The Atlantic Lottery Corp (ALC) was created by the governments of Canada’s four maritime provinces (Newfoundland and Labrador, New Brunswick, Nova Scotia and Prince Edward Island) to operate video lottery terminals (VLTs) in the region. Douglas Babstock was the representative plaintiff in a class action against the ALC. The gist of the action was that the ALC knew or should have known that the VLTs were deceptive and carried the risk of causing psychological injuries, including addiction and suicide ideation. In an effort to increase the class size and enhance the chances of receiving certification, plaintiffs’ counsel strategically disavowed loss-based claims in favour of gain-based liabilities.

The statement of claim sought (1) restitution for unjust enrichment, (2) “waiver of tort” leading to disgorgement, and (3) breach of contract resulting in disgorgement and punitive damages. Each party made a preliminary application. The plaintiffs sought certification of their class action; the defendant sought to have the claim struck out. The essential question for both applications was the same: assuming that the plaintiffs’ allegations were true, was there any reasonable prospect for success? The lower courts held in favour of the plaintiffs. The defendant appealed.

Decision: Appeal allowed; claims struck.

Held: (1) It is necessary to distinguish “two types of gain-based remedies” (at [24]). Restitution is the “response to the causative event of unjust enrichment … where there is