Atlantic Lottery Corp. Inc. v. Babstock 2020 SCC 19
Class action in which the class plaintiffs alleged that video lottery terminal machines were so deceptive that they contravened the Criminal Code and that, based on three causes of action, the lottery corporation had to return to the class all profit that the corporation earned from the machines. The lottery corporation moved to dismiss the action on the basis that it had no reasonable chance of success.
What is waiver of tort?
When a tort was made out, but the plaintiffs chose to pursue a claim to recover the defendant’s ill-gotten gains, the plaintiff was said to “waive the tort.” This term was a misnomer. The plaintiff was not waiving the wrongfulness of the defendant’s conduct, it was electing to pursue an alternative, gain-based, remedy. The court stated that the term “waiver of tort” generates confusion and should be abandoned. It also noted that, in order to make out a claim for disgorgement, which is exactly what the plaintiffs wanted, a plaintiff must first establish actionable misconduct.
The court distinguished between restitution for unjust enrichment and disgorgement for wrongdoing. Although each are types of gain-based remedies, they are distinct from each other. Disgorgement requires only that the defendant gained a benefit, without proof of deprivation to the plaintiff, while restitution is awarded in response to an event of unjust enrichment in which the defendant’s gain corresponds to the plaintiff’s deprivation.
In this case, the plaintiffs sought disgorgement, not restitution. They sought a remedy quantified solely on the basis of the lottery corporation’s gain without reference to damage that any of them may have suffered. The court noted that disgorgement was not an independent cause of action; it is merely a remedy once a plaintiff satisfied all of the constituent elements of one or more causes of action: breach of a duty in tort, contract, or equity.
The court rejected disgorgement as a separate stand-alone cause of action. Plaintiffs are not a convenient conduit for social consequences, but rather people to whom damages are owed to correct a wrong suffered.
Other causes of action claimed
Tort: the plaintiffs claimed that the lottery corporation breached a duty to warn of inherent dangers associated with the machines. However, the plaintiffs did not claim that proper warnings would have caused them to spend money or to avoid the machines altogether. Causation of damages is a requisite element of a tort. Without pleading causation, the claim had no reasonable chance of success.
Breach of Criminal Code: the court held that there was no breach of the Criminal Code.
Contract: the plaintiffs alleged a contract with implied terms that the lottery corporation act in good faith and provide safe games – fit for use and of merchantable quality. The court noted that the ordinary form of monetary relief for breach of contract is an award of damages measured according to the position that a plaintiff would have occupied had the contract been performed. However, in exceptional circumstances, if the remedies of damages, specific performance and injunction are inadequate, the court might award disgorgement. The court held that, in this case, damages would have been available; the plaintiffs simply did not want them.
Unjust enrichment: the court held that unjust enrichment was not applicable because the plaintiffs pleaded that there was a contract and a contract is a juristic reason for the enrichment and deprivation.
Normally, courts do not want to strike a claim if it is a novel claim because that does not allow the law to evolve. The court was content to strike the claim – even if waiver of tort could have been said to be a novel claim – for the following reasons:
- Much has been said about the waiver of tort concept and it is no longer fully novel.
- The court has recognized a culture shift to promote timely and affordable access.
- Failing to address whether an independent cause of action for waiver of tort exists would perpetuate an undesirable state of uncertainty.
- Novel claims that might represent an incremental development in the law should be allowed to proceed, but a claim will not survive merely because it is novel.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.