Shutting the gate: Alberta court signals move toward more rigorous application of test for certifying class action lawsuits

In Setoguchi v Uber, the Alberta Court of Queen’s Bench reiterated that courts hearing applications for certification of class action proceedings fulfill an important gatekeeping function, and the case may signal a move toward a more rigorous application of the Class Proceedings Act.

Background

The proposed representative plaintiff applied to certify a national class action against the defendants. She alleged, among other things, negligence and breach of contract stemming from a hack in which electronic information about the defendants’ users was illegally accessed.

On the basis of the certification record, Justice Rooke concluded that, although the information that was accessed was personal, it was not confidential; the data was “no more private … than was included in typical telephone directories of the past.” There was no evidence any of the information had been released since the hack. Importantly, Justice Rooke found that, not only was there no evidence of any actual harm, there was evidence that there was no harm or loss.

Justice Rooke ultimately denied the plaintiff’s application for certification on the basis that a class proceeding was not the preferable procedure for resolution of the common issues. However, his entire decision was animated by a concern that certification must be a meaningful screening process, and the test for certification must provide the court with effective mechanisms with which it can weed out obviously unmeritorious claims and fulfil its “gatekeeping function” to protect scarce judicial resources.

Some evidence of real harm is required for certification

Under the Act, a plaintiff must establish that a class proceeding is the preferable procedure for the fair and efficient resolution of the common issues. Given that it was not clear the plaintiff in this case could establish class-wide harm, Justice Rooke held that the assessment of even nominal damages could result in individualized assessments, in which case a class proceeding would be neither fair, efficient, nor manageable, and denied certification on this basis.

More interesting, perhaps, were Justice Rooke’s comments that, absent some evidence of actual loss or harm, “It becomes difficult to say that the resolution of the common issues will significantly advance the action.”

While this effectively imports a consideration of whether a claim is unmeritorious or de minimus into the preferability analysis, Justice Rooke was quick to point out he was not engaging in a preliminary merits test, which has been expressly prohibited by the Supreme Court of Canada. Rather, Justice Rooke posited that allowing obviously unmeritorious claims to proceed to a common issues trial strips the certification process of any meaning:

Put in other words, it seems to me that, if the "screening process" is to be "meaningful", without determining the full legal and substantive merits of the litigation, including whether all elements of the Act to establish certification have been met, there must be some evidence or basis in fact for loss or damage. The standard must be lower than the actual proof on a balance of probabilities necessary at a common-issues trial, but the Representative Plaintiff must demonstrate at least some meaningful substance to the case before certification should be granted. It surely cannot be merely that, in effect, one needs only to speculate at the certification stage, only "establish [loss or damage] at the common issues trial", undoubtedly seeking a settlement in the interval. This is the substance of why certification must and does fail in this case.

Justice Rooke also spilled considerable ink lamenting the current state of the law regarding the first prong of the certification test. Section 5(a) of the Act requires a plaintiff to establish that its pleadings disclose a cause of action.

However, unlike sections 5(b) – (e), a plaintiff is not required to support its claim in this regard with any evidence or basis in fact. Put simply: a bare pleading of harm is sufficient. Despite his remarks that this principle is “misplaced” in the context of class actions, Justice Rooke found “with regret” that he could not deny certification on the basis that the pleadings failed to disclose a cause of action, in light of current binding precedent. That said, he did signal a hope that appellate courts might revisit this principle in the future:

Does this mean that absolutely no evidence of loss or harm is required? It seems that Setoguchi's Counsel believes so, on the basis of the current law. That concept, I believe, is too open and the subject of potential abuse, in the absence of some gate keeping function, especially in the context of certification of a class action. One should not be able to obtain certification only on speculation as to possible evidence of harm or loss and a carefully worded pleading. If that is not the principle that can now be carried forward based on this case, perhaps it will be in future cases.

It remains to be seen whether appellate courts will agree with Justice Rooke that the analysis of whether a class action is the preferable procedure for resolving a claim encompasses a requirement that there be some evidence of compensable harm, or whether the principles applicable to section 5(a) of the Act merit revisiting.

Takeaways

The reasoning in Setoguchi is consistent with a broader concern in Canadian class actions law that there exist effective and efficient mechanisms to weed out obviously unmeritorious claims at early stages of proceedings, whether through legislative changes, an increased willingness to hear striking motions prior to certification, or a more rigorous application of the criteria for certification set out in the various provincial class actions statutes. Going forward, plaintiffs may face increased difficulty in seeking to have claims certified as class actions absent some cogent evidence of harm or loss.

The authors wish to thank Ian Wylie, articling student, for his contribution to this legal update.