Love, hate, and class actions.

In Kerr v Danier Leather, [2007] 3 SCR 331 [“Kerr“], the Supreme Court continued its love / hate relationship with class actions.

While positive statements about access to justice benefits were made in the Supreme Court of Canada’s original trilogy of class action decisions (Western Canadian Shopping Centres v Dutton, [2001] 2 SCR 534, Hollick v Toronto (City), [2001] 3 SCR 158, Rumley v BC, [2001] 3 SCR 184), there now appears to be some growing suspicion about the benefits of the vehicle.

In Kerr, the Supreme Court dismissed the class’ appeal of this securities case on the merits. More importantly for the broader field of class actions, the court moved on to a discussion of costs. The court found that there was no basis to invoke the discretionary elements of s. 31 of the Ontario Act to relieve the representative plaintiff from a costs award, stating:

It has not been established that this is a “test case” in the conventional sense of a case selected to resolve a legal issue applicable to other pending or anticipated litigation. Nor have the appellants raised a “novel point of law”. As we have seen, the heart of the case is simply a shareholder dispute over a lot of money requiring the application of well settled principles of statutory interpretation to particular legislative provisions. This is the usual fodder of commercial litigation. (see generally Gariepy v Shell Oil Co. (2002), 23 CPC (5th) 393 (SCJ), aff’d [2004] OJ No 5309 (QL) (Div Ct), at para. 8; Moyes v Fortune Financial Corp (2002), 61 OR (3d) 770 (SCJ), at paras. 4-5).

Given that the Gariepy decision is generally recognized as the most “plaintiff-unfriendly” class action decision in Canadian history, the court’s reliance on its analysis is notable in and of itself. The court continued:

We are certainly not dealing with people on either side who are historically disadvantaged. Nor, as the Court of Appeal noted, “is it a contest characterized by significant power imbalance”…Though many Canadians are investors and the resolution of the present dispute will affect future actions for prospectus misrepresentation, the Court of Appeal rightly concluded that this is, in essence, “a commercial dispute between sophisticated commercial actors who are well resourced” … If anything, converting an ordinary piece of commercial litigation into a class proceeding may be seen by some observers simply as an in terrorem strategy to try to force a settlement.

This opaque endorsement of the alleged “in terrorem” effects of the class action vehicle (sometimes referred to as “litigation blackmail”), is a far cry from the positive statements made about the need and benefits of class actions in the trilogy.

The court continued:

Be that as it may, Mr. Durst was well aware that as a representative plaintiff he ran the risk of being held solely responsible for the defendants’ costs if the action failed. He gambled on his interpretation of s. 130(1) and lost….Nor do general concerns about access to justice warrant a departure from the usual cost consequences in this case. While I agree with counsel for the appellants that “[a]n award of costs that exceeds or outweighs the potential benefits of litigation raises access to justice issues” …, it should not be assumed that class proceedings invariably engage access to justice concerns to an extent sufficient to justify withholding costs from the successful party. I agree with the observation of Nordheimer J. in Gariepy that caution must be exercised not to stereotype class proceedings. “[T]he David against Goliath scenario” he writes, “does not necessarily represent an accurate portrayal of the real conflict” (para. 6). Class actions have become a staple of shareholder litigation. [Blogger’s note: Really? Compared to the volume in the U.S., there has been a dearth of Canadian cases in this area.] The Court of Appeal took the view that this case is a piece of Bay Street litigation that was well run and well financed on both sides. Success would have reaped substantial rewards for the representative plaintiff and his counsel. He put the representative respondents to enormous expense and I see no error in principle that would justify our intervention in the discretionary costs order made against him by the Court of Appeal.

With respect, this analysis fails to appreciate the real practical difference in resources in almost all class action litigation. Even a well-resourced class representative with strong counsel will normally be dwarfed in size and resources by the defendant. A costs award will almost always have a vastly disproportionate deterrent effect on the plaintiff compared to the institutional defendant. Costs awards can deter both meritorious and unmeritorious class actions, particularly where such costs awards are payable in relation to routine procedural motions, as well as the eventual merits as determined at trial. Most provinces have recognized this fundamental effect, and adopted a “no costs” regime in class actions. There is no evidence that these regimes are more subject to the so-called “litigation blackmail” effect.

– Ward Branch is a Vancouver lawyer. For more of his thoughts on class action costs, you can view his article here: http://www.branmac.com/go/download/broke-fix.pdf.

(Ed. note: Following this post, author Ward Branch moderated a panel discussion about Kerr v. Danier Leather and its implications for class action costs, at the 5th Annual Symposium on Class Actions, hosted by Osgoode Hall Law School. The April 10, 2008, event also featured panelists David Klein of Klein, Lyons in Vancouver, and Scott C. Hutchison of Stockwoods LLP in Toronto. You can view the entire discussion in the media player below, or in a separate Windows Media Player window by clicking here.)