Canada: Defending Class Actions In Quebec: The Right To An "Undoubtedly Real, Vigorous And Unconstrained" Contestation?

With the 2003 amendments to its class action authorization regime, Quebec’s pre-existing reputation as Canada’s class action haven and the forum of choice for class action petitioners was further cemented.

When the constitutional challenge to the new regime was dismissed by the Quebec Court of Appeal (the "QCA") in April 2005, in what is now commonly referred to as the Piro case ("Piro CA"),1 proposed defendants in Quebec,2 including corporations and directors who have been the targets of class actions, had serious reason to question whether they would, in fact, be able to successfully exercise the "undoubtedly real, vigorous and unconstrained" contestation, that, according to the QCA, still existed under the new system. The uncertainty for proposed defendants at the authorization stage was further amplified by the case law of the Superior Court prior to Piro CA which had adopted a highly restrictive approach to their rights at the authorization stage.

More recently however, the dismissal of the motion for authorization in the Piro case itself, along with a number of decisions which have allowed proposed defendants to lead evidence and examine petitioners at authorization, have provided reassurance to corporations and directors faced with class actions that their rights are indeed being recognized and taken into account at authorization.

The 2003 amendments to Quebec’s class action regime followed the recommendations of an advisory committee made up of judges, lawyers, and academics,3 who were of the opinion that authorization was becoming too expensive and time-consuming, and needed to be simplified and expedited. The major modifications to the procedures governing authorization, which are reflected in article 1002 of Quebec’s Code of Civil Procedure ("CCP"), were: (i) the removal of the requirement that motions for authorization be supported by an affidavit or sworn evidence, and thus, the disappearance of the right of respondents to examine on discovery as of right; (ii) the removal of the right of respondents to file written contestations; and (iii) the removal of the right to file evidence at authorization absent leave of the authorizing judge who had the discretion to allow "relevant evidence to be submitted" (the "2003 amendments").

It should be noted that no amendments were made to the four substantive criteria set out in article 1003 of the CCP which must be met before authorization is granted, namely, establishing: (a) similar or identical questions of law or fact; (b) that the facts alleged "seem to justify the conclusions sought;" (c) that the composition of the group made proceeding by mandate or joinder of actions difficult or impracticable; and (d) that the proposed representative was in a position to adequately represent the class.

In February 2003, one month after the introduction of the new regime, and only two days after the appearance of a newspaper article reporting that unnamed generic drug manufacturers had allegedly given "illegal" rebates and other benefits to pharmacists, and based entirely on the allegations contained in the article, two proposed class action lawsuits were launched, and the now notorious Piro class action was born.4

The proposed class action, one of the largest in Quebec history, sought $3.9 billion on behalf of every resident of the province against eight named manufacturers on the grounds that they had allegedly failed to deduct the "value" of these rebates and other benefits from the prices of medications under Quebec’s publicly administered drug insurance plan.

Among the preliminary motions brought against the motion for authorization (which motion, in accordance with the new rules, was not supported by any sworn statement or evidence), was a challenge of the constitutional validity of article 1002 of the CCP. The basis for this challenge was that in the absence of any requirement that evidence be provided in support of a motion for authorization, the new regime violated the principles of fundamental justice and deprived responding parties of their right to an impartial hearing before an independent tribunal under section 23 of Quebec’s Charter of Human Rights and Freedoms.5

As a result of this challenge, which had obvious ramifications for all class actions in Quebec, the Associate Chief Justice of Quebec’s, Superior Court rendered an administrative decision suspending all class actions in the province pending the outcome of this issue.6

On April 29, 2005, the QCA, in a unanimous decision penned by Justice Paul-Arthur Gendreau, released its much-anticipated decision in Piro CA and confirmed the constitutional validity of article 1002 of the CCP.

On the basis of its earlier decisions, which had characterized authorization as a mere "filtering and verification mechanism," that was merely "procedural" and an "interim judgment,"6 the QCA distinguished between the nature and purpose of authorization and the merits of the action proper, and held that authorization was nothing more than a prerequisite to the bringing of the action.7 The QCA held that at authorization the role of the judge was simply to determine whether the conditions set out in article 1003 of the CCP had been met.

