H OMO
LEGISLATIVUS : MISSING LINK IN THE EVOLUTION OF
‘BEHAVIOUR MODIFICATION’?✝
JOHN C. KLEEFELD✵
Introduction .......................................................................................................................................... 1 ‘Behaviour Modification’—Poor Cousin of ‘Access to Justice’? .................................................. 3 Towards a Typology of Legislative- or Regulatory-Seeking Behaviour....................................... 5 Enacting ‘Private Legislation’ to Preclude Large-Scale Claims............................................................................. 5 Legislatively Eliminating or Reducing Liability (Proactive or Preemptive Approach) .......................................... 16 Legislatively Eliminating or Reducing Liability (Reactive or Retaliatory Approach) ........................................... 18 Legalizing or Regulating Previously Illegal or Unlawful Conduct........................................................................ 22 Frustrating the Ability of the Class to Collect a Remedy or Counsel to Collect a Fee .......................................... 30 Allowing Recovery of Settlements, Judgments, Penalties or Other Costs............................................................... 33 Whither Behaviour Modification? ................................................................................................... 35 Introduction
In the decade since the Supreme Court of Canada’s class certification trilogy,1 it has
become de rigueur to assert that class actions have three goals or advantages: judicial
economy, access to justice, and behaviour modification.2 But as I will argue, in thinking
about behavioral responses to class actions, Canadian scholars and practitioners—this writer
included—have failed to adequately account for Homo legislativus.3 This species, closely related
✝
Presented at “Accessing Justice: Appraising Class Actions Ten Years After Dutton, Hollick & Rumley”
(University of Windsor, March 28-29, 2011).
✵
Assistant Professor, University of Saskatchewan College of Law and member of the British Columbia and
Saskatchewan bars.
1
Western Canadian Shopping Centres Inc. v. Dutton, [2000] S.C.J. No. 63 (QL), 2001 SCC 46, [2001] 2 S.C.R. 534,
286 A.R. 201, 201 D.L.R. (4th) 385, [2002] 1 W.W.R. 1, 4 Alta. L.R. (3d) 1 [Dutton]; Hollick v. Toronto (City),
[2001] S.C.J. No. 67 (QL), 2001 SCC 68, [2001] 3 S.C.R. 158, 56 O.R. (3d) 214, 205 D.L.R. (4th) 19
[Hollick]; Rumley v. British Columbia, [2001] S.C.J. No. 39 (QL), 2001 SCC 69, [2001] 3 S.C.R. 184, [2001] 11
W.W.R. 207, 95 B.C.L.R. (3d) 1. For a summary , see John C. Kleefeld, “Class Actions in Canada” (2002)
44:3 For the Defense 60, rep’d as “Top of the Class: The Supreme Court of Canada’s Endorsement of
Class Actions” (Continuing Legal Education Society of British Columbia: May 24, 2002) online:
<http://www.cle.bc.ca>.
2
Dutton, ibid. at paras. 27-29; Hollick, ibid. at para. 15.
3
I had hoped to be the first to classify Homo legislativus, but the term appears to have been coined 70 years
ago. See Max Radin, “Fair, Feasible and in the Public Interest” (1941) 29 Cal. L. Rev. 451. Radin’s Homo
legislativus “always acted reasonably, always meant different things when he used different words, always acted
for the public interest, rarely or never contradicted himself, was always aware of other statutes passed on the
same subject matter, and knew and took account of decisions and administrative practice about previous
enactments of this character” (at 456-457). My H. legislativus, in contrast, unabashedly acts out of self-interest.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
2
to Homo economicus,4 responds to actual or perceived threats of class actions or other largescale claims,5 not by modifying the wrongful behaviour itself, but by seeking legislative or
regulatory relief for class action pain. Included here is such ‘private legislation’ as the anticlass-action clauses that defendants write into consumer contracts—clauses that mandate
private arbitration, prohibit joinder of claims, or even require customers to opt out of class
actions. In other cases, defendants may seek to legislatively cap or eliminate liability, or to
legalize or regulate conduct that was previously illegal or unlawful, or under the threat of
being found so. But Homo legislativus is found in claimants as well as defendants. So, for
example, if consumers are sufficiently represented, they too can effect legislative change—
e.g., in the form of anti-arbitration provisions in consumer protection legislation—as they
have done in some provinces. Likewise, they can influence the legislative process to make
illegal or unlawful conduct that was previously legal or lawful, or to restrict or regulate the
lawful ambit within which business, government or institutions operate. To make sense of
what is going on, then, we need a framework that better takes legislative- or regulatoryseeking behaviour into account in the context of large-scale claims.
I aim to sketch out such a framework or schema here. First, I review the “behaviour
modification” role of class proceedings legislation, a role related to, but distinct from
“judicial economy” or “access to justice.” Second, I categorize types of legislative-seeking
behaviour, illustrating each with examples from the Canadian experience with large-scale
claims. At least two types of schemata are possible. One characterizes legislative intervention
as falling, roughly speaking, into pre- and post-dispute phases. Another characterizes it by
the degree of intervention sought; i.e., from less interventionist to more. Neither of these
schemata are perfect. For instance, an arbitration clause imposed in a consumer contract
before any dispute has arisen may be seen as less interventionist than a legislative enactment
that reverses a judicial decision. But the arbitration clause may affect many more individuals
than the legislative reversal of a judgment, so that, practically, the pre-dispute behaviour has
a more widespread impact. Recognizing the limitations of both schemata, I pick the first,
because I find it convenient to think in terms of the chronological unfolding of a dispute.
The typology will, I hope, be a fruitful starting point and be refined in future scholarship.
Third, I join a growing call for change, including legislative change, apparently make me a
member of H. legislativus too. I conclude that without such change, all the promises of class
proceedings—judicial economy, access to justice and, especially, behaviour modification—
will go unfulfilled.
4
On which, see, e.g., Joseph Persky, “Retrospectives: The Ethology of Homo Economicus” (1995) 9 Journal of
Economic Perspectives 221.
5
I use the term large-scale claims as it includes other proceedings besides class actions, such as multi-plaintiff
lawsuits, class arbitrations (which have so far had little impact in Canada), shareholder derivative actions
and, potentially, administrative proceedings. See Jamie Cassels and Craig Jones, The Law of Large-Scale Claims:
Product Liability, Mass Torts, and Complex Litigation in Canada (Toronto: Irwin Law, 2005). Similarly, I adopt
the term claimant to refer to members of a class who have an actual or potential claim—typically against a
government, corporate or institutional actor—whether or not it has crystallized into a class proceeding.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
3
‘Behaviour Modification’—Poor Cousin of ‘Access to Justice’?
Craig Jones notes that when the U.S. class action rule, Rule 23, was adopted for
federal courts, it was seen as little more than a mechanism to benefit those who would
otherwise lack court access.6 Jones also notes that despite the ensuing decades of class action
experience, it is not uncommon to find class actions and other aggregative techniques
discussed in essentially those terms. Behaviour modification or deterrence—the expressions
are used interchangeably—tend to be viewed as byproducts of access to justice or as related
to their effects on the ability to aggregate low-value claims. If you like, access to justice and
judicial economy are the elder siblings; behaviour modification, the junior one—or even the
poor cousin. This can be seen in the third-place ranking of deterrence when courts list class
action goals, and in comments such as these in Dutton:
Third, class actions serve efficiency and justice by ensuring that actual and potential wrongdoers
do not ignore their obligations to the public. Without class actions, those who cause widespread but
individually minimal harm might not take into account the full costs of their conduct, because for any one plaintiff
the expense of bringing suit would far exceed the likely recovery. Cost-sharing decreases the expense of pursuing legal
recourse and accordingly deters potential defendants who might otherwise assume that minor wrongs would not result
in litigation.7
I agree with this statement, and so does Jones. But as Jones explains, the corollary
sometimes advanced—that the deterrence advantage of class actions disappears when some
or all of the claims are individually viable—is “misconceived.”8 Indeed, much of Jones’s
thesis is that from a public policy perspective, deterrence is more important than compensation in furthering the goals of class action legislation, and is a foundation for a public-law
view of class proceedings. Certainly, the heralding of a public- or policy-oriented approach
was apparent in Dutton, the first of the trilogy decisions. The case arose in Alberta, a
province that had no class action statute as the time. That didn’t deter McLachlin C.J.C.,
though, who declared that judges “must fill the void under their inherent power to settle the
rules of practice and procedure as to disputes brought before them.”9 The Court went out of
its way to note the change in the law and public attitude since its decision in Naken,10 where
it had rejected the notion of a common-law class action.
Jones also notes that compensation, often used synonymously with “access to
justice,” isn’t necessarily co-dependent with deterrence. As victims often learn to their
chagrin, the prosecution of criminal or quasi-criminal offences may be a way to access
justice, and the associated fines or imprisonment may even act as behavioral deterrents; but
barring remedies such as civil restitution orders, victims must seek compensation in another
forum. In civil proceedings, though, there is a confluence of the two ideas, and in class
proceedings, a further confluence with the idea of judicial economy. Though the ideas are
6
Craig Jones, Theory of Class Actions (Toronto: Irwin Law, 2003). This section is drawn in part from pp 27-37.
7
Dutton, supra note 1 at para. 29, cited ibid. at 28 (emphasis added by Jones).
8
Jones, supra note 6 at 29.
9
Dutton, supra note 1 at para. 34.
10
Naken v. General Motors of Canada Ltd., [1983] S.C.J. No. 9 (QL), [1983] 1 S.C.R. 72, 144 D.L.R. (3d) 385, 32
C.P.C. 138.
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4
distinct, they interact in important ways. Perhaps, rather than thinking of them as an ordered
list, or as siblings or cousins, it would be useful to imagine an equilateral triangle—with
compensation, deterrence and judicial economy poised at its corners, constantly acting on
and interacting with each other.
The other point I will make here is that behaviour modification or deterrence—pick
your term—has multiple meanings. The meanings are important in litigation generally, but in
class proceedings especially. We can think of specific deterrence as those incentives that
encourage the same legal actor not to repeat certain past behaviour. And we can think of
general deterrence as signals or incentives that attempt to modify the future behaviour of
other legal actors. These are well known concepts and are sometimes referred to,
respectively, as ex post and ex ante attempts at behaviour modification. But there is another
form of ex post behaviour that Jones discusses in detail in the class action context, and that is
the behaviour of parties in resolving their disputes. Examples include the speed with which a dispute
is processed, the relative willingness to disclose information material to the dispute, and
relative preferences for settlement over trial. If one studies the rules of court and the reforms
thereto, it is evident that they aim to modify such ex post behaviour in particular ways.
Class action regimes (regime encompassing the rules, the ways in which parties use
them, and the interpretation courts give to them)11 are no different. Thus a regime in which
either party can appeal a class certification evinces a different stance towards this ex post
litigation behaviour than one in which only the plaintiff can appeal, as in Quebec.12 The first
regime tolerates a higher level of investment in fighting certification and takes a neutral
stance on who will do the investing; the second evinces a lower tolerance for certification
battles, but where it lets them go past the motion stage, tilts the balance to plaintiffs.
Similarly, a regime that takes a loser-pay or full indemnity approach to costs differs from one
in which parties bear their own costs on a partial-indemnity or lower (i.e., tariff-based)
approach. Depending on how these factors combine (i.e., whether costs are shifted and, if
so, at what amounts), there can be a huge range in the risk associated with the costs of a
class proceeding. And so regimes that allow cost awards against representative plaintiffs—
i.e., Ontario’s—are problematic because the economies of scale are “grotesquely reversed.”13
That is, a defendant’s litigation costs, incurred to fend itself off against the whole class, “can
be exacted from a single representative plaintiff whose own interest in the claim might be
minimal.”14 Absent indemnification agreements from class counsel or funding guarantees
from organizations like the Class Proceedings Fund, this creates very different risk profiles
for ex post disputing behaviour and, potentially, for the types of claim brought. A similar
analysis applies to whether a class action regime is opt-in or opt-out; in Canada, that
effectively devolves into a question as to whether class proceedings will be national or
11
On the ‘regime’ or ‘system design’ aspects of class actions, see, e.g., John C. Kleefeld and Anila Srivastava,
“Resolving Mass Wrongs: A Command-Consensus Perspective” (2005) 30 Queen’s L.J. 449.
12
See Code of Civil Procedure, R.S.Q. c. C-25, art. 1010.
13
Jamie Cassels and Craig Jones, The Law of Large-Scale Claims: Product Liability, Mass Torts, and Complex
Litigation in Canada (Toronto: Irwin Law, 2005) at 370.
14
Ibid.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
5
proceed province-by-province.15 Cassels and Jones make a compelling case for why
national—even international—class actions are preferable to provincial ones, noting the
benefits to access to justice, judicial economy and, particularly, deterrence.16 The corollary is
that defendants can generally be expected to do whatever they can to avoid national classes,17
so if courts are concerned with promoting the policies behind class actions, it is crucial that
they take into account what effects their decisions may have on such policies. I return to this
point when considering judicial reactions in different provinces to the question of whether
an arbitration clause can be used to stay a class proceeding.
Towards a Typology of Legislative- or Regulatory-Seeking Behaviour
Enacting ‘Private Legislation’ to Preclude Large-Scale Claims
The first type of behaviour I will consider is that in which a legal actor, typically a
corporation, ‘enacts’ its own ‘private legislation’ to preclude the threat of court action
generally, and large-scale claims in particular.18 Its salient form is a standard-form agreement
to arbitrate, typically entered into at the time of contracting, or at least before a dispute has
arisen. When the larger contract of which it is a part is for consumer goods or services, this
type of agreement is called a “pre-dispute consumer arbitration clause.”19 What we have here
is a carefully crafted internal legal system whose operation depends on an ability to use the
external legal system to induce compliance.20 In this case, the external legal mechanism is an
especially potent one—the provisions in arbitration legislation that let a party seek a stay of
proceedings if a court action is launched against it.
The potency was illustrated most notoriously in the 2002 decision in Kanitz v. Rogers
Cable Inc.21 Through its brand Rogers@Home, Rogers provided Internet service under a
15
I exclude actions brought in Federal Court, which are national by definition.
16
Cassels and Jones, supra note 13, c. 10.
17
But not always. In two cases in which I have been involved, the defendants consented to certification, and
in one of those cases, to a national class—and was able to extract some concessions for doing so.
18
The term private legislation draws on a tradition that recognizes the crucial role of private law-making in
society. See, e.g., the influential manuscript of Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process:
Basic Problems in the Making and Application of Law (Cambridge MA: Tentative Edition, 1958). Hart and Sacks,
though chiefly concerned with a theory of adjudication, said that “private law makers, the courts, and
administrative agencies are . . . the regularly available, continuously functioning agencies of growth in the
legal system” (at 187, emphasis added). Other terms conveying this concept include “private ordering,”
“indigenous law” and “legal pluralism.” See, e.g., Marc Galanter, “Justice in Many Rooms: Courts, Private
Ordering and Indigenous Law” (1981) 19 J. Legal Pluralism 1, and Roderick A. MacDonald, “Metaphors of
Multiplicity: Civil Society, Regimes and Legal Pluralism” (1998) 15 Ariz. J. Int’l & Comp. L. 69.
