Caitlin Woodford

In this class action damages trial arising from negligent facilitation of frequent trading in retail mutual funds, the court held that dilution caused by time zone arbitrage should be quantified using the Next Day NAV method rather than the profits method.

The court rejected the argument that prior OSC settlements conclusively compensated investors, found that objective trading characteristics and circumstantial evidence were sufficient to identify time zone arbitrage, and declined to require direct evidence of each trader’s subjective motivation.

Additional timer accounts were included for one defendant outright and for the other subject to specified filters, and the class definition was amended accordingly to exclude those market timers from recovery.

The court awarded principal damages of $60.48 million against one remaining defendant, plus further amounts for qualifying additional accounts, and $37,900,659.63 against the other, with simple prejudgment interest at 2.8% from commencement of the action.

The respondent brought a motion to compel the appellant to provide further and better answers to written examination for discovery questions.

The underlying appeal concerned whether the appellant's services constituted an exempt supply of a financial service or a taxable supply for GST/HST purposes.

The Tax Court of Canada granted the motion in part, ordering the appellant to provide factual bases for its legal positions and to make further inquiries of former employees regarding the services provided, while finding certain repetitive questions did not require further answers.

The plaintiffs brought a class action against mutual fund managers for allowing certain investors to engage in frequent short-term trading (market timing/time zone arbitrage), which allegedly diluted the returns of long-term unitholders.

The court found that the defendants owed a duty of care to the funds and breached the standard of care by failing to prevent, and actively facilitating, frequent short-term trading contrary to their prospectuses.

However, the court dismissed the claim for breach of fiduciary duty, finding no bad faith or dishonesty.

The matter was directed to proceed to a damages trial.