LBP Holdings Ltd. v. Hycroft Gold Corp. et al.

CITATION: LBP Holdings Ltd. v. Hycroft Gold Corp. et al., 2018 ONSC 1794

DIVISIONAL COURT FILE NO.: 709/17

DATE: 2018-03-14

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: LBP HOLDINGS LTD., Plaintiff

AND: HYCROFT GOLD CORP., SCOTT A. CALDWELL, ROBERT BUCHAN, DUNDEE SECURITIES LTD. and CORMARK SECURITIES INC., Defendants

BEFORE: Thorburn J.

COUNSEL: Paul Bates and Eli Karp, for the Plaintiff LBP Holdings Ltd.

Gillian Dingle and Alexandra Shelley, for the Defendants Dundee Securities Ltd. and Cormark Securities Inc.

HEARD at Toronto: March 9, 2018

ENDORSEMENT

REQUEST FOR RELIEF

[1] The parties brought two motions that were heard together:

a. The first motion was brought by the Defendants, Dundee Securities Ltd. and Cormark Securities Inc. (“the Underwriters”), to quash the appeal brought by the Plaintiff, LBP Holdings Ltd. The Underwriters submit that, as this proceeding was certified as a class proceeding, any appeal of the decision not to include the Underwriters in the class proceeding requires leave.

b. The second motion is brought by the Plaintiff in the event that the Underwriters are successful on their motion to quash the appeal. In the event leave to appeal must be obtained, the Plaintiff seeks to extend the time to seek leave to appeal from the Divisional Court.

[2] The issue on the first motion is whether the wording in s. 30 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (“the Act”) gives the Plaintiff the right to appeal where an Order has been made to exclude certain defendants from the certification order but allows them to pursue the claims against the Underwriters individually. The Plaintiff suggests that it does while the Underwriters submit leave must be obtained from the Divisional Court.

[3] If the first motion is granted as leave is required from the Divisional Court to appeal, the issue on the second motion is whether leave should be granted to extend the time to file the request for leave to appeal to the Divisional Court. The Plaintiff submits that it is in the interest of justice to extend the time. The Underwriters claim that, as they informed the Plaintiff within days of the Certification Order that leave was required and there is no merit to the appeal, leave should not be granted to extend the time.

BACKGROUND

[4] The Plaintiff is a Nova Scotia company that purchased 20,000 shares of Hycroft for $215,000 U.S. under a prospectus dated May 9, 2013. Hycroft mines gold and silver by extracting ore from a mine and placing it on a leach pad sprayed with a cyanide solution to separate the gold and silver from the ore.

[5] The Plaintiff class members are non-U.S. share purchasers.

[6] The Plaintiff claims Hycroft made misrepresentations in the Prospectus for public offering. The alleged misrepresentations are in respect of (i) Hycroft’s overstatement of its ability to process and leach ore placed on the Lewis Leach Pad and resulting gold production and cash cost guidance, and (ii) retention of a third party engineering firm to investigate operational issues with the Lewis Leach Pad.

[7] The Underwriters were not added as parties until Hycroft filed for bankruptcy protection. The Plaintiff alleged common law negligence and common law negligent misrepresentation against the Underwriters who were the Underwriters in the offering. Hycroft is now out of bankruptcy protection.

[8] An order was granted by the certification motion judge, Perell J., certifying the proceeding as a class proceeding on the basis that the test for certification was satisfied in respect of the claim for statutory misrepresentation against the corporate Defendants, Hycroft Gold Corp., Scott Caldwell and Robert Buchan. He dismissed the class action proceeding against the Underwriters though he permitted members of the class to pursue those claims individually.

[9] The Plaintiff seeks to appeal that decision.

THE LEGISLATIVE PROVISIONS

[10] Section 30 of the Act provides as follows:

30(1) A party may appeal to the Divisional Court from an order refusing to certify a proceeding as a class proceeding and from an order decertifying a proceeding.

(2) A party may appeal to the Divisional Court from an order certifying a proceeding as a class proceeding, with leave of the Superior Court of Justice as provided in the rules of court.

[11] Rule 1.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, defines a proceeding as “an action or application”.

[12] Rule 1.04 of the Rules provides that the Court should secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

THE POSITIONS OF THE PARTIES ON THE FIRST MOTION

[13] The certification motion judge ordered that, “the Plaintiff’s motion for an order certifying this proceeding as a class action as against [the Underwriters] is dismissed.”