19
See Jonnette Watson Hamilton, “Pre-Dispute Consumer Arbitration Clauses: Denying Access to Justice?”
(2006) 51 McGill L.J. 693 and Shelley McGill, “The Conflict Between Consumer Class Actions and
Contractual Arbitration Clauses” (2006) 43 Can. Bus. L.J. 359.
20
See Galanter, supra note 18 at 24-25 on the interface between external and internal (indigenous) systems.
21
Kanitz v. Rogers Cable Inc., [2002] O.J. No. 665; 58 O.R. (3d) 299; 21 B.L.R. (3d) 104; 16 C.P.C. (5th) 84
(S.C.J.) [Kanitz].
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
6
contract that let Rogers “change, modify, add or remove portions of this Agreement at any
time,” with the proviso that it would tell subscribers “by posting notice . . . on the
Rogers@Home web site, or sending notice via email or postal mail.”22 In late 2000, Rogers
amended the contract, adding a clause that read in part as follows:
Arbitration. Any claim, dispute or controversy (whether in contract or tort, pursuant to statute
or regulation, or otherwise, and whether pre-existing, present or future) arising out of or
relating to: (a) this Agreement; (b) Rogers@Home; (c) oral or written statements, advertisements or promotions relating to this Agreement or to Rogers@Home or (d) the relationships
which result from this Agreement (including relationships with third parties who are not
signatories to this Agreement) (collectively the “Claim”), will be referred to and determined by
arbitration (to the exclusion of the courts). You agree to waive any right you may have to commence or
participate in any class action against us related to any Claim and, where applicable, you also agree to opt out of
any class proceedings against us.23
Relying on the web update option in its original contract, Rogers posted the
amended contract with the arbitration clause on its website in January 2001, noting this in
the site’s “News and Highlights” section for about a two-week period.24 When a class action
was launched for refunds due to Internet service interruptions—alleged to have occurred
over a six-month period before addition of the arbitration clause25—Rogers successfully
moved to stay the action.
Characterizing the motion as involving the interplay between Ontario’s Arbitration
Act26 and its Class Proceedings Act,27 Nordheimer J. held that Rogers had adequately notified
subscribers of the change, and concluded that the mandatory stay provisions of the AA
trumped the CPA unless the plaintiffs could successfully invoke one of the legislated
exceptions in the AA.28 The most obvious exception, and the one most vigorously argued,
was that the arbitration agreement was invalid on grounds of unconscionability. This
required proving three elements: (i) inequality of bargaining power; (ii) a preying upon or
22
Ibid. at para. 7.
23
Ibid. at para. 8 (emphasis added).
24
Ibid. at para. 9.
25
Ibid. at para. 48.
26
Arbitration Act, 1991, S.O. 1991, c. 17 [AA].
27
Class Proceedings Act, 1992, S.O. 1992, c. 6 [CPA].
28
Kanitz, supra note 21 at para. 33. Subsections 1 and 2 of AA s. 7 read as follows:
(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to
arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion
of another party to the arbitration agreement, stay the proceeding. 1991, c. 17, s. 7 (1).
(2) However, the court may refuse to stay the proceeding in any of the following cases:
1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
7
taking advantage of the weaker party by the stronger party; and (iii) a resulting improvident
bargain.29 While the result in Kanitz has been frequently criticized, what is sometimes
overlooked is Nordheimer J.’s holding for the plaintiffs on the first of these elements:
The defendant contends that there is no inequality of bargaining power in this case because
there is no evidence that any of the plaintiffs was in a disadvantaged bargaining position
regarding any aspect of the lesser agreement. With respect, that submission simply ignores
reality. There is clearly an inequality of bargaining power between a single consumer and a
corporation the size of the defendant here. The reality is that there is no bargaining at all. The
defendant decides on the terms of the agreement and the consumer’s sole choice is either to
accept the agreement if he or she wants the service or to reject the agreement and forgo the
defendant’s service as a consequence. It is very much a “take it or leave it” form of contract.
The first element for a finding of unconscionability is therefore met.30
To put it in the framework of this paper, if such private law can be said to be
‘enacted,’ it is done so without any meaningful consent of the governed. But Nordheimer J.,
despite his reality-testing on the first element of the unconscionability test, held that Rogers
hadn’t taken advantage of its subscribers to form an improvident bargain—noting that no
evidence had been led that subscribers would not arbitrate for a maximum refund of about
$240.31 With respect, that conclusion, as well as the accompanying suggestion that an
arbitrator might be able to consolidate arbitrations raising the same issue,32 also “simply
ignores reality.” The potential claims were small, even by small-claims standards, especially as
the maximum refund assumed 100% service unavailability for six months at $40 per month,
and there was no suggestion that subscribers had experienced that much interruption. And
the plaintiffs had proposed class-wide arbitration but Rogers had rejected their overture.33
From the defendant’s perspective, that made economic sense. The well-documented
realpolitik is that clauses like Rogers’ are added by corporations “to insulate the corporation
from the punishing effects of class actions and not as a serious choice of forum.”34 Agreeing
to class arbitration would negate that effect, as evidenced by arbitration clauses that
corporations have since drafted to preclude class arbitrations as well as class actions.35
29
Kanitz, supra note 21 at para. 37.
30
Ibid. at para. 38 (emphasis added).
31
Kanitz, supra note 21 at para. 41.
32
Ibid. at para. 55.
33
Ibid. at para. 41.
34
Shelley McGill, “Consumer Arbitration Clause Enforcement: A Balanced Legislative Response” (2010) 47
Am. Bus. L.J. 361 at 361; see note 1 of McGill’s article for supporting citations and evidence.
35
“Most arbitration provisions today contain class action waivers and there is no question that the interest of
those companies would be severely prejudiced by an order compelling class-wide arbitration, particularly if
the arbitration provision specifies that the class action waiver may not be severed from the rest of the
arbitration provision if the class action waiver is invalidated.” Alan S. Kaplinsky, “The Use of Pre-Dispute
Arbitration Agreements by Consumer Financial Services Providers” in American Bar Association, “The
State of Consumer Credit Arbitration: Assessing Developments Regarding NAF, AAA and Proposed
Federal Legislation” presented at a meeting of the American Bar Association Committee on Consumer
Financial Services (Park City, Utah: January 11, 2010) at 35. This document, which provides a detailed
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
8
Legislative reaction was swift. An overhaul of Ontario consumer law was already
underway via schedules to an omnibus amending statute.36 Schedule A enacted the new
Consumer Protection Act,37 and to it was added, among other things, a provision that “any term
or acknowledgment in a consumer agreement or a related agreement that requires . . . that
disputes . . . be submitted to arbitration is invalid insofar as it prevents a consumer from
exercising a right to commence an action in the Superior Court of Justice given under this
Act.”38 Since the Small Claims Court is a branch of the Superior Court of Justice,39 the
protection was automatically extended to consumer claims brought in that Court. A similar
provision was added in respect of class proceedings.40 In both cases, an exception was added
to preserve the ability of consumers and suppliers to agree to arbitrate after a dispute had
arisen.41 The statute was assented to on December 13, 2002, but due to the time it took to
draft the regulations, the legislation did not come into force until July 30, 2005.42 In the
meantime, several other developments were unfolding that were to launch pre-dispute
consumer arbitration clauses onto the national scene.
The first development was the profuse payday loan litigation, especially in British
Columbia and Ontario. I will return to it later, but suffice it to say here that in the two
leading cases, MacKinnon and Smith,43 the courts rejected the Kanitz approach in favour of
agenda for avoiding consumer credit class actions, is available through the ABA Business Law Section,
online: <http://apps.americanbar.org/buslaw/committees/CL230000pub/materials.shtml>.
36
Consumer Protection Statute Law Amendment Act, 2002, S.O. 2002, c. 30.
37
Consumer Protection Act, 2002, being Schedule A to the Consumer Protection Statute Law Amendment Act, 2002,
ibid.
38
Ibid., s. 7(2). The terms consumer and consumer agreement are defined in s. 1 of the statute.
39
Courts of Justice Act, R.S.O. 1990, c. 43, s. 22.
40
Consumer Protection Act, 2002, supra note 37, s. 8(1).
41
Ibid., ss. 7(5) and 8(4).
42
Ontario Legislature, Table of Proclamations, online: <http://www.e-laws.gov.on.ca/html/tables/
publicstatutes/elaws_t_pu_st_tprocs.htm>.
43
In Ontario, see Smith v. National Money Mart Co., [2005] O.J. No. 2660 (QL), 8 B.L.R. (4th) 159, 18 C.P.C.
(6th) 1 (S.C.J.) (dismissing motions to set aside ex juris service of statement of claim on Money Mart’s
parent company and to stay uncertified class proceeding in favour of arbitration), [2005] O.J. No. 4269
(QL), 258 D.L.R. (4th) 453, 12 B.L.R. (4th) 29, 20 C.P.C. (6th) 345 (C.A.) (quashing appeal on the basis that
legality of the arbitration provision should be determined at the certification hearing), [2005] S.C.C.A. No.
528 (QL), 261 D.L.R. (4th) vi (leave to appeal dismissed), [2006] O.J. No. 1807 (QL), 80 O.R. (3d) 81, 266
D.L.R. (4th) 275, 209 O.A.C. 190, 18 B.L.R. (4th) 22, 28 C.P.C. (6th) 34 (dismissing appeal on ex juris
service of statement of claim), [2006] S.C.C.A. No. 267 (QL) (leave to appeal dismissed), [2007] O.J. No. 46
(QL) 37 C.P.C. (6th) 171, 29 E.T.R. (3d) 199 (S.C.J.) (granting certification), [2007] O.J. No. 2160, 30
E.T.R. (3d) 163 (Div. Ct.) (dismissing leave to appeal), [2007] O.J. No. 1507 (QL) (S.C.J.) (motion to permit
defendant to advise class members during opt-out period that it might not make further loans unless
customer opted-out of class action), [2008] O.J. No. 2248 (QL), 57 C.P.C. (6th) 99 (S.C.J.) (application to
stay class proceeding pending arbitration, based on a change in the law resulting from Supreme Court of
Canada’s decisions in Dell Computer and Rogers Wireless), [2008] O.J. No. 3497 (QL), 92 O.R. (3d) 224 (S.C.J.)
(costs), [2008] O.J. No. 4327 (QL), 2008 ONCA 746, 61 C.P.C. (6th) 72, 243 O.A.C. 173 (refusing appeal
based on issue estoppel), [2008] S.C.C.A. No. 535 (QL) (leave to appeal dismissed), [2008] O.J. No. 4474
(QL), 67 C.P.C. (6th) 260 (S.C.J.) (costs), [2009] O.J. No. 2217 (QL), 2009 ONCA 455 (costs), [2010] O.J.
No. 873 (QL), 2010 ONSC 1334, 94 C.P.C. (6th) 126 (approving settlement and fees) [Smith].
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
9
requiring certification judges to consider arbitration clauses in the context of the preferability
criterion for class proceedings. In other words, only if arbitration was a “preferable
procedure”44 for resolving the common issues would an action be stayed; otherwise, it would
be certified as a class action. Here the behavioral realpolitik is entirely in the other direction:
as Shelley McGill has commented, “[i]t is hard to imagine how individual arbitration could
ever be preferable over an otherwise certifiable class action if deterrence is used as a
criterion.”45 The second development was two Quebec cases that went to the Supreme
Court of Canada, with arbitration policy prevailing over class action policy in the judicial
arena—only to be reversed in the legislative arena. In first, Dell Computer,46 the Court set out
the law and applied it to enforce an arbitration clause in the context of online computer
purchases; in the second, Rogers Wireless,47 the Court applied the newly announced law to
enforce an arbitration clause in the context of roaming charges for wireless phone service.
Dell Computer arose out of a pricing error for two handheld computers on Dell’s
website ($89 and $118 rather than $379 and $549, respectively). The day after Dell learned of
the error, it blocked the ability to access the order page through its website, though without
actually removing the page. But some intrepid consumers—one Olivier Dumoulin in
particular—accessed the page through ‘deep links’ and ordered the computers. Dell
responded by posting a correction and announcing that it wouldn’t process the orders.
Dumoulin retaliated by instituting a class action with the aid of the Consumers Union of
Quebec.48 Dell applied to have the claim referred to arbitration based on a clause accessible
In British Columbia, see MacKinnon v. National Money Mart Co., [2004] B.C.J. No. 175 (QL), 2004 BCSC 136,
26 B.C.L.R. (4th) 172, 41 B.L.R. (3d) 198, 46 C.P.C. (5th) 80 (dismissing motion to stay uncertified class
proceeding in favour of arbitration), [2004] B.C.J. No. 1961 (QL), 2004 BCCA 473, 50 B.L.R. (3d) 291
(allowing appeal and remitting case back to case management judge to complete analysis of the certification
application), [2005] B.C.J. No. 399 (QL), 2005 BCSC 271 (denying certification on basis that individual
issues overwhelmed common issues), unreported, Vancouver Registry No. S030527, June 16, 2005
(allowing action to be continued as several separate proceedings), [2006] B.C.J. No. 635 (QL), 2006 BCCA
148, 265 D.L.R. (4th) 214, [2006] 5 W.W.R. 601 (allowing appeal and adjourning certification application
for a reconstituted proceeding), [2007] B.C.J. No. 520 (QL), 2007 BCSC 348 (certifying reconstituted
proceeding), [2008] B.C.J. No. 1026 (QL), 2008 BCSC 710, 293 D.L.R. (4th) 478, 84 B.C.L.R. (4th) 369,
[2009] 1 W.W.R. 129 (refusing application to stay class proceeding pending arbitration, based on a change
in the law resulting from Supreme Court of Canada’s decisions in Dell Computer and Rogers Wireless), [2008]
B.C.J. No. 1285 (QL), 2008 BCCA 292, 295 D.L.R. (4th) 304 (granting leave to appeal), [2009] B.C.J. No.
468 (QL), 2009 BCCA 103, 68 C.P.C. (6th) 241, 89 B.C.L.R. (4th) 1, 304 D.L.R. (4th) 331, [2009] 5 W.W.R.
418 (refusing appeal based on issue estoppel), [2010] B.C.J. No. 1436 (QL), 2010 BCSC 1008 (approving
settlement and fees) [MacKinnon].
44
CPA, supra note 27, s. 5(1)(d) and Class Proceedings Act, R.S.B.C. 1996, c. 50 [BCCPA], s. 4(1)(d).
