Canada: Supreme Court Will Hear Appeals On Issues Of Settlement Privilege, Test For Class Certification And Test For Summary Judgment

On June 28, 2012, the Supreme Court of Canada granted leave to appeal in four separate cases that will be of significant interest to lawyers and potential civil litigants both in Ontario and across Canada. These appeals will give the Supreme Court the opportunity to provide guidance regarding:

  1. the "preferable procedure" requirement of the test for class certification, particularly in the context of potentially overlapping class proceedings and regulatory actions (AIC Limited et al. v. Dennis Fischer et al);
  2. the newly reconstituted test for summary judgment under Ontario's Rules of Civil Procedure (Robert Hryniak v. Fred Mauldin et al. and Bruno Appliance and Furniture, Inc. v. Robert Hryniak); and
  3. circumstances when the parties to a partial settlement of a multi-party action (i.e. a "Pierringer"-style agreement) may be required to disclose settlement information that would otherwise be privileged to the non-settling parties (Sable Offshore Energy Inc. et al. v. Ameron International Corporation et al.).

The decisions from which leave has been granted, as well as the potential ramifications of the Supreme Court's rulings, are discussed below.

AIC Limited et al. v. Dennis Fischer et al.

In Fischer, the Supreme Court will address the role of class proceedings in respect of an issue that has already been the subject of regulatory action. The case concerns "market timing" – the opportunistic trading of mutual fund units to take advantage of short-term discrepancies between the daily "net asset value", which determines the price at which mutual fund units are sold, and the actual value of the underlying securities held by the mutual fund. Beginning in 2003, the Ontario Securities Commission conducted a lengthy investigation into the practice of market timing. The investigation eventually led to enforcement proceedings against five mutual fund managers. The mutual fund managers settled the allegations against them and agreed to pay $205.6 million to investors. Following the approval of the settlements, a proposed class proceeding was commenced on behalf of investors in the mutual funds, claiming that the mutual fund managers breached fiduciary and other duties owed to the class by permitting market timing to occur. The proposed representative plaintiffs assert that the amount paid pursuant to the OSC settlements did not fully compensate the class, and claim damages over and above the amount of the settlements.

The plaintiffs' motion for certification of the class pursuant to section 5 of Ontario's Class Proceedings Act, 1992, failed at first instance on the basis that a class proceeding was not the preferable procedure for the resolution of the claims asserted on behalf of the class. The motions judge held that the preferable procedure was the procedure that had already taken place i.e. the OSC proceeding. That decision was overturned by the Divisional Court, and the decision of the Divisional Court was upheld by the Court of Appeal for Ontario.1 The Court of Appeal held that the focus in the preferable procedure analysis should not be whether the amounts paid pursuant to the OSC settlements were adequate compensation for the investors. Rather, the focus should be on whether the proposed alternative to a class proceeding – in this case, the OSC proceeding – was an appropriate alternative means for resolving the claims advanced on behalf of the class. Because the OSC's jurisdiction and remedial powers are fundamentally different from those of a court, and because the investors did not directly participate in the OSC proceeding, the Court of Appeal held that the OSC proceeding was not a preferable means for resolving the claims of the class.

Fischer will give the Supreme Court an opportunity to consider the respective roles of the courts and securities regulators in providing redress to investors. It is now very common for market participants to face both regulatory and civil proceedings concerning the same alleged conduct. Fischer may have important implications for market participants in considering when and how to attempt to resolve the various claims against them.

Robert Hryniak v. Fred Mauldin et al. and Bruno Appliance and Furniture, Inc. v. Robert Hryniak

On December 5, 2011, a five-judge panel of the Court of Appeal for Ontario introduced the "full appreciation test" as the applicable standard for determining whether summary judgment can be granted under the amended Rule 20 in Ontario's Rules of Civil Procedure. The Court of Appeal's ruling2 addressed appeals taken from five separate decisions applying the rule, which had been substantively revised effective January 1, 2010 to expand the scope of a judge's jurisdiction on motions for summary judgment.3 Under the full appreciation test, a case is appropriate for determination by way of summary judgment where the motion judge can fully appreciate the evidence in the entire case based on the motion records and, where appropriate, limited oral evidence.

The Supreme Court has granted leave from two of the five appeals that were before the Court of Appeal, both relating to civil fraud actions against Robert Hryniak. At the outset of its reasons on those appeals, the Court of Appeal held that, under the full appreciation test, both actions were of the type that were not appropriate for determination by way of summary judgment, and in the future such cases would have to proceed to trial. However, given that the motion judge did not have the benefit of the new test in deciding the motions, the Court of Appeal determined that it would review and decide the appeals based on the state of the law at the time the motion judge made his decisions. The Court of Appeal upheld the motion judge's granting of summary judgment in one of the actions, and overturned his granting of summary judgment in the other.

The Hryniak appeals will allow the Supreme Court to address the newly devised test for summary judgment in Ontario, which could inform and affect the application of the applicable tests in several other Canadian jurisdictions. The cases will be of significant interest to litigants considering whether to seek to have actions determined relatively early in a proceeding in a summary fashion, as opposed to waiting for trial.

Sable Offshore Energy Inc. et al. v. Ameron International Corporation et al.

In Sable, the Supreme Court will address when and whether a plaintiff that has settled with certain defendants to a multi-party action must disclose the financial terms of that settlement to the remaining, non-settling defendant(s). Sable, the plaintiff, had entered into a Pierringer settlement agreement with several (but not all) defendants to its action.4 This left the non-settling defendants as the only remaining defendants, but with their potential liability limited to their proportionate share of Sable's total loss. In its decision dated November 22, 2011,5 the Nova Scotia Court of Appeal granted the appeal of one of the non-settling defendants (Ameron), and required Sable to disclose to Ameron before trial the financial terms of Sable's settlement with the settling defendants. The Court of Appeal held that the settlement amount was not only relevant, but necessary, to give effect to Ameron's right to know its potential liability to Sable and the case it therefore had to meet. In so doing, the Court of Appeal held that the circumstances justified disclosure of information that would otherwise be protected by settlement privilege.

Sable will give the Supreme Court the opportunity to consider the balance between: (i) the importance of parties knowing that settlement communications and documentation are protected from disclosure, and (ii) the right of a defendant to know the full case against it. The Supreme Court's decision will have practical ramifications in circumstances where a subset of parties wishes to enter into settlement discussions in complex, multi-party litigation.

Conclusion

It is interesting to note that the four cases discussed above do not principally raise questions of substantive law. Instead, the Supreme Court will have an opportunity to provide guidance on what are essentially three procedural issues, each of which will be of significant strategic importance to parties involved in complex commercial litigation.

Footnotes

1. 2012 ONCA 47.

2. Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764.

3 . A comprehensive summary of the Court of Appeal's decision and the revised test can be found here.

4. In general terms, a Pierringer agreement is an agreement where the plaintiff agrees to settle with certain of the defendants, who are then let out of the action. The non-settling defendants remain parties to the action, but their liability is expressly limited to their proportionate share of the total amount ultimately determined to be owing to the plaintiff.

5.  2011 NSCA 121.

Alexander Cobb has a commercial litigation practice with an emphasis on matters relating to securities and pensions. Kevin O'Brien's practice is focused on complex commercial and corporate litigation matters. Karin Sachar practices in our Litigation Department.

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.

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