Looking Forward
2012 was an active year for class actions in Ontario. Bennett Jones has been involved in some of 2012’s leading cases, including the putative class proceedings commenced in Trustees of the Labourers’ Pension Fund v. Sino-Forest Corporation and Sharma v. Timminco.
What follows is our discussion and analysis of trends and likely developments in class actions in 2013. We predict that in the coming year, class action litigation in Ontario will experience major shifts, perhaps altering this jurisdiction’s reputation for being plaintiff-friendly.
Securities
A number of important but often conflicting decisions were released dealing with statutory limitation periods, evidentiary thresholds on leave motions and the impact and interplay between regulatory proceedings and class actions in the securities context. These decisions were significant and, in some cases, provide an indication of where the battle lines will be drawn in similar proceedings in 2013.
Limitation Periods
Part XXIII.1 of the Securities Act (Ontario) requires plaintiffs seeking to advance a statutory cause of action for alleged misrepresentations to obtain leave of the court. Pursuant to section 138.14, the statutory cause of action must be commenced within three years of the date of the alleged misrepresentation.
In Sharma v. Timminco, the Court of Appeal for Ontario provided guidance on the application of this statutory limitation period in cases where plaintiffs seek an order declaring that the limitation period was suspended under section 28 of the Class Proceedings Act (which suspends limitation periods on the date a class proceeding is commenced). The issue before the Court was whether the cause of action under the Securities Act had been asserted for the purposes of the Class Proceedings Act, suspending the limitation period even though leave had not yet been granted to the plaintiff to commence the action.
At first instance, Justice Perell granted the order and declared the limitation period suspended on the basis that the plaintiff had mentioned the Part XXIII.1 claim in its statement of claim. The Court of Appeal overturned Justice Perell’s decision, finding that leave must first be obtained from a court before the limitation period for the Part XXIII.1 cause of action can be suspended pursuant to the Class Proceedings Act.
The Timminco decision compels class action plaintiffs to bring leave motions on an expedited basis and would seem to strongly discourage the current common practice of combining a leave motion with a motion for certification. Timminco was followed by three other (conflicting) decisions on this issue, as class action plaintiffs tried to find a way to obtain relief from expired limitation periods with varied success.
The first case to follow Timminco was Green v. Canadian Imperial Bank of Commerce, in which the plaintiff shareholders sought leave under Part XXIII.1 and also sought to have the action certified. Justice Strathy concluded that the plaintiffs had met both the test for leave and for certification. However, following Timminco, he found that the right to pursue the Part XXIII.1 cause of action was statute-barred. The plaintiffs proposed two ways to get around the fact the claim was statute-barred: granting leave nunc pro tunc (which would essentially backdate the leave motion) and the special circumstances doctrine (which gives courts discretion to extend certain limitation periods when special circumstances exist but which is no longer applicable to the general Ontario Limitations Act). Justice Strathy determined that neither of these arguments could circumvent the statutory limitation period and the plaintiffs’ motion was dismissed.
Less than two months after Justice Strathy’s decision in Green v. CIBC was released, Justice van Rensburg released her decision in Silver v. IMAX. The plaintiffs commenced the action in 2006 asserting common law claims and pleading that the plaintiffs intended to bring a motion for leave under Part XXIII.1. The leave motion was heard in December 2008 and Justice van Rensburg released her decision on December 14, 2009. She granted the plaintiffs leave to proceed with the Part XXIII.1 claim against all but two of the proposed defendants. After the release of Timminco, the defendants delivered an amended statement of defence, asserting the expiration of the statutory limitation period.
Justice van Rensburg found that “unless the order granting leave and the amendment to the claim to assert the statutory cause of action can be given effect within the limitation period, the statutory claims in proceedings would be statute-barred.” As such, the main issue before Justice van Rensburg was whether there was any jurisdiction to amend the leave order so as to make it effective and not statute-barred. Contrary to Justice Strathy’s decision, Justice van Rensburg found that such jurisdiction did exist. Justice van Rensburg found that the causes for delay were outside the control of the plaintiffs, who could have done nothing more to comply with the limitation period, given the decision was under reserve when the limitation expired. On this basis, she made the order nunc pro tunc, circumventing the expired limitation period. Although this decision appears inconsistent with Green v. CIBC, Justice van Rensburg reasoned that the facts in this case were distinguishable. Justice van Rensburg briefly considered the special circumstances doctrine, but found that it was not necessary to decide this issue (although she did state that it did not fit within the framework of the Securities Act).
