Galaxy Note 7 recall campaign defeats class action

On April 9, 2020, the Québec Superior Court dismissed an application for authorization to institute a class action against Samsung Electronics Canada Inc. (SECA) in connection with overheating problems that affected certain Samsung Galaxy Note 7 cell phones in the fall of 2016.

The Court concluded that the appearance of right test had not been met since the indemnity offered by SECA to all consumers in connection with the recall of its defective products was reasonable in the circumstances. Thus, the existence of damages was purely theoretical, since if there was indeed any injury, the applicant had already been reasonably compensated.

According to the Court, “if the vehicle of a class action has the noble objective of stifling reprehensible behaviour, it must not, conversely, turn a blind eye to those who assume their responsibilities. This is true in all matters, including consumer contracts” [translation].

Context

The case of Paquette v. Samsung Electronics Canada Inc. arose out of an investigation that revealed that the batteries used in certain Samsung Galaxy Note 7 cell phones (Note 7 phones) were the cause of a temperature rise that could cause a fire and lead to the destruction of those cell phones. According to the application for authorization, SECA was the importer and distributor of those devices in Canada.

Shortly after the first incidents were reported, SECA ceased the sale of those devices in Canada and initiated a product recall. It proceeded to offer purchasers the opportunity to replace their Note 7 phones with new devices containing batteries manufactured by a different supplier. It was also possible for purchasers to cancel their purchases and receive full refunds. However, problems were also encountered with the replacement devices containing new batteries. In October 2016, SECA therefore ceased all sales and distribution of the Note 7 phones in Canada and issued a second recall. As a result, SECA advised purchasers to stop using those devices and to return them to SECA. The purchasers could then choose between two options: exchange their Note 7 phones for other Samsung devices and receive a $100 credit as well as a refund for accessories purchased, or receive refunds of the price paid for the Note 7 phones and accessories plus a $25 purchase credit.

The application for authorization to institute a class action was filed on behalf of the applicant on November 9, 2016, alleging various counts of damages relating to the defect affecting the Note 7.

Reasons and conclusion

The Court revisited the legal principles applicable to an application for authorization to bring a class action. In particular, it reiterated its filtering role at the authorization stage and the fact that although the threshold for authorization is low, it is not non-existent.

The Court then analyzed the second criterion of article 575 of the Code of Civil Procedure, namely whether the facts alleged appear to justify the conclusions sought. In this case, the question of whether there was a defect in the Note 7 phones was not truly what was at stake. The Court stated in its decision that "[t]he existence of a fault does not automatically mean that there is a damage" [translation].

Rather, the real issue at the authorization stage was the adequacy of the compensation offered under SECA's recall programs. The Court found that SECA had reacted quickly in assuming and fulfilling its responsibilities to consumers. Consequently, in seeking to remove defective products from the market and offering to replace them or to reimburse purchasers, SECA had acted as a responsible corporate citizen.

The Court conceded that one could always complain that SECA could have done better, but insisted that some tolerance and reasonableness was required. In this regard, it stated that nothing prevented the Court at the authorization stage from assessing the appearance of damages or the adequacy of the compensation offered. In the Court’s view, a minimum amount of filtering was necessary. To conclude otherwise would mean that each recall of a defective good would justify the authorization of an application for a class action, regardless of the context or the remedy offered. With respect to the stress, fear and uncertainty related to the risks of fire or explosion of the Note 7 phones, the Court found that the applicant had not, when notified of the first recall, reported it or even stopped using it.

The applicant also alleged damages relating to troubles, inconvenience and loss of time. However, product recalls are not uncommon and require a certain amount of consumer involvement. The Court conceded that the return of products necessarily involves some inconvenience. However, the inconveniences were standard and minimal. Consumers must show a certain level of tolerance and co-operation.

As for punitive damages, the Court also observed that there were no allegations or any evidence on the record to support the existence of an intentional fault on the part of SECA. Furthermore, the Court mentioned that the presumptions of knowledge based on articles 1726 to 1730 of the Civil Code of Québec and section 53 of the Consumer Protection Act invoked by the applicant were not sufficient to establish SECA's knowledge of the issue with the battery. SECA did not cover up the truth, nor did it deny that the problem existed. Rather, it intervened diligently to minimize and prevent damages. Thus, in the Court's view, no criticism could be levelled against SECA.

The Court therefore dismissed the application for authorization against the defendant. 

Comment

This decision is but one in a series of recent decisions dismissing applications for authorization to bring a class action on the basis that they are manifestly ill-founded in fact or in law, and will be particularly well received by companies involved in the sale of products. It demonstrates that in appropriate cases, and with the assistance of legal counsel, the implementation of well thought-out recall campaigns for defective products, with a view to meeting the test of the “responsible corporate citizen,” may help avoid, or at least deal more quickly with, resulting class actions. 

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Editors

Deborah Glendinning

Partner, Litigation

Sonia Bjorkquist

Partner, National Chair, Litigation

Éric Préfontaine

Partner, Litigation

Christopher Naudie

Partner, Litigation

Craig Lockwood

Partner, Litigation

Tristram Mallett

Partner, Litigation

Karin Sachar

Partner, Litigation