The decision in CI, AIC v. Fischer focused on the requirement of class proceedings legislation in Ontario and elsewhere in Canada that a class proceeding be the “preferable procedure” for the resolution of the common issues. The Supreme Court of Canada (SCC) held that class actions may proceed notwithstanding that settlements have been achieved in completed regulatory proceedings, and that certification must be granted where these alternative proceedings did not provide substantive or procedural access to justice.
In 2003, the Ontario Securities Commission (OSC) launched an investigation into, among other things, whether investors in specified mutual funds managed by the defendants in Fischer had been harmed by “market timing activities.” Subsequently, the OSC commenced enforcement proceedings against the defendants and entered into settlement agreements with them. The settlements all had the expressed goal of obtaining compensation for investors allegedly harmed by market timing activities. As a result, CI and AIC paid $108.1 million in compensation directly to investors.
The representative plaintiffs in Fischer subsequently commenced an action seeking to certify a class of the same investors to recover an additional $300 million.(After the certification motion, settlement agreements were reached between the plaintiffs and three of the five defendants.)
The issue on certification was whether a class proceeding is the “preferable procedure” for resolving the parties' dispute. The preferability analysis requires the court to evaluate whether any alternative procedure serves the objectives of a class proceeding. In Fischer, the focus was on whether the OSC proceeding met the goal of access to justice.
The certification motion judge, Divisional Court (DC), Court of Appeal (CA) and SCC each dealt with the preferability analysis differently. The Motion Judge dismissed the plaintiffs' certification motion on the basis that they had not met their burden of establishing that a class proceeding would be the preferable procedure. He found that the OSC proceeding compared favourably with a class proceeding and, therefore, satisfied the access to justice requirement.
The DC allowed the plaintiffs' appeal, concluding that that the Motion Judge erred in law, finding instead that because there was some basis in fact to support the plaintiffs' assertion that the OSC settlement funds represented only a portion of total actual damages, the OSC proceeding could not be the preferable procedure.
The CA agreed with the DC's result but not with its reasoning. It held that, in considering whether an alternative means of resolving the class members' claims is preferable to a class action, the focus must be on examining the “fundamental,” “central,” or “key” procedural characteristics of the proposed alternative. The CA focused on the regulatory (vs. compensatory) jurisdiction of the OSC, and the participatory rights afforded to investors in the OSC proceeding, and concluded that it did not provide the plaintiffs with access to justice.
The SCC had not had an opportunity to address the preferable procedure requirement for many years, and granted the defendants' motion for leave to appeal. The SCC, in a decision written by Justice Thomas Cromwell upheld the appeal decisions below, and dismissed the defendants' appeal, with costs.
The SCC, in effect harmonized the approaches of the appeal courts below, finding that access to justice has both a procedural dimension and a substantive dimension (access to a just and effective remedy). It affirmed that, from a procedural point of view, other non-court proceedings – including completed proceedings – should be considered in the preferability inquiry.
The SCC then addresses whether the alternative proceeding has the potential to provide effective redress for the substance of the plaintiffs' claims, and to do so in a manner that accords suitable procedural rights. The class proceeding is compared to the alternative proceeding to determine whether the latter addresses access to justice barriers as effectively as a class action would, and compares the costs/benefits of the proposed class proceeding to those of the alternative procedure.
The SCC cautioned that the low evidentiary threshold at the certification stage will in many cases limit the comparative exercise between the potential recoveries in the class proceeding and the alternative procedure. In the unusual circumstances of Fischer, however, where the alternative procedure had run its course and results were known, the SCC held it was appropriate for the issue of investors' alleged uncompensated losses to factor into the substantive evaluation of the OSC proceeding.
The SCC further held that a class proceeding was preferred from a procedural access to justice perspective, given the regulatory nature of the OSC, that many aspects of the OSC settlement were confidential, and that a class proceeding would provide a better opportunity for investor participation.
In light of the low standard of proof required on a certification motion, it is difficult to conceive of a concluded regulatory alternative to a class proceeding that could meet the access to justice threshold now set by the SCC. It is more likely that the battle ground for class proceedings in Canada will be the common issues trial as opposed to the certification motion.
A consequence of Fischer may be a reluctance by companies to enter into settlements of administrative proceedings which attempt to compensate potential class members.
The appellant, AIC, was represented by James Douglas, David Di Paolo and Margot Finley of Borden Ladner Gervais LLP.
The appellant, CI Investments, was represented by Benjamin Zarnett, Jessica Kimmel and Melanie Ouanounou of Goodmans LLP.
The respondents were represented by Peter Jervis, Allan Hutchinson, Joel Rochon, Sakie Tambakos and Remissa Hirji of Rochon Genova LLP.