Less than two months after IMAX was released, Justice Perell released his decision in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc., in which the defendants brought a motion to strike portions of the plaintiffs’ claim on the basis that, among other things, their claim was statute barred under section 138.14 of the Securities Act. Justice Perell purported to follow Timminco, but found that he could provide relief from the expired limitation period through the doctrines of nunc pro tunc and special circumstances. Justice Perell found that although the special circumstances doctrine is no longer available under the Ontario Limitations Act, it was available in this case given that the limitation period provided by section 138.14 of the Securities Act was not in the Limitations Act. Justice Perell concluded that there were special circumstances justifying an order granting leave nunc pro tunc.
The decision in Timminco promised a more defendant-friendly future for securities class actions in which the three-year limitation period would be strictly upheld. This view was upheld in Green v. CIBC. However, the somewhat conflicting decisions in IMAX and Celestica provide plaintiffs with potential avenues for relief. Due to the conflicting decisions, this issue is once again in need of appellate guidance, which we expect to see sometime in 2013. Until the limitation issues are conclusively addressed and resolved, we expect that plaintiffs’ counsel will attempt to enter into tolling agreements with defendants and, absent such agreements, will be obliged to proceed more expeditiously with motions for leave.
Evidentiary Threshold on Leave Motion
In Gould v. Western Coal Corporation, Justice Strathy provided guidance for future leave motions under Part XXIII.1 of the Securities Act, comments which serve as a reminder to plaintiffs and defendants to closely examine the evidence submitted on such motions.
With respect to the Part XXIII.1 claim, Justice Strathy confirmed that the leave analysis requires an evidence-based analysis of whether the plaintiff’s claim has a reasonable possibility of success. The threshold for satisfying the leave test is low: the plaintiff need only establish more than a “mere” possibility of success at trial. Justice Strathy noted that none of the plaintiffs’ evidence reflected any first-hand knowledge of the transactions at issue or the underlying facts. By contrast, the defendants put forward affidavits from 15 different individuals, all of whom were personally involved in the relevant events. Justice Strathy concluded that leave for Part XXIII.1 should not be granted because the plaintiffs’ claim had no reasonable possibility of success at trial.
While the decision in Gould confirms this low threshold for plaintiffs’ obtaining leave, Justice Strathy also clearly articulated that the leave test should be considered a meaningful hurdle for plaintiffs to surmount. The result suggests that the low threshold will not prevent the court from engaging in a robust evaluation of the evidence before it and that the standards applied to expert opinions will not be relaxed in the context of leave motions. Ultimately, the decision reinforces the need for counsel and parties alike to scrutinize the evidence they are putting before the court on leave motions.
Regulatory Settlements and Class Proceedings
The interaction between proceedings before regulatory bodies, such as the Ontario Securities Commission (OSC), and the commencement of related class proceedings is an issue that will likely become more prevalent in the future. The decision in Fischer v. IG Investment Management, 2012 ONCA 47, released January 27, 2012, suggests that absent unique circumstances, a settlement reached in a regulatory proceeding will not preclude or bar a related class proceeding. In Fischer, the market timing case, the defendants entered into settlement agreements with the OSC, under which they paid $205.6 million compensation to their investors (who constituted the majority of the proposed class members).
The defendants argued that the preferable procedure in this case was the then-completed regulatory proceeding. The plaintiffs argued that the OSC settlement ($205.6 million) did not amount to full compensation and the actual damages suffered could be significantly higher. The plaintiffs also relied on the fact that they had not participated in the OSC negotiations, nor were they signatories to the OSC settlement agreements, to argue that they had not yet had their day in court.
At first instance, Justice Perell agreed with the defendants and dismissed the motion for certification. However, the Divisional Court overturned the decision. The Court of Appeal upheld the decision of the Divisional Court (but for different reasons). In doing so, the Court of Appeal set out how the preferable procedure inquiry should be conducted, finding that the court must examine not simply the amount of compensation generated by the alternative proceeding, but rather the fundamental characteristics of the proposed alternative proceeding, including: (1) the impartiality and independence of the forum; (2) the scope and nature of the jurisdiction and remedial powers of the alternative forum; (3) the procedural safeguards that apply in the alternative proceeding, including the right to participate and the transparency of the decision-making process; and (4) the accessibility of the alternative proceeding, including the costs associated with accessing the process and the convenience of doing so. These characteristics must then be compared to those of the putative class action in order to determine which action will be the preferable means of fulfilling the goals of class proceedings: judicial economy, access to justice and behaviour modification.