[14] The Plaintiff submits that the purpose of a right of appeal is to make sure a party cannot escape appeal review. The denial of that right is an access to justice issue.

[15] The Plaintiff submits that on a “purposive interpretation” of s. 30 of the Act, the Plaintiff has a right to appeal the decision not to include the Underwriters in the class proceeding. The Plaintiff asserts that when the text, context and purpose of the legislation are all considered, the Plaintiff has a right to appeal to the Divisional court pursuant to s. 30(1) of the Act, as there is an order refusing to certify the Underwriters as parties to the Class proceeding.

[16] The Underwriters submit that leave to Appeal must be sought in accordance with s. 30(2) of the Act because:

a. The clear wording of s. 30(2) of the Act stipulates that leave must be obtained where there is an order certifying a class proceeding;

b. A class proceeding was certified;

c. This interpretation is consistent with the Ontario Court of Appeal decision in Ludwig and other Divisional Court cases; and

d. To do otherwise would be inconsistent with the need for a just and expeditious proceeding in the Act.

ANALYSIS AND CONCLUSION ON THE FIRST MOTION: INTERPRETATION OF SECTION 30 OF THE CLASS PROCEEDINGS ACT

[17] In this case, a class proceeding was certified. The Plaintiff class was entitled to pursue its class proceeding against several Defendants.

[18] The Plaintiff class was not permitted to pursue a class action against the Underwriters. The individual plaintiffs were nonetheless permitted to pursue individual claims for negligence and negligent misrepresentation against the Underwriters. The certification motion judge, Perell J. explained his reasons at paras. 84 to 89 as follows:

The misrepresentation claim and the negligence claim against the Underwriters, while they arise out of a common factual narrative that involves the Hycroft Defendants, do not rest on the same factual or legal foundation as the claim against the Hycroft Defendants. The findings made in the statutory action against the Hycroft Defendants will only moderately assist the prosecution of the tort misrepresentation claim.

… given that the misrepresentations, duty of care, and standard of care issues are not the same for the co-defendants, combining the statutory and common law claims may complicate the prosecution and defence of the various causes of action.

The negligence claim against the Underwriters is also incongruent with the misrepresentation claim against them, which presupposes a very different theory of liability that does not concern what the Underwriters said but rather concerns what they did or did not do before signing the certificate in the prospectus. The misrepresentation claim is about words found in the prospectus, but the negligence claim is about deeds and the Underwriters’ alleged role as a gatekeeper and price setter before the prospectus was released and shares distributed.

I appreciate that for the purposes of a free standing negligence claim, a common issues trial would be an efficient and productive means to determine the duty of care and standard of care issues of the claim against the Underwriters. I appreciate that the prosecution of the negligence claim will require expensive expert evidence about the role that underwriters play in the securities marketplace. And I appreciate that advantageously, the expense of the common issues trial could be distributed over hundreds of class members; however, there is the prospect of unmanageability and negligible synergies to be achieved by combining all the claims, and, in any event, after the common issues trial of the common law claims, expensive evidence, and repetitive evidence, would be required at the individual issues trials about reliance, causation, and damages.

And given the monetary size of most, if not all of the putative Class Members’ claims, a class action is not preferable to individual actions by those Class Members who can prove that they relied on something that Cormark Securities and Dundee Securities said or did not say before they decided to purchase Hycroft’s shares. The individual claims would appear to be economically viable to litigate in the Superior Court. There is an alternative route for access to justice. For example, the Plaintiff’s own claim is in excess of $200,000 (USD) and the average claim of the Class Members is over $300,000 (USD). Indeed, LBP Holdings indicated that if its action was not certified as against the Underwriters, it would proceed with an individual action against the Underwriters perhaps with other putative Class Members joined as co-plaintiffs.

I, therefore, conclude that the preferable procedure criterion is not satisfied in the proposed class action against the Underwriters.

[19] The certification motion judge held there was an “alternative route for access to justice” meaning that while members of the class could not proceed against the Underwriters in the class proceeding, individual members could and should seek redress from the Underwriters individually.

[20] The Plaintiff takes the position that it is entitled to appeal the decision to deny certification of the class action against the Underwriters to the Divisional Court as of right.

[21] As noted in R. v. Meltzer, [1989] 1 S.C.R. 1764, appeals are creatures of statute and any appeal must therefore be authorized by statute.

