Certification granted in foreign exchange fee class action

February 3, 2012

On January 31, 2012, Justice Horkins certified a class action in respect of foreign exchange fees purportedly charged without authorization to holders of various registered bank accounts, in MacDonald v. BMO Trust Company.


Prior to June 14, 2001, Canadians could not hold foreign currency in registered accounts.  The defendants converted all foreign currency that came into registered accounts into Canadian dollars to ensure compliance with the Income Tax Act (ITA).

Commencing June 14, 2001, the ITA was amended to allow foreign currency to be in held in registered accounts without penalty.  However, the defendants did not offer registered accounts denominated in foreign currency until September, 2011 resulting in a continuation of the foreign currency conversion that took place before the ITA amendments.

The plaintiffs allege that the defendants charged an undisclosed (or inadequately disclosed), unnecessary and unauthorized foreign exchange fee on three types of transactions including, (i) authorized conversion of foreign currency, when the account holders direct or authorize purchase of a foreign security using Canadian dollars held in a registered account; (ii) unauthorized conversion of foreign currency, when trades in securities on foreign stock exchange settle in foreign currency; and (iii) unauthorized conversion of foreign currency, when account holders receive cash dividends in foreign currency.


Cause of Action

The defendants’ position on the certification motion was that there was no cause of action because (1) the claim depended upon the allegation that the defendants ought to have offered the putative class members the ability to hold foreign currency in their registered accounts after the tax law changed and no cause of action could be premised on this claim; and that (2) it was plain and obvious that the plaintiffs’ claim would not succeed because documents they had referenced in their pleadings showed that the fee was disclosed and all account holders agreed to paid the fees.

Specifically on the cause of action for breach of fiduciary duty and duties as trustees, the defendants argued against certification by asserting that the management of trust accounts is an arm’s length commercial transaction and they were (and are) entitled to earn a profit for trustee services rendered, and that they are free to choose which services they offer in the market place and had no duty to provide the class members with foreign currency denominated RRSP accounts.   With respect to the claim for unjust enrichment, the defendants argued that the claim could not succeed in the face of a claim for breach of contract because the contract was the justification for the alleged enrichment and that the claim was repetitive of the disgorgement remedy that was claimed under the breach of fiduciary duty cause of action.

While not disputing that the defendants are entitled to charge agreed upon fees for services rendered, or that the defendants are free to choose which types of services to offer to their clients, the plaintiffs argued that the foreign exchange fees were not properly disclosed and authorized and that, as trustees and fiduciaries who had willingly adopted that role, the defendants were obligated to act in the best interests of the class members not to allow their interests to conflict, not to take any undisclosed profits, fees, or charges from the registered accounts and not to engage in any unauthorized transactions. 

Ultimately, the Court certified all three causes of action and disagreed with the defendants’ position, finding that their arguments incorrectly characterized the claims.  The Court found that the focus of the claim was on the manner in which the registered accounts were offered and managed by the defendants and that what the plaintiffs were saying was that the defendants are not permitted to profit from unnecessary, unauthorized and undisclosed or inadequately disclosed fees, particularly in circumstances where the defendants acted as the statutorily imposed trustee of the registered accounts.  The Court further found that it was not plain and obvious that the claims could not succeed based on the documents referred to by the plaintiffs, and furthermore, that all of the claims were properly pleaded.

Identifiable Class

The Court accepted that there was an identifiable class based on the following class definition:  

All current and former clients of BMO InvestorLine Inc. (InvestorLine) and BMO Nesbitt Burns Inc. (BMO NB) resident in Canada, who held one or more registered accounts administered by BMO Trust,  BMO NB and/or InvestorLine Inc.  (the Trust Accounts) and purchased or sold investments denominated in foreign currency in their Trust Accounts or were paid dividends or interest in a foreign currency in their Trust Account(s), or otherwise received foreign currency into their Trust Account(s) which was then converted to Canadian dollars by the defendants during the period between:

(i) June 14, 2001 and September 6, 2011 for:

     a. all clients and former clients of InvestorLine;

     b. the 14 clients of BMO NB who opted out of the class proceeding entitled Skopit v. BMO Nesbitt Burns Inc., either entirely or with respect to the overlap period with this action; and


(ii) October 1, 2002 and September 6, 2011 for all other clients of BMO NB.

The definition was amended to its current form in order to resolve the defendants’ concern regarding possible overlap with claims released in the Skopit settlement, which case also concerned foreign exchange fees.

Common Issues

Rather than attacking a specific common issue, the defendants identified three reasons why the issues could not be decided in common: (1) there was a limitation period issue that could not be decided on a common basis; (2) most of the common issues were premised on a fiduciary duty and/or a trust duty, the existence of which was in dispute and is a highly individual issue; and (3) the plaintiffs did not provide sufficient evidence to support a finding of commonality. 

The Court rejected the limitation period argument, which the defendants raised in respect of class definition, common issues and preferable procedure.  According to the Court, “[t]he possibility that discoverability may require an individual inquiry is not a reason to deny certification.”  It was premature to conclude that an anticipated defence (a statement of defence had not yet been filed) should narrow the scope of the class definition, render the proposed common issues too individual to certify and/or conclude that a class action is not the preferable procedure.

Further, the following basic evidentiary points demonstrated that the proposed common issues could be assessed in common: they dealt only with registered accounts; class members cannot hold registered accounts directly but must have registered accounts held by qualified entities, such as the defendants; standard form documents were used to define the relationship between BMO Trust and BMO NB/InvestorLine, and between the defendants and class members; standard form documents were used to provide monthly statements; and the monthly statements never revealed the value of the assets sold/purchased in the foreign currency, the actual foreign currency exchange transactions or the fees that resulted.

The plaintiffs are seeking restitution of the full amount of the fees.  They believe that the defendants have sufficient records to obtain the precise amount of damages owing to each class member, and the defendants did not provide evidence to the contrary.  As this approach was used in the Skopit settlement, which also concerned foreign exchange fees and the same bank, the Court did not see why it was not workable in this case.  Entitlement to punitive damages was also found to be determinable on a common basis as it focused on systemic behaviour.  Such damages would be distributed on a pro rata basis. 

The defendants argued that it could not be assumed that the fee resulted in a profit to the defendants in each instance.  However, the Court found that the defendants had not provided sufficient evidence to show how this evidence impeded the ability to manage the damages issues on a common basis.

The Court certified common issues in respect of liability and damages and further concluded that the remaining criteria of the test for certification including preferability of procedure and a representative plaintiff with a workable litigation plan had been satisfied. 

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

Stay in Touch with Knowledge Hub