Following this analysis, the Court of Appeal concluded that the proposed class action was the preferable procedure in this case.
This decision highlights the reality that, going forward, defendants may face significant financial liability in regulatory proceedings and in a follow-on class action. The Court of Appeal did not dismiss the possibility of a regulatory proceeding, holding instead that the outcome will be factually specific. However, based on the criteria established by the Court, unless the alternative proceeding provides for meaningful participation by the plaintiffs, and a meaningful opportunity for recovery similar in scope and nature to that of a class action, it seems likely that class proceedings will continue to be viewed as the preferable procedure.
The Supreme Court of Canada granted the defendants leave to appeal the Court of Appeal’s decision, meaning that the class actions bar should soon receive guidance, likely in 2013, from the highest court regarding the interplay among regulatory proceedings, settlements and class actions.
Employment
For most companies and defence counsel, 2013 will likely be a slow year for employment class actions. In June, the Ontario Court of Appeal released its reasons in three leading Canadian employment class actions: Fresco v. Canadian Imperial Bank of Commerce, Fulawka v. Bank of Nova Scotia and McCracken v. Canadian National Railway Co. In two of these cases (CIBC and Bank of Nova Scotia), the unsuccessful employer has sought leave to appeal the decision to the Supreme Court of Canada. The plaintiffs in CN Railway did not seek leave to appeal.
If the Supreme Court grants leave to appeal (because it finds that the cases raise an issue of public importance), the cases likely will not be heard until early 2014 and decisions will not be released until late 2014 or early 2015. As such, it is unlikely that plaintiffs will be commencing new overtime class actions until the Supreme Court settles the matter. In the interim, the Court of Appeal’s decisions are instructive to employers and counsel who may be facing certification motions in 2013.
The Bank Cases
Fulawka and Fresco are both off-the-clock cases. The class members, who are all front-line staff, allege that the banks’ overtime policies required them to obtain prior approval to be paid for overtime work even though the overtime was required or permitted to be performed. Further, they assert they were not paid for that overtime because they did not receive prior approval.
Despite the fact that both Fresco and Fulawka involved similar allegations and employers, the cases were initially treated differently. Fulawka was originally certified; Fresco was not. Under the Class Proceedings Act, Fresco proceeded directly to the Court of Appeal. Fulawka was appealed to the Divisional Court, where a 2-1 majority upheld the certification order. Both appeals to the Court of Appeal were heard consecutively in December 2011. The plaintiffs were represented by the same counsel in both cases.
Notwithstanding CIBC’s efforts to distinguish its case from the decision in Fulawka, the Court of Appeal ultimately concluded that “both certification motions should either succeed or fail together”. In its view, both cases are appropriate for certification. That being said, the Court rejected the availability of aggregate damages assessed on a class-wide basis.
In Fulawka, the Bank of Nova Scotia (BNS) argued that the common issues certified by the motion judge are not substantial ingredients of the class members’ claim and, as such, would not advance the litigation. In an effort to demonstrate how these issues would not assist in resolving their claims, BNS made admissions or concessions about the existence of certain implied contractual terms in the class members’ employment contracts (which CIBC had also made at the certification motion). The Court rejected these arguments on the basis that such concessions are not determinative of the commonality question and, in any case, would not be enforceable by putative class members if the case were not certified. Moreover, the Court concluded that the proposed common issues, including claims of systemic defects in BNS’s overtime policies (such as whether BNS had a duty to record hours worked or prevent class members from working non-compensable hours), would assist in resolving the class members’ claims.
In Fresco, the Court of Appeal criticized the merits-based approach taken by the lower courts to the issue of whether CIBC’s overtime policy breached the Canada Labour Code. In the Court’s view, the legality of CIBC’s policies is an issue for trial, not for certification. The Court then applied its reasoning on the common issues in Fulawka to Fresco, concluding that a trial judge may “find there is an evidentiary basis that could support a conclusion that all uncompensated hours were required or permitted by CIBC.”
