CITATION: Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2015 ONSC 1634

DIVISIONAL COURT FILE NO.: 360/14

COURT FILE NO.: CV-12-466694-00CP DATE: 20150615

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

LEDERMAN, H. SACHS & LEDERER JJ.

BETWEEN:

EXCALIBUR SPECIAL OPPORTUNITIES LP

Plaintiff/Appellant

– and –

SCHWARTZ LEVITSKY FELDMAN LLP

Defendant/Respondent

Linda Rothstein, Margaret Waddell & Odette Soriano, for the Plaintiff/Appellant

Tim Farrell & Jordan Page, Defendant/Respondent

HEARD at Toronto: February 11, 2015

LEDERER J.:

INTRODUCTION

[1] This is an appeal. The appellant commenced a class action. A motion to certify it as a class proceeding was heard by Mr. Justice Perell. He found that the pleadings disclosed causes of action both in negligence and negligent misrepresentation, but that it would be unreasonable to anticipate that members of the prospective class (including the proposed representative plaintiff) would expect that the claims had a real and substantial connection to Ontario. Thus, Mr. Justice Perell found there was no class (in this case, a global class, one that included members beyond the boundaries of Canada and around the world) that could be established. Moreover, the motion judge concluded that a class proceeding was not the "preferable procedure" for resolution of the common issues.[^1] A joinder of claims would provide "effective redress" and "suitable procedural rights".[^2] The motion was dismissed. This is the order that is being appealed. It was a final order. Accordingly, the appeal is as of right.[^3]

[2] The defendant brought what it referred to as a cross-appeal. Among the questions to be considered on any motion to certify a class action is the identification of the issues common to the members of the prospective class.[^4] Mr. Justice Perell noted that the failure to identify a proper class was "irremediable" but, upon observing that appeals were "virtually inevitable in proposed class actions"[^5], went on to consider the other certification criteria, including the defining of common issues. It is this part of the reasons of Mr. Justice Perell that the defendant seeks to cross-appeal. The plaintiff takes the position that, as a cross-appeal, this is a nullity. First, an appeal is from an order, not from the reasons which support the order. In this case, the order issued did nothing other than dismiss the motion and provide for submissions as to costs. As part of an order, the identification of common issues would not be final. Even if the findings of the motion judge, in identifying common issues, were subject to appeal, leave would be required. Counsel for the plaintiff submitted this part of the proceeding brought before this court should not be heard, at least not as a cross-appeal. As will become apparent, the appeal is to be dismissed. This being so, the propriety of the "cross-appeal" does not matter. Nonetheless, it may be as well that I make some brief comment.

[3] Clearly, it would make little, if any, sense to hear the appeal and then, if successful, require the defendant to obtain leave and proceed with the "cross-appeal" as to the defining of common issues on another day. In the same vein, it would unnecessarily complicate the process to adjourn the appeal, or require that it not be heard until after a motion seeking leave to bring a proposed cross-appeal had been dealt with. The better view, as suggested by counsel for the plaintiff and consistent with the proposition that it is orders and not reasons that are appealed, would be to recognize that concerns for the appropriateness of any identified common issues is not properly seen as the subject of a cross-appeal but, rather, intrinsic to the appeal itself. The definition of common issues is, after all, one of the constituent requirements of a determination whether or not to certify a class proceeding. A question to be answered would concern the impact any identified common issues may have on whether the class action should be certified. In this case, an issue raised was whether Mr. Justice Perell was correct in finding that it was not plain and obvious that a separate cause of action for negligence (as opposed to negligent misrepresentation) would not succeed. Any submission that the motion judge was in error could bear upon the fundamental question of whether the class proceeding should be certified.

[4] There is a further subsidiary appeal. It concerns the award of costs made following separate submissions that addressed the issue. As part of its response to the motion to certify the class action, the defendant retained and produced two affidavits in the name of J. Peter Coll, described by the motions judge as a senior lawyer with a New York firm with expertise in American securities law.[^6] His firm submitted an account in the amount of $107,660.25 USD. This was included in the costs award made by Mr. Justice Perell against the plaintiff in favour of the defendant. If the plaintiff is unsuccessful in its appeal, that is, if the decision to dismiss the certification of this proceeding as a class action is upheld, the plaintiff seeks leave to appeal the finding that the costs associated with the participation of J. Peter Coll should be paid by the plaintiff to the defendant. Typically, one would expect an appellant to appeal a determination of the costs to be awarded where its appeal as to the merits is successful. The appellant before this court (the plaintiff in the action) seeks to vary the award as to costs if it is unsuccessful on its appeal. I will return to this later in these reasons.

BACKGROUND

[5] The facts are not controversial. South China Livestock was a Chinese hog producer. In 2009, it began the process of entering the North American capital markets through a reverse takeover and a private placement financing. The defendant, Schwartz Levitsky Feldman LLP ("SLF"), is a Toronto and Montreal accounting firm. It audits American, Canadian and international public companies. It had (and may still have)[^7] a group that specialized in the audits of Chinese businesses. In 2010, the American promoters and marketers of the private placement provided accredited investors with a Private Placement Memorandum. It included, as an exhibit, an Audit Report prepared by SLF. The audit report is described as being "clean", which I understand to mean that it would not have raised any concerns in the minds of potential investors as they reviewed the Private Placement Memorandum. The plaintiff, Excalibur Special Opportunities LP ("Excalibur"), is a limited partnership investment fund based in Toronto. It was one of 57 investors who, in response to the Private Placement Memorandum, invested a total of $7,594,965. Within a year, it became apparent that South China Livestock operated without financial control over what was an all-cash business. The plaintiff says that this is entirely at odds with the clean Audit Report. In such circumstances, under generally accepted accounting principles, such a report is not possible. In short order, South China Livestock went out of business, the investors lost their investment, and the plaintiff commenced this class action on behalf of the investors. The plaintiff says it relied on the Audit Report when it decided to invest. In its claim, the plaintiff alleges that SLF was negligent in conducting its audit and that the Audit Report contains misrepresentations. The action it commenced is founded on these allegations.

CLASS ACTIONS

[6] In considering this appeal, it may be worthwhile to give some consideration to the substance of, and policy foundation for, class actions. The Class Proceedings Act is a procedural statute. Proceeding under its ambit does not affect the cause or substance of the action. Nothing which is not negligence within a more typical proceeding suddenly becomes negligence just because the case is framed as a class proceeding. The legislation presents a means to conduct litigation. It does not apply every time a "person", individual or group that finds herself, himself or itself harmed or damaged in common with others. There is no inherent right to proceed on a class basis. The procedure offered by the legislation is in furtherance of understood policy objectives: (1) access to justice; (2) behaviour modification; and, (3) judicial economy. This was reviewed by Mr. Justice Perell, as follows:

In the quintessential economic loss case, the Representative Plaintiff’s individual claim would not justify suing the Defendant, and so an individual action is out of the question; only a class action will achieve access to justice. In the quintessential case, there is an economic barrier to access to justice because the individual cannot bring forward a claim because of the high cost that litigation would entail in comparison to the modest value of the claim. The modest individual recovery, the litigation expense, the forensic challenges of proving wrongdoing, and the risk of an adverse costs award make anything other than a class action prohibitive and unfeasible.

In the quintessential case for an economic loss, behaviour modification is genuinely achieved because but for a class action, the Defendant would have gotten away with its economic wrongdoing because those wronged as individuals would not be able to bring the Defendant to the seat of justice, unless they joined together as members of a class action. Financially, it would not make sense to pursue the Defendant and financially a Class Counsel would not be interested in prosecuting the case unless there was an appropriate upside for taking on the risks.

In the quintessential case, considerable judicial economy will be achieved by the common issues trial, which in the best case will be dispositive of the litigation and lead to a distribution of the proceeds in accordance with the considerable administrative resources of the Class Proceedings Act, 1992.[^8]

STANDARD OF REVIEW

[7] Generally, the standard of review can be summarized as one of correctness with respect to issues of law or legal principle. The standard of review for findings of fact is such that findings cannot be reversed unless there is a palpable and overriding error. Questions of mixed fact and law are on a spectrum depending on the nature of the issue under review. If the issue is one that is particular to the case at hand without any impact beyond the decision to be made, it will tend to the palpable and overriding error (reasonableness)[^9] end of the spectrum. If it has a broader impact beyond the specific case, into the general law with precedential value, it will tend to the correctness side.[^10]

[8] Appellate courts have acknowledged that class actions are a highly technical area of the law and recognized the special expertise of judges who deal regularly with these matters. Substantial deference is owed on certification decisions.[^11]

ANALYSIS

(a) Preferable Procedure

[9] Central to the idea that class proceedings respond to the three policy directives is the requirement that the court, in considering whether to certify a class action, determine that proceeding pursuant to the Class Proceedings Act would be the "…preferable procedure for the resolution of the common issues".[^12] Mr. Justice Perell began by reviewing what goes into a consideration of the issue.

