3218520 Canada Inc. v. Bre-X Minerals Ltd. et al. [Indexed as: Carom v. Bre-X Minerals Ltd.]

51 O.R. (3d) 236

[2000] O.J. No. 4014

Docket No. C33905

Court of Appeal for Ontario

Finlayson, Feldman and MacPherson JJ.A.

October 31, 2000

• Application for leave to appeal to the Supreme Court of Canada dismissed October 18, 2001 (Gonthier, Major and Binnie JJ.). S.C.C. File No. 28309. S.C.C. Bulletin, 2001, p. 1837.

Civil procedure -- Class proceedings -- Certification -- Common issues -- Preferable procedure -- Representative plaintiffs being shareholders of Alberta company developing gold mine in Indonesia -- Allegations that defendants conspired to increase share price for their own benefit by fraudulent and negligent representations of gold resources -- Investors suffering loss when share values plummeting after disclosure that reports of gold resources fraudulent -- Representative plaintiffs seeking certification and advancing claims of conspiracy, fraudulent misrepresentation, negligent misrepresentation and breach of Competition Act -- Class Proceedings Act, 1992, S.O. 1992, c. 6.

The three representative plaintiffs in a class proceeding lost a great deal of money investing in a corporation that was developing a gold mine in Indonesia. They alleged that the defendants, who were two gold mine corporations and its insiders, lied to the public about the presence of gold in the mine in a series of 160 press releases and other statements. Winkler J. certified a class action with respect to the plaintiffs' claims of fraudulent misrepresentation, conspiracy and breach of the Competition Act, R.S.C. 1985, c. C-34. He also held that a class proceeding was the preferable procedure for the resolution of 15 common issues. Winkler J. refused, however, to certify the plaintiffs' claim for negligent misrepresentation, which he held did not relate to the plaintiffs' certified claims. Winkler J. further held that a class proceeding was not the preferable procedure for the determination of the negligent misrepresentation claim. Winkler J.'s decision was affirmed by the Divisional Court. Leave having been granted, the plaintiffs appealed to the Court of Appeal. The issues for the appeal were whether the Divisional Court: (1) erred in failing to order that the class proceedings that will determine the 15 certified common issues should apply to the claim in negligent misrepresentation; and (2) erred in determining that a class action was not the preferable procedure for dealing with the negligent misrepresentation claim.

Held, the appeal should be allowed.

Winkler J. and the Divisional Court erred on a matter of general principle. There was no sufficient difference between the plaintiffs' claims in fraudulent and in negligent misrepresentation to justify the certification of one and not the other. The creation of a dichotomy in the litigation was an error in principle, policy and logic. The standard for certification is not to be set too high because this would compromise the procedural objectives of the Class Proceedings Act, 1992 of judicial economy and promotion of access to justice, and it is not necessary that the plaintiffs in a class action present absolutely identical issues of fact or law. Resolution of the entire action through the class proceeding or even resolution of particular legal claims is not required. For certification, there need only be common issues of fact or law that move the litigation forward. Given the accepted definitions of the torts of fraudulent and negligent misrepresentation, there was no principled basis for treating them differently on the question of certification. Further, there was a substantial overlap of factual issues common to both torts.

On the issue of preferable procedure for the determination of the negligent misrepresentation claim, a crucial factor was that there was to be a class proceeding for the plaintiffs' three other claims. There was no precedent in other cases of certifying some but not all of the potential claims, and the cases seemed to favour either complete certification or no certification. There was substantial merit in trying to utilize the Class Proceedings Act, 1992 to deal with as many issues as possible. Conversely, it was not necessary that the entire litigation be resolved by the determination of the common issues. Certification can be the preferable procedure in situations far short of the final resolution of the lawsuit. It was sensible and desirable that the negligent misrepresentation claim be placed with the other three claims. Accordingly, the appeal should be allowed.

APPEAL from a judgment of the Divisional Court (O'Driscoll, Campbell and MacFarland JJ.) (1999), 1999 19916 (ON SCDC), 46 O.R. (3d) 315, 6 B.L.R. (3d) 82.

