The Supreme Court of Canada held in Endean v. British Columbia that superior court judges in British Columbia and Ontario have broad statutory authority and discretion under their respective Class Proceedings Acts to conduct hearings outside of their home jurisdiction for the purpose of managing national class actions. Unlike the appellate courts below, the Supreme Court found that a video link to an open courtroom in the judge’s home jurisdiction was not legally required. The Court’s decision in Endean is strong endorsement of the broad jurisdiction that exists under class proceeding legislation and will facilitate the efficient management of multijurisdictional class actions across Canada. Continue Reading
The Court of Appeal for Ontario has recently confirmed that the Securities Act provides a circumscribed route for class actions alleging secondary market misrepresentations. In Rooney v ArcelorMittal SA, Justice Hourigan, on behalf of the Court, held that security holders who sell shares in the secondary market in the face of a takeover bid cannot bring a claim pursuant to the statutory cause of action for misrepresentations in a takeover bid circular. Instead, such security holders must bring their claims pursuant to the statutory cause of action for misrepresentations in the secondary market in Part XXIII.1. The decision in Rooney confirms that plaintiffs cannot avoid restrictions placed on secondary market class actions by piggybacking a secondary market claim onto a primary market claim.
In Rooney, the plaintiffs commenced a class action based on alleged misrepresentations in a takeover bid circular pursuant to s. 131(1) of the Securities Act. The proposed class included not only security holders who had sold their shares directly to the bidders, but also those who had traded them in the secondary market.
The plaintiffs sought to rely on the statutory cause of action provided for in s. 131(1) for their secondary market claims, rather than the separate statutory cause of action for secondary market misrepresentation provided for in s. 138.3. Relying on the broad language of s. 131, which says that any “security holder” can sue for damages if they receive a takeover bid circular containing a misrepresentation, the plaintiffs argued that secondary market participants had a right of action pursuant to that provision, notwithstanding the specific provision in s. 138.3.
Court of appeal decision
Justice Hourigan rejected the plaintiffs’ position and held that secondary market participants cannot bring an action pursuant to s. 131(1). In doing so, Justice Hourigan held that the plaintiffs’ interpretation was inconsistent with the statutory context, the purpose of s. 131(1), and the scheme of the Securities Act.
Most notably, Justice Hourigan explained that the plaintiffs’ interpretation conflicted with the overall scheme governing class actions alleging secondary market misrepresentations. That scheme includes protections for defendants, including the leave requirement (to prevent opportunist ‘strike suits’) and liability caps. The plaintiffs’ attempt to use s. 131(1) in this case, which does not contain the same protections, was simply “an impermissible attempt to avoid the restrictions placed on the operation of the statutory cause of action found in Part XXIII.1.”
Courts in Ontario given effect to some of the protections provided to defendants in secondary market class actions by, for instance, applying a robust two-part test before granting leave for any action, emphasizing the importance of defence evidence in rejecting leave applications, and letting defendants rely on statutory defences at an early stage of the proceedings. Rooney usefully clarifies that plaintiffs cannot circumvent those safeguards by piggybacking a secondary market claim onto a primary market claim under Part XXIII of the Securities Act.
Evidence is required to establish “some basis in fact” for the procedural preconditions to certification. This requires certification judges tread the fine line between screening out inappropriate class proceedings and impermissibly weighing of the merits of the claim based on evidence at the certification stage. The Alberta Court of Appeal’s recent decision in Warner v. Smith & Nephew Inc. (Justice Slatter dissenting) illustrates the continuing evolution of the evidentiary threshold required for certification. Continue Reading
In a recent development in data breach class actions in Canada, Justice Perell of the Ontario Superior Court of Justice, while approving the class settlement in Lozanski v The Home Depot, Inc., denied payments sought by the representative Plaintiffs (the “Honoraria”) and substantially reduced counsel fees payable pursuant to the settlement. He did so given his findings that the class had suffered minimal damages, that the action itself was “speculative” and “weak”, and that the real villains were the hackers and not the defendant. Continue Reading
Should a court hear from a defendant before approving third party funding of a class action against that defendant? As we have previously commented (see here and here), courts in Ontario have usually answered “yes” to that question. However, in Schneider v Royal Crown Gold Reserve Inc a Saskatchewan court took a different approach: Chief Justice Popescul approved a litigation financing and indemnity agreement (“LFA”) without any notice to the defendants. Although he left open the possibility of the defendants challenging the LFA in the future, his reasons suggest that generally courts do not need to hear from defendants before approving third party funding. Continue Reading
The Ontario Court of Appeal recently confirmed the importance of defence evidence when opposing leave to bring statutory misrepresentation claims under Part XXIII.1 of the Securities Act. In Mask v. Silvercorp Metals Inc., Chief Justice Strathy rejected the plaintiff’s argument that leave should be granted as a matter of course if the plaintiff establishes a plausible analysis of the legislation and “some credible evidence.” Rather, the Chief Justice held that the “reasonable possibility of success” test requires weighing all of the evidence – including that of the defendant.
The Court of Appeal affirmed the motions judge’s denial of leave and costs award of $500,000 against the plaintiff. Silvercorp confirms that, given the merits-based analysis under Part XXIII.1, significant costs awards raise fewer access to justice concerns as compared to typical class actions. Continue Reading
The Ontario Court of Appeal in Fantl v. Transamerica Life Canada dismissed an appeal of a Divisional Court ruling, confirming the certification of an investor class action for negligent misrepresentation.