[10] To be the preferable procedure, a class proceeding must represent a fair, efficient and manageable procedure that is preferable to any alternative method of resolving claims.[^13] Whether a class proceeding is the preferable procedure is measured by reference to the underlying policy objectives (access to justice, behaviour modification and judicial economy)[^14] and the extent to which certification furthers those objectives.[^15] In considering an alternative to a class proceeding, the court should examine whether that option could provide suitable procedural protections and effective redress for the claims being made.[^16] Mr. Justice Perell went further. He added to the factors to be considered in assessing and identifying the preferable procedure. He included, as a consideration"… the relationship between access to justice, which is the preeminent concern of class proceedings, and proportionality in civil procedures".[^17] Counsel for the plaintiff noted that, for a preferable procedure analysis, this was a new criteria, but acknowledged that it is part of such an examination "since it encompasses the concept of judicial economy".[^18]

[11] Mr. Justice Perell concluded that a class proceeding was not the preferable procedure. In the circumstances, joinder was available, appropriate and preferable. Counsel for the plaintiff objected to this determination. She began by pointing out that the potential for joinder as the preferable process was not raised by counsel in the submissions that were made. This was an idea that found its origins in the mind of the judge and found favour with him in the absence of comment from the parties. In submitting that this was improper and a ground for setting aside the order, counsel relied on Cavanaugh v. Grenville Christian College.[^19]

[12] Five students of a private school sought to certify a class action against the school, its administration and the local Anglican Diocese. The action against the Diocese was dismissed. This was appealed to the Court of Appeal and the ruling upheld. The action against the school and the administration was not dismissed but, at the same time, was not certified. There was a preferable procedure. The motion judge, as here, was Mr. Justice Perell. This part of his decision was appealed to the Divisional Court, which set aside his finding and certified the class. The Court determined that the motion judge "…made a palpable and overriding error in the analysis and the decision of the preferable procedure"[^20] and, then, went on to observe that the motion judge "…had imposed a procedure not advocated by the defendants and for which he heard no submissions from either party."[^21] The plaintiff submitted that, in this case, the same mistake was made. To my mind, this idea needs to be examined more carefully.

[13] I begin by returning to the understanding that the Class Proceedings Act is a procedural statute. There is responsibility left with the court to find the "preferable procedure".[^22] It cannot have been intended that, if a defendant fails to rise to the challenge, the court is left with no option but to allow a proceeding to move forward as a class action even if that procedure is unsuitable. It has been held that it is the party seeking certification of a class action that bears the burden of showing some basis in fact for each of the certification criterion. This includes a requirement that the plaintiff show that a class action would be preferable to any other reasonably available means of resolving the claims of the class members.[^23] It is worth remembering that the report of the Law Reform Commission of Ontario, which resulted in the present Class Proceedings Act, begins its review by noting and repeating that "joinder" or "compulsory joinder" did not appropriately address the concerns to which class actions could respond.[^24] Joinder is not simply an alternative, it is the default position in considering whether a class proceeding is or is not the preferable procedure. Mr. Justice Perell did not impose joinder on the plaintiff, he simply pointed out that joinder "…would provide effective redress for Excalibur and… other investors could join the action as co-plaintiffs".[^25]

[14] The circumstances in Cavanaugh v. Grenville Christian College were quite different. Having said that an alternative procedure had been imposed by Mr. Justice Perell, the Divisional Court went on to explain:

The procedure arose in the context of a factually different case, a medical malpractice claim which had its origins as a proposed class action but which was discontinued after the parties agreed to ask Justice Perell to case manage the proceedings.[^26]

[15] In Cavanaugh v. Grenville Christian College, Mr. Justice Perell went beyond offering that joinder could be an effective alternative. Having concluded that the case he was considering was ill-suited to a class proceeding, Mr. Justice Perell observed that there was a preferable procedure. He referred to three cases, all of which were related, and reviewed one of them in detail.[^27] Hudson v. Austin[^28] began as a class proceeding. It was a malpractice action brought on behalf of 99 patients of one doctor. Mr. Justice Perell agreed to case manage the action. The representative plaintiff was granted leave to discontinue her proposed class action. Ninety-nine individual claims were brought against the defendant doctor. The plaintiffs in those actions were represented by a team of lawyers. The defendant was represented by the same lawyers in all of the actions. Contingency fee arrangements were made in respect of each of the plaintiffs. Some of the cases were set down for trial, 19 of the plaintiffs moved for summary judgment and made settlement offers which were accepted by the defendant. The balance of the actions settled. In Cavanaugh v. Grenville Christian College, Mr. Justice Perell noted that the procedure adopted in Hudson v. Austin served the parties well and responded to the policy directives which inform class proceedings: access to justice, judicial economy and behaviour modification.[^29] It is this process which the Divisional Court took to have been imposed by Mr. Justice Perell without submissions and without input from the parties. To my mind, this has little, if any, application here. In this case, Mr. Justice Perell has done nothing other than observe that the traditional procedures which, absent a class proceeding, are in place to deal with situations like this, remain and are available. This was not, as counsel for the plaintiff would have it, a reprise of the "preferability analysis" undertaken by, Mr. Justice Perell in Cavanaugh v. Grenville Christian College.[^30]

[16] There is no error of law or otherwise in the consideration given by Mr. Justice Perell to the applicability of joinder to the situation presented by this case.

[17] I turn to the question of the merits of the decision of Mr. Justice Perell as it addressed the question of the preferable procedure. It has been established that, for the preferable procedure criterion, particular deference should be paid to the decision of the motion judge.[^31]

[18] Much of the submissions made with respect to this issue reflected on the economics of the action. This speaks to the idea that where there are many people who have been harmed, each in small amounts, that would not support going to court but, where the numbers involved have the effect of generating significant, if undeserved, rewards for the wrong-doer, a class proceeding can be an effective tool. The plaintiff believes this logic applies in this case.

[19] It was submitted on behalf of the plaintiff that Mr. Justice Perell made his decision "…because he concluded that the plaintiff and the class were sufficiently wealthy to pursue claims on an individual basis."[^32] It is true that Mr. Justice Perell noted that all the members of the prospective class were accredited investors "…which means that that they are, by definition, not without resources to litigate".[^33] However, this was not the foundation of his decision as to the preferable procedure. It is not the basis of his analysis of the economics of the lawsuit.

[20] This is not a case where there is a large class, many of whom have not been identified. The class is made up of 57 investors, all of whom have been identified, all but one of whom have been contacted by mail or e-mail. One letter was returned as undeliverable[^34]. Relying on a chart found in the decision of Mr. Justice Perell,[^35] counsel for the plaintiff pointed out that, of the 57 investors, 39 placed funds valued at less than $200,000 (19 put in from $1 to $49,000, 12 put in $50,000 to $99,000 and 8 put in $100,000 to $199,000). The proposed representative plaintiff (Excalibur) invested $950,000. Counsel for the plaintiff, as part of her oral submissions, suggested that for anyone with an interest of less than $100,000, it would not be economical to pursue a remedy, certainly not in court. The issues are complex. Individual actions would not be sustainable. Thus, the circumstances are ripe for certification as a class proceeding.

[21] This is not how Mr. Justice Perell saw or dealt with the issue:

…unlike the situation in AIC Limited, supra, which was an investor class action populated mainly by investors with claims that would not justify individual actions, there are no significant economic barriers to litigating that would need to be overcome, by a class action procedure. The investors are known and any of them with claims and that are uneconomical to litigate could be just as easily carried as co-plaintiffs without the formality and expense of a certification motion. There are no psychological or social barriers, such as might be present in an employment or franchise class action, where the Class Members may be intimidated or reluctant to sue their boss or franchisor. There is no psychological or social barrier that presents itself and the forensic resource of the parties are about equal in terms of the availability of capable lawyers and qualified expert witnesses.[^36]

[22] In this case, the prospective representative plaintiff (Excalibur) is not one of many small investors. The size of its investment ($950,000) demonstrates that it does not need a class action to make this economical. It could proceed on its own. As noted by Mr. Justice Perell:

…in the case at bar, Excalibur has almost $1 million claim that would justify taking on the litigation risk. Excalibur itself does not genuinely need a class action to obtain access to justice. If Excalibur was joined by just the other top 10 investors in an action against SLF (which would not need to be certified and for which there would be no doubt about the court’s jurisdiction simpliciter), the action would have the heft of being a claim for around USD $3 million. There is ample here for a contingency fee, and Class Counsel would not be confronted with the risks associated with obtaining certification.[^37]

[23] Counsel for the plaintiff expressed concern that, in considering whether a class proceeding was the preferable procedure, Mr. Justice Perell was required, and failed, to consider five questions identified in AIC Limited v. Fischer[^38] to be answered when considering whether alternatives to a class action would achieve access to justice. They are listed by Mr. Justice Perell in his reasons.[^39] Each is considered by him, albeit not under a listed heading or within a discrete paragraph. However, these questions are not to be "…considered in isolation or in a specific order, but should inform the overall comparative analysis".[^40] In the decision of Mr. Justice Perell, some are specifically dealt with and the answers to others are infused as part of and found throughout the discussion of the preferable procedure criterion as follows:

• Question 1: (Are there economic, psychological, social or procedural barriers to access to justice in this case?) see Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at paras. 206 and 207, quoted herein respectively, at paras. 22 and 21;

• Question 2: (What is the potential of the class proceeding to address those barriers?) at Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at paras. 206 and 207 there are no barriers and, thus, no concern for whether they can be addressed;

• Question 3: (What are the alternatives to class proceedings?) joinder;

• Question 4: (To what extent do the alternatives address the relevant barriers?) There are no barriers, as with question 2, there is nothing to address; and,

• Question 5: (How do the two proceedings compare?) at Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at paras. 189 to 218 this is the substance of the review, undertaken by Mr. Justice Perell, as a whole.

