Atlantic Lottery Corp. Inc. v. Babstock

2020 SCC 19 | Supreme Court of Canada | July 24, 2020

Parties

Appellants: Atlantic Lottery Corporation Inc., VLC, Inc., IGT‑Canada Inc., International Game Technology, Spielo International Canada ULC and Tech Link International Entertainment Limited

Respondents: Douglas Babstock and Fred Small

Interveners: Attorney General of Ontario, Attorney General of Manitoba, Attorney General of Saskatchewan, Bally Gaming Canada Ltd., Bally Gaming Inc., Western Canada Lottery Corporation, Alberta Gaming, Liquor, and Cannabis Commission, Canadian Gaming Association, Canadian Chamber of Commerce and British Columbia Lottery Corporation

Coram

Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Reasons for Judgment (paras. 1 to 72): Brown J. (Abella, Moldaver, Côté and Rowe JJ. concurring)

Reasons Dissenting in Part (paras. 73 to 173): Karakatsanis J. (Wagner C.J. and Martin and Kasirer JJ. concurring)

Headnote

Civil procedure — Class actions — Certification — Pleadings — Causes of action — Plaintiffs alleging defendants profited from dangerous and deceptive video lottery terminals — Plaintiffs relying on waiver of tort, breach of contract and unjust enrichment as causes of action and seeking gain‑based award — Plaintiffs' action certified as class proceeding — Whether plaintiffs' claims disclose reasonable cause of action.

ALC, constituted by the governments of the four Atlantic provinces, is empowered to approve the operation of video lottery terminal games ("VLTs") in Newfoundland and Labrador. The plaintiffs applied for certification of a class action against ALC, on behalf of any natural person resident in Newfoundland and Labrador who paid to play VLTs in that province in the six years preceding the class action. The plaintiffs claim that VLTs are inherently dangerous and deceptive. Relying on three causes of action (waiver of tort, breach of contract and unjust enrichment), the plaintiffs seek a gain‑based award, quantified by the profit ALC earned by licensing VLTs.

ALC applied to strike the plaintiffs' claim on the basis that it disclosed no reasonable cause of action, and the plaintiffs applied for certification of their claim as a class action. The certification judge dismissed ALC's application, and further held that the plaintiffs had satisfied the requirements necessary for certification. The Court of Appeal substantially upheld the certification judge's conclusions, and allowed the plaintiffs' claims in waiver of tort, breach of contract and unjust enrichment to proceed to trial.

Held (Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. dissenting in part): The appeals should be allowed, the certification order set aside and the plaintiffs' statement of claim struck in its entirety.

Per Abella, Moldaver, Côté, Brown and Rowe JJ.: Each claim that the plaintiffs have pleaded is bound to fail because it discloses no reasonable cause of action.

The plaintiffs cannot rely on the doctrine of waiver of tort as an independent cause of action for disgorgement. This novel cause of action does not exist in Canadian law and has no reasonable chance of succeeding at trial. In addition, the term "waiver of tort" is apt to generate confusion and should be abandoned. Despite its early acceptance, this term is a misnomer. Rather than forgiving or waiving the wrongfulness of the defendant's conduct, plaintiffs relying on the doctrine are simply electing to pursue an alternative, gain‑based, remedy.

Restitution for unjust enrichment and disgorgement for wrongdoing are two types of gain‑based remedies. What the plaintiffs seek in this case is disgorgement, which does not require proof of deprivation to the plaintiff, and requires only that the defendant gained a benefit. Restitution is awarded in response to the causative event of unjust enrichment, where there is correspondence between the defendant's gain and the plaintiff's deprivation. Disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action. In order to make out a claim for disgorgement, a plaintiff must first establish actionable misconduct. By pleading disgorgement as an independent cause of action, however, the plaintiffs in this case seek to establish an entirely new category of wrongful conduct — one that is akin to negligence but does not require proof of damage. Although disgorgement is available for some forms of wrongdoing without proof of damage (for example, breach of fiduciary duty), it is a far leap to find that disgorgement without proof of damage is available as a general proposition in response to a defendant's negligent conduct. Granting disgorgement for negligence without proof of damage would result in a remedy arising out of legal nothingness, and would be a radical and uncharted development. This is not the type of incremental change that falls within the remit of courts applying the common law.