Cases referred to Abdool v. Anaheim Management Ltd. (1995), 1995 5597 (ON SCDC), 21 O.R. (3d) 453, 121 D.L.R. (4th) 496, 31 C.P.C. (3d) 197 (Div. Ct.); Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673, 175 D.L.R. (4th) 409, 36 C.P.C. (4th) 17 (C.A.); Bendall v. McGhan Medical Corp. (1993), 1993 5550 (ON SC), 14 O.R. (3d) 734, 106 D.L.R. (4th) 339, 16 C.P.C. (3d) 156 (Gen. Div.); Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172 (Ont. Gen. Div.), supp. reasons (1999), 30 C.P.C. (4th) 131 (Ont. Gen. Div.); Campbell v. Flexwatt Corp. (1997), 1997 4111 (BC CA), 44 B.C.L.R. (3d) 343, [1998] 6 W.W.R. 275, 15 C.P.C. (4th) 1 (C.A.) [Leave to appeal to S.C.C. refused (1998), 228 N.R. 197n]; Chadha v. Bayer Inc. (1999), 1999 14812 (ON SC), 45 O.R. (3d) 29, 36 C.P.C. (4th) 188 (S.C.J.); Controltech Engineering Inc. v. Ontario Hydro, [1998] O.J. No. 5350 (Gen. Div.), affd [2000] O.J. No. 379 (Div. Ct.); Dabbs v. Sun Life Assurance Co. of Canada (1998), 1998 7165 (ON CA), 41 O.R. (3d) 97, 165 D.L.R. (4th) 482, [1999] I.L.R. 1-3629, 27 C.P.C. (4th) 243 (C.A.), quashing (1998), 1998 14855 (ON SC), 40 O.R. (3d) 429, [1998] I.L.R. 1-3575, 22 C.P.C. (4th) 381 (Gen. Div.) [Leave to appeal to S.C.C. refused (1998), 235 N.R. 390n]; Hollick v. Metropolitan Toronto (Municipality) (1999), 1999 2894 (ON CA), 46 O.R. (3d) 257, 181 D.L.R. (4th) 426, 7 M.P.L.R. (3d) 244 (C.A.) [Leave to appeal granted [2000] S.C.C.A. No. 41]; Maxwell v. MLG Ventures Ltd., [1995] O.J. No. 1136 (Gen. Div.); Mouhteros v. DeVry Canada Inc. (1998), 1998 14686 (ON SC), 41 O.R. (3d) 63, 22 C.P.C. (4th) 198 (Gen. Div.); Nantais v. Telectronics Proprietary (Canada) Ltd. (1995), 1995 7113 (ON SC), 25 O.R. (3d) 331, 127 D.L.R. (4th) 552, 40 C.P.C. (3d) 245 (Gen. Div.); Peppiatt v. Nicol (1993), 1993 5485 (ON SC), 16 O.R. (3d) 133, 20 C.P.C. (3d) 272 (Gen. Div.); Robertson v. Thomson Corp. (1999), 1999 14768 (ON SC), 43 O.R. (3d) 161, 171 D.L.R. (4th) 171, 85 C.P.R. (3d) 1, 30 C.P.C. (4th) 182 (Gen. Div.), supp. reasons (1999), 1999 14780 (ON SC), 43 O.R. (3d) 389 (Gen. Div.); Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 1998 14721 (ON SC), 42 O.R. (3d) 776, 86 C.P.R. (3d) 1, 31 C.P.C. (4th) 340 (Gen. Div.) Statutes referred to Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 1 "common issues", 5(1), 8(1) Competition Act, R.S.C. 1985, c. C-34 Authorities referred to Ontario, Report on Class Actions (Ontario Law Reform Commission, 1982) Report of the Attorney General's Advisory Committee on Class Action Reform (1990)

Paul J. Pape, for appellants. H. Douglas Stewart, Q.C., for Bresea Resources Ltd. Joseph Groia and Kevin Richard, for John Felderhof. Alan Lenczner, Q.C., and Lawrence Thacker, for Jeannette Walsh, personally and as estate trustee for David Walsh, and for T. Stephen McAnulty. Robert Potts and Robert Muir, for John Thorpe. Brian Bellmore and K. Mitchell, for Rolando Francisco. Paul Le Vay and Johanna Braden, for Paul Kavanagh.