[24] I pause to recall the particular deference that is to be paid to the motion judge when it comes to the issue of whether a class proceeding is the preferable procedure. The question is whether by failing to respond to the direction of past cases or to respond to them in an appropriate way the motion judge has acted in a fashion that is demonstrative of an error of principle that would amount to a palpable and overriding error. It is not a question of whether a court reviewing this situation would answer these questions differently.

[25] With this understanding, it becomes apparent that joinder is appropriate to the problem and the process and that the ruling of the motion judge in respect of the preferable procedure should stand. Joinder can respond to the issues without the additional steps (certification motion, identification of common issues and separation to deal with individual issues) that accompany a class proceeding. There is no reason to suggest that it cannot accommodate the needs of all those who wish to take part, each with an eye to the nature and value of their involvement. "A common procedural barrier is that there is no other procedure [other than a class proceeding] to afford meaningful redress."[^41] Here there is joinder. There is no error of principle in the determination made by Mr. Justice Perell. In any event, to the extent that this part of his decision represents an issue of mixed fact and law (the application of the specific facts to the legal principles applicable to selecting a preferable procedure); it is particular to the facts of this case. Unlike the finding in Cavanaugh v. Grenville Christian School, there is no palpable and overriding error. In short, the deference owed to the motion judge dictates that his decision on this issue should be sustained.

[26] There are additional concerns to be borne in mind. A class action occupies an unusual place in our civil justice system. Typically, litigation is between two (or more) identified parties. There is a lis inter partes. The parties play an immediate role and take a direct responsibility for the carriage of the action. A class action is directed by more public concerns: access to justice, behaviour modification and judicial economy. These broader concerns are the purpose behind the process. They change the role of the immediate parties and the general purpose of litigation, which is to resolve disputes between members of our society. We should be careful to use class proceedings when they are needed, not just because they can be made to apply and appear convenient. The decision of Mr. Justice Perell, where it considers the preferable procedure, reflects this concern. He found that in this case, the action can be carried forward in a way that does not impinge on any of the three underlying policy concerns and without the added procedural requirements of a class proceeding. It may be, as the report of the Law Reform Commission suggested, that joinder will not always be an appropriate means of proceeding; that does not mean it never is. In this case, the motion judge found it both viable and appropriate. It can do the job.

[27] The determination of Mr. Justice Perell that a class proceeding is not the preferable procedure is sustained. This being so, the class proceeding will not be certified. There is not much point in going further. Nonetheless, I should say a little more.

(b) The Class

[28] Much of the submissions made by counsel concerned the requirement that there be "…an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;…"[^42]

[29] The identities of the 57 members of the proposed class were already known. They subscribed to the private placement. As noted by Mr. Justice Perell, providing for a definition of the class "…seems a mere technicality".[^43]

[30] The plaintiff sought to certify a "global class". For certification in Ontario, this was essential. The prospective representative plaintiff, Excalibur, was the only class member identified as resident in Ontario. With only one "member", the action would not qualify for certification. This confirms the observation and suggests the possibility that Excalibur could proceed on its own, joined by whatever other plaintiffs wished to take part, having made the appropriate arrangements. Having said this, there are a number of cases that demonstrate the willingness of the courts in Ontario to take jurisdiction and certify a global class. In his reasons, Mr. Justice Perell referred to a number of them.[^44]

[31] In this case, the issue of whether a global class could be certified centred on whether "…Ontario has a real and substantial connection with the subject matter of the jurisdiction and on principles…" and "…whether it would be reasonable for the non-resident Class Member to expect that his or her rights would be determined by what to him or her would be a foreign court."[^45]

[32] With respect to the latter, it was pointed out that, of the 55 prospective class members who were known to have received communication from class counsel (this would exclude Excalibur and the party where the letter was returned), 9 class members and 3 brokers, whose clients participated in the private placement, had made it known that they or their clients were interested in participating in the proposed class proceedings and had no objection to the litigation going forward in Ontario.[^46] Counsel for the plaintiff noted that this demonstrated that 20% of the class was content that the action go forward as a class proceeding in Ontario. 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 relevant factors.

[33] With respect to the former, Mr. Justice Perell and counsel for the plaintiff see the circumstances of this case quite differently. For the judge, the case is founded on the financing of an American corporation. It concerns investors, not resident in Ontario, making substantial investments in American dollars in that corporation.[^47] For counsel, the case is about an audit done in Ontario by an auditor whose business is located in Toronto and Montreal. The proposition is that, if the perspective of the judge is correct, there is no real and substantial connection to Ontario but, if counsel is right, there is.

[34] The resolution of these questions is dependent upon the particular facts of the case at hand. Given the determination that the decision of Mr. Justice Perell with respect to the preferable procedure is to be sustained, there is nothing to be gained by addressing them in these reasons.

[35] Having said this it is apparent that the motion judge bore this in mind in his assessment of the matter as it was placed before him:

The investors in the case at bar were non-residents of Ontario making substantial investments in American dollars in an American corporation in a transaction that was governed by American corporate and securities law. Although the transaction included an Audit Report from an Ontario auditor, the standard of care associated with that audit would largely be determined by the American accounting standards under which the Audit Report was provided. It would be to exercise no restraint at all to conclude that Ontario had a substantial connection with this American financing and corporate reorganization.[^48]

[36] The motion judge did not forget that this was an action against a Canadian-based accounting firm. He determined, looking at the facts as a whole, that this was not sufficient to demonstrate a real and substantial connection to Ontario. Deference would suggest that this finding should be left to stand.

(c) The Appeal as to Costs

[37] The plaintiff’s appeal has failed. It is in these circumstances that it seeks leave to appeal the inclusion of the accounts submitted by J. Peter Coll in the award of costs made by Mr. Justice Perell. The parties agreed as to costs, save for the matter of the disbursement in relation to the two affidavits sworn by J. Peter Coll.[^49]

[38] Appeals as to costs are rare. Costs are a matter of discretion. The judge hearing the matter is accorded a high degree of deference. Leave to appeal costs should be granted sparingly and only in obvious cases. There must be "strong grounds" upon which an appellate court could find that a judge exercised his or her discretion on a wrong principle.[^50] The determination of the appropriate award of costs is best left to the judge (or court) that heard the proceeding which is the basis for the award. There must be an error in principle.

[39] Being ready for an appearance in court may dictate the preparation of evidence that, in the end, is not required. At the argument of a preliminary motion, it may turn out to be irrelevant and yet, without the benefit of being able to look back, have been appropriate, not premature and something the other side should have anticipated.

[40] This is the essence of the determination made by Mr. Justice Perell when he concluded that "…in the context of defending a proposed action that involved an overwhelming number of American investors, it was within the reasonable expectation of Excalibur that SLF would obtain expert advice about the potential application of American law and how it might influence the proposed class action".[^51] There is no error in principle in the award made by Mr. Justice Perell, in particular as to the accounts of J. Peter Coll.

[41] Leave to appeal is refused.

CONCLUSION

[42] Both the appeal and the motion for leave to appeal are dismissed.

COSTS

[43] If the parties are unable to agree as to costs, the court will consider written submissions on the following terms:

1. On behalf of the defendant, within 15 days after the release of these reasons, such submissions are to be no longer than 4 pages, double-spaced, excluding any Costs Outline, Bill of Costs or case law that may be included;

2. On behalf of the plaintiff, within 10 days, such submissions are to be no longer than 4 pages, double-spaced, excluding any Costs Outline, Bill of Costs or case law that may be included;

3. On behalf of the defendant, if necessary in reply, such submissions are to be no longer than 2 pages, double-spaced.

___________________________ LEDERER J.

LEDERMAN J.

H. Sachs j. (Dissenting):

Overview

[44] I have had the benefit of reading the reasons of Lederer J. and agree with his summary of the issues raised on this appeal, his summary of the background giving rise to this proceeding and his analysis regarding the standard of review that is applicable to the motion judge’s decision. I also agree with his view that the issues raised in the cross-appeal are properly dealt with as part of the appeal.