The plaintiffs' claim that VLTs are "similar to" three‑card monte within the meaning of s. 206 of the Criminal Code and that their operation is therefore prohibited also has no reasonable chance of success. Statutory interpretation requires discerning legislative intent by examining statutory text in its entire context and in its grammatical and ordinary sense, in harmony with the statute's scheme and objects. In determining what games can be considered "similar to" three‑card monte, it must be kept in mind that courts cannot create common law crimes through an act of judicial interpretation. Furthermore, while expert evidence may assist in deciding whether the defined elements of an offence are made out on the facts of a particular charge, expert evidence cannot purport to define the elements of an offence. The text of the provision and its surrounding context suggest that the prohibition of games similar to three‑card monte was directed towards the game's concrete attributes and not towards the abstract feature of deception. Had Parliament sought to prohibit broadly deceptive games, it would have straightforwardly done so. Games "similar to" three‑card monte must therefore involve, at a minimum, a player betting on the location of an object after a series of manipulations. Nothing in the pleadings describes VLTs as operating in this manner.

The plaintiffs' breach of contract claim is also doomed to fail. Whether this claim discloses a reasonable cause of action should be considered in light of the remedies the plaintiffs actually seek — that is, disgorgement and punitive damages — and the question of whether these remedies are available to the plaintiffs, assuming the truth of their pleadings. The ordinary form of monetary relief for breach of contract is an award of damages, measured according to the position which the plaintiff would have occupied had the contract been performed. Disgorgement for breach of contract may be appropriate in exceptional circumstances, but only where, at a minimum, other remedies are inadequate and only where the circumstances warrant such an award. As to those circumstances, courts should in particular consider whether the plaintiff had a legitimate interest in preventing the defendant's profit‑making activity. The key to developing principles for gain‑based recovery in breach of contract is to consider what legitimate interest a gain‑based award serves to vindicate. A coherent approach that reconciles the relief awarded with the structure of breach of contract as a cause of action should be preferred. While the circumstances in which a gain‑based award will be appropriate cannot be clearly delineated in advance, one would expect future legitimate interests protected by a gain‑based award to resemble those interests that have been protected in the past. Courts have, in some exceptional circumstances, long awarded monetary amounts departing from the ordinary measure of expectation damages. An award that appears to be measured by a defendant's gain might serve a compensatory purpose that distinguishes it from disgorgement and which therefore tends to support recovery. Where, as here, the argument is that the quantum of loss is equal to the defendant's gain, but the plaintiff would simply rather pursue disgorgement, a gain‑based remedy is not appropriate. Further, there is nothing exceptional about the breach of contract the plaintiffs allege: once the allegations of criminal conduct are put aside, the plaintiffs' claim is simply that they paid to play a gambling game and did not get exactly what they paid for. The plaintiffs cannot be said to have a legitimate interest in ALC's profit‑making activity, and their claim has no reasonable chance of achieving disgorgement damages for breach of contract.

Punitive damage awards for breach of contract are also exceptional, but will be awarded where the alleged breach of contract is an independent actionable wrong. The actionable wrong need not be tortious: punitive damages may also be awarded where the defendant breaches a contractual obligation. Not every contract, however, imposes actionable good faith obligations on contracting parties: while good faith is an organizing principle of Canadian contract law, it manifests itself in specific circumstances and its application is generally confined to existing categories of contracts and obligations. The alleged contract between ALC and the plaintiffs does not fit within any of the established good faith categories; accordingly, their claim for punitive damages has no reasonable chance of success.

Finally, the plaintiffs' unjust enrichment claim has no reasonable chance of success. The principled unjust enrichment framework requires establishing that ALC was enriched, that the plaintiffs suffered a corresponding deprivation, and that the enrichment and corresponding deprivation occurred in the absence of any juristic reason therefor. The juristic reason element proceeds in two stages: first, the plaintiff must demonstrate that the defendant's enrichment cannot be justified by any of the established categories of juristic reason; and second, the defendant can rebut the plaintiff's case by showing that there is a residual reason to deny recovery. In the present case, there is no need to go beyond the first stage. The plaintiffs' own pleadings allege that there was a contract between ALC and the plaintiffs under which the plaintiffs paid to play VLTs, and nothing in the pleadings could serve to vitiate the alleged contract. A defendant that acquires a benefit pursuant to a valid contract is justified in retaining that benefit.

Per Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. (dissenting in part): The appeal should be allowed in part. There is agreement with the majority that a mere breach of a duty of care, in the absence of loss, cannot ground a claim for disgorgement. There is also agreement that VLTs cannot constitute "three‑card monte" as defined in the Criminal Code, and that the plaintiffs' claim in unjust enrichment must be struck. However, there is disagreement with whether the plaintiffs' claim in breach of contract is a reasonable cause of action, as well as the conclusion that there are no available remedies for that breach. The plaintiffs' claim should be certified as a class action on the common issues of breach of contract, punitive damages and the appropriateness of a disgorgement remedy.

