Canada and the U.S. share close ties. Canada is the U.S.’s second-largest trading partner. Canada and the U.S. share geography and similar values. Close to 400,000 people cross the Canada-U.S. border every day.
U.S. class action attorneys devote significant resources to find and start class action cases. For relatively little added investment, it is possible to partner with a Canadian law firm to start the same case in Canada and to obtain the benefits of added returns from the Canadian litigation.
In the Canadian class actions area, antitrust, securities and other types of cases frequently follow after U.S. cases.
How are class actions in Canada similar to the U.S.? How are they different? In what cases should a parallel action in Canada be considered? What types of fee-splitting arrangements or referral fees are allowed between Canadian and U.S. lawyers?
The Canadian Court System and How it Differs From the U.S.
Canada has 10 provinces and one federal government. Similar to the U.S., the Canadian Constitution divides powers between the provinces and the federal government. There is a separate judicial system in each province. Each province has a superior court and an appellate court. Canada has a separate federal court system, which deals with certain areas of federal law. However, for the most part, the Federal Court shares jurisdiction over federal laws with provincial superior courts. Unlike the U.S., provincial superior courts have jurisdiction over both provincial and federal laws. The Supreme Court of Canada has final authority to decide all provincial and federal law issues arising in provincial superior courts and the Federal Court.
Quebec is unique because it is based on a civil law system, unlike the common law used in all other provinces. In addition, in Quebec, the court system operates primarily in French, Quebec’s official language, but cases can proceed in English.
The Canadian Class Action System and How it Differs From the U.S.
There is a rich history of class proceedings in Canada. There are class action statutes in almost all provinces. Quebec has had class proceedings legislation since 1978. Ontario enacted its class actions legislation in 1992.
A class proceeding must first be certified by the court. Although the criteria for certification can differ slightly between provinces, the common criteria for certification are: (1) a viable cause of action; (2) an identifiable class of plaintiffs; (3) common issues; (4) consideration of the preferable procedure for resolving the common issues; and (5) an appropriate representative plaintiff.
The threshold for certification in common law provinces in Canada is far lower than in the U.S. In 2013, the Supreme Court of Canada rejected the “robust and rigorous” standard of Wal-Mart Stores Inc. v. Dukes. Canada has no predominance or numerosity requirements. Unlike the U.S., there is no precertification discovery. As a result, to satisfy the certification criteria in Canada, the representative plaintiff must meet a low standard of proof involving “some basis in fact.” To defeat certification, a defendant must show it is “plain and obvious” that no claim exists. As a result, some commentators have concluded that “it has become increasingly difficult to successfully oppose class certification in Ontario or other common-law provinces.”
In Quebec, the test for certification (described as “authorization”) is even lower than in common law provinces. The authorization test requires an “arguable case.” A defendant is not permitted to submit evidence to oppose authorization or to cross-examine the representative plaintiff, unless authorized by a judge.
Multiple cases filed in one province are resolved through a “carriage motion” to decide which claim should proceed. If cases are filed in multiple provinces, there is no formal procedure to resolve the issue. It is conceivable to have certification motions proceeding in two or more provinces at the same time. Canada does not have a multi-district litigation procedure to coordinate class actions.
A national class action seeking relief on behalf of Canadians in all provinces can be brought in virtually any provincial court or the Federal Court. However, due to unique rules in Quebec’s Civil Code that give special status to “the protection of the rights and interests of Quebec residents,” as well as rules that give priority to the claim that is first filed in Quebec’s courts (called the “first to file” rule), national class actions often proceed in tandem with a separate case in Quebec.
As a general rule, Canada’s civil litigation system is a “loser pay” system: The loser must pay a portion of the winner’s legal costs. In cases involving multiple defendants, the risks of a failed certification motion can be steep. However, class action legislation in some jurisdictions (e.g., British Columbia, Quebec) provide for no costs if the proceeding is unsuccessful. Ontario is currently a “loser pay” jurisdiction, but its class actions legislation is under review and the cost rules could be changed. In “loser pay” jurisdictions, indemnifications against cost awards can be obtained in exchange for a percentage of the recovery (generally 10 percent).
