ATLANTIC LOTTERY CORP. INC. v. BABSTOCK, 2020 SCC 19

Waiver of tort distinguished from the law of restitution. Disgorgement under waiver of tort can be claimed as an alternative remedy to law of restitution but not as an independent action.

The appellant (A) was empowered to approve the operation of video lottery terminal games (VLTs) by governments of 4 provinces. The respondents (B) by applying for certification of a class action against A claimed that VLTs were inherently dangerous, deceptive and contravening the Criminal Code’s prohibition of games similar to “three-card monte” and instituted suit on three causes of action i.e. waiver of tort (breach of a duty to warn of the inherent dangers like risk of addiction and suicidal ideation, breach of contract (failure to provide games that were fit for use and of merchantable quality and obligation of good faith) and unjust enrichment and prayed for a gain-based award, quantified by the profit A earned by licensing VLTs. The Supreme Court of Newfoundland and Labrador had dismissed A’s application under r. 14.24(1) of the Rules of the Supreme Court to strike B’ statement of claim and certified the class action and same was approved by majority of the Court of Appeal of Newfoundland and Labrador. Hence, A had preferred appeal to Supreme Court of Canada (SCC).

Whether to strike respondent’s claims in case remedies claimed by them is not available to them even after assuming the truth of their pleadings was the question before the SCC. The majority bench of the court held that each claim of the respondent was bound to fail for not disclosing reasonable cause of action and proceeded to set aside the certification order striking down the pleadings in its entirety. Majority decision is premised on the understanding that none of the claim of respondent had any chance to succeed at trial.

At the outset the court distinguishes waiver of tort and law of restitution (unjust enrichment) and calls waiver of tort a misnomer and chooses to use the word disgorgement. In action brought under disgorgement, the Court has to concern itself with the wrongful gains of defendant and not the damage suffered by the plaintiff, if at all suffered. The SCC held that disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct and not as an independent cause of action. According to the court, B had failed to establish actionable misconduct which is primary requirement in action for disgorgement and the SCC also prevented B from establishing an entirely new category of wrongful conduct which was essentially akin to negligence but didn’t require proof of damage.

Regarding suit under class action under tort law, the SCC held that tort law treats respondent as “someone to whom damages are owed to correct the wrong suffered” rather than “merely as a convenient conduit of social consequences”. When the SCC didn’t get answer from respondent as to why any particular plaintiff is entitled to recover the whole of A’s gain, it held that this claim is not going to stand. Regarding criminal conduct of A under s. 206 of the Criminal Code, which uses phrase “similar to” as a general notion to cover games similar to three-card monte, being mindful to not create common law crimes through an act of judicial interpretation after analyzing the historical background, from statements of members of parliament indicating why the provision was introduced, and from the statutory provision itself, the SCC prevented respondent from stretching it too far. The SCC held that prohibition was not as claimed by respondent as had Parliament sought to prohibit broadly deceptive gambling games, it would have straightforwardly done so rather than creating such an offence by prohibiting three-card monte. In totally, the SCC refused to read “similar to” phrase as prohibiting all deceptive games.

Regarding disgorgement for Breach of Contract, the court held that it was available in exceptional circumstances where after exhausting all the remedies of damages, specific performance, and injunction are inadequate, it was necessary from the standpoint of corrective justice, which was not the case in present matter.