Class Action Litigation: Recent Development of Importance Guide1

1. Introduction

Given the actual economic context of international commerce, physical residency of individuals who wish to bring a class action is a growing issue. It poses a problem and demands ongoing reflection from plaintiffs, defendants, legislators and courts. Over time, courts of various jurisdictions have reacted differently to this issue. Multi-jurisdictional class actions are considered, as they allow for a single national class seemingly favoring judicial economy, access to justice and behavior modification.2 Yet, in Canada, the importance of respecting the constitutional "division of powers" and provincial sovereignty over "property and civil rights" militates against the use of national class actions.3 As a result, and with no direct guidance from the Canadian Supreme Court, certain provinces are adopting their own approach on how to deal with national class actions.

2. The Constitutional issue

(a) The example of the United States: the consistency offered by the Shutts case

Canadian courts have often referred to the new national-focused approachad opted by the US Supreme Court in Phillips Petroleum Co. v. Shutts,4 which offers consistency by providing the principles that must guide the state courts in their choice to accept or refuse a national class action.

In Shutts, a class action had been introduced in Kansas City to represent owners of royalties of a gas company. As these owners resided in different states, the applicants sent each of them a notice, through first-class mail, of the action and of their rights to opt out of it. The notice also advised that members who did not express an intention to opt out of the proceedings would be bound by any ruling.

One of the arguments of the defendant was that the notice violated the due process clause of the US Constitution5 by introducing out-of-state members who may not express affirmatively their consent to be part of this class action.6 With this argument, the defendant tried to demonstrate that the opt-out procedure was unconstitutional and that non-resident members would need to "opt in" to the action in order to be bound by it.

In responding to the defendant's argument, the US Supreme Court established the requirements to satisfy due process. First, to be recognized by courts, the notice must: (i) explain the nature of the class action to non-resident members, (ii) advise non-resident members of theirbasic legal rights, and (iii) provide the non-resident members with an opportunity to withdraw from the litigation. In doing so, the Supreme Court chose to favor the opt-out procedure.7

In considering the opt-in or opt-out procedure, the US Supreme Court was required to address the issue of jurisdiction.

The defendant argued that unless out-of-state plaintiffs consent, the Kansas courts should not be able to exert jurisdiction over their claims. 8 The defendant also argued that it is essential for a plaintiff to knowingly consent to be bound by the laws of a state that would not otherwise be applicable. To address this issue, the US Supreme Court stated that when considering a possible national class action the lower court must examine if they have "a significant contact or aggregation of contacts "with the claims asserted by the class members, so as to ensure that the selection of the law is not arbitrary or unfair.

By deciding in favor of the opt-out procedure, the US Supreme Court clarified its support for national class actions, promoting both the rights of members and an appropriate representation for them, as well as ensuring that the sovereignty of each state will be respected with the principle of sufficient connection with the action.

(b) Supreme Court ofCanada:Favorable to National ClassActions

As explained above, the "division of powers" issue in the Canadian Constitution is integral to evaluating the appropriate principles for Canadian national class actions. Indeed, it is difficult to compromise a global economy with this legal issue and the interest of every Canadian province in protecting their own sovereignty over "property and civil rights. "Unlike the United States, the Supreme Court of Canada has not directly addressed the issue of multi-jurisdictional class actions. As a result, it is, in our view, necessary to examine two decisions of the Canadian Supreme Court to help understand the direction of class actions in Canada.

The starting point for an examination of the relevant question must be Morguard Investments Ltd. v. De Savoye. In Morguard, the Supreme Court did not consider national class actions but concluded that courts must recognize the judgments of sister courts in other provinces. In this case, the plaintiff obtained a judgment in Alberta against the defendant, a British Columbian resident, who had defaulted ona land mortgage in Alberta. The question before the Supreme Court was the correctness of a subsequent decision by a British Columbia judge in enforcing the Alberta judgment.