The judgment of the court was delivered by

MACPHERSON J.A.: --

Introduction

[1] Disasters spawn litigation. Trains collide or derail, planes crash, ships sink, lakes and rivers become polluted, chemical factories explode, ordinary people eat, drink, wear or use unhealthy or defective products. People -- sometimes hundreds, even thousands -- are injured or killed by these events. When the crisis subsides, some of the victims turn to the courts for redress and compensation.

[2] One of the modern mechanisms for dealing with the litigation fallout from major disasters is the class action. In Ontario, this type of action is regulated in a detailed fashion by a relatively recent statute, the Class Proceedings Act, 1992, S.O. 1992, c. 6.

[3] In the Report of the Attorney General's Advisory Committee on Class Action Reform (1990), a class action was defined in simple, straightforward terms, at p. 15:

A class action is an action brought on behalf of, or for the benefit of numerous persons having a common interest. It is a procedural mechanism that is intended to provide an efficient means to achieve redress for widespread harm or injury by allowing one or more persons to bring the action on behalf of the many.

[4] In this passage, one of the principal procedural goals of class actions is stated explicitly, namely litigation efficiency. This goal is sometimes framed with different terminology -- judicial economy. The underlying objective of either formulation is the same, namely to find a mechanism to enable the court system to deal efficiently with a large number of claims being made by many aggrieved persons who have all suffered injuries from the same event or product.

[5] There is, however, a second fundamental procedural goal of class actions. It is to encourage access by victims to the court system. In its landmark study, Report on Class Actions (1982), the Ontario Law Reform Commission discussed the linkage between class actions and access to the courts in considerable detail. The Commission stated its conclusion on this point, at p. 139:

The Commission is of the view that many claims are not individually litigated, not because they are lacking in merit or unimportant to the potential claimant, but because of economic, social, and psychological barriers. We believe that class actions can help to overcome such barriers and, by providing increased access to the courts, may perform an important function in society. Quite clearly, effective access to justice is a precondition to the exercise of all other legal rights.

[6] The Class Proceedings Act, 1992 ("CPA") is anchored in the principles of access to justice and judicial economy. Lawyers and judges in Ontario are in the early stages of grappling with this law. Class proceedings have been certified in several cases. Some of the cases have dealt with defective products such as silicone gel breast implants and pacemakers: see, respectively, Bendall v. McGhan Medical Corp. (1993), 1993 5550 (ON SC), 14 O.R. (3d) 734, 106 D.L.R. (4th) 339 (Gen. Div.), and Nantais v. Telectronics Proprietary (Canada) Ltd. (1995), 1995 7113 (ON SC), 25 O.R. (3d) 331, 127 D.L.R. (4th) 552 (Gen. Div.). In other cases, courts have certified mass tort claims in relation to a single accident, for example, a fire in a subway: see Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172 (Ont. Gen. Div.).

[7] Certifications of class actions under the CPA have not been limited to situations in which redress is sought for physical injuries. Economic injury or financial loss has also served as a basis for some class actions. For example, a class action was certified for a copyright infringement claim by writers who alleged that a publisher had wrongfully reproduced their work in electronic form: see Robertson v. Thomson Corp. (1999), 1999 14768 (ON SC), 43 O.R. (3d) 161, 171 D.L.R. (4th) 171 (Gen. Div.). Another class action was certified for a claim by building owners that certain companies had engaged in illegal price fixing in relation to construction materials: see Chadha v. Bayer Inc. (1999), 1999 14812 (ON SC), 45 O.R. (3d) 29, 36 C.P.C. (4th) 188 (S.C.J.).

