Last week, I blogged on the Supreme Court of Canada decision of Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 (CanLII) and “three-card monte”. This week, I would like to discuss the bigger take-away from the decision: the rejection of the existence of the cause of action of “waiver of tort” in Canada.
In Atlantic, the claimants in a class action proceeding alleged that certain video lottery terminal games (“VLTs”) were inherently dangerous and deceptive, and contravened the Criminal Code. The defendants failed to warn the claimants. As a result, the claimants sought an order that the defendants disgorge any profits made by them. They did not allege any specific damages on the part of each claimant. The defendants moved to dismiss the claim.
The claimants pled “waiver of tort”. The term itself was criticized in the SCC decision as being a misnomer. Rather than “waiving” the tort or wrongdoing, the claimant is simply electing to pursue a different remedy: disgorgement of profits earned by the defendants without proof of any damages suffered by the claimants.
Brown J., speaking for the majority, held that disgorgement is a remedy, not a cause of action. Before disgorgement can be ordered, a recognized tort or breach of contract or claim in equity must be established.
In order to establish negligence, causation must be established. It must be shown that the defendant’s wrongful actions caused damages to the claimant. “…the conduct of a defendant in negligence is wrongful to the extent that it causes damage.” “In other words, negligence ‘in the air’ – the mere creation of risk – is not wrongful conduct.”
Citing certain scholarly articles on the topic, Brown J. went on to reject waiver of tort as an independent cause of action. “Granting disgorgement for negligence without proof of damages would result in a remedy ‘arising out of legal nothingness’ (Weber, at p. 424). It would be a radical and uncharted development, ‘[giving] birth to a new tort over night’ (Barton, Hines and Therien, at p. 147).
From an estates and trusts point of view, Brown J. acknowledged that disgorgement may be available without proof of damages for certain forms of wrongdoing, such as breach of trust. “However, it is a far leap to find that disgorgement without proof of damages is available as a general proposition in response to a defendant’s negligent conduct.”
R.I.P Waiver of Tort.
Thank you for reading.