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Consumer - Rescission. Hoy v. Expedia Group, Inc.
In Hoy v. Expedia Group, Inc. (Div Court, 2024) the Divisional Court dismissed an appeal from a denial of a class action certification motion, here one grounded heavily in the Consumer Protection Act (CPA) 'misleading representations' provisions. The class action plaintiffs here only sought "disgorgement, nominal damages or punitive damages".
Here the court considers 'disgorgement' as a CPA remedy, while also examining the central CPA remedy of 'rescission':[2] The motion judge found that, for the purpose of certification, the Defendants had engaged in unfair practices that violated consumer protection legislation. The Plaintiffs filed expert evidence that these unfair practices caused harm in two major ways. First, as put by the motion judge, “consumers are deprived of the opportunity to identify alternative accommodations because they are coerced by the unfair practices to foreshorten a more comprehensive search” (Hoy v. Expedia Group Inc., 2022 ONSC 6650, at para. 80). Second, the Defendants’ unfair practices caused economic harm in the form of injury to the operation of the marketplace in which the Plaintiffs were operating. The Plaintiffs did not seek compensation for any loss that they may have suffered individually as a result of the Defendants’ unfair practices. In other words, they did not seek compensatory damages. Instead, they sought nominal damages, punitive damages and disgorgement.
[3] The motion judge found that the remedies available were governed by the consumer protection statutes and that, in the instant case, it was plain and obvious that those statutes did not support the Plaintiffs’ claim for disgorgement, nominal damages or punitive damages. According to the Plaintiffs, the motion judge made a number of errors of law when he made this finding.
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[26] The motion judge concluded that the Plaintiffs could have satisfied the cause of action criteria for their claims in relation to Ontario consumer protection legislation, but that they failed to do so because they were not seeking what the statute provides as a remedy. According to the motion judge the statute only provides for the following remedies – rescission, compensatory damages in lieu of recission and, in addition, punitive damages.
[27] According to the motion judge, disgorgement was not available as a remedy because the CPA does not provide for such a remedy. However, he held that even if the remedy was not excluded as a matter of statutory interpretation, the remedy would not be available. According to the certification judge, the Supreme Court of Canada in Atlantic Lottery v. Babstock, 2020 SCC 19, [2019] S.C.R. 420, has made it clear that such a remedy would not be available to the Plaintiffs in this case. As put by the certification judge:[196] Returning to the case at bar, if Justice Brown’s analysis is applied to the statutory causes of action under the Competition Act or to the Consumer Protection Act causes of action, disgorgement would not be an available remedy, the claim is doomed to fail. It is doomed to fail for the same reason that the claim in the Atlantic Lottery case was doomed to fail. There is no connection between the disgorgement and the alleged harm suffered by class members from the statutory tort and the Plaintiffs have intentionally adopted a litigation strategy to avoid having to prove damages. Disgorgement is not a cause of action, it is a remedy for certain types of wrongdoing, not including breaches of consumer protection statutes. In the immediate case, there is no justification for a gains-based remedy; the claim is doomed to fail. ....
Did the Motion Judge Err when he found that disgorgement was not a remedy under consumer protection legislation?
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[47] Section 18 of the CPA is the section that specifies the remedies that are available to a consumer if a person has engaged in an unfair practice.Rescinding agreement
18(1) Any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages.
Remedy if rescission is not possible
(2) A consumer is entitled to recover the amount by which the consumer’s payment under the agreement exceeds the value that the goods or services have to the consumer or to receive damages, or both, if rescission of the agreement under subsection (1) is not possible,
(a) Because the return or restitution of the goods is no longer possible; or
(b) Because rescission would deprive a third party of the right in the subject-matter of the agreement that the third party has acquired in good faith and for value. [48] In this case rescission is not possible and, therefore, the applicable section is s. 18(2).