In both bank cases, the Court rejected the plaintiffs’ claim for an aggregate assessment of damages. Instead, the Court accepted BNS’s argument that statistical evidence can be used to “design and successfully implement a satisfactory compensation system”. The Court provided no guidance on what such a system might be.
McCracken
The Court took a different approach in McCracken, which is a misclassification case. The class members alleged that CN did not pay them overtime because it classified them incorrectly as managers or superintendants. Under the Canada Labour Code, employees who exercise managerial responsibilities are exempt from being paid for time worked in excess of 40 hours per week.
The motion judge, relying largely on the reasoning in Fulawka, certified the class. He agreed with CN that individualized assessments of the class members’ job duties and responsibilities were necessary. But, instead of rejecting certification, the motion judge recast the common issue to focus on what minimum requirements are necessary to be a managerial employee at CN.
The Court of Appeal found that there was no evidence to support a “core commonality” concerning the class members’ duties and responsibilities. As such, it allowed the appeal.
What To Look For
It seems unlikely plaintiffs will be commencing new overtime class actions until the Supreme Court settles the matter. If new class actions are commenced, they are likely to be off-the-clock cases. Misclassification cases are proving harder to certify in Canada notwithstanding the contrary U.S. experience. In early June 2012, the Superior Court refused to certify another misclassification case in Brown v. Canadian Imperial Bank of Commerce.
That being said, enterprising plaintiffs’ counsel may be on the search for other types of employment cases, including mass lay-off cases, discrimination claims or other types of wage-and-hour cases (for example, cases involving allegations of unpaid vacation pay or holiday pay).
Further, the overtime class actions to date have focused on federally-regulated employers that are governed by the Canada Labour Code. In an effort to find new types of claims, plaintiffs’ counsel may focus their efforts on wage-and-hour claims under the provincial employment standards statutes.
Competition
Last year we predicted a slow 2012 as plaintiffs and defendants waited for the Supreme Court of Canada to decide whether Canada would follow the U.S. approach and prohibit indirect purchasers from bringing antitrust class actions.
Our prediction proved accurate. The three appeals in Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Ltd. v. Archer Daniels Midland Company, and Option Consommateurs v. Infineon Technologies AG highlighted the year. However, until the Supreme Court releases its reasons in the appeals, we can expect the low level of activity in this area to carry forward into 2013.
At the October 2012 hearing of these appeals, the Supreme Court engaged squarely with the U.S. Illinois Brick rule and the indirect purchaser issue. The Court questioned plaintiffs’ counsel about the evidentiary complexities of indirect purchaser actions: how does one conceptualize a class action without some basis to determine which Canadians had actually been wronged? How can compensation be distributed to effectively remedy any harm? On the other side, the Court appeared sympathetic to the risk that defendants would face multiple liability if indirect purchaser actions continued. Ultimately, it wanted evidence that multiple liability was a practical reality and not simply a theoretical possibility.
How the Supreme Court will rule is uncertain. What is clear is that its decision will have far-reaching and lasting impacts on Canadian antitrust class actions. In cases involving foreign defendants, indirect purchasers make up the vast majority of Canadian antitrust plaintiffs, in part because Canada has few direct purchasers. Thus, Canadian plaintiffs’ counsel depend on joint direct-indirect purchaser classes to launch economically viable actions. Loss of indirect purchaser class members will mean fewer Canadian antitrust class actions, and in particular, fewer actions alleging international conspiracies. Classes made up of only direct purchasers currently do not exist or will inevitably prove too small to justify the costs and risks of litigation. A small number of direct purchasers may also prefer to bring actions on their own behalf rather than as part of a class.
With the viability of so many ongoing actions threatened by the possible outcome of the appeals at the Supreme Court, many Canadian actions were largely inactive in 2012. Procedural and pre-certification issues dominated what little activity there was. For example, in Fairhurst v. Anglo American PLC, British Columbia’s Court of Appeal confirmed plaintiffs must meet a very low threshold when pleading a connection between British Columbia and non-Canadian defendants. At the same time, it established a practically insurmountable barrier to foreign defendants alleging a lack of jurisdiction. The defendants in Fairhurst have sought leave to appeal to the Supreme Court of Canada.
Even less occurred in other cases. In Pro-Sys Consultants v. Infineon Technologies AG (the DRAM action), the parties agreed to a stay pending a decision from the Supreme Court. In other cases, such as Godfrey v. Sony Corporation (the Optical Disc Drive action), plaintiffs’ counsel have advised courts that they will not insist on certification materials from defendants until the Supreme Court releases its decision. Watson v. Bank of America Corporation (the Visa/Mastercard class action) appeared to be somewhat anomalous with the parties preparing for a 2013 certification hearing.
