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Six Class Action Rulings That Shaped Q2 2024

By: Adam West and Max Muñoz

The second quarter of 2024 saw the release of a number of important class action decisions which are summarized below.

Ontario Court Dismisses Crypto Class Action, Provides Guidance on Jurisdictional Analysis

Shirodkar v. Coinbase Global Inc., et al

In disposing of a proposed class action against a group of digital currency platforms on jurisdictional grounds, the Ontario Superior Court of Justice ( “ONSC”) in Shirodkar v. Coinbase Global, Inc., et al, 2024 ONSC 1399 has provided helpful guidance on assessing connectivity with Ontario for jurisdiction.

Key Takeaways

  • A website simply being accessible in Ontario, without some positive action by the website’s owner in Ontario, may not be sufficient to establish jurisdiction in Ontario.
  • As part of a forum non conveniens analysis, a court may consider the actual performance of, not simply the existence of, a contract with an Ontario party. While the performance will help to establish jurisdiction, where neither party acts under the contract, a court may decline to exercise jurisdiction.
  • A plaintiff cannot establish jurisdiction over a parent or related corporation based on the fact that a subsidiary operates in Ontario.

Background

Shantanu Shirodkar (“Shirodkar”) commenced an action on behalf of a proposed class, alleging that the crypto assets being sold on the defendants’ platform constituted “securities” as defined by s. 1(1) of the Securities Act, R.S.O. 1990, c. S.5 (the “OSA”) and that the crypto assets were issued without necessary disclosure requirements, creating significant risk for investors.

The defendants were Coinbase Global, Inc. (“Coinbase Global”), Coinbase Europe Limited (“Coinbase Europe”), Coinbase Inc., and Coinbase Canada Inc. (“Coinbase Canada”). All of the defendants, except Coinbase Canada, are foreign entities. The defendants operate the “Coinbase Platform,” which allows users to buy and sell digital assets, including cryptocurrency.

Shirodkar executed user agreements with Coinbase Global, Coinbase Europe and Coinbase, and conducted transactions on the Coinbase Platform between 2017 and 2021 while living in France, and later in Ontario. After commencing the action, Shirodkar executed a user agreement with Coinbase Canada, but made no subsequent purchases or sales on the Coinbase Platform.

The defendants brought a motion to dismiss, arguing the ONSC lacked jurisdiction over all defendants. Additionally, the defendants sought a permanent stay on the grounds of forum non conveniens. The defendants also brought a motion to strike Shirodkar’s expert evidence, but this aspect will not be addressed below. The ONSC granted the defendants’ motion.

Motion Judge’s Analysis

The ONSC conducted an in-depth jurisdictional analysis.

An Ontario court may have jurisdiction to determine a dispute, based on three grounds:

  • Presence-Based Jurisdiction – where a defendant was carrying on business in [Ontario] at the time the action was commenced. This is a factual enquiry that involves inquiring into whether the company has some direct or indirect presence in the state asserting jurisdiction, accompanied by a degree of business activity that is sustained for a period of time. Maintaining physical business premises is a compelling jurisdictional factor;
  • Consent-Based Jurisdiction – where an out-of-province defendant has consented, “whether by voluntary submission, attornment by appearance and defence, or prior agreement to submit disputes to the jurisdiction of the domestic court”; or
  • Assumed Jurisdiction – where the plaintiff establishes a “good arguable case” for the court, assuming jurisdiction through either the allegations in the statement of claim or a combination of the allegations in the claim and evidence filed on the jurisdiction motion. When determining assumed jurisdiction, a court must apply the test set out in Club Resorts Ltd. v. Van Breda, 2012 SCC 17 (“Van Breda”) to determine if there is a real and substantial connection between the legal situation or subject matter of the litigation and Ontario. The Van Breda test considers several factors when determining if there is a real and substantial connection.