[45] As summarized by Lederer J., the motion judge found that the plaintiff’s claim failed to meet two of the criteria for certification – namely, the identifiable class criterion and the preferable procedure criterion. Additionally, while he concluded that the claim satisfied the cause of action criterion in respect of negligence and negligent misrepresentation, he recast the plaintiff’s claim for negligence and concluded that more than half of the common issues proposed by the plaintiff should not be certified.

[46] On this appeal, the plaintiff argues that the motion judge erred in his analysis of the identifiable class criterion, the preferable procedure criterion and in his failure to certify all of the common issues it proposed.

[47] The parties asked the certification judge to address one issue as to costs, a disbursement in relation to two affidavits that were submitted by the defendant. The plaintiff submits that the motion judge erred in ordering it to pay the defendant for this disbursement.

[48] In its cross-appeal, the defendant argues that the motion judge erred in finding that the plaintiff’s claim disclosed a cause of action in negligence that could be distinguished from its claim for negligent misrepresentation.

[49] For the reasons that follow, I would allow the appeal, set aside the order of the motion judge and certify the action, including most, if not all, of the common issues proposed by the plaintiff. Given my view as to the merits of the appeal, I would also allow the appeal with respect to costs.

The Identifiable Class Criterion – Should the motion judge have certified a global class?

[50] The motion judge agreed that the plaintiff was proposing a class of 57 members whose identities were known or could be readily ascertained. However, because the plaintiff was the only class member who resided in Ontario, the motion judge properly asked himself whether Ontario should take jurisdiction over the foreign class members. In answering this question, he correctly identified that the Ontario court does have jurisdiction to certify a global class.

[51] The motion judge found that Ontario had only a "modest if not trivial" connection to the representative plaintiff’s claim, and an even weaker connection to the other 56 non-resident investors’ claims. As such, according to the motion judge, it would not have been contemplated by the class that their rights arising out of the investment they made would be adjudicated in Ontario. Therefore, order and fairness dictated that the foreign class members not be included in an Ontario class proceeding. As put by the motion judge, at paras. 129 and 130 of his reasons:

[129] The residence of [the defendant] in Ontario is essentially the only connection with Ontario and while that connection certainly gives the Ontario court jurisdiction over [the defendant] and while Ontario courts would welcome foreigners to sue in Ontario that is a different thing from Ontario courts exercising the restraint required of them under the principles of order and fairness in assuming jurisdiction when the foreign plaintiff would have expected to pursue his or her rights in a court that did have a substantial connection with the subject matter of the litigation.

[130] The investors in the case at bar were non-residents of Ontario making substantial investments in American dollars in an American corporation in a transaction that was governed by American corporate and securities law. Although the transaction included an Audit Report from an Ontario auditor, the standard of care associated with that audit would largely be determined by the American accounting standards under which the Audit Report was provided. It would be to exercise no restraint at all to conclude that Ontario had a substantial connection with this American financing and corporate reorganization.

[52] In assessing the motion judge’s reasoning on this issue, it is important to recognize several key points. The proposed class action is an action against a firm of accountants that is resident in Ontario and actively carries on business here. Its only other office is in Montreal. It has no assets in the United States.

[53] The subject of the action is the audit work done in Ontario by this accounting firm. The partner who did the work is a partner in the firm’s Toronto office.

[54] The proposed representative plaintiff is a Toronto-based investment fund that is registered in Manitoba. The investment in question was made out of their Toronto office.

[55] Key to the motion judge’s assessment of the global class issue was his finding that the action did not have a real and substantial connection to Ontario (motion judge’s reasons, para. 148).

[56] In Club Resorts Ltd. v. Van Breda, 2012 SCC 17, at para. 90, the Supreme Court outlined the factors that are "presumptive connecting factors that, prima facie, entitle a court to assume jurisdiction over a dispute" in a tort case. They are: "(a) the defendant is domiciled or resident in the province; (b) the defendant carries on business in the province; (c) the tort was committed in the province; and (d) a contract connected with the dispute was made in the province."

[57] If the plaintiff establishes that one or more of these factors exist"the court might presume, absent indications to the contrary, that the claim is properly before it under the conflict rules" (Van Breda, at para. 80).

[58] In this case, three of the four presumptive factors exist. The action is an action for negligence and negligence misrepresentation (both torts) against a defendant who resides in Ontario, carries on business in Ontario and did the work at issue out of its Toronto office.

[59] In this case, the motion judge felt that the action concerned a matter involving investors, 98% of whom were not resident in Ontario and who made "substantial investments in American dollars in an American corporation in a transaction that was governed by American corporate and securities law" (motion judge’s reasons, para. 130). Therefore, according to the motion judge, the relationship between Ontario and the proposed action was a weak one.

[60] If the action was against the people who were in charge of arranging or promoting the financing for the American corporation that made the investment in question, I would agree with the motion judge’s assessment of the connection between Ontario and the proposed action. However, this is not the action that the representative plaintiff is proposing to pursue. Its action is a claim against a firm of accountants that resides in Ontario and actively conducts business here in relation to an audit that the firm performed in Ontario. Conceived of in this way, it cannot be said that the action does not have a real and substantial connection with Ontario.

[61] It may be that in order to determine liability, reference will have to be had to the American accounting standards under which the Audit Report was provided. However, as the motion judge noted"the parties have agreed that the question of what law applies to the Class Members’ tort claims is not to be a factor that would get in the way of certifying a global class" (motion judge’s reasons, para. 137).

[62] Thus, while I agree that substantial deference is owed to a motion judge’s assessment, particularly in the area of fact-finding, I find that that deference must yield in the face of what I find to be an analysis on the identifiable class criterion that was driven by a mischaracterization of the plaintiff’s action.

[63] Once a real and substantial connection has been established, the court cannot decline to exercise jurisdiction in a non-class action case unless the defendant invokes forum non conveniens (Van Breda, at para. 102). When doing so"The defendant must identify another forum that has an appropriate connection under the conflict rules and that should be allowed to dispose of the action" (Van Breda, at para. 103).

[64] In this case, the defendant has not identified another jurisdiction that is seeking to assert jurisdiction over this action. The defendant has never said that it will attorn to the jurisdiction of any other court. Thus, if this action is to be pursued, the choice in practical terms is Ontario or nowhere.

[65] In class actions, as the motion judge correctly identified, assuming jurisdiction over unnamed foreign plaintiffs does involve additional considerations of "order and fairness". In his analysis on jurisdiction, the motion judge found that one of the factors to be considered in deciding whether or not to certify a global class was "whether it would be reasonable for the non-resident Class Member to expect that his or her rights would be determined by what to him or her would be a foreign court" (para. 111).

[66] In discussing the question of "when it would be fair to join foreign plaintiffs to an Ontario action; namely, when the foreigner would expect that his or her rights would be determined by what to him or her would be a foreign court" (motion judge’s reasons, para. 119), the motion judge refers to the discussion by Sharpe J., in Currie v. McDonald’s Restaurants of Canada Ltd. (2005), 2005 3360 (ON CA), 74 O.R. (3d) 321 (C.A.).

[67] In Currie, Sharpe J. was dealing with the question of whether an Ontario court should recognize and enforce a foreign judgment in a class action proceeding that purported to bind Canadian class members. In dealing with this issue, Sharpe J. refers to the "principles of order and fairness" and the notion of "judicial restraint", but does so with reference to the need for the court to ask whether the court that issued the judgment properly assumed jurisdiction, and whether there were adequate procedural rights afforded to the unnamed non-resident class members.

[68] In the course of his reasons, Sharpe J.A. states that "[t]o determine whether the assumption of jurisdiction by the foreign court satisfies the real and substantial connection test and the principles of order and fairness, it is necessary to consider the situation from the perspective of the party against whom enforcement is sought" (para. 18). In that case, the unnamed Canadian class members, who were all McDonald’s customers, had done nothing to invoke the jurisdiction of the Illinois court. Therefore, in addressing the concerns of "fairness", it was necessary to consider the adequacy of the procedural rights afforded to those plaintiffs.

[69] In the context of those procedural rights, Sharpe J.A. finds that it is first necessary to conclude that the representative plaintiff will adequately represent the rights of the unnamed plaintiffs. It is then important that the unnamed plaintiffs be given adequate notice of the claim, including notice of the fact that if they did not opt out, their rights could be affected by the foreign proceeding. Finally, it is important that the unnamed plaintiffs be given an adequate opportunity to opt out of the proceeding.

[70] In Silver v. Imax Corp., 2009 72334 (ONSC), leave to appeal denied 2011 ONSC 1035 (Div. Ct.), van Rensburg J. uses the following quote to explain the meaning of the "order and fairness" requirement in the context of class actions with foreign plaintiffs:

[162] As Jones and Baxter have observed:

When asserting jurisdiction over a defendant, either in an individual or class proceeding, ‘order and fairness’ will usually be satisfied by the demonstration of a ‘real and substantial’ connection with the forum. But in the interjurisdictional class action context, ‘order and fairness’ towards foreign plaintiffs imports further requirements. Just as defendants cannot be bound by a court’s process and decision unless served and given an opportunity to answer the case against them, so too plaintiffs cannot be bound unless they also have an opportunity to ‘participate’, at least as that word is understood in the world of opt-out class actions; that is, that there be notice adequate to serve the interests of justice.

