Insurance Law Newsletter – Feb. 2022

The Quebec Court of Appeal recently questioned the consequences of filing an application for authorization to institute a class action[1] against a city when that application is filed before the expiry of the period prescribed in section 585 (3) of the Cities and Towns Act (the “CTA”) [2].

In Town of Sainte-Marthe-sur-le-Lac c. Lauzon, the appellant, Town of Sainte-Marthe-sur-le-Lac, appealed a Superior Court judgment dismissing the city’s motion to dismiss on the grounds that the respondent, Richard Lauzon, had failed to comply with the requirements of article 585 of the CTA.

The background of this case concerns the major flooding that occurred in Sainte-Marthe-sur-le-Lac on April 27, 2019, when a dike gave way during a period of exceptional spring flooding. Thirteen days following the event, Mr. Lauzon filed an application seeking authorization to institute a class action on behalf of all property owners and tenants having  suffered damages. On May 7 and 8, the Town received various notices of claim from residents in relation floods, all of which were filed within the delays prescribed by article 585 (2) CTA.

It should be noted that pursuant to article 585 (2) CTA, in the case of claims for damages to movable or immovable property, a notice of claim must be sent to the Town within 15 days of the damages prior to instituting an action against it. Section 585 (3) CTA further provides that “no such action shall be instituted before the expiration of 15 days from the date of the notification of such notice“. Case law on this provision establishes that the plaintiff’s right of action will only airse once he or she has complied with the requirements of section 585 CTA[3].

However, as Mr. Lauzon had filed his application for authorization to institute a class action prior to the expiration of the 15-day period prescribed by article 585 (3) CTA, the Town of Sainte-Marthe-sur-le-Lac filed a motion to dismiss alleging the non-compliance with the requirements of the CTA.

At first instance, the Honourable Donald Bisson, J. ruled in favor of Mr. Lauzon and dismissed the Town’s motion to dismiss, judging thatan action had not yet been instituted within the meaning of article 585 CTA[4]. Interestingly, Judge Bisson concluded that the “action” would only be formed once the application for authorization to institute a class action had been granted pursuant to article 575 CCP:

[Translation:]

“[25] It is well established that until an application for authorization to institute a class action has gone through the screening and verification process, the class action does not exist. The application for authorization to institute a class action is only preliminary in nature and does not constitute a legal action; this step occurs later via the application to institute proceedings, as provided for by article 583 CCP. The actual proceedings will commence only when the action is authorized, and then only if the plaintiff-representative files his originating application within three months of the authorization, as required under article 583 CCP.

(…)

[28] This therefore means that an application for authorization to institute a class action is not an action. Thus, since article 585 (3) CTA refers to an “action”, it follows that the Application for Authorization is not an “action“ that, pursuant to that section, may not be instituted “before the expiration of 15 days from the date of the notification of such notice“.

[29] As a corollary, it follows that if an application for authorization to institute a class action is neither an originating application nor an action, then the application can validly constitute notice under sections 585 (1) and (2) of the CTA. Which in fact is what the Court decided above.”[5]

(Emphasis added)

On appeal, the issue before the court was therefore whether an application for authorization to institute a class action constitutes an “action” within the meaning of section 585 (3) CTA. The Court of Appeal, by a majority consisting of Justices Schrager and Baudouin, with Justice Bachand dissenting in part, held that it is. Justice Bachand summarized the issue as follows:

[Translation:]

[27] As the purpose of the notice of claim requirement is to protect municipalities by delaying the judicialization of certain disputes, the appellant is correct in asserting that its interpretation of the term “action” best  suits the purpose of article 585 (3) CTA. The reason is that, despite the preliminary nature of the process it triggers, the filing of an application for authorization to institute a class action inevitably leads to the judicialization of the dispute between the plaintiff (and the members it wishes to represent) and the defendant. Furthermore, experience has shown that this preliminary stage often involves particularly lengthy, complex and costly legal proceedings. As Professor Lafond correctly points out, also noting that the costs of this stage of the authorization process could easily amount to several tens of thousands of dollars:

[Translation:]

In practice, it all comes down to the first stage [the authorization stage]. The defendant will generally vigorously oppose authorization and employ various strategies to prevent it from being granted or to ensure that the applicant is quickly discouraged.  The authorization hearing becomes a real trial in itself that could last several days.