45
McGill, supra note 19 at 370.
46
Dell Computer Corp. v. Union des des consommateurs, [2004] J.Q. No. 155 (QL) (S.C.) (QL) (authorizing class
action), [2005] J.Q. no 7011, 2005 QCCA 570 (affirming result on different grounds), [2005] S.C.C.A. No.
370 (QL) (granting leave to appeal and granting intervention applications for several intervenors), [2007]
S.C.J. No. 34 (QL), 2007 SCC 34, 284 D.L.R. (4th) 577, 34 B.L.R. (4th) 155, 44 C.P.C. (6th) 205 (reversing
lower courts and referring matter to arbitration) [Dell Computer].
47
Rogers Wireless Inc. v. Muroff, [2007] S.C.J. No. 35 (QL), 2007 SCC 35, [2007] 2 S.C.R. 921, 284 D.L.R. (4th)
675, 36 B.L.R. (4th) 79, 44 C.P.C. (6th) 373 [Rogers Wireless].
48
The Consumers Union of Quebec-Union des consommateurs is an affiliate of Consumers International
(CI). The Union’s mission “is to represent and protect the rights of consumers, especially from poor and
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
10
through a hyperlink, and for dismissal of the motion to authorize a class action. The clause
specified that arbitration was to be administered by National Arbitration Forum (NAF), a
U.S. organization.49 The Union contended that the arbitration clause was null and, in any
event, couldn’t be used against Dumoulin. The Quebec Superior Court and the Court of
Appeal refused to uphold the clause, though for different reasons. In a 6:3 decision the
Supreme Court reversed both courts, stayed the class action, and upheld the arbitration
clause. Both the majority and minority relied on textual interpretation of Quebec’s Civil
Code,50 without referring to class action policy, to the MacKinnon and Smith decisions in the
British Columbia and Ontario Courts of Appeal, or to the Court’s own class action trilogy.51
Deschamps J., writing for the majority, thought that art. 3149 CCQ posed the key issue: as
an exception to the general deference to arbitration in art. 3148 CCQ, it gives “Quebec
authorities” jurisdiction to hear an action involving a consumer or employment contract if
the consumer or worker resides in or is domiciled in Quebec, and says that “the waiver of
such jurisdiction by the consumer or worker may not be set up against him.”52 This required
considering whether the arbitration clause gave rise to a “foreign element,” since art. 3149 is
under the Code title Private International Law. This couldn’t be, thought Deschamps J., since
arbitration is an institution characterized by “neutrality [and is] without a forum [or]
geographic basis.”53 That the arbitration clause invoked NAF and its procedural rules was
seen as irrelevant, for “[t]he rules become those of the parties, regardless of where they are
taken from.”54 The majority also considered irrelevant the fact that the NAF arbitrations
would be governed by a U.S. statute55 and conducted in English. In the majority’s view, these
were not foreign elements for purposes of Quebec’s private international law.
The minority, comprising Bastarache, LeBel and Fish JJ., thought that this was reading too
much into the Code’s titles and taxonomic structure, and that, in any case, the word
international in ‘private international law,’ or what the common law calls ‘conflicts of law,’ is
something of a misnomer.56 They thought that both forum selection clauses and arbitration
clauses constitute on their own the requisite foreign element. As to forum selection clauses,
disadvantaged households.” See the Union’s website: <http://www.consommateur.qc.ca/union-desconsommateurs or its page on the CI website: <http://www.consumersinternational.org/our-members/
member-directory/Consumers%20Union%20of%20Quebec%20-%20Union%20des%20consommateurs>.
49
NAF says its mission is “to provide a fair, efficient, and effective system for the resolution of commercial
and civil disputes in the United States and worldwide.” NAF, online: <http://www.adrforum.com>. But
see infra, notes 60 to 62 and accompanying text.
50
Civil Code of Québec, S.Q. 1991, c. 64 [CCQ].
51
For a critique, see Shelley McGill, “Consumer Arbitration and Class Actions: The Impact of Dell Computer
Corp. v. Union des consommateurs” (2007) 45 Can. Bus. L.J. 334.
52
Dell Computer, supra note 46 at paras. 11-12, citing art. 3149 CCQ.
53
Ibid. at para. 51.
54
Ibid. at para. 52; see also paras. 55-60 for the majority’s analysis of the specific elements that might be
argued to be “foreign.”
55
That is, the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
56
Dell Computer, supra note 46 at para. 202.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
11
the minority said that their effect is to divest Quebec authorities of jurisdiction so the
dispute can be heard in another country or province; similarly, the effect of arbitration
clauses is to create “private jurisdiction” in place of the jurisdiction of state-appointed
authorities like domestic courts and administrative tribunals.57 The minority thought that this
alone triggered art. 3149. They also questioned NAF’s reliance on the U.S. Federal Arbitration
Act, concluding that an arbitrator bound by U.S. law couldn’t be a “Québec
authority.”58 And they thought that a “Québec authority” would have to provide arbitration
services in French, finding it “completely incongruous” that “to begin the process attributing
to the purported ‘Québec authority’ power to hear the dispute, the consumer must first
contact an American institution, located in Minneapolis, who is in charge of organizing the
arbitration.”59 As it turns out, the minority’s suspicions were not unfounded: NAF was
subsequently prosecuted by Minnesota’s Attorney General for being anything but “neutral,”
due in part to financial ties to the very firms whose cases came before it and in part to its
alleged advice to business on drafting arbitration clauses, helping them make arbitration
claims, and counselling them on legal trends affecting arbitration.60 Three days after the
action was filed, NAF signed a consent decree under which it agreed to stop doing credit
card and consumer arbitrations altogether.61 In an ironic twist, NAF, once a bulwark against
class actions, is now defending itself in a class action brought to recover the allegedly
improper arbitration awards.62
Dell Computer also posed a question of arbitral jurisdiction that was to prove important in
cases outside Quebec. The majority said that any challenge to the arbitrator’s jurisdiction
must first be resolved by the arbitrator in accordance with the competence-competence principle,63
which recognizes that an arbitral tribunal is generally competent to decide on its own
competence or jurisdiction to resolve a dispute.64 A court should depart from the rule of
systematic referral to arbitration only if the jurisdictional challenge is based solely on a
question of law—an exception justified by judicial expertise in resolving such questions, by
57
Ibid. at paras. 200-201.
58
Ibid. at para. 212.
59
Ibid.
60
See Deepak Gupta, “Minnesota Attorney General Sues National Arbitration Forum” (July 14, 2009) Public
Citizen Consumer Law and Policy Blog online: <http://pubcit.typepad.com/clpblog/2009/07/minnesotaattorney-general-sues-national-arbitration-forum.html>. For the Attorney General’s complaint, see
<http://pubcit.typepad.com/files/2009-07-14-signed-complaint-with-exhibits.pdf>.
61
Public Citizen Consumer Law and Policy Blog online: <http://pubcit.typepad.com/files/nafconsentdecree.pdf>.
62
In re: National Arbitration Forum Trade Practices Litigation, 682 F. Supp. 2d 1343; 2010 U.S. Dist. LEXIS 10380
(J.P.M.L.) (transferring multi-district actions to Minnesota), 704 F. Supp. 2d 832; 2010 U.S. Dist. LEXIS
15178 (D. Minn. 2010) (motions to dismiss granted in part and denied in part), 2010 U.S. Dist. LEXIS
35655 (D. Minn. April 12, 2010) (stay pending appeal denied). Apart from this, California is suing NAF and
other defendants in litigation that is ongoing. See People of the State of California v. National Arbitration Forum, Inc.
(Calif. Sup. Ct., San Francisco No. CGC-08-473569) online: “http://www.sfsuperiorcourt.org> (enter case
number 473569 in Case Number Query field for a list of all court documents, some of which are viewable).
63
Ibid. at para. 84.
64
Ibid. at para. 87. For a good summary of this principle and other related points , see Andrew Little,
“Canadian Arbitration Law after Dell Computer Corp. v. Union des consommateurs” (2007) 45 Can. Bus. L.J. 356.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
12
the fact that parties apply to the court when requesting referral, and by the rule that an
arbitrator’s decision on jurisdiction can be judicially reviewed.65 If the challenge requires
reviewing facts, the court should normally refer the case to arbitration, because arbitrators
have, for this purpose, the same expertise as courts.66 In the result, the majority thought that
there was a need to analyze facts, such as those relating to the existence or non-existence of
a foreign element, so the matter should have been referred to arbitration.67 In contrast, the
minority favoured an approach in which jurisdictional questions would typically be decided
by the arbitrator, especially if possible to do so on documents and pleadings, but that judges
should retain discretion to answer such questions when an arbitration agreement’s validity is
challenged.68 The minority thought that this would best promote arbitration policy, while
preserving the Superior Court’s supervisory jurisdiction. In the result, the minority thought
that the courts below had been correct to consider the challenge to the arbitration clause.69
One of the Union’s validity arguments was that hyperlinking the arbitration clause
made it “external” within the meaning of art. 1435 CCQ. That article says that an external
clause in a consumer or adhesion contract is null “if, at the time of formation of the
contract, it was not expressly brought to the attention of the consumer or adhering party,
unless the other party proves that the consumer or adhering party otherwise knew of it.”
Neither the majority nor the minority accepted this argument: the clause was accessible by a
single click, making it no harder to access than a paper contract on which the terms and
conditions of sale appeared on the back; this ease of accessibility meant that the clause
wasn’t even “external” for the purposes of art. 1435.70
The majority and minority agreed on two other points. On December 14, 2006, the
day after Dell Computer was heard and the day that Rogers Wireless was heard, Quebec enacted
Bill 48,71 which, among other things, amended its Consumer Protection Act72 by adding s. 11.1:
Any stipulation that obliges the consumer to refer a dispute to arbitration, that restricts the
consumer’s right to go before a court, in particular by prohibiting the consumer from bringing a class
action, or that deprives the consumer of the right to be a member of a group bringing a class action is
prohibited.73
Section 11.1 was therefore like the post-Kanitz amendment to Ontario’s Consumer
Protection Act, and like it, balanced the legislative response by adding an exception to allow
65
Dell Computer, supra note 46 at para. 84.
66
Ibid. at para. 85.
67
Ibid. at para. 88.
68
Ibid. at paras. 176-178.
69
Ibid. at para. 178.
70
Ibid. at paras. 100-101, 237-240.
71
An act to amend the consumer protection act and the Act respecting the collection of certain debts, S.Q. 2006, c. 56.
72
R.S.Q. c. P-40.1.
73
S.Q. 2006, c. 56, supra note 71, s. 2 (emphasis added).
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
13
post-dispute arbitration clauses.74 The Court sought submissions from the parties in both
cases on the effect of this change,75 but concluded, unsurprisingly, that because the facts
triggering application of the arbitration clause occurred before s. 11.1 came into force and
there was no obvious legislative intent to make its effect retroactive, s. 11.1 did not apply.76
The other point of agreement, and the one perhaps most discouraging for a public-law
vision of class actions, centred on art. 2639 CCQ, which says that “[d]isputes over the status
and capacity of persons, family matters or other matters of public order may not be submitted to
arbitration.” The Court held that while class actions have a social dimension, that doesn’t
make them “matters of public order,” a substantive concept. The Court repeated what has
become a sort of juristic bromide—viz., a class action “is only a ‘procedural vehicle whose
use neither modifies nor creates substantive rights’ and can generally be waived. It is the
legislature, and not the courts, that can create exceptions to this.”77 One might have thought
that s. 11.1 would have been some evidence of a legislative move away from this narrow
understanding of class actions, such as to make them “matters of public order” quite apart
from whether s. 11.1 applied retroactively.
The Dell Computer facts were sympathetic to the defendant, in that Dumoulin’s order
had all the flavour of taking advantage of a sudden vulnerability in Dell’s system. In Rogers
Wireless, the facts were rather the other way. There, the Court applied Dell Computer to a class
action brought by Dr. Frederick Muroff, a Quebec resident and subscriber to Rogers’ mobile
phone service. Canadian subscribers could use their phones in the U.S., subject to roaming
charges that, in most states, were 95¢ a minute but in certain “excluded areas” were $4 per
minute. The excluded areas included Rhode Island and Maine, where Muroff had made calls
for which Rogers had billed him at the $4 rate. The service agreement had an arbitration
clause that also expressly prohibited a customer from starting or participating in a class
action. Muroff alleged that the arbitration clause was abusive, relying on various evidence,
including transcripts of oral examinations of Rogers’ representatives. Without addressing the
issue, the trial judge held that the clause deprived her of jurisdiction and referred the matter
to arbitration. The Court of Appeal set aside that decision and returned the matter to the
Superior Court to first decide the issue of the clause’s validity. From that decision, Rogers
appealed to the Supreme Court, where this time, a seven-member panel78 unanimously
allowed the appeal. The Court held that, “[f]aced with a challenge to the validity of an
arbitration clause that would have required a detailed factual inquiry on a mixed question of
law and fact,”79 the trial judge had correctly referred the matter to arbitration.
74
Ibid. (providing that “[i]f a dispute arises after a contract has been entered into, the consumer may then
agree to refer the dispute to arbitration”).
75
See the case dockets at <http://www.scc-csc.gc.ca/case-dossier/cms-sgd/dock-regi-eng.aspx?cas=31067>
(Dell Computer) and <http://www.scc-csc.gc.ca/case-dossier/cms-sgd/dock-regi-eng.aspx?cas=31383>
(Rogers Wireless).
76
Dell Computer, supra note 46 at paras. 116-120, 161-162.
77
Ibid. at paras. 105-110, 226, citing Bisaillon v. Concordia University, [2006] 1 S.C.R. 666, 2006 SCC 19 at par. 17.
78
McLachlin C.J. and Binnie, LeBel, Fish, Abella, Charron and Rothstein JJ. At para. 25, LeBel J. agreed that
this was the right result, whether one were to apply the majority or minority judgment in Dell Computer.
79
Rogers Wireless, supra note 47 at para. 20.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
14
Although Dell Computer revolved chiefly on the “architectonics”80 of Civil Code
interpretation, it had a swift impact outside Quebec. First, in Frey,81 an action against several
mobile phone companies brought under Saskatchewan’s class proceedings statute,82 certain
defendants brought stay motions based on Dell Computer and Rogers Wireless. Without actually
going through the Dell Computer analysis, Gerein J. concluded that Saskatchewan was bound
by these decisions, and amended the certification order to exclude class members who had
arbitration clauses in their contracts.83 Customers with contracts lacking arbitration clauses
or predating their inclusion were allowed to remain in the certified class. This, comments
McGill, “was absurd for all concerned,”84 as it created a multiplicity of proceedings with
possibly inconsistent rulings, as well as increased litigation costs (assuming that any of the
excluded class members would actually arbitrate).