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[50] Section 18(2) makes it clear that a consumer is entitled to “damages” as a remedy if rescission of the agreement is not possible. As the Plaintiffs point out, it does not limit the word “damages” to compensatory damages. However, the leading authority for the remedies available under s. 18(2) of the CPA is the Ontario Court of Appeal’s decision in Ramdath v. George Brown College of Arts and Technology, 2015 ONCA 921, 329 D.L.R. (4th) 490. In that case the Court of Appeal found as follows at para. 90:GBC argued, both at trial and on appeal, that to claim and be awarded damages under s. 18(2), a consumer still needs to establish causation. I agree. However, the necessary causal link is the link between the damages and the agreement, i.e. that the consumer suffered damages that flowed from entering into an agreement after or while an unfair practice was occurring. [51] In this case, as set out above, the motion judge found that:There is no evidence the Plaintiffs or the Class Members did not receive the accommodation they booked. There is no evidence that the Plaintiffs or the Class Members received accommodation that was less in quality than promised. There is no evidence that in any particular case, or on a class-wide basis, that alternative qualitative similar accommodations were available that would meet Class Member’ needs equally well at a lower cost, or that would better meet Class Members’ subjective needs. [52] Just as there is no evidence of this kind of loss, there is no pleading that the Plaintiffs suffered any loss of this kind.
[53] In other words, the Plaintiffs have not established a causal link between the agreements they entered into and any damages they suffered. The Plaintiffs assert that they have established a causal link between the unfair practices and the damage to the market. This too is a goal of consumer protection legislation.
[54] In Richard v. Time Inc. 2012 SCC 8, [2012] 1 S.C.R. 265, the Supreme Court of Canada discusses the purposes and objectives of the Quebec consumer protection legislation as follows:[160] The C.P.A.’s first objective is to restore the balance in the contractual relationship between merchants and consumers. This rebalancing is necessary because the bargaining power of consumers is weaker than that of merchants both when they enter into contracts and when problems arise in the course of their contractual relationships. It is also necessary because of the risk of informational vulnerability consumers face at every step in their relations with merchants. In sum, the obligations imposed on merchants and the formal requirements for contracts to which the Act applies are intended to restore the balance between the respective contractual powers of merchants and consumers.
[161] The C.P.A.’s second objective is to eliminate unfair and misleading practices that may distort the information available to consumers and prevent them from making informed choices. Most of the measures imposed by the legislature to achieve this objective are found in Title II of the C.P.A., which we discussed above.
[162] The legislature’s intention in pursuing these two objectives is to secure the existence of an efficient market in which consumers can participate confidently. [Cites omitted] ....
[55] The expert evidence provided by the Plaintiffs (which was not contradicted by the Defendants) speaks to the ways in which the unfair practices at issue undermined “the existence of an efficient market in which consumers can participate confidently”. If this is the primary objective of consumer protection legislation, that objective would, according to the Plaintiffs, be enhanced, rather than undermined, if a wider range of damages were available to the court to drive home the message that unfair practices will not be tolerated.
[56] The problem with this submission is that the motion judge’s position, that the focus of the remedies in s. 18 is on the damages suffered by the consumer (not the market) by virtue of the fact that they entered into an agreement while the unfair practice was occurring, is supported by para. 90 (discussed above) of the Court of Appeal’s decision in Ramdatth.
[57] The Plaintiffs point to another paragraph of Ramdath, which they argue confirms that disgorgement is an available remedy under s. 18(2) of the Act - para. 94. In that paragraph the Court of Appeal states:[94] …In his text, The Law of Damages, referred to by the trial judge, Professor Waddams discusses the measure of damages in statutory remedies for misrepresentation, including the Ontario Consumer Protection Act. He explains that the language of s. 18(2) that prescribes the compensation entitlement for a plaintiff, together with the availability of punitive and exemplary damages in s. 18(11), give a court” complete flexibility to award whatever damages would be appropriate at common law” including the restitutionary measure. [58] The Plaintiffs rely on this paragraph to support their assertion that the motion judge erred in finding that it is plain and obvious that disgorgement is not available as a remedy under the CPA. However, while Ramdath does suggest that restitutionary remedies are available under s. 18(2), it makes it clear that the measure of damages sought must be “appropriate at common law. “
[59] While the Plaintiffs argued in oral submissions that because their claim was one under s. 18(2) of the CPA, there was no need to consider the leading authority on whether and when disgorgement is available at common law, we disagree. Not only does Ramdath reference the common law as a marker for whether a remedy is available, so does s. 18(1) of the Act, which contains the most inclusive references to remedies, namely, “any remedy that is available in law.”
