Recent decisions of the Ontario Court of Appeal and the Supreme Court of Canada have given the go-ahead to class action lawsuits against Toronto-Dominion Bank and Ottawa-based MBNA Canada Bank. The rulings have sparked wide debate, with corporate lawyers who defend class actions predicting a flood of consumer lawsuits against financial institutions.

“The courts are creating a possible class-action nightmare,” says Adrian Lang, a lawyer with Stikeman Elliott LLP in Toronto who defends banks, pharmaceutical and insurance companies facing such suits. “The two decisions will help make certification of many class actions inevitable.”

The newly approved class action lawsuits centre on allegations the banks levied undisclosed and unauthorized fees and charges against large numbers of customers. Both deal with the thorny question of assessing individual damages, a frequent barrier to the success of such actions in the past because of factors such as cost and availability of records. As a result of the decisions, it appears that Canadian courts will not require that specific amounts be proven for individuals in the class. Instead, damages will be measured on the basis of the total losses of the group.

In a decision released Nov. 14, the Ontario Court of Appeal overturned a March 2005, Ontario Superior Court ruling in TD’s favour. The case was initiated by Paul Cassano, a University of Windsor administrator and TD Visa cardholder, who contested charges from a New York City hotel bill. Cassano claims TD breached its agreement with clients by imposing two “undisclosed” and “unauthorized” sets of fees on purchases made in foreign currency.

TD won at trial before Superior Court Justice Maurice Cullity: the bank successfully argued that a class action was unmanageable because of the near-impossible need to assess how individual cardholders would have behaved had they known about the allegedly undisclosed fees. The bank also argued that calculating foreign currency fees stretching back for several years would take a year and cost an estimated $48.5 million.

But both of those arguments failed to impress Ontario Chief Justice Warren Winkler, the Court of Appeal judge who wrote the recent decision overturning Cullity’s refusal to certify a class action against TD. “It would hardly be sound policy to permit a defendant to retain a gain made from a breach of contract because the defendant estimates the cost of calculating the amount of the gain to be substantial,” Justice Winkler wrote.

Part of Winkler’s reasoning refers to a 2004 case, which he also adjudicated, in which Toronto-based CIBC ultimately paid $16.5 million to settle a class action lawsuit over allegedly undisclosed and unauthorized charges similar to those alleged against TD.

Referring to the CIBC case, Winkler concluded that because “individual assessments of cardholder behaviour are not required to determine the extent of liability” in such cases, “a class proceeding is the preferable procedure.”

“The defendants will read this and weep,” says Windsor-based plaintiff’s lawyer Harvey Strosberg, who represented Cassano. Strosberg notes TD’s position on fee information “stands in contrast to that of Royal Bank of Canada, which particularized all the fees.” In Strosberg’s view, the Ontario Court of Appeal has “driven a stake” through the claim — often employed by corporations facing class action lawsuits — that quantifying damages and compensation in class actions is unreasonably expensive and complex.

Bank officials have been reluctant to comment on the implications of the cases against TD and MBNA, and the new impetus given to class action suits. TD spokesperson Kelly Hechler says the bank will not comment because “the case is still under judicial review.” Melanie Minos of the Canadian Banking Association adds that because the issue is still before the courts, “we wouldn’t have anything to say about the impacts to the industry.”

Acknowledging that TD faces a continuing legal challenge, Hechler cautions that “the merits of the matter have not yet been considered. The matter that was before the courts related only to certification of the class action, not the merits of the case. So the matter is still under judicial consideration and technically it is our given right to appeal the decision.”

Hechler says the bank will defend itself on the basis “that our method of handling foreign currency transactions is fair and lawful and transparent.” In September, 2001, TD initiated changes to its consumer and commercial credit cardholder agreements to expressly include disclosure of the currency conversions fees that Cassano alleges were previously undisclosed and unauthorized.

@page_break@While the bank may seek leave to appeal, Strosberg says there is a good chance the Supreme Court would refuse the request. That’s because of a decision released by the top court in the MBNA case only one day after the Ontario Court of Appeal’s decision in the TD lawsuit. The Supreme Court ruling, which dealt with a leave-to-appeal application, was nonetheless significant: by refusing MNBA’s request to appeal certification of a class action dealing with allegedly unfair credit card charges, the court sent a message that it saw no reason to review the lower court’s ruling.

“The Supreme Court’s decision in the MBNA case indicates TD will not likely get leave to appeal,” Strosberg says. He points out that Winkler drew strong parallels between the TD and MBNA cases. Specifically, Winkler concluded that the “relatively small amounts of money that are likely to be at stake in individual claims and the disproportionately high costs associated with litigating claims on an individual basis overwhelmingly favour a class proceeding.”

Defence lawyer Michael Brown, with Ogilvy Renault LLP in Toronto, agrees with Lang that the decisions will encourage class action lawsuits. He also thinks there will be an upswing in settlements such as the one CIBC reached over the Visa card fees that TD has attempted to defend.

“The risks of taking these cases to trial are high for defendants, now the courts aren’t going to kill them at the certification stage,” Brown says. “You’ll see an increase in corporate defendants fighting these cases. You’ll also see an increase in out-of-court settlements.” IE