Canada: Québec Court Of Appeal Confirms Wide And Liberal Approach To Class Action Authorization

Last Updated: November 24 2017
Article by Emrys C. Davis, Ashley Paterson and Charlotte Harman

On October 31, 2017, the Québec Court of Appeal released its decision in Asselin c. Desjardins Cabinet de services financiers inc., 2017 QCCA 1673. The Court of Appeal overturned the lower court’s decision refusing authorization of the class action, reinforcing the “flexible, liberal, and generous” approach to class action authorization in Québec.

This case offers practical lessons for Canadian companies doing business in Québec who are concerned about exposure to class action litigation. The court confirmed that the criteria for authorization in Québec remains larger and more flexible than in Canadian common law jurisdictions.

The Superior Court Decision

Ronald Asselin moved to authorize a class action against Québec-based Desjardins Cabinet de services financiers inc. (DCSF) and its affiliate asset management company, Desjardins Gestion internationale d’actifs inc. (DGIA) with respect to their fixed-term investment products. Asselin sought to act as class representative on behalf of all persons holding those investments, or a portion of those investments, as of October 1, 2008.

Asselin alleged that although the investments were marketed as "guaranteed-return," the products contained an undisclosed element of risk that limited their potential for returns, and terms which failed to prevent loss to the holders. In March 2009, Asselin received a letter informing him that his investment, which had yet to reach the point of maturity, would not ultimately produce any returns. The principal investment, however, would remain protected and would only be redeemable five years from the acquisition date, until which point it could not be withdrawn.

The application to authorize a class action alleged breach of contract against DCSF and negligence in the design and management of the investment products against DGIA.

The Superior Court refused to authorize the class action, holding that Asselin had not met his burden of demonstrating a true colour of right. The judge held that the claim was based on bald allegations without appropriate documentation demonstrating the contractual relationship with DCSF or the role of the defendant DGIA in the design and management of the products. The judge held it was impossible to assess the validity of Asselin’s claims or their appropriateness for adjudication by way of a class action. Further, the court found that since Asselin had ultimately signed the agreement through his credit union, his claim was based on the arms-length relationship of broker-dealer, and therefore not suitable as a class action.

The Court of Appeal Reviews the Law on Authorization in Québec

In considering the decision, Justice Bich found that the lower court had advanced a demanding approach to Article 575 of the Québec Code of Civil Procedure, which provides the conditions for authorization of a class action. Justice Bich held that the lower court’s approach, though rooted in a well-founded desire to preserve the integrity of the civil justice system, contradicted the state of the law as established by the Supreme Court. Relying on well-known cases such as Infineon Technologies AG v. option consommateurs, Vivendi Canada Inc. v. Dell'Aniello, and Theratechnologies inc. c. 121851 Canada inc., Justice Bich emphasized the flexible, liberal and generous approach that should be taken regarding class action authorization in Québec in order to "facilitate the exercise of collective redress as a means to achieve the dual goals of deterrence and compensation of victims."

The court confirmed that the applicant at the authorization stage need only present an “arguable case” or a case that has a chance of success. It is unnecessary to establish a reasonable or realistic possibility of success.

Even in the face of a claim that made it “difficult to follow the appellant’s story and legal syllogism,” the court stressed that the allegations need not be perfect; just good enough for a judge to determine whether the facts, if taken to be true, satisfy the conditions in Article 575 of the Code of Civil Procedure.

The court clarified that the evidentiary requirements for authorization do not permit the trial judge to engage in a scrupulous analysis of the merits. Rather, Justice Bich stressed that the burden at the authorization stage is one of “logic, not of evidence,” and requires a minimum threshold of proof. The facts alleged at the authorization stage will be taken to be true, unless they appear unlikely or obviously inaccurate.

The Court of Appeal attributed the lower court’s misapplication of Article 575 of the Code of Civil Procedure at least in part to its acceptance of a large volume of evidence at the authorization stage. In Québec, the court will only consider relevant evidence if it is filed with the prior authorization of the court under Article 574. Turning to the purpose of the class action vehicle, Justice Bich noted that if the goal is to limit the judicial resources usurped by class actions, judges should not engage in weighing evidence at the authorization stage, as the trial judge did here.

Ultimately, the court must allow authorization unless the claim appears frivolous, doomed to fail, insufficient in the facts alleged, or “indisputably” unfounded.

The Court Overturns the Decision and Authorizes the Action

Justice Bich found that the applicants had presented an arguable case for contract liability against DCSF. A prima facie breach of the duty of information could be made out where the investors had unwittingly invested their money in investments void of return prospects, were provided inadequate information about the level of risk, and were advised to invest in holdings that did not suit their investment profile. Fault had been found on such a basis in the context of a contract for services within the meaning of Article 2098 of the Civil Code. This duty, if found, would extend to an advisor or representative acting on behalf of DCSF as its agent or employee, effectively creating a “double fault” for DCSF in failing to ensure accurate advising by its agents.

To support its negligence claim against DGIA, Asselin argued that DGIA took risks contrary to its duty of care in designing and implementing the investment strategies. Justice Bich accepted the facts alleged by the appellant as supporting an arguable case.

Conclusion

This decision reinforces the low bar for class action authorization in Québec. Courts will take a wide and liberal approach, and facts alleged at the authorization stage will be taken to be true absent glaring inconsistencies. What’s more, the evidentiary requirements at authorization hearings are minimal.

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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