2018 NLCA 71, 2018 NLCA 71

Atlantic Lottery Corporation Inc.-Société des loteries de l’Atlantique (appellant) v.

Douglas Babstock and Fred Small (first respondents) and VLC Inc. (second respondent) and IGT- Canada Inc. (third respondent) and International Game Technology (fourth respondent) and Spielo International Canada ULC (fifth respondent) and GTech Corporation (sixth respondent) and Tech Link International Entertainment Limited (seventh respondent) and Hi-Tech Gaming.com Ltd. (eighth respondent) and Bally Gaming Canada Ltd. and Bally Gaming Inc. (ninth respondents/cross-appellants) (14/81, 17/07, 17/13 and 17/21) Indexed As: Atlantic Lottery Corporation Inc.-Société des loteries de l’Atlantique v.

Babstock 2018 NLCA 71 3 C.A.N.L.R. 606 Court of Appeal of Newfoundland and Labrador Green C.J.N.L., Welsh and Harrington JJ.A. December 10, 2018

Summary: The Atlantic Lottery Corporation Inc. applied for leave to appeal and appealed the order pursuant to

section 25 of the Class Actions Act , SNL 2001, c. C-18.1 , certifying a class action brought by applicants who sought civil remedies based on claims that video lottery terminals authorized by the Lottery Corporation are inherently deceptive, breach the Criminal Code , the Competition Act and the Statute of Anne (Gaming Act) 1710 , and constitute a breach of contract and tortious misconduct with resulting unjust enrichment. The Lottery Corporation argued that the pleadings do not disclose a cause of action and should have been struck and further the order for certification should not have been granted.

Held: Leave to appeal granted, appeal allowed in part (Welsh J.A. dissenting). Green J.A. (Harrington J.A. concurring): The reasons of Welsh J.A. with respect to (

i) the granting of leave to appeal; (ii) the inapplicability of the Statute of Anne , 1710, 9 Ann. c.14 and (iii) the inapplicability of the Competition Act , RSC 1985, c. C-34 are agreed with. A different conclusion should be reached on the remaining issues. The analysis of these issues, especially in relation to the topics of restitution, unjust enrichment, waiver of tort and restitution by wrongdoing is in some respects affected by terminological and conceptual confusion and inconsistency . ______________________________ Reversed, 2020 SCC 19

The principles relating to restitution and unjust enrichment have been sub-categorized in recent years into two broad fields: (

i) the restitution of benefits conferred on someone who has been unjustly enriched at the claimant’s expense (restitution for unjust enrichment); and (ii) the restitution or disgorgement of benefits acquired as a result of the commission of a wrong (restitution or disgorgement for wrongdoing). The first category (referred to here as “unjust enrichment simpliciter ”) has been the traditional focus of the study of restitution. It attracts the familiar three-part analysis that requires answers to the questions: (

i) has the claimant conferred a benefit on the defendant? (ii) has there been a corresponding deprivation to the claimant? and (iii) is there any juristic reason which would justify retention of the benefit?

The cause of action supporting the second category is not the unjust enrichment itself but the existence of a wrong (such as a tort, breach of contract, breach of fiduciary duty or perhaps even a crime) against the claimant which has the result of enabling the defendant to acquire a gain (sometimes described as an unjust enrichment), not necessarily from the claimant, that justifies the court in ordering the disgorgement of the wrongdoer’s gains. This is so even if the claimant may, as a result, benefit from a windfall. The terms “restitution” and unjust enrichment have been used inconsistently.

The use of the term restitution should be limited to situations where the remedy includes the reversal of a transfer of wealth from the defendant to the claimant. The term disgorgement should be used to describe the remedy that involves the award to the claimant of a benefit acquired by the defendant from a source that does not necessarily include a deprivation to the claimant. The term unjust enrichment can describe any enrichment of the defendant, however that enrichment is derived, and which a court determines to be unjust , thus justifying either a restitutionary or disgorgement remedy.

The test for deciding whether to prevent a claim from proceeding to trial is whether it is plain and obvious that the claim is bound to fail or has no reasonable prospect of success. Putting aside the claims based on the Statute of Anne and the Competition Act , the legal bases upon which the claimants assert they are entitled to relief are that the actions of the appellant amount to: 1. A crime under the Criminal Code ; 2. A breach of contract; 3. A breach of a duty to warn in tort (and possibly deceit); 4. An unjust enrichment of the appellant; and 5. A “cause of action” based on the doctrine of waiver of tort.

The claimants seek different forms of monetary remedy, described variously as: 1. Restitution for unjust enrichment; 2. Disgorgement of profits and accounting on the basis of waiver of tort or a constructive trust over such profits; 3. Damages assessed in an amount equal to the gross revenues earned by the appellant, or the net income received by the appellant or a percent of the proceeds from the sale of VLT gaming; and 4. Punitive damages on the basis that compensatory damages would be inadequate.

The claims asserted by the claimants have a common theme: to ground causes of action based on unjust enrichment gained by the commission of a wrong that will lead to remedies of disgorgement., i.e. they assert various aspects of the second category of what has often been described as “restitution”, as described above (in the terminology chosen, claims based on wrongful acquisition, the remedial response to which is disgorgement). The analysis of the claims in the context of this class action and the certification order must be undertaken through this lens.

This is the approach which the applications judge essentially took: that the claims were gain-based not compensation-based. While the wording of the certification order and the language chosen by the applications judge could perhaps have been clearer, given the lack of consistency of terminological use in this area of the law, the claims being advanced are in essence claims based on unjust enrichment gained by commission of a wrong and seeking the remedy of disgorgement of the benefits wrongfully acquired.

There are discrete areas of the law where disgorgement of gains has been recognized as a remedial response to specific wrongful conduct. But whether those areas are to be regarded as independent silos or are indicative of the application of a more general principle, leading to further expansion or development, is still open to question. Furthermore, the individual candidates for inclusion within a general category of a claim based on unjust enrichment gained from wrongdoing are not rigidly fixed.

Most of these categories raise their heads in the claims of the claimants in this case which will be dealt with in turn, noting that a plaintiff is not required, as a matter of pleading, to state the particular cause of action on which he or she relies. The respondents pleaded a breach of contractual obligation. They did not specifically plead that individual members of the class suffered any actual damage. Not all cases of breach of contract require that loss or damage be either proven or pleaded. The cause of action is complete when a contract and its breach have been established.

A distinction must be drawn between the notion of damage , in the sense

of identifying a loss resulting from a breach of contract, and damages in the sense of a potential remedial response to a proven breach of contract. The issue of damages factors into the remedial response to the breach. In any event, the claimants did plead that they were entitled to “damages equal to the total unlawful gain obtained by the appellant from class members”. This is in effect a claim for “restitutionary damages” in traditional parlance. On the state of the law at present, the parameters of the remedy of disgorgement of profits for breach of contract remain uncertain.

What is clear, however, is that in certain types of cases disgorgement is a potential remedial response to breach of contract. It cannot be said, therefore, that the claim for disgorgement of profits based on breach of contract is doomed to fail. The applications judge was justified not to strike out the claims that rely on breach of contract as a wrong calling for a disgorgement of profits made as a result of the breach. The claimants plead tortious conduct, here negligence, in the sense of a failure to observe a duty to warn potential users of the risk of VLT use.

They plead both a duty of care and a breach of the duty but they do not claim any damages. A plea and proof of damage is a necessary element of a cause of action in negligence. In addition to claiming to waive the tort and elect a restitutionary remedy, the claimants also plead waiver of tort as a separate cause of action which in itself attracts remedies of constructive trust, disgorgement and accounting.

The law has progressed to the point where it is reasonable to conclude that, depending on proof at trial, a court could find on the facts as pleaded that a claim for disgorgement is actionable (subject, of course, to possible defences) based on unjust enrichment of the appellant as a result of tortious wrongdoing. Such a claim, where it is based on a claim of negligence, does not depend on proof of damage to individual tort victims; it is sufficient to prove a breach of a duty of care, i.e. the “wrong” that forms the basis of the tort.