[8] However, certifications of class actions have not been automatic. Probably the most notable domain in which certification has been refused relates to claims grounded in allegations of misrepresentation. For example, a claim against a petroleum company for misrepresenting the nature of a franchise to potential franchisees was not certified: see Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 1998 14721 (ON SC), 42 O.R. (3d) 776, 31 C.P.C. (4th) 340 (Gen. Div.). A claim against Ontario Hydro for misrepresentation in the context of a bidding process was also not certified: see Controltech Engineering Inc. v. Ontario Hydro, [1998] O.J. No. 5350 (Gen. Div.), affd [2000] O.J. No. 379 (Div. Ct.).

[9] The present appeal involves some of the causes of action that have been considered by Ontario courts in previous cases -- misrepresentation, anti-competitive practices and conspiracy. It arises in the context of economic, not physical, injuries suffered by thousands of people who invested in a sham gold mining company. The plaintiffs in the action lost a great deal of money. They allege that the defendants, the "insiders" of the company, made great fortunes by lying to the public about the presence of gold in a mine in Indonesia. The investors seek redress from the "insiders" of the company. The procedural mechanism the investors want to employ in their litigation is certification as a class action.

[10] The motions judge, Winkler J., certified a class action with respect to three of the claims advanced by the plaintiffs -- fraudulent misrepresentation, the tort of conspiracy and breach of the Competition Act, R.S.C. 1985, c. C-34 [reported at 1999 14794 (ON SCDC), 44 O.R. (3d) 173]. However, he refused to certify a class action for a fourth claim put forward by the plaintiffs, namely negligent misrepresentation. Winkler J.'s decision was upheld by the Divisional Court [reported at 1999 19916 (ON SCDC), 46 O.R. (3d) 315].

[11] The appeal from the Divisional Court's decision raises at least two interesting and important questions. First, is it appropriate to certify part of an action as a class proceeding? Is it logical and desirable to permit a two-track lawsuit, with some claims proceeding under the CPA while others advance through the normal route of lawsuits initiated by individual plaintiffs? Second, is there a sufficient distinction between the torts of fraudulent misrepresentation and negligent misrepresentation to justify routing them onto separate tracks in the litigation process? Why is it appropriate to certify a class action for a claim of fraudulent misrepresentation, but refuse certification for a claim of negligent misrepresentation?

A. Factual Background

(1) The events

[12] I begin this section of my reasons with two preliminary points, the first to provide context, and the second in the nature of a warning.

[13] The contextual point is this. The plaintiffs initiated eight lawsuits relating to the Bre-X gold mine and stock market debacle which I will shortly describe. The main action is against Bre-X Minerals Ltd., Bresea Resources Ltd. and various individuals who held senior positions in these companies. In the main action, the plaintiffs also sued two stock brokerage firms, Nesbitt Burns Inc. and First Marathon Securities Ltd., and two research analysts, Egizio Bianchini and Kerry Smith, employed by these firms. The second action was brought against two engineering companies which conducted analyses of gold resources on behalf of Bre-X. Five other actions were brought against various stock brokerage firms and some of their individual analysts who are alleged to have promoted Bre-X stock. An eighth action was brought against Ingrid Felderhof and Spartacus Corp.; it was stayed at an early juncture.

[14] The motions judge heard motions seeking certification of the first seven actions as class proceedings. His decision was that class proceedings were inappropriate for all seven actions. His decisions with respect to all of the brokerage firms, the two engineering firms, and all of the named individual analysts in those firms, have not been appealed by the plaintiffs. In other words, the only defendants who remain in the proposed class action are the companies and individuals directly involved in the gold mine venture. I make this point at the outset to indicate that what might appear on the record as a highly complicated matter (eight lawsuits, three categories of defendants, and almost three dozen named defendants) is in fact, at this juncture, a much smaller matter -- a single action, a single category of defendants and 10 named defendants. In short, the lawsuit that will go forward is against two gold mine companies and their senior officers; it no longer relates to stock brokerage firms or engineering companies which provided professional services to the gold mine companies and to investors.