The elements of a cause of action for breach of contract are the existence of a contract and the breach of a term of that contract. Loss is not an essential element. The plaintiffs have pleaded the nature of the contract, the terms they say are implied, and the manner in which ALC breached the contract between them. The first implied term pleaded is a warranty that the VLTs were not inherently dangerous. In the alternative, the plaintiffs plead that ALC breached an implied term requiring ALC to warn the plaintiff class of any inherent danger in the consumption of the games and to satisfy itself of their safety. Finally, the plaintiffs allege that ALC breached an implied term of good faith. It is not plain and obvious that implying these terms would improperly touch on or fetter ALC's authority as a public regulator of VLTs.

The claim for breach of contract should not be struck on the basis that it is plain and obvious that there are no available remedies. There are several remedies that are open to the plaintiffs on their pleadings, including nominal damages, declaratory relief, disgorgement, and punitive damages.

A court finding breach of contract may make binding declarations of right, whether or not any consequential relief is or could be claimed. Nominal damages are always available for causes of action, like breach of contract, that do not require proof of loss. This alone precludes striking the claim.

Whether disgorgement is an appropriate remedy for breach of contract in this case is a matter for trial that cannot be resolved on the pleadings alone. While the customary remedy for a breach of contract is compensation measured in the form of expectation damages, in some cases, disgorgement of a defendant's profits can be an appropriate remedy for breach of contract. Disgorgement is an exceptional remedy, available where a plaintiff has shown that the ordinary remedies of contract law are inadequate to protect and vindicate their contractual right. Although compensatory damages will often help to achieve deterrence of wrongful conduct, they will not always be adequate or appropriate in the circumstances of the breach. The measure of a disgorgement award implicitly effects deterrence and is dictated by the minimum amount necessary to make the wrong unprofitable.

Disgorgement awards are not limited to situations in which they serve a compensatory purpose. A self‑interested and deliberate breach; the impracticability of calculating loss; and the plaintiff's legitimate interest in preventing the defendant's profit‑making activity, including where the defendant had a quasi‑fiduciary duty to the plaintiff, weigh in favour of a disgorgement remedy. No single factor is necessarily crucial or dispositive. The plaintiffs' pleadings in this case correspond with several factors that, if established at trial, may point to a disgorgement remedy, including that the plaintiffs were vulnerable to ALC's abuse of its power and that ALC's breach was self‑interested, deliberate, and in bad faith. A trial judge may also find that ascertaining the actual amount lost is impracticable since VLTs are designed not to create records of who uses them and how much money they have lost.

The plaintiffs have also pleaded a sufficient basis to support a claim for punitive damages. The focus of punitive damages is on the defendant's misconduct, not the plaintiff's loss, and injury to the plaintiff is not a condition precedent to an award of punitive damages. The plaintiffs have pleaded a breach of the duty of honest performance, which can constitute an actionable wrong to ground a claim for punitive damages.

With regard to certification, the class representative must show that there is some "basis in fact" that there is an identifiable class of two or more persons, that there is at least one common issue, and that the class action is the preferable procedure. This standard ensures that there is an evidentiary foundation to support the certification order.

The proposed class definition uses objective criteria that will allow for identification of those who can attest to playing the games, and there is a basis to believe that at least two persons will be able to establish that they paid ALC to gamble on VLT games during the proposed class period.

An issue is common where its resolution is necessary to the resolution of each class member's claim. The issues relating to breach of contract, disgorgement, and punitive damages are appropriate common issues, but the issue relating to aggregate monetary relief is not. On breach of contract, the pleadings assert a civil wrong that is common to each member of the class: whether the terms alleged by the plaintiffs are in fact implied, and whether the functioning of the VLTs routinely violates those terms, would be the same for every consumer. On disgorgement, determining whether the circumstances of this case are exceptional, such that other contractual remedies are inadequate, is a substantial ingredient of each member's claim and will benefit all members of the class. For punitive damages, ALC's conduct and the alleged breach of the duty of good faith would be common to all class members.

But there is no basis in fact to certify aggregate monetary relief as a common issue. Before making an award of disgorgement, the court must be satisfied that the breach of contract is causally connected to the gain to be disgorged. To ensure that ALC's total liability is limited to that flowing from the breach, some plausible methodology is needed to estimate ALC's liability from its breach of contract, including what its profits might have been had it not breached its contractual obligations. No methodology has been suggested.

Finally, with regard to preferability, the keystone of the plaintiffs' action is a deception common to each member of the class. Determining the content of a contract entered into by each member, and whether that contract was systematically breached, does not require individualized assessments and is more practical and efficient than individual actions. A class action has the potential to acknowledge, vindicate and protect individual players' contractual interest in a safe and fair game.

Appeals from Judgment Below

Appeals from a judgment of the Newfoundland and Labrador Court of Appeal (Green, Welsh and Harrington JJ.A.), 2018 NLCA 71, 29 C.P.C. (8th) 1, 53 C.C.L.T. (4th) 12, affirming in part decisions of Faour J., 2016 NLTD(G) 216, 93 C.P.C. (7th) 307, and 2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293. Appeals allowed, Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. dissenting in part.