It is necessary to consider what the current state of the law is with respect to the concept of waiver of tort. In this jurisdiction, the issue of whether waiver of tort can constitute a separate cause of action or simply involves an election of alternative remedies is still at large. Viewed from a historical perspective, waiver of tort could not be said to be an independent cause of action; it was permitted as an election of an alternative means of achieving a different remedy in certain limited circumstances. Historically, it was an election of remedies by waiving an underlying tort.

Waiver of tort is now regarded as archaic language for the simple idea that some forms of wrongdoing exceptionally allow the successful plaintiff to demand disgorgement of the defendant’s gain as an alternative to compensation for loss.

While the literature and the statements in the caselaw are by no means uniform, there are those who assert that it is time to restate as a cause of action a principle that rationalizes the notion underlying waiver of tort leading to the restitution or disgorgement of profits acquired as a result of commission of a tortious wrong: provision of a disincentive or deterrence of wrongful conduct which leads to improper profit-making.

Disgorgement for tort should be available in any case where the awarding of such relief is appropriate in light of the underlying rationale of deterring wrongful conduct by imposing the common law sanction of disgorgement with respect to profits secured by the wrongful act. No category of tortious misconduct ought to be automatically excluded from the provision of disgorgement relief.

In particular, there appears to be no reason to preclude disgorgement in the context of negligent conduct where the conduct in question falls so significantly below a reasonable standard of care that the misconduct merits condemnation in the form of an awarding of disgorgement relief. There may, however, be particular fact situations in which, even though profits have been tortiously acquired, the deterrence rationale may not be sufficiently engaged to warrant disgorgement on the particular facts.

At the pleading stage, all that would be necessary, to avoid a “plain and obvious” pre-emptive striking out would be a pleading of facts supporting tortious wrongful conduct, a plea of an enrichment acquired as a result of the wrong together with such surrounding circumstantial facts from which a plausible submission could be made that the deterrence/disincentive rationale should be applied to achieve disgorgement in favour of the claimant, thereby making the enrichment unjust unless disgorgement were made.

The time has come to jettison the terminology of waiver of tort and to recognize that a cause of action exists that, in principle, allows for the disgorgement of profits acquired as a result of the commission of a tortious wrong. The tort of negligence presents its own special challenges in this context.

But, in the context of unjust enrichment by wrongdoing generally, there is, as already discussed, no focus on or even a need to require that the plaintiff suffer any loss or deprivation; hence, in principle, there should be no need to allege actual loss, only that the risk created by the negligent conduct could potentially have caused loss to a person in the position of the plaintiff.

It is inherent in this area that a claimant may receive a windfall which is regarded as the lesser evil than allowing a defendant to profit from a wrong. In any event, a first-past-the-post approach may not be as unfair as it may at first seem. In reality, it is no different from what now exists in the area of compensation claims. In fact, there should be less concern in the restitution area, because the issue is not fairness to individual plaintiffs to ensure they are justly and individually compensated but to ensure that profit-making defendants are not allowed to keep their ill-gotten gains.

Assuming, following trial, the respondents are able to convince the court of some or all of the contentions in their pleadings, it could lead to a conclusion of cynical opportunistic wrongdoing thus providing a justification, over and above the profit-stripping principle itself, for concluding that the resultant profit-making by the appellant was unjust and warrants disgorgement of all or a portion of those profits. Even if causation of damage was a requirement in the context of the cause of action based on unjust enrichment gained from wrongdoing, it has been sufficiently pleaded.

The respondents allege that the appellant failed to disclose, in its representations to the public, that use of VLTs created serious risks of addiction, suicide, attempted suicide and suicidal ideation. They also plead that this, amongst other representations, were “material and affected the decision of the Plaintiffs to play the Defendant’s VLTs” and as a result, the claimants suffered loss or damage.

It was also submitted that the claim in negligence was bound to fail because no general duty of care could arise by the appellant, as regulator, towards the class of VLT users, there being no proximity, in the sense of a close and direct relationship, between the appellant and the respondents. Here, it is alleged that there was a direct commercial relationship between the appellants and the claimants, and the appellant, in engaging in that relationship, was arguably not acting as a regulator but as a commercial actor seeking a profit.

It is open to the respondents in the current case to attempt to establish the degree of proximity necessary to support a duty of care on the facts pleaded. The applications judge did not err in deciding not to strike the claims based on waiver of tort. The respondents also allege that the appellant’s conduct and management of VLTs, which are inherently deceptive, addictive and dangerous, are not a permitted lottery pursuant to section 207(1) of the Criminal Code and hence illegal.

Three-card monte has been criminalized because of the easy opportunity for persons operating the game, especially in public sidewalk settings, to act fraudulently by palming or secreting cards (or the other objects in use) or otherwise manipulating them in an improper and surreptitious manner that effectively cheats the participant out of his or her money.

The essence of three-card monte could therefore be the giving of the illusion of a straight-forward gambling game played by fair and known rules that depends in part on the exercise of judgment and mental acuity and which gives it an air of legitimacy in order to encourage continued playing, whereas in reality it is actually played in a deceptive way without following rules so as to cheat participants.

Here, the claimants have pleaded that VLTs as operated by the appellant are deceptive and are designed falsely to give the illusion of control and a certain degree of judgment by the participant when in fact they are designed not to operate by the rules and methodologies as represented. Whether that can be said to be congruent with the “essence” of three-card monte or a game similar to it is a matter that may well depend on expert evidence as to just what the mischief of three-card monte is perceived to be and whether VLTs exhibit the same essential characteristics. That requires a trial.

It cannot be said at this stage that it is “plain and obvious” that such a claim cannot succeed. The prohibited game is not limited to usage of cards or to the type of game that is “commonly known” as three-card monte. It includes “any other game that is similar to it.” What is unclear is whether the similarity must be in relation to the methodology, including the ostensible rules of play and implements used or in relation only to the “essence” of the game, i.e. the mischief (a certain type of fraud or deception) to which the crime is directed. This is a matter of

interpretation which should only be done against the backdrop of evidence as to what is commonly known as three-card monte and what the essential characteristics of the game can be considered to be. It cannot be said therefore that on the pleadings a claim that VLTs fall within the prohibition against three-card monte because they are “similar” to it is certain to fail. It is necessary to consider whether Canadian law will recognize a claim for disgorgement of profits based on criminal wrongdoing.

While there may be issues of causation that might affect recovery in principle the remedy should be available, subject to public policy considerations that might justify non-recovery in particular cases. It is not plain and obvious that a claim for restitution of benefits or disgorgement of profits based on a wrong constituting a crime cannot succeed.

At the level of principle, such a claim should be permissible, academic analysis supports such a claim and what little case law there is, both in England and in Canada, suggests that, depending on the particular factual matrix, a court directly seized with the issue could well grant a remedy. Such a claim should not therefore be struck out on a preliminary application.

To the extent that the commission of a wrong leads to a transfer of wealth from the claimant to the defendant (i.e. involves the conferral of a benefit on the defendant with a corresponding deprivation of the claimant), it may be possible, alternatively, to assert a claim in unjust enrichment simpliciter . The respondents also advance claims for exemplary or punitive damages. As previously noted, while the claimants are not advancing claims for damages for injury in the context of the claims based on unjust enrichment by wrongdoing, they are not asserting that they did not suffer any loss.

To the extent that some loss or injury is established at trial, therefore, the remedy of punitive or exemplary damages may still be available. The appellant also challenged the applications judge’s decision to certify the class action on a number of grounds. When deciding an application to certify, the applications judge must be guided by, amongst other things, considerations relating to fairness, efficiency and manageability of the proceedings so as to advance the objectives of the class actions legislation, which are to achieve access to justice, judicial economy and the modification of wrongdoers.

The judge did not err in refusing to strike the other claims. Consequently, for the purposes of this appeal, to the extent that the claims have not been struck, it can be concluded that the pleadings disclose a cause of action and the appeal fails on this point. The appellant also argued that the claims advanced and the remedies claimed could not be given without complex inquiries and factual determinations that were specific to individual members of the class.

The arguments of the appellant on these aspects of the appeal amount in essence to an attempt to reargue the factual and discretionary issues decided by the applications judge. No palpable or overriding error, nor any error in principle, has been demonstrated. Apart from the issues concerning the Statute of Anne and the Competition Act , the appeal should be dismissed. Welsh J.A., dissenting: Under section 36(3) of the Class Actions Act an order certifying an action as a class action may be appealed only with leave of the Court.

