Mason Poplaw

The appellants, financial services entities within the Desjardins Group, appealed the Quebec Court of Appeal's decision authorizing a class action brought by an investor in capital-guaranteed term savings products that ultimately yielded no return at maturity.

The majority held that the Superior Court erred in analyzing the conditions for authorization under article 1003 of the former Code of Civil Procedure, and affirmed the Court of Appeal's authorization of the class action against both the financial services firm (on a theory of systematic breach of the duty to inform) and the asset management company (on a theory of extracontractual breach of duties of competence and management).

The majority further specified that any punitive damages claim in relation to asset-backed commercial paper must be limited to Unaffected Claims as defined in the Third Amended Plan of Compromise and Arrangement sanctioned under the Companies' Creditors Arrangement Act.

Three justices dissented in part, concluding that authorization against the financial services firm should be denied for failure to establish common questions, while agreeing that the action against the asset management company should be authorized solely with respect to compensatory damages.

Several businesses went bankrupt while holding unremitted federal and provincial sales tax (GST and QST).

The federal and provincial tax authorities claimed ownership of these amounts, arguing they were held in a deemed trust and did not form part of the bankrupts' estates.

The trustees in bankruptcy and secured creditors argued that under the Bankruptcy and Insolvency Act, the Crown ranks only as an ordinary unsecured creditor.

The Supreme Court of Canada dismissed the Crown's appeals, holding that the 1992 amendments to the Bankruptcy and Insolvency Act rendered the statutory deemed trusts ineffective upon bankruptcy.

Consequently, the tax authorities are ordinary creditors, and the unremitted tax amounts remain part of the bankrupts' estates subject to the priority scheme of the bankruptcy legislation.