Judgment

I. Introduction

[ 1 ] The appellant Atlantic Lottery Corporation Inc. ("ALC"), constituted by the governments of the four Atlantic provinces, is empowered to approve the operation of video lottery terminal games ("VLTs") in Newfoundland and Labrador by the Video Lottery Regulations, C.N.L.R. 760/96. The respondents Douglas Babstock and Fred Small ("the plaintiffs") applied for certification of a class action against ALC, on behalf of any natural person resident in Newfoundland and Labrador who paid to play VLTs in that province in the six years preceding the class action, or on behalf of the estate of any such person. The other appellants are suppliers of VLTs that ALC has added to the action as third‑party defendants.

[ 2 ] The plaintiffs' essential claim is that VLTs are inherently dangerous and deceptive. Indeed, they say that VLTs are so deceptive that they contravene the Criminal Code's prohibition of games similar to "three‑card monte" (Criminal Code, R.S.C. 1985, c. C‑46, s. 206). Relying on three causes of action ("waiver of tort", breach of contract and unjust enrichment), the plaintiffs seek a gain‑based award, quantified by the profit ALC earned by licensing VLTs. [^1]

[ 3 ] More particularly, and as to waiver of tort, the plaintiffs allege that ALC breached a duty to warn of the inherent dangers associated with VLTs, including the risk of addiction and suicidal ideation. This, they say, supports their claim in waiver of tort, which they also say is an independent cause of action that allows for a gain‑based remedy to "be determined at trial of common issues without the involvement of any individual class member" (A.R., vol. II, at p. 104).

[ 4 ] As to the claim for breach of contract, the plaintiffs allege a contract arising from ALC's offer of VLTs to the public, and the plaintiffs' corresponding acceptance by paying to play. As an implied term of this contract, they say that ALC was required to provide safe games that were fit for use and of merchantable quality, to use reasonable skill and care in its provision of VLT gaming, and to act in good faith. ALC breached these terms, they say, by supplying deceptive VLTs.

[ 5 ] Finally, the plaintiffs say that ALC has been unjustly enriched at their expense.

[ 6 ] The plaintiffs succeeded in obtaining certification at the Supreme Court of Newfoundland and Labrador, and that result was substantially affirmed by the Newfoundland and Labrador Court of Appeal. In my respectful view, however, none of these claims have any reasonable chance of success. I would therefore allow the appeals, set aside the certification order, and strike the plaintiffs' claims against ALC.

II. Overview of Proceedings

A. Supreme Court of Newfoundland and Labrador — 2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293; 2016 NLTD(G) 216, 93 C.P.C. (7th) 307

[ 7 ] The matter came before the certification judge in the form of two applications: (1) ALC's application, made under r. 14.24(1)(a) of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D (2014 NLTD(G) 114, 356 Nfld. & P.E.I.R. 293), to strike the plaintiffs' claim on the basis that it disclosed no reasonable cause of action, and (2) the plaintiffs' application for certification of their claim as a class action under the Class Actions Act, S.N.L. 2001, c. C‑18.1. The parties agreed that the certification judge's decision on ALC's application would also determine whether the plaintiffs had satisfied the first criterion for certification in s. 5 of the Class Actions Act — that "the pleadings disclose a cause of action".

[ 8 ] The certification judge dismissed ALC's application, and further held that the plaintiffs had satisfied the requirements necessary for certification. In particular and because the plaintiffs intended to pursue a collective remedy (calculated on the basis of ALC's profits) without proving individual damage, he concluded that there were common issues among the class that would be better addressed through a class action.

B. Newfoundland and Labrador Court of Appeal — 2018 NLCA 71, 29 C.P.C. (8th) 1

[ 9 ] ALC appealed the certification judge's decisions on both applications. Writing for the majority, Green J.A. substantially upheld the certification judge's conclusions, and allowed the plaintiffs' claims in waiver of tort, breach of contract and unjust enrichment to proceed to trial.

[ 10 ] Regarding waiver of tort, the majority concluded that the doctrine could operate as an independent cause of action for disgorgement, where it would serve the purpose of deterring wrongful conduct. Further, according to the majority, plaintiffs alleging negligence need not prove damage to establish an entitlement to disgorgement. All this led the majority to conclude that the plaintiffs' claim for waiver of tort — that is, for disgorgement as a remedy for negligence in the absence of demonstrated damage — disclosed a reasonable cause of action (paras. 185 and 189).

[ 11 ] Addressing the plaintiffs' allegations of criminal conduct, the majority concluded that expert evidence would be required to conclude whether VLTs are similar to three‑card monte and therefore prohibited by s. 206 of the Criminal Code. Such claims, said the majority, would have to be determined at trial.

