In 2010, Canadian courts demonstrated an increasingly expansive and plaintiff-friendly approach to class actions. Cases decided during the year include decisions where:
- limitation periods were interpreted in a way that favours class plaintiffs;
- flexible approaches were applied with respect to the requirement of establishing damages resulting in the certification of large, complex and multi-layered classes in price-fixing cases;
- a new wave of overtime class actions could increase the types of employment class actions brought by plaintiffs, and;
- in securities class actions, at least one court was willing to certify a global class in an Ontario action.
Given the trend of plaintiff-friendly approaches to certification, 2011 can be expected to have more developments in class actions before the courts. Although 2010 showed some bright spots for defendants, generally certification is becoming harder for defendants to avoid. As such, defendants will be increasingly exposed to having to defend class claims on the merits. The certification challenges for defendants that were seen in some of the cases decided in 2010 (such as an uncertainty over limitation periods, the potential inability to rely on due diligence and business judgment defences, and the very low burden for obtaining leave to commence a secondary-market securities class action) can only serve to increase the stakes for all parties as other class claims are litigated in 2011. In this context, however, it also seems likely that plaintiffs will now face a more robust post certification motions practice since the low bar to certification has often been based on courts' observations that the certification hearing takes place before there has been the development of an evidentiary record.
Common Issues Trials
Very few class actions make it to a common issues trial. However, in 2010, two such cases were decided and both resulted in substantial awards of aggregate damages in favour of the plaintiffs. In July 2010, in Smith v. Inco, Justice Henderson awarded $36 million in damages to the class for loss of value to their properties resulting from soil contamination caused by emissions from Inco Ltd.'s nickel refinery prior to 1984. The Court found that the plaintiff class had successfully demonstrated that Inco was liable both in private nuisance and strict liability, but rejected the claims of public nuisance, trespass and punitive damages. Justice Henderson also made a finding with respect to limitation periods which, if it is upheld on appeal, could have broader negative implications for defendants in other class actions. Justice Henderson found that, in the context of a class action, the limitation period only begins to run when all, or the overwhelming majority of a class, knew or ought to have known the material facts giving rise to the claim. In the case at hand, several facts supported the contention that the limitation period had already expired; however, the Court nonetheless concluded that it could only run when the vast majority of the class had the requisite knowledge. This finding introduces substantial uncertainty into the application of limitation periods in class actions – a potential defendant may no longer be able to be confident that an existing limitation period has expired. Furthermore, the requirement of having the vast majority of class members have real or constructive knowledge of a potential claim may effectively serve to extend or delay any existing limitation period to the date when the least diligent class members discovered the material facts. This could also allow the strange result that class members might be able to obtain recovery through a class proceeding where they would no longer be entitled to do so through individual claims. This decision is under appeal and will be watched closely in 2011 when the appeal is likely to be heard.
The second common issues trial of 2010 was Jeffrey and Rudd v. London Life Insurance in which the plaintiffs alleged that the acquisition of London Insurance Group (the parent of London Life Insurance) by the Great-West Life Assurance Company involved a number of breaches of the Canadian Insurance Companies Act. An award of $455.7 million was made against the defendants. The fundamental dispute between the parties related to the fact that the acquisition price had been partially funded by the participating policy accounts of both Great-West and London Life. The Court found that the defendants breached three separate sections of the Act and that the directors and officers of the defendants breached a further section of the Act. This case demonstrates that allegations of non-compliance with a statutory regime may well be suited to class actions because the determination of such issues can be conducted on a class-wide basis. In this case, to remedy the defendants' breaches, rather than examining the circumstances of each individual plaintiff, the Court was simply able to order that the participating accounts be made whole.
This decision involved a number of complex issues relating to the governing statutory regime and the conduct of the companies' directors and officers. This decision is also under appeal and is currently expected to be heard in the summer of 2011.
Competition Class Actions
A continuing trend of an increasingly plaintiff-friendly approach to the certification of competition class actions was exhibited in 2010. The cases decided this year generally reflect a lower evidentiary threshold being applied than had previously been the case, with the plaintiff's expert evidence only required to demonstrate a credible method to establish damages on a class-wide basis. Courts have also demonstrated a relaxed approach to the requirement that plaintiffs establish an ability to prove class-wide loss, which means that classes comprised of both direct and indirect purchasers have been certified in one class proceeding, even where that class is large and multi-layered. These less onerous evidentiary requirements at the certification stage likely mean that more competition-related class actions will be certified and that such claims will have to be advanced and defended on the merits.
