Recently in Sandhu v. HSBC Finance Mortgages Inc., 2016 BCCA 301, the British Columbia Court of Appeal (the “BCCA”) decertified a class action where the plaintiffs sought damages or restitution from HSBC Finance Mortgages Inc. and the Household Trust Company in relation to title insurance fees.[1] In allowing the appeal, the BCCA disqualified two of the representative plaintiffs finding that they had engaged in “extortionate” settlement tactics before certification in a manner that did not reflect the values inherent in the Class Proceedings Act.

The plaintiffs alleged that when borrowers enter into a mortgage commitment with the HSBC defendant, they authorize a variety of fees relating to title insurance, variously described as a “Premium”, the “Policy Insurance Cost” and “Additional Charges”. The plaintiffs claimed that some of these fees are actually for undisclosed legal fees and legal costs of the defendants and that therefore the defendants were liable for numerous common law causes of action including negligence and breach of contract and for statutory breaches of the Competition Act, the Business Practices and Consumer Protection Act, and the Mortgage Brokers Act.

HSBC appealed certification on the grounds that two of the four representative plaintiffs were unsuitable, various causes of action were inadequately pleaded, and the commonality of the issues was not duly considered by the chambers judge.[2]

Before applying for class certification, the Sandhu brothers sent a “without prejudice” letter to HSBC demanding a payment of $876,000 ($438,000 each), which was vastly disproportionate to their loan and the payment at issue, and urged acceptance of the offer on the threat of public knowledge through the statement: “[t]his is your one chance before it becomes publicly known”.[3] The chambers judge held the letter to be inadmissible at the certification hearing on the basis that it was protected by settlement privilege.

On appeal, the BCCA held the letter to be admissible based on the plaintiff’s sworn affidavit of altruistic intentions and HSBC’s right to adduce evidence to the contrary.[4] In considering the cost of the Sandhu’s mortgage ($109,998.57) and the disputed title insurance fee ($242), the BCCA found the offer to be “extortionate”.[5] The Court held that where, as in this case, a disproportionate offer used the possibility of certification as a point of persuasion, the integrity of the class actions process requires that the person who made the offer may not act as a representative plaintiff.

The BCCA also noted that the conduct was not excused by the fact that the offer was made before the application for certification was filed and before they were represented by counsel.[6]

The BCCA also allowed the appeal under s. 4(1)(a) of the Class Proceedings Act and dismissed the majority of claims as being insufficiently pleaded. The BCCA did not dismiss the breach of contract claim or certain of the claims under the Business Practices and Consumer Protection Act.[7]

In respect of the chambers judge’s analysis of the common issues, the BCCA held that a greater attention to detail was required. There, the chambers judge had done a “global assessment” of commonality under section 4(1)(c) of the Class Proceedings Act providing only three paragraphs of analysis. Accordingly, the BCCA remitted the question of satisfaction of s. 4(1)(c) in respect of the remaining claims back to the chambers judge.

Three important lessons from this case include the following:

  1. The privilege of a “without prejudice” settlement offer can be lifted if the offer is disproportionate to the alleged loss and the plaintiff uses the threat of a class action as a point of persuasion. In such a case, the offer can be used by defendants to challenge the adequacy of the representative plaintiff. Accordingly, in the context of disputed fee cases, the disproportionality between the settlement offer and the disputed fees can be of critical importance;
  2. In certification reasons, it can be an appealable error to give a “global assessment” of the common issues; and
  3. The British Columbia Court of Appeal has shown a continued willingness to give greater scrutiny to the adequacy of the pleadings in class action cases under s. 4(1)(a) of the Class Proceedings Act.