Looking forward, we expect the first half of 2013 to look much like 2012. We expect plaintiffs to continue to address procedural issues and to prepare certification materials in anticipation of a decision from the Supreme Court in mid-2013.
Despite what we anticipate to be a slow start to 2013, once the Supreme Court releases a decision, we expect a flurry of activity. A favourable result for plaintiffs will unleash a flood of certification records, scheduling demands, and perhaps even new actions that were otherwise held back over the last two years. A favourable result for defendants will prompt a string of decertification motions, motions to strike, or summary judgment motions. Whatever the Supreme Court’s decision, 2013 will set the stage for the next decade of antitrust class actions in Canada.
Product Liability
Jurisprudential developments in product liability class actions in 2012 indicate that Canadian courts are transitioning away from what has previously been viewed to be a relatively plaintiff-friendly environment to a more cautious approach to certification. Prior to 2012, certification of a proposed class action against manufacturers and distributors of allegedly defective products, particularly medical products, was almost assured. The bar for certification was applied in a relatively low fashion in respect of these claims. As a result, most product liability cases settled long before reaching a common issues trial and often before certification.
However, a series of decisions in 2012 (some of which are outlined below) suggest that the pendulum has swung to a more central position as the courts appear to be applying greater scrutiny, and in some cases refusing certification. In 2012, the doctrine of waiver of tort also received judicial treatment that may limit the scope of its application going forward.
In light of what has transpired in 2012, we anticipate that, in 2013 and beyond, courts will continue to advance a cautious, balanced approach to the certification of product liability class actions. As such, plaintiffs in medical product class actions may have a tougher time achieving certification.
Andersen v. St. Jude Medical, Inc. demonstrated the complexity and expense involved in a common issues trial in a medical product liability class action. The trial lasted a total of 138 days spanning over two years. It involved 2,293 documents and testimony from 17 fact witnesses and 23 experts. In Andersen, the plaintiffs questioned the safety of the Silzone-coated mechanical prosthetic heart valves that had been the subject of a 2000 Canadian recall. Justice Lax ultimately found there was insufficient evidence to support the allegation that Silzone materially increased health-related risks to patients. The Court held that the propriety of a manufacturer’s conduct must be assessed with reference to the information available to the manufacturer at the time of the alleged negligence and not information available at the time of trial or at some future date. The Court dismissed the action and held that the evidence did not make out a case in negligence against the dependant at either the pre-market design and testing stage or the post-market surveillance and marketing stage. An appeal is currently pending but is unlikely to be heard and decided before 2014.
Although pharmaceutical product liability cases have frequently been certified, Justice Horkins refused to rubber-stamp the certification motion in a proposed class proceeding based on the drug Seroquel in Martin v. AstraZeneca Pharmaceuticals PLC. Although a case involving a similar pharmaceutical product had been certified, the Court reaffirmed that each case is to be decided on its own record. In this case, the Court excluded evidence from the plaintiffs’ expert and found that the statement of claim was deficient, failing to disclose a tenable cause of action. The Court also held that whether a common issue has been certified in another, similar class proceeding is not dispositive of its appropriateness as a common issue in the particular proceeding. Ultimately, Justice Horkins held that the claim failed to satisfy many of the certification criteria and awarded the defendants approximately $750,000 for costs and disbursements of the certification motion. An appeal in relation to both the certification and costs decisions is presently outstanding and is expected to be heard in 2013.
In Arora v. Whirlpool Canada, the plaintiffs sued Whirlpool in relation to an alleged design defect in front-loading washing machines. Justice Perell denied certification and held that, in the context of non-dangerous products, a manufacturer has no duty to disclose design defects. Moreover, the Court held that, as a general rule, a pure economic loss claim for negligent design in a non-dangerous product cannot succeed. Like the 2011 decision in Smith v. Inco in the environmental context, this case demonstrates the difficulties plaintiffs will face in the absence of safety or health risks.