[71] This connection between the reasonable expectations of unnamed plaintiffs, who have done nothing to invoke a court’s jurisdiction, and the consequent need for heightened procedural concerns meets the criticisms of La Forest J., in Tolofson v. Jensen, 1994 44 (SCC), [1994] 3 S.C.R. 1022, about the inappropriateness of developing choice of law rules that focus on "somewhat fictional" concepts such as the expectations of the parties. As put by La Forest J., at para. 35:

What strikes me about the Anglo-Canadian choice of law rules as developed over the past century is that they appear to have been applied with insufficient reference to the underlying reality in which they operate and to general principles that should apply in responding to that reality. Often the rules are mechanistically applied. At other times, they seem to be based on the expectations of the parties, a somewhat fictional concept, or a sense of ‘fairness’ about the specific case, a reaction that is not subjected to analysis, but which seems to be born of a disapproval of the rule adopted by a particular jurisdiction. The truth is that a system of law built on what a particular court considers to be the expectations of the parties, or what it thinks is fair, without engaging in further probing about what it means by this, does not bear the hallmarks of a rational system of law. [Emphasis added]

[72] In this case, there is no concern about the representative plaintiff adequately representing the interests of the unnamed plaintiffs. The unnamed class members are all easily identifiable. Thus, arrangements can be made to contact them, tell them about the class action and clearly bring home to them the fact that their rights could be affected by the proceeding if they do not opt out. In this way, any order and fairness concerns could be alleviated.

[73] Given the fact that Ontario does have a real and substantial connection to the proposed class action, that the defendant is not asserting that another jurisdiction is the more appropriate one in which to adjudicate the action and that the necessary procedural protections can be put in place to notify the unnamed foreign plaintiffs of how their rights could be affected if they do not opt out of the action, there is no principled reason why this action is not appropriate for the certification of a global class.

The Preferable Procedure Criterion

[74] The motion judge concluded that a class action was not the preferable procedure for the determination of the proposed claims. He determined that joinder was a fairer, more efficient and manageable way of resolving the plaintiff’s claim. His reasons for this finding may be summarized as follows:

(a) The named plaintiff, Excalibur, has an almost one million dollar claim that "would justify taking on the litigation risk. Excalibur itself does not genuinely need a class action to obtain access to justice. If Excalibur was joined by just the other top 10 investors in an action against [the defendant] (which would not need to be certified and for which there would be no doubt about the court’s jurisdiction simpliciter), the action would have the heft of being a claim for around USD $3 million. There is ample here for a contingency fee, and Class Counsel would not be confronted with the risks associated with obtaining certification" (motion judge’s reasons, para. 206).

(b) In some cases there are psychological or social barriers that would prevent individuals from bringing legal proceedings on their own. There are no such barriers in this case (motion judge’s reasons, para. 207).

(c) The "forensic resources of the parties are about equal in terms of the availability of capable lawyers and qualified expert witnesses" (motion judge’s reasons, para. 207). As ‘accredited’ investors, all of the class members have the resources to litigate (motion judge’s reasons, para. 208).

(d) Any behaviour modification that is needed can be achieved through an individual tort action (motion judge’s reasons, para. 209).

(e) While the determination of the common issues would "make a substantial contribution to resolving the claims of all the Class Members", there would have to be individual issue trials to determine issues such as damages and whether or not there was contributory negligence (motion judge’s reasons, para. 210).

(f) In this case a joinder of claims is preferable to a class action. While a class action would be manageable in this case, it is procedurally more cumbersome than a regular action and joinder "would provide access to justice to those class members with meritorious claims, promote adequate behaviour modification of the defendant and provide a similar amount of judicial economy to that which would be achieved by a class action" (motion judge’s reasons, para. 215).

[75] In his analysis on preferable procedure, the motion judge focuses on the fact that this action is not the "quintessential economic loss class action", as the representative plaintiff’s claim is large enough to justify suing the defendant and all of the class members have the resources to participate in individual litigation. According to the plaintiff, the motion judge erred in principle by grafting on a "means-based test" onto the preferable procedure criterion.

[76] I do not see the motion judge’s analysis as going that far. In para. 211, he specifically recognizes that economic loss cases where the amounts being claimed are larger and the proposed class members are "self-sufficient" have been certified. Thus, he went on to consider whether, in spite of the fact that the claim was "far from the quintessential economic loss case, nevertheless [a class action] is the preferable procedure for the Class Members’ claims" (motion judge’s reasons, para. 212).

[77] It is at this point that he considers joinder and it is in this aspect of his reasons that I find that his analysis fell into error and that it did so because of his erroneous view that the action as a whole did not have a real and substantial connection with Ontario. This becomes clear at para. 217 of his reasons where he states:

Like all of the criterion for certification, the preferable procedure criterion sets a very low and easy to satisfy standard, but it is not so low that it is satisfied automatically because a representative plaintiff can form a group of claimants with manageable common issues, which is more or less all that Excalibur has done in the case at bar. And in the case at bar, the formation of the class is without showing that Ontario has a real and substantial connection to the investors’ claims and is without showing that a class action is necessary to overcome any barriers to access to justice. In the case at bar, a class action is not necessary to achieve behaviour modification and a class action would not be particularly helpful in providing judicial economy. [Emphasis added]

[78] If the motion judge had conducted the access to justice analysis mandated by the Supreme Court of Canada, in AIC Limited v. Fischer, 2013 SCC 69, through a lens that accepted that Ontario did have a real and substantial connection to all of the investors’ claims, he could not have concluded that joinder was a preferable mechanism for pursuing those claims.

[79] I first note that there was no evidence before the motion judge that joinder was available as an alternative procedure. In particular, there was no evidence that the other class members would be prepared to assume the burdens, risks and responsibilities of commencing their own claim, that they would be able to or would want to retain the same counsel, or that the defendant would retain the same counsel to defend these theoretical actions.

[80] AIC Limited v. Fischer requires the court to first identify what the barriers are to access to justice. In this case, the motion judge found that there were no such barriers, given the size of the representative plaintiff’s claim ($950,000) and the fact that all of the class members were accredited investors.

[81] At para. 27 of AIC Limited v. Fischer, the Supreme Court states that:

The most common barrier is an economic one, which arises when an individual cannot bring forward a claim because of the high cost that litigation would entail in comparison to the modest value of the claim.

[82] In the case at bar, 19 of the proposed class members’ claims are for $1-$50,000, and 12 claims are for $50,000-$99,000. The cost of pursuing these claims individually would dwarf the potential recovery for these investors.

[83] The defendant has also asserted that it will bring a motion for security for costs against the foreign plaintiffs. This will present another economic barrier. If the action were certified as a class proceeding, these motions would be brought after the resolution of the most expensive part of the proceeding (the common issues) and the exposure for security for costs would be much more limited.

[84] The risk of an adverse costs award is also a real economic barrier, especially for the smaller claims. In this regard, it is important to note that there is no evidence that the Class members are a cohesive group who would or could agree upon a form of joint retainer and the allocation of the costs of the litigation.

[85] If the actions were successfully pursued individually by the foreign Class members in jurisdictions other than Ontario, they would then be put to the further expense and delay of bringing a proceeding to enforce a foreign judgment against the defendant in Ontario. Since the defendant has not acknowledged its willingness to attorn to any jurisdiction, any proceeding to enforce a foreign judgment could be met by further jurisdictional challenges.

[86] AIC Limited v. Fischer next requires the court to look at the potential of a proposed class action to address the barriers to access to justice. First, a proposed class action will allow the members with smaller claims to have the most contentious and costly part of their claims determined in the common issues trial. As the motion judge acknowledged, the resolution of the common issues would "make a substantial contribution" to resolving their claims (motion judge’s reasons, para. 210). Further, they will be able to do so without exposing themselves to the risk of an adverse costs award. If their actions are successful, they will have an Ontario judgment that they will be able to enforce in Ontario against a defendant who is a resident in Ontario.

[87] The third part of the AIC Limited v. Fischer analysis asks the motion judge to identify the alternative to the proposed class proceeding. In this case, the alternative identified was joinder.

[88] The fourth and fifth questions that are part of the AIC Limited v. Fischer framework mandate that the court address the extent to which the proposed alternative will address the relevant barriers and to compare the two proceedings.

[89] The frailties of consolidation and joinder as alternative procedures were recognized by the Law Reform Commission in its 1982 Report on Class Actions, Vol. 1, Ministry of the Attorney General, pp. 82-86:

… Joinder and consolidation, as means of securing relief for the victims of a mass wrong, suffer from many of the same disadvantages as individual proceedings. Clearly, joinder and consolidation will be of minimal assistance to individuals with small claims. While some small claims may be transformed by joinder or consolidation into claims that are individually recoverable – because the cost of proving certain issues can be shared – most such claims will continue to be individually nonrecoverable. The reasons for this are quite straightforward. The individual litigant will be liable to pay his own lawyer’s fees, whether the action succeeds or fails. Moreover, if the action fails, he will likely be ordered to pay a portion of the defendant’s costs. Consequently, most small claims, even though they be aggregated will remain individually nonrecoverable.