[28] In short, given the purpose of section 585 (3) CTA and that such purpose is the most relevant contextual aspect for determining the meaning of the term  “action”, it must be concluded that an application for authorization to bring a class action is an action for the purposes of that provision. Since Respondent’s application for authorization was filed prematurely, i.e. before the expiration of 15 days from the sending of the notice of claim, it must be concluded that Respondent failed to comply with the rule set forth in section 585 (3) CTA.”

The two other justices agreed with Justice Bachand’s interpretation of the concept of “action”. Schrager J., writing for the majority, stated:

[Translation:]

“[36] Even if, in order to resolve this matter, I were disposed to accept that an application for authorization to institute a class action constitutes an “action“ within the meaning of section 585 of the Cities and Towns Act (“CTA”), as stated in the reasoning of our brother Bachand, I would not be disposed to grant the appellant’s motion to dismiss. That remedy supported by our brother is neither appropriate nor applicable in this instance, even if we were to agree with his reasoning.”

(Emphasis added)

However, Bachand J’s opinion differs from the majority’s in regards to the consequences of filing an application for authorization to institute a class action prematurely, i.e. before the expiration of the time period prescribed in section 585 (3) CTA. The majority, referring to the Supreme Court decision Méthot v. Commission de Transport de Montréal, held that the appropriate solution was to dismiss the City’s motion and to order a stay of proceedings for a period of 15 days, the purpose of the stay being to allow the respondent to remedy the shortcoming raised by the motion to dismiss:

[Translation:]

“[38] The purpose of the notice is to give the municipality time to investigate the facts giving rise to the action in order to verify the basis of the claim and all the circumstances described therein.

[39] In Méthot, the Supreme Court declared that the respondent had “an inchoate or imperfect right” that “did not mature into an incontestable right to sue” prior to the expiration of the 15 days,  with the result that, during that period, since it did not yet formally exist, the “right of action was suspended“, and could only be exercised after the delay had elapsed. It should be noted that Justice Hall’s reasoning was aimed at recognizing the victims’ right of action and refuting the municipality’s prescription argument. Had the Supreme Court held that the right of action had formed prior to the expiration of the notice period, the action in Méthot would have been prescribed. A proper contextual reading of the decision reveals a judicial inclination to recognize the rights of the applicants instead of giving the municipality grounds for a challenge based on a narrow interpretation of the law. These principles are even more relevant today, especially in light of the guiding principles of procedure.

(…)

[41] Procedure must serve the substantive law. Proportionality and the interests of justice also require that the municipality, which acknowledged having received the requisite notices under the CTA, be given the time provided by law to conduct its investigation, but inadequate notice does not demand (legally, practically or necessarily) dismissal of the action. Rather, a stay or suspension of proceedings is the appropriate remedy in the circumstances of the case.”

(Emphasis added)

In order to render a stay in this matter, the majority relied on the inherent jurisdiction of the courts set out by article 49 CCP as well as article 168 (4) CCP, according to which a stay may be granted to rectify a deficiency raised by a motion to dismiss.

Justice Bachand, meanwhile, would have allowed the appeal lodged by the Town of Sainte-Marthe-sur-le-Lac together with its motion to dismiss, under the reasoning that Mr. Lauzon’s failure to comply with the time limit prescribed by article 585 (3) CTA deprived him of his right of action[6].

This decision highlights the importance of complying with the requirements of the Cities and Towns Act before instituting an action against a city of town, and even in the context of a class action. Moreover, by finding that an application for authorization to institute a class action falls within the definition of the term “action” in section 585 (3) CTA, this judgment confirms that the term must be interpreted broadly. Lastly, this judgment makes it clear that the courts dispose of a degree of flexibility regarding the consequences of a breach to the requirements of  article 585 CTA – and that such a breach does not automatically result in the dismissal of a claim. a contravention that does not automatically result in dismissal of the action.

Click here to consult to full judgment (available in French only).