In general, where a class action has been certified, there may be some reticence to grant leave because the ability under the Act to adjust the certification order to take account of a change or need to clarify the order may obviate the need to bring a challenge on appeal which would interfere with the efficient progression of the action through the court. Nevertheless, to grant leave to appeal the certification order in this case would be in the interests of justice.

To separate the issues relating to striking the statement of claim, appealing which does not require leave, from the same issues relevant to the certification order would be an inefficient use of judicial resources. Further, the pleadings-related issues invite clarification of the law in the context of the certification of class actions. A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action. Another way of putting the test is that the claim has no reasonable prospect of success.

The claim in the pleadings that VLTs contravene the Criminal Code has no reasonable prospect of success. The class members have not pleaded any facts to support the proposition that a game played on a VLT amounts to three-card monte or a game similar to it, which is prohibited under

section 206 of the Criminal Code . T he manner in which the operation of VLTs is described in the pleadings is not similar to three-card monte and does not provide a basis for determining that games played on VLTs are precluded by virtue of section 207(4) , which authorizes the Province to conduct or manage a lottery scheme, other than three-card monte. Moreover, as evidenced by the Lotteries Act , SNL 1991, c. 53 an d Regulations , the Province has enacted law to conduct and manage a VLT lottery scheme, as it is authorized to do under section 207(1) of the Criminal Code .

It follows that it is plain and obvious that the class members’ claim that the Province has created a vast system of common gaming houses in contravention of section 201(1) the Criminal Code has no reasonable chance of succeeding. Nor does a claim based on the Statute of Anne have a reasonable prospect of success. Assuming the Statute of Anne was received into the law of this Province and has not been directly repealed, the provisions of the Statute would be rendered inoperative to the extent that they conflict with provisions of the Criminal Code and the Lotteries Act and Regulations .

Despite the respondents’ pleadings, it is plain and obvious that the Lottery Corporation is not bound by the Competition Act , R.S.C. 1985, c. C-34 ,

section 52 of which makes it an offence to knowingly or recklessly make a representation to the public that is false or misleading in a material respect for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever. It is not pleaded that pursuant to

section 2.1 of the Competition Act that the Lottery Corporation is in competition with any person. In any event, based on the pleadings, section 36(1) of the Competition Act which requires proof of consequential loss or damage by the claimant and not restitutionary damages for unjust enrichment or injunctive relief, could not be engaged.

Claims for breaches of duties in tort and contract also cannot succeed. As determined by the applications judge, the class members havespecifically disclaimed consequential loss or damage. In the result, the pleadings and alleged contract do not provide a basis on which toconclude that the Lottery Corporation has profited by a surplus in comparison to loss or damages by the class members, which arespecifically not claimed. Similarly, a claim in tort requires demonstration of a loss, which has specifically been disclaimed by the classmembers. Nor can the respondents succeed in a claim for unjust enrichment.

The well-known elements required to establish an unjust enrichmentare (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason (such as acontract) for the enrichment. The established categories of juristic reasons are the existence of a contract, disposition of law, donativeintent, and other valid common law, equitable or statutory obligation. The categories may be added to over time. In this case, the juristicreason is within the established categories.

There is nothing in the pleadings laying a foundation on which to rebut the juristic reasons,legislated authority and valid common law, on which the Lottery Corporation relies. In the result, unjust enrichment could not beestablished as pleaded. The class claim cannot succeed on the basis of unjust enrichment by wrongdoing per se, a form of claim that has been referred to as“waiver of tort”. Waiver of tort is a developing area of law. In this case, it is unnecessary to determine the nature, scope or appropriateterminology in respect of waiver of tort.

This is because the class members have not pleaded facts necessary to support wrongdoing bythe Lottery Corporation. The applications judge erred in concluding that the common issues defined in the certification order satisfy the requirement that thepleadings disclose a cause of action. The certification order should be set aside and statement of claim struck without leave to amend. Cases cited: Green J.A.: 321665 Alberta Ltd. v. Mobil Oil Canada Ltd., 2010 ABQB 522, 35 Alta L.R. (5th) 222 Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629 Moore v. Sweet, 2018 SCC 52 Andrews v.

Canada (Attorney General), 2014 NLCA 32, 354 Nfld. & P.E.I. R. 42) Levy v. British Columbia (Crime Victim Assistance Program), 2018 BCCA 36, 7 B.C.L.R. (6th) 84 Hunt v. Carey Canada Inc., (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273 Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477 Cassano v. Toronto-Dominion Bank, 2007 ONCA 781, 87 O.R. (3d) 401, leave to appeal to SCC refused, [2008] 1 S.C.R. xiv Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601 French v. Paris, (SK CA), [1928] 3 D.L.R. 555 (Sask. C.A.) Rogers & Rogers Inc. v.

Pinehurst Woodworking Company Inc. (2005), (ON SC), 14 B.L.R. (4th) 142, 144 A.C.W.S.(3d) 654 (Ont. S.C.) Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 Webster v. Thomson (2008), 167 A.C.W.S. (3d) 286 (Ont. S.C.), rev’d on other grounds, 2008 ONCA 730 Markson v. MBNA Canada Bank, 2007 ONCA 334, 85 O.R. (3d) 321, leave to appeal to SCC refused, [2007] 3 S.C.R. xii Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., (SCC), [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1 Attorney General v. Blake, [2001] 1 A.C. 268 (H.L.) Reid-Newfoundland Co. v. Anglo-American Telegraph Co.

Ltd., [1912] A.C. 555 Jostens Canada Ltd. v. Gibsons Studio Ltd., (BC CA), [1998] 5 W.W.R. 403, 42 B.C.L.R. (3d) 149 Health Care Developers Inc. v. Newfoundland (1996), (NL CA), 141 Nfld. & P.E.I.R. 34, 136 D.L.R. (4th) 609

(Nfld. C.A.) Williams v. Thomas Developments

(1989) Corp., 2007 NLCA 54 , 269 Nfld. & P.E.I.R. 290, leave to appeal to SCC refused, (SCC), 289 Nfld. & P.E.I.R. 278 Club 7 Ltd. v. E.P.K. Holdings Ltd. (1993), (NL SC), 115 Nfld. & P.E.I.R. 271, 46 A.C.W.S. (3d) 529 (Nfld. T.D.) Hurley v. Slate Ventures Inc. (1998), (NL CA), 167 Nfld. & P.E.I.R. 1, 82 A.C.W.S. (3d) 279 (Nfld. C.A.) United Australia Ltd. v. Barclays Bank, [1941] A.C. 1 (H.L.) Morrison and Morrison v. Canadian Surety Co. and Mahon, (MB CA), [1954] 4 D.L.R. 736, 12 W.W.R. (N.S.) 57(Man. C.A.) Donoghue v. Stevenson, (FOREP), [1932] UKHL 100, [1932] A.C. 562 Stacey v.

Anglican Churches of Canada (1999), (NL CA), 182 Nfld. & P.E.I.R. 1, 92 A.C.W.S. (3d) 1116 (Nfld.C.A.) Heward v. Eli Lilly & Co. (2007), 154 A.C.W.S. (3d) 1020, 47 C.C.L.T (3d) 114 (Ont. Sup. Ct.) aff’d (2008), (ONSCDC), 91 O.R. (3d) 691, 295 D.L.R. (4th) 175 (Ont. Div. Ct.) Serhan Estate v. Johnson & Johnson (2006), (ON SCDC), 85 O.R. (3d) 665, 269 D.L.R. (4th) 279 (Ont. Div. Ct.),leave to appeal to C.A. refused, M33963 (October 16, 2016), leave to appeal to SCC refused, [2007] 1 S.C.R. x Reid v. Ford Motor Company et al. 2006 BCSC 712, 149 A.C.W.S. (3d) 804 Pet Supplies (USA) Inc. v.