[ 12 ] Finally, the majority held that the pleaded facts, particularly considering the allegations of criminal conduct, could reasonably support a claim for disgorgement as a remedy for breach of contract. In view of its conclusion on waiver of tort as an independent cause of action, the majority found it unnecessary to address "issues raised in argument under the heading of unjust enrichment simpliciter, i.e. whether the pleading discloses a cause of action in unjust enrichment, calling for the application of the traditional three‑part test set out in such cases as [Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629]" (para. 230).

[ 13 ] In dissent, Welsh J.A. would have allowed ALC's appeal and struck all the claims. In her view, the claims in contract and tort did not have a reasonable chance of success given that the plaintiffs did not plead damage to individual plaintiffs; it was plain and obvious that VLTs were not similar to three‑card monte; and, there was a juristic reason for ALC's enrichment at the expense of the plaintiffs.

III. Analysis

[ 14 ] ALC's application to strike relies on r. 14.24(1) of the Rules of the Supreme Court, which allows the court to strike any portion of a statement of claim that discloses no reasonable cause of action. The parties agree that determining whether any reasonable cause of action is disclosed in the plaintiffs' statement of claim will also satisfy the first requirement of the plaintiffs' application for certification. The test to be applied under both applications, therefore, is whether it is plain and obvious, assuming the facts pleaded to be true, that each of the plaintiffs' pleaded claims disclose no reasonable cause of action. Simply stated, if a claim has no reasonable prospect of success it should not be allowed to proceed to trial (R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 17).

[ 15 ] A central issue in this case arises from the plaintiffs' reliance on the doctrine of waiver of tort. The plaintiffs say that a claim relying on waiver of tort as an independent cause of action for disgorgement has at least a reasonable chance of succeeding at trial. Before the Court of Appeal's decision in this case, however, no Canadian authority had recognized such a cause of action, although the plaintiffs rely on a line of class action certification decisions in which courts have refrained from finding that it is plain and obvious that such an action does not exist. The plaintiffs place significant emphasis on Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477 ("Microsoft"), where this Court, citing conflicting authorities on this point, declined to resolve it (para. 97).

[ 16 ] In my view, developments since Microsoft, and distinguishing features of this case, allow us to definitively resolve whether the novel cause of action proposed by the plaintiffs exists in Canadian law. I say so for four reasons.

[ 17 ] First, the argument in favour of recognizing the plaintiffs' novel cause of action relies on the relationship between the concept of waiver of tort and the broader law of restitution (or, as it is now more commonly referred to in Canada, the law of unjust enrichment). This area of our law has developed rapidly in recent years in ways that have deepened our understanding of unjust enrichment (see e.g. Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303; M. McInnes, The Canadian Law of Unjust Enrichment and Restitution (2014), at pp. vii‑ix; J. D. McCamus, "Waiver of Tort: Is There a Limiting Principle?" (2014), 55 Can. Bus. L.J. 333, at p. 334; A. Burrows, The Law of Restitution (3rd ed. 2011), at pp. 3‑9). More particularly, several commentators have, since Microsoft, made helpful contributions by specifically commenting on waiver of tort as an independent cause of action (see e.g. G. Weber, "Waiver of Tort: Disgorgement Ex Nihilo" (2014), 40 Queen's L.J. 389; S. Barton, M. Hines and S. Therien, "Neither Cause of Action nor Remedy: Doing Away with Waiver of Tort", in T. L. Archibald and R. S. Echlin, eds., Annual Review of Civil Litigation, 2015 (2015); E. M. Iacobucci and M. J. Trebilcock, "An Economic Analysis of Waiver of Tort in Negligence Actions" (2016), 66 U.T.L.J. 173). What was once seen as a state of legal uncertainty at the time Microsoft was decided has been made clearer.

[ 18 ] Secondly, and since Microsoft was decided, this Court has recognized in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the need for a culture shift to promote "timely and affordable access to the civil justice system" (para. 2). Where possible, therefore, courts should resolve legal disputes promptly, rather than referring them to a full trial (paras. 24‑25 and 32). This includes resolving questions of law by striking claims that have no reasonable chance of success (S. G. A. Pitel and M. B. Lerner, "Resolving Questions of Law: A Modern Approach to Rule 21" (2014), 43 Advocates' Q. 344, at pp. 351-52). Indeed, the power to strike hopeless claims is "a valuable housekeeping measure essential to effective and fair litigation" (Imperial Tobacco, at para. 19).

