‘The demise of waiver of tort as an alleged cause of action’

By LegalMattersStaff • A recent Supreme Court of Canada (SCC) ruling that found that waiver of tort doesn’t exist as a cause of action in Canadian law provides “a much clearer roadmap” for cases moving forward, says Toronto class-action lawyer Margaret Waddell.

In Atlantic Lottery Corp. Inc. v. Babstock, the SCC set aside the certification order in the class-action claim, ruling that the claim asserted no reasonable cause of action for waiver of tort, breach of contract or unjust enrichment. 

Waddell, a partner with Waddell Phillips Professional Corporation, called the ruling “the demise of waiver of tort as an alleged cause of action.”

“Now there will be a little more rigour about how people are pleading their claims and what it is they are looking for at the end of the day,” she tells LegalMattersCanada.ca. “What this decision is going to do is take away the random claim that was getting certified because of the mystery that surrounded waiver of tort. The mystery is gone, and we know it’s not a cause of action.”

Waddell says the concept of waiver of tort “worked its way back into more common lexicon several years ago in the context of another class action” involving a medical device used by diabetics.

Concept was resurrected

“In that lawsuit, this concept of waiver of tort had been resurrected, the theory being if there’s wrongful conduct but the plaintiff hasn’t suffered a direct loss, you can ask for disgorgement of the wrongfully gotten gains of the defendant,” she says. 

Waddell says the legal profession “fell into a debate about whether waiver of tort was a remedy in which you could choose to have the disgorgement of profits rather than an assessment of individual or group damages or whether it was actually a standalone cause of action.

“What the Supreme Court has found, not surprisingly, is that waiver of tort is just a remedy. It isn’t a standalone action that the plaintiff can bring saying, ‘You’ve done something wrong and profited so I get your profits,’” she says. “Instead, if you have done something wrongful, either a breach of contract or some form of tort, then I can choose to make you hand over the gains arising from your wrongful conduct instead of asking for damages based on my own individual losses.”

The Supreme Court overturned a Newfoundland and Labrador appeal court decision that allowed a class-action lawsuit to proceed against the Atlantic Lottery Corp., claiming VLT games are deceptive and addictive.

The lead plaintiffs argued the lottery corporation should have to pay those in the class group all the profits it made from the VLTs from 2006 to 2012 even if no one showed any harm or loss, saying it was a waiver of tort claim.

‘Couldn’t be basis for harm’

In a 5-4 ruling, the majority found that waiver of tort did not exist, saying “people could be compensated for harm through ‘disgorgement’ but that it couldn’t be the basis for harm,” according to the SCC decision.

“The majority said that disgorgement could only be used as compensation in very specific situations, like a broken contract. It could only be used if other ways of compensating wouldn’t work,” the case brief reads. “For example, if it isn’t possible to calculate the amount of the loss, or if the loss can’t be expressed in money, disgorgement might be an option. The majority said that wasn’t the case here.”

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Waddell says the case likely would have had its challenges if it moved forward in the absence of a waiver of tort cause of action.

“It would have to have been established that people were gambling, not just for amusement, but because it had become addictive and people were spending more money than they otherwise would have, all of which is extremely problematic,” she says. “It would be very difficult to prove, so what they were banking on was looking to how much money Atlantic Lottery made from these machines and demanding compensation to everyone who was playing them.”

Remedy or cause of action

Waddell says the case came down to differentiating between a remedy or a cause of action.

“Now we know it’s a remedy and we need to be more careful with our language. People have been a little bit sloppy in talking about unjust enrichment and disgorgement and now the court has put brackets around unjust enrichment, which is a cause of action and disgorgement, which is a remedy for wrongful conduct,” she says.

“I don’t see it as being a radical sea change,” Waddell adds. “What it means is that people can’t just keep throwing in waiver of tort as a potential cause of action that was getting certified because nobody was sure if it was a cause of action or not.”