The ONSC considered each ground in turn and determined:

      Presence-Based Jurisdiction

Shirodkar failed to establish that any of the foreign defendants were carrying on business in Ontario. The ONSC rejected the plaintiff’s submissions regarding indicators that the foreign defendants were carrying on business in Ontario. Specifically:

  • A foreign entity appointing an agent for service does not demonstrate it carries on business in the province, but the opposite. Entities appoint an agent for service in a jurisdiction because they do not have a physical presence in the jurisdiction.
  • Registering with the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) is not determinative of a court’s jurisdiction. While only entities that operate in Canada or those that provide services directed at persons or entities in Canada are required to register with FINTRAC, legislative schemes do not determine the location of business activities for the purpose of a jurisdictional analysis.
  • A website simply being accessible in Ontario – without additional factors such as targeted advertising or data collection – does not itself rise to carrying on business in the province.
  • While registering as an extra-provincial corporation may be an indicator that the entity carries on business in Ontario, it is not determinative. Where registration was for the purpose of regulatory filings that were not subsequently completed, little weight should be given to this factor.
  • Conversely, great weight should be given to evidence that an entity does not operate in Ontario and does not contract with retail users in the province.

The ONSC did determine that it had jurisdiction over Coinbase Canada. In making this determination, the ONSC relied most heavily on Coinbase Canada’s admission that it commenced business activity in Ontario in 2020.

            Consent-Based Jurisdiction

The court rejected Shirodkar’s arguments that the foreign defendants consented to Ontario’s jurisdiction through (1) Coinbase Canada’s user agreement; and (2) dealings with securities regulators. Specifically:

  • User Agreement – while Coinbase Canada’s user agreement contains a clause that disputes were to be adjudicated in Ontario, the agreement specifically notes that references to Coinbase were to Coinbase Canada and does not purport to bind any other Coinbase entity.
  • Dealings With Securities Regulators – while the foreign defendants had submitted to the jurisdiction of Ontario securities regulators, the submission to the jurisdiction was neither retroactive nor retrospective. Because none of the foreign defendants had submitted to Ontario’s jurisdiction during the period Shirodkar was trading on the Coinbase Platform, the ONSC determined it did not have consent-based jurisdiction in this case.

In conducting its analysis, the ONSC noted it must focus on the evidence before it and not speculate what the evidence of another class member may be. Although another class member may have completed transactions with the foreign defendants after the foreign defendants consented to Ontario’s jurisdiction, because Shirodkar had not, the ONSC determined there was no consent-based jurisdiction.

Assumed Jurisdiction

Relying on Sinclair v. Amex Canada Inc., 2023 ONCA 142, the ONSC rejected Shirodkar’s position that the Van Breda analysis does not need to be conducted with respect to each defendant.

When considering if the alleged tort was committed in Ontario as a connecting factor, the ONSC determined that simply accessing the Coinbase Platform from within Ontario only points to a weak relationship between Ontario and the subject matter of the litigation – a user could have accessed the Coinbase Platform from anywhere in the world that has an internet connection. Viewed practically, it would not be reasonable for the defendants to expect that they would be called to answer proceedings in Ontario in the circumstances where almost every element of the alleged tort occurred outside Ontario and only a relatively minor element of the tort occurred in Ontario.

Ultimately, the ONSC determined that Ontario is not substantially affected by the defendants’ conduct and that other jurisdictions are more affected, such that the ONSC would not assume jurisdiction over the foreign defendants.

Forum Non Conveniens

Despite determining that the court had jurisdiction over Coinbase Canada, the ONSC permanently stayed the proceeding against Coinbase Canada on the basis of forum non conveniens.

Forum non conveniens allows a court to decline to exercise jurisdiction where it can be shown that another forum is more convenient to hear and determine the matter.

In declining to exercise jurisdiction, the ONSC focused on the fact that Shirodkar did not conduct any transactions on the Coinbase Platform after he had executed the Coinbase Canada user agreement; all transactions were completed through the foreign defendants.

The ONSC accepted the defendants’ argument that Ireland was a more appropriate forum. In making their argument, the defendants submitted expert evidence that Ireland had a comprehensive scheme for the regulation of financial instruments or securities which substantially mirrors the substantive provisions of the OSA relied upon by Shirodkar. Moreover, Ireland had developed its own approach to the regulation of digital assets. Finally, the evidence indicated that Irish courts would assume jurisdiction arising out of an alleged improper distribution of securities through Coinbase Europe.

As with the jurisdictional analysis, the ONSC noted that that it must focus on the plaintiff’s case, not a hypothetical user’s case with different facts. Although a different plaintiff who had conducted transactions through Coinbase Canada may have been able to resist the stay, the facts of Shirodkar’s case supported a permanent stay.

B.C. Court Limits Class Actions to Local Plaintiffs, Clarifies Residency Rules

MM Fund v. Excelsior Mining Corp.

