Often, the same conduct is the focus of both regulatory processes and a proposed class action. Organizations may be concerned that an adverse regulatory decision will increase the prospects of certification. However, that is not always the case. Sometimes an adverse regulatory decision can actually weigh against certification, as a class proceeding is no longer required to achieve behaviour modification, as Fisher v Richardson GMP Limited, 2022 ABCA 123 illustrates.

The Regulatory Decision

Fisher concerned allegations that the defendants improperly managed the class members’ investment portfolios. Between the certification application and the certification judgment, the Investment Industry Regulatory Organization of Canada (“IIROC”), which is the regulatory organization of investment dealers, found one defendant guilty of five charges, permanently barred that defendant from IIROC membership, and imposed a fine of $450,000 and costs of $50,000. In reaching its decision, IIROC found that the defendant applied a “one-size-fits-all” investment strategy to a sample of seven clients.

Certification

This “one-size-fits-all” investment strategy was the basis of the plaintiffs’ assertion of commonality amongst the class, i.e. a systemic wrong that would be best prosecuted as a class proceeding. Notwithstanding the IIROC decision, which gave credence to the one-size-fits-all theory of liability, the certification judge denied the certification application for two reasons. First, she found that there was a lack of connection between the proposed class and proposed common issues, such that there was no identifiable class. Second, she found that a class proceeding was not a fair, efficient and manageable method of advancing the claim. Both conclusions featured the IIROC decision:

  1. Under the identifiable class analysis, the certification judge noted that the IIROC decision was based on a sample of only seven class members, meaning there was no basis in fact for a common, one-size-fits-all scheme.
  2. Under the preferable procedure analysis, the court examines whether a class proceeding is the preferable procedure through the lens of the three principle goals of class proceedings: access to justice, judicial economy and behaviour modification. In undertaking that analysis, the certification judge specifically pointed to the IIROC decision to conclude that behaviour modification was “not a primary consideration” (para 131) in deciding whether to certify the claim—that had already been achieved.

Appeal

The Alberta Court of Appeal upheld the denial of certification, although it did identify some errors in the certification judge’s analysis. With respect to identifiable class, the Court of Appeal concluded that the certification judge erred in principle in finding a lack of connection between the proposed class and proposed common issues. While the Court of Appeal agreed with the certification judge’s assessment of the evidence, and particularly, that the IIROC decision did not support a class-wide one-size-fits-all scheme, the proposed class members all had potential claims for damages based on the allegations–even if they were not subject to the one-size-fits-all scheme. Thus, while there was no basis in fact to support certain common issues, there was some basis in fact for the existence of an identifiable class.

However, the Alberta Court of Appeal found that even accepting the existence of an identifiable class, there was no error in the certification judge’s conclusion that a class proceeding was not the preferable procedure. The Court of Appeal endorsed the certification judge’s conclusion that the IIROC decision negated the need for behaviour modification in the circumstances.