Then, in MacKinnon and Smith, the primary defendant, National Money Mart Co.,
returned to court to argue that the previously certified actions should now be stayed based
on the change in law announced by Dell Computer. In MacKinnon, Brown J. refused the
application. Noting the Quebec-specific reasoning in Dell Computer, she also reasoned that
she had already decided the issue, and that, while she had a discretion under the doctrine of
issue estoppel to reopen the question and stay the action, she found it “difficult to perceive
an injustice to Money Mart in having matters determined by the court in one proceeding as
opposed to several proceedings before an arbitrator.”85 On appeal, a five-member panel of
the British Columbia Court of Appeal disagreed with the first of these conclusions, saying
that “the law of British Columbia is not so different from that of Quebec as to justify a
departure from Dell in this province.”86 However, it agreed with Brown J.’s reasoning and
exercise of discretion on the grounds of issue estoppel.87 In Smith, Perell J. also concluded
that the “short answer” was that Dell Computer and Rogers Wireless had not changed the law in
Ontario,88 while the “longer answer” is that courts have discretion “to employ or not employ
the doctrine of issue estoppel in the interests of justice.”89 In exercising that discretion, any
alleged unfairness to defendants must be balanced against potential unfairness to plaintiffs.
80
J.E.C. Brierley and R.A. Macdonald, Quebec Civil Law: An Introduction to Quebec Private Law (Toronto:
Edmond Montgomery, 1993) at 102-4 cited in Dell Computer, supra note 46 at para. 14.
81
Frey v. Bell Mobility Inc., [2007] S.J. No. 476 (QL), 2007 SKQB 328, 312 Sask. R. 4 (granting certification on
reapplication, with different representative plaintiffs), [2008] S.J. No. 105 (QL), 2008 SKQB 79, 329 Sask.
R. 42 (amending certification order to remove class members with arbitration clauses in their agreements),
[2010] S.J. Nos. 157-165 (QL), 2010 SKCA 30-38, 83 C.P.C. (6th) 349 (granting partial leave to appeal, but
not of the orders removing class members with arbitration agreements) [Frey].
82
The Class Actions Act, S.S., c. C-12.01.
83
Frey, supra note 81 at 2008 SKQB 79, para. 11 (concluding that “[a] binding arbitration clause removes a
dispute from the jurisdiction of a superior court and of necessity precludes participation in a class action”).
84
McGill, supra note 34 at 378.
85
MacKinnon, supra note 43, [2008] B.C.J. No. 1026 at para. 42.
86
Ibid., [2009] B.C.J. No. 468 at para. 72.
87
Ibid. at para. 81.
88
Smith, supra note 43, [2008] O.J. No. 2248 at para. 174.
89
Ibid. at paras. 175-177.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
15
Taking a number of factors into account,90 Perell J., like Brown J., found no unfairness in
allowing the class action to continue.91 On appeal, Sharpe J.A., writing for a five-member
panel of the Ontario Court of Appeal, concluded that “the loss of the appellants’ right to
arbitrate pales into insignificance when measured against the impact that a contrary ruling
would have on the respondents.”92 Justice Sharpe also considered:
. . . the fact that the appellants appear to lack a genuine interest in arbitration. As the
certification judge found, they never seek arbitration when enforcing their own rights and
routinely bring court actions against borrowers to enforce the loan agreements. It is difficult to
avoid the inference that the appellants insist upon arbitration, not with any serious intention of
arbitrating, but simply as a way to defeat the respondents’ class proceeding.93
Accordingly, the Court held that Perell J. had not erred in exercising his discretion in
applying issue estoppel, and the class action could continue. The question of whether Dell
Computer and Rogers Wireless applied in Ontario was discussed, but not definitively answered.94
Of course, on a go-forward basis, that question is now moot for disputes that fall under the
Consumer Protection Act, 2002, as well as those covered by certain other Ontario statutes. But
as I will argue in the final section of this paper, these post-Dell Computer decisions have
ramifications for the longer-term effects on Canadian class action practice.95
90
Ibid. at para. 181.
91
Perell J.’s reasons comprise 364 paragraphs and cover many issues, including whether ss. 7 and 8 of the
Consumer Protection Act, 2002 (see notes 37 to 42, supra and accompanying text) had retroactive effect. I have
hardly done justice to them here, but space constraints dictate sending the reader to the decision itself for
more information.
92
Smith, supra note 43, [2008] O.J. No. 4327 at para. 49.
93
Ibid. at para. 52.
94
As was the question of the retroactivity of ss. 7 and 8 of the Consumer Protection Act, 2002.
95
As I was nearing the final stages of writing this paper, the Supreme Court of Canada released Seidel v.
TELUS Communications Inc., [2011] S.C.J. No. 15 (QL), 2011 SCC 15 [Seidel]. In a 5:4 decision, the Court
partially lifted a stay that the B.C. Court of Appeal had imposed on Ms. Seidel’s claim, based on a predispute arbitration clause in her mobile phone contract. Like the Rogers clause, the arbitration clause had a
customer purporting to waive rights to participate in a class action and to agree to opt out of any class
action commenced against TELUS. Binnie J., writing for the majority, decided that this waiver fell under
the umbrella of s. 3 of the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 [BPCPA], which said
that “any waiver or release by a person of the person’s rights, benefits or protections under this Act is void
except to the extent that the waiver or release is expressly permitted by this Act.” Since Seidel had brought
some claims under BPCPA s. 172 (e.g., for an injunction against certain practices and for restitution), the
stay was lifted in relation to those claims. However, Binnie J. did not depart from the Dell Computer principle
that, absent legislation, any challenge to arbitral jurisdiction should first be determined by the arbitrator, unless
the challenge involves a pure question of law, or one of mixed fact and law that requires only superficial
review of the record: see particularly paras. 29, 42. What he decided was that the question about BPCPA
s. 172 was a question of law to be determined on undisputed facts, and therefore properly entertainable by
the courts. This meant that Seidel’s other claims (based on common-law or other statutory causes of action)
would have to be referred to arbitration. Binnie J. acknowledged that this would lead to bifurcated
proceedings, but that this was “consistent with the legislative choice made by British Columbia in drawing
the boundaries of s. 172 as narrowly as it did” (para. 50). Lebel and Deschamps J.J., writing for the
minority, would have dismissed the appeal altogether and upheld the stay of proceedings.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
16
Legislatively Eliminating or Reducing Liability (Proactive or Preemptive Approach)
The next behaviour I will consider is the pursuit of legislation to forestall, eliminate
or cap liability. When sought to preclude or frustrate the possibility of a lawsuit, I will call
such behaviour proactive or preemptive; when the goal is to reverse a decision in a lawsuit, I will
call it reactive or retaliatory. I am deliberately avoiding the words prospective, retrospective or
retroactive, which describe the intended legal effect of enactments—the actual effect often being
a contested question of statutory interpretation.96 That is because here, I am focusing more
on behaviour than effect, though the two are necessarily intertwined. This section addresses
proactive or preemptive behaviour; the following section, reactive or retaliatory behaviour.
An example of preemptive behaviour in large-scale claims arose in the case of
disabled war veterans, for whom the Department of Veterans Affairs (DVA) administered
pensions when the veterans were incapable of managing their own money. Instead of
investing the money in interest-bearing accounts, the DVA simply cashed the veterans’
cheques and held the money in some 10,000 notional accounts in the Consolidated Revenue
Fund. Despite warnings from its own officials and the Auditor General, the government did
nothing about the situation until 1990. By then, passage of time and the transfer of some
accounts to third party administrators had reduced the number of DVA-managed accounts
to about a thousand. At this time, the practice was changed so that the remaining veterans in
this group started receiving interest. One of them, Joseph Authorson, disabled by combatrelated mental illness during World War II, became able to manage his money again in 1991
and learned of the non-payment of interest. He sued the government, alleging breach of
fiduciary duty and seeking payment of the lost interest. The action was certified with
Authorson as class representative. In the Ontario courts, Authorson succeeded on all issues,
including the question of whether a fiduciary duty existed and whether it had been breached.
But he ultimately lost at the Supreme Court of Canada due to a legislative intervention that
had eliminated pre-1990 claims for interest.97
The intervention was s. 5.1(4) of the Department of Veterans Affairs Act,98 added in
1990 as part of an omnibus amending statute.99 With respect to pension monies, it provided
96
There is a presumption that statutes only operate prospectively or immediately; that is, from when they come
into force. The Romans phrased this as lex prospicit, non respicit—the law looks forward, not backward. Both
retrospectivity and retroactivity derogate from that presumption. A retrospective statute can: (i) impose new
results regarding past events; (ii) attach new future consequences to an event occurring before the statute’s
enactment; or (iii) create new rights or duties regarding past events. A retroactive statute can: (i) invalidate
what was previously valid or vice versa; (ii) affect transactions completed before the statute took force; or
(iii) decree that as at a past date the law is deemed to have been that which it was not. In any given statute,
it is possible to find all three types of temporal application—prospective, retrospective and retroactive—but
clear language is needed to overcome the presumption of prospectivity. For an in-depth treatment, see Ruth
Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham: LexisNexis, 2008), c. 24.
97
Authorson v. Canada (Attorney General), [2000] O.J. No. 3768 (QL), 53 O.R. (3d) 221 (S.C.J.) (granting
plaintiffs’ summary judgment motion and dismissing defendant’s dismissal motion), [2002] O.J. No. 962
(QL), 157 O.A.C. 278, 58 O.R. (3d) 417, 215 D.L.R. (4th) 496, 33 C.C.P.B. 1 (affirming summary
judgment), [2003] S.C.J. No. 40 (QL), 2003 SCC 39, [2003] 2 S.C.R. 40 (granting appeal) [Authorson].
98
Department of Veterans Affairs Act, R.S.C. 1985, c. V-1.
99
An Act to amend the statute law in relation to war veterans, S.C. 1990, c. 43, s. 2 [Bill C-87].
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
17
that “[n]o claim shall be made after this subsection comes into force for or on account of
interest on moneys held or administered by the Minister . . . prior to January 1, 1990.”100 The
amendment’s brevity belies its long gestation period. The evidence showed that from the
1970s, “group after group of bureaucrats looked at the ‘problem’ of non-payment of interest
and potential liability therefor” and that “the senior levels of the DVA must have felt there
was a problem, and . . . a potential of liability arising from it.”101 A 1988 internal document
had recommended a new system and listed five options to address “old liability”:
1.
Let courts settle each case if and when it arises.
2.
Keep quiet. Settle case out of court if and when it arises.
3.
Devise standard settlement formula, to be used in lieu of old liability, if client agrees.
4.
Devise standard settlement formula, to replace old liability, whether client chooses or not
(ex post facto).
5.
Eliminate old liability (ex post facto).102
For reasons that were never disclosed, but which might be guessed at, ex post facto
elimination of liability was the option chosen, resulting in s. 5.1(4).
On a motion for judgment, Authorson’s counsel challenged s. 5.1(4) as inoperative
under the Canadian Bill of Rights,103 which recognizes, among other things, “the right of the
individual to . . . enjoyment of property, and the right not to be deprived thereof except by
due process of law” as well as “the right to a fair hearing, in accordance with the principles
of fundamental justice for the determination of his rights and obligations.”104 The Bill applies
to federal laws, and if a federal statutory provision cannot be interpreted so as not to infringe
one of the rights in the Bill, the provision is rendered inoperative unless “expressly declared
by an Act of the Parliament of Canada that it shall operate notwithstanding the Canadian Bill
of Rights.”105 Both parties agreed that the foregone interest was “property” for the purposes
of the Bill, but disagreed on the applicability of the Bill. While there was plenty of argument
about what constituted “due process,” Brockenshire J. said it didn’t mean “no process.”106 In
100
Bill C-87 was assented to on December 17, 1990, with s. 64(2) deeming s. 5.1(4) to have come into force on
October 12, 1990. Thus “not only [was] the statutory bar made retroactive by 11½ months, the passage of
it [was] made retroactive more than a month from the date of the assent to the statute.” Authorson, supra
note 97, [2000] O.J. No. 3768 at para. 44. Why October 12, 1990? That was when Bill C-87 was introduced
for first reading. See House of Commons Debates, 34th Parliament, 2nd Session, vol. 10 (October 12, 1990)
at 14110. Thus retroactive passage precluded anyone from bringing an action between the date the
government’s intention became known and the date of assent (that being the default date that statutes come
into force). On this rationale for retroactivity, see Beetz J.’s comment in Venne v. Quebec (Commission de la
protection du territoire agricole), [1989] S.C.J. No. 32, [1989] 1 S.C.R. 880, 4 R.P.R. (2d) 1 at para. 99.
101
Authorson, ibid. at para. 53.
102
Ibid. at para. 61.
103
Canadian Bill of Rights, S.C. 1960, c. 44, reproduced in R.S.C. 1985, App. III.
104
Ibid., ss. 1(a), 2(e).
105
Ibid., s. 2.
106
Authorson, supra note 97, per Brockenshire J., [2000] O.J. No. 3768 at para. 99.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
18
concluding that there had been neither due process nor a fair hearing, Brockenshire J. was
influenced by the Minister’s characterization of the legislation as comprising “housekeeping
measures”107 and to his comments when introducing the legislation for second reading:
For decades veterans’ affairs has followed ordinary banking practices with regard to
administered accounts. The assumption has been that the accounts were like checking
accounts. A service was received and the costs of this service was provided through waiving
interest on the account.
Well times have changed. Financial institutions pay interest on virtually every type of account
and Bill C-87 will permit veterans’ affairs to fall into line with modern practice. With the
passage of this legislation, veterans’ affairs will pay interest on administered accounts effective
January 1, 1990. The interest this year will amount to approximately $3.5 million. That
Mr. Speaker, is the type of change I had in mind when I said we want veterans and their
dependants to receive 1990’s service and treatment.108
Brockenshire J. thought that what was more important about this statement was
what was not said: in particular, no mention was made of the fact that authority had always
existed to pay interest but had not previously been used, leading him to conclude that the
only purpose of s. 5.1(4) was to bar claims for interest before 1990.109 The Ontario Court of
Appeal unanimously agreed and upheld the conclusion that s. 5.1(4) was inoperative,110 as
well as Brockenshire J.’s other holdings. By the time Authorson reached the Supreme Court,
s. 5.1(4) had crystallized as the issue, with the Crown finally conceding that it had breached its
fiduciary duty, but saying that the amendment nevertheless saved it from “old liability.” In a
bit of a nose-holding exercise, a seven-member panel111 of the Court agreed, concluding that
“s. 5.1(4) takes a property claim from a vulnerable group, in disregard of the Crown’s
fiduciary duty to disabled veterans [but] that taking is within the power of Parliament.”112 In
particular, “the Bill of Rights does not impose . . . the duty to provide a hearing before the
enactment of legislation [and operates] only in the application of law to individual
circumstances in a proceeding before a court, tribunal or similar body.”113
Legislatively Eliminating or Reducing Liability (Reactive or Retaliatory Approach)
In contrast to preemptive behaviour, which aims to bar claims before they crystallize,
retaliatory behaviour aims at shutting claims down after they have already been commenced,
and in some cases, reversing liability that has already been adjudged to arise from such
claims. One of the most notable Canadian examples of legislative retaliatory behaviour arose
in the 1940s, well before modern class actions. But the KVP case—“KVP” stands for
107
Ibid. at para. 65.