Even in the case of claims that are individually recoverable, joinder and consolidation may not be the most expeditious or economical method of disposing of the claims. For example, in the case of joinder or consolidation, the defendant in the action would be free to examine for discovery all the named plaintiffs with respect to the issue of liability, even though such discovery might be repetitious an [sic] unnecessary…

Joinder and consolidation, as procedural alternatives in the mass wrongs context, suffer from one other major drawback. If the victims of a mass wrong are a less than cohesive group, all are unlikely to be joined in one action. … the result will be a multiplicity of proceedings, with the concomitant risk of inconsistent verdicts, additional expense for the parties and a greater burden on the courts.

[90] In the present case, there is no evidence that would suggest that these identified frailties would not exist.

[91] Thus, from an access to justice perspective, if one accepts that the smaller claims do have a real and substantial connection to Ontario, it cannot be said that joinder is preferable to a class action as a route to pursuing those claims.

[92] Further, in terms of judicial economy, while class actions require certification motions, joinder requires that each plaintiff be subject to extensive discovery obligations on all the issues, which can be costly, can delay the action and give rise to additional interlocutory attendances.

[93] In this case, a class action will also promote judicial economy by resolving the common issues in one proceeding, thereby avoiding a multiplicity of actions. If the individual issues require individual determinations, the flexible procedures available to the court under the Class Proceedings Act, 1992, S.O. 1992, c. 6, for the adjudication of these issues allow for the real possibility that these issues will be determined in an efficient manner, substantially reducing the burden the court would bear if all 57 members were required to bring separate proceedings.

[94] With respect to the third goal of class actions, behaviour modification, class actions have been recognized as having a greater effect than individual actions when it comes to supplementing and enhancing the regulatory oversight of companies seeking to raise capital, thereby promoting confidence in the capital markets (Green v. Canadian Imperial Bank of Commerce et al., 2014 ONCA 90, at paras. 35-36). In this case, the action could have the salutary effect of discouraging the defendant from conducting audits of foreign public companies without ensuring that proper plans and checks, and adequate qualified supervision is in place to ensure compliance with the governing standards.

[95] Again, while I recognize that a motion judge’s finding with respect to the preferable procedure criterion is the one to which the most deference is owed, I find that, in this instance, the motion judge’s analysis cannot stand as his analysis was driven by his error in finding that Ontario was not the proper forum for the adjudication of the foreign class members’ claims.

[96] For the reasons given above, I would allow the appeal on this point and find that the proposed class action does satisfy the preferable procedure criterion.

Cause of Action Criterion

[97] In its cross-appeal, the defendant asserts that the motion judge erred in finding that the plaintiff has a tenable cause of action in negligence that is distinct from negligent misrepresentation. According to the defendant, central to the plaintiff’s claim in negligence is the fact that the audit report was "clean" and that, according to the plaintiff, it ought not to have been. In essence, the defendant argues, this is a misrepresentation.

[98] In making this submission, the defendant points to the Supreme Court of Canada decision, in Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, and submits that, in Hercules, the Supreme Court of Canada expressed a concern that auditor’s liability not "go unchecked".

[99] Hercules was a negligent misrepresentation action. There is nothing, in Hercules, that excludes claims in negligence simpliciter from being brought against auditors.

[100] In this case, the plaintiff is alleging that the defendant failed to exercise the requisite degree of care, skill and diligence of a reasonably competent auditor of a public company in carrying out its audit of the company’s financial statements and in failing to prepare the SLF Audit Report in accordance with the U.S. Generally Accepted Auditing Standards ("GAAS") and the rules and standards of the Public Company Accounting Oversight Board (the "PCAOB"). According to the plaintiff, if the defendant had prepared a proper audit, it would not have been able to issue a clean report and the company would never have been able to proceed with the private placement. This is a negligence claim.

[101] There are several instances where the court has recognized and certified actions asserting claims in both negligence and negligent misrepresentation where a professional opinion is alleged to have been rendered negligently and both (a) the opinion is alleged to be a necessary precondition to the marketing of a particular scheme or product; and (b) the class is said to have reasonably relied on the opinion to their detriment: see Robinson v. Rochester Financial Ltd., 2010 ONSC 463, leave to appeal denied 2010 ONSC 1899 (Div. Ct.); Lipson v. Cassels Brock & Blackwell LLP, 2011 ONSC 6724, rev’d in part, 2013 ONCA 165; Cannon v. Funds for Canada Foundation, 2012 ONSC 399, leave to appeal denied 2012 ONSC 6101 (Div. Ct.); Dugal v. Manulife Financial Corp., 2013 ONSC 4083, leave to appeal denied 2014 ONSC 1347; Murphy v. BDO Dunwoody LLP, 2006 22809 (ONSC).

[102] For these reasons, I find that the motion judge made no error in principle in finding that the cause of action criterion had been met for both of the causes of action asserted by the plaintiff.

Common Issues Criterion

[103] Both the plaintiff and the defendant assert that the motion judge erred in the common issues that he certified. I will deal with each of the proposed common issues in turn.

Proposed Common Issue 1: Did the Defendant meet the applicable GAAS and PCAOB standards in the preparation of the Auditor’s Report for Southern China Livestock in respect of the consolidated financial statements for 2008 and 2009 (the “Auditor’s Report”)?

[104] The motion judge found that this question, as drafted, is "unsatisfactory because it invites a fishing expedition about the auditing of financial statements that may be a perfectly accurate representation of the financial position of Southern China Livestock" (motion judge’s reasons, para. 161). Therefore, he found that the following common issue would have been suitable for certification:

Given the lack of financial controls for Southern China Livestock’s business, did the Defendant meet applicable GAAS and PCAOB standards or breach a duty of care by delivering an Auditor’s Report for Southern China Livestock International Inc. in respect of the consolidated financial statements for 2008 and 2009 (the ‘Auditor’s Report’)?

[105] The plaintiff asserts that the motion judge erred in law and in principle in reframing Proposed Common Issue 1. The defendant argues that the applicable standard of care is an individual issue and should not have been certified as a common issue.

[106] In my view, the motion judge was correct in identifying the question of a failure to meet the asserted applicable standards as a common issue. In this case, the pleadings assert that in order to obtain the financing, the company was required to retain an auditor who was registered in the United States with the PCAOB and that auditor was required to review and give an opinion about the company’s financial statements in accordance with PCAOB’s rules and standards, as well as U.S. GAAS. Thus, the reference to these standards in the first proposed common issue is an appropriate one.

[107] However, I take issue with how the motion judge redrafted the first common issue. The motion judge found that there was no assertion that the financial statements were an inaccurate representation of the company’s financial circumstances. However, the Statement of Claim makes it clear that the plaintiff is asserting that the company’s financial statements "were, in no way, a fair presentation of International’s financial position for the periods stated" (Statement of Claim, para. 58).

[108] At this stage, the plaintiff is not required to establish the evidence upon which it relies in making this assertion. As Belobaba J. explained, in Quinte v. Eastwood Mall Inc., 2014 ONSC 249, at para. 46:

…As the Supreme Court of Canada recently affirmed in Pro-Sys Consultants, the common issue requirement asks not ‘whether there is some basis in fact for the claim itself’ but ‘whether these questions are common to all the class members’. The Court made clear that evidence that the acts alleged actually occurred is not required. All that is needed is ‘some assurance…that the questions are capable of resolution on a common basis.’ [cites omitted]

[109] Essentially, the plaintiff’s claim is that if the defendant had actually met the standards set out by the PCAOB and GAAS in the manner in which it conducted its audit, it would not have and could not have issued a clean audit report. Thus, a question directed at whether the defendant did meet those standards is an appropriate one. Therefore, I agree with the plaintiff that the motion erred in law in reframing Proposed Common Issue 1 and I would certify the issue as originally put forward.

Proposed Common Issue 2: Did the Defendant owe the Class Members a duty of care in respect of the preparation of the Auditor’s Report?

[110] The motion judge found that this issue was suitable for certification as drafted. The defendant submits that the determination of this issue is an individual issue as whether the defendant owed the class members a duty of care depends on the law of the state in which each class member resides. According to the defendant, the law that applies is the law of the place where the alleged misrepresentation was received.

[111] The question of which law to apply is a question for the trial judge to decide. At this point, the defendant has not filed a defence pleading the application of any foreign law. Further, as van Rensburg J. confirmed, in Silver City v. Imax, supra, at para. 152:

It is not obvious, in the context of a class action involving a global class and misrepresentations communicated from a single source, that the applicable law will be that of the place where each individual class member sustained damage. Such an approach would ignore the fact that class proceeding is an aggregate action and not a collection of individual claims. It is also not obvious that the applicable common law principles and defences would vary from place to place such that the court would have to consider the potential application of multiple laws.