Pivotal Partners Inc., 2008 BCSC 1667, 91 B.C.L.R. (4th) 328 Dennis v. Ontario Lottery and Gaming Corp., 2011 ONSC 7024, 344 D.L.R. (4th) 65 aff’d 2013 ONCA 501, leave to appeal to SCCrefused, 355 O.A.C. 399 Aronowicz v. Emtwo Properties Inc., 2010 ONCA 96, 98 O.R. (3d) 641 Andersen v. St. Jude Medical Inc., 2012 ONSC 3660, 219 A.C.W.S. (3d) 725 Parker v. Pfizer Canada Inc., 2012 ONSC 3681, 217 A.C.W.S. (3d) 22 Arora v. Whirlpool Canada LP, 2012 ONSC 4642, 220 A.C.W.S. (3d) 681, aff’d 2013 ONCA 657, leave to appeal to SCC refused 473N.R. 387 Edwards v.

Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562 Moreira v. Ontario Lottery and Gaming Corporation, 2013 ONCA 121, 302 O.A.C. 244 leave to appeal to SCC refused, 327 O.A.C. 399and 333 O.A.C. 401 Burrell v. Metropolitan Entertainment Group, 2011 NSCA 108, 309 N.S.R. (2d) 375 Walsh v. Atlantic Lottery Corporation, 2015 NSCA 16, 355 N.S.R. (2d) 384 Paton Estate v. Ontario Lottery and Gaming Corporation, 2016 ONCA 458, 131 O.R. (3d) 273 Childs v. Desormeaux, 2006 SCC 18, [2016] 1 S.C.R. 643 Hill v. Hamilton – Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129 The King v.

Rosen and Lavoie (1920), (QC CA), 61 D.L.R. 500 Apotex Inc. v. Merck & Co., 2004 FCA 298, 134 A.C.W.S. (3d) 70 R. v. Andrews, (SK CA), [1976] 1 W.W.R. 376, 28 C.C.C. (2d) 450 (Sask. C.A.) Rosenfeldt v. Olson (1986), (BC CA), 25 D.L.R. (4th) 472 (B.C.C.A.), leave to appeal to S.C.C. refused, 72 N.R. 77n Bodnar v. The Cash Store Inc., 2006 BCCA 260, 55 B.C.L.R. (4th) 53 Ayrton v. PRL Financial (Alta.) Ltd., 2006 ABCA 88, 384 A.R. 1 Canada v. Saskatchewan Wheat Pool, (SCC), [1983] 1 S.C.R. 205, 143 D.L.R. (3d) 9 McCarey v. Associated Newspaper Ltd. (No. 2), [1965] 2 Q.B. 86 (C.A.) at 107 Vorvis v.

Insurance Corp. of British Columbia, (SCC), [1989] 1 S.C.R. 1085, 58 D.L.R. (4th) 193 Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595

Hollick v. Toronto (City), 2001 SCC 68 , [2001] 3 S.C.R. 158 Welsh J.A. (dissenting): Thorne v. College of the North Atlantic, 2017 NLCA 30 R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45 Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477 The King v. Rosen and Lavoie (1920), (QC CA), 61 D.L.R. 500 (Que. C.A.) Wakelam v. Wyeth Consumer Healthcare/Wyeth Soins de Santé Inc., 2014 BCCA 36, leave to appeal refused [2014] 2 S.C.R. x Watson v. Bank of America Corp., 2015 BCCA 362 Bank of America Canada v.

Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601 Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, [2004] 3 S.C.R. 575 Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3 Counsel: Daniel Simmons Q.C., Julie Rosenthal and Benjamin Zarnett, for the appellant; Kirk Baert and Celeste Poltak, for the first respondents; Ian Kelly Q.C. and Daniel Glover, for the second, third and fourth respondents; Daniel Boone Q.C., for the fifth respondents; No appearance, by the sixth and eighth respondents; Jorge P.

Segovia, for the seventh respondent; Paul Dicks Q.C., for the ninth respondents/cross-appellants. This appeal was heard on October 23, 24 and 25, 2017 before Green C.J.N.L., Welsh and Harrington JJ.A.

The following judgment was delivered on December 10, 2018 by Welsh J.A. dissenting in part and in the result, reasons for judgment byGreen J.A., concurred in by Harrington J.A. ______________________________________________________________ Welsh J.A. (Dissenting in Part and in the Result): [1] Certification as a class action was granted to applicants who, as a class, are seeking civil remedies based on claims that videolottery terminals (“VLT”) authorized by the Atlantic Lottery Corporation Inc. are inherently deceptive, that they breach the CriminalCode, the Competition Act and the Statute of Anne (Gaming Act) 1710, and that they constitute a breach of contract and tortiousmisconduct with resulting unjust enrichment. [2] The Lottery Corporation applies for leave to appeal and, if granted, appeals the order certifying the class action.

An earlierinterlocutory decision by the applications judge dismissing the Lottery Corporation’s application to strike all or portions of the statementof claim is also considered in the appeal. BACKGROUND [3] The certification order made on February 1, 2017, pursuant to

section 25 of the Class Actions Act, SNL 2001, c. C-18.1, definesthe class members, the class period, the nature of the claims, the nature of the relief sought, and the common issues: 2. The Class is hereby defined as: Natural persons and their estates, resident in Newfoundland and Labrador, who, during the Class Period, paid the [Lottery Corporation]to gamble on VLT games, excluding video poker games and keno games, in Newfoundland and Labrador, excluding directors, officersand employees of the [Lottery Corporation].

3. The Class Period is hereby defined as the period … from April 26, 2006, up to the opt-out date to be set by the Court. 4. The nature of the claims asserted by the [class members] is: (

a) The [class members] claim that video lottery line games offered by the [Lottery Corporation] in Newfoundland and Labrador during the class period are inherently deceptive, (

b) The [class members] allege breaches of the Criminal Code , the Competition Act and the Statute of Anne (Gaming Act) 1710 ; unjust enrichment; and breaches of duty owed in either contract or tort, (

c) The [class members] claim entitlement to a restitutionary remedy for the class without proof of reliance or individual harm. The [class members] do not claim individual damages. 5. The nature of relief sought by the class is: (

a) an order declaring that the [Lottery Corporation’s] conduct or management of VLT’s is not a permitted lottery and is not authorized pursuant to s. 207(1) of the Criminal Code ; (

b) an order for an aggregate monetary award pursuant to s. 29 of the Class Actions Act ; (

c) an accounting for and disgorgement of profits or revenues, or a constructive trust over same; (

d) damages equal to the total unlawful gain obtained by the [Lottery Corporation] from class members; (

e) an order directing the [Lottery Corporation] to pay an amount equal to the loss or damage proved to have been suffered because of the breach of the Competition Act plus an amount equal to the full cost of any investigation of the matter and of proceedings under s. 36 ; (

f) exemplary or punitive damages; (

g) treble the loss or damage pursuant to the Statute of Anne ; (

h) a declaration or injunction restraining the [Lottery Corporation] from continuing the unconstitutional act or practice; and (

i) a declaration or injunction restraining the [Lottery Corporation] from conduct contrary to s. 52(1) of the Competition Act . 5. The common issues are hereby defined as: (

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 [Lottery Corporation] been unjustly enriched? (

d) Has the [Lottery Corporation] breached s. 52 of the Competition Act ? (

e) Has the [Lottery Corporation] 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 [Lottery Corporation], and if so, what is the appropriate restitutionary remedy and in what amount? (

h) Has the [Lottery Corporation] breached provisions of the Statute of Anne , 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 [Lottery Corporation] and, if so, in what amount? Common issues (f), (g), (

h) and (

i) are to be determined only if a finding has been made that the [Lottery Corporation] is liable to the [class members]. [ 4 ] Prior to the certification order being granted, the applications judge dismissed an application by the Lottery Corporation to strike all or portions of the statement of claim. That order may be appealed without leave of the Court (rule 35 of the Court of Appeal Rules , NLR 38/16). ISSUES [ 5 ] Upon a determination that leave to appeal should be granted, the issues raised by the appeal relate to whether the pleadings disclose a cause of action as required under the Class Actions Act .

