Court Clarifies Indirect Loss Claims and Class Proceeding Definitions
August 2022 - 5 min read
A recent case from the Alberta Court of Appeal demonstrates that claims in pure economic loss can be difficult and that there needs to be sufficient directness or relatedness of relationship and damage for a party to succeed. In addition, individual proceedings, as opposed to class proceedings, may be more appropriate where parties have distinct issues to pursue.
In June 2012, a pipeline owned and operated by Plains Midstream Canada ULC (“Plains”) released crude oil into the Red Deer River, eventually being deposited downstream to Gleniffer Lake (the “Spill”). The Red Deer River and Gleniffer Lake, both public bodies of water, were closed for recreational use due to the Spill. The Riegers, who jointly owned property near-to but not boarding on Gleniffer Lake, and which they had been attempting to sell, commenced an action under the Class Proceedings Act against Plains, alleging that the Spill and related loss of use of the public bodies of water resulted in a decline in the value of their property. The Riegers’ claim did not allege that their property suffered any direct physical damage due to the Spill. The Riegers’ claim was founded on several causes of action, including negligence, nuisance, and trespass.
Since the Riegers only claimed a decline in property value, the concept of pure economic loss (loss not connected to injury to the person or physical property damage) was at the heart of the claim.
The Certification Decision
The Riegers’ claim was initially certified as a class proceeding, being a proceeding involving multiple persons with common issues related to a common action. The chambers judge concluded that the pleadings disclosed a sufficient cause of action which was not obvious to fail, being a claim in negligence based on pure economic loss (in particular, the subcategory of relational economic loss), stating that the law on pure economic loss was somewhat unsettled. The class was defined as all persons or entities that lived on or owned property within the confines of a large area, some 1,500 square kilometres in size, bounded by local highways surrounding the location of the Spill.
Appeal of the Certification Decision
Plains appealed the certification of the Riegers’ action, alleging that the chambers judged erred in holding that the claim for pure economic loss was not doomed to fail and that the class as defined had no rational or objective connection or commonality to warrant certification.
Pure Economic Loss
The Court of Appeal’s analysis with respect to pure economic loss was informed by the then-recent decision of the Supreme Court of Canada in 1688782 Ontario Inc. v Maple Leaf Foods (“Maple Leaf”), a decision which had not been released at the time of the Riegers’ certification decision.
Maple Leaf was a significant decision that clarified the previously unsettled law regarding pure economic loss. In Maple Leaf, it was confirmed that pure economic loss is monetary loss unrelated to injury to the person or physical damage to property. The majority of the Supreme Court determined that there is no general right protecting against pure economic loss, whether negligently or intentionally inflicted, stating that to establish a claim in negligence and to satisfy the required element of damage, a party must establish a loss that arose from the interference of a legally cognizable right. The Supreme Court acknowledged that there may be certain instances where a claim in pure economic loss may lie, including the established subcategory of relational economic loss. In addition, the Supreme Court left open the possibility for a plaintiff to establish a novel claim in pure economic loss should the foundational elements of negligence be established. However, the Supreme Court advised that ‘shoehorning’ a claim into a previously recognized subcategory of pure economic loss is insufficient to establish such a claim, as proximity is the guiding force.
With the benefit of the Maple Leaf decision, the Court of Appeal determined that the Riegers’ claim in pure economic loss was hopeless. The Court of Appeal found that the Riegers did not plead any loss to a cognizable right, given that the Riegers’ property was not damaged as a result of the Spill and the loss of use of Gleniffer Lake did not constitute the loss of a private right. Therefore, there was no claim in pure economic loss and, in particular, relational economic loss. The Court of Appeal also found that the Riegers were unable to establish a novel claim in pure economic loss given the lack of proximity of relationship between themselves and Plains.
As there was no cause of action worthy of merit to warrant certification of the class proceeding, Plains’ appeal was successful.
Class Issues: Size and Commonality of Issues
The Court of Appeal went on to consider the nature of the class definition as declared at the certification stage, considering whether the class was too large and arbitrary to be certified.
The primary principle of class definition, being that the class is to be identifiable and that there is to be a rational relationship amongst class members and common issues at play, was at the center of the Court of Appeal’s analysis. In this case, it was determined that the class definition was too large and arbitrary to warrant certification, noting that the geographic size of the class at issue was much larger than those defined classes in other similar proceedings, rendering it more likely that the class may include members with no plausible claim against Plains. In addition, the Court of Appeal noted that the defined class was at risk of becoming fragmented based on individual, as opposed to collective, issues, particularly given that a number of subclasses were proposed at the certification stage, with each subclass likely to have separate interests and issues as compared to the group as a whole.
Given that the class action format may not have been “an efficient and manageable method for resolving the litigation” owing to the above-noted issues with class definition, it was determined that the class should not have been certified.
Takeaways and Key Points
Both Rieger and Maple Leaf highlight the difficulties in establishing claims in pure economic loss. While there is no general right of recovery in pure economic loss, such claims may be permitted in certain instances where sufficient proximity can be established between the parties, which results in the infringement of rights in person or property. In other words, there needs to be sufficient directness or relatedness of relationship and damage for a party to succeed with a claim of pure economic loss. The fact that a party may have suffered a loss does not automatically result in an actionable claim.
Rieger also stands for the proposition that in class proceedings, the class itself must have a sufficient measure of commonality of issue. Care must be taken in cases where a class is drawn on a geographic basis, particularly in circumstances where the geographic footprint is large. In such cases, persons or entities within that class may be affected in various ways, leading to a lack of commonality of issue within the class. Individual proceedings, as opposed to class proceedings, may be more appropriate where parties have distinct issues to pursue.
If you have questions or issues regarding claims in economic loss, contact Brandon Harrison in Calgary or any member of Field Law's Insurance Practice Group.
Link to case: Rieger v Plains Midstream Canada ULC, 2022 ABCA 28