The Supreme Court held that the jurisdiction of provincial courts is limitedby principles of "order and fairness" and that, with respect to a dispute involving parties from other provinces, this principle will be satisfied only where there is a "real and substantial connection" between the province assuming jurisdiction and the defendant or the subject matter of the law suit. 10 These principles have been developed in the context of the federal system and its essentially national marketplace:

"In a world where even the most familiar things we buy and sell originate or are manufactured elsewhere, and where people are constantly moving from province to province, it is simply anachronistic for the proper exercise of jurisdiction."11

Other Supreme Court decisions have confirmed the importance of considering the actual economic and social context when deciding jurisdictional issues. 12

Later, another decision of the Supreme Court of Canada provided some guidanceas to how provincial courts might treat multi-jurisdictional class actions, although it did not directly address the question of them. In Western Canada Shopping Centres Inc. v. Dutton,13 two debenture holders in a failed company filed a suit on behalf of themselves and 229 investors pursuant to Rule 42 of the Alberta Rules of Court. This rule authorizes the commencement of a "representative action" in which one person may sue on behalf of numerous persons having a common interest in a subject. Such an action lacks the procedural framework of a class proceeding created by statute. At the same time, however, a "representativeaction" bares some elements of a class proceeding in terms of their respective objectives — resolving the common claims of numerous individual claimants using one or a select group as the deciding case. The defendants applied for a declaration and order striking the representative aspects of the claim. The Supreme Court found that the benefits of class actions had been demonstrated and should be extended to jurisdictions without comprehensive statutory regimes. The court permitted a "common law class action"15 whereby provincial courts could fill the procedural void of the bare Rule of Court by judicially adopting its own procedure including, if it saw fit, the procedural aspects of draft class proceedings legislation where four conditions are met:

"(1) The class is capable of clear definition; (2) there are issues of law or fact common to all class members; (3) success for one class member means success for all; and (4) the proposed representative adequately represents the interests of the class. If these conditions are met the court must also be satisfied, in the exercise of its discretion, that there are no countervailing considerations that outweigh the benefits of allowing the class action to proceed."16

Most importantly, the Supreme Courtdid not have any difficulty with the fact that the investors were from different jurisdictions if the basic conditions for a class action were met and if efficiency and fairness favored permitting it to proceed:

"The defendants’contention that there are multiple classes of plaintiffs is unconvincing. No doubt, differences exist. Different investors invested at different times, in different jurisdictions, on the basis of different offering memoranda, through different agents, different series of debentures, and learned about the underlying events through different disclosure documents . . .  The fact remains, however, that the investors raise essentially the same claims requiring resolution of the same facts. While it may eventually emerge that different subgroups of investors have different rights against the defendants, this possibility does not necessarily defeat the investors' right to proceed as a class. If material differences emerge, the court can deal with them when the time comes"17 [emphasis added].

3. Approach of courts in theprovinces of Canada

Not surprisingly, provincial courts havedeveloped different approaches with respect to the procedure for the inclusion of non-resident members in a class action. Indeed, we have two specific models of national classes in Canada. One is the model of Ontario courts, which permits national opt-out classes and the other one is the model of British Columbia, which permits non-residents to participate in a class action only on an opt-in basis. We can also differentiate these two models by explaining that the opt-in procedure creates a subclass for non-resident members contrary to the opt-out procedure, in which a subclass is not required in order to include non-resident class members because they are part of the class since commencement of the action. Until the Supreme Court examines the issue, we cannot know which model is constitutional, so both of them are applicable according to the approach privileged by the provinces.

(a) The Ontario model: opt-outclasses

In Ontario, a subclass is not required inorder to include non-resident classmembers. Indeed, all persons aimed by theclass action will automatically be part ofthe group of members. It must be notedthat the Ontario Class Proceedings Actissilent on the issue and does not establishthe basis for non-residents to be bound byrulings of Ontario courts.

The leading Ontario case on this issueis Nantais v. Telectronics Proprietary (Canada) Ltd.,18 in which a national class action was initiated against a manufacturer of cardiac pacemakers. The defendant argued that it would be improper to certify a national class since Canadians residing outside of Ontario would also be bound by the result of the action. In considering the fairness and reasonableness of allowing non-resident plaintiffs to be part of the class, the court considered the principles in Morguard19 and recognized the importance of enforcing judgments of other provinces in the context of federal government:

"In Morguard, La Forest J. speaking for the entire court spoke of the modern need to deal nationally with problems, and at p. 1079 [the headnote] said that:
The courts in one province should give 'full faith and credit' to the judgments given by a court in another province or territory, so long as that court has properly, or appropriately, exercised jurisdiction in the action."20

The Ontario Court deferred the issue as to whether non-resident members could enforce judgments in their respective jurisdictions, to be decided at a later date. In that sense, certification of national classactions should not be a problem so long as the criterion of "real and substantial connection" is respected. Therefore, Ontario courts favor the opt-out basis class actions since they do not believe that allowing all members to be bound by their decision, whether they took any active measures to be included in the class or not, is problematic.

