Ontario’s appellate courts have released two decisions in the past week addressing the issue of when claims ought to be struck in the context of proposed class proceedings for failing to disclose a cause of action. First, a panel of the Divisional Court upheld the decision of Justice Horkins in Martin v. Astrazeneca Pharmaceuticals Plc, refusing to certify a proposed class on the grounds that the pleading was found to be “seriously deficient.” Only days later, the Ontario Court of Appeal overturned the lower court decision in Kang v. Sun Life Assurance Company of Canada striking various claims in a proposed class action against Sun Life. The Court of Appeal allowed the appeal on the grounds that these claims were not “doomed to fail” and therefore should not have been struck at first instance.
Although both decisions apply the “plain and obvious” test, and reaffirm the threshold that defendants must meet in order to strike claims pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure or defeat certification pursuant to section 5(1)(a) of the Class Proceedings Act, the apparent conflict manifest in the two rulings suggests that the pleadings requirements for putative class proceedings in Ontario remains unsettled.
Martin v. Astrazeneca Pharmaceuticals
In Martin v. Astrazenca Pharmaceuticals Plc, the plaintiffs alleged that an antipsychotic medication approved by Health Canada to treat schizophrenia and bipolar disorder caused a variety of “serious and sometimes fatal” health risks, including diabetes. The plaintiffs also claimed that the defendant marketed the medication for “off label” uses unapproved by Health Canada, negligently failed to warn physicians and patients about the health risks, and conspired to conceal these risks.
In refusing to certify the proposed class proceeding, Horkins J. of the Superior Court of Justice found that the plaintiffs had failed to satisfy section 5(1)(a) of the Class Proceedings Act, which requires that the pleading disclose a cause of action. In so doing, Horkins J. applied the accepted “plain and obvious” test, whereby a pleading will be deemed adequate for the purposes of section 5(1)(a) unless the claim has a radical defect or it is plain and obvious that it cannot succeed.
On its face, Justice Horkins’ decision set an exceptionally high bar for certification with regard to the level of specificity and clarity required of a plaintiff’s pleading at the certification stage. In particular, notwithstanding five separate pleadings amendments to the Statement of Claim and the provision of additional information to the defendants in response to demands for particulars, Horkins J. found that the pleading offended “the most basic rules governing pleadings,” and lacked the material facts necessary to establish viable causes of action in negligence, failure to warn, conspiracy, and waiver of tort.
Notably, Justice Horkins went on to consider the remaining four prongs of the five-part certification test contained in section 5(1) of the Class Proceedings Act, and found that the plaintiffs had failed to satisfy each of the remaining four prongs. In so ruling, Justice Horkins acknowledged the fact that a very similar action had been certified in 2007 by Justice Cullity in Heward v. Eli Lilly & Co., on the basis of a very similar pleading, noting that the plaintiffs “borrowed” much of their pleading – including the common issues – from the Heward claim. Nevertheless, Justice Horkins concluded that these parallels between the proceedings were not sufficient to save the pleading before her, and denied certification accordingly.
The Divisional Court panel, composed of Justices Aston, Lederer and Herman, dismissed the plaintiffs’ appeal. The reasons of the Court, which were delivered orally by Aston J.1, affirmed the decision of the Superior Court of Justice and awarded $725,000 in costs to the defendants, marking a rare instance in which a Canadian appellate court has denied outright the certification of a pharmaceutical class action.
Kang v. Sun Life Assurance Company of Canada
In the second case, however, the Court of Appeal reinstated claims that had been struck because they were not doomed to fail. In Kang v. Sun Life Assurance Company of Canada, 2013 ONCA 118, the plaintiffs alleged that Sun Life’s predecessor made misrepresentations when it sold them universal life insurance policies. Sun Life brought a motion to strike certain claims in advance of the certification motion. Perell J. granted the motion and struck the plaintiffs’ claims for breach of duty of good faith and fair dealing, breach of contract, and deceit and fraud. The Court of Appeal granted the appeal and reinstated these struck claims.
The Court of Appeal held that a pleading should only be struck on a Rule 21 motion when the applicable law is settled. As a result, because the law on the duty of good faith and fair dealing in the insurance context did not appear to be settled, the claim ought not to have been struck. Similarly, because the terms of the contract appeared ambiguous, the claim for breach of contract ought not to have been struck. Finally, the Court held that claims of deceit and fraud based on the administration of policies differed from claims of negligent and fraudulent misrepresentation and ought not to have been struck because they too were not doomed to fail.
The Court of Appeal, however, upheld Perell J.’s decision to strike a claim related to releases signed by certain policyholders because the plaintiffs failed to request any specific relief in relation to the releases. As a result, the statements were struck, but the Court left open the availability of a motion to add a claim for rescission or declaratory relief on the releases.
Although the decisions rely on the same legal test, the differing approaches by the Divisional Court in Martin v. Astrazeneca and the Court of Appeal in Kang v. Sun Life suggest that the pleadings threshold in the context of class proceedings remains unsettled. The Martin decision, which stands in stark contrast to the 2007 Heward decision of Justice Cullity (a decision that was upheld on appeal by the Divisional Court), would seem to suggest that the Ontario courts are imposing more rigorous pleadings standards in the context of proposed class proceedings. Conversely, the Court of Appeal’s ruling in Kang suggests that the Ontario courts’ traditionally expansive application of the “plain and obvious” test remains intact.
Differing factors and considerations were at play in the respective decisions, such that they cannot be said to be in conflict with one another. Nevertheless, the resulting uncertainty surrounding the ability to strike tenuous claims at the pleadings stage will continue to impact the management and costs of defending class actions.
1 The written transcription of the reasons has yet to be released by the Court.