108
Ibid. at para. 64 (citing House of Commons Debates, 34th Parliament, 2nd Session, vol. 11 (October 12, 1990) at
15340.
109
Ibid. at paras. 64-66.
110
Authorson, supra note 97, [2002] O.J. No. 962 (QL), paras. 96-124.
111
McLachlin C.J. and Gonthier, Major, Bastarache, Binnie, Arbour and LeBel JJ.
112
Authorson, supra note 97, [2003] S.C.J. No. 40, para. 15.
113
Ibid. at para. 61.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
19
Kalamazoo Vegetable Parchment Company—was certainly a large-scale claim.114 From 1946,
KVP made kraft paper in the Ontario town of Espanola, 35 miles upstream from the mouth
of the Spanish River, which empties into Lake Huron’s northern channel. In doing so, KVP
discharged tons of noxious effluent into the river, permeating the air with a stench of rotting
cabbage and killing fish and wild rice that had been habitat for ducks. Downstream riparian
owners sued in five actions heard together by McRuer C.J.H.C. They obtained damages and
an injunction, which was stayed for six months to give KVP time to implement abatement
measures, all of which was upheld by the Supreme Court of Canada in the fall of 1949.115
Although Chief Justice McRuer had rejected KVP’s argument that the jobs it provided
justified the pollution, KVP mobilized a major lobbying effort to dissolve the injunction on
precisely those grounds. Premier Leslie Frost listened, and five days before the injunction
was to take effect, his government passed the requisite legislation with little opposition.116 Its
first section read:
Whether or not its operation is now stayed, every injunction heretofore granted against the
KVP Company, herein called “the Company”, restraining the Company from polluting the
waters of the Spanish River, is dissolved.117
Wisely, KVP had not sought to overrule the damages awards against it or to bar
future damage claims; it had also agreed to an optional arbitration scheme and to subsidize
the Research Council of Ontario for costs of developing methods that might abate the
pollution, if implemented. All these features created sufficient political capital for dissolving
the injunction and made their way into the statute.118 In essence, the legislative intervention
gave KVP a limited licence to pollute, while allowing riparian owners (some of whom had
tourist businesses that had been ruined) to “collect the small damage awards the Courts had
given them and dutifully apply them to pay part of their legal bills.”119 The pollution
continued until the International Joint Commission declared the Lower Spanish River to be
an Area of Concern in the mid-1980s, at which point cleanup began in earnest.120 Elizabeth
114
The KVP story is ably told by Elizabeth Brubaker, Property Rights in the Defence of Nature (London and
Toronto: Earthscan, 1995), c. 4, “In the Name of the Public Good.” Available through Environment Probe
online: <http://www.e-b-i.net/enviroprobe/pridon/>. This section relies on part on Brubaker’s account.
115
McKie v. K.V.P. Co. Ltd. (sub nom K.V.P. Co. Ltd. v. McKie, [1948] O.J. No. 471 (QL), [1948] O.R. 398, [1948]
3 D.L.R. 201 (H.C.J.) (ordering injunction, stay and reference for damages), [1949] 1 D.L.R. 39; [1948]
O.W.N. 812 (C.A.) (affirming with variation), [1949] S.C.J. No. 37 (QL), [1949] S.C.R. 698, [1949] 4 D.L.R.
497 (affirming and upholding injunction with six-month stay).
116
The KVP Company Limited Act, 1950, S.O. 1950, c. 33.
117
Ibid., s. 1.
118
Ibid., ss.1(2), 2 (preserving damages claims); s. 3 (arbitration scheme); s. 4 (research costs to be “deemed a
debt due by the Company to the Research Council of Ontario”).
119
Friends of the Spanish River, reproducing three articles by Peter Best published in the Mid-North Monitor,
online: <http://www.friendsofthespanishriver.ca/KVP%20Trial%20History/kvptrialhistory.htm>.
120
See Brubaker, supra note 114 and 1987 Report on Great Lakes Water Quality, Appendix A: Progress in Developing
Remedial Action Plans for Areas of Concern in the Great Lakes Basin (Toledo, Ohio: International Joint
Commission) online: <www.ijc.org/php/publications/pdf/ID642.pdf>.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
20
Brubaker, commenting on the KVP saga, adds a postscript: Frost went on to enjoy 11 more
years as Ontario’s premier, and on retiring, was appointed to KVP’s board of directors.121
In modern class action experience, a case more remarkable than the KVP saga in
terms of legislative intervention is Barbour v. University of British Columbia.122 Since the start of
the 1990 academic year, UBC had collected over $4 million in fines and related towing,
storage and administrative charges for breaches of UBC’s Parking Regulations. However,
these fines and charges had apparently been imposed without legislative authority, and
neither the Parking Regulations nor any other UBC policy provided an opportunity for
alleged violators to be heard before being deemed guilty or being required to pay fines or
fees. In March 2004, chartered accountant Daniel Barbour parked his car at UBC to visit a
campus dental clinic. Although the car was legally parked, enforcement officials ordered it
towed in an attempt to recover outstanding fines for previous parking violations. Barbour
brought a class action in January 2005, seeking restitution of unlawfully collected fines,
estimated to average about $40 per class member. Barbour did not challenge UBC’s right to
regulate parking on campus or to charge for it, only the associated fines and penalties. The
action was certified as a class proceeding in late 2006, and after some preliminary skirmishing
over the common issues in 2007, went to trial in 2008.123
In its statement of defence and during the certification process, UBC had contended
that its fines were intra vires—that is, within the powers of UBC’s board of governors in the
University Act, the governing statute.124 At the start of the trial, though, UBC abandoned that
position, and conceded that imposing fines was ultra vires the board’s public-law powers. This
concession was hardly surprising, given the similarity of the facts to a Newfoundland case
decided some 20 years earlier.125 Instead, UBC argued an alternative submission—that it had
private-law justifications for enforcing the Parking Regulations and for collecting and
keeping the fines. It also claimed a set-off for unpaid parking services.126
In March 2009, Goepel J. rendered judgment in Barbour’s favour. Regarding UBC’s
submissions, Goepel J. agreed that, as a private landowner, UBC could invoke the doctrine
121
Brubaker, ibid.
122
Barbour v. University of British Columbia, [2006] B.C.J. No. 3278 (QL), 2006 BCSC 1897 (granting certification),
[2007] B.C.J. No. 1216 (QL), 2007 BCSC 800 (dismissing decertification application and allowing reframing
of common issues), [2009] B.C.J. No. 617 (QL), 2009 BCSC 425, 310 D.L.R. (4th) 130, [2009] 10 W.W.R.
323; 94 B.C.L.R. (4th) 139 (allowing action in part), [2009] B.C.J. No. 1572 (QL), 2009 BCCA 334 (granting
stay pending appeal and ordering parking fines collected during the stay to be held in trust), [2010] B.C.J.
No. 219 (QL), 2010 BCCA 63, 83 C.P.C. (6th) 1, 2 B.C.L.R. (5th) 240 (reversing, based on post-trial
legislation), [2010] S.C.C.A. No. 135 (QL) (refusing leave to appeal) [Barbour].
123
This paragraph’s facts are from the statement of claim (online: <http://www.cfmlawyers.ca/class_actions/
UBCWritofSummonsaandStatementofClaim.htm>); Barbour, ibid., [2006] B.C.J. No. 3278; and Brett
Wittmeier, “UBC to appeal parking fines decision” The Globe and Mail (April 1, 2009) online:
<www.theglobeandmail.com/news/national/ubc-to-appeal-parking-fines-decision/article764379/print>.
124
University Act, R.S.B.C. 1996, c. 468.
125
Keough v. Memorial University of Newfoundland, [1980] N.J. No. 185 (QL); 26 Nfld. & P.E.I.R. 386 (Nfld.
S.C.T.D.)
126
The facts in this paragraph are from Barbour, supra note 122, [2009] B.C.J. No. 617 at paras. 8, 25-26.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
21
of distress damage feasant to impound and hold vehicles parked in contravention of the Parking
Regulations; he also acknowledged that a liberal interpretation could be given to “damage,”
including impeding or obstructing traffic, parking in a prohibited area, or even parking in an
allowed area but without having paid a parking fee. This meant that UBC could charge
reasonable fees for towing and storage and hold vehicles until payment of such fees. But it
did not mean that UBC could also levy a fine, nor could it tow a lawfully parked vehicle
because of a past offence or refuse to release an impounded vehicle until past fines had been
paid. In the result, Goepel J. held the Parking Regulation fines ultra vires and ordered
restitution, subject to appropriate deductions for towing and storage fees.127
After the trial judgment, a stay was granted pending an expedited appeal. Meanwhile,
the BC Legislature moved with sudden expedition, amending the section of the University Act
dealing with a board’s powers, repealing and replacing another section, and enacting
transitional provisions.128 The transitional provisions defined the term pre-amendment provision
to mean any of the previously suspect provisions—e.g., the power “to impose and collect
penalties, including fines, in relation to a contravention of a rule or other instrument made in
the exercise of a power”129—and decreed as follows:
Despite any pre-amendment provision and despite any decision of a court to the contrary made before or
after the coming into force of this section, if a rule, bylaw or other instrument made under a preamendment provision is authorized under [the relevant sections of the amended University Act]:
(a)
the rule, bylaw or other instrument is conclusively deemed to be valid for all purposes,
(b)
all actions taken under the rule, bylaw or other instrument are conclusively deemed to be
valid including, without limitation,
(i)
the collection of a fee,
(ii)
the removal, immobilization or impoundment of a vehicle in contravention of the
rule, including for failure to pay a fee levied under the rule, bylaw or other
instrument, and
(iii) the imposition of a penalty, including a fine, for failure to pay a fee levied under the
rule, bylaw or other instrument, and
(c)
no refund, restitution or other compensation may be paid in respect of fees or penalties, including fines,
collected under the rule, bylaw or other instrument.130
In other words, the amendments retroactively gave UBC lawful authority to collect
the fines and prohibited it from making the restitution ordered by Goepel J. Lest any doubt
be left as to the intended effect, the legislation also stipulated that it was “retroactive to the
extent necessary to give full force and effect to its provisions and must not be construed as lacking
retroactive effect in relation to any matter by reason that it makes no specific reference to that matter.”131
127
Ibid. at paras. 53-56, 80.
128
Miscellaneous Statutes Amendment Act, 2009, S.B.C. 2009, c. 22.
129
Ibid., s. 12 (repealing and substituting s. 27(2)(t) of the University Act with new provisions).
130
Ibid., s. 16(2) (emphasis added).
131
Ibid., s. 16(3) (emphasis added).
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
22
The legislation came into force on October 29, 2009,132 a month before the appeal
hearing. At that hearing, class counsel put on a brave face, arguing that UBC ought not to be
able to withdraw its concession made at the outset of trial. Counsel also argued that the
amendments: (i) could not resurrect the Parking Regulations, which, having been declared
ultra vires, no longer existed when the amendments came into force; (ii) should be interpreted
so as not to violate the principle of judicial independence; and (iii) could not breach rules of
natural justice.133 Counsel called in aid a number of authorities, including the International
Bar Association’s Minimum Standards of Judicial Independence, which provides that “the
Legislature shall not pass legislation which retroactively reverses specific court decisions.”134
However, the Court of Appeal said that, in Canada, examples of precisely this sort of thing
“abound,”135 and that “[w]hile a Legislature may not interfere with the Court’s adjudicative
role, it may amend the law which the court is required to apply in its adjudication.”136 The
Court allowed the appeal and set aside Goepel J.’s order; an application for leave to appeal to
the Supreme Court of Canada was dismissed with costs.137 The postscript: in June 2010,
pursuant to the new legislation, UBC’s board of governors approved new parking rules.138
Legalizing or Regulating Previously Illegal or Unlawful Conduct
In Barbour, the amending legislation had both retroactive and prospective effect: it
operated backwards to legalize behaviour that a court had declared illegal, but also operated
forwards to give universities powers to do what they had previously lacked authority to do.
In this section, I will focus on behaviour specifically targeted to the second effect. Notwithstanding the B.C. Court of Appeal’s assurance that instances of retroactive legislation
“abound,” prospective legislation is, of course, the more common form. In particular, I will
refer to federal and provincial legislative changes prompted by the litigation against payday
lenders. Both the litigation and the legislation raise compelling questions as to whether any
meaningful behaviour modification has been achieved in the area of payday lending.
A payday loan is a short-term loan for a small sum (on average, about $300), secured
only by a post-dated cheque, pre-authorized debit or similar future payment, to be repaid
with interest and fees on the borrower’s next payday.139 Historically, the effective annual
132
Ibid., s. 99 (row 1 of table, date of Royal Assent specified as the coming-into-force date).
133
Barbour, supra note 122, [2010] B.C.J. No. 219 at para. 10.
134
Ibid. at para. 28, citing IBA Minimum Standards for Judicial Independence (International Bar Association, 1982)
online: <http://www.ibanet.org/Document/Default.aspx?DocumentUid=BB019013-52B1-427C-AD25A6409B49FE29> at para. 19.
135
Ibid. at para. 30 (noting its use in tax cases in particular).
136
Ibid. at para. 32.
137
Barbour, supra note 122, [2010] S.C.C.A. No. 135.
138
UBC Traffic and Parking Rules, online: <http://www.universitycounsel.ubc.ca/guidelines/
UBC_Traffic_and_Parking_Rules.pdf>.
139
Capping Borrowing Costs: A Balanced Approach to Payday Loans in Ontario—Report of the Maximum Total Cost of
Borrowing Advisory Board for the Ontario Payday Lending Industry (Ontario Ministry of Consumer Services,
February 2009) [Ontario Advisory Board Report] online: <http://www.sse.gov.on.ca/mcs/Documents/
264305.pdf> at 7. For a similar definition, see Andrew Kitching and Sheena Starky, Payday Loan Companies in
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
23
interest rate for these loans was capped at 60% by s. 347 of the Criminal Code.140 To avoid
s. 347, payday lenders often set interest rates at 59%,141 but charged fees (e.g., for cheque
cashing, non-sufficient funds on the post-dated cheque, or extending the loan when not
repaid on time) that took effective annual percentage rates (APRs) well beyond that, even
into the three- or four-digit range and higher.142 For instance, in one case, for a $100 loan,
the lender purported to charge a $21 late fee, a $200 returned items fee, and a $400
administrative fee, resulting in a 782% annual interest rate,143 assuming the aggregate of these
charges count as “interest,” an assumption that payday lenders would contest. The lenders,
who operate both in storefronts and online and go by names like Money Mart, Cash Store
and Cash Now, are considered ‘non-traditional,’ ‘alternative’ or ‘fringe’ lenders—in contrast
with ‘mainstream’ lenders such as banks, trust companies and credit unions.
