Recent Shock Waves in Class Actions

Two recent judgments of the Ontario Superior Court, both involving cost awards in failed certification motions, have sent shock waves through the plaintiffs' class action bar in that Province.

On August 30, 2002 in Gariepy v Shell Oil, the Court ordered the representative plaintiffs to pay  $175,000 in costs to the two successful defendants. And on September 9, 2002 in Pearson v. Inco, the Court ordered the representative plaintiffs to pay $184,332 in costs to the four successful defendants.

The rationale emphasized by the Court in both judgments was that the "normal rule", that a successful party should recover their costs, should also apply in class actions unless there was a sound reason to rule otherwise in any particular case.  The arguments raised on behalf of the representative plaintiffs and rejected by the Court were:

1.   class actions are special;
2.   these were test cases; and
3.   the cases raised novel points of law.

Note, however, while the normal rule as to costs applies in Ontario, that is not the case in the other common law jurisdictions with class action legislation namely, B.C., Saskatchewan, and Newfoundland.  The class action legislation in these jurisdictions has specifically adopted a "no costs" philosophy.

The 1982 Ontario Law Reform Commission had concluded that class actions were special and should not be governed by the same rules regarding costs that applied to individual actions. The Commission had recommended no costs to any party at a certification hearing unless:

a)   it would be unjust to deprive the successful party of 
      costs; or
b)   if there was frivolous, vexatious or abusive conduct.

It is interesting to note that the Commission had regarded the costs question as being the "single most important " issue that it faced in designing the expanded class action procedure for Ontario.  Notwithstanding this statement, however, Ontario did not actually follow the recommendation of its own commission, although B.C., Saskatchewan and Newfoundland have done so.

Alberta, like a number of other common law jurisdictions, does not yet have class action legislation.  However, a recent case in the Supreme Court of Canada (Western Shopping Centre Inc. v Dutton), expressly permitted class actions under R.42 of the Alberta Rules of Court, all subject to whatever case management procedures the Court might adopt.  Although the Alberta Law Reform Institute has recommended a "no costs" regime, the one Alberta court to consider the issue to date (Pauli v. Ace Ina) has refused to adopt that approach.

The effect of these two decisions in Ontario may be to curtail the explosion of class action claims in that Province.  At the very least, a representative plaintiff in Ontario actions may now require an indemnity from class counsel before letting any action be filed in their name.  As well, these rulings may also result in certification motions first being taken in one of the "no costs" jurisdictions, such as BC, where a denial of certification will not result in a big award of costs against a plaintiff.

Readers with questions regarding the class actions are invited to contact either Derek Mullan at (604) 643-3162, djm@cwilson.com or Nigel Kent at (604) 643-3135, npk@cwilson.com.