[112] Proposed Common Issue 17 addresses the assertion by the plaintiff that the appropriate law to apply is the law of Ontario since this is the jurisdiction from which the defendant disseminated the information and it is the jurisdiction from which the defendant conducts business.

[113] I agree with the motion judge that both of these issues are suitable for certification.

Proposed Common Issue 3: Did the Defendant owe the Class Members a duty of care in permitting the Auditors Report to be included as an exhibit to Expedite 4, Inc.’s Private Placement Memorandum?

[114] The motion judge found that this issue was suitable for certification. For the reasons given by the motion judge, I agree.

Proposed Common Issue 4: What is the applicable standard of care owed by the Defendant to the Class Members?

[115] The motion judge found that this issue was suitable for certification. For the reasons given by the motion judge, I agree.

Proposed Common Issue 5: Was the Defendant negligent in the manner in which it prepared the Auditor’s Report?

[116] The motion judge found that this issue was not suitable for certification as it was redundant.

[117] If Proposed Common Issue 5 is directed at establishing whether the tort of negligence has been made out, this can only be done if the requisite elements of the tort have been established. These elements are the subject of other questions.

[118] If Proposed Common Issue 5 is directed at the question of whether the defendant breached an applicable standard of care in the manner in which it prepared the Auditor’s Report, then the question should be rephrased to read "Did the defendant breach the applicable standard of care in the manner in which it prepared the Auditor’s Report?"

Proposed Common Issue 6: Did the Defendant breach its duty of care owed to Class Members by issuing an unqualified, clean audit opinion in the Auditor’s Report that was included as an exhibit to the Private Placement Memorandum?

[119] The motion judge found that this issue was not suitable for certification as it was redundant.

[120] Proposed Common Issue 6 is directed at establishing whether if the answer to Proposed Common Issue 3 is "yes", then was the duty of care breached in the manner specified in Proposed Common Issue 6? This issue is directed at the plaintiff’s negligence claim and is appropriate for certification.

Proposed Common Issue 7: Was the information contained in the Auditor’s Report materially false, inaccurate or misleading?

[121] The motion judge found that this question was not connected to the negligent misrepresentation claim as pleaded and, therefore, he reframed the question to read:

Given the lack of financial controls for Southern China Livestock’s business, did the defendant make a misrepresentation by delivering an Auditor’s Report for Southern China Livestock International Inc. in respect of the consolidated financial statements for 2008 and 2009 (the ‘Auditor’s Report’).

[122] According to the motion judge, the negligent misrepresentation asserted by the plaintiff can be characterized as "[the defendant] speaking when it ought not to have spoken at all" (motion judge’s reasons, para. 166).

[123] In its Statement of Claim, the plaintiff makes a number of assertions about the misleading, false and inaccurate nature of the Audit Report. These include assertions that the report misrepresented the manner in which the defendant carried out its work and misrepresented the fact that the company’s financial statements complied with generally accepted accounting principles.

[124] Proposed Common Issue 7 is directed at these allegations and captures the claim the plaintiff is actually making more accurately than the motion judge’s reframed question.

Proposed Common Issue 8: Was it reasonably foreseeable that the Class Members would rely on the representations made in the Auditor’s Report in deciding whether or not to invest in Expedite 4, Inc. through the private placement, or at any time until December 23, 2010?

[125] The motion judge found that this question should not be certified as it is redundant to Proposed Common Issue 2, which asks whether or not the defendant owed the Class Members a duty of care in respect of the preparation of the Auditor’s Report.

[126] In a negligent misrepresentation context, as opposed to a simple negligence context, an essential component of the proximity analysis is that "the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation" (Hercules, para. 24).

[127] Proposed Common Issue 8 is directed at this essential element of the plaintiff’s negligent misrepresentation claim. This is in contrast to Proposed Common Issue 2, which is focussed on the duty of care that needs to be established to sustain a negligence claim.

[128] Thus, in my view, Proposed Common Issue 8 is not redundant to Proposed Common Issue 2 and it is appropriate for certification.

Proposed Common Issue 9: Was it reasonable for the Class Members to have relied on the Auditor’s Report in deciding whether or not to participate in the private placement, or in purchasing any Units at any time up until December 23, 2010?

[129] The motion judge found that this question should not be certified as reliance is an issue that will have to be determined on an individual basis. I agree.

Proposed Common Issue 10: Did the Defendant know or should it have known that the Class Members would be harmed if the information contained in the Auditor’s Report was materially false, inaccurate or misleading?

[130] The motion judge found that this question was redundant and should not be certified.

[131] Part of establishing a duty of care in negligence is establishing a sufficiently close relationship between the plaintiff and the defendant such that it would be in the reasonable contemplation of the defendant that carelessness on his or her part would cause damage to the plaintiff (Hercules, para. 22).

[132] Proposed Common Issue 10 is directed at this essential element of negligence and is, therefore, suitable for certification.

Proposed Common Issues 11, 12 and 13

[133] In paragraph 176 of his reasons, the motion judge found that these questions "did not want for commonality", yet he refused to certify them.

[134] Question 11 is directed at the issue of whether this is a case where reliance can be inferred. The fact that the answer to the question may be "no" does not mean that the question should not be certified.

[135] Question 12 is directed at the issue of causation, something that the Court of Appeal, in Lipson, has found is suitable for certification in a negligence case. Thus, I would certify the question as it relates to the tort of negligence.

[136] Question 13 is directed to the question of the ultimate liability of the defendant to the Class Members, something that will have to await the determination of the individual issues trials.

Proposed Common Issues 14, 15 and 16

[137] The motion judge refused to certify these common issues on the ground that they were redundant. I agree.

Proposed Common Issue 17

[138] For the reasons set out in my discussion of Proposed Common Issue 2, I agree with the motion judge that this issue should be certified.

Conclusion

[139] For these reasons, I would allow the appeal, set aside the order of the motion judge and issue an order certifying the action as a class proceeding in relation to the common issues detailed in these reasons.

[140] Given this conclusion, I would also allow the plaintiff’s appeal as to costs.

H. SACHS J.

Released: 20150615

CITATION: Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2015 ONSC 1634

DIVISIONAL COURT FILE NO.: 360/14

COURT FILE NO.: CV-12-466694-00CP DATE: 20150615

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

LEDERMAN, H. SACHS & LEDERER JJ.

BETWEEN:

EXCALIBUR SPECIAL OPPORTUNITIES LP

Plaintiff/Appellant

– and –

SCHWARTZ LEVITSKY FELDMAN LLP

Defendant/Respondent

REASONS FOR JUDGMENT

LEDERER J. (LEDERMAN J. concurring)