Common issues under consideration are: (1) whether the VLT games are prohibited by the Criminal Code based on (

a) the prohibition against three-card monte games, or (

b) the creation of common gaming houses; (2) application of the Statute of Anne ; (3) application of the Competition Act ; (4) breach of contract or an action in tort; (5) unjust enrichment; and (6) the application of waiver of tort. ANALYSIS

The Legislation [ 6 ] The requirements for certification of a class action are set out in

section 5 of the Class Actions Act :

(1) On an application made under

section 3 or 4, the court shall certify an action as a class action where (

a) the pleadings disclose a cause of action ; (

b) there is an identifiable class of 2 or more persons; (

c) the claims of the class members raise a common issue, whether or not the common issue is the dominant issue; (

d) a class action is the preferable procedure to resolve the common issues of the class ; and (

e) there is a person who (

i) is able to fairly and adequately represent the interests of the class, (ii) has produced a plan for the action that sets out a workable method of advancing the action on behalf of the class and of notifying class members of the action, and (iii) does not have, on the common issues, an interest that is in conflict with the interests of the other class members.

(2) In determining whether a class action would be the preferable procedure for the fair and efficient resolution of the common issues, the court may consider all relevant matters including whether (

a) questions of fact or law common to the members of the class predominate over questions affecting only individual members; (

b) a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions; (

c) the class action would involve claims that are or have been the subject of another action; (

d) other means of resolving the claims are less practical or less efficient; and (

f) the administration of the class action would create greater difficulties than those likely to be experienced if relief were sought by other means. (Emphasis added.) Leave to Appeal [ 7 ] An order certifying an action as a class action may be appealed only with leave of the Court (section 36(3) of the Class Actions Act ). Leave is sought by way of an application which may be heard at the same time as the appeal, as was done in this case ( rule 33 of the Court of Appeal Rules ). [ 8 ] Factors to be considered in analyzing an application for leave to appeal are discussed in Thorne v.

College of the North Atlantic , 2017 NLCA 30 , at paragraphs 11 to 21 . The following factors provide a “starting place, though not a rigid template”: [13] … (

a) there is a conflicting decision by another judge or court upon a question involved in the proposed appeal and, in the opinion of the Court, it is desirable that leave to appeal be granted, (

b) the Court doubts the correctness of the order in question, (

c) the Court considers that the appeal involved matters of such importance that leave to appeal should be granted, (

d) the Court considers that the nature of the issue is such that any appeal on that issue following final judgment would be of no practical effect, or (

e) the Court is of the view that the interests of justice require that leave be granted. [14] The relevance of paragraph (

d) is discussed in Davis [ v. Canada (Attorney General) , 2008 NLCA 49 , 279 Nfld. & P.E.I.R. 1 ]: [18] The nature of an application for certification as a class action will colour the assessment of the factors … . For example, either the granting or refusal of certification will generally result in an issue on appeal having no practical effect following final judgment … . Therefore, while paragraph (

d) is a relevant factor, it should be assessed in light of other relevant considerations. [15] Regarding the importance of the issues and the interests of justice under paragraphs (

c) and (e) …, considerations such as the novelty of the issue would be relevant. … [16] The issues of conflicting decisions or the correctness of the decision under paragraphs (

a) and (b) …, may be engaged, for example, where there is a question as to the application of a relevant principle of law, or where clarification of the law or a principle is desirable. [ 9 ] Additional relevant criteria include “prejudice to a party, the effect of delay, inconvenience, efficient use of judicial resources, or

other good reason” (Thorne, at paragraph 20). [10] In general, where a class action has been certified, there may be some reticence to grant leave because “the ability [under the Act]to adjust the certification order to take account of a change or need to clarify the order may obviate the need to bring a challenge onappeal which would interfere with the efficient progression of the action through the court” (Thorne, at paragraph 19). [11] In this case, the Lottery Corporation submits that leave should be granted on two bases: that the interests of justice require thatleave be granted, and that there is good reason to doubt the correctness of the certification order.

Regarding the first, counsel points outthat the appeals of the certification order and the application to strike the statement of claim are intertwined. In particular, it is submittedthat, to be certified as a class action, the pleadings must disclose a cause of action, and the same consideration applies in determiningwhether all or a portion of the statement of claim may be struck.

Because leave to appeal is not required in respect of the application tostrike, it follows that efficient use of judicial resources would be achieved, and the potential for conflict avoided, by granting leave tohear all the issues at the same time. [12] Further, the Lottery Corporation submits, striking even a portion of the statement of claim would potentially affect

definitions ofthe common issues and the class, and whether a class action is the preferable procedure. [13] In light of the above considerations, I am satisfied that to grant leave to appeal the certification order would be in the interests ofjustice. To separate the issues relating to striking the statement of claim from the same issues relevant to the certification order would bean inefficient use of judicial resources.

Further, for the reasons that follow, I am satisfied that the pleadings-related issues inviteclarification of the law in the context of the certification of class actions. [14] Accordingly, I would grant leave to appeal the certification order. Whether the Pleadings Disclose a Cause of Action [15] The test for striking out pleadings, and its application, are discussed in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011]3 S.C.R. 45, at paragraphs 17 to 26.

McLachlin C.J.C., for the Court explained: [17] … A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses noreasonable cause of action … .

Another way of putting the test is that the claim has no reasonable prospect of success. … [22] … It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. … The facts pleaded are thefirm basis upon which the possibility of success of the claim must be evaluated. … [25] … The question is whether, considered in the context of the law and the litigation process, the claim has no reasonable chance ofsucceeding. [Italics in the original.] [16] Similarly, in Pro-Sys Consultants Ltd. v.

Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477, in the context ofcertification of a class action, Rothstein J., for the Court, wrote: [63] The first certification requirement requires that the pleadings disclose a cause of action. In Alberta v. Elder Advocates of AlbertaSociety, 2011 SCC 24, [2011] 2 S.C.R. 261 (“Alberta Elders”), this Court explained that this requirement is assessed on the samestandard of proof that applies to a motion to dismiss, as set out in Hunt v. Carey Canada Inc., (SCC), [1990] 2 S.C.R.959, at p. 980.

That is, a plaintiff satisfies this requirement unless, assuming all facts pleaded to be true, it is plain and obvious that theplaintiff’s claim cannot succeed (Alberta Elders, at para. 20; …). [17] In this case, the pleadings must be considered in the context of their intended purpose of grounding a class action. Breach of the Criminal Code [18] Two issues related to the Criminal Code are defined as common issues in the certification order: (

a) Does the Criminal Code authorize the operation of video lotteries by siteholders, in view of s. 206(1)(

g) which prohibits gamessimilar 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 acommon gaming house? A “siteholder” is defined in the Video Lottery Regulations, NLR 760/96,

section 2, to mean “an occupant of a site”. “Site” is defined tomean “premises which are accessed or used by a person playing a video lottery terminal”. (

a) The Game of Three-card Monte [19] Regarding the first issue, the statement of claim pleads: 38. The Plaintiffs also plead that VLTs are not lotteries or games of chance within the meaning of the Criminal Code. Rather, they areso unconnected with chance or skill and so manipulative and deceptive as to fall within the prohibition against “three-card monte”, andany other game of trickery and sleight-of-hand that is similar to it, contained in s. 206(1)(

g) of the Code. Consequently, the [LotteryCorporation’s] conduct and management of VLTs is not a permitted lottery pursuant to s. 207(1) of the Criminal Code, and is notauthorized by the Code.

[20] Under section 206(1)(

g) of the Criminal Code, three-card monte is prohibited: Every one is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years who … (

g) induces any person to stake or hazard any money or other valuable property or thing on the result of any dice game, three-cardmonte, punch board, coin table or on the operation of a wheel of fortune; [21] Three-card monte is defined in section 206(2) of the Criminal Code: In this

section “three-card monte” means the game commonly known as three-card monte and includes any other game that is similar toit, whether or not the game is played with cards and notwithstanding the number of cards or other things that are used for the purpose ofplaying. [22]

Section 207 of the Code specifies exceptions to the offences prescribed in

section 206. In particular, it is lawful for theprovincial government to conduct and manage a lottery scheme in accordance with law enacted by the legislature. However, thisauthority specifically excludes three-card monte, which remains a prohibited game. This follows from the definition of “lottery scheme”in section 207(4): In this section, “lottery scheme” means a game or any proposal, scheme, plan, means, device, contrivance or operation described in anyof paragraphs 206(1)(

a) to (g), whether or not it involves betting, pool selling or a pool system of betting other than (

a) three-card monte, punch board or coin table; (Emphasis added.) [23] In the case on appeal, the class members have not pleaded any facts to support the proposition that a game played on a VLTamounts to three-card monte or a game similar to it. The definition of three-card monte in section 206(2) as “the game commonly knownas three-card monte” provides little assistance.