On one view, payday lending is predatory and “feeds off poverty and financial
exclusion.”144 On another view, it provides a service to consumers who would not otherwise
be able to get credit.145 There may be elements of truth to both views. Payday lending has
been likened to taking a taxi between cities: convenient in an emergency, but prohibitively
expensive if done over the long term.146 The long-term effects are discussed in one panCanadian study on insolvency filings, in which the researchers found that some borrowers
owed as much as $22,000 to payday lenders (often as a result of “rollovers,” the extending of
Canada: Determining the Public Interest (Ottawa: Library of Parliament, January 2006) online: <http://
www2.parl.gc.ca/content/lop/researchpublications/prb0581-e.html> [Payday Loan Companies in Canada].
140
The Criminal Code, R.S.C. 1985, c. C-46, creates two offences: s. 347(1)(a) makes it an indictable offence to
enter an agreement to receive a criminal rate of interest; s. 347(1)(b) makes it a summary offence to receive
such interest. Section 347(2) defines a criminal rate as one exceeding 60% per annum and interest as the
“aggregate of all charges and expenses . . . paid or payable for the advancing of credit under an agreement
or arrangement . . . but does not include any repayment of credit advanced or any insurance charge, official
fee, overdraft charge, required deposit balance . . .”
141
See, e.g., Orangehen.com v. Collins, [2009] O.J. No. 5160 (Sm. Cl. Ct.), RC Recyling Inc. (c.o.b. Cash 4001) v.
Sawicki, [2010] O.J. No. 71 (Sm. Cl. Ct.), Loans Till Payday v. Brereton, [2010] O.J. No. 5176, 2010 ONSC
6610, Loans Till Payday v. Brown, [2010] O.J. No. 5184, 2010 ONSC 6639. See also Ontario Advisory Board
Report, supra note 139 at 9 (noting Money Mart’s practice of charging 59% plus $9.99 per transaction, plus a
cheque-cashing fee of 7.99% of the principal plus interest).
142
See, e.g., Stephanie Ben-Ishai, “Regulating Payday Lenders in Canada: Drawing on American Lessons”
(2008) 23 B.F.L.R. 323 at 326 and CanPayday.ca, “That will be 1132% Interest Please” and accompanying
payday loan calculator, online: <http://www.canpayday.ca/payday-loan-canada.aspx>.
143
Orangehen.com v. Collins, supra note 141. See also Payday Loan Companies in Canada, supra note 139, Tables 1, 2.
144
Henry Palmer, Profiting from Poverty: Why Debt is Big Business in Britain (London: New Economics Foundation,
2002) online: <http://www.neweconomics.org/sites/neweconomics.org/files/
Profiting_from_Poverty.pdf>. at 1, cited in Ben-Ishai, supra note 142 at 327.
145
Both arguments are canvassed by Ben-Ishai, supra, note 142 at 325-330.
146
On the taxi metaphor, see Ruth E. Berry and Karen A. Duncan, “The Importance of Payday Loans in
Canadian Consumer Insolvency” (Ottawa: Office of the Superintendent of Bankruptcy, October 2007)
online: <http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br01667.html> at 16.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
24
a loan when not repaid on time) and some held up to 12 payday loans, making the situation
“severe for many consumers who choose to use this financial alternative.”147
This situation went unchecked for many years, though not without alarms being
sounded and not without some abortive attempts at regulation having been taken.148 The
advent of class proceedings legislation, though, brought the matter to the fore: where it
could be shown that s. 347 had been violated, there was a classic access-to-justice scenario in
the sense of allowing plaintiffs’ lawyers to aggregate claims that were too small to litigate
individually. Class actions could also promote judicial economy; perhaps they could even
modify lender behaviour! But the class action momentum also prompted threats of a
bankruptcy backlash, as evidenced by this comment in a 2006 parliamentary research report:
Should the payday loans industry not be regulated, the future of payday lenders may ultimately be
determined not by governments but by a number of class action suits currently proceeding
through Canadian courts. These lawsuits claim that consumers were charged in excess of the
Criminal Code rate, and seek to recover hundreds of millions of dollars’ worth of interest. Should
these civil lawsuits succeed, they could potentially bankrupt the payday loans industry.149
The report was apparently influenced by submissions of the Canadian Payday Loan
Association (CPLA), a payday lender group.150 In 2005, the CPLA had updated its Code of Best
Business Practices to oblige its members to follow guidelines regarding such things as rollovers,
multiple loans and complaints; however, the only recourse for non-compliance was loss of
CPLA membership, leading the CPLA itself to call for government regulation.151 The payday
loan story, then, followed a familiar path for beleaguered businesses: first, deflect criticism
with alternative accounts of the criticized activity (e.g., ‘service provider’ versus ‘predator’);
second, if that fails, self-regulate; third, when that doesn’t work and government regulation
seems inevitable, embrace regulation and turn it to one’s advantage.152
147
Ibid. For a recent study in the U.S. based on one lender’s data, see Paige Marta Skiba and Jeremy Tobacman,
“Do Payday Loans Cause Bankruptcy?” Vanderbilt Law and Economics Research Paper No. 11-13
(February 23, 2011) online: <http://ssrn.com/abstract=1266215>. Using a discontinuity in the lender’s
data between barely approved and barely rejected loan applications, and matching that data with publicly
available bankruptcy filings, the researchers concluded that Chapter 13 bankruptcy petitions doubled within
two years of a successful first-time payday loan application, with the effects stronger among minorities,
women and homeowners. Skiba and Tobacman also found that getting approved for one payday loan
resulted in extended further use of such loans—on average, 5.1 more loans than rejected first-time
applicants over the next 12 months.
148
For a summary, see Ben-Ishai, supra, note 142.
149
Payday Loan Companies in Canada, supra note 139 at note 19.
150
The submissions appear to have been made in the context of consultations by the Consumer Measures
Committee (CMC) Working Group on the Alternative Consumer Credit Market, a consortium of federal
and provincial departments responsible for consumer affairs: ibid., note 15 and accompanying text.
151
Ibid., notes 10-13 and accompanying text.
152
See, e.g., M. David Ermann and Richard J. Lundman, Corporate and Governmental Deviance: Problems of
Organizational Behavior in Contemporary Society, 6th ed. (New York: Oxford University Press, 2002) at 27-36 (on
such reactions generally) and David R. Simon, Elite Deviance, 9th ed. (Boston: Pearson, 2008) at 32-33 (on
embracing regulation particularly, e.g., when it eliminates marginal firms or helps block entry of new ones).
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
25
And so it was that payday lenders were “rescued”153 from criminalization and bankruptcy by a now-familiar process of cooperative federalism. The first step in that process was
the addition of s. 347.1 to the Criminal Code. Subsection 347.1(1) preserved the definition of
interest in s. 347154 and also defined “payday loan,”155 while s. 347.1(2) provided that:
Section 347 and section 2 of the Interest Act do not apply to a person, other than a financial
institution within the meaning of paragraphs (a) to (d) of the definition ‘financial institution’ in
section 2 of the Bank Act, in respect of a payday loan agreement entered into by the person to
receive interest, or in respect of interest received by that person under the agreement, if
(a) the amount of money advanced under the agreement is $1,500 or less and the term of the
agreement is 62 days or less;
(b) the person is licensed or otherwise specifically authorized under the laws of a province to
enter into the agreement; and
(c) the province is designated under subsection (3).156
Subsections 347.1(3) and (4) provided for the governor-in-council to work with
lieutenant governors-in-council to designate provinces that have legislation to protect payday
loan recipients, and to revoke such designations where the legislation is no longer in force.
Although s. 347.1 was not made retroactive, it immediately created a protected niche market
for loans up to $1500 and less than two months duration. All that remained was to secure
the necessary provincial legislation and to settle the class actions for past claims.
The provincial legislation contemplated by s. 347.1 was introduced and gradually
came into force over the next three years, with two notable exceptions which I will come to
below. The legislative initiatives, as of 2008, are summarized by Stephanie Ben-Ishai in a
comprehensive article on payday lending regulation.157 Of greater interest here, though, is the
lobbying behind that effort. One of the most contentious points was the information that
lenders would have to disclose on the cost of borrowing. PIAC, the Public Interest
Advocacy Centre, was a vociferous proponent of requiring disclosure of the effective annual
percentage rate (APR),158 as were a number of other organizations. Lenders, on the other
hand, favoured a total-cost-of-borrowing approach, on the basis that this was easier for
consumers to understand and was already the approach taken for credit agreements in
certain consumer protection laws.159 In the end, this was the approach that prevailed in
Ontario. The board charged with advising the provincial government put it this way:
153
John D. McCamus, “Liquidated Damages and the Criminal Rate of Interest: More Unintended
Consequences of Section 347” (2010) 25 B.F.L.R. 229 at 231.
154
For a synopsized version of the definition, see note 140, supra.
155
Viz., “an advancement of money in exchange for a post-dated cheque, a pre-authorized debit or a future
payment of a similar nature but not for any guarantee, suretyship, overdraft protection or security on
property and not through a margin loan, pawnbroking, a line of credit or a credit card.”
156
An Act to amend the Criminal Code (criminal interest rate), S.C. 2007, c. 9, s. 2.
157
Ben-Ishai, supra, note 142.
158
See the many documents available on PIAC’s website, online: <http://www.piac.ca/financial>.
159
See, e.g., Consumer Protection Act, 2002, supra note 37, O. Reg. 17/05, s. 56.
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The media often report that the industry charges astronomical interest rates. For example, a $100
loan for a fee of $20 would represent an annual percentage rate of 20 per cent if the term is one
year. But the annual percentage rate balloons to 520 per cent, uncompounded, when the term is
two weeks, as is normally the case with payday loans. Expressing the cost of a small, short-term
loan on an annualized basis makes no more sense than expressing the cost of a night in a hotel
on a yearly basis. At $200 per night, a hotel room would cost more than $73,000 for a full year –
a sum no one would ever pay because no one would take a room at the nightly rate for a full year
– which is the point.160
Relying on a report by Ernst & Young and on StatsCan data, the board concluded
that the average cost of a payday loan for a lender was $21.50161 and that the industry was
“not making exorbitant profits.”162 Hence the board recommended an upper limit on the
total cost of borrowing at $21 per $100 borrowed.163 PIAC responded by calling the report
“a gift to payday lenders at the expense of Ontario’s most vulnerable consumers” and noted
that “[a] $300 loan [i.e., the average size loan] at this rate would cost $63 and if it were
payable in 10 days, that would be an annual percentage rate of over 766%.”164 Ontario
accepted the recommendation, though, and implemented the $21 cap in regulations under its
new payday loan legislation.165 Alberta adopted a $23 cap but also required APR disclosure.166
160
Ontario Advisory Board Report, supra note 139 at 14.
161
Ibid. at 15-16.
162
Ibid. at 17. Compare Smith, supra note 43, [2010] O.J. No. 873 at para. 64 (finding Money Mart, the market
leader, to be “highly profitable,” with a 2007 net income in Ontario alone of $64.34 million).
163
Ibid. at 19.
164
PIAC, “Proposed Ontario Payday Loan Rate Astronomically High” (February 6, 2009) online:
<http://www.piac.ca/financial/proposed_ontario_payday_loan_rate_astronomically_high>.
165
See Payday Loans Act, 2008, S.O. 2008, c. 9 s. 1 (defining “cost of borrowing”), s. 32(2) (requiring that
payday loan agreement not exceed the cost of borrowing) and O. Reg. 98/09, s. 15(2) (capping cost of
borrowing at $21 per $100 advanced).
166
Payday Loans Regulation, Alta. Reg. 157/2009, ss. 17 and 20(2). This regulation was enacted pursuant to
Alberta’s Fair Trading Act, R.S.A. 2000, c. F-2. Both provinces require advertising the information for a twoweek, $300 loan, such that on one national payday lender’s website, the information reads as follows:
Repayment Disclosures
Alberta:
Maximum charges permitted in Alberta for a payday loan: $23 per $100 lent
National Money Mart Company charges $23 per $100 lent
For a $300 loan for 14 days:
Total Cost of Borrowing = $69
Annual Percentage Rate = 599.64%
Ontario:
The Maximum Allowable Cost per $100 Borrowed: $21
Our Cost per $100 Borrowed: $21
For a $300 loan for 14 days:
Amount Advanced: $300
Total Cost of Borrowing: $63
Total to Repay: $363
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Most other provinces followed suit. However, Quebec will grant licences to payday lenders
only if they charge less than a 35% APR,167 meaning that none now legally operate in the
province. And Newfoundland and Labrador decided, “[a]fter significant research and careful
consideration,” not to regulate payday lenders, but to rely on the 60% cap in the Criminal
Code.168 Said Kevin O’Brien, Minister of Government Services:
[W]e could not in good conscience implement regulations that potentially could result in annual
interest rates equating to nearly 550 per cent being charged to consumers in our province . . . .
We do not want individuals being gouged or putting themselves more in debt and having a hard
time catching up because of high interest rates for these types of short-term loans. We have
reviewed . . . the Criminal Code of Canada, as well as regulations of other provinces and territories
for payday lenders, and have decided that payday loan companies in this province will continue to
be subject to section 347 of the Criminal Code of Canada.169
The next step in the process was to settle the payday lending litigation, most of
which was accomplished last year. The basic settlement structure has been to provide:
(i) debt forgiveness for unpaid loans; (ii) transaction credits, or vouchers, for future business;
and (iii) fees to class counsel. I will focus on the Money Mart settlement, particularly the
decision of Ontario’s Perell J., in which the two types of class members are called the “Debt
Forgiveness Group” and the “Transaction Credit Group.”170 Justice Perell’s 142-paragraph
judgment is a tour-de-force review of settlement approval law and a candid account of the
difficult task that judges face in this area. He approved the settlement, but not without a
muted sense of outrage over certain aspects of the case, particularly relating to behaviour
modification, and not without making a variation in the settlement terms that significantly
improved benefits to class members at the expense of class counsel.
Justice Perell began by noting the extensive pre-settlement litigation, commenting
that “[i]t is to do injustice to the notion of understatement to say that [the case] has been
hard fought.”171 Indeed, it was not until the case had already gone halfway through trial
See National Money Mart Company, online: https://loans.moneymart.ca/repayment-disclosures.aspx. This
is a secure web page that cannot be accessed directly, but can be reached by through the Pricing tab on
Money Mart’s website, then clicking on the Disclosure hyperlink at the bottom of the page.
