Big news in Ontario class actions practice: defendants may now be required to deliver statements of defence prior to certification. The long-standing convention that statements of defence need not be delivered until following a certification order may be coming to an end.
The decision in which this change is suggested, Pennyfeather v Timminco Limited,1 is a proposed securities class action. The action seeks damages for negligence and misrepresentation on behalf of all those who purchased Timminco securities during a specific time period. The plaintiff in this action also seeks leave to assert secondary market misrepresentation claims pursuant to Part XXIII.1 of the Ontario Securities Act.2
Under Ontario law, an action cannot proceed as a class proceeding unless and until it is "certified" by the Court. The purpose of a certification hearing is to determine whether a class proceeding is an appropriate mechanism for the advancement of issues that are common to the class. There are a number of requirements that must be met before a certification order can be granted.
The circumstances giving rise to the Pennyfeather decision are not unusual in litigation: certain of the defendants brought a demand for particulars of the plaintiff's allegations. The plaintiff refused to provide particulars on the basis that the defendants' motion was premature: the statement of defence was not yet due (since the certification hearing had not yet occurred) and therefore the defendants did not yet need such particulars in order to prepare a responsive defence. The defendants brought a motion to compel the plaintiff to provide particulars.
Justice Perell ordered that the plaintiff provide particulars and, departing from convention, also ordered that all the defendants deliver their statements of defence in advance of the certification hearing.
The Ontario Court provided the following reasons for the decision in Pennyfeather:
- Certification does not influence or prescribe the content of the statement of defence : The purpose of certification is to identify those issues that will be tried on a common basis. Certification does not define or narrow the causes of action or the issues in the plaintiff's pleading; non-certified causes of action are not struck from the pleading. As such, all causes of action and issues in a pleading, not just the ones certified as common, have the potential to proceed to trial. Consequently, the certification hearing is not required in order for the defendants to identify the matters that they must address in their defence.
- The legislature intended for pleadings to close prior to certification : Class actions are generally subject to the Rules of Civil Procedure. There is nothing in the Rules or the Class Proceedings Act3 to suggest delivery of the statement of defence should be delayed until after a certification order. To the contrary, the timelines provided for in the CPA imply defences should be delivered prior to certification. Where plaintiffs insist on such delivery, defendants may be required to seek permission of the court to delay delivery of their defence.
Perell J. also suggests that abandoning the convention of delaying the delivery of defences has the advantage of simplifying and expediting the certification hearing itself. In particular, one requirement for certification, found under s. 5(1)(a) of the CPA , is that the plaintiff's pleading disclose a cause of action in law. Successful challenges to this element of the certification test can often result in the plaintiff amending his pleading. Perell J. indicates that such pleading amendments are likely to increase the complexity of the certification hearing given the interdependency of the certification criteria. In contrast, resolving such challenges before certification could facilitate the determination of the remaining certification criteria.
Furthermore, Perell J. suggests it is more efficient and cost-effective to make such challenges at interlocutory motions prior to the certification hearing particularly when such challenges, if successful, could eliminate the need for a certification hearing altogether.
It will be important for defendants and their counsel to watch how Pennyfeather is interpreted and applied by other judges. The Pennyfeather decision suggests the long-standing convention of delivering defences in a class proceeding only after a certification order may be at an end. However, it may also suggest that the Ontario court is moving away from its general view that certification should usually be the first motion heard in a proposed class proceeding. With this decision, the Court may now be more amenable to entertaining pre-certification motions, including motions to strike, particularly when those motions may entirely eliminate or greatly narrow the scope of the certification hearing.