SCC allows certification of class action where OSC settlement already completed

20 décembre 2013

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On December 12, 2013, the Supreme Court of Canada issued its decision in AIC Limited v. Fischer, in which it allowed certification of a proposed class action proceeding against a number of mutual fund managers despite the fact that a settlement agreement between the fund managers and the Ontario Securities Commission had already been reached.   

The appellant mutual fund managers in this case entered into settlements with the OSC over allegations of market timing causing losses to long-term investors. The settlement agreements, under which the defendants collectively paid investors $205.6 million, did not preclude the possibility of civil proceedings. Thus, investors subsequently brought an action claiming breach of fiduciary duty and negligence. According to the plaintiffs, the actual losses suffered by investors could reach as high as $832 million.

The Class Proceedings Act

According to Ontario’s Class Proceedings Act, the court will certify a class proceeding where,

(a) the pleadings or the notice of application discloses a cause of action;

(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;

(c) the claims or defences of the class members raise common issues;

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and

(e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class,

(ii) has produced a plan for the proceeding that sets out a workable method of    advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

Lower court decisions

At first instance, the motion judge denied certification, finding that the OSC proceeding was the preferable procedure for addressing the investors’ claims. The decision, however, was overturned on appeal, with the Divisional Court finding that since a significant amount of money was potentially still owed to the plaintiffs, it could not be said that the OSC process was preferable. Rather, the Court found that unless the plaintiffs achieved full or substantially full recovery, they were entitled to maintain an action.

Despite finding that the Divisional Court had erred in focusing on whether the OSC settlements provided investors with the monetary relief sought, the Court of Appeal agreed with the Divisional Court’s ultimate decision and dismissed the appeal. According to the Ontario Court of Appeal, however, the Divisional Court should have focused on the procedural characteristics of the alternative proceedings in comparison to class proceedings. Such procedural characteristics of the alternative forum include its impartiality and independence, the scope and nature of its jurisdiction and remedial powers, the applicable procedural safeguards, and its accessibility. Ultimately, the Court of Appeal found that the OSC’s proceedings did not provide comparable participation rights to affected investors and that the OSC’s remedial authority was insufficient to fully address investors’ claims.

SCC decision

Access to justice

On appeal, the Supreme Court’s analysis was limited to whether a class action would be the preferable procedure to address the plaintiff’s claims, as there was no dispute in respect of whether the proposed class action met the other requirements for certification. Further, while preferability is typically considered in light of the principal goals of class actions, being judicial economy, behaviour modification and access to justice, there was no dispute with respect to the first two goals. Thus, the Supreme Court’s analysis focused on the narrow issue of access to justice. 

In outlining its approach to preferability, the Supreme Court also noted that a class action does not have to actually achieve the above mentioned goals. Rather, the analysis is one of comparison, and is intended to determine whether other available means of resolving the claim are preferable. Further, while the Divisional Court focused on the substantive issue of quantum of damages, and the Court of Appeal focused on procedural considerations, the Supreme Court found that the access to justice analysis must include a consideration of both procedural and substantive elements.

Class action vs. OSC proceedings and settlement

While the Supreme Court found that class actions overcome barriers to litigation by “providing a procedural means to a substantive end”, the alternative in this case would be more limited in its ability to do so. Specifically, the Supreme Court recognized two potential barriers to access in respect to the investors, namely an economic barrier arising from the nature of the action as a “small claims class action” consisting of claims not large enough to support viable individual actions, and the associated lack of access to a fair process.

While the proposed class action addressed both barriers, the OSC proceeding and settlement agreements were found to be insufficient. According to the Supreme Court, the OSC’s proceeding suffered from procedural limitations due to its regulatory nature, the limited participation rights for investors and the limited information available in regards to how investor compensation was calculated. In regards to the substantive issue, while the limited scope of the factual inquiry on the certification motion means that courts are typically not able to compare potential recoveries, the Supreme Court found that the results of the alternative proceeding in this case could not be ignored. As such, the Supreme Court found that a cost-benefit analysis supported the view that class proceedings were preferable in order for investors to pursue their claims. That said, in cases where the results of the proposed class action and alternative proceedings are not known, “the comparative exercise with regard to the substantive access to justice barriers will in general be very limited.”

Disposition

Ultimately, therefore, the Supreme Court found that the motion judge had erred in his approach to preferability, finding that it was the role of the judge

to compare and evaluate, within the limited scope of the certification motion, the access to justice provided by the two proceedings, both in the substantive and procedural dimensions of the term as part of his overall assessment of whether the plaintiffs had established the preferability requirement on the appropriate evidentiary standard.

In applying the analysis it articulated, the Supreme Court found that the class proceedings were the preferable proceeding for pursuit of the investors’ claims. As such, it dismissed the appeal and upheld certification.

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