Food and Beverage Class Actions in Canada: What Are the Litigation Risks?
February 10, 2016
Class actions in Canada are on the rise. With the imposition of strong consumer protection laws, expanding regulation of food and health generally, and enhanced government scrutiny, consumers are increasingly taking on companies for failure to fulfil legal requirements or for engaging in false or misleading advertising. This trend is particularly heating up in the food and beverage industry, where we are seeing more labelling-related class actions.
In an age when consumers are becoming more health conscious and reading the fine print on labels, it is important for businesses to be aware of the risks and potential legal pitfalls associated with marketing their products.
Types of Litigation Risk
There are two types of “litigation risk” when it comes to potential food or beverage labelling class actions: (1) the risk of liability for damages to consumers for a breach of the applicable substantive law (either statute-based or in tort) and (2) the risk of a plaintiff commencing a class action — whether or not there is any merit to the claim — and the costs of defending such an action.
In other words, both the merit of the claim and the legal costs of someone bringing a legal claim, even if there is no substantive merit, should be considered. This is particularly the case in Canada where certification of a class action is a procedural question that turns on the form of the action only and not the merits. There is no preliminary assessment of whether a plaintiff’s claim is viable at the certification stage. There have been only a few contested applications for certification (or “authorization” in Quebec) related to food labelling claims to date in Canada. There are no decisions on the merits after a trial of the issues, which might discourage future class actions or demonstrate the numerous obstacles to class-wide recovery. As a result of all of these factors, there is always some risk of class action litigation regarding food labelling that cannot be eliminated, although the risk can be minimized.
Consumer Protection Laws
In the context of food and beverage labelling and advertising, the primary source of litigation risk arises from consumer protection laws. Many, but not all, provinces in Canada have consumer protection laws that prohibit misleading, deceptive or unfair business practices, which is broad enough to apply to statements on packages and labels and create a private right of action for consumers. The provincial laws refer to the prohibited conduct differently — it is alternatively referred to as a “deceptive act or practice”, “unfair practice” or “unfair trade practice” — and the definitions use slightly different language to describe the scope of prohibited conduct. But generally, provincial consumer protection laws prohibit representations that are actually or potentially misleading or deceptive to a consumer.
The consumer protection laws in many provinces expressly state (and it is likely implied if not expressly stated) that a deceptive or unfair practice includes representations or statements that products have characteristics, ingredients, qualities, uses or benefits that they do not, or representations of a particular standard, quality, grade, style or model that are not true. It also generally includes an omission to mention a material fact.
British Columbia and Quebec have the most aggressive, plaintiff-friendly consumer protection legislation. A class action claim about the marketing of foods and beverages is most likely to be brought in these provinces.
B.C. Business Practices and Consumer Protection Act
The B.C. Business Practices and Consumer Protection Act (BPCPA) prohibits any “supplier” (an extremely broad term that includes manufacturers that do not sell directly to consumers and expressly negates any need for privity) from committing or engaging in “a deceptive act or practice”. A deceptive act or practice includes any representation about a product, whether in advertising or on a label, that “has the capability, tendency or effect of deceiving or misleading a consumer”. This expressly includes statements that products have characteristics, ingredients, qualities, uses or benefits that they do not, or have a particular standard, quality, grade that they do not or are of a style or model that they are not.
The BPCPA has special presumptions or reverse onus provisions to make it easier for consumers to prove their case. Most notably, if a consumer alleges that a supplier has engaged in a deceptive act or practice, the burden is on the supplier to prove that it was not a deceptive act or practice. Additionally, the BPCPA offers a wide range of potential remedies to consumers including damages, restoration orders, refund, as well as injunctive and declaratory relief. However, it does not provide for punitive damages.
Notwithstanding the generous approach in the BPCPA, in order for a representation to be found deceptive or misleading it must be false in a material respect or the misrepresentation must be one that has the potential to lead a consumer into “an error of judgment” regarding the consumer transaction in question. In order for a consumer to recover damages, as opposed to a declaratory or injunctive remedy, the consumer must also establish a causal link between the representation and a loss or other damage suffered by the consumer. This is critical because even if a representation is not entirely accurate (i.e., there is a characteristic about the product that is not disclosed), it must be a material omission or the failure to accurately describe the product must be material to a consumer’s decision to purchase the product.
Quebec Consumer Protection Act
Quebec’s Consumer Protection Act (QCPA) prohibits “unfair practices”, which include false, misleading or deceptive representations to consumers or the omission to mention a material fact. As in B.C., there is no need for privity of contract between a manufacturer and a consumer; the statute creates a direct right of action by a consumer against the manufacturer of a product. The QCPA also has a number of peculiar provisions that facilitate claims by consumers, including a “presumption of prejudice”. In some circumstances, consumers are entitled to certain remedies (such as a refund) even in the absence of any prejudice as a result of a false or misleading representation. The QCPA also provides for punitive damages, which, in the context of a class action involving numerous consumers, can be substantial in the aggregate.
Alberta, Saskatchewan and Manitoba all have consumer protection legislation that could provide a foundation for a class action claim, although the legislation is not as generous to consumers as the BPCPA or QCPA. By contrast, Ontario and Newfoundland’s consumer protection legislation requires privity of contract between a manufacturer and a consumer before a consumer can recover damages pursuant to the law. Accordingly, it does not usually apply to food and beverage manufacturers that sell their products through distributors or retailers. Nova Scotia and New Brunswick do not have consumer protection laws that are applicable to the marketing of non-dangerous food and beverages.
Other Causes of Action
Even in provinces where consumer protection legislation does not provide a basis for consumers to bring a class action claim regarding food or beverage labelling or advertising, a class action could be brought based on the tort of negligent misrepresentation or pursuant to the federal Competition Act if there has been a misrepresentation that has allegedly caused damage. However, claims in negligence or pursuant to the Competition Act are harder to certify or prove on a class-wide basis on the merits since both causes of action require proof of damage and that the alleged misrepresentation caused the damage.
There have also been cases in which plaintiffs’ counsel have brought class actions with respect to the labelling or marketing of products based on a failure to comply with the federal Food and Drugs Act and its regulations. There is no automatic cause of action for breach of statute in Canada and the Food and Drugs Act does not provide a right or remedy for consumers to seek damages from manufacturers for a breach of the act or its regulations. However, some plaintiffs’ counsel have attempted to use a breach of statute or regulations as a basis for a restitutionary remedy usually founded on the controversial doctrine of “waiver of tort”, which plaintiffs’ counsel claim allows for the disgorgement of a defendant’s profits from the sale of a product even where the plaintiffs cannot establish that damages or loss have resulted.
To date, these claims have not been successful on the merits. Further, the waiver of tort doctrine does not exist in Quebec civil law. However, in some cases courts have allowed claims based on a breach of statute and waiver of tort to proceed past the certification stage. This has not happened in the context of food or beverage claims, but it remains a source of litigation risk if the labelling or advertising of a product does not comply with the applicable federal law or regulations.
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