In Random House Webster’s Unabridged Dictionary (New York: Random House) secondedition, 2001, three-card monte is defined to mean “a gambling game in which the players are shown three cards and bet that they canidentify one particular card of the three, as stipulated by the dealer, after the cards have been moved around face down by the dealer”. (See also

definitions in the Canadian Oxford Dictionary (Don Mills: Oxford University Press) second edition, 2004; and in the MicrosoftEncarta College Dictionary (New York: St. Martin’s Press, 2001.) [24] In The King v. Rosen and Lavoie (1920), (QC CA), 61 D.L.R. 500 (Que. C.A.), the defendants had beenconvicted of conspiracy to defraud the public by playing three-card monte. In assessing the appeal, the Court discussed what three-cardmonte is and how it is played.

Martin J., for the majority, explained, at pages 502 to 503: The special character of the crime charged was that they played with the prosecutor what is commonly known as the “Three-cardMonte” game, a game played with three cards, say, two black ones and a red one, shuffled or manipulated by the dealer and placed facedown and the opponent backs his ability to spot the position of a particular card.

By sleight of hand or quickness of movement, thedealer endeavours to induce the person backing his opinion to put his hand on the wrong card. … The act of determining the location of the red card, always assuming that no fraudulent substitution has been made, depends upon theexercise of judgment, observation and mental effort. … The operation of manipulating cards calls for judgment, skill and adroitness.

The other player attentively follows the movement of the cards and imagines he can designate the required card out of the three. … [25] Paragraphs 10 to 33 of the statement of claim are directed to the manner in which VLTs form the basis for the class action. Theydeal generally with alleged addictive and deceptive qualities of the games. These statements clearly distinguish games played on VLTsfrom three-card monte. For example: 17.

VLTs mimic on screen the mechanical reel slot machine, and have asymmetric virtual reels that are programmed to give a near misseffect by which the consumer is manipulated into believing that he or she almost won or is getting closer to a win. VLTs have variableprice structures that result in potent variable reinforcements that further reinforce this effect. 18. Like loaded dice, VLTs combine randomness with concealed asymmetry to cheat the player. The virtual reel mapping isprogrammed to generate both vertical and horizontal randomized near misses. 20.

The outcome of play is in fact the result of a random number generator, and is predetermined upon commencement of play, and istotally unconnected with what is happening on the video screen. 21. The presence of a “stop” button reinforces the illusion of a connection between the reels and the outcome of play by creating agreater illusion of control. The “stop” button is deceitful in that it provides no control over the outcome of play. … [26] Assuming these pleadings could be proven, it is clear, from the above

definitions of three-card monte and the relevant provisionsof the Criminal Code, that the pleadings do not provide a basis for determining that games played on VLTs are precluded by virtue ofsection 207(4), which authorizes the Province to conduct or manage a lottery scheme, other than three-card monte. The pleadings do notstate that VLT games involve manipulations of cards or objects or sleight-of-hand that invite the player to identify and bet on thelocation of a particular item.

That is the essence of three-card monte. [27] I am satisfied that, considered in the context of the law and the litigation process, it is plain and obvious that the claim that thegames played on VLTs amount, or are similar, to the game of three-card monte has no reasonable chance of succeeding.

(

b) Common Gaming House [ 28 ] In paragraphs 39 and 40 of the statement of claim, the class members plead that the location of VLTs in bars, clubs and lounges “has created a vast system of common gaming houses” prohibited by section 201(1) of the Criminal Code . [ 29 ] Section 207(1) of the Code , which authorizes the Province to legislate so as to permit certain gaming and betting, provides an exception to that prohibition: Notwithstanding any of the provisions of this Part relating to gaming and betting, it is lawful (

a) for the government of a province, either alone or in conjunction with the government of another province, to conduct and manage a lottery scheme in that province, or in that and the other province, in accordance with any law enacted by the legislature of that province; [ 30 ] The authority of a province to “conduct and manage” a lottery scheme is broad in scope and subject only to the exceptions and requirements specified in

Part VII of the Code . Under the Lotteries Act , SNL 1991, c. 53, sections 2 and 3 , the Minister of Finance, with the approval of the Lieutenant-Governor in Council, is authorized to “develop, organize, undertake, conduct and manage lottery schemes” that are “permitted by virtue of the Criminal Code ”. A licensing requirement for electronic or mechanical amusement devices is set out in

section 4 of the Act . [ 31 ] The Regulations under the Act set parameters regarding the use of VLTs.

Section 3 of the Regulations provides:

(1) A person shall not operate a video lottery in the province unless it has been approved by the [Atlantic Lottery Corporation].

(2) In determining whether to approve a video lottery, the corporation may assess the suitability of the siteholder, taking into account the following factors: (

a) business associations; (

b) reputation in the community; (

c) financial statements; (

d) relationship to other siteholders; (

e) previous or existing participation in a video lottery; (

f) residency; and (

g) another matter considered appropriate by the corporation. [ 32 ] Under

section 5 of the Regulations , a site must be approved by the Atlantic Lottery Corporation. Factors that may be considered in the approval process are enumerated in section 5(2): In considering whether to approve a site for the operation of a video lottery, the corporation may consider the following factors: (

a) the nature of the business; (

b) the hours of operation; (

c) security; (

d) geographic location and physical location; (

e) the estimated revenues from the proposed video lottery operation on the proposed site; and (

f) those other factors as the corporation may feel is ( sic ) relevant or the commission may direct. [ 33 ] As evidenced by the Lotteries Act and Regulations , the Province has enacted law to conduct and manage a VLT lottery scheme, as authorized under section 207(1) of the Criminal Code . It follows that it is plain and obvious that the class members’ claim that the Province has created a vast system of common gaming houses in contravention of the Criminal Code has no reasonable chance of succeeding.

Summary [ 34 ] In

summary, it is plain and obvious that the pleadings related to breaches of the Criminal Code do not disclose a cause of action as required under section 5(1) (

a) of the Class Actions Act . Accordingly, there is no basis on which the class action could proceed with respect to common issues (

a) and (

b) set out in the certification order. Statute of Anne, 1710 [ 35 ] The certification order defines as a common issue: (

h) Has the [Lottery Corporation] breached provisions of the Statute of Anne , and should the remedy of treble damages be granted, and if so, what is the appropriate amount? [ 36 ] In the statement of claim, the class members plead the Statute of Anne , which they state “was received into the law of this

jurisdiction in 1832 and has not been repealed” (paragraph 53 of the statement of claim). And further: 54. This provision permits any person who has lost money on gaming to sue for and recover the money so lost by action of debt founded on the Act, without setting forth the special matter, and to recover treble the value thereof. [ 37 ] There is no basis on which the class members could succeed on this common issue.

Assuming the Statute of Anne was received into the law of this Province and has not been directly repealed, the provisions of the Statute would be rendered inoperative to the extent that they conflict with provisions of the Criminal Code and the Lotteries Act and Regulations . Insofar as the lottery scheme authorized by the Province results in money being lost by the player, that money could not be recovered by application of the Statute of Anne . The law, in fact, permits a person to pay money to play a game on a VLT with the result that the player may lose that money.

It is a form of gaming and betting authorized by law. [ 38 ] In the result, there is no basis on which the class action could proceed with respect to common issue (

h) set out in the certification order regarding the Statute of Anne . The Competition Act [ 39 ] The certification order defines as a common issue: (

d) Has the [Lottery Corporation] breached s. 52 of the Competition Act ? [ 40 ] The relevant pleadings state: 44. The [class members] state that the [Lottery Corporation’s] conduct in promoting, directly or indirectly, the supply or use of VLTs or its business interest, and in knowingly or recklessly making representations to the public that were false or misleading in material respects, is contrary to s. 52(1) and (1.1) of the Competition Act , R.S.C. 1985, c.

