The Supreme Court of Canada recently released its decision in AIC v. Fischer (“Fischer”), which focused on the interpretation and application of the requirement in class proceedings legislation in Ontario and elsewhere across Canada for the plaintiff to establish that a class proceeding is the preferable procedure for the resolution of the common issues. In particular, the decision is focused on whether certification should be denied based on the access to justice provided to the proposed class in a completed regulatory proceeding (in this case, before the Ontario Securities Commission). In Fischer, the Court provided the most detailed formulation of the preferability test to date, and signaled that it will be easier than ever to certify class proceedings in Canada, even (in some circumstances) where the same issues have already been addressed in an administrative proceeding.
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 Fischerhad been harmed by “market timing activities conducted by other investors in those funds. 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 from the defendants compensation for investors allegedly harmed by market timing activities. As a result, the defendants collectively paid over $205 million in compensation directly to investors as part of the terms of the settlement agreements.
The representative plaintiffs in Fischer subsequently commenced an action seeking to certify a class of the same investors who benefitted from the OSC settlements. The subject matter of the action is the same market timing activities, in the same funds, by the same investors as were the subject of the OSC proceeding.1
The issue on certification was whether a class proceeding is the “preferable procedure” for resolving the parties’ dispute, a pre-condition for certification in the Ontario Class Proceedings Act and in other provincial class proceedings statutes. The preferability test requires the court to evaluate whether any alternative procedure serves the main objectives of a class proceeding: namely, access to justice, behaviour modification, and judicial economy. In Fischer, the focus was on whether the OSC proceeding met the goal of access to justice – one of the key drivers behind the class proceedings regime in North America.
The certification motion judge, Divisional Court, Court of Appeal and Supreme Court all 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 for the resolution of the common issues. He found that the OSC proceeding compared favourably with a class proceeding and, therefore, satisfied the access to justice requirement.
The Divisional Court allowed the plaintiffs’ appeal from the order of the motion judge, and directed that the action be certified as a class proceeding. Despite having found that the Motion Judge correctly identified the test that must be satisfied for certification, the Divisional Court concluded that the Motion Judge erred in law in respect of his application of the preferable procedure criterion, finding that because there was some basis in fact to support the plaintiffs’ assertion that the OSC settlement funds represented only a portion of their total actual damages, the OSC proceeding could not be the preferable procedure.
The Ontario Court of Appeal agreed with the Divisional Court’s result but not with its reasoning. The Court of Appeal held that, in considering whether an alternative means of resolving the class members’ claims is preferable to the mechanism of a class action, a court must focus on procedural issues and examine the “fundamental”, “central”, or “key” characteristics of the proposed alternative proceeding. In this case, their focus was on the regulatory (vs. compensatory) jurisdiction of the OSC, and the participatory rights afforded to affected investors in the OSC proceeding, which the Court concluded did not provide the plaintiffs with access to justice in relation to their claims. The Court of Appeal held that the Divisional Court’s focus on the substantive matter of investors’ uncompensated losses (i.e., the alleged “money left on the table”) is not a proper approach to the preferability inquiry.
The Supreme Court had not had an opportunity to address the preferable procedure requirement for many years (sinceHollick v. Toronto in 2001), and granted the defendants’ motion for leave to appeal. Justice Cromwell, writing for a unanimous Court, upheld the appeal decisions below, and dismissed the defendants’ appeal.
Justice Cromwell in effect harmonized the approaches of the appeal courts below, finding that access to justice has both a procedural dimension (i.e., will the claimants have access to a fair process to resolve their claims?) and a substantive dimension (i.e., will the claimants receive a just and effective remedy?). He affirmed that, from a procedural point of view, other non-court proceedings – including completed proceedings – should be considered in the preferability inquiry. The question then becomes “whether the alternative 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”; this inquiry is effected by comparing the two alternative proceedings, from a “cost-benefit” perspective.
While Cromwell J. disagreed with the Court of Appeal’s disavowal of the substantive approach taken by the Divisional Court (i.e., the comparison of the potential recoveries in the alternative proceedings at issue), he cautioned that the low evidentiary threshold at the certification stage will in many cases prevent such an analysis from taking place. In the unusual circumstances of Fischer, where the alternative procedure has run its course and its results are known with certainty, Justice Cromwell held it was appropriate for the issue of investors’ uncompensated losses to factor into the substantive evaluation of the OSC proceeding as compared to a class proceeding.
Justice Cromwell further held that a class proceeding was a superior alternative from a procedural access to justice perspective, given that many aspects of the OSC settlement were confidential, and a class proceeding would provide, in his view, a better opportunity for investor participation.
It is difficult to conceive of a non-court alternative to a class proceeding that could meet the high access to justice threshold that has now been set by the Supreme Court. It is therefore more likely than ever that the battle ground for class proceedings in Canada will be the common issues trial as opposed to the certification motion. A further consequence of Fischer may be that companies are reluctant to enter into settlements of administrative proceedings which purport to compensate potential class members. Depending on the willingness of corporations to cooperate, and the flexibility of regulators, one approach may be to build access to justice safeguards into the settlement process, including enhanced participation of potential class members in settlements, and more transparency, so that such settlements stack up more favourably against class proceedings in the future.