[ 19 ] Of course, it is not determinative on a motion to strike that the law has not yet recognized the particular claim. The law is not static, and novel claims that might represent an incremental development in the law should be allowed to proceed to trial (Imperial Tobacco, at para. 21; Das v. George Weston Ltd., 2018 ONCA 1053, 43 E.T.R. (4th) 173, at para. 73; see also R. v. Salituro, 1991 17 (SCC), [1991] 3 S.C.R. 654, at p. 670). That said, a claim will not survive an application to strike simply because it is novel. It is beneficial, and indeed critical to the viability of civil justice and public access thereto that claims, including novel claims, which are doomed to fail be disposed of at an early stage in the proceedings. This is because such claims present "no legal justification for a protracted and expensive trial" (Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, at para. 19). If a court would not recognize a novel claim when the facts as pleaded are taken to be true, the claim is plainly doomed to fail and should be struck. In making this determination, it is not uncommon for courts to resolve complex questions of law and policy (see e.g. Imperial Tobacco; Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Syl Apps; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261).

[ 20 ] Lax J.'s observations in Andersen v. St. Jude Medical, Inc., 2012 ONSC 3660, are particularly apposite, as she heard arguments on the scope of waiver of tort after a 138‑day trial. The circumstances did not require her to resolve the issue, but Lax J. observed that the parties "did not rely on any evidence . . . to support or oppose extending the waiver of tort doctrine to a negligence case", nor did the plaintiffs "lead any policy evidence to explain why waiver of tort should be available" (para. 585). She concluded that "deciding the waiver of tort issue does not necessarily require a trial and that it may be possible to resolve the debate in some other way" (para. 587).

[ 21 ] Thirdly, failing to address whether an independent cause of action for waiver of tort exists will perpetuate an undesirable state of uncertainty. As Greg Weber writes, "[w]aiver of tort has become a hollow and internally inconsistent doctrine, leaving judges and litigants confused about how and when a cause of action might support disgorgement" (p. 392). Uncertainty about whether an action lies for disgorgement without proof of damage has significant ramifications, which are most apparent in the context of class actions. For 16 years since Serhan (Estate Trustee) v. Johnson & Johnson (2004), 2004 1533 (ON SC), 72 O.R. (3d) 296 (S.C.), such claims have been commonly advanced but never fully tried. In the meantime, certification judges have had "little alternative but to affirm that the question of the doctrine's availability is indeed a live issue for trial, which can and does result in certification to the detriment of the defendant, who is then practically compelled to pay a settlement to the plaintiff" (J. M. Martin, "Waiver of Tort: An Historical and Practical Survey" (2012), 52 Can. Bus. L.J. 473, at p. 476 (footnote omitted); see also H. M. Rosenberg, "Waiving Goodbye: The Rise and Imminent Fall of Waiver of Tort in Class Proceedings" (2010), 6 Can. Class Action Rev. 37, at p. 38). Indeed, this Court's decision to refrain from striking the waiver of tort claim in Microsoft has been taken as an affirmative statement that such claims are viable (see e.g. Ewert v. Nippon Yusen Kabushiki Kaisha, 2019 BCCA 187, 25 B.C.L.R. (6th) 268, at para. 73; Authentic T‑Shirt Co. ULC v. King, 2016 BCCA 59, at paras. 41-42). Nothing is gained, and much court time and considerable litigant resources are lost, by leaving this issue unresolved.

[ 22 ] Finally, while waiver of tort as a novel cause of action was not a central issue in Microsoft, it is in the present appeals. The Court of Appeal accordingly canvassed the law comprehensively, and concluded not only that the plaintiffs' claim should proceed to trial, but that waiver of tort should be definitively recognized as an independent cause of action. On appeal to this Court, the parties and interveners have similarly devoted substantial attention to the issue. The question is therefore ripe for decision, and these appeals presents an appropriate vehicle for deciding it.

A. Disgorgement for Tortious Wrongdoing

(1) Disgorgement As a Novel Cause of Action

[ 23 ] As I discuss below, the term "waiver of tort" is confusing, and should be abandoned. The concern is not for consistent terminology for its own sake, but rather for clarity of meaning: cases dealing with gain‑based remedies tend to employ inconsistent nomenclature that leads to confused and confusing results. Even the term "restitution" has been applied inconsistently, sometimes referring to the causative event of unjust enrichment and sometimes referring to a measure of relief (McInnes (2014), at pp. 10‑11). In my view, restitution properly describes the latter — meaning, restitution is the law's remedial answer to circumstances in which a benefit moves from the plaintiff to the defendant, and the defendant is compelled to restore that benefit. Further, restitution stands in contrast to another measure of relief, disgorgement, which refers to awards that are calculated exclusively by reference to the defendant's wrongful gain, irrespective of whether it corresponds to damage suffered by the plaintiff and, indeed, irrespective of whether the plaintiff suffered damage at all (McInnes (2014), at p. 11-12; see also L. D. Smith, "The Province of the Law of Restitution" (1992), 71 Can. Bar Rev. 672; J. Edelman, Gain‑Based Damages: Contract, Tort, Equity and Intellectual Property (2002), at pp. 65‑93). While this Court's decisions have occasionally referred to disgorgement variously as "restitution damages" or "restitution for wrongdoing", the ambiguity inherent in such terminology calls for greater precision (see e.g. Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at para. 25; Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3, at para. 33).