"However, I do not see how this potential problem can prejudice the defendants. If, indeed, class members outside of Ontario are free to sue despite a class judgment here, how are the defendants any worse off than if the class was limited to residents of Ontario? Would the defendants, being aware of the potential possible problem, be any worse off if non-resident class members should later argue they were not bound by a decision, than if those persons simply opted out now.
"Further, is this potentially possible problem really relevant to this action? It seems to me to be something to be resolved in an other action (by a non-resident class member) before another court in another jurisdiction."21

Many decisions have followed the principles enunciated in Nantais. Forexample, in Carom v. Bre-X Minerals Ltd. 22 shareholders (or former shareholders) of Bre-X wanted to recover losses suffered as a result of plummeting share prices. The value of the shares collapsed when it was learned that the level of gold resources in the Busang region of Indonesia, where Bre-X was mining, was unsubstantiated and that gold samples had been "salted. " The proposed class action was brought in Ontario for both residents and non-residents of Ontario who had purchased shares in Bre-X between certain dates and suffered a net loss. Winkler J. rejected the argument that the Ontario Class Proceedings Act, which was silent on the issue, was applicable only for residents of Ontario.23

For the Ontario Court, the absence of reference to non-residents in the Act would not represent a ban, but rather a confirmation of the power of the courts to decide when it is appropriate to include non-residents considering the presence of a "real and significant connection" with the jurisdiction. Winkler J. found that because the corporate defendants were Ontario corporations that carried on active businesses within the province and disseminated information regarding Bre-X through a Toronto facility, there was a "real and substantial connection" to the province. He also found that the criteria of fairness and order were respected.24 Finally, he approved the certification for all the members aimed by the class action because of the possibility for them to opt out of the action as it was proposed in the notice.25

The Court of Appeal upheld the lower court's decision, adding that the connection with the court was real and substantial in this case, and that there is no real difference between the torts regimes among the provinces.26

In another case, Webb v. K-Mart Canada Ltd.,27 the Ontario Court allowed the certification of a national class action. The applicant introduced an action for wrongful dismissal of thousands of former K-Mart employees. The Hudson's Bay Company had purchased the K-Mart Canadian retail chain and subsequently merged that chain with the Zellers and Hudson Bay chains already owned. As a result, 31 K-Mart stores across Canada were closed. Brockenshire J.  approved the national class action in circumstances where the corporation was incorporated in Nova Scotia, and K-Mart was a national chain. The court noted that approximately half of the closed stores were in Ontario. The judge found that these elements represent a "real and substantial connection" with Ontario.28

Another interesting case is McNaughton Automotive Ltd. c. Co-operators General Insurance Co.,29 in which the Ontario Court adopted a more restrictive approach, refusing to invoke its jurisdiction over non-resident members. The court chose to distinguish itself from the Nantais30 decision. The court found that the facts at Bar were not necessarily common to resident and non-resident members. Furthermore, the court considered that insurance and contracts laws were too different among provinces to allow Ontarioto accept jurisdiction.31 As it transpired, this turned out to be a wise decision. A class action was commenced and decided in Alberta on the identical facts, but applying Alberta law. The Alberta court came to the opposite conclusion based on the particular wording of the governing Alberta statute.32

(b) The British Columbia model:opt-in classes

Legislation in British Columbia states that non-residents must opt in to the action to be considered a member of the class.33 This implies that non-residents must take concrete steps to demonstrate their willingness to be a member of the class action. Thus, all non-residents who decide to opt in to the action will be part of a subclass of members. The British Columbia courts recognize the applicability of the legislation by affirming that the opt-in procedure is the only basis for non-residents to be included in an action. Therefore, courts should not certify a class action that includes non-residentson an opt-out basis. Indeed, in Harrington v. Dow Corning Corp, the British Columbia Court of Appeal mentioned: "Section 16(2) may preclude the court from certifying a national class on an opting-out basis, as was done in Nantais, supra."34