[60] In Atlantic Lottery, the Supreme Court of Canada discusses the availability of the disgorgement remedy in the context of a motion to certify a class action against the government agency that approved the operation of video lottery terminal games in Newfoundland and Labrador. The plaintiffs claimed that these terminals were inherently dangerous and deceptive, leading to a risk of addiction and suicidal ideation. In a 5 to 4 decision the Court found that the claim disclosed no reasonable cause of action.
[61] In that case the plaintiffs claimed disgorgement as a remedy. They did so because they asserted, as the Plaintiffs in this case do, that they were unable to calculate their compensatory damages because the terminals at issue do not create records for particular customers. Thus, according to the plaintiffs, the defendant’s conduct may have contributed to their lack of evidence on the issue of compensatory damages.
[62] What emerges from Atlantic Lottery is that disgorgement is not a restitutionary remedy. As put by the Court at para. 24:In sum, then, restitution for unjust enrichment and disgorgement are two types of gain-based remedies. Each is distinct from the other: disgorgement requires only that the defendant gained a benefit (with no proof of deprivation to the plaintiff required), while restitution is awarded in response to the causative events of unjust enrichment where there is correspondence between the defendant’s gain and the plaintiff’s deprivation. [Cites omitted]. [63] What also emerges from Atlantic Lottery is that disgorgement is a remedy that is awarded in certain limited circumstances – most often in situations where the cause of action is founded on a breach of fiduciary duty. In the tort context, the remedy raises the following concern:[34] The difficulty is not just normative, although it is at least that. The practical difficulty associated with recognizing an action in negligence without proof of damages becomes apparent in considering how such a claim would operate. As the Court of Appeal recognized, a claim for disgorgement is available to any plaintiff placed within the ambit of risk generated by the defendant would entitle any one plaintiff to the full gain realized by the defendant. No answer is given as to why any particular plaintiff is entitled to recover the whole of the defendant’s gain. Yet corrective justice, the basis for recovery in tort, demands just that: an explanation as to why the plaintiff is the party entitled to a remedy. Tort law does not treat plaintiffs “merely as a convenient conduit of social consequences” but rather as “someone to whom damages are owed to correct the wrong suffered.” A cause of action that promotes a race to recover by awarding to the first plaintiff who arrives at the courthouse steps undermines this fundamental principle of tort law. [Cites omitted]. [64] While the Plaintiff’s action is not an action in tort, the concern raised about extending the remedies available under s. 18(2) to disgorgement when there is no evidence of harm to the individual consumer is, as the motion judge recognized, relevant. Why should the Plaintiffs be entitled to the full gain realized by the Defendant when they have not established that they have suffered any harm by virtue of the Defendants’ conduct? It is also worth noting that the conduct at issue in s. 18(2) is similar to the conduct at issue in a negligent misrepresentation claim.
