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A Product Recall Does not Always Justify the Authorization of a Class Action

Fasken
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Litigation and dispute Resolution Bulletin

Though a voluntary or government-ordered product recall does not necessarily constitute proof of a hidden defect, product recalls are often followed by requests to institute class actions in Canada, and particularly in Quebec where the legal principles applicable to the liability of professional sellers favour buyers.

Even after conducting a product recall and offering buyers compensation, it is not uncommon for manufacturers to be faced with a request to institute a class action despite the fact that the harm suffered appears at first glance to be minimal or nonexistent. Furthermore, Quebec courts are flexible when evaluating the criteria for authorizing a class action, in keeping with the principles articulated by the Supreme Court of Canada in decisions such as L'Oratoire St-Joseph du Mont-Royal v. J.J.[1] and Vivendi Canada Inc. v. Dell'Aniello.[2]

But does a product recall by a manufacturer, in and of itself, always justify the authorization of a class action in Quebec?

A recent judgment by the Honourable Justice Daniel Dumais of the Quebec Superior Court in Paquette c. Samsung Electronics Canada Inc.[3] indicates that the answer to this question is no and that a class action should not be authorized where a manufacturer, upon discovering the defect, promptly fulfills its obligations by recalling the sold products and offering the buyers fair compensation, particularly when the buyers have suffered no harm beyond the normal inconveniences everyone in society must bear.

Background

In the fall of 2016, Samsung issued two recalls for certain Samsung Galaxy Note 7 cellphones (the "Note 7") due to overheating problems.

The Note 7 was released in Canada on August 19, 2016. Shortly after its release, an investigation revealed overheating issues caused by the Note 7's battery, which could result in a fire and destroy the phone. Some 30 incidents were reported in early September 2016, though none in Quebec.

On September 2, 2016, Samsung stopped selling the Note 7 in Canada and issued a first recall. It offered either to (i) replace buyers' Note 7 with a new device equipped with a battery sourced from another supplier or (ii) give buyers a full refund.

On September 8, 2016, the applicant Patricia Paquette (the "Applicant") joined the recall program and chose to have her Note 7 replaced with a new device. She continued using her original Note 7 until she received the new device, despite this having been expressly prohibited.

It turned out that the new devices also had issues.

On October 11, 2016, Samsung issued a second recall and notified buyers that they should stop using the Note 7. At this point, Samsung offered either to (i) exchange buyers' Note 7 for another Samsung smartphone and give them a refund for the Note 7-specific accessories that they had purchased, plus a $100 credit, or (ii) give buyers a full refund for their Note 7 and Note 7 specific accessories, plus a $25 credit. The Applicant chose the first option.

After these recalls, an application to institute a class action was filed in Ontario on November 4, 2016, seeking certification of a national class. A few days later, the Applicant filed an application for authorization to institute a class action on behalf of Quebec residents who had purchased a Note 7, asking that Samsung be ordered to pay a lump sum of $20,000,000 in compensatory damages and $5,000,000 in punitive damages.

The Quebec proceedings were stayed upon the joint request of the parties while awaiting the outcome of the proceedings brought in Ontario. The application to institute a class action in Ontario was dismissed on October 16, 2018.[4] However, the judgment of the Ontario Superior Court did not determine the outcome of the Quebec action, meaning that the Quebec Superior Court still had to rule on the application for authorization brought by the Applicant.

The decision of the Quebec Superior Court

At the outset, the Court states that the issue is not whether the Note 7 had a hidden defect. Indeed, by conducting two successive recalls, Samsung had implicitly admitted the existence of a defect. However, the Court stresses that Samsung acted quickly after being notified of the issue, and that it assumed its responsibilities.

The Court notes that no allegation or evidence supported the idea that Samsung knew of the overheating problem caused by the batteries before the product's release. The presumptions arising from articles 1726 to 1730 of the Civil Code of Québec[5] and section 53 of the Consumer Protection Act[6] are not sufficient to establish that Samsung acted wilfully or committed an intentional fault.

In light of the facts alleged, and bearing in mind the societal purpose of a class action, which is to curtail reprehensible conduct, the Court finds that Samsung could not be faulted as it had promptly assumed its responsibilities after being notified of the problem:

"[TRANSLATION]

[46] Based on the evidence brought before it, the Court cannot see how SECA can be faulted. Naturally, one can always complain that it could have done better. But that is not the applicable test. A certain degree of tolerance and reasonableness must be applied. That is the case here. SECA intervened promptly, seeking to stop and prevent damage.

[47] The noble objective of the class action system is to ensure that reprehensible conduct is curtailed; conversely, where businesses assume their responsibilities, this must be recognized as well. This is true in cases of all types, including consumer contract cases." (Emphasis added)

Despite the Supreme Court of Canada's holding in Infineon Technologies AG v. Option consommateurs[7] to the effect that the applicant does not bear the burden of proving damage at the class action authorization stage and that it is sufficient to establish the possibility that damage has been suffered, the Superior Court notes that, where the context allows it, nothing prevents a court at the authorization stage from assessing whether damage has occurred or whether the compensation offered was sufficient.