In that case, the claim was against manufacturers of silicone breast implants and a supplier of silicone. A resident and non-resident subclass were described, each comprising women who had been implanted with silicone gel breast implants and suffered injuries caused by the implants. The defendants were not residents of British Columbia. Therefore, they argued that the extra-provincial subclass should be limited only to those women who were implanted in BritishColumbia, since only these women met the "real and substantial connection" test necessary to give the British Columbia courts jurisdiction.35

The BC Court of Appeal found that the substantive law differences between the various provinces were not problematic enough to prevent the court from hearing the class action. The court considered that the common issue of whether "silicone gel breast implants are reasonably fit for the irintended purpose" was sufficient to create a "real and substantial connection" and gave British Columbia jurisdiction.36

In explaining why Mr. Justice Mackenzie of the Superior Court was correct to certify the class action with resident and non-resident claims and why the concept of forum non conveniens should not be applied to the case, the Court of Appeal repeated the principles set out in Morguard37 and in Shutts38:

"The jurisdictional rules being functional, the values protected by the real and substantial connection test dictate the factors relevant to its application. The fundamental values are fairness to the parties and orderly decision-making.

[ . . . ]

"Where the traditional rules are not adequate to ensure fairness and order then other considerations will become relevant. One such consideration will be the nature of the subject matter of the action. In this case, the alleged wrongful acts are defective manufacture or failure to warn. When a manufacturer puts a product into the marketplace in any province in Canada, it must be assumed that the manufacturer knows the product may find itself anywhere in Canada if it is capable of being moved. As I suggested earlier in these reasons, it isreasonable to infer that a manufacturer of a breast implant knows that every purchaser will wear that implant wherever she resides, and that if the implant causes injury then the suffering will occur wherever she resides, and require treatment in that location. By the action of sale, the manufacturer risks an action in any province. In these circumstances, there can be no injustice in requiring a manufacturer to submit to judgment in any Canadian province. The concept of forum non conveniens is available to deal with any individual case where a different forum is established as more appropriate."39

In light of the foregoing, the British Columbia Court of Appeal concluded that the criterion of "real and substantial connection" is only one of the criteria to be considered in establishing jurisdiction. Other factors, such as the connection with the matter of the action, should be considered and can be the basis for jurisdiction of the courts.40

Newfoundland, Alberta and New Brunswick have adopted legislation similar to the BC legislation, including an opt-in procedure.41

To finish this overview of the practice in the common-law jurisdictions, we have to consider the hybrid statutes of Manitoba and Saskatchewan.42 Indeed, these statutes contain a reference to the right of non-resident members to participate in the class proceedings such as BC’s legislation model. However, it does not specify that the non-resident members need to opt in to the class to be part of it. Therefore, they seem to prefer the approach of Ontario in applying the opt-out procedure.

(c) The model of Québec: a civillaw perspective

The case of Québec needs to be examined separately because of the civil approach that can differ from common-law jurisdictions. Québec decided to treat multi-jurisdictional class actions by the application of Civil Code (CCQ) rules on private international law. Article 3134 CCQ states that Québec courts have jurisdiction when the defendant is domiciled in Québec. Also, Article 3135 CCQ allows local authorities to decline jurisdiction if a foreign court is in a better position to decide the outcome of the case. Further, Article 3137 CCQ stipulates that local authorities can stay their ruling on an action if a similar action is already pending before another court. Finally, Article 3148 CCQ establishes the jurisdiction of Québec courts for personal actions:

"3148. In personal actions of a patrimonial nature, a Québec authority has jurisdiction where (1) the defendant has his domicile or his residence in Québec; (2) the defendant is a legal person, is not domiciled in Québec but has an establishment in Québec, and the dispute relates to its activities inQuébec; (3) a fault was committed in Québec, damage was suffered in Québec, an injurious act occurred in Québec, or one of the obligations arising from a contract was to be performed in Québec; (4) the parties have by agreement submitted to it all existing or future disputes between themselves arising out of a specified legal relationship; (5) the defendant submits to its jurisdiction. However, a Québec authority has no jurisdiction where the parties, by agreement, have chosen to submit all existing or future disputes between themselves relating to a specified legal relationship to a foreign authority or to an arbitrator, unless the defendant submits to the jurisdiction of the Québec authority. "