Doctrine of Waiver of Tort
Waiver of tort is a legal doctrine providing the victims of certain torts the option to base a claim on the disgorgement of the tortfeasor’s gains rather than compensation for their losses. In 2004, Justice Cullity, in Serhan v. Johnson & Johnson, certified waiver of tort as an independent cause of action. This decision was upheld by the Ontario Divisional Court. Since then, the Ontario courts have often certified waiver of tort as a potential cause of action and have been reluctant to answer the ultimate question of whether waiver of tort is an independent cause of action or more properly classified as a remedy.
Going into 2012, the Ontario class actions bar eagerly awaited the trial decision in Andersen v. St. Jude which was expected to provide guidance on how waiver of tort claims would be treated at trial. Unfortunately, the trial decision did not provide the clarity that had been hoped for and, instead, exposed some of the reasons that a definite answer to the waiver of tort debate may be elusive. In light of a finding of no wrongdoing, Justice Lax was not required to deal with the issue of waiver of tort. Notwithstanding the foregoing, Justice Lax proceeded to comment on the doctrine and raise policy questions for consideration. She stated that the determination of waiver of tort would not require a trial or evidence. However, given its far reaching effects on the society and businesses, would the doctrine be more appropriate for the Legislature or the Court to resolve the issue? It is not clear how her comments will affect future certification decisions in 2013.
The doctrine of waiver of tort was the subject of judicial commentary in other cases in 2012. In Parker v. Pfizer Canada Inc., citing the comments made by Justice Lax in Andersen v. St. Jude, Justice Perell also questioned the appropriateness of waiver of tort as a common issue. Although he certified the issue on an interim basis, he held that it was open to the defendants to bring a motion to decertify it. He went on to say that such a motion would involve determinations of a matter of pure legal policy, and would thus not necessitate the need for an evidentiary record. Then in Arora v. Whirlpool Canada LP, Justice Perell, having certified no other causes of action, refused to certify waiver of tort as a cause of action on the basis that there was no wrongdoing upon which to support a claim of waiver of tort as a remedy.
In British Columbia, the courts have been even more hesitant to apply the waiver of tort doctrine. In Koubi v. Mazda Canada Inc., the British Columbia Court of Appeal decertified a class action and held that a claim for waiver of tort did not disclose a reasonable cause of action when the governing consumer protection statute already provided an exhaustive code with statutory remedies.
Going forward into 2013, it is questionable whether the doctrine will continue to be helpful to plaintiffs seeking certification.
Procedural Developments
Outlook on Global Classes
In a world where commerce and the exchange of information have become increasingly globalized, the appeal of global class actions is evident. The concept of global class actions avoids a multiplicity of smaller proceedings in different jurisdictions which can drive up the costs for all parties, decrease the incentives to settle and increase the likelihood of overlap and jurisdictional conflict. While attractive, from a practical perspective, global class actions present a number of challenges, including the potential for overlapping actions, questions as to jurisdiction, multi-jurisdictional orders and settlements, and problems with respect to how to provide adequate notice.
Notwithstanding these inherent challenges, Ontario courts have chosen to depart from the U.S. approach, where the inherent challenges ultimately led to the U.S. Supreme Court’s decision in Morrison v. National Australia Bank. The decision in Morrison has essentially closed the door to U.S.-based global class actions (at least in the securities context).
In contrast, the Ontario Superior Court of Justice has taken a much different approach in Silver v. IMAX. Upon making the determination that a real and substantial connection existed between the dispute and Ontario, the Court in IMAX proceeded to certify a class in which a significant number of the plaintiffs are likely to be non-residents of Canada. In the leave to appeal decision at the Divisional Court, while the certification of the global class was upheld, the Court noted that the implementation of a global class would be an ongoing issue for evaluation as the Canadian and parallel U.S. proceedings advanced.
Whether this wait-and-see approach to certification of a global class will ultimately prevail remains to be seen. At present IMAX appears to have ushered in a new global era for Ontario’s courts and, with it, the possibility of a migration of global class actions, particularly in securities, from the United States to Canada.
If IMAX indeed signifies a growing willingness on the part of Ontario courts to certify global classes, defendants situated in the U.S. in particular may find themselves at an increased risk of litigation exposure in Canada. Although IMAX involved a Canadian defendant, it is inevitable that Canadian plaintiffs will eventually seek to certify global classes against U.S. defendants where there is at least some basis for asserting a connection with the jurisdiction. The likelihood of this development appears to have been broadened following the Supreme Court of Canada decision in Club Resorts Ltd v. Van Breda, in which the Court ushered in further predictability and stability to the law governing the assumption of jurisdiction by Canadian courts. The increased certainty surrounding the establishment of a real and substantial connection, coupled with the wait-and-see approach adopted in IMAX favouring certification may serve as an impetus for an increase in class actions commenced in Ontario against foreign defendants.