In early 2010, the B.C. Supreme Court certified Pro-Sys Consultants v. Microsoft Corporation, in which the plaintiff alleged that Microsoft engaged in various forms of anti-competitive conduct which increased the price charged to class members for its application software and operating systems. Indirect purchaser class actions, such as this one, have traditionally met with difficulty at the certification stage because of the plaintiffs' inability to demonstrate a methodology for the calculation of damages for indirect purchasers. However, in Pro-Sys, the Court held that the plaintiffs simply needed to display a "credible or plausible methodology" for showing that the price increase was passed through the various levels of distribution to class members. This trend toward a lower evidentiary threshold continued through 2010 with the Supreme Court of Canada, the Ontario Divisional Court and the Ontario Court of Appeal all denying appeals (or leave to appeal) with respect to decisions granting certification in 2009. At the Divisional Court, the reasons emphasized that all plaintiffs must show for certification is a credible and plausible methodology to establish damages on a class-wide basis. At the Ontario Court of Appeal, the Court found that a claim alleging a breach of section 61 (the relevant price maintenance provision at the time) of the Competition Act does not, in order to be certified, have to be accompanied by proof of loss or damage having been sustained by each class member. While a breach of section 61 does not establish civil liability in and of itself (it must operate in combination with section 36 of the Competition Act which requires proof of loss or damage), a breach of section 61 in itself can be an appropriate common issue for certification as it would advance the litigation. Taken together, these decisions suggest that courts are becoming increasingly amenable to the pursuit of competition class actions. Notably, this approach is entirely contrary to that generally taken by U.S. courts, which have rejected plaintiffs' economic evidence under conditions of somewhat more exacting scrutiny. This may well mean that defendants may be more successful at common issues trials than they have been at resisting certification.
Employment Overtime Class Actions
Overtime class actions represent a newly developing area of class actions that was very active in 2010. These class actions are generally divided into two categories: (1) "off-the-clock" cases, where employees allege that they were not paid overtime for hours worked; and (2) misclassification cases, where employees allege that they were classified as management to avoid paying overtime to them. In 2010, courts grappled with the issue of whether claims for overtime pay based on the Canada Labour Code provisions can be the subject of a class action.
In the three overtime cases before the Ontario courts in 2010, employees alleged that their employers failed to pay overtime wages in accordance with the Canada Labour Code. In Fulawka v. Bank of Nova Scotia and McCracken v. Canadian National Railway Company, the employer moved to strike the claim on the basis that allegations of a breach of the Code could not be the subject of a class action. The issue before the Courts was whether Parliament intended for referees appointed under the Code and the courts to have concurrent jurisdiction over underpayment claims. In Fulawka, Justice Strathy concluded that Parliament did not intend to confer jurisdiction on the courts to enforce the Code. However, the class action was still certified as Justice Strathy found that the Code's requirements could be implied terms of the employee's contracts and could inform the employer's duty of good faith. In McCracken, Justice Perell came to the opposite conclusion with respect to the court's jurisdiction under the Code, finding that when the Code is read in its entirety, it allows for concurrent jurisdiction. The inconsistency between these two cases remains to be settled by an appellate court. Leave to appeal was granted in Fulawka and the appeal was heard in early December 2010, so clarity on this issue may emerge once the Divisional Court has issued its decision. Both parties in McCracken have also appealed the decision.
In Fresco v. Canadian Imperial Bank of Commerce, a 2-1 majority of the Divisional Court upheld the motion judge's decision not to certify the class action. The plaintiff claimed that there had been a systemic breach of CIBC's duty to compensate eligible employees for overtime work. The Divisional Court held that Justice Lax was correct in finding that the plaintiff's claim that the overtime policy violated the Labour Code did not disclose a cause of action. The Court agreed that the only way to prove systematic wrongdoing was through an examination of individual claims and the plaintiff failed to show that there was a systematic practice of unpaid overtime at CIBC. The dissent would have allowed the claim and certified most of the common issues on the grounds that the evidence adduced was sufficient to meet the low evidentiary burden on the plaintiff. This case is now on its way to the Court of Appeal so 2011 promises to be yet another year of significant judicial activity in this area.
Based on the fact that courts have determined jurisdiction under the Canada Labour Code, plaintiffs may begin to test the waters with other employment class actions, such as human rights claims. While human rights claims are currently adjudicated through human rights commissions and tribunals, plaintiffs could argue that human rights statutes, as the Code does, provide for concurrent jurisdiction. The U.S. case law in this area could also impact future Canadian class actions. On December 6, 2010, the U.S. Supreme Court agreed to hear an appeal in the biggest employment discrimination case in U.S. history against Wal-Mart, where the plaintiffs allege hundreds of thousands, or potentially millions, of women suffered discrimination with respect to pay and promotion. In April, the Ninth Circuit Court of Appeal ruled by a 6-5 vote to uphold the trial decision which allowed certification of this very large class. Arguments at the Supreme Court are expected to be heard in the spring and the outcome of this appeal will likely affect all class actions in the U.S. and will be of interest to those involved with employment class actions in Canada.
