In its recent decision in Lou v London Life Insurance Company, 2017 ONSC 4188, the Ontario Superior Court of Justice dismissed a motion to convert an individual action into a class proceeding. In so doing, Justice Perell found that the proposed class proceeding not only differed significantly from the existing individual action but also suffered from material shortcomings insofar as the statutory requirements for certification were concerned. Accordingly, he ultimately concluded that the general rule that amendments to pleadings will be presumptively approved was displaced in this context.
Nature of the proposed class proceeding
The plaintiff in this action alleged, among other things, that the agent of the defendant (also a co-defendant in the action) misrepresented the performance of an investment loan program offered by an investment advisor under which the proceeds of a bank loan were invested in a variable annuity contract issued by the defendant.
The plaintiff sought to convert this action into a class proceeding with the following class definition:
All Chinese speaking persons who invested in the London Life Insurance Company’s Segregated Fund between January 1, 2005 and February 3, 2017.
The class definition defined “Chinese speaking persons” as those who speak Mandarin Cantonese and dialects thereof, but it did not define “segregated fund”.
In her motion to convert the action into a class proceeding, the plaintiff alleged that the agents of the defendant misclassified the class members’ risk tolerance and misrepresented the nature of the segregated funds. The plaintiff noted that she only appreciated that other investors had similar experiences once she had commenced her individual action.
Test to convert individual action to class proceeding
The plaintiff alleged that the test governing whether an individual action should be converted into a class proceeding was the simple “amendment to a pleading” test found in Rule 26.01. This Rule provides that “[o]n motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.” As such, the plaintiff argued that the low threshold of Rule 26.01 had been met and the motion must be granted.
The defendant, however, argued that:
“…the test for the conversion of an individual action into a proposed class action goes beyond Rule 26 and is not superficial and without going so far as would be the case for a certification motion, for a plaintiff to be granted permission to amend his or her statement of claim to convert it to a class action, he or she must prima facie demonstrate that the purposes of a class action; i.e. access to justice, behaviour modification and judicial economy, could be satisfied.
In this case, the defendant argued that the plaintiff did not meet this test by virtue of the fact that the class definition was vague and unworkable, and no judicial economy would be achieved since the proposed class proceeding would inevitably lead to significant individual issues trials.
In considering the appropriate test, Justice Perell noted that while the general rule is that amendments are presumptively approved, the court has a residual right to deny amendments where appropriate. In this regard, the court will consider whether:
a) the opposing party will suffer an injustice not compensable in costs;
b) the proposed amendment is an issue worthy of trial and prima facie meritorious;
c) the amendment would have been struck if originally pleaded; and
d) the amendment contains sufficient particulars.
In considering the case at bar, Justice Perell found that converting the individual action into a class proceeding involving an unknown number of intermediary agents over a 12-year period would be the “equivalent of changing a procedural minnow into a procedural whale.” Moreover, Justice Perell highlighted the defendant’s concerns with regard to the applicable limitation periods, the unworkable class definition and the absence of common issues. As such, he refused to grant the plaintiff’s motion to convert her action into a class proceeding.
This case serves as a useful reminder that while amendments to pleadings will generally be granted to plaintiffs who seek to modify their claims after commencement of an action, the Court retains an inherent jurisdiction to refuse such amendments where they are deemed to materially alter the face of the litigation in a manner that is prejudicial or otherwise unduly burdensome (to either the defendants or the Court). In addition, the case highlights the fact that while class proceedings are procedural vehicles, they are nonetheless subject to a number of threshold requirements which cannot be circumvented by means of a pleadings amendment. To the extent that defendants are faced with a motion to convert an individual action into a class proceeding, they should take care to consider whether there are any reasons to resist such a motion on the basis of these threshold requirements.