167
Ben-Ishai, supra, note 142, explains that this arises from court interpretations of Quebec’s Consumer Protection
Act, supra note 72, s. 8 (nullity of unconscionable contracts) and s. 325 (ability of the president of the Office
de la protection du consommateur to refuse a permit to a merchant who contracts to lend money).
168
Government of Newfoundland and Labrador, “Provincial Government Will Not Regulate Payday Loan
Companies” (June 16, 2010) online: <http://www.releases.gov.nl.ca/releases/2010/gs/0616n11.htm>.
169
Ibid. This press release was issued just three weeks after a settlement reached with Money Mart in
Newfoundland and Labrador, New Brunswick and Nova Scotia (apparently, a simultaneous settlement and
certification, which, though unreported, is summarized in the class action notice on Money Mart’s website:
http://www.moneymart.ca/paydayloans/Notice%20of%20Settlement.pdf).
170
Smith, supra note 43, [2010] O.J. No. 873.
171
Ibid. at para. 11. “Among other things, there were two motions to stay the action, a certification motion, a
decertification motion, and a motion for summary judgment. Many issues were litigated, and some were relitigated. There was one leave application to the Divisional Court, four appeals to the Court of Appeal, and
three leave applications to the Supreme Court of Canada. There were 39 orders, 12 endorsements, and 4
judgments. Eventually, the action was called to trial in April 2009, and there were 17 days of trial before
Justice Spies. That trial has been adjourned pending the outcome of the motion now before the court.”
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before Spies J. when intensive mediation sessions finally resulted in a settlement.172 The
coming into force of Ontario’s payday loans legislation173 at the time was purportedly crucial:
class counsel said that until then, they couldn’t recommend any settlement that would let
Money Mart continue marketing allegedly illegal contracts, while Money Mart’s counsel said
their client wouldn’t settle on any basis that barred it from carrying on business as usual.174
Justice Perell could not help but observe the irony in this. He noted that the allegedly
illegal fees had been the class action’s “rallying point,”175 and that counsel had put forth one
of the plaintiffs’ transactions as an example: a $100 cash advance, secured by a postdated
cheque for $119.18, comprising the principal ($100), a 59% finance charge for 9 days ($1.14),
a cheque-cashing fee ($5.05), and an item fee ($12.99). Assuming all of this to be “interest”
per s. 347 of the Criminal Code, it yielded a typically astronomical APR.176 Yet as Justice Perell
commented, this business model “is apparently now legal in the Province of Ontario and
indeed Money Mart can charge . . . an additional $2.”177 It was “interesting and informative,”
he thought, “that, unlike most settlement approval and certification motions, there was not a
peep about behaviour modification, and there was little about access to justice.”178 Indeed,
despite counsel asserting that the settlement was excellent, he found it “hard to paint [it] as a
success” and concluded that “there is no behaviour modification in this class action.”179
There were, though, factors favouring approval, not the least of which was that in
the event of a large judgment, Money Mart and its parent, Dollar Financial Group, could
have instituted insolvency proceedings in Canada and the U.S.; indeed, as I will note in the
next section, such legislatively assisted “reorganizations” are always a backdrop to highstakes litigation, and in this case, were not only possible, but likely, due to the terms on
which the defendants had secured financing.180 This factor, plus the risk associated with
litigation of this magnitude and the recommendation of a respected mediator who was
apprised of each side’s risks and the hard-fought negotiations,181 led Perell J. to approve the
settlement. However, he was concerned with the Transaction Credit Group—class members
who had repaid their loans and had no debt to “forgive.” Under the proposal, they would
have received prorated shares of $30 million worth of transaction credits, each worth $5, and
172
Ibid. at para. 58. The mediator was former Supreme Court of Canada Justice Frank Iacobucci.
173
Supra note 165.
174
Smith, supra note 43, [2010] O.J. No. 873 at para. 56.
175
Ibid. at para. 94.
176
Ibid. at paras. 37-38. According to the case, this yielded an APR of 123,060%, if all charges were classified as
“interest.” But the payday loan calculator, supra note 142, calculates the APR as (merely?) 778%.
177
Ibid. at para. 55.
178
Ibid. at para. 98.
179
Ibid. at para. 98-99.
180
Ibid. at paras. 60-63.
181
See note 172.
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a prorated share of whatever cash might be left after paying class counsel’s fee.182 One of the
two registered objectors to the settlement, Guy Laporte, commented on these credits:
[The defendants] still get away with a lot of money that they do not have to repay and with a
maximum credit of $5 per transaction how long is it going to take me to use up all my credit that
they will owe me!? This does not make sense. I do not want to use Money Mart services ever
again. I do not want credits! I want an apology, and I want a refund of some of the money that
they stole from us by overcharging us interest. That would be justice!183
Justice Perell agreed, concluding that the transaction credits were “a business
promotion for more payday loans,”184 though he doubted there would be much take-up.185
But a problem, not always appreciated commentators, is that judges have little or no power,
beyond their ability to exert moral suasion, to impose a change in the terms of a civil
settlement. Settlements between private parties are heavily negotiated and carefully crafted,
and the general rule is that courts will give a settlement a yea or a nay, but won’t rewrite the
parties’ bargain. Here, though, Perell J. saw a window for variation because of the way
counsel fees had been worked into the settlement. Unlike other terms, counsel fees are not
only reviewable, but must be reviewed in cases that require settlement approval, such as class
actions. The proposed class counsel fee, $27.5 million, was to be a first charge on settlement
proceeds, the balance to be distributed as cash credits to the Transaction Credit Group.186
But the likelihood of there being any cash to distribute after paying this fee was very low.187
Justice Perell therefore looked closely at the fee—as he was bound to do anyway—and
concluded there was room to shave it back. A $13 million shave, in fact. That brought the
approved counsel fee to $14.5 million, “all-inclusive,”188 which Perell J. still thought sufficed
for the risk taken, and still provided a healthy incentive over the “not bargain-basement
hourly rates” of the counsel involved.189 By this means, Perell J. was able to respond to
Mr. Laporte’s objection and direct some cash to the Debt Forgiveness Group.
I would be remiss if I did not mention a field study done while the payday lending
litigation was ongoing. In March 2008, Osgoode Hall law professor Stephanie Ben-Ishai sent
two research students incognito into the stores of payday lenders in Toronto. The timing
was such that cost-of-borrowing disclosure requirements were already in place under prior
consumer legislation,190 and the Ontario legislation specific to payday lenders was about to
182
Smith, supra note 43, [2010] O.J. No. 873 at para. 14.
183
Ibid. at para. 72 (excerpt of email from Guy Laporte).
184
Ibid. at para. 196.
185
Ibid. at para. 105.
186
Ibid. at para. 90.
187
Ibid. at para. 94.
188
There had been some significant costs orders for the plaintiffs on prior motions in the litigation, which had
already been paid and which Perell J. took into account.
189
Ibid. at para. 129. Counsel’s regular rates came to about $10 million. The “not bargain-basement rates”
ranged from $261 to $808 per hour: ibid. at para. 78. Costs awards on prior motions were about $1 million.
Therefore, the risk premium (approved fees minus costs and regular counsel hours) was about $3.5 million.
190
See note 159, supra and accompanying text.
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be introduced. The researchers posed as would-be borrowers wanting to get information
about loan costs, as well as such things as whether rollovers were permitted. They asked
their questions in a way that an actual borrower might ask—e.g., “How much does it cost to
borrow?” “What if I can’t pay the loan back?”—and recorded the results of their enquiries.191
The researchers concluded that the lenders generally complied with the statutory
disclosure obligations, though they differed greatly in how they explained them, in some
cases, exhibiting much adroitness, using terms like “optional” or “convenience” fees for
loans repaid on one’s payday, as opposed to the day before.192 In two cases, the researchers
were able to get loan applications; one of these included a wage assignment that appeared to
violate Ontario law. Two of the lenders expressly said on their websites that rollovers
weren’t permitted (one of the CPLA stipulations in its Code of Best Business Practices), but in the
storefront settings, the same lenders told the researchers they could get back-to-back loans
or that something could be worked out if they couldn’t repay in time. One of the students
concluded that, by the end of the study, she “found it very difficult to determine how much
the loan would ultimately cost me” and that her confusion would likely be compounded for
a person faced with “getting the money now” to pay for groceries or avoid eviction.193 Given
the importance of this topic, and given that payday-specific legislation has now been in
existence for some time, it might be fruitful for a similar study to be redone to see whether
payday lender behaviour has changed in any meaningful way since 2008.
Frustrating the Ability of the Class to Collect a Remedy or Counsel to Collect a Fee
In addition to enacting private legislation such as pre-dispute arbitration clauses or
seeking post-dispute legislative solutions to liability, defendants can use existing legislation to
frustrate plaintiffs’ ability to collect a remedy. Again, just as successful use of a private-law
measure like arbitration depends on an external mechanism like a statutory stay provision, so
do private-law arrangements interact with existing legislation in complex ways. Such is the
case with insolvency proceedings generally, and with the Money Mart case in particular.
The defendants, National Money Mart Company and Dollar Financial Group Inc.,
were related, with Dollar Financial effectively controlling Money Mart.194 The evidence was
that the enterprise had long-term debt of US$574 million and current liabilities of
US$105 million, and that this debt was secured by the enterprise’s assets under agreements
stipulating that if there was a final judgment over US$15 million against either of the
companies that remained unpaid after 30 days, creditors could seize assets, cut off credit, and
demand repayment.195 Thus, the practical result of a judgment in the expected range of
191
Ben-Ishai, supra note 142 at 344-350.
192
Ibid. at 348.
193
Ibid. at 350.
194
Dollar Financial Group Inc. is affiliated with publicly traded Dollar Financial Corp (DLLR: NASDAQ:GS).
It is the sole shareholder of DFG International, Inc., which is the sole shareholder of National Money Mart
Company: Smith, supra note 43, [2010] O.J. No. 873 at para. 7.
195
Ibid. at paras. 62-63.
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$150 million would have been to prompt proceedings under the CCAA196 in Canada and
bankruptcy proceedings in the U.S.—with any recovery occurring far into the future and for
a fraction of the judgment.197 Not only was this a powerful extra incentive to settle, but the
settlement was structured largely to avoid the kind of default events that could trigger
creditors’ rights. Hence the settlement’s use of transaction credits, which can be treated
under accounting rules as future incentives rather than current liabilities.198 The point here is
that a target’s ability to invoke insolvency legislation may tend to defeat both access to justice
and behaviour modification in a specific case, as well as giving class counsel cause for sober
second thought when deciding to take on cases in a more general sense.
If the prospect of a defendant’s insolvency is likely to dampen the ardour of
plaintiffs’ lawyers to take on a class action, the possibility of not earning a fee after a
successful outcome is likely to kill it entirely. This is not usually an issue, because class
proceedings legislation creates a statutory first charge for counsel fees on a settlement or
judgment. For example, Ontario’s CPA says in s. 32(3) that “[a]mounts owing under an
enforceable agreement are a first charge on any settlement funds or monetary award.” But in
Hislop v. Canada (Attorney General),199 the first successful class action under the Charter,200 this
same provision was defeated by a federal provision that was determined to be paramount.
The essential facts of the case were that under various provisions of the Canada
Pension Plan (“CPP”),201 the Hislop class had been denied survivors’ pensions because they
were the same sex as their deceased partners. The plaintiffs successfully challenged this
discrimination under s. 15(1) of the Charter, but in creating a remedy, the Supreme Court of
Canada decided not to interfere with a CPP section of general application that limits pension
benefit arrears to the 12 months preceding a survivor’s application. Thus eligible class
members became prospectively entitled to the full pension, but retroactively entitled to a
maximum of only 12 months’ benefits.
After succeeding at trial, the plaintiff’s counsel group (“PCG”), seven law firms
across the country who had taken on the case, had applied for approval of their retainer
agreement, on notice to the class. Justice Ellen Macdonald, the trial judge, approved the fee
with a 4.8 multiplier for all hours in connection with the action, other than time spent on
administrative issues, subject to undertakings that PCG had given about amounts they would
seek to charge; in particular, PCG undertook not to pursue its statutory first charge for post-
196
Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36.
197
Ibid. at paras. 63-64.
198
Ibid. at para. 66.
199
Hislop v. Canada (Attorney General), [2007] S.C.J. No. 10 (QL), 2007 SCC 10, [2007] 1 S.C.R. 429, 278 D.L.R.
(4th) 385 (merits), [2008] O.J. No. 793 (QL), 2008 CanLII 8248 (determining interest rates and deciding on
class counsel’s entitlement to a first charge on arrears), [2009] O.J. No. 1756 (QL), 2009 ONCA 354, 95
O.R. (3d) 81, 248 O.A.C. 205 (affirmed), [2009] S.C.C.A. No. 264 (leave to appeal refused) [Hislop].
200
Canadian Charter of Rights and Freedoms, Part I, Constitution Act, 1982, enacted as Schedule B to the Canada Act
1982, (U.K.) 1982, c. 11.
201
Canada Pension Plan, R.S.C. 1985, c. C-8.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
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judgment arrears, and to seek a maximum of 50% of pre-judgment arrears.202 PCG considered
this a voluntary limit on its statutory first charge, and the approval was supported by the
representative plaintiffs, with no objections from class members. After the conclusion of
appeals at the Supreme Court, the case went back to Macdonald J. on two issues: calculation
of interest and PCG’s entitlement to a first charge. Most of the judgment is taken up with
the interest rates to be charged and the manner of calculation; my focus here, though, is on
the portion of the decision dealing with the first charge on counsel fees.
Based on docketed hours, PCG’s base fees had by then totaled some $5.3 million.
PCG had also obtained a $2 million costs award that it was able to apply to unpaid fees, and
the government had agreed to pay PCG a further $2 million by deducting it from the interest
owing to the class. But the government took the position that CPP s. 65, which says that “[a]
benefit shall not be assigned, charged, attached, anticipated or given as security,” barred the
government from deducting the balance of PCG’s fees at source. PCG estimated that, under
the approved multiplier, counsel would therefore still face a $15 million shortfall if this
position were correct. PCG distinguished amounts that are “normally payable” under the
CPP from the sums netted by the class members because of the Charter violation, and argued
that s. 65 is only intended to shelter these “normally payable” benefits.203 The government
contended that CPP s. 65 conflicts with CPA s. 32(3), and had to be resolved in favour of
CPP s. 65 on paramountcy grounds. Justice Macdonald accepted the government’s
argument based on s. 94A of the Constitution Act, 1867,204 which gives Parliament legislative
authority over “old age pensions and supplementary benefits, including survivors’ and
disability benefits . . . but no such law shall affect the operation of any law . . . of a
provincial legislature in relation to any such matter.”205 The question for Macdonald J. thus
became whether CPA s. 32(3) legislated in relation to “any such matter,” and that question
was easy to decide: it didn’t. Consequently, the CPP assignment-barring provision was seen
as trumping the statutory first charge on monetary awards in the CPA. The result was upheld
on appeal, with leave to appeal to the Supreme Court of Canada denied.
