Following closely on the heels of its three recent decisions
addressing the criteria for certification of class proceedings, the
Supreme Court of Canada has further clarified the "preferable
procedure" requirement for class certification (i.e. the
requirement that a class action be the preferable procedure for the
resolution of the class members' claims). On December 12, 2013,
the Supreme Court released its decision in AIC Limited v. Fischer,
2013 SCC 69. That case involved a class proceeding instituted
following a settlement between AIC Limited and CI Mutual Funds with
the Ontario Securities Commission (the "OSC") in respect
of "market timing" trading in mutual funds. The Supreme
Court rejected the defendants' argument that regulatory
proceedings commenced by the OSC against the defendants were
preferable to a class proceeding for purposes of resolving
aggrieved investors' claims, and in doing so enumerated for the
first time a series of questions to be addressed by courts when
approaching the preferability analysis.
The recent increase in class action activity across Canada,
combined with the growing assertiveness of regulatory authorities,
has given rise to the proliferation of class proceedings instituted
following public settlements of charges or investigations brought
by regulatory agencies. Thus, it has become common (perhaps even
near-automatic) for entrepreneurial class action plaintiffs'
counsel to monitor public settlements between regulatory agencies
and industry players in various sectors, and institute civil
proceedings against settling defendants based on information
contained in the publicly disclosed terms of settlement. One early
example of such a claim involved an investigation by the OSC of
mutual fund managers into "market timing" trading in
mutual funds, a practice which was alleged to have caused long-term
investors to suffer losses in the value of their investments. The
OSC probe focused on whether the fund managers had taken reasonable
steps to protect the funds from harm that could arise from frequent
market timing trading, rather than on the "market timers"
whose activities directly caused harm to the fund. The fund
managers ultimately entered into settlement agreements with the
OSC, and paid large amounts into a fund that was partly used to
compensate aggrieved investors. Following the public disclosure of
these settlements, class actions were instituted against the
various fund managers claiming additional civil damages.
One of the primary defences raised by the fund managers in the
class action was that the settlements with the OSC had provided an
effective remedy for class members by providing compensation to
investors and modifying the behaviour of the fund managers, who
ceased permitting market timing trades in their mutual funds. As
such, the OSC had provided a fast, efficient and gratuitous remedy
to class members that constituted a "preferable
procedure", or better alternative, to proceedings by way of
class action. In the Ontario Superior Court, the certification
judge accepted this defence and refused to certify the class
action. On appeal, the Ontario Divisional Court overturned the
first decision and certified the class action, on the basis that
the OSC investigation and settlement were in furtherance of a
primarily regulatory, not compensatory, function, and as a result,
the remedial powers available to the OSC were insufficient to
enable it to fully address the class members' claims. The
Divisional Court also noted that it was possible that the class
action proceedings would result in greater monetary recovery by
investors, over and above the compensation obtained through the OSC
The Ontario Court of Appeal upheld the decision of the
Divisional Court, and the Supreme Court of Canada in turn upheld
the decision of the Ontario Court of Appeal. The Supreme Court
further clarified that it is the plaintiffs' burden to provide
"some basis in fact" to show that a class proceeding is
preferable to an alternative process (for example by providing
greater monetary recovery) and emphasized that the required
comparison cannot ignore the question of whether a cost-benefit
analysis supports the plaintiffs' contention that the proposed
class proceeding is the preferable way to address their claims. The
decision in AIC is significant in that it puts prospective
defendants on notice that the settlement of regulatory charges or
investigations is potentially only the first step in resolving
alleged regulatory offences or wrongdoing. To the extent that the
regulatory settlement becomes public, the next phase in the process
will be the inevitable class action claiming civil damages based on
the same facts, over and above the amounts paid in settlement of
the regulatory proceedings. Forewarned is forearmed.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).