The ruling required the Court of Appeal to grapple with certifying a class with complex individual issues, and in light of Supreme Court of Canada’s decision in AIC Limited v. Fischer, which refocused the preferability analysis towards addressing barriers to access to justice. Continue Reading
There have been a number of recent class actions commenced in Canada relating to pricing disclosure – and in particular, the alleged practice of “drip pricing”, whereby a company advertises a base price through various media but additional fees and surcharges are disclosed later in the sales/reservation process. However, in a recent decision, the Superior Court of Québec underscored the risks and challenges for plaintiffs in pursuing such cases, and provided guidance for advertisers and on-line retailers in respect of their pricing practices. In particular, in Prince v. Avis Group Inc. et al., the Court refused to authorize the class action proceedings brought against car rental companies seeking compensation on behalf of Québec consumers based on alleged violations of consumer protection legislation. In so doing, the Superior Court specifically endorsed the advertising best practices of one defendant, and provided some welcome comfort to companies who take steps to advertise a total estimated price as part of their on-line practices. Continue Reading
In a recent decision by the Ontario Superior Court of Justice, Justice Belobaba reiterated the need for parties seeking court approval of a settlement in a class proceeding to provide concrete details and substantive evidence that demonstrates that a settlement in a class proceeding falls within a reasonable range and is in the best interests of the class.
Approval of Settlement under Class Proceedings Act in Ontario
In Ontario, a class plaintiff must seek judicial approval for any settlement under the Class Proceedings Act, and the Court must be satisfied that the settlement is fair and reasonable and in the best interests of the class. Similar provisions are found in other class action legislation across Canada. In the past, many plaintiff’s counsel have sought and have obtained settlement approval of class settlements by adducing evidence that is focused on the process of settlement – namely, the settlement was reached by experienced counsel negotiating at arm’s length in an environment of mutual risk, and that the settlement should be considered reasonable in light of the outcome of a fair bargaining process. Continue Reading
A business subject to a class action receives a “without prejudice” letter from a potential class member offering to settle a small personal claim for nearly a million dollars, or else the writer will “go public” with the allegations and seek class certification. The business does not accept the “extortionate” offer and the writer proceeds with certification. Can the business put this “without prejudice” letter before the court? And does the appearance of extortion disqualify the writer from acting as representative plaintiff?
The British Columbia Court of Appeal recently answered “yes” to both questions in Sandhu v. HSBC Finance Mortgages Inc.
The original plaintiffs in Sandhu were brothers. They obtained a mortgage from the defendants to purchase residential property. The defendants provided a disclosure statement to the plaintiffs identifying $357 of the mortgage proceeds as going toward a “Title insurance premium.” The plaintiffs subsequently alleged that of this $357, only $115 was the actual insurance “premium”, with the remainder being for “policy insurance costs” and “additional charges.” They commenced an action in 2007 that eventually evolved into a complaint regarding fee disclosure.
In 2011, prior to the certification application, the plaintiffs offered “without prejudice” to settle the action for $876,000, or $438,000 each. Such amounts represented over 3,600 times their individual claims. They threatened that unless these disproportionate sums were paid, they would amend their claim to allege “actual fraud, or at the very least fraudulent misrepresentation.” The plaintiffs pitched this offer as the defendants’ “one chance before it becomes publically known.”
Defence counsel put this letter before the court on the certification application, arguing that the plaintiffs’ efforts at personal enrichment disqualified them from acting as representative plaintiffs.
The applications judge held that the “without prejudice” letter was not admissible on grounds of settlement privilege and faulted defence counsel for putting it on the record. The court certified a class action and designated the two original plaintiffs (and two others) as representative plaintiffs.
British Columbia Court Of Appeal Decision
The B.C. Court of Appeal allowed the appeal. Justice Saunders held, among other things, that the “without prejudice” letter was properly before the court and that the original plaintiffs had disqualified themselves from representing the class.
Justice Saunders held that the “without prejudice” letter fell within an exception to the blanket privilege for settlement communications because it provided a “reasonable basis to question” the plaintiffs’ fitness to represent the class. She explained that this flows from the importance of the representative plaintiff to the integrity of class proceedings: “It is obvious that the confidence of the community of class members and to a large degree the integrity of the proceeding rests on the representative plaintiffs.” Courts should not close their eyes to evidence challenging this integrity.
Taking into account the letter, Justice Saunders held that the application judge erred in principle by designating the original plaintiffs as representatives of the class. In her view, “such a demand for large scale payment on the threat of a certification application is highly problematic.” She held:
In failing to weigh the lingering effect of this combination of menace and disproportionate recovery, the certification order does not reflect the values inherent in the Class Proceedings Act. Above all, no litigation should be, or reasonably be seen to be, extortionate. This letter, when sent, bore that character and in my view is a disqualifying event for the appointment of its authors as representative plaintiffs.
The original plaintiffs sought to put a fresh affidavit before the Court of Appeal claiming that the “without prejudice” letter was sent fearing a potential adverse cost award and that any surplus would have been given “to non-profit consumer advocacy groups.” Justice Saunders considered this fresh evidence but held that it “does not lessen the appearance of large personal gain, or the appearance of using the threat of a class proceeding to extract a disproportionate payment.”
One would hope that such a situation would not arise frequently. Where it does, however, Sandhu permits defendants to put evidence of the plaintiffs’ “extortionate” behaviour before the court – and challenge the fitness of representative plaintiffs who seek to personally enrich themselves through class actions.