[22] Section 6(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides a right to appeal a final order of the Superior Court to the Court of Appeal.

[23] Rule 62.02 of the Rules of Civil Procedure (the rule that requires leave to appeal), applies only to appeals from interlocutory orders of a judge.

[24] The Class Proceedings Act specifically addresses rules regarding class proceedings. Where the Act addresses an issue involving the appeal of class proceedings, those provisions apply.

[25] In a civil action, where a party commences a legal proceeding against two defendants, and Defendant #1 obtains an order to dismiss the action as against it, the Plaintiff has a right to appeal the summary judgment order as of right (notwithstanding that it might result in a delay of the proceeding as a whole). This is because the summary judgment order is a final order dismissing the claim against Defendant #1. It involves the ultimate issue of the ability to pursue a claim at all.

[26] Section 30 of the Act addresses the right to (1) appeal an order refusing to certify a proceeding and (2) the appeal of an order certifying a class proceeding. It does not however, expressly address an order that certifies a class proceeding but refuses to certify a class proceeding against some defendants.

[27] Counsel for the Underwriters suggests this case is analogous to the case of Ludwig v. 1099029 Ontario Ltd., 2007 ONCA 266. In Ludwig, Feldman J.A. for the Court, addressed the interpretation of s. 30 of the Act.

[28] The Ludwig action arose as a result of a fire at a manufacturing facility. The fire caused the evacuation of about 3200 people. The proposed class included people within an area 100 times the size of the evacuated area. The class action was certified, but the class was limited to “those individuals who were evacuated from the evacuated area….”

[29] The plaintiffs who were excluded from the class appealed to the Divisional Court under s. 30(1) of the Act. The respondent moved to quash the appeal on the basis that the appellants required leave to appeal under s. 30(2) of the Act.

[30] A single judge of the Divisional Court, dismissed the respondent’s motion to quash on the basis that the certification order was a final determination of their rights for the purpose of the class proceeding. That order was overturned by a full panel of the Divisional Court. The Divisional Court held that because there was an order that certified a class proceeding, an appeal from that order lies only with leave under s. 30(2) of the Act.

[31] The Ontario Court of Appeal upheld the decision of the Divisional Court panel.

[32] At paragraphs 11 to 14 of the decision, Feldman J.A. for the court explained the reasoning of the Court of Appeal as follows:

The appellants submit that in interpreting s. 30, the court should have regard to the final/interlocutory distinction and, where the effect of an order is to finally determine the rights of a party, that effect should govern the determination of the appeal route. They say that in this case, the effect of the order of Patterson J. is twofold: while it certifies the class proceeding, it also refuses certification to part of the proposed class and therefore gives those people the right to appeal under s. 30(1). The appellants conclude that the effect of the order is that “it finally determines the substantial issue between them and the defendants and terminates their right to pursue a class proceeding.”

I reject this submission for two reasons. The first is that s. 30 defines the rights to appeal both directly and with leave in a specific manner that does not rely on the final/interlocutory distinction. As a matter of pure statutory interpretation, one may conclude that the legislature’s decision was a deliberate one.

The second reason why I do not accept the appellants’ submission is that the right of the appellants to pursue their action against the defendants was not finally determined by the certification order, nor did it terminate their right to pursue a class proceeding. In his reasons, the motion judge addressed, as he was required to do, the issue of preferable procedure. In that context, he noted that the class action with the evacuated group as the class would determine the issue of the liability of the defendants for the fire as a test case; the excluded claimants could then pursue their claims for damages on an individual basis.

[33] The Court of Appeal concluded that,

… s. 30 defines the right to appeal both directly and with leave in a specific manner that does not rely on the final/interlocutory distinction. As a matter of pure statutory interpretation, one may conclude that the legislature’s decision was a deliberate one.

…I can see neither a rule of statutory interpretation nor any policy argument that derogates from the conclusion that the words of ss. 30(1) and (2) of the Class Proceedings Act are clear and logical. Where an order for certification has been made, the action should be able to continue without waiting for an appeal process that may unduly delay the proceeding. Delaying the progress of a class action would be justified only if leave were to be granted, because then there would be an issue of particular importance to be determined. On the other hand, if certification is refused, then there is no class action and an appeal in that circumstance is required. To interpret the exclusion of people from the certified class as a refusal to certify the action effectively stops the action while the excluded plaintiffs appeal as of right. In my view, such a result would not advance the purpose of the Act, which seeks to facilitate access to justice and the principles of effective and timely use of the judicial process.