[15] I move now to my second preliminary point. Although the title and sub-title of this section of my reasons are "factual background" and "the events", an important warning is required at the outset. There has been no trial in this matter. Indeed, at this juncture none of the defendants has been required to file a Statement of Defence. The "facts" in the action thus far are not facts at all; rather, they are allegations by the plaintiffs. However, as required by the CPA, the courts below accepted the factual background set out in the plaintiffs' statement of claim for purposes of determining whether the plaintiffs' claims should be certified as a class action. I will do the same, but underline that at this point no one should accept those allegations as proven.

[16] Bre-X Minerals Ltd. ("Bre-X") was a junior mining company. In 1989, its shares were listed on the Alberta Stock Exchange. Bresea Resources Ltd. ("Bresea") and Bre-X held shares in each other. Bresea was controlled by the directing minds of Bre-X.

[17] In 1987, an Australian-based joint venture obtained a contract of work to drill for gold in a remote area of Indonesia known as the Busang. For several years, the results of the project were generally poor. In the spring of 1993, Bre- X acquired an option to purchase an 80 per cent interest in the Busang project.

[18] On May 6, 1993, Bre-X and Bresea issued a press release announcing the deal and stating that the property showed sufficient gold to yield an annual after-tax cash flow of US $10 million to Bre-X. Thereafter, Bre-X and Bresea issued a series of 160 press releases and other statements building on the favourable results in the first release. From January 1994, Bre-X reported core drilling results that gave investors reason to believe that the Busang properties contained one of the largest gold deposits ever discovered. The price of Bre-X shares rose from 50 cents in 1993 to more than $200 in late 1996. Many Canadians made fortunes during these years by trading in Bre-X shares.

[19] In fact, there were no economic gold deposits in the Busang properties. The core samples drilled by Bre-X had been, in the language of the mining industry, "salted" with gold which could not have come from the Busang. In short, someone committed a massive fraud. As expressed bluntly in a May 3, 1997 report by Strathcona Mineral Services Ltd., a company retained by Bre-X to perform a technical audit of Bre-X's exploration work:

[T]he magnitude of the tampering with core samples that we believe has occurred and resulting falsification of assay values at Busang, is of a scale and over a period of time and with a precision that, to our knowledge, is without precedent in the history of mining anywhere in the world.

[20] In 1997, Bre-X collapsed. Its shares became worthless, and many Canadians lost fortunes. Some of them want to sue those they hold responsible for the fraud.

(2) The parties

[21] At present, there are three representative plaintiffs in the class action. 3218520 Canada Inc. was the corporate investment vehicle for Greg Windsor. He purchased 500 Bre-X shares in September 1996 for $13,975. Osamu Shimizu purchased 300 Bre-X shares in September 1996 for $7,887. Both of these sets of shares are now worthless. 662492 Ontario Limited was the corporate investment vehicle for Ivo Battistella. Between May 1996 and April 1997, he traded in Bre-X shares and lost about $762,000.

[22] The plaintiffs have sued Bre-X and Bresea. They have also sued several Bre-X "insiders", including David Walsh, Chairman and President, [See Note 1 at end of document] Jeannette Walsh, Corporate Secretary, John Felderhof, Vice-Chairman, Senior Vice-President and supervising geologist, T. Stephen McAnulty, Vice-President, John Thorpe, Treasurer, Rolando Francisco, Executive Vice-President and Chief Financial Officer, Hugh Lyons, outside director, and Paul Kavanagh, outside director. The plaintiffs allege that these insiders were responsible for their losses and, in addition, made huge financial gains by selling their own Bre-X shares before the fraud became known. The scale of the alleged fraud, and some sense of the magnitude of the losses suffered by investors, is apparent from the financial gains the insiders are alleged to have garnered: David Walsh -- $25,018,512; Jeannette Walsh -- $30,605,010; John Felderhof -- $71,211,417; Stephen McAnulty -- $8,234,460; John Thorpe -- $4,109,973; Rolando Francisco -- $1,254,500; Hugh Lyons -- $3,250,000; and Paul Kavanagh -- $511,500.