[ 24 ] In sum, then, restitution for unjust enrichment and disgorgement for wrongdoing are two types of gain‑based remedies (McInnes (2014), at pp. 144‑49; L. D. Smith, "Disgorgement of the Profits of Breach of Contract: Property, Contract, and 'Efficient Breach'" (1995), 24 Can. Bus. L. J. 121, at pp. 121‑23; G. Virgo, The Principles of the Law of Restitution (3rd ed. 2015), at pp. 415-17; Burrows, at pp. 9‑12). Each is distinct from the other: disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required), while restitution is awarded in response to the causative event of unjust enrichment (most recently discussed by this Court in Moore), where there is correspondence between the defendant's gain and the plaintiff's deprivation (Edelman, at pp. 80‑86).

[ 25 ] Here, the plaintiffs seek disgorgement, not restitution: they say that they are entitled to a remedy quantified solely on the basis of ALC's gain, without reference to damage that any of them may have suffered. There are two schools of thought on where disgorgement fits in the overall legal structure of private obligations. The prevailing view is consistent with that which I have just stated. Disgorgement, as a gain‑based remedy, is precisely that: a remedy, awarded in certain circumstances upon the plaintiff satisfying all the constituent elements of one or more of various causes of action (specifically, breach of a duty in tort, contract, or equity).

[ 26 ] Some scholars, however, see disgorgement as an independent cause of action, which addresses unjust enrichment but does not operate on the same basis as the principled unjust enrichment framework adopted by this Court (P. D. Maddaugh and J. D. McCamus, The Law of Restitution (loose‑leaf), vol. 1, at pp. 3‑4 to 3‑7; see also J. Beatson, "The Nature of Waiver of Tort" (1978‑1979), 17 U.W.O. L. Rev. 1; D. Friedmann, "Restitution for Wrongs: The Basis of Liability", in W. R. Cornish et al., eds., Restitution: Past, Present and Future: Essays in Honour of Gareth Jones (1998), 133). And a handful of them have suggested that it should be possible to pursue a remedy of disgorgement in cases that are akin to negligence, but where the plaintiff cannot prove — or chooses not to prove — resulting damage (McCamus; C. Jones, "Panacea or Pandemic: Comparing 'Equitable Waiver of Tort' to 'Aggregate Liability' in Cases of Mass Torts with Indeterminate Causation" (2016), 2 Can. J. of Compar. & Contemp. L. 301). The plaintiffs' waiver of tort claim relies on this latter proposition.

[ 27 ] As I will explain, disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action. This view follows naturally from the historical origins of unjust enrichment and gain‑based remedies more generally.

[ 28 ] The modern law of unjust enrichment originated in the writ of assumpsit (Peel (Regional Municipality) v. Canada, 1992 21 (SCC), [1992] 3 S.C.R. 762, at pp. 786‑88). Use of assumpsit allowed plaintiffs to avoid the limits imposed by other forms of action, which might have prevented their claim from advancing (McInnes (2014), at p. 34; Martin, at pp. 482‑84). While the writ was premised upon the defendant having undertaken to pay a sum of money to the plaintiff and having broken that promise, the specialized form of indebitatus assumpsit allowed plaintiffs to acquire the benefits of assumpsit where no such undertaking actually existed. It created the legal fiction of an implied contract, allowing plaintiffs to sue in assumpsit, "even where the imputation of a promise to pay was nonsensical, as when the defendant acquired a benefit through the commission of a tort." (McInnes (2014), at pp. 34‑35; see also Martin, at pp. 489‑96).

[ 29 ] Where a tort was made out but the plaintiff chose to pursue a claim in assumpsit to recover the defendant's ill‑gotten gains, the plaintiff was said to "waive the tort" (Edelman, at pp. 121‑22). Despite its early acceptance, however, the term waiver of tort was a misnomer. Rather than forgiving or waiving the wrongfulness of the defendant's conduct, plaintiffs relying on the doctrine were simply electing to pursue an alternative, gain‑based, remedy (Edelman, at p. 122; see also United Australia, Ltd. v. Barclays Bank Ltd., [1941] A.C. 1 (H.L.), at pp. 13 and 18). The doctrine always operated as "nothing more than a choice between possible remedies", and not as an independent cause of action (United Australia, at p. 13; Martin, at pp. 504‑5). That this is so is apparent from decisions of this Court, including Arrow Transfer Co. Ltd. v. Royal Bank of Canada, 1972 135 (SCC), [1972] S.C.R. 845, where Laskin J. (as he then was), for the majority on this point, held that the plaintiff's claim for a gain‑based remedy was dependent on the tort of conversion having been completed (p. 877).