British Columbia has become a more appealing forum for plaintiffs as a no-costs regime, particularly since amendments to the Ontario statute have raised the bar for certification. However, in MM Fund v. Excelsior Mining Corp., 2024 BCCA 163, the British Columbia Court of Appeal (“BCCA”) confirmed that only British Columbia residents can commence class actions under the province’s Class Proceedings Act (“CPA”).

Key Takeaways

  • Potential class litigants cannot take advantage of British Columbia’s plaintiff-friendly jurisprudence and no-costs certification regime where the representative plaintiff is not a British Columbia resident.
  • For the purposes of the CPA, a corporation or trust is resident where its central management and control takes place.

Background

Toronto-based mutual fund MM Fund (“MM”) filed notice of civil claim alleging that Excelsior Mining Corp., Stephen Twyerould and Mark Morabito (collectively “Excelsior”) made misrepresentations in a prospectus in violation of the  Securities Act, R.S.B.C. 1996, c. 418 (the “BCSA”). MM sought an order certifying the action as a class proceeding and appointing it as representative plaintiff.

Excelsior applied for an order striking the certification application on the basis that MM lacked standing to commence the class action because MM is not a British Columbia resident.

British Columbia Supreme Court Decision

In 2022 BCSC 1541, the British Columbia Supreme Court (“BCSC”) granted Excelsior’s application and struck the certification application. The BCSC considered section 2(1) of the CPA, which states:

A resident of British Columbia who is a member of a class of persons may commence a proceeding in the court on behalf of the member of that class. [emphasis added]

The BCSC then considered the test for residency of a trust, which MM is. The BCSC held that residency is where the central management and control of the trust takes place.

The BCSC did address the fact that simply because MM was resident in Ontario did not mean that it could not also be resident in British Columbia. However, the onus was on MM to establish its residency in British Columbia, which it failed to do.

The BCSC also considered the issue of jurisdiction as it related to residency. The BCSC determined that having jurisdiction over a matter – for example, because Excelsior’s securities were offered to British Columbia investors – does not resolve the residency issue. A plaintiff must show that it is resident in British Columbia, regardless of the court’s jurisdiction.

BCCA Decision

MM’s appeal centred primarily on its position that the BCSC had erred in too narrowly interpreting the term “resident” in the CPA. MM argued that it had a real and substantial connection to British Columbia, including its status as a reporting issuer under the BCSA, the fact that it was registered to carry on business in British Columbia under the BCSA, and that it had attorned to British Columbia’s jurisdiction.

Following the modern approach to statutory interpretation, the BCCA considered the text, context and purpose of section 2(1) of the CPA, read as a whole. The BCCA warned that care must be taken not to blur, distort or ignore their distinct meanings when engaging in the interpretive exercise, no matter how flexibly and generously. The BCCA determined that the purpose of section 2(1) of the CPA was to limit standing to initiate a class action in British Columbia to members of the public of the province. It was, therefore, out of keeping with the purposes of the CPA to take a narrow view on the residency requirement. The BCCA concluded that for class actions purposes, a corporation or trust is “resident” where its central management and control takes place.

Finding no error on the part of application judge, the BCCA upheld the BCSC decision.

Door Opens for Class Actions Against Crypto Platforms in Ontario

Lochan v. Binance Holdings Limited

In Lochan v. Binance Holdings Limited, 2024 ONSC 2302, the Ontario Superior Court of Justice (“ONSC”) opened the door for certification of class actions against operators of a cryptocurrency trading platform.

Key Takeaways

  • Absent evidence to the contrary, where there is a user agreement with a trader and the trading platform, the platform’s owner may be considered the counterparty for individual trades.
  • The remedy of recission may be available on a class-wide basis.
  • The access to justice concerns associated with cryptocurrency traders (i.e., a large number of individual traders with limited assets in the market) make a class proceeding preferable.

Background

Binance Holding Limited operates the (self-described) world’s largest crypto asset trading platform. From 2019 to 2023, Binance Holdings Limited, Binance Capital Markets Inc., and Binance Canada Holdings Ltd. (collectively “Binance”) marketed and sold cryptocurrency derivative contracts over its website to Canadian retail investors. Sale of cryptocurrency derivatives constitutes sale of an “investment contract” and, therefore, a security with the meaning of section 1(1) of the Ontario Securities Act (the “OSA”). To legally distribute securities under the OSA, a dealer must register with the Ontario Securities Commission and file a prospectus, or obtain an exemption, all of which Binance failed to do.

