Supreme Court of Canada: Full Bench comprising Wagner, C.J., Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer, JJ. allowed an appeal against a class action lawsuit claiming disgorgement from the Atlantic Lottery Corporation (ALC), a corporation which approves licenses for Video lottery terminals (VLTs).
The class action was instituted on behalf of any natural person who paid to play VLTs in the area in the six years preceding the lawsuit, which claimed that VLTs are deceptive and dangerous and contravene the Criminal Code’s (1985) prohibition of games similar to “three-card monte”. The plaintiffs claim that ALC breached its duty by not warning players of “the inherent dangers associated with VLTs, including the risk of addiction and suicide ideation.” The claim relies on three causes of action i.e., waiver of tort, breach of contract and unjust enrichment, to seek a gain-based award quantified by the profit ALC earned by licencing VLTs. ALC’s application against the claim before a certification judge failed, as did its appeal in the Court of Appeal, which allowed the plaintiff’s lawsuit to proceed to trial.
The Court, however, held that the plaintiffs’ plea is bound to fail since it does not disclose a reasonable cause of action. The bench opined that while disgorgement is a remedy against actionable misconduct, the plaintiffs seek to use it as an independent cause of action under an entirely new category of wrongful conduct, which is akin to negligence but does not require proof of damage. Denying relief on this ground, the Court asserted that “granting disgorgement for negligence without proof of damage would result in a remedy arising out of legal nothingness.” As for the argument concerning the similarity of VLTs to three-card monte, the Court rejected it since the prohibition was directed at the game’s attribute and not its feature of deception.
The Court opined that gain-based recoveries in cases of breach of contract require the consideration of the legitimate interest which such an award seeks to vindicate. Since the award sought by the plaintiffs is measured by the defendant’s gain, it seeks to serve a compensatory purpose which distinguishes it from disgorgement and that makes a gain-based remedy inappropriate. Moreover, the contract between ALC and the plaintiffs under which the plaintiffs paid to play on the VLTs cannot be said to have been vitiated since a benefit derived by a defendant from a valid contract is not unjustified. The plaintiffs failed in establishing a causal connection between the alleged breach of contract and the gain to be disgorged. However, four judges on the Bench dissented by allowing the appeal in part, striking down disgorgement and unjust enrichment as causes of action, instead suggesting that the lawsuit be focused on a breach of duty of care, the adequacy of ordinary remedies resulting from it and whether exemplary damages ought to be awarded. [Atlantic Lottery Corporation Inc. v. Babstock, 2020 SCC 19, decided on 24-07-2020]