[34] The Ludwig case is distinguishable from the facts in this case as a class proceeding had been certified, and the appellants sought to be added to the group of member plaintiffs. In that case, there was a concern that the claims of members plaintiffs would be delayed while those who sought to be members brought their legal proceedings. This is unlike the case before me where the Plaintiff members themselves seek to add the defendant Underwriters knowing this will result in delaying the proceeding.

[35] During his oral submissions, counsel for the Plaintiff provided the decision of Cavanaugh v. Grenville Christian College, 2013 ONCA 139, per Doherty J.A. He suggests that this case is analogous to the case before me and that it stands for the proposition that the Plaintiff has a right to appeal the decision of the certification motion judge.

[36] The Cavanaugh decision is also distinguishable from the facts in this case.

[37] In Cavanaugh, the certification motion judge did two things:

a. Certification of the proceeding was refused against all defendants as, “the plaintiffs had not demonstrated that a class proceeding was ‘the preferable procedure’ as required under s. 5(1) of the Act.”

Because no class proceeding was allowed to be advanced at all, there was a right to appeal the refusal to allow the matter to proceed by way of class action to the Divisional Court in accordance with s. 30(1) of the Act.

b. The claim against one of the Defendants (the Diocese) was dismissed on the merits as the court held there was no cause of action against the Diocese.

The Plaintiffs were left with no recourse against the Diocese in any form as the action against them was dismissed. The appeal on the merits from this final order was therefore to the Court of Appeal.

[38] By contrast, in the case before me, there was no decision to deny certification entirely nor was there a dismissal of any claim on the merits.

[39] In this case, a class proceeding was certified against some Defendants. Members of the class proceeding were not entitled to proceed against the defendant Underwriters by way of this class action. They were entitled to proceed with their claims of negligence and negligent misrepresentation against the Underwriters individually or in groups outside the scope of the class action. The certification motion judge did so because in his view,

a. Given the large monetary size of most, if not all of the putative Class Members’ claims, a class action is not preferable to individual actions by those Class Members who can prove that they relied on something the Underwriters said or did not say;

b. It is economically viable to litigate those claims individually in the Superior Court. There is therefore an alternative route for access to justice;

c. The average claim of the Class Members is over $300,000 (USD). The representative plaintiff, LBP Holdings indicated that if its action were not certified as against the Underwriters, it would proceed with an individual action against the Underwriters perhaps with other putative Class Members joined as co-plaintiffs; and

d. This would also avoid the undue delay of having these different claims included in a class proceeding.

[40] Because there exists a class proceeding, the Class Proceedings Act applies.

[41] Because there was no dismissal of the request to invoke a class proceeding process, there is no right to appeal to the Divisional Court pursuant to section 30(1) of the Act.

[42] Where there is a class proceeding, and one party is not included in the class proceeding, the issue is whether the claim is dismissed on the merits or whether it can proceed in a different forum outside the scope of class proceedings.

[43] Where the order appealed from denies the appellant the ability to pursue a claim on the merits, there is a right to appeal to the Court of Appeal, as was the case against the Diocese in Cavanaugh.

[44] However where, as in this case, the Plaintiff is allowed to pursue its claim against the Underwriters but outside the forum of a class proceeding, the order is, in its essence, procedural, and not a determination of the merits of the claim. The certification motion judge did not deny the Plaintiff the ability to proceed but, rather, held that it is in the interests of justice to pursue those claims as individual actions. In such cases, there is no right of appeal, and leave must be sought.

[45] Because this is a procedural decision as to how, not whether, those claims can be pursued by members of the class and possibly others, leave must be sought pursuant to section 30(2) of the Act.

[46] For these reasons, the Underwriters’ motion to quash the appeal is granted.

THE SECOND MOTION: LEAVE TO EXTEND THE TIME TO SEEK LEAVE TO APPEAL

[47] The second issue is whether this Court should grant the Plaintiff an extension of time to file its notice of motion for leave to appeal the Certification Denial Order. The Underwriters do not consent to the request.

[48] The test on a motion to extend time is well settled. On such a motion, the court will consider:

1. Whether a party formed a bona fide intention to appeal within the time limit;

2. Prejudice to the responding party as a result of the delay;

3. The length of delay and reasons for the delay; and

4. The merits of the proposed appeal.

See Reid v. College of Chiropractors of Ontario, 2016 ONCA 779; and Rizzi v. Mavros, 2007 ONCA 350, 85 O.R. (3d) 401. No one factor is determinative.