To trade in crypto derivative contracts or other Binance products, customers where required to access Binance’s website, create an account and agree to the terms of use (the “Terms of Use”). After creating an account, customers could purchase any of the three types of derivative contracts simply by selecting the type of contract from a drop-down menu on Binance’s website. A customer paid for the cryptocurrency derivatives by loading funds into a digital wallet on Binance’s website. At no time did a customer agree to enter into a contract with any party other than Binance.

The plaintiffs, on behalf of retail purchasers of cryptocurrency derivative products, commenced a class action against Binance for damages and rescission of their contracts pursuant to section 133 of the OSA. The plaintiffs claimed that the sales were illegal and void because Binance failed to register under the OSA or file a prospectus.

Certification Decision

While the ONSC completed a fulsome certification analysis, the majority of the contention, and therefore decision, focused on common issues under section 5(1)(c) of the Class Proceedings Act, 1992. The plaintiff sought to certify eight common issues – four related to liability for the pleaded causes of action, and four related to remedies.

In assessing the liability issues, the ONSC found there was little doubt that they were common to the class. Determining if Binance breached sections 53(1) or 71(1) of the OSA, or whether Binance was liable to the class for damages under section 133 of the OSA or at common law, need only be done once on behalf of the entire class. The ONSC determined that the plaintiffs had met the evidentiary burden of establishing some basis in fact that the liability issues were common across the class and certified the issues accordingly.

The most contentious issue was related to proposed common issue 5 “[i]f the Class members are entitled to rescission or damages against the Defendant, or any of them, then in what amount?”

Binance’s position was recission was impossible because the contracts at issue were not with Binance (which it argued was merely a platform for trading cryptocurrency derivatives) but between other individual traders using the Binance website. Binance argued that this relationship made recission impossible because it would cause conflict amongst the class members. Further, it argued that recission would impact third parties because it would require the party that profited from the transaction to return its profits to the party that suffered a loss in the transaction.

The ONSC rejected Binance’s position, noting that Binance did not tender any evidence that individual traders signed contracts amongst themselves. Instead, on cross-examination, Binance’s Core Operations Manager conceded that there were no contracts between the users, that Binance conducted the transactions for users, and the users depended on Binance to honour the users’ orders.

In certifying common issue 5, the ONSC did not determine that the class members were entitled to recission, noting that the issue would need to be determined by the common issues judge. Instead, the ONSC outlined that a question at the certification stage is whether a remedial approach (whatever that approach may be) for any one class member will be the remedial approach for all class members. The record supported the conclusion that all class members’ contracts were the same and that the remedial approach can be answered on that basis.

The ONSC also rejected Binance’s argument that damages could not be assessed in the aggregate. The ONSC found that the evidence showed that Binance maintained detailed records of transactions such that it would be possible to account for gains made by class members just as it would be for losses. Using these records, aggregate losses would be calculable.

In determining the question of preferable procedure, the ONSC considered the principle of access to justice. The ONSC noted that more than half of all Canadian crypto asset owners had less than $5,000 in the market. When considering the principle of access to justice, a number of small, individual claims is not preferable to a class proceeding.

The ONSC certified the class action, including all eight proposed common issues.

Ontario Court of Appeal Denies Class Action Certification in Cancer Risk Case

Palmer v. Teva Canada Limited

In Palmer v. Teva Canada Limited, 2024 ONCA 220, the Ontario Court of Appeal (“ONCA”) upheld the denial of certification of a proposed pharmaceutical class action based on increased risk of being diagnosed with cancer in the future for failing to establish actionable damages needed to sustain a claim for negligence.

Key Takeaways

  • There is no liability for negligence without actual damage.
  • Recovery for pure economic loss is only available in certain narrow circumstances (e.g., where a product is imminently dangerous).
  • Claims for psychological harm may be difficult to establish as an issue common to all class members, and in this case the evidence associated with reading the recall notice did not show more than normal anxieties experienced in life.
  • The ONCA endorsed a two-step test to commonality: a plaintiff must show some basis in fact that the common issue exists, as well as that the issue can be answered in common to all class members.