In Spar Aerospace c. American MobileSatellite,43 the Supreme Court of Canada underlined that the basic rules in private international law should be interpreted by considering at first the wording of specific provisions, then by verifying if this interpretation coincides with the principles of courtesy, order and fairness. These principles are not mandatory, but should serve as interpretive guide to the provisions of the Civil Code. In this case, the court asserted that the articles of the Civil Code aim to ensure the presence of a "real andsubstantial connection" between the action and the province and to prevent the improper exercise of the jurisdiction of Québec Courts. Therefore, according to the court, the constitutional requirement of "real and substantial connection" is not anadditional criterion to be satisfied for the Québec courts.44

Contrary to the common-law jurisdictions, Québec preferred to establish from the beginning the cases for which its courts would have jurisdiction. It is also important to note that Québec courts seem to have adopted the opt-out procedure like in Brito v. Pfizer Canada Inc.,45 where the court found that the benefits of an opt-out structure outweighed advantages of an opt-in structure.46

(d) Developments in Alberta

On November 1, 2010, it is expected that Alberta will pass new Rules of Court designed to codify and simplify the applicable procedural rules. Certain of these new rules may affect national class proceedings. For example, the new Rules of Court dispense with the requirement to obtain an order for service ex juris before serving originating process outside of Alberta. The new process permits service outside of Alberta, without order, where there is a real and substantial connection between Alberta and the lawsuit. Although this new process is not expected to affect the plaintiff class, it clearly allows for easier service on an expanded defendant class. This is also a codified acknowledgment of the principles from Morguard discussed above.

In addition, new Rule 2. 6(1) is virtually identical to old Rule 42, which was at issue in Dutton. However, two things havechanged since Dutton. First, as noted above, Alberta has adopted the Class Proceedings Act. Second, new Rule 2. 6(2) provides that an action commenced under the equivalent of Rule 42 may be continued under the Class Proceedings Act if a certification order is obtained under that act.

4. Conclusion

At this point, problems remain for the management of pan-Canadian class actions. Although courts show a willingness to encourage national class actions, their enforcement in sister jurisdictions is not ensured. Thus, it isdoubtful that national class actions in Canada will develop without being challenged.47

Even if there are good reasons to encourage multi-jurisdictional class actions considering the actual economic context and the advantages of this forum, it could pose risks for defendants. As we explained above, the uncertainty of who will be bound by either a judgment or a settlement considerably complicates the situation of defendants. Even though actions with national classes have been certified, they have not yet effectively been challenged in the provinces of non-residents members. It may be more appropriate for defendants to encourage national class actions, but defendants generally manage class actions province by province. First, it is easier for defendants to manage each class action separately. Second, local courts are more likely to ensure that class notices comply with the requirements of proceedings in each province, in order to protect the interests of class members. Third, the action could be more complicated to proceed if comparisons have to be drawn between the different provincial laws and debates subsequently arise as to which of those laws is applicable. Finally, separate class actions can be an incentive to settlement.48 These are some of the reasons that multi-jurisdictional class actions continue to be so controversial in Canada.


This article was reprinted with permission from The 2011 Lexpert® / American Lawyer Guide to the Leading 500 Lawyers in Canada© Thomson Reuters Canada Limited.

1 The authors wish to thank student Sandra Desjardins for her help in preparing this article.

2 Shaun Finn and Jonathan Ostrega, "Adapting to climate change: a look at three controversial developments that are heating up the canadian class action debate," (2008) 4 :2 Can. Class Action Rev. 63, at page 304 [Finn and Ostrega, "Adapting to climate change"].