The decision cast a pall over the plaintiffs’ bar. “It’s the death knell for constitutional class
actions,” declared Douglas Elliott, lead counsel in Hislop.206 While Elliot’s reaction may have
been an overstatement, similar sentiments were echoed across Canada. Vancouver class
action practitioner and commentator Ward Branch also found it “interesting” that Canada,
and not the class members, had fought the issue, and asked whether it had done so to
“preserve the integrity of the statute” or “based on a tactical appreciation that the result
would create access to justice problems in relation to CPP issues, by negating the ability of
202
Hislop, supra note 199, [2008] O.J. No. 793 at para. 47-48.
203
Ibid. at para. 55.
204
Constitution Act, 1867 (U.K.), 30 & 31 Vic., c. 3.
205
Section 94A was a mid-20th century constitutional compromise that let provincial pension laws co-exist
with federal programs such as CPP and Old Age Security. See British North America Act, 1951 (U.K.), 14 &
15 Geo. VI, c. 32 and Constitution Act, 1964 (adding and amending s. 94A of the Constitution Act, 1867).
206
Cristin Schmitz, “Counsel denied millions for Charter class action” The Lawyers Weekly (15 May 2009)
online: <http://www.lawyersweekly.ca/index.php?section=article&articleid=917>.
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any class counsel to be paid.”207 PCG had made much the same point, but its arguments had
been summarily dismissed, with an admonition that “future class counsel confirm that the
[first] charge is available and not negated by other legislation.”208 In the absence of further
court rulings, this may be easier said than done: while the matter has now been decided with
respect to the CPP, most pension schemes are provincial, and it is common for them to have
some sort of anti-assignment provision. In such cases, resort cannot be had to paramountcy
arguments, leaving the matter to be fought on a case-by-case or province-by-province basis.
The question will be whether any counsel will take on such cases on a contingent basis—
class actions or otherwise—after the ruling in Hislop.
Allowing Recovery of Settlements, Judgments, Penalties or Other Costs
Let us assume now that we are truly at the end of the case in a large-scale claim, and
that our notional defendant has settled with the plaintiffs or had judgment declared against
it, has paid the plaintiffs their damages, restitution or other costs, and plaintiffs’ counsel have
received their fees. What now? Well, there is relatively little to say here, because our system
generally facilitates recovering such amounts through markets. In other words, this area is
typified more by the absence of regulation than its presence. The general bias is to let market
mechanisms deal with cost recovery, subject to certain exceptions and limitations.209 This has
implications for behaviour modification. In a perfectly competitive market—that is, one in
which all firms are price-takers—there is no ability to pass on costs of settlements or awards
through price increases. Instead, the extra costs will go straight to the firm’s bottom line, and
the best it can do to survive is try to sell more of its product. In such a setting, the repeat
wrongdoer will be out of business in the long run, and maybe even the short run.
But the farther we travel from the model of perfect competition, the less apt is this
concept of market discipline. Or to put it another way, the easier it is for firms to pass on
costs to consumers, with a corresponding disincentive to modify future behaviour. In an
oligopolistic market—that is, one with few firms in which the decisions of one influence,
and are influenced by, the decisions of others, but in any case, where the market is
characterized more by price-setting than price-taking—the market penalty associated with
having to pay for wrongful behaviour may be very small. Add other layers of complexity,
such as chained markets, with some firms making raw materials, others incorporating them
into their products, these firms selling to wholesalers, the wholesalers selling to retailers and
the retailers selling to the final customer, and the market effect can be spread through the
207
Branch MacMaster LLP, July 2009 Class Actions blog, online: <http://www.branchmacmaster.com/classactions-blog/2009/7/26/july-2009.html>. My view is that in a situation like this, the government’s position
is more akin to that of a trustee seeking the court’s direction on a matter. To link the analogy to Branch’s
point, the trustee will naturally be concerned with the interpretation of trust terms on future cases, and will
make those concerns known. But that can be done without taking the kind of adversarial stance evident in
Hislop. Had there been concerns with an encroachment on CPP s. 65, they could have been addressed with
a suitably narrow ruling as to the nature of a solicitor’s charge or lien. After all, it was the solicitors who
obtained the remedy, which, as the Court recognized, would not have been obtained otherwise.
208
Hislop, supra note 199, [2008] O.J. No. 793 at para. 65.
209
Exceptions may include rules relating to tax or accounting treatment of certain types of awards, or limits on
the ability of a company to indemnify corporate directors for wrongdoing.
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34
system, each player experiencing only a portion of the cost increase.210 In the limiting case,
that of monopoly, special considerations arise. The theory here is that in some industries,
economies of scale are so large compared to the market served that a single firm will
eventually dominate, and so it is better to recognize this fact and regulate the prices charged
by the monopoly as a quid pro quo for granting it monopoly status. Transportation networks
tend to fall in this category, as do most public utilities.
That brings me to Garland v. Consumers’ Gas Co.,211 which Jeff Berryman has written
about in his paper for this conference.212 Consumers’ Gas was, and in its current incarnation
as Enbridge is, a gas distribution utility regulated by the Ontario Energy Board (“OEB”).
The OEB had approved a tariff for Consumers’ that allowed it to charge a late payment
penalty for customers who didn’t pay their gas bills on time. The penalty was 5% of the bill,
but if it were paid promptly, this would amount to a very high APR—thus potentially
engaging s. 347 of the Criminal Code, the same provision at stake in the payday lending
litigation.213 Indeed, in two separate rulings from the Supreme Court of Canada, it was held
that the late payment penalty was “interest” for the purposes of s. 347 and that Consumers’
had been unjustly enriched thereby. Both rulings came as a surprise to public utility lawyers,
because as a matter of utility law, the late payment penalty had already been determined, by
virtue of the OEB ruling, to be a just and reasonable rate, as that term is understood in
utility law. Moreover, the notion that a utility could be enriched by a late payment penalty
does not fit well with a scheme in which prices and rates of return are set by a regulator. In
such a scheme, the most one could say is that a cross-subsidy existed between customers—
with the late payment penalties having the effect of reducing costs for other customers,
albeit by a miniscule amount when spread across the entire rate base.
In any case, as Berryman explains, the dispute was ultimately settled for $22 million
after the second Supreme Court ruling, leaving a number of questions about the cy-près
aspects of the settlement that he discusses in his paper. My purpose here is simply to note
what happened next. In a move that might have been perfectly predictable from a regulatedmonopoly or public-utility-law perspective, Enbridge applied to the OEB recover the
$22 million from its customers. The Board concluded that all costs—settlement, legal fees
210
This phenomenon also creates problems in price-fixing cases, when trying to tell who has been harmed. See
Margaret Sanderson and Michael Trebilcock, “Competition Class Actions: An Evaluation of Deterrence
and Corrective Justice Rationales” (2006) 3 Canadian Class Action Review 15, particularly at 23-32.
211
Garland v. Consumers’ Gas Co., [1998] S.C.J. No. 76 (QL) [1998] 3 S.C.R. 112, 40 O.R. (3d) 479, 165 D.L.R.
(4th) 385 (ruling that late payment penalty constituted “interest” under Criminal Code s. 347), [2004] S.C.J.
No. 21 (QL), [2004] 1 S.C.R. 629, 237 D.L.R. (4th) 385 (finding unjust enrichment and ordering restitution
in an amount to be determined), Garland v. Enbridge Gas Distribution Inc., [2006] O.J. No. 4273 (QL), 38
C.P.C. (6th) 70 (S.C.J.) (refusing settlement and certification, with leave to amend), [2006] O.J. No. 4907, 56
C.P.C. (6th) 357 (S.C.J.) (certifying and approving amended settlement pending determination of amount to
be paid to representative plaintiff) [Garland].
212
Jeff Berryman, “Nudge, Nudge, Wink, Wink: Behavioural Modification, Cy-Pres Distributions and Class
Actions” presented at “Accessing Justice: Appraising Class Actions Ten Years After Dutton, Hollick &
Rumley” (University of Windsor, March 28-29, 2011) at 25-26.
213
In fact, Garland predated and presaged the payday lending litigation, and the ruling on the legality of
Consumers’ late payment penalty was litigated as a question of law, before Garland was even certified.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
35
and interest—had been reasonably incurred and were recoverable from ratepayers.214 Over
the five-year recovery period allowed by the Board, this works out to about $2.70 per year
for each residential customer.215 Berryman concludes that under this settlement, the lawyers
got $10 million, [Garland] got $95,000, and the victims got to pay twice, once when they
paid the late payment fee, and . . . now through the OEB’s rate order.”216
Whither Behaviour Modification?
My primary purpose in this paper has been to raise awareness of legislative- and
regulatory-seeking behaviour in response to large-scale claims, actual or threatened. I have
tried to do that through examples that illustrate a typology of behaviour which can be
thought of on a timeline (from pre-dispute to post-dispute) or a behavioral spectrum (from
lesser to greater intervention). From the examples, it will be obvious that I think class actions
have done little to promote behaviour modification. Indeed, regarding the form of behaviour
discussed by Jones—that of defendants in resolving disputes—I have tried to show that
class actions and other large-scale claims have spurred a great deal of legislative intervention,
both private and public, aimed at defeating claims rather than responding to them on their
merits. Having said that, I still see behaviour modification as a laudable goal, and the
legislative news is not all bad. Consumer interests have not been totally disregarded, and in
some cases, class actions have spurred regulatory change that favour consumers—witness
Ontario’s post-Kanitz amendments to its consumer legislation, which have already held up in
the context of another class action.217 Therefore, my secondary purpose is to make some
preliminary recommendations for change to promote the stated goals of class proceedings.
First, as to arbitration clauses, Shelley McGill has done such a thorough job of
setting out the rationale and need for change in this area that I can do little better than refer
to her recent article.218 Her reform agenda is set out at pp. 394-412. And, yes, it is largely an
agenda for legislative reform that includes a more expansive definition of consumer, so as to
bring mixed-use goods and services under the aegis of consumer law; invalidation of class
claim waivers (for actions or arbitrations); restriction of consumer arbitration clauses to postdispute agreements; regulation of such post-dispute agreements; and legislative priority—
placing the provisions in statutes that are seen as providing substantive, not merely
procedural, rights. Given the recent Seidel decision,219 in which both the majority and the
minority endorsed arbitration’s primacy absent legislative intent, there is little room left for
judicial innovation in this area. Legislatures need to step in. I would also refer to the
214
Re Application by Enbridge Gas Distribution Inc. for an order or orders approving the balance and clearance of the Class
Action Suit Deferral Account, EB-2007-0731 (4 February 2008), online: http://www.ontarioenergyboard.ca/
documents/cases/EB-2007-0731/Decision_Enbridge_CASDA_20080204.pdf.
215
Ibid. at 13.
216
Berryman, supra note 212 at 26.
217
Griffin v. Dell Canada Inc., 2010 ONSC 2384 (granting certification, refusing stay), 2010 ONCA 29 (affirming
and saying Dell Computer now “academic” in Ontario), 2010 CanLII 27725 (SCC) (refusing leave to appeal).
218
McGill, supra note 34.
219
See Seidel, supra note 95 and the synopsis of the decision in that footnote.
Homo legislativus: Missing Link in the Evolution of ‘Behaviour Modification’? (John Kleefeld)
36
proposed U.S. Arbitration Fairness Act: this law, whose preamble reflects a growing populist
rant about “forced arbitration,” would render unenforceable arbitration agreements in
consumer, employment and franchise disputes.220 My purpose is not to endorse the bill, but
to point to one way in which public legislation is responding to the perceived excesses of
private legislation. In Canada, the legislative initiative should be implemented in a
coordinated fashion; for example, by the Uniform Law Conference of Canada or an
interprovincial government committee. If this is not done, I predict that we will see more
cases with multiple proceedings, forum shopping, and fragmentation of national classes—all
of which defeat the aims of class action policy.
I also believe there is scope for adding more substantive heft to class proceedings
legislation. For example, while I would be naïve to think that there will be any federal
legislation to undo the conflict that surfaced in Hislop, with class counsel being denied most
of its fees because of the non-assignment provision in the CPP, such a result could be
avoided with provincial pension plans and other benefits legislation. So, for example, if
legislatures wanted to make clear that in a dispute over such benefits, counsel fees could be
deducted from awards or settlements, they could say so by adding a subsection to the CPA
provisions dealing with solicitor’s charges. Alternatively, this could be done by defining what
does and doesn’t count as an “assignment” (or other terminology) in the relevant benefits
legislation. Class proceedings statutes could also be amended, for example, to adopt the
MacKinnon and Smith tests, or something like them, for whether to stay a class action in the
face of an arbitration clause, thereby overriding Dell Computer and requiring the question of
arbitrability to be decided by the certification judge as part of the preferability analysis.
Regarding retroactive legislation, I can only resort to the exhortations of class
counsel in Barbour, to the effect that this kind of behaviour is a draconian incursion on the
rule of law, particularly when retroactivity is used to validate previously invalid acts or
reverse court rulings. Indeed, such legislation has been characterized as “a high watermark of
political expediency, if not cynicism.”221 And the more that instances of such legislation
abound, the higher and higher will be the watermarks that are established—with what effect
on regard for the rule of law? It is also unfair for governments, who are uniquely poised to
implement legislative solutions, to take a wait-and-see attitude when considering
legislation—i.e., legislatively ‘fix’ a decision that is lost; breathe a sigh of relief when it is
won. Even if there are good public policy reasons in favour of the ‘fix’—as there may well
be—it is, at a minimum, a waste of legal and judicial resources to wait until after a trial is
over—or, as in the KVP case, until after it has gone through all possible appeal processes.
In closing, I would like to be able to predict that when we come together again to
celebrate the trilogy’s twentieth anniversary, we will be able look back and laugh at some of
the concerns raised here. That’s because I’m also hoping that we’ll then be able to say that
yes, we finally have access to justice, judicial economy and behaviour modification.
220
Arbitration Fairness Act of 2009, H.R. 1020, 111th Cong. § 4 (2009-2010), online: http://www.gpo.gov/
fdsys/pkg/ BILLS-111hr1020ih/pdf/BILLS-111hr1020ih.pdf.
221
Nanaimo Immigrant Settlement Society v. British Columbia, 2001 BCCA 75, 84 B.C.L.R. (3d) 208 at para. 11
(referring to Woodward Estate v. Minister of Finance, [1973] S.C.R. 120).