Background

In 2018, Health Canada issued a voluntary recall regarding certain lots of valsartan, a generic blood pressure medication manufactured by the defendants, due to possible contamination with nitrosamines NDMA and NDEA. In 2012, the supplier of the active ingredient of the defendants’ products changed its manufacturing process resulting in certain lots of the defendants’ products being contaminated with NDMA and NDEA. Related to the recall, Health Canada published several bulletins to consumers asserting the primary message that while NDMA had been identified as a potential carcinogen, consumers should continue taking their medication unless advised to the contrary by a physician or pharmacist. A study conducted by Health Canada in conjunction with the recall found that the theoretical additional cancer risk ranged from one additional cancer case in every 11,600 persons to one additional cancer case in every 93,400 persons.

The proposed class proceeding commenced by the plaintiffs was not a claim for compensation for consumers who had been or may be diagnosed with cancer as a result of consuming contaminated valsartan; the claim was for damages for the potential increased risk of being diagnosed with cancer in the future as a result of ingesting contaminated valsartan, including the costs of medical services and monitoring, refunds for the drugs consumed, costs for the drugs thrown away after the drugs were recalled, psychological and punitive damages.

ONSC Decision

In 2022 ONSC 4690, the ONSC denied certification of the proposed action. The ONSC noted that the plaintiffs had failed to plead a viable cause of action in negligence. The “baffling and fatal feature” of the plaintiffs’ proposed class action was that it was not for actual physical damage but (1) pure economic loss, and (2) compensation for an apprehension of an abstraction (increased risk of diagnosis of cancer). The ONSC noted that “the law provides for remedies for concrete injuries not abstract or speculative ones.”

The ONSC found there was no basis in fact for concluding that there is a causal relationship between valsartan and cancer but some basis in fact for the proposition that exposure to NDMA and NDEA in the contaminated valsartan very modestly increases the risk of being diagnosed with cancer. The ONSC also found some basis in fact that a small proportion of class members will have sustained psychological harm for a relatively short period as a result of learning about the contamination of valsartan that they had been ingesting.

However, the ONSC found it was plain and obvious that the negligence claim for damages for psychological harm was not certifiable because neither the risk of future physical or psychological harm nor the present anxiety occasioned by the risk of future harm is compensable in tort law. The ONSC dismissed the negligence cause of action, which was the essence of the claim, under section 5(1)(a) of the CPA. The ONSC also dismissed as doomed to fail the claims for toxic battery, breach of consumer protection laws, breach of competition laws and unjust enrichment.

Finally, although there was some basis in fact for the propositions that NDMA and NDEA cause or contribute to an increased risk of cancer and that some class members experienced psychological distress upon learning that they had been ingesting valsartan contaminated with NDMA and NDEA, the ONSC found that the plaintiffs failed to satisfy the commonality and preferability criteria for certification required by section 5(1)(c) and 5(1)(d) of the CPA.

ONCA Decision

The ONCA upheld the ONSC’s decision.

The ONCA dismissed the plaintiffs’ appeal on the issues of battery and breach of the Consumer Protection Act, the Competition Act and unjust enrichment with minimal discussion.

The majority of the ONCA’s decision focused on the plaintiffs’ claims of negligence and the issue of commonality.

The ONCA held that the plaintiffs’ negligence claim in which they alleged a genotoxic injury must fail as there is no liability “in the air.” Negligence law does not recognize exposure to the risk of injury or harm as compensable. Damage/injury to a plaintiff is an essential element in a claim for negligence. Increased risk of cancer was not sufficient because damage has not materialized and may never materialize, and there is no viable cause of action without actual damage.

The ONCA held that the plaintiffs’ claim for psychological injury, including the shock of reading the recall notice, must fail because the alleged psychological injury did not rise above the anxieties and fears commonly experienced from time to time by people living together in society. Moreover, the ONCA relied upon the ONSC’s assessment that the recall notice in this case, including Health Canada’s advice that that consumers should continue taking their medication, would not cause a person of reasonable fortitude to sustain a psychological injury at the level compensable in tort.

The ONCA held that in the absence of a physical or psychological injury, the damages the plaintiffs’ claimed amounted to pure economic losses are not recoverable in tort. Relying upon the Supreme Court of Canada’s decision in Maple Leaf Foods, the ONCA held that the pure economic losses of the plaintiffs were not recoverable where there was no present injury, and the plaintiffs were not seeking to recover the cost of averting imminent danger, as any such recovery would be contrary to the principle that there is no liability for negligence “in the air.”

