Waving Goodbye to Waiver of Tort

This article reviews a recent case at the Supreme Court of Canada which cited Greg Weber’s paper published by the Queen’s Law Journal in 2014. RMRF would like to once again congratulate Greg on this tremendous honour.

In the world of class action lawsuits, particularly product liability cases, it can be very difficult for plaintiffs to establish loss, which is an essential element in the cause of action of negligence. Unlike some other causes of action (e.g. trespass), the remedy for proving negligence is compensation. That is, if a plaintiff can make out all of the elements of negligence, the court would order the defendant to put the plaintiff financially back to the place they would have been in had the breach of the duty of care owed to the plaintiff not occurred. Compensation is essentially a restoration of losses. It is no surprise, then, that a key element of negligence that plaintiffs must prove is that they suffered loss. The measure of the compensation is the measure of those proven losses.

The so-called doctrine of “waiver of tort” came to be viewed by many courts as a potential cause of action that would warrant the certification of class action lawsuits in cases where plaintiffs could not prove any losses. Instead, plaintiffs sought to disgorge defendants’ ill-gotten gains flowing from breaches of the duty of care. As the theory went, if the plaintiff is seeking disgorgement of the defendant’s profits from a breach of the duty of care (rather than compensation), then there is no need to prove loss. In the threshold case of Serhan (Estate Trustee) v Johnson & Johnson (2004), 72 OR (3d) 296 (Sup Ct), for the first time, the court allowed a class action lawsuit to be certified on the mere possibility that “waiver of tort” might be an “independent cause of action” where, in negligence, plaintiffs could “waive” proof of loss when seeking disgorgement of ill-gotten gains. Over the past 16 years, certifying class action lawsuits on the basis of “waiver of tort” became routine even though no court had ever declared the doctrine sound.

In the recent Supreme Court Case of Atlantic Lottery Corp v Babstock, 2020 SCC 19, a class action lawsuit had been certified on the basis of “waiver of tort”. In this case, the plaintiffs alleged that VLTs were inherently dangerous and deceptive that the Atlantic Lottery Corporation’s approval of them constituted, among other things, a breach of the duty of care owed to those who would play them. Pleading “waiver of tort”, the plaintiffs sought to disgorge the profits earned by the Atlantic Lottery Corporation from licensing VLTs even though there were no losses suffered by the plaintiffs (i.e. the money lost in playing the VLTs would be considered “pure economic loss” which is generally not recoverable in negligence). The matter went to the Supreme Court to decide whether or not “waiver of tort” actually is anything in Canadian law.

Relying on the courts’ cumulative experience over the past 16 years and extensive academic commentary on “waiver of tort”, the SCC finally put an end to the doctrine, finding that negligence as a cause of action requires proof of loss to make out a legally recognized “wrong” that would deserve a legal remedy. It is not simply up to plaintiffs to claim disgorgement because they fail to prove loss. If there is not loss, then there is no negligence and therefore no remedy.

This case is also noteworthy for clarifying the difference between “restitution” and “disgorgement” – two terms that have been conflated and confused in Canadian law. Also, the Court provided helpful clarification on when exactly disgorgement is available at law, including for breaches of contract. In short, disgorgement is only available for breach of contract in exceptional circumstances where “the plaintiff has a legitimate interest in preventing the defendant’s profit-making activity and, hence, in depriving him of his profit” (at para 52).

Atlantic Lottery is a welcome decision, thorough in its reasons and provides much needed clarity in an area of law that had become obscure.