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A Newfoundland and Labrador Court of Appeal decision that cleared the way for a video lottery class action lawsuit, alleging that the Atlantic Lottery Corp.’s video lottery games are inherently deceptive, addictive and illegal under the Criminal Code, was overturned by the Supreme Court of Canada last Friday.
The class action lawsuit involved 30,000 Class Members in Newfoundland and Labrador who paid the corporation to gamble on video lottery terminal games any time after April 2006.
The lead plaintiffs, Douglas Babstock and Fred Small, sought damages equal to the alleged unlawful gain obtained by the lottery corporation through video lottery terminal revenue.
In its Friday decision, the Supreme Court set aside the certification order and struck out the statement of claim in its entirety.
Video lottery terminals have been targeted before in class action lawsuit proceedings in Canada. For example, a B.C. class action lawsuit was filed in February, alleging similar “deceptive, addictive and dangerous” video slot machines.
Video Lottery Terminals: Deceptive, but not Illegal
The Supreme Court rejected all the claims brought forward in the video lottery class action lawsuit. One of the more important claims was that video lottery terminals breach the Criminal Code.
The plaintiffs argued that video lottery terminals are “similar to” three‑card monte, prohibited in s. 206 of the Criminal Code. Three‑card monte, is a confidence game in which the players are tricked into betting a sum of money, on the assumption that they can find the “money card” among three face-down playing cards. Such gambling games have been outlawed, as they trick the players into believing they have a chance to win, but in fact, have no reasonable chance of success.
The Supreme Court held, among other things, that the text of s. 206 as well as “its surrounding context suggest that the prohibition of games similar to three‑card 
monte was directed towards the game’s concrete attributes and not towards the abstract feature of deception.” As such, the Court rejected the claim, because video lottery terminals do not involve a player betting on the location of an object after a series of a manipulations, which the Court judged necessary to deem them “similar to” the illegal gambling games.
The allegation that video lottery terminals are deceptive was not rejected, but the Supreme Court argued that had “Parliament sought to prohibit broadly deceptive games, it would have straightforwardly done so.”
Disagreement on Disgorgement
The next cause of action argued by the plaintiffs, breach of contract requiring disgorgement of profits and punitive damages, was also rejected by the Supreme Court.
“The plaintiffs’ breach of contract claim is also doomed to fail,” noted the Court in its introductory remarks on disgorgement.
The Supreme Court of Canada explained that the breach of contract claim should be considered in light of the remedies sought by the plaintiffs — that is, disgorgement and punitive damages. The Court rejected the claim because the remedies sought by the plaintiffs, they argued, are not available in the video lottery class action lawsuit.
“Disgorgement” is an equitable remedy used to prevent unjust enrichment. It requires a defendant to give up the profits it made as a result of illegal or wrongful acts. Importantly, the remedy of disgorgement of profits does not require that the plaintiff suffered damages as a result of the defendant’s wrongdoing. In the video lottery class action lawsuit, the plaintiffs did not allege any damage or harm caused by Atlantic Lottery Corp., but rather, sought to regain the money they lost through the deceptive video lottery games.
“Disgorgement for breach of contract may be appropriate in exceptional circumstances,” however, in the case of deceptive video lottery games, the Supreme Court determined that there is nothing exceptional about the breach of contract alleged by the plaintiffs, once the criminal allegations have been set aside.
The majority of the Court struck down the disgorgement and breach of contract claims with a firm legal fist, concluding that “the plaintiffs’ claim is simply that they paid to play a gambling game and did not get exactly what they paid for.”
Wagner C.J., Karakatsanis, Martin and Kasirer JJ disagreed with the majority of the Court concerning the breach of contract claim. According to them, the plaintiffs’ breach of contract claim is a reasonable cause of action, possibly justifying punitive damages or disgorgement.
According to the dissenting judges, the plaintiffs showed that there was a breach of contract, as several implied terms were breached, including good faith. Next, the dissent argued that the plaintiffs could claim several remedies, among them, nominal damages, declaratory relief, disgorgement and punitive damages.
Do you think the Supreme Court should have allowed the video lottery class action lawsuit to go forward? Do you think video lottery terminal games should be illegal because they are deceptive? Share your thoughts with us in the comments below!
The Video Lottery Class Action Lawsuit is Atlantic Lottery Corporation Inc. v. Douglas Babstock, et al., and VLC, Inc., et al., v. Douglas Babstock, et al., and Attorney General of Ontario, Case No. 38521, in The Supreme Court of Canada.
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2 thoughts onSupreme Court Red Lights Video Lottery Class Action Lawsuit
Add me to the class action as a leading person in the case
Lottery games are starting to feel like a thing to punish people and mistreat them rather than treat them fairly. People are greedy and selfish and they are lying criminals. I personally am working on trying to quit my addictive gambling habits. I think if a game is unfair it will always be unfair, don’t argue the odds of winning. If games are created to tell people to learn a lesson.Great. Even if your honest its better to find more helpful venues for money rather than gambling. I don’t oppose gambling abuse if its for educational purposes. If abuse didn’t get forced into gambling establishments it would be another story so honestly it was probably something that was going to happen anyway. Im not telling anybody how they treated me as a janitor. I think courts have enough knowledge of truths that they don’t need advice like mine.