The ONCA held that the ONSC had correctly applied the test for considering commonality under section 5(1)(c) of the CPA. Specifically, the ONCA found it proper to require that there be some basis in the facts that the issues in question were common to the class. In doing so, the ONCA endorsed the two-step test to commonality: a plaintiff must show some basis in fact that the common issue exists, as well as that the issue can be answered in common to all class members.

The ONCA held that while some class members may have experienced psychological distress, the ONSC found that, at most, the evidence of the psychological effect of the recall caused a minority of the class to have suffered the upsets and anxieties that would be compensable under tort law. Accordingly, as the ONSC found, “the hard work remains for individual issues trials and the common issues trial is of marginal utility for advancing those individual issues claims, some of which would be de minimis.” The ONCA found no error in this conclusion.

Having disposed of the appeal on the reasonable cause of action and commonality grounds (sections 5(1)(a) and 5(1)(c) of the CPA, respectively), the ONCA deemed it unnecessary to address preferable procedure criterion and declined to comment further.

Pre-Certification Document Production Ordered in Class Action

Davidson v. T.E.S. Contract Services Inc.

In ordering pre-certification production pursuant to section 12 of Ontario’s Class Proceedings Act, 1992 (“CPA”), the Ontario Superior Court of Justice (“ONSC”) decision in Davidson v. T.E.S. Contract Services Inc., 2024 ONSC 1044 serves as a reminder of this infrequently used provision in the CPA.

Key Takeaways

  • As the “some basis in fact” requirement applies both to the certification requirements and the underlying claim, applications for pre-certification production may increase.
  • Production will be limited to information relevant to the certification process, and a plaintiff bears the onus of showing that the documents will “inform the certification process.”

Background

The plaintiff brought an action against T.E.S. Contract Services Inc. (“TES”), a company that provides recruitment services, as well as payroll and contract administration services, alleging class members were misclassified as independent contractors rather than employees and are entitled to minimum standards under the  Employment Standards Act, 2000 (the “ESA”).

To establish a common employment relationship for all class members, the plaintiff was relying on section 74.3 of the ESA, which provides that a temporary help agency (“THA”) is a person’s employer where the parties agree the THA “will assign or attempt to assign the person to perform work on a temporary basis for clients or potential clients of the agency.”

In response to O. Reg. 99/23, which requires THAs providing services in Ontario to obtain a licence in order to operate, TES filed an application to obtain a licence to operate as a THA (the “Application”). The Application included information about compliance with the ESA. The regulation also required the Application include administrative information such as business contacts, locations of business, names of corporate officers and directors or partners, information about criminal convictions, and information about similar applications and licences in other Canadian jurisdictions.

When the plaintiff’s counsel learned that TES filed the Application, counsel requested production, which TES refused. The plaintiff brought a motion pursuant to section 12 of the CPA for pre-certification production of the Application.

Motion Decision

In setting out the test for pre-certification production, the ONSC noted: (1) pre-certification production is limited to issues relevant on certification; (2) the onus is on the plaintiff to explain why the documents are relevant to an issue on certification; and (3) the plaintiff must show that the documents will “inform the certification process.” Failing this, discovery follows certification of the motion.

The ONSC ruled that the parts of the Application that address (1) whether TES operated or sought to operate as a THA, or (2) the nature, characterization and other statements about TES’ relationship with its workers, were relevant to the issues before the court on the certification motion and shall be produced. However, the ONSC found that other information related to the licensing requirements was irrelevant and was to be redacted.

The ONSC rejected the plaintiff’s argument that the court should make the redactions. The ONSC recognized that a court should only intervene if there is any dispute as to the scope of the redactions and that counsel, who had been involved with this matter for many years and had detailed knowledge about the issues, was in a better position to make the necessary redactions.

In opposing production, TES made submissions more properly saved for the certification motion, including that there was no basis in fact that it was a THA, and that the plaintiff had made a “critical concession” regarding the application of the ESA to class members. However, the ONSC did not substantively address these issues, noting it is not the role of the court to determine certification issues on a pre-certification production motion.

Ultimately, the plaintiff was unsuccessful in certifying the class action with the ONSC dismissing the certification motion at 204 ONSC 3066 (unreported as of this date).