C-34, as amended, and the [class members] have a statutory cause of action pursuant to s. 36 of the Competition Act to recover an amount equal to the loss or damage proved to have been suffered, together with the full cost of investigation and of proceedings under s. 36 . 45. The [class members] also rely on s. 52(1.1) of the Competition Act and plead that it is unnecessary to show actual reliance on the misleading representations of the [Lottery Corporation] for the purpose of establishing a breach of s. 52(1) of the Act.

It is apparent from these pleadings and the provisions of the Competition Act discussed below that the common issue would more clearly have been stated in terms of

section 36 of the Act in conjunction with

section 52 . [ 41 ]

Part VI of the Competition Act , R.S.C. 1985, c. C-34, provides for offences under the Act . Section 52(5) makes it an offence to contravene section 52(1), which provides: No person shall, for the propose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklessly make a representation to the public that is false or misleading in a material respect. Pursuant to section 52(1.1) , for purposes of proving an offence, it is not necessary to prove that any person was deceived or misled. [ 42 ] Section 36(1), in

Part IV, of the Act , “Special Remedies”, provides: Any person who has suffered loss or damage as a result of (

a) conduct that is contrary to any provision of

Part VI , … may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct … an amount equal to the loss or damage proved to have been suffered by him , together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section. (Emphasis added.) [ 43 ] Finally,

section 2.1 of the Competition Act provides: This Act is binding on and applies to an agent of Her Majesty in right of Canada or a province that is a corporation , in respect of commercial activities engaged in by the corporation in competition , whether actual or potential, with other persons to the extent that it would apply if the agent were not an agent of Her Majesty. (Emphasis added.) Application of the Competition Act –

Section 2.1 [ 44 ] The Lottery Corporation is comprised of four shares, one held by each of the provincial governments in Atlantic Canada, that is, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island. Such a cooperative venture is authorized by section 207(1) of the Criminal Code . However, pursuant to that provision, it is lawful only for the provincial government, alone or with the government of another province, “to conduct and manage a lottery scheme”.

It follows that, in carrying out its functions under the Lotteries Act and Regulations , the Lottery Corporation is acting as an agent of Her Majesty in Right of the Province. This characterization is not challenged by the class members. [ 45 ] Further, the class members do not plead that the Lottery Corporation is in competition with other persons. In fact, the opposite is pleaded in paragraph 6 of the statement of claim:

Pursuant to s. 5 of the Lotteries Act , the Lieutenant-Governor in Council promulgated regulations known as the Video Lottery Regulations. The Regulations grant extensive monopolistic powers to the [Lottery Corporation] to approve who is permitted to operate a video lottery terminal (VLT), and the site on which it is operated. VLTs are installed directly by the defendant, and must have affixed to them the official decal of the [Lottery Corporation]. No VLT siteholder may remove or replace a VLT without prior consent of the [Lottery Corporation].

No person may manufacture or supply a VLT in the province unless approval has been given by the [Lottery Corporation]. (Emphasis added.) (See also, paragraphs 8, 52 and 55 of the statement of claim referring to the “monopolistic” nature of the VLT lottery scheme; and Regulations under the Lotteries Act , paragraphs 30 to 33, above.) [ 46 ] A monopoly is inconsistent with competition. The class members do not plead actual or potential competition with another person within or outside the Province. In the result, based on the pleadings and

section 2.1 of the Act , it is plain and obvious that the Lottery Corporation is not bound by the Competition Act . Remedy for Loss or Damage [ 47 ] Further, section 36(1) of the Competition Act , which provides for a civil remedy in respect of conduct prohibited by the offence under section 52(1), requires proof of consequential loss or damage by the claimant ( Pro-Sys , at paragraphs 65, 66, 69 and 70). [ 48 ] The underlying rationale for the proposition that section 36(1) is limited to recovery of loss or damage suffered by the plaintiff is discussed in the analysis in Wakelam v.

Wyeth Consumer Healthcare/Wyeth Soins de Santé Inc. , 2014 BCCA 36 (leave to appeal refused [2014] 2 S.C.R. x ). Newbury J.A., for the Court, concluded: [90]

Section 36 clearly limits recovery for pecuniary loss to “the loss or damage proved to have been suffered” by the plaintiff, together with possible investigatory costs incurred by the plaintiff. I see nothing in the Competition Act to indicate that Parliament intended that the statutory right of action should be augmented by a general right of consumers to sue in tort or to seek restitutionary remedies on the basis of breaches of

Part VI. … See also Watson v. Bank of America Corp. , 2015 BCCA 362 , at paragraph 24 . [ 49 ] In the pleadings, the class members have specifically disclaimed consequential loss or damage.

Indeed, the applications judge found as a fact in the certification decision (2016 NLTD(G) 216): [111] I note here that the [class members] have stated repeatedly that they are not alleging injury or harm. … They seek restitutionary damages on behalf of the class, so an individual assessment may not be necessary. … … [147] … The [class members], on the other hand, have asserted a claim which is not based on individual proof or individual harm. In fact, they have denied any individual injury or harm as a basis for the claim.

They rest on allegations of misrepresentation and deception in the offering of games which they say may cause harm. … [ 50 ] Similarly, in the decision on the application to strike all or portions of the statement of claim, the applications judge found (2014 NLTD(G) 114): [58] … The [class members] have not claimed they have suffered loss. They seek alternate remedies, such as restitutionary damages for unjust enrichment, and injunctive relief. See also paragraph 4(

c) of the certification order. (Restitutionary damages for unjust enrichment are discussed below.) [ 51 ] In this case, the pleadings do not lay the necessary foundation to satisfy the requirement for proof of “loss or damage proved to have been suffered by [the claimant]” under section 36(1) of the Competition Act . [ 52 ] In

summary, it is plain and obvious that the Competition Act does not apply to the Lottery Corporation, and, in any event, based on the pleadings, section 36(1) could not be engaged. It follows that there is no basis on which the class could succeed on this common issue. Breach of Contract or Tort [ 53 ] The certification order defines as a common issue: (

e) Has the [Lottery Corporation] breached a duty owed in contract or tort? [ 54 ] Breach of contract by the Lottery Corporation is pleaded in paragraphs 46 to 52 of the statement of claim. Regarding the nature of the contract: 46. The contract between the parties was to provide a safe, interactive and entertaining way to play games of chance with the opportunity to win small cash prizes in exchange for small frequent cash bets. [ 55 ] The remaining paragraphs are directed to pleading the inherent dangerousness of VLT use on the basis that it leads to dependency and addiction. For example,

47. … The [Lottery Corporation] breached the warranty [that “the VLTs were of merchantable quality and fit for use”] … by designing, testing, researching, formulating, developing, manufacturing or altering, producing, labeling, advertising, promoting, distributing and/or selling VLTs which were inherently dangerous to users and which the [Lottery Corporation] knew or ought to have known would lead to dependency and addiction . (Emphasis added.) [ 56 ] In order to establish a claim for breach of contract, some loss or damage, which may include the right to restitutionary damages, must be pleaded.

In Bank of America Canada v. Mutual Trust Co. , 2002 SCC 43 , [2002] 2 S.C.R. 601 , Major J., for the Court, explained: [25] Contract damages are determined in one of two ways. Expectation damages, the usual measure of contract damages, focus on the value which the plaintiff would have received if the contract had been performed.

Restitution damages, which are infrequently employed, focus on the advantage gained by the defendant as a result of his or her breach of contract. [ 57 ] After discussing expectation damages, Major J. turned to restitution damages: [30] The other side of the coin is to examine the effect of the breach on the defendant. In contract, restitution damages can be invoked when a defendant has, as a result of his or her own breach, profited in excess of his or her expected profit had the contract been performed but the plaintiff’s loss is less than the defendant’s gain.

So the plaintiff can be fully paid his damages with a surplus left in the hands of the defendant. This occurs with what has been described as an efficient breach of contract.

In some but not all cases, the defendant may be required to pay such profits to the plaintiff as restitution damages (Waddams, [ The Law of Damages , 3rd edition (Aurora, Ontario: Canada Law Book, 1997], at p. 474). [31] Courts generally avoid this measure of damages so as not to discourage efficient breach (i.e., where the plaintiff is fully compensated and the defendant is better off than if he or she had performed the contract.) (Waddams, supra , at p. 473). … [46] … Contract law is not the enemy of parties to an agreement but, rather, their servant.

