Don’t ignore theory of damages in class actions
This article originally appeared on The Lawyer’s Daily website published by LexisNexis Canada Inc.
Although theories of liability such as a government’s negligence, a bank’s breach of contract or an insurance company’s bad faith usually get the legal headlines, sometimes the theory of damages will be the most important issue in a class action for the following four reasons:
- The strategy by which class counsel pursues damages may determine whether a particular law firm gets carriage of the action in the event that different firms commence competitive claims and “carriage fight” ensues;
- The type of damages claimed (i.e. breach of contract, tort, restitutionary, punitive or aggravated) will, in some cases, determine whether the action can be certified as a class proceeding;
- The evidence by which to prove damages may also determine whether an action can be certified;
- A class action with small damages may not be worth pursuing given the high costs associated with prosecuting these complicated and usually hard fought claims.
This article outlines the damage types commonly claimed in class actions and the unique class action doctrine of a cy-près distribution of damages.
Breach of contract
The measure of damages is the loss reasonably flowing from the breach of the contract and can either be compensatory or restitutionary. The Court of Appeal discussed the distinction between compensatory and restitutionary damages in Cassano v. Toronto-Dominion Bank 2007 ONCA 781. Compensatory damages, which are the normal remedy for breach of contract, are designed to restore the plaintiffs, in so far as money can, to the position that they would have been in, absent the breach. Restitutionary damages, i.e. the disgorgement of the defendants’ gain, may be awarded where the plaintiffs’ losses are less than the defendants’ gain. Thus, an additional or alternative restitution or disgorgement of profits claim may be available in instances where compensatory damages are considered inadequate.
The measure of damages is the amount of money required to restore the plaintiffs to the position they would have been in but for the tortious activity.
To support the certification of common issues, it may be necessary to lead expert evidence with respect to the statistical and sampling methods to be used. In Fulawka v. Bank of Nova Scotia 2012 ONCA 443, the court accepted that the affidavit filed by a statistical expert provided sufficient basis to show an aggregate assessment and an appropriate method of distribution could be determined.
Thus, it will be sufficient for the plaintiff class at a common issues trial to establish that the defendant bank, through a class-wide negligent omission or oversight, permitted unrecorded overtime work in its retail branches and that at least some class members were not paid for their work.
The compensation will be based on a disgorgement of profits earned by the defendant as a result of the wrongful conduct.
Damages may not always be readily calculated because the necessary records may not be available. In appropriate cases, a plaintiff may need to elect between compensatory damages and an accounting for the disgorgement of profits. In Serhan (Trustee of) v. Johnson & Johnson  O.J. No. 2421 the divisional court approved the viability of such a claim notwithstanding the argument that plaintiff claims for such issues as pain and suffering, mental distress and loss of enjoyment of life, were too individualistic for a class action to be the preferable procedure.
There are many statutes that lend themselves to class actions and provide for compensation to be paid to persons who are protected by the legislation.
The measure of damages will be determined by the express applicable statutory provisions. For example, the Employment Standards Act provides for severance and termination pay in appropriate circumstances. Any breach of these provisions allows for a relatively mechanical calculation of damages. Thus, any class action claim for compensation by a class of persons who have been terminated or had their employment severed contrary to the act is a relatively easy calculation depending almost entirely on the defendants’ records detailing the length of service and salary at termination.
Aggravated and punitive damages
In addition, a class action may involve claims for aggravated and/or punitive damages.
Aggravated damages compensate a victim for their pain, suffering and mental distress. Compensatory in nature, they are logically limited to the current general damages upper limit of $370,000 in personal injury cases.
Punitive damages are designed to deter wrongful conduct and restricted to advertant acts that are so malicious and outrageous that they are deserving of punishment.
The test for punitive damages was clarified by the Supreme Court of Canada in Whitten v. Pilot Insurance Co. [2002 SCC 18: punitive damages were limited to situations of malicious, oppressive and high-handed misconduct beyond the ordinary standards of decent behaviour.
Cy-près distribution of damages
Although a court has many options with respect to settlement distribution, including the sharing of an award on an average or proportional basis, or by way of abatement, an ultimate settlement may not attempt to identify part or all the class members, primarily because the costs associated with that task are out of proportion to the settlement proceeds.
Thus, a court can approve a settlement which awards compensation to class members, who could readily be identified, with the balance distributed on a cy-près basis to common cause related and deserving charities.