21-Year-Old Certified Class Action Dismissed for Delay

Barbiero v. Pollack

In Barbiero v. Pollack, 2024 ONSC 1548, the Ontario Superior Court of Justice (the “ONSC”) dismissed a previously certified class action for delay after 21 years.

Key Takeaways

  • There is no liability for negligence without actual damage.
  • The ability of another plaintiff to commence a new class action as a result of suspended limitation periods under section 28(3) Class Proceedings Act, 1992 (“CPA”) does not make a dismissal for delay of no practical effect.

Background

The plaintiff brought an action against Dr. Sheldon Pollack, a dermatologist, who had injected class members with “Injectable Grade Liquid Silicone” (“IGLS”) to provide permanent contour improvement. The plaintiff alleged that Dr. Pollack, amongst other claims: (1) used an untested, unsanctioned and unlabelled product of unknown composition that he had obtained through an unauthorized suspect source; and (2) regardless whether the IGLS was an adulterated or a Dow Corning liquid silicone product, neither was approved for use in Canada for the lip augmentation procedure conducted.

The class action was certified, on consent, by the ONSC in 2003. Following the class being certified, there were a series of delays, totalling 21 years by the time of the motion to dismiss. A timeline of key steps is outlined below:

  • March 2005 – with the consent of Dr. Pollack and Health Canada, the ONSC orders Health Canada to deliver a sample of the IGLS used by Dr. Pollack in its possession (the “IGLS Sample”) for testing to confirm if the IGLS used by Dr. Pollack was a Dow Corning product (as Dr. Pollack claimed), an adulterated form thereof, or some other product.
  • May 2006 – Class Counsel “came to the understanding” that Dow Corning refused to provide a sample of its IGLS to use as a control for testing the IGLS Sample.
  • May 2006 to December 2012 – there is no evidence that the plaintiff took any substantive steps to move the matter forward.
  • December 2012 – the parties took part in mediation but were unable to resolve the issues.
  • January 2013 – the parties agreed to postpone further mediation so the plaintiff could collect more information.
  • January 2013 to December 2019 – there is no evidence that the plaintiff took any substantive steps to move the matter forward or to obtain the additional information discussed in January 2013.
  • December 2019 – class counsel wrote to Dr. Pollack’s counsel advising that the plaintiff wished to arrange to have the IGLS Sample tested.
  • 2020 to 2022 – class counsel made efforts to arrange testing of the IGLS Sample. Class counsel encountered difficulty finding a lab to complete the testing in part due to the COVID-19 pandemic and it remained difficult to obtain a control sample from Dow Corning. Class counsel secured a lab for testing in February 2022.
  • September 2022 – Dr. Pollack served a notice of motion to dismiss the action for delay. Health Canada subsequently advised that it could not locate the IGLS Sample.

Motion Decision

The ONSC considered the test for dismissal for delay set out in Langenecker v. Sauvé, 2011 ONCA 803 whether the delay was (1) inordinate, (2) inexcusable and (3) results in substantial risk that a fair trial of the issues in litigation will not be possible because of the delay, whether through an unrebutted presumption of prejudice or actual prejudice.

            The Delay Was Inordinate

An inordinate delay is measured simply by reference to the length of time from the commencement of proceeding to the motion to dismiss. There is no set amount of time to qualify a delay as inordinate. However, the plaintiff produced no cases to indicate that a delay of 21 years was not inordinate (nor any case that found a delay of more than 15 years was not inordinate) and the ONSC noted that other courts had found a delay of five to seven years to be inordinate. Based on this, the ONSC ruled that the delay was inordinate.

            The Delay Was Inexcusable

The ONSC outlined that unless a credible excuse is given for the delay, the natural inference is that the delay is inexcusable and the defendant is likely to be prejudiced by it. Where a delay had been determined to be inordinate, the plaintiff has the burden to provide a reasonable explanation for the delay and rebut the presumption of prejudice arising from the delay.

The ONSC noted that regardless of whether the action is a proposed or certified class action, there is no obligation on the defendant to move the action forward in either case.

The ONSC found that the plaintiff filed no evidence to explain the 21-year delay. In fact, an affidavit from a partner of class counsel only covered efforts that class counsel took to have the IGLS Sample tested, but skipped over years where no action was taken, supporting Dr. Pollack’s submissions that the overall delay was unexplained.

The ONSC also found that Dr. Pollack’s counsel followed up with class counsel for updates throughout the litigation and was frequently met with silence.