H. SACHS J. (Dissenting)

Released: 20150615

[^1]: Class Proceedings Act, S.O. 1992, Ch. 6, s. 5(1)(d). [^2]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, 2014 ONSC 4118 (Perell J.), at para. 215. [^3]: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19. [^4]: Class Proceedings Act, supra, (fn.1), s. 5(1)(c): The court shall certify a class proceeding on a motion under section 2, 3 or 4 if, (c) the claims of the class members raise common issues. [^5]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2), (Perell J.), at para. 152. [^6]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, (Costs) 2014 ONSC 4751, at para. 4. [^7]: It may not matter, but the decision of Mr. Justice Perell refers to this in the past tense (“had”) (see para. 3), whereas the factum filed on behalf of the plaintiff refers to this in the present tense (“has”) (see para. 10). [^8]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at paras. 203, 204 and 205. [^9]: In Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, 2008 S.C.C. 9, at para 161, the standards of reasonableness and palpable and overriding error are set up against each other: Whether undergoing appellate review or administrative law review, decisions on questions of fact always attract deference. The use of different terminology-'palpable and overriding error' versus 'unreasonable decision'-does not change the substance of the review. Indeed, in the context of appellate review of court decisions, this Court has recognized that these expressions as well as others all encapsulate the same principle of deference with respect to a trial judge's findings of fact… (Referring to H.L. v. Canada (Attorney. General), 2005 SCC 25, [2005] 1 S.C.R. 401, 2005 S.C.C. 25, at paras. 55-56). [^10]: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, 2002 S.C.C. 33, at paras. 28 and 36. [^11]: Kafka v. Allstate Insurance Co. of Canada, 2012 ONSC 1035 (Div. Ct.), at para.12, referring to Cassano v.The Toronto-Dominion Bank, 87 O.R. (3d) 401, 2007 ONCA 781, at para. 23; Anderson et al. v. Wilson et al. 44 O.R. (3d) 673 (C.A.), 1999 3753, at para. 12; and, Markson v. MBNA Canada Bank, 85 O.R. (3d), 2007 ONCA 334, at para. 33, leave to appeal ref’d at [2007] S.C.C.A. No. 346. [^12]: Class Proceedings Act, (fn.1), s. 5(1)(d). [^13]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at para. 192, relying on Cloud v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 O.R. (3d) 401 (C.A.), at paras. 73-75, leave to appeal to the S.C.C. ref’d [2005] S.C.C.A. No. 50. [^14]: Ibid, at paras. 193 and 196, relying on Markson v. MBNA Canada Bank, (2007), 2007 ONCA 334, 85 O.R. (3d) 321 (C.A.), at para. 69, leave to appeal to the S.C.C, ref’d [2007] S.C.C.A. No. 346; and, AIC Limited v. Fischer, 2013 SCC 69, [2013] 3 S.C.R. 949, 2013 S.C.C. 69, at paras.24-38. [^15]: Ibid, at para. 194, relying on Chadha v. Bayer Inc. (2001), 2001 28369 (ON SCDC), 54 O.R.(3d) 520 (Div. Ct.), at para. 16, aff’d (2003), 2003 35843 (ON CA), 63 O.R. (3d) 22 (C.A.), leave to appeal to S.C.C. ref’d [2003] S.C.C.A. No.106, which refers to this among other criteria to be considered when a court assesses the preferable process. The listed criteria are: (a) the nature of the proposed common issue(s), (b) the individual issues which would remain after determination of the common issue(s), (c) the factors listed in the Act, (d) the complexity and manageability of the proposed action as a whole, (e) alternative procedures for dealing with the claims asserted, (f) the extent to which certification furthers the objectives underlying the Act, and (g) the rights of the plaintiff(s) and defendant(s). [^16]: Ibid, at para. 197, relying on AIC Limited v. Fischer, supra, (fn. 14). Mr. Justice Perell lists five questions Mr Justice Cromwell referred to in that case as having to be answered when considering whether an alternative to a class action will achieve access to justice: (1) Are there economic, psychological, social, or procedural barriers to access to justice in the case? (2) What is the potential of the class proceeding to address those barriers? (3) What are the alternatives to class proceedings? (4) To what extent do the alternatives address the relevant barriers? (5) How do the two proceedings compare? [^17]: Rule 1.04(1.1) of the Rules Of Civil Procedure notes: In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding. In making this observation, Mr. Justice Perell (Ibid, at para. 200) quoted Hryniak v. Mauldin 2014 SCC 7, 2014 S.C.C. 7, at paras. 1-2 and 27: Ensuring access to justice is the greatest challenge of the rule of law in Canada today. Trials have become increasingly expensive and protracted. Most Canadians cannot afford to sue when they are wronged or defend themselves when they are sued, and cannot afford to go to trial. … Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just. There is growing support for alternative adjudication of disputes and a developing consensus that the traditional balance struck by extensive pre-trial processes and the conventional trial no longer reflects the modern reality and needs to be readjusted. A proper balance requires simplified and proportionate procedures for adjudication, and impacts the role of counsel and judges. This balance must recognize that a process can be fair and just, without the expense and delay of a trial, and that alternative models of adjudication are no less legitimate than the conventional trial. [^18]: Plaintiff’s Appeal Factum, at para. 77. [^19]: 2012 ONSC 2995 (the motion to certify a class proceeding), 2013 ONCA 139 (appeal to the Court of Appeal from the motion to certify in respect of the dismissal of the claim against the Anglican Diocese, and 2014 7350 (ON SCDC) (appeal to the Divisional Court from the motion to certify in respect of the refusal to certify on the basis that the class action was not the preferable procedure). [^20]: Ibid, (Divisional Court), at para. 25. [^21]: Ibid, (Divisional Court), at para. 26. [^22]: AIC Limited v. Fischer, supra, (fn. 14), at para. 35: The motions court must identify alternatives to the proposed class proceedings. As McLachlin C.J. held in Hollick, ‘the preferability analysis requires the court to look at all reasonably available means of resolving the class members’ claims, and not just at the possibility of individual actions’: para. 31, (Emphasis added [in AIC Limited]). Here, the court considers both other potential court procedures (such as Joinder, test cases, consolidation and so on: Hollick, at para. 28) and non-court proceedings. [^23]: Ibid, at para. 48, referring to Hollick v. Toronto (City) 2001 SCC 68, 2001 S.C.C. 68, [2001] 3 S.C.R. 158, at paras. 25, 28 and 31. [^24]: Ontario Law Reform Commission, Report on Class Actions, 1982, Volume1, at pp. 5, 82 to 86. [^25]: Cavanaugh v. Grenville Christian College, supra, (fn.19) (the motion to certify the class proceeding), at para. 215. [^26]: Ibid, (Divisional Court), at para. 26. [^27]: Ibid (the motion to certify a class proceeding), at para. 163, referring to Oakley & Oakley Professional Corp. v. Aiken, 2011 ONSC 5613; Jaikaran v. Austin 2011 ONSC 6336; and, Hudson v. Austin 2010 ONSC 2789. It is the last of the three which Mr. Justice Perell referred to in detail. [^28]: Ibid. [^29]: Cavanaugh v. Grenville Christian College, supra (fn.19) (the motion to certify the class proceeding), at para. 171. [^30]: Plaintiff’s Appeal Factum, at para. 64. [^31]: AIC Limited v. Fischer, supra, (fn. 14), at para. 65. [^32]: Plaintiff’s Appeal Factum, at para. 63. [^33]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2)(Perell J.), at para. 208. [^34]: Affidavit of Jeffrey Larry, sworn October 1, 2013, at para. 21. [^35]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2)(Perell J.), at para. 42, [^36]: Ibid, at para. 207. [^37]: Ibid, at para. 206. [^38]: See fn. 14. [^39]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at para. 197. The five questions are found in these reasons at fn. 16. [^40]: AIC Limited v. Fischer, supra, (fn. 14), at para. 26. [^41]: AIC Limited v. Fischer, supra, (fn. 14), at para. 27. [^42]: Class Proceedings Act, supra, (fn. 1), s. 5(1)(b). [^43]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at para. 104. [^44]: Bendall v. McGhan Medical Corp. (1993), 1993 5550 (ON SC), 14 O.R. (3d) 734 (Gen. Div.); Robertson v. The Thompson Corporation (1999), 1999 14768 (ON SC) 43 O.R. (3d) 161 (S.C.J.); Carom v. Bre-X Minerals Ltd. (1999), 1999 14794 (ON SC), 44 O.R. (3d) 173 (S.C.J.), aff'd 1999 19916 (ON SCDC), 46 O.R. (3d) 315 (Div. Ct.), rev'd on other grounds (2001), 2000 16886 (ON CA), 51 O.R. (3d) 236 (C.A.); Wilson v. Servier (2000), 2000 22407 (ON SC), 50 O.R. (3d) 219; Mondor v. Fisherman, [2001] O.J. No. 4260 (S.C.J.); Brimner v. Via Rail Canada Inc. (2002), 2000 22404 (ON SC), 50 O.R. (3d) 114 (S.C.J.); Cheung v. Kings Land Development Inc. (2002), 2001 28002 (ON SC), 55 O.R. (3d) 747 (S.C.), leave to appeal refused [2002] O.J. No. 336 (Div. Ct.); McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2003), 2003 34059 (ON SC), 66 O.R. (3d) 466 (S.C.); Baxter v. Canada (Attorney General), [2005] O.J. No. 2165 (S.C.J.); McCutcheon v. The Cash Store Inc. (2006), 2006 15754 (ON SC), 80 O.R. (3d) 644 (S.C.J.); Silver v. IMAX Corp., 2009 72334 (ON SC), [2009] O.J. No. 5585 (S.C.J.), leave to appeal refused 2011 ONSC 1035, 2011 ONSC 1035 (Div. Ct.); Pysznyj v. Orsu Metals Corp., 2010 ONSC 1151 (S.C.J.); Ramdath v. George Brown College of Applied Arts and Technology, 2010 ONSC 2019; Green v. Canadian Imperial Bank of Commerce, 2012 ONSC 3637 at paras. 587-592, varied 2014 ONCA 90; Drywall Acoustic v. SNC-Lavalin Group Inc., 2012 ONSC 5288. [^45]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at para. 111. [^46]: Affidavit of Jeffrey Larry, sworn October 1, 2013, at para. 22. [^47]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, supra, (fn. 2) (Perell J.), at paras. 128-130. [^48]: Ibid, at para. 130. [^49]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, (Costs), 2014 ONSC 4751, at para. 2. [^50]: Bell ExpressVu v. Pieckenhager, [2013] O.J. No. 1804, at para. 3, referring to Hamilton v. Open Window Bakery Ltd. 2004 SCC 9, 2004 SCC. 9, [2004] 1 S.C.R. 303; Adrian v. Napa Valley Plaza Inc., 2011 ONSC 2168, [2011] O.J. No. 1857, 280 O.A.C. 339, at paras. 9 to 14; and, see: Van Damme v. Gelber 115 OR (3d) 470, 2013 ONCA 388, at paras. 32 to 35. [^51]: Excalibur Special Opportunities L.P. v. Schwartz, Levitsky, Feldman LLP, (Costs) 2014 ONSC 4751, at para. 18.