That would be a good idea if they can't settle with the main court. I never used small claims court, but I was looking into this a few times. Small claims court I believe is provincial level, so there might be different rules in different provinces. SK had lower maximum amount than $25k, but now their website says $30k.I saw one suggestion on the Facebook group that every affected TDI owner in Canada should file a claim in small claims court: the cost is about $75 to file, and apparently claims of up to $25,000 can be sought. That sure would be interesting if that worked, and even 10,000 owners did that.
I would still prefer the group settlement, but if nothing happens, it's a good backup plan. I don't think VW would like to send a representative for each case.
One more thing: if you go to small claims court, you have to do it in the province of the sued and not the province of the person who is suing. If you just do it in your own province, you might win the case, but then you would have to hire a lawyer or a collection agency who can collect your money at the other province. I'm not sure how this would work with VW. (I had a similar case once when I bought a house. The seller was hiding that the A/C was broken. We couldn't test it in the middle of the winter. The case didn't go further, because he moved out of province).