[ 30 ] Two points follow from this. First, and as this case demonstrates, the term waiver of tort is apt to generate confusion and should therefore be abandoned (Edelman, at p. 122). Secondly, and relatedly, in order to make out a claim for disgorgement, a plaintiff must first establish actionable misconduct.

[ 31 ] Recognizing that disgorgement is simply a remedy for certain forms of wrongful conduct places the central issue in this case in context. By pleading disgorgement as an independent cause of action, the plaintiffs seek to establish an entirely new category of wrongful conduct — one that is akin to negligence but does not require proof of damage. Supporters of this type of claim assert that "there is simply no reason in principle why the rules for compensatory damages need to be identical to the rules for disgorgement" (McCamus, at p. 359) and that, given that the purpose of granting disgorgement is to deter wrongful conduct rather than to provide compensation, there is no reason to require proof of damage (p. 354).

[ 32 ] I acknowledge that disgorgement is available for some forms of wrongdoing without proof of damage (for example, breach of fiduciary duty). But it is a far leap to find that disgorgement without proof of damage is available as a general proposition in response to a defendant's negligent conduct. Determining the appropriate remedy for negligence, where liability for negligence has not already been established, is futile and even nonsensical since doing so allows "the remedy tail [to] wag the liability dog" (Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511, at para. 55). This observation applies with no less force to the plaintiff who seeks disgorgement, since the availability of gain-based relief lies in "aligning the remedy with the injustice it corrects" (E. J. Weinrib, "Restitutionary Damages as Corrective Justice" (2000), 1 Theor. Inq. L. 1, at p. 23 (emphasis added)).

Disposition

Appeals allowed. Certification order set aside. Plaintiffs' statement of claim struck in its entirety. Wagner C.J. and Karakatsanis, Martin and Kasirer JJ. dissenting in part. No costs awarded pursuant to s. 37 of the Class Actions Act.

Appendix

Common Issues as Certified by Faour J.

(a) Does the Criminal Code authorize the operation of video lotteries by siteholders, in view of s. 206(1)(g) which prohibits games similar to "three card monte"?

(b) Does the Criminal Code authorize the operation of video lotteries by siteholders, in view of s. 201, which prohibits keeping a common gaming house?

(c) Has the Defendant been unjustly enriched?

(d) Has the Defendant breached s. 52 of the Competition Act [R.S.C. 1985, c. C‑34]?

(e) Has the Defendant breached a duty owed in contract or tort?

(f) Can monetary relief be measured on an aggregate, class‑wide basis and, if so, what is the amount of aggregate monetary relief?

(g) If the answer to Issue (f) is no, can loss or damage be measured by the gain to the Defendant, and if so, what is the appropriate restitutionary remedy and in what amount?

(h) Has the Defendant breached provisions of the Statute of Anne, 1710 [9 Anne, c. 19], and should the remedy of treble damages be granted, and if so, what is the appropriate amount?

(i) Should punitive or exemplary damages be awarded against the Defendant and, if so, in what amount.

Solicitors

• Appellant Atlantic Lottery Corporation Inc.: Goodmans, Toronto; Bennett Jones, Toronto
• Appellants VLC, Inc., IGT‑Canada Inc. and International Game Technology: Curtis, Dawe, St. John's
• Appellant Spielo International Canada ULC: Stewart McKelvey, St. John's
• Appellant Tech Link International Entertainment Limited: Cox & Palmer, St. John's
• Respondents: Koskie Minsky, Toronto
• Intervener Attorney General of Ontario: Attorney General of Ontario, Toronto
• Intervener Attorney General of Manitoba: Attorney General of Manitoba, Winnipeg
• Intervener Attorney General of Saskatchewan: Attorney General of Saskatchewan, Regina
• Interveners Bally Gaming Canada Ltd. and Bally Gaming Inc.: Benson Buffett, St. John's; Dickinson Wright, Toronto
• Intervener Western Canada Lottery Corporation: Kanuka Thuringer, Regina
• Intervener Alberta Gaming, Liquor, and Cannabis Commission: Alberta Justice and Solicitor General, Edmonton
• Intervener Canadian Gaming Association: McCarthy Tétrault, Toronto
• Intervener Canadian Chamber of Commerce: Davies Ward Phillips & Vineberg, Toronto
• Intervener British Columbia Lottery Corporation: Hunter Litigation Chambers, Vancouver

[^1]: While the pleadings advance other causes of action, those claims were struck by the Newfoundland and Labrador Court of Appeal, and the plaintiffs have not cross-appealed that decision.