Securities Class Actions
Ontario's statutory regime for secondary market liability came into effect in 2006 as a result of amendments to the Securities Act (Ontario), creating a statutory cause of action for deficient market disclosure. As a result of these amendments, class action counsel predicted a tsunami of litigation that was sure to result from this new statutory cause of action. Initially, very few cases commenced under this new regime found their way into the courts. However, in 2010, this slowly began to change and it is expected that the volume of such cases will only increase in 2011 as counsel and the courts become more accustomed to dealing with them.
To bring a claim under these new provisions, plaintiffs are required to seek leave from the courts. The test for leave is that the plaintiffs must demonstrate good faith and that there is a reasonable possibility of success for the plaintiffs at trial. The first case, Silver v. IMAX, demonstrated a low burden for seeking leave and a very high burden for defendants to prevent the granting of leave by establishing an affirmative defence pursuant to the applicable provisions of the Act. This case also highlighted the possibility of global classes being certified by Ontario courts.
In IMAX, Justice van Rensburg granted leave and certified the class action in December 2009. The plaintiffs allege that IMAX and certain of its officers and directors misrepresented the company's revenue in its 2005 financial results and certain press releases. In granting leave, the Court held that the threshold for granting leave was low. Conversely, there is a high burden for defendants seeking to oppose leave. The defendant must demonstrate that the evidence will foreclose the plaintiff's reasonable possibility of success at trial, which will be very difficult to establish at this early stage of the proceedings. Justice van Rensburg also certified the action for a global class. While acknowledging the rarity of global classes in Canada, the justification for a global class was based on (i) the fact that the conduct of the defendants had a real and substantial connection to Ontario and (ii) the fact that IMAX is an Ontario corporation trading on the TSX. It is also noteworthy that certification was allowed for the common law claims of negligent and fraudulent misrepresentation. These claims have traditionally been difficult to certify due to the requisite element of reliance and, in fact, part of the impetus for the new statutory cause of action in the Securities Act was to overcome the hurdle of reliance in common law claims. Therefore, it is interesting (and possibly inconsistent with prior decisions) that both the common law and statutory claims were certified.
A significant feature of IMAX was the large evidentiary record before the Court on the leave and certification motions. The large record was at least in part a result of Justice van Rensburg's decision regarding the scope of disclosure and cross-examination at the leave stage. It is questionable whether such an expansive disclosure and examination process is what was envisioned for a leave requirement. The leave to appeal motion for IMAX has been heard and the decision is currently under reserve; therefore, it remains to be seen if this will continue to be the direction of the courts in leave proceedings. Another leave decision, Dobbie and Benson v. Arctic Glacier Income Fund et al., has been heard and the decision is currently under reserve. We can expect to see greater certainty on the leave test from these two anticipated decisions.
In 2010, the decision of McKenna v. Gammon Gold Inc. provided further guidance on when courts in Ontario ought to certify a global class. The Court stated that where there is a real and substantial connection to Ontario, Ontario courts are willing to certify a class composed of members that could reasonably contemplate their rights would be determined by the courts of Ontario. This threshold will be met when an investor purchased securities from a Canadian underwriter or its agent on the primary market, or purchased a security on the TSX in the secondary market. In this case, Justice Strathy certified the class to include non-residents who made purchases from underwriters in Canada and under the relevant prospectus. However, he found that it was not appropriate to include within the class those persons who purchased securities from underwriters or their agents outside Canada, as the acquisition of those securities outside Canada would not give rise to a reasonable expectation that the acquiror's rights would be determined by a court in Canada. With guidance from the court on when global classes may be certified, plaintiffs may be more likely to attempt to bring such actions in Ontario for persons acquiring shares with the requisite connection to Canada.
2010 also saw a certification decision which demonstrated a way in which defendants may be able to avoid a securities class action. In Fischer v. IG Investment Management Ltd., the defendants signed settlement agreements with the Ontario Securities Commission which included a payment for investors – these investors constituted the majority of the proposed class. Justice Perell agreed with the defendants that due to the settlement payment, a class action was no longer the preferable procedure. Whether a class proceeding is the preferable procedure is judged mainly by reference to the purposes of access to justice, behavior modification and judicial economy. In this case, the OSC proceedings and the payment of $205.6 million under the settlement agreements accomplished the purpose of behavior modification. It also achieved judicial economy and access to justice, as the settlement agreements and plans of distribution provided compensation to investors in an efficient, principled and consistent way. Therefore, when factors of behaviour modification, judicial economy and access to justice are already achieved (such as through regulatory proceedings as seen in this case), a court may deny certification on the basis that a class action is not the preferable procedure.
While the class actions field is somewhat mature in the U.S., it is still in the developmental phase in Canada. Although Canadian courts have now generated a fairly substantial volume of jurisprudence on certification motions, we are starting to grapple with other class proceeding related issues in contested matters before the courts. We can expect that as the bar for certification remains low, we will see an increase in post certification motions and common issues trials. Furthermore, as long as there continues to be uncertainty and a lack of jurisprudence in fields such as employment and securities class actions, we can expect to see a further development of class proceeding jurisprudence at the appellate level.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.