The QCA further held that, at this stage, a petitioner had a "burden of demonstration, not proof," and that evidence would not be required in all cases.8 In addition, despite the fact that there was no longer an affidavit filed in support of an authorization motion, the Court held that all of the facts alleged in a motion for authorization had to be taken by the authorizing judge as true.9

With respect to the position of proposed defendants at authorization, the QCA held that "the substantive rights of the defendant are neither alienated nor withdrawn," and that they had legal means at their disposal to counter the claims of the party applying for authorization. The QCA also refused to take into account, at the authorization stage, the financial and severe consequences for companies who are the targets of class actions, as this consideration was irrelevant under Quebec law.10

Despite the foregoing, the QCA nevertheless recognized that proposed defendants were entitled to an oral contestation at authorization that was "undoubtedly real, vigorous and unconstrained,"11 and they could seek leave from the authorizing judge to adduce "appropriate evidence."12

The decision in Piro CA left unanswered a number of fundamental questions with respect to how Quebec’s new class action regime would operate in practice. For example, in light of the holdings that for the purposes of authorization all of the facts were deemed to be true, that a petitioner did not have a burden of proof, and that evidence would not be required in all cases, many respondents wondered what effect, if any, "appropriate evidence" led by them at authorization could possibly have, given the QCA’s holding that a petitioner no longer had any evidentiary burden to satisfy in the first place?

Proposed defendants had further reason to question the impact of "relevant" evidence at authorization based on a decision released shortly following Piro CA, where the evidence led by the respondents had no impact on the outcome of the motion for authorization, which was ultimately granted. In St. Pierre v. Meubles Léon Ltée,13 a proposed class action was instituted against the respondent, a furniture and appliance store, on the basis that it had allegedly failed to advise its customers that they would have received a better price had they paid cash instead of financing their purchases. The affidavit sworn by a representative of the respondent affirmed that contrary to the unsupported allegations in the motion for authorization, it was not the respondent’s practice to offer rebates to its customers who paid cash. Justice Paul Chaput of the Superior Court noted (correctly in our view) that the question of whether or not rebates were given went to the merits of the case. However, in obiter, he went on to indicate that the sworn affirmation of the respondent’s representative was insufficient to rebut the petitioner’s (unsupported) allegations.

Indeed, proposed defendants had serious reason to question what considerations would be relevant in the exercise by authorizing judges of their discretion to grant leave to examine petitioners, or lead evidence at authorization, particularly considering that prior to Piro CA the reported cases of the Superior Court had systematically denied leave to proposed defendants to adduce evidence at authorization. The only reported decision to the contrary was the May 26, 2004 decision of Justice Roy in the Piro case itself,14 which granted preliminary motions raised by some of the respondents to conduct limited examinations of the petitioners and to file evidence at authorization.15

Faced with the restrictive approach adopted by the courts towards the rights of respondents at authorization and the decision in Piro CA, which included an obiter from Justice Gendreau that the facts alleged in the motion for authorization "appeared to justify the conclusions sought",16 many assumed that the motion for authorization in Piro was a mere procedural formality that simply required a rubber stamp. As it turned out, and to the surprise of many, this was not in fact the case.

On January 17, 2006, Justice Roy rendered her decision dismissing the proposed Piro class action.17 In her decision, Justice Roy noted that while the legislator had reduced Quebec’s authorization criteria to a minimum, in light of the 2003 amendments, it was essential that there be a sufficient factual basis and specific circumstances alleged that would provide the Court sufficient information to appreciate the seriousness of the proposed class action, and that this information was seriously lacking in this case.18 Justice Roy held that the motion for authorization, which had been amended six times, including at the authorization hearing itself after the petitioners had declared their evidence closed, was a "moving target" and a "fishing expedition" that lacked the serious and requisite factual allegations that would have given rise to a cause of action against the respondents.