It should not frustrate their mutually agreed intentions but, instead, absent overriding policy concerns, should permit those parties to obtain the benefit of their intended agreement. [ 58 ] The discussion under

section 36 of the Competition Act would apply by analogy to the breach of contract common issue. That is, as determined by the applications judge, the class members have specifically disclaimed consequential loss or damage.

In the result, the pleadings and alleged contract do not provide a basis on which to conclude that the Lottery Corporation has profited by a surplus in comparison to loss or damages by the class members, which are specifically not claimed. [ 59 ] Similarly, a claim in tort requires demonstration of a loss, which has specifically been disclaimed by the class members. [ 60 ] In the result, subject to the discussions below regarding unjust enrichment and waiver of tort, it follows that there is no basis on which the class could succeed on this common issue.

Unjust Enrichment [ 61 ] The certification order defines as a common issue: (

c) Has the [Lottery Corporation] been unjustly enriched? [ 62 ] The relevant pleadings state: 60. The Plaintiffs state that there has been a deprivation of the Plaintiffs and the plaintiff class and a corresponding enrichment of the [Lottery Corporation], by reason of the breaches of the Criminal Code of Canada , the Statute of Anne , the Competition Act , tortious misconduct and breaches of contract described herein. This deprivation and corresponding enrichment is without juridical reason. 61.

The [class members] claim a remedy in restitution on the basis that the interest of the [class members] in the safety of VLT gaming makes it just and equitable that the [Lottery Corporation] should retain no benefit from the breaches pleaded. [ 63 ] The elements of a claim in unjust enrichment are summarized in Pro-Sys : [85] The well-known elements required to establish an unjust enrichment are (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason (such as a contract) for the enrichment ( see Alberta Elders , at para. 82 ; …). [ 64 ] Restitution for unjust enrichment in the realm of public law is discussed in Pacific National Investments Ltd. v.

Victoria (City) , 2004 SCC 75 , [2004] 3 S.C.R. 575 . Binnie J., for the Court, explained: [13] The doctrine of unjust enrichment provides an equitable cause of action that retains a large measure of remedial flexibility to deal with different circumstances according to principles rooted in fairness and good conscience. This is not to say that it is a form of “‘palm tree’ justice … that varies with the temperament of the sitting judges.” On the contrary, as the Court recently reaffirmed in Garland v.

Consumers’ Gas Co. , [2004] 1 S.C.R. 629 , 2004 SCC 25 , a court is to follow an established approach to unjust enrichment predicated on clearly defined principles. … [ 65 ] In addressing the third of the three elements necessary to establish a claim for unjust enrichment, Binnie J. explained: [23] The use of the expression “juristic reason” in this connection emphasizes that “unjust” is to be addressed as a matter of law and

legal reasoning rather than a free-floating conscience that may risk being overly subjective … . There are now two stages to the juristic reason inquiry. At the first stage, a claimant (here the appellant) must show that there is no juristic reason within the established categories that would deny it recovery. The established categories are the existence of a contract, disposition of law , donative intent, and “other valid common law , equitable or statutory obligatio[n]” ( Garland , at para. 44 ). The categories may be added to over time (para. 46).

On proving that none of these limited categorical reasons exist to deny recovery, the plaintiff (here the appellant) will have made out a prima facie case of unjust enrichment.

It will have demonstrated “a positive reason for reversing the defendant’s enrichment” (Smith, supra , at p. 244). … [25] At the second stage, the onus shifts to the defendant (here the respondent City), who must rebut the prima facie case by showing that there is some other valid reason to deny recovery. … According to Garland , it is at this stage that the court should have regard to the reasonable expectation of the parties and public policy considerations. … (Emphasis added.) See also Kingstreet Investments Ltd. v.

New Brunswick (Finance) , 2007 SCC 1 , [2007] 1 S.C.R. 3 , at paragraph 36 . [ 66 ] In this case, the juristic reason is within the established categories. Regarding disposition of law, as authorized by the Criminal Code in conjunction with the Lotteries Act and Regulations , a player may choose to pay money in order to play a game on a VLT with the chance of winning a cash prize. Regarding contract and tort, as discussed above, the common law juristic reason applies. The representatives of the class do not plead that they became dependent on or addicted to playing games on VLTs.

They claim no loss or damages. [ 67 ] There is nothing in the pleadings laying a foundation on which to rebut the juristic reasons, legislated authority and valid common law, on which the Lottery Corporation relies. In the result, unjust enrichment could not be established as pleaded. Unjust Enrichment by Wrongdoing - Waiver of Tort [ 68 ] The class claims unjust enrichment by wrongdoing per se , a form of claim that has been referred to as “waiver of tort”.

That is, a claim for unjust enrichment is made without reliance on proof of loss or damages to class members, but on the basis of wrongdoing by the Lottery Corporation which has been unjustly enriched by operating VLTs that are “unsafe” because the gaming is deceptive and leads to addiction and dependency by players. [ 69 ] “Waiver of tort”, which is not descriptive of the potential claim, is discussed in Klar, Linden, Cherniak and Kryworuk, Remedies in Tort (Canada: Thomson Reuters, 2017): 190.1 The law relating to waiver of tort is still developing and is unsettled in at least two respects.

First, there is disagreement as to whether waiver of tort is simply a form of remedy or is an independent cause of action. This in turn raises questions concerning the need for proof of loss and whether the underlying tort must be established in order to sustain the action. Second, there is uncertainty as to whether a plaintiff must establish all the elements of unjust enrichment before being entitled to waive a claim for damages and seek payment of the defendant’s benefit.

A related issue is the tortious circumstances or wrongful conduct that will support a claim of waiver of tort. [ 70 ] In Osborne, The Law of Torts , fifth edition (Toronto: Irwin Law Co., 2015), at page 459, the phrase is described in broad terms: … The broadest view is that waiver of tort is an independent cause of action that is available wherever a defendant has benefitted from his wrongdoing.

That wrongdoing includes not only tortious wrongs (whether or not all the constituent elements of liability are established) but also breaches of contract, equitable wrongs, and some statutory breaches. … This view would clearly allow waiver of tort to operate where the defendant has committed a negligent act that has caused no harm to the plaintiff but has benefitted the defendant.

It would, in essence, create a “super-compensatory” regime, allowing plaintiffs to recover compensation in the absence of loss (or in excess of their losses) in contradiction of the general principle that a negligent actor is only liable for the harm caused by his negligence. [ 71 ] In this case, it is unnecessary to determine the nature, scope or appropriate terminology in respect of waiver of tort. This is because the class members have not pleaded facts necessary to support wrongdoing by the Lottery Corporation.

As discussed above, the claims for breach of the Criminal Code , the Statute of Anne , and the Competition Act have no reasonable chance of succeeding. The same result applies with respect to the claims based on tortious misconduct and breach of contract. [ 72 ] Indeed, no facts are pleaded which would support a cause of action based on wrongdoing by the Lottery Corporation. The representatives of the class do not plead that they became addicted to or dependent upon VLTs as a result of playing games.

They do not plead that they were misled by any representations made by the Lottery Corporation in respect of the VLTs. Simple allegations of misrepresentation, or that players may become addicted to or dependent on gaming, without supporting facts in the pleadings, are insufficient to meet the requirement in section 5(1) of the Class Actions Act that the pleadings must disclose a cause of action. [ 73 ] In the absence of pleadings to support wrongdoing by the Lottery Corporation, there is no basis on which waiver of tort could be engaged.

Accordingly, it is unnecessary to address the legal issues arising from what has been described as a developing and unsettled area of the law. [ 74 ] In conclusion, I would note that gaming and betting by their very nature may result in addiction or dependency by some

individuals. However, the use of VLTs is authorized by law following a policy decision by government. Activities endorsed by law will not result in an actionable claim except where activity inconsistent or non-compliant with the law can be established. Remaining Common Issues [ 75 ] The remaining common issues relate to the assessment of damages. Where no cause of action to ground the class action has been pleaded in the statement of claim, it is unnecessary to address these issues.

SUMMARY [ 76 ] In

summary, the applications judge erred in concluding that the common issues defined in the certification order satisfy the requirement that the pleadings disclose a cause of action. Accordingly, I would set aside the cer

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