Based on the evidence before it, the ONSC ruled that the delay was inexcusable.

            The Delay Caused Prejudice to Dr. Pollack

Inordinate delay that is unexplained gives rise to a rebuttable presumption of prejudice because of the substantial risk that “a fair trial might not be possible.” The ONSC determined that there was “strong” and “heavy” presumption of prejudice in this case, based on the 21-year delay with no reasonable explanation provided, particularly for the lengthy periods of time where the plaintiff took no steps to advance the action.

The ONSC ruled that the plaintiff had not rebutted the presumption of prejudice. It rejected the plaintiff’s position that Dr. Pollack had suffered no prejudice because he had preserved his medical records and discovery had already occurred. A core aspect of the common issues at trial was whether Dr. Pollack used an adulterated IGLS product or a Dow Corning product, and the IGLS Sample was now missing. Dr. Pollack was entitled to defend the action on the basis that: (1) he used the Dow Corning IGLS product, and (2) even if he used an adulterated version, that product was safe for his patients.

The ONSC ruled that the plaintiff failed to rebut the presumption of prejudice.

The ONSC then considered the issue of actual prejudice. The ONSC determined that, even if the plaintiff had rebutted the presumption of prejudice, Dr. Pollack suffered actual prejudice due to the loss of the IGLS Sample. Without access to the IGLS Sample, Dr. Pollack’s ability to prove that the IGLS was a Dow Corning product and/or a medical grade product was prejudiced. Without testing, Dr. Pollack could not establish that the IGLS could not, based on its composition, have caused any of the illnesses or injuries alleged by the class.

            The ONSC Exercised Its Jurisdiction to Dismiss the Class Action for Delay

Having found that the Langenecker test was met, the ONSC then considered its jurisdiction to dismiss the class action for delay. As neither party provided the ONSC with a precedent of a court considering such a motion of a certified class action, the court was required to determine the issue for a first time.

In determining that a court has jurisdiction to dismiss a certified class action for delay, the ONSC relied on the CPA and Rules of Civil Procedure (the “Rules”), neither of which distinguish between pre-certification and certified class actions. The ONSC applied Rule 24.01 which allows a defendant to move for dismissal for delay. The ONSC noted that there was no exclusion under rule 24.01 to class actions, whether they are certified or not. The ONSC further supported its position by reference to 29(2) of the CPA, which contemplates that a proceeding may be dismissed for delay, again without distinction between proposed or certified class actions.

The ONSC also ruled that the inherent jurisdiction of a court to dismiss an action for delay applied to a class action.

            Effect of a Dismissal Order of a Certified Class Action Under Rule 24.01

Finally, the ONSC considered the effect of a dismissal. In doing so, the ONSC rejected the plaintiff’s reliance on section 28 of the CPA, which stays the limitations period once a class action is commenced, and the plaintiff’s argument that the dismissal would be of no practical effect.

The plaintiff argued the dismissal for delay would only have substantive effect against the current representative plaintiff. Given the stay of limitation periods provided by section 28 of the CPA, if the plaintiff’s claim was dismissed, an alternative class member could step into the role of representative plaintiff to continue with this proceeding. The plaintiff argued this would result in replicating previously completed steps in the litigation, which would be of no benefit to the parties to this proceeding.

However, the ONSC noted that the dismissal for delay would still have practical effect, even if another representative plaintiff commenced a new action. The ONSC recognized three potential practical effects of the dismissal on a future representative plaintiff: (1) any new proposed representative plaintiff may need to satisfy the new certification provisions under section 5(1.1) of the CPA, which were not in place when the class action was commenced, (2) Dr. Pollack could oppose certification based on the risk to his defence arising from the delay, particularly the prejudice suffered because of the IGLS Sample’s loss, or the presumption of prejudice arising from memory loss of witnesses or lost records for events that were 33 years old, and (3) Dr. Pollack could oppose certification of a new class action on the basis that the ultimate limitation period of 15 years had expired. While the ONSC did not rule on whether Dr. Pollack would be successful in opposing certification on these grounds, it did recognize that they posed potential practical effects.

The Class Actions Group at Aird & Berlis LLP has broad class action defence experience in securities law, financial services, mining, oil and gas, consumer products, product liability, pharmaceutical, natural health products, telecommunications, condominiums, competition, copyright, privacy and insurance defence. Please contact the authors or a member of the group for further information.

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