[65] In Maginnis v. FCA Canada Inc., 2021 ONSC 3897 (Div. Ct.), the Divisional Court found as follows with respect to the availability of disgorgement for claims under the CPA:[45] While the motion judge did not discuss disgorgement of profits, that remedy is not available under the Consumer Protection Act. Nor would disgorgement of profit be available in this case at common law. As the Supreme Court of Canada stated in Atlantic Lottery, above, disgorgement of profits is only available for certain causes of action, such as breach of fiduciary duties, and it is not an independent cause of action (at paras. 27, 30). In order to make out a claim for disgorgement, the appellants must first prove an actionable misconduct. Claims in negligent misrepresentation, conspiracy to injure and breach of the Competition Act require proof of consequential harm, and the motion judge found there was no evidence of compensable harm after the repair. [66] In Atlantic Lottery, all the judges accepted that the plaintiffs might have a cause of action in breach of contract. However, as put by the majority at para. 49:But that is of no moment here, since the plaintiffs have made it clear… that they seek only non-compensatory remedies for breach of contract, namely disgorgement and punitive damages. Whether the plaintiffs’ breach of contract claim discloses a reasonable cause of action should be considered in light of the remedies the plaintiffs actually seek. The question to be decided here, then, is whether these remedies are available to the plaintiffs, assuming the truth of their pleadings. [67] While not framed as a breach of contract claim, the Plaintiffs rely on a case where disgorgement was awarded for an interest unconnected with any harm to the Plaintiffs themselves when the court found that the defendant had breached their contract with the plaintiff.
[68] As the motion judge found, Atlantic Lottery is clear that disgorgement is available for breach of contract only in exceptional circumstances where a) the nature of the plaintiff’s interest is such that it cannot be vindicated by other forms of relief; and b) the circumstances warrant making such an award (e.g., where the plaintiff has a legitimate interest in preventing the defendant’s profit-making activity).
[69] The minority in Atlantic Lottery found that the first part of the test was satisfied because compensatory damages might be inadequate since the video terminals that were the subject of the action did not create the necessary records to calculate such damages. The Plaintiffs in the case at bar make a similar argument. However, as the motion judge noted, the majority in Atlantic Lottery disagreed finding that “compensatory damages are not inadequate merely because a plaintiff is unwilling, or does not have sufficient evidence, to prove loss” (para. 60).
[70] According to the majority, “inadequacy flows not from the availability of evidence, but from the nature of the claimant’s interest.”
[71] An example of a case where the nature of the claimant’s interest was seen as potentially justifying a remedy of disgorgement is that at play in Nunavut Tunngavik Incorporated v. Canada (Attorney General), 2014 NUCA 2 (CanLII), 2014 NUCA 02. This case is referred to in Atlantic Lottery and is the case relied upon by the Plaintiffs. That case concerned an appeal from a partial summary judgment granted in favour of the plaintiff awarding it restitutionary damages for a breach by Canada of the Nunavut Land Claims Agreement. The breach at issue concerned a covenant to establish a system of statistical monitoring. The plaintiff claimed restitutionary damages and the judge below ordered Canada to disgorge the savings it had accrued from the delayed performance of its monitoring obligations. In upholding this finding, the Nunavut Court of Appeal found:[88] [Canada] received valuable consideration for the covenant to establish a system of statistical monitoring. If it could simply refuse to perform that covenant and argue that it need not pay any damages because none could readily be established, it would potentially deprive the Inuit of many of the intended benefits of the Land Claims Agreement. In the context of a land claims treaty, insulating the contracting government from any consequences of a breach of a covenant like this is legally unacceptable. As a result, the case management judge was correct in concluding that the respondent is not limited to a claim for nominal damages. Some appropriate measure of damages must be found. [72] The Plaintiffs submit that the damage to the market identified by their expert, Dr. Duke, is analogous to the harm to the Inuit people at issue in the decision from the Nunavut Court of Appeal. The mere fact that this harm may be difficult to quantify does not mean that it should go unpunished.
[73] The nature of the Plaintiffs’ interest in the case at bar is not analogous to the nature of the plaintiff’s interest in the case from the Nunavut Court of Appeal. The nature of their interest is most analogous to that of a plaintiff in a negligent misrepresentation claim. This is very different from a party to a land claim agreement.
[74] In short, as the motion judge correctly found, Atlantic Lottery has confirmed that disgorgement for breach of contract at common law is to be reserved for cases where there are exceptional circumstances. The motion judge made no error when he found that the circumstances of the Plaintiff’s claim were not exceptional enough to qualify for such relief at common law.
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