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The Supreme Court of Canada has Ruled that Waiver of Tort is Not an Independent Cause of Action

On July 24, 2020, the Supreme Court of Canada made clear that waiver of tort is not an independent basis to bring a claim and has no possibility of success. Waiver of tort describes when a plaintiff requests damages based on the defendant’s profit instead of the plaintiff’s loss. While it can be a remedy when loss-based compensation is unavailable, the plaintiffs in Atlantic Lottery v. Babstock, a claim about fraud and problem gambling, had claimed waiver of tort as an independent cause of action. Formerly, courts had questioned whether waiver of tort could be a standalone cause of action, and this issue had not been previously decided in Canadian law.

In Atlantic Lottery v. Babstock, Douglas Babstock and Fred Small initiated a class action against Atlantic Lottery Corporation Inc. (ALC) on behalf of the residents of Newfoundland and Labrador. The plaintiffs claimed that ALC’s video lottery terminal games (VLTs) were inherently dangerous and that ALC breached their duty to warn users of the dangers. The plaintiffs claimed waiver of tort as an independent cause of action, and thus sought damages that would not require any proof of loss to individuals who played the VLTs. Instead, the plaintiffs and proposed class sought damages in the form of profits made by ALC’s VLTs.

As a first procedural step in a proposed class action, the courts assess whether the case is appropriate to proceed as a class action by assessing five criteria. Certification considers if the legal claims of people in the proposed class should be heard together, enabling better access to justice for those who may be unable to bring claims individually and promoting the efficient use of judicial resources. In Atlantic Lottery v. Babstock, both the certification judge and the Court of Appeal agreed that waiver of tort was more than just a remedy; that it could be a stand-alone cause of action. The Supreme Court of Canada disagreed. Brown J., writing for a five-judge majority, denied certification and struck all claims as disclosing no reasonable cause of action. Karakatsanis J., writing for four judges in dissent, would have struck the claim for waiver of tort but upheld certification for breach of contract and unjust enrichment.

While all nine judges of the Supreme Court rejected waiver of tort as an independent cause of action, the Court also affirmed that the remedy of disgorgement – remains available in exceptional circumstances, where other remedies are inadequate. Future courts will be left to assess when the remedy of disgorgement is appropriate.

Waiver of tort as an independent cause of action would have allowed the possibility of profits-based claims when class-wide damages assessments were difficult or individual assessments discouraged certification. The impact of abandoning waiver of tort may make it more difficult to certify class actions where individual damages cannot be proven on a class-wide basis, though most proposed class claims also seek tort-based remedies, based on the losses experienced by the plaintiff and class.

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