Example Subject Areas of Cross-Border Cases
Although there are many examples of successful cross-border collaborations, antitrust and securities class actions are two commonly seen areas where Canadian cases follow after U.S. ones.
The federal Competition Act is Canada’s equivalent to the Sherman Act. The Competition Act prohibits price fixing and bid rigging, among other things. The Competition Act grants a statutory cause of action, giving any person who has suffered loss or harm as a result of antitrust activity a cause of action to claim damages. In addition, under the statute, a plaintiff can claim its full costs of investigation and full legal fees.
There are significant differences between the Competition Act and the Sherman Act. Treble damages are not available in Canada. Indirect purchaser claims are prohibited under the Sherman Act pursuant to the long-standing “Illinois Brick” doctrine. There are no such prohibitions in Canada: the Supreme Court of Canada in 2013 confirmed indirect purchaser actions are viable under the Competition Act.
The Supreme Court of Canada also clarified in 2013 that certification of antitrust claims requires an expert methodology that is “sufficiently credible or plausible” to establish loss on a classwide basis. There must be “some evidence” of the availability of data. However, resolving conflicts between experts is an issue for the trial judge and should not occur at certification. There is no need to resolve conflicts in a “robust” and “rigorous” manner at the certification stage.
Most securities class actions in Canada involve misrepresentations in an issuer’s public disclosure or failures to disclose material changes. Canadian securities legislation gives a statutory right of action for misrepresentations or failures to disclose that impact the price of securities in the secondary market. The test under Canadian securities legislation requires leave of the court to commence a class action. To obtain leave, a plaintiff must prove that the action is brought in good faith and that there is a reasonable possibility the action will be resolved in the plaintiff’s favor.
In a number of ways, Canadian securities claims are more permissive than in the U.S. Canadian misrepresentation claims do not require scienter, unlike U.S. Rule 10b-5 actions. In addition, in Canada, there is no requirement to have a client with the largest loss to maintain carriage of the case. There is no fraud-on-the-market presumption in Canada, but statutory rights do not require an investor to prove reliance.
Many companies listed on the Toronto Stock Exchange are cross-listed on the New York Stock Exchange. These companies often have identical securities filings in both countries, so if there is a misrepresentation, it impacts shareholders in both countries. The Canadian market cannot be accessed through a U.S. class action alone.
Examples of Class Action Collaborations Between U.S. and Canadian Lawyers
There are many examples of successful collaborations between U.S. and Canadian lawyers in class actions. For example:
- Robins KaplanLLP and Kirby McInerney LLP collaborated with Canadian plaintiffs in an antitrust case involving payment card interchange fees;
- Kessler Topaz Meltzer & Check LLP collaborated with Canadian plaintiffs in a securities class action against Sino Forest;
- Lieff Cabraser Heimann & Bernstein LLP consulted on a Canadian class action involving diet drugs causing hypertension or heart disease.
There are limits to the scope of permissible co-operation. In a 2008 decision, a Canadian court refused to certify a class proceeding in which a U.S. firm agreed to fund disbursements, but required preapproval for any disbursements over $2,500. The Canadian court expressed concern over not having “supervisory jurisdiction over lawyers who seek to represent the interests of the litigants.”
However, subsequently, numerous Canadian cases have approved many forms of various arrangements with U.S. attorneys: fee-sharing agreements; consulting agreements; and agreements to share expenses or experts. Referral fees are generally not allowed.
Canada’s population is approximately 10 percent of the U.S. As a result, Canadian class action judgments or settlements can be 10 percent or more of the U.S. case. Canada’s population is roughly equivalent to California’s. No class action attorney would consider starting a national class action by excluding California. Why not consider Canada?