In the recent Excalibur Special Opportunities LP v Schwartz Levitsky Feldman LLP decision, a majority of the Ontario Divisional Court upheld the ruling of Justice Perell denying certification of a proposed global class action on the basis that it failed to meet the preferable procedure and identifiable class requirements. The decision is instructive for those responding to certification motions insofar as it provides insight into application of the preferable procedure requirements in the class action context, as well as the limitations imposed on national or global class actions where the underlying issues are not sufficiently connected to Ontario.
We previously commented on Justice Perell’s analysis of the preferable procedure requirement here, as well as his comments on the identifiable class requirement here. The underlying proceedings were commenced by a proposed representative plaintiff – a Canadian investment fund – that had purchased privately-placed shares of a Chinese hog producer. The Private Placement Memorandum given to potential investors included a clean audit report prepared by the respondent, a Canadian accounting firm. When the hog producer went bankrupt shortly thereafter, the plaintiff sued the accounting firm for negligence and negligent misrepresentation and sought to certify the action as a class proceeding on behalf of 57 investors from all over the world that had invested in the private placement.
Preferable Procedure: Joinder of Claims Is The “Default Position”
Plaintiff’s counsel argued on appeal that Justice Perell had erred in finding that the alternative of a joinder of claims was preferable to the proposed class action, particularly because counsel for the respondent had not raised the potential of joinder in their submissions on the certification motion. Instead, Justice Perrell had considered joinder as a potential alternative procedure of his own accord.
Writing for the majority of the Divisional Court, Justice Lederer accepted that there are circumstances in which it would be inappropriate for a motion judge to impose an alternative procedure where that judge had heard no submissions from either party with respect to that alternative procedure. However, Justice Lederer found that joinder is not simply an alternative to a class action, but it is the “default position” in considering whether a class proceeding is or is not the preferable procedure. On that basis, the Court concluded that Justice Perell had not imposed joinder on the plaintiff, but had simply observed that the traditional procedure of joinder remained available and would provide effective redress for the investors who were part of the proposed class.
It should be noted that in her dissent, Justice Sachs observed that it could not be assumed that joinder was an available alternative, because there was no evidence before Justice Perell that: (i) the other identified class members would be prepared to assume the burdens, risks and responsibilities of commencing their own claims, (ii) the investors would be able to or would want to retain the same counsel, or (iii) the respondent would retain the same counsel to defend these theoretical actions. Given these comments, respondents to certification motions should consider addressing the availability of joinder as an alternative to the class action, with particular regard to these considerations.
Preferable Procedure: Class Actions Should Be Necessary, Not Just Convenient
Justice Lederer observed that class actions occupy an “unusual place” in the civil justice system, whereby they are used to address not just the immediate concerns of the parties involved, but also to address more public concerns of access to justice, behaviour modification and judicial economy. It is because class actions change the role of the immediate parties and the general purpose of litigation that Justice Lederer found that “we should be careful to use class proceedings when they are needed, not just because they can be made to apply and appear convenient”.
In the circumstances of the case at hand, Justice Lederer agreed with Justice Perell’s finding that joinder could respond to the issues without impinging on the three underlying public policy concerns and without requiring the additional procedural steps that accompany a class action, such as the certification motion, identification of common issues, and separation to deal with individual issues.
Given these comments, and those discussed above, respondents to certification motions should also consider addressing the relative “necessity” of the class proceeding as a mechanism for pursuing the claims at issue.
Global Classes: Real And Substantial Connection to Ontario Or Bust
Class counsel argued that Justice Perell had erred in finding that the proposed class action failed to meet the identifiable class requirement, noting that the identities of 57 of the prospective class members were known, and at least 20% of those identified had informed class counsel that they had no objection to the litigation proceeding in Ontario. Justice Lederer was unconvinced by this submission, observing that “this is not an objective exercise, where 12 (or 20%) would be enough but 11 (or 19%) would not. This should be the result of a subjective analysis taking into account all of the facts.”
Class counsel further submitted that Justice Perell had erred in finding that it was not appropriate for an Ontario court to certify the action because the prospective action failed to meet the “real and substantial connection” test, arguing that the case was ultimately about an audit performed in Ontario by an auditor whose business is located in Ontario and that this was sufficient to form a real and substantial connection to Ontario. Justice Lederer found that Justice Perell had not erred because he had taken into account the audit was performed in Canada, but he had also found that the standard of care associated with that audit would largely be determined by American accounting standards, and the members of the prospective class were non-residents of Ontario making investments in U.S. dollars, in a U.S. corporation, in respect of a transaction governed by U.S. law. On this basis, the Divisional Court found that Justice Perell had properly determined – by looking at the facts as a whole – that there was no real and substantial connection between the proposed global class action and Ontario.
It should be noted that in her dissent, Justice Sachs observed that because the respondent: (i) had not invoked forum non conveniens, (ii) had not identified another jurisdiction that was attempting to take jurisdiction over the action, and (iii) had not stated that they would refuse to attorn to Ontario, this left the choice for pursuing the action, in practical terms, between “Ontario or nowhere”. Given these comments, respondents to certification motions should consider addressing these issues if seeking to challenge the forum of a proposed class action commenced in Ontario.
Conclusion
While the vigorous dissent of Justice Sachs may serve to convince the prospective class to appeal the decision of the Divisional Court, the comments in both the majority and dissenting opinions nonetheless contain key observations for respondents to certification motions. In particular, respondents should consider addressing the following considerations: (i) the availability of joinder as an available alternative to the class action, (ii) the relative “necessity” of the class proceeding as a mechanism for pursuing the claims at issue, and (iii) the potential for other jurisdictions to take carriage of proposed extra-provincial actions.