3 Constitution Act,1867 (U. K. ), 30 & 31 Vict. , c. 3, reprinted in R. S. C. 1985, App. II, No. 5, S. 92(3).

4 Phillips Petroleum Co. v. Shutts, 472 U. S. 797 (1985) [Shutts].

5 The Due Process Clause is found in the US Constitution, Amendment XIV, s. 1.

6 Shutts, supra note 3 at para. 811.

7 Ibid at p. 811-813.

8 Ibid at p. 815-816.

9 Morguard Investments Ltd. v. De Savoye, [1990] 2 S. C. R. 1077 [Morguard].

10 Ibid at para. 1108.

11 Ibid.

12 Thomson Newspaper Ltd. v. Canada,[1990] 1 S. C. R. 425; Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S. C. R. 2; Hunt v. T&N plc. , [1993] 4 S. C. R. 289. Concerningthis subject, Craig Jones, "The Case for the National Class", (2004) 1:1 Can. Class Action Rev. 29, at pages 41 at 45 [Jones, "The Case for the National Class"].

13 Western Canada Shopping Centres Inc. v. Dutton, [2001] 2 S. C. R. 534 [Dutton].

14 Ontario was once in a similar position. General Motors v. Naken, [1983] 1 S. C. R. 72 was an earlier decision of the Supreme Court of Canada concerning Ontario’srepresentative action rule. Ontario was prompted to pass class proceeding legislation by this decision. Alberta was similarly prompted to do so by Dutton: see Class Proceeding Act S.A.2003 c.C-16.5.

15 Finn and Ostrega,"Adapting to climate change," supra note 1 at p.310-311.

16 Dutton, supra note 13 at para.48.

17 Ibid at para.54.

18 Nantais v.Telectronics Proprietary (Canada) Ltd., (1995) 25 O.R. (3d) 331 (Gen.Div.) [Nantais].

19 Morguard, supra note 9.

20 Nantais, supra note 26 at para.75.

21 Ibid at paras.80-81.

22 Carom v.Bre-X Minerals Ltd., 43 O.R. (3d) 441, 30 C.P.C. (4th) 133 (Ont.Ct. (Gen.Div.)) [Carom].

23 Ibid at para.20.

24 Ibid at paras.39-40.

25 Ibid at paras.44-46.

26 Carom v.Bre-X Minerals Ltd., revd 51 O.R. (3d) 236 (C.A.) at para.47.

27 Webb v.K-Mart Canada Ltd., [1999] O.J. No.2268, 45 O.R. (3d) 389 (S.C.J.) [K-Mart].

28 Ibid at p.14.

29 McNaughton Automotive Ltd.c.Co-operators General Insurance Co., [2003] O.J.No.2914 (S.C.J.) [McNaughton].

30 Nantais, above note 26.

31 McNaughton.supra note 37 at para. 49.

32 Pauli v.ACE Insurance, 2003 ABCA 107; 2004 ABCA 84; leave denied 2004 SCCA No. 169.

33 BC Class Proceedings Act, section 16(2) reads: 
"Subject to subsection (4), a person who is not a resident of British Columbia may,in the manner and within the time specified in the certification order made in respect of aclass proceeding, opt-in to that class proceeding if the person would be, but for not being a resident of British Columbia, a member of the class involved in the classproceeding."

34 Harrington v.Dow Corning Corp, 2000 BCCA 605 at para.85 [Harrington].

35 Ibid at para. 6.

36 Ibid at para. 48.

37 Morguard, supra note 9.

38 Shutts, supra note 3.

39 Harrington, supra note 18 at paras. 90 and 92.

40 See Ward K.Branch, Class Actions in Canada, vol.2, Aurora, Canada Law Book, July 2010, aux p.11-9 to 11-11 [Branch, Class Actions in Canada].

41 Newfoundland, s.18(2); Alberta Act, s. 17(2); New Brunswick Act, s.10(1)(g).

42 See Branch, Class Actions in Canada, supra note 24, p. 11-12.

43 Spar Aerospace c.American Mobile Satellite, [2002] 4 R.C.S.205 [Spar].

44 Ibid at paras.51-64.

45 Brito v.Pfizer Canada Inc., [2008] R.J.Q. 1420 (S.C.) [Brito].

46 Ibid at paras.128-132.

47 See Andrew Borrell, "Interprovincial Class Actions Issues, "Second Annual National Symposium on Class Actions, presented to Osgoode Hall Law School of York University, September 13 and 14, 2002,p.6.

48 Ibid at p.8 and s.