Delivery of a Statement of Defence Prior to Certification
On the heels of the 2011 decision in Pennyfeather v. Timminco, Justice Perell issued another decision in 2012 questioning the long-standing convention surrounding the delivery of statements of defence in class proceedings in Ontario. If adopted by other class action judges in 2013, Justice Perell’s proposed approach will cement what might be described as a matured outlook on the appropriate timing conventions with serious implications for defence counsel.
Until recently, the convention in class proceedings in Ontario has been for defendants to wait until a prospective action is certified before delivering a statement of defence. The practice developed initially because of the presumed likelihood that a statement of claim would be reformulated post-certification as common issues were redefined, and as a result of the perception that a defence would serve little utility before the common issues were clearly defined. This convention was first called into question in a 2011 decision of Justice Perell’s, Pennyfeather v. Timminco, which suggested that requiring defendants to plead prior to certification would refine the issues to be decided at the certification motion.
In 2012, Justice Perell dealt with the issue for the second time in Smith v. Sino-Forest Corp., where he offered additional considerations in support of closing the pleadings in a proposed class proceeding prior to certification. With the benefit of well-developed class actions jurisprudence, Justice Perell reasoned that a certified claim is less likely to require significant amendments, since the guiding principles concerning when particular causes of action should be certified are now well developed in the case law. Furthermore, Justice Perell suggested that the reluctance of defendants to plead is merely tactical – to avoid early disclosure of their case – which is not consonant with the requirements of the Rules of Civil Procedure.
If other judges adopt this approach, we would expect more motions to strike pleadings prior to certification and more summary judgment applications brought alongside certification. While this may further complicate the initial stages of class proceedings, there is also a potential benefit: the possibility of a direct appeal to the Court of Appeal (bypassing the Divisional Court) from a certification motion heard in conjunction with a motion for summary judgment.
Costs and Third-Party Litigation Funding
The past year has also seen some positive developments with respect to cost awards resulting from certification motions. While the courts only rarely make cost awards to successful defendants commensurate with the risk and significance of the certification motion for defendants, there has been an increasing recognition that certification is a crucial and potentially decisive battleground in which higher cost awards may bse appropriate. In 2012, the courts also positively addressed several practical realities of the costs regime for class proceedings. These include the indemnification of proposed representative parties by class counsel and third-party litigation funding.
In both of Williams v. Canon Canada Inc. and Martin v. AstraZeneca Pharmaceuticals PLC, the Court rejected the proposition that a costs award made to defendants after a failed certification motion should be limited by low historical precedents from the early years of practice under the CPA. In particular, Justice Strathy commented in Williams that certification motions had since become longer and more complex, and that “[c]osts awards have reflected this expansion of the certification motion well beyond what was initially contemplated in 1992. Costs awards have increased to reflect these changes.”
These decisions have more than pecuniary significance for defendants against whom proposed class proceedings have been or may be brought. The traditional loser pays costs regime applicable to ordinary civil litigation was preserved in Ontario’s class proceeding regime, in part, as a disincentive to unmeritorious litigation. The apparently diminishing reluctance of courts to order significant costs against plaintiffs not only promises better cost recovery, but also strikes a more appropriate balance between promoting access to justice for plaintiffs and ensuring fairness to defendants.
Finally, the decision in Fehr v. Sun Life Assurance Co. of Canada is also notable for its role in ensuring that the costs regime remains effective for class proceedings. The case dealt with the procedure for seeking court approval of third-party funding arrangements. The plaintiffs in Fehr asked the court to permit the approval motion to proceed without notice to the defendants, in the absence of the public, and to have the motion materials sealed in the court file.
Among the issues raised by third-party funding agreements, they have been criticized for interfering with the discipline imposed by the costs regime by off-loading the risk of adverse costs awards from representative parties or their counsel. Fehr was thus a welcome development for defendants. Justice Perell decided that “the propriety of third party funding agreements is controversial and problematic,” and accordingly, “should not be allowed to operate clandestinely.” A third-party funding agreement should be disclosed to the court promptly, and the approval motion should take place in open court with notice to the defendant.