The Court held that authorization, while simplified, remained a critical stage that was "adversarial,"19 and, as noted in Piro CA, the respondents had the right at this stage to a contestation that was "undoubtedly real, vigorous and unconstrained."20 Justice Roy also indicated that the last sentence of article 1002 of the CCP, which provides that the authorizing judge "may allow relevant evidence to be submitted," applied to both petitioners and respondents, and that it would be possible in some circumstances for a petitioner to be required to make proof that the proposed class action should be authorized.21

Ultimately, Justice Roy made clear that while the Court did not require complete details as to all of the facts that would be called into play on the merits of the class action, it was not prepared to authorize a class action that was riddled with numerous factual gaps and to conclude that the petitioner had a serious case based on "pure speculation" drawn from a newspaper article.22

While people have come to associate the Piro case with the decision validating Quebec’s class action regime, there are encouraging signs for proposed defendants that this case, and more specifically, the QCA’s explicit recognition of their right at authorization to an "undoubtedly real, vigorous and unconstrained" contestation, may constitute a turning point in the attitude towards the rights of proposed defendants at authorization.

In October 2005, for the first time since Justice Roy’s May 26, 2004 decision allowing the respondents to lead evidence at authorization, the Superior Court, in the case of Young v. Noranda Inc. ("Noranda"),23 granted leave to the respondents to examine a petitioner out of court prior to authorization. Curiously, in Noranda, the motion to examine was consented to by the petitioners, who believed that the examination would allow for the progression of the file and would save time, but was contested by the Attorney General for Quebec (also a proposed defendant to the motion for authorization), who contended that pursuant to the 2003 amendments, courts could not authorize examinations on discovery in the context of motions for authorization. 24

In Noranda, Justice Bernard Godbout noted that the question of allowing examinations on discovery prior to authorization was an issue of considerable interest given the contradictory case law from both the QCA as to the nature of the authorization stage generally,25 as well as that of the Superior Court on this issue.26 Given the modifications to article 1002 of the CCP, the Court held that while the respondent could not, as of right, examine the petitioner on discovery at authorization, this did not mean that the Court could not authorize an examination at this stage. Justice Godbout did note, however, that even assuming an examination was authorized, before being allowed to file the examination as evidence, the respondent would have to convince the Court that it was "appropriate."

Three months later, in December 2005, and for the first time since the 2003 amendments, in Dallaire v. Eli Lilly Canada Inc. ("Eli Lilly"),27 the Superior Court granted leave to the respondents to file expert reports at the authorization stage. In Eli Lilly, the petitioners sought to institute a class action on behalf of all Quebecers that had taken the drug Zyprexa, and claimed damages from the proposed defendants on the basis that they had allegedly failed to advise them that this drug increased the risk of heart problems, diabetes and weight gain. By their expert reports, the proposed defendants sought to demonstrate that articles 1003(a) and (b) had not been satisfied, by establishing, among other things, that the knowledge and acceptance of the risks of each member of the group had to be evaluated on an individual basis, as did the risk for diabetes which ultimately required an evaluation of the medical history of each member of the proposed class.

Justice Carl Lachance noted that while the legislator sought to simplify and shorten the debate, and limit the filing of evidence at the authorization stage, the 2003 amendments did not prohibit the filing of expert reports at authorization. As for the question of whether or not these reports would be "relevant" or admissible for the purposes of authorization, the Court noted that it would be premature to decide the question prior to the authorization hearing itself.28

More recently, by judgment of January 16, 2006, in Lachance v. Cleyn & Tinker Inc.,29 Madam Justice Pepita Capriolo, citing the May 26, 2004 decision of Justice Roy and the decision in Noranda, followed the recent trend of allowing respondents to lead evidence at authorization. The evidence in question, affidavits from representatives of the respondents, sought to address the issue of whether or not the group on whose behalf the petitioner sought authorization was appropriate. Justice Capriolo noted that article 1002 of the CCP did not restrict the type of evidence that was admissible and that the criteria for determining whether or not the respondents could lead evidence was whether or not the evidence in question dealt with the four criteria in article 1003 of the CCP.

It remains to be seen whether the decision dismissing the Piro motion for authorization will be upheld by the QCA, and whether the evidence led by the proposed defendants in the above-mentioned cases will have any impact on the outcome of authorization. While the climate of uncertainty for corporations and directors faced with class actions in Canada’s most plaintiff-friendly jurisdiction will continue to prevail, proposed defendants can take comfort in the fact that a more balanced approach is being taken to their rights at authorization, and that this critical stage will be treated as more than a mere procedural formality en route to the authorization of a class action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.