Intention to Appeal and Prejudice

[49] It is agreed that the Plaintiff expressed an early, bona fide intention to appeal and that the Underwriters have suffered no prejudice as a result of the delay.

Delay

[50] The Underwriters take the position that the delay exceeds the 15 day limit to serve a motion for leave to appeal.

[51] The Plaintiff claims there was no undue delay.

[52] I agree. The reasons on the Certification motion were provided on October 24, 2017. Three days later, the Plaintiff advised that it intended to appeal the decision. Four days later, on October 31, 2017, the Underwriters advised that in their view, the Plaintiff required leave to appeal. The Plaintiff maintained its position that it had a right to appeal and served a Notice of Appeal on November 22, 2017. The Plaintiff perfected its appeal on January 12, 2018.

[53] The Underwriters were always aware that the Plaintiff sought to appeal the decision of Perell J.

[54] While the Plaintiff was unsuccessful on this motion, it was not without any merit. This is a valid reason for the delay.

Merits of the Appeal

[55] There is only a limited merits analysis required on a motion to extend time to seek leave to appeal: Berg v. Canadian Hockey League, 2017 ONSC 6719, at para 25. The court should not be engaged in weighing the relative merits of the appeal. It should only be satisfied that the appeal has some merit: Falus v. Martap Developments 87 Ltd., 2012 ONSC 5163, at paras. 7-8.

[56] The Plaintiff must also demonstrate on a balance of probabilities that there is a conflicting decision and the matter is of public interest such that it is desirable that a higher court resolve that conflict.

[57] The Plaintiff has provided a factum in support of the motion for leave to appeal. The material suggests that the certification motion judge failed to conduct the comparative access to justice analysis set out in AIC Limited v. Fischer, 2013 SCC 69, [2013] 3 S.C.R. 949.

[58] The Court in Fischer held among other things, that:

a. It is not necessary to establish that a class proceeding is required to obtain access to justice;

b. The court must consider barriers to access to justice for all proposed class members not just those with higher value claims;

c. The court must consider whether there is evidence that the proposed class members are a cohesive group that would or could agree on a joint retainer on matters not part of the class proceeding; and

d. There are policy reasons to prefer class actions such as the fact that class actions have been recognized as having a greater effect than individual claims on supplementing and enhancing the regulatory oversight of companies seeking to raise capital.

[59] The Plaintiff claims that although the certification motion judge referred to the Fischer decision, he failed to conduct the Fischer analysis, erred in finding that the procedures under the Act were not available to the Plaintiff, failed to assess the value of the individual claims, and looked only at the average claim value.

[60] It is not appropriate for me to review and weigh the relative merits of the appeal (See: Falus.). It is sufficient that they raise issues of some merit and they do.

[61] Moreover, the Plaintiff submits that the certification motion judge’s order is inconsistent or in conflict with the Ontario Court of Appeal decisions in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2016 ONCA 916, 135 O.R. (3d) 743 and Fischer (supra) and provided some evidence of distinctions to be drawn.

[62] For these reasons, bearing in mind that this is not the leave motion but rather a decision to extend time to bring the leave motion, I find that it is in the interest of justice to grant an extension of time to file an application for leave to appeal so that a decision can be made as to whether to allow a hearing of the Appeal.

[63] The second motion is granted.

COSTS

[64] The first motion brought by the Underwriters to quash the appeal is granted as leave to appeal must be sought from the Divisional Court. The second motion brought by the Plaintiff to extend the time for filing the request for leave to appeal is also granted.

[65] In accordance with the agreement of the parties, the Underwriters were successful on the first motion and are entitled to costs of the first motion in the amount of $7,500 all inclusive.

[66] The Plaintiff is awarded costs in the amount of $2,000 on the second motion all included, for the following reasons:

a. The Plaintiff seeks an indulgence from the court to extend the time to file its leave Application with the Divisional court;

b. It was appropriate to bring this motion with the motion to quash as this motion should be brought based on the outcome of the first motion;

c. The Underwriters could and in my view, should have agreed to allow an extension of time if the motion to quash was granted; and

d. This motion was less complex than the first motion.

[67] The Plaintiff has 15 days to file its material in support of the motion for leave to appeal.

Thorburn J.

Date: March 14, 2018