Ontario’s Class Proceedings Act, enacted in 1993, sought to enhance access to justice for individuals whose claims were too small to justify a standalone lawsuit.
Banding together in a class and bringing a common action overcame that hurdle by putting at stake an aggregate sum that made it worthwhile for lawyers to take cases on a contingency basis.
But a group of plaintiffs seeking certification as a class had to show that a class action was the "preferable procedure" when compared to a host of individual actions. Defendants commonly resisted certification - with frequent success - by arguing that proceeding by way of class action would still require hundreds or thousands of claimants to prove their individual losses in separate hearings, severely diluting the advantage of a class proceeding.
"The law hasn't been terribly favourable for consumer class actions involving small amounts, because the courts assumed it was too hard to figure out how much was owing and to whom," says Kirk Baert of Koskie Minsky LLP.
Arguably, the Ontario Court of Appeal's May 2 decision in Markson v. MBNA Canada Bank has gone a long way to levelling the playing field.
Markson involved flat transaction fees charged by MBNA on cash advances from its credit cards. MBNA also charged compound interest on the advances. Depending on other activity in the cardholder's account and the timing of repayment, it was possible that the effective interest rate exceeded the 60-per-cent maximum allowed by s. 347 of the Criminal Code.
"Depending on how quickly the cardholder pays off the amounts owing, the effective annual interest rate can be astronomical, in the thousands of per cent," wrote Justice Marc Rosenberg, who authored the Court of Appeal's unanimous decision.
When the plaintiffs first applied for certification of the class, Superior Court Justice Maurice Cullity denied the application in July 2004. The Divisional Court upheld his decision in October 2005.
On appeal, Rosenberg stated the issue succinctly: "The fundamental question raised by the appeal is whether a class proceeding is appropriate where all members of the class are at risk of being charged a criminal interest rate . . . but only some of the members - a much smaller number of the class, were actually victims of the defendant's practice."
William Horton of Toronto, who represented MBNA, maintained there was no simple way (short of individual assessment) to determine the interest rate charged to particular customers. The bank's database could not be used to determine it and the only way to do so was by "manually and individually tracking each advance from the time it was made to the time it was repaid in full."
But as Rosenberg saw it, the "fundamental problem" was that MBNA had structured its affairs "such that it is practically impossible to determine the extent of its breach of s. 347 of the Criminal Code." The result of the bank's accounting practices meant, "That the precise extent of any violation of s. 347 could be determined only at great cost."
The solution lay in ss. 23 and 24 of the Class Proceedings Act, which provided a way "of avoiding the potentially unconscionable results of a wrong eluding an effective remedy." The combined effect of these provisions allowed the court to use "statistical sampling" to determine damages on a global basis.
"Markson means that defendants whose affairs are structured so as to make it difficult to sort out which class members are entitled to damages and to what amount will have to pay up anyway," says Baert, who with Linda Rothstein of Toronto's Paliare Roland Rosenberg Rothstein LLP represented the plaintiffs.
"The court has said that it's better that a claimant who hasn't suffered a loss gets a small windfall than for a defendant to retain wrongfully obtained monies."
The argument was even stronger when, as here, the defendants' conduct put all members of the class at risk, but caused actual loss only to an undetermined number.
"Markson is the first case in which the Court of Appeal has dealt with the defendants' argument that, 'Proving damages in a class proceedings will drive us crazy,'" says Rothstein.
In other words, courts will not base their decision on the manner in which a defendant keeps records, because to do so would reward internal procedures that obstruct plaintiffs.
"The decision is revolutionary because the whole concept that we can decide a case without determining individual amounts owing has been completely alien to our system," Baert says.
If the decision holds up - and Horton advises that MBNA will be seeking leave to appeal to the Supreme Court of Canada - it won't be alien for long.
"Markson loosens the restraints on certification in spades," says Paul Pape of Pape Barristers Professional Corp. in Toronto. "The issues in the case are the issues that arise in almost all the class actions involving small claims."
But David Kent of McMillan Binch Mendelsohn LLP is concerned that the court's move to aggregating damages will spill over to the growing number of class actions based on alleged price-fixing violations.
"The Markson court reasoned that it was aggregating only after liability had been established," he says.
"But I'm not sure that's what they did. Until you examine an individual transaction, after all, you can't even tell whether a cardholder has been exposed to a criminal rate of interest."
