopping block.

Jacob Millar
Affleck Greene McMurtry LLP

Jacob Millar

Jacob Millar is a former lawyer of Affleck Greene McMurtry LLP.

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