On December 12, 2013, the Supreme Court of Canada released its decision in AIC Limited v Fischer, 2013 SCC 69, which provides very useful guidance on the preferable procedure requirement for certification, particularly on the meaning of access to justice in the preferability analysis.
On December 12, 2013, the Supreme Court of Canada released its decision in AIC Limited v Fischer, 2013 SCC 69, which provides very useful guidance on the preferable procedure requirement for certification, particularly on the meaning of access to justice in the preferability analysis.
The case involved a class action against a number of mutual fund managers claiming that they failed to prevent the practice of “market timing” by third parties, which is alleged to have caused harm to certain investors in the mutual funds. The same conduct was the subject of regulatory proceedings by the Ontario Securities Commission (the “OSC”) directed at the mutual fund managers. The regulatory proceedings ultimately concluded when the mutual fund managers entered into settlement agreements with the OSC, under which the mangers paid millions to investors. Following the OSC settlements, the class action plaintiffs sought to certify the class action essentially on behalf of the same investors who received compensation from the OSC settlements. In the class action, compensation was being sought for the investors over and above the recovery achieved through the OSC settlements.
The plaintiffs’ motion for certification was initially denied by the motion judge, who held that a class action was not a preferable procedure in light of the existence of the OSC proceedings and settlement agreements. The Divisional Court and the Court of Appeal overturned the motion judge’s decision, finding that the preferable procedure criterion had been met, though the two appeal courts adopted different approaches to preferability in reaching that finding.
The ultimate question for resolution by the Supreme Court was whether the proposed class action was the preferable procedure from the perspective of providing access to justice to investors in light of the settlements already reached in the OSC proceedings. In the result, the Supreme Court answered this question in the affirmative, finding that the preferable procedure requirement had been satisfied, but adopting a different analytical approach to those adopted by the Divisional Court and the Court of Appeal.
The Supreme Court noted that there are two interconnected dimensions to access to justice in the preferability analysis. One is procedural: whether the class members have access to a fair process to resolve their claims. The other is substantive: whether the class members will receive a just and effective remedy for their claims if established. The Supreme Court held that, to determine whether a class action is the preferable procedure from the perspective of access to justice, a court must ask itself the following questions: (1) what are the barriers to access to justice present in the case? (2) what is the potential of the class action to address those barriers? (3) what are the alternatives to a class action (whether in a court or non-court forum)? (4) to what extent do the alternatives address the relevant barriers? and (5) how do the two proceedings compare? The ultimate question for a court is whether the class action is shown to be preferable to the alternative to address the specific procedural and substantive access to justice concerns raised in each case.
The Supreme Court also commented on the evidentiary burden in the preferability analysis. The Court affirmed that the “some basis in fact” requirement involves a limited factual inquiry directed at ensuring that there is an evidentiary foundation for certification and does not involve a detailed assessment of the merits of the class action. In that context, the Court noted that it will often not be possible to compare the potential recoveries in the class action and in the alternatives to the class action. Having said that, the specific case before the Supreme Court was somewhat unusual in that the OSC proceedings had run their course such that the results of the alternative procedure were known at the time of the certification motion. The Supreme Court further commented that, while the representative plaintiff bears the burden of showing some basis in fact for the certification criteria (including preferable procedure), a defendant who seeks to rely on a specific non-litigation alternative in resisting certification has an evidentiary burden to raise it.
On the specific facts before it, the Supreme Court found that the preferable procedure requirement was satisfied. The class action was preferable to individual court actions because it has the potential to make it economically feasible to advance claims that would not be economically feasible on an individual basis and it provides class members with a fair process to resolve their claims. The Supreme Court also found that the class action was preferable from the perspective of access to justice when compared to the OSC proceedings. With respect to the procedural component of access to justice, the Supreme Court found that the regulatory nature of the OSC proceedings (as distinct from the compensatory purpose of the class action) and the limited participation rights of investors in the OSC settlements, coupled with the absence of information about how the OSC assessed investor compensation, weighed in favour of the conclusion that there remained procedural access to justice concerns following the OSC settlements that could be addressed by the class action. The Court also found that substantive access to justice concerns supported certification of the class action. There was some basis in fact for a finding that the OSC settlements did not provide the investors with full compensation for their losses, such that substantive access to justice concerns remained despite the OSC settlements.
The Supreme Court’s decision in AIC Limited v Fischer is significant in providing a framework for assessing whether a class action is preferable to other available means of resolving class members’ claims. It will be reviewed with interest by plaintiffs and defendants where reasonable alternatives to a class action exist, such as a regulatory proceeding (in the securities and other contexts) or a process voluntarily implemented by a defendant to redress harm caused to class members.
Anthony O’Brien is an Associate Lawyer with our Class Actions Team. His practice focuses on securities class actions and shareholder rights. If you have questions regarding this or any other class action issue, please contact him at [email protected] or 416-362-8334.