The Court thus confirms that a product recall does not always justify the authorization of a class action:

"[TRANSLATION]

[53]     Otherwise, every case involving a product recall would justify the authorization of a class action, regardless of the context and the remedy offered. In actuality, access to justice has limits: not every problem or annoyance is worthy of being decided by the courts. While class actions help preserve judicial resources, they should not be allowed to invade the system without a minimum of filtering[31]." (Emphasis added)

Having regard to the stress alleged by the Applicant in relation to the risk of fire or explosion, the Court notes that, after the first recall, the Applicant did not cease to use her cellphone, and that she did not show greater prudence even after the second recall.

With respect to the alleged trouble, inconvenience and loss of time, the Court notes that the recalls may have caused the Applicant annoyances but finds that these were "[TRANSLATION] normal inconveniences that occasionally arise in the course of an individual's activities."[8] Interestingly, the Court mentions that recalls involving motor vehicles and other goods are frequent and do not warrant compensation or court actions in every instance. On the contrary, the Court concludes that "[TRANSLATION] one must show a minimum of tolerance and cooperation."[9]

With respect to the loss of use and enjoyment of the devices, the Court notes that the Applicant continued to use the first device after receiving the second one, and that she could have received a new device of her choosing or a reimbursement that would have enabled her to purchase another model. In this regard, the Court states that the annoyance the Applicant may have suffered was very minimal.[10]

With regard to bodily or property damage, the Court concludes that this is purely hypothetical in that no incident had been reported in Quebec.

Lastly, with respect to punitive damages, the Court notes that there are no allegations that Samsung acted intentionally, and that the presumptions of knowledge stemming from the Civil Code of Québec and the Consumer Protection Act are not sufficient in and of themselves to justify an award of punitive damages without more concrete allegations.

Accordingly, the Court states that the existence of damage is purely theoretical,[11] notably in light of the fact that the Applicant received a full refund for her device along with an additional credit of $100. In the Court's view, this compensation was reasonable.[12]

In conclusion, the Court finds that the Applicant did demonstrate an arguable case in relation the remedies sought because Samsung assumed its responsibilities, even if some people may think it could have done better:

"[TRANSLATION]

[74]     The assessment of compensation in such a case has a discretionary and arbitrary aspect. Nothing is perfect and there will always be someone who says it is insufficient. It is a question of reasonableness. Assuming damage was caused, the Court is of the opinion that the applicant was reasonably compensated. [...]

[76]     Class proceedings should not be used for cases that will go nowhere [41]. SECA assumed its responsibilities. This needs to be taken into account even if one thinks it could have done better. The compensation offered by recall programs is undoubtedly not perfect. However, one cannot demand that everyone be completely satisfied. That is not the purpose of the class action mechanism. Whatever the final outcome might be, there are always people who are displeased. It is the reasonableness of the remedy, which will always be discretionary in such instances, that counts." (Emphasis added)

Conclusion

This decision is of interest for manufacturers or other professional sellers who face the need to recall products after discovering a defect or safety problem that was not known when the product was first sold. By confirming that a product recall does not warrant a class action or individual claims in every case, the decision confirms that manufacturers can minimize the risk of litigation by expeditiously recalling their products as soon as possible and by offering buyers reasonable compensation. Whether the compensation offered is sufficient will depend on the circumstances of each case. That said, based on the principles articulated by the Court in its decision, it appears that where the compensation offered is reasonable, courts may be inclined to give manufacturers some flexibility.

The Court also reiterates the principle that class actions should not be authorized where the alleged damage is merely theoretical. Given the keen interest in class actions in Quebec and throughout Canada, it is increasingly common for businesses to face class action authorization requests where the members of the class have not sustained a tangible loss and are only claiming moral damages (such as stress or anxiety) or punitive damages. It will be interesting to see whether the decision in this case might solidify a trend whereby Quebec courts are more demanding about demonstrating tangible loss at the authorization stage.

It should be noted that the Applicant still has the right to appeal this decision.


[1] 2019 SCC 35.

[2] 2014 SCC 1.

[3] Paquette c. Samsung Electronics Canada Inc., 2020 QCCS 1160 (CanLII).

[4] Richardson v. Samsung, 2018 ONSC 6130 (CanLII) (appeal dismissed: James Richardson v. Samsung Electronics Canada Inc., 2019 ONSC 6845 (CanLII)).

[5] CQLR, c. CCQ-1991.

[6] CQLR, c. P-40.1.

[7] 2013 SCC 59.

[8] Paquette c. Samsung Electronics Canada Inc., 2020 QCCS 1160 (CanLII), at para. 63.

[9]Ibid., at para. 64.

[10]Ibid., at para. 69.

[11]Ibid., at para. 73.

[12]Ibid., at para. 73.

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