(3) The litigation

[23] On April 3, 1997, the plaintiffs issued their notice of action. On November 3, 1997, they delivered their Statement of Claim. Their claim is grounded in four causes of action: the torts of conspiracy, fraudulent misrepresentation and negligent misrepresentation, and breach of the Competition Act. On December 3, 1997, the plaintiffs brought their motion for certification of the action as a class proceeding.

[24] The requirements for certification are set out in s. 5 of the CPA:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(a) the pleadings or the notice of application discloses a cause of action;

(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;

(c) the claims or defences of the class members raise common issues;

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and

(e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interest of the class,

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

[25] On April 8, 1998, the motions judge, Winkler J., determined that the pleadings disclosed a cause of action pursuant to s. 5(1)(a). On February 11, 1999, the motions judge adopted a national class as the identifiable class under s. 5(1)(b). This class included persons not resident in Ontario, although these non-residents were permitted to opt out of the class and the action.

[26] On May 13, 1999, the motions judge disposed of the remaining aspects of the certification motion, including certification of common issues (s. 5(1)(c)), preferable procedure (s. 5(1)(d)), representative plaintiffs (s. 5(1)(e)) and the remaining issues of class description.

[27] On the question of common issues, the motions judge certified 15 common issues for determination in a class proceeding. The formal Order provides:

8. THIS COURT DECLARES that the common issues for the Class against the Certified Defendants are:

(a) Did Busang contain gold in commercial quantities or in quantities sufficient to make the mining of it commercially viable ("gold in mineable quantities")?

(b) Was Bre-X operating a legitimate business?

(c) Were the core samples from Bre-X salted with gold and, if so, how, when, where and by whom?

(d) Did Bre-X follow generally accepted mining exploration practices and techniques and, if not, how did it deviate? Was any deviation reasonable under the circumstances?

(e) Did Bre-X, Bresea and the Insiders or any of them conspire to inflate the price of Bre-X and Bresea shares on the Markets? If they did, what are the particulars of the conspiracy?

(f) Did Bresea and the named individual defendants, or any of them, know or ought to have known the answers to the questions (a), (b), (c), (d) and (e) or any of them and, if so, who knew or ought to have known what, when and why and what should have they done, if anything?

(g) Did Bre-X and/or the named individual defendants represent that:

(i) There is gold in mineable quantities in the Busang?

(ii) Any company associated with SNC-Lavalin Inc. audited Bre-X's work or otherwise verified the accuracy of Bre-X's resource database?

(iii) Bre-X was operating a legitimate business?

(h) Were the representations identified by issue (g) made knowing that they were false or recklessly, caring not whether they were false or without exercising reasonable care and attention?

(i) Are the named individual defendants, or any of them, personally liable for any damages resulting from or caused by the representations identified by issue (g)?

(j) What is the meaning of the words "as a result of" in section 36 of the Competition Act?

(k) Does the Negligence Act or the concept of contributory negligence apply in assessing loss or damage under section 36?

(l) Must the plaintiffs prove an anti-competitive component to the Competition Act cause of action? If so, have they? Does Part VI apply to behaviour which is not anti-competitive?

(m) Should the full costs of investigation in connection with this matter and the cost of the proceedings or part thereof be assessed globally as provided for in section 36 of the Competition Act, and, if so, who should pay and in what amount(s)?

(n) Was there a breach of section 52 of the Competition Act by Bre-X and the named individual defendants giving rise to liability pursuant to section 36 if the Class member can prove damages as a result of the representation(s)?

(o) Was the conduct of the defendants, or any of them, such that they ought to pay globally to the Class members exemplary or punitive damages?

[28] The motions judge held that these common issues relate to the torts of conspiracy and fraudulent misrepresentation and to breach of the Competition Act. He also held that a class proceeding is the preferable procedure for the resolution of these common issues.

[29] There is no dispute about any of the above. The motions judge's decisions relating to whether the pleadings disclose a cause of action and his definition of the plaintiff class have not been appealed. Moreover, his identification of 15 common issues and his determination that these issues are relevant to the conspiracy, fraudulent misrepresentation and Competition Act causes of action have been accepted by all parties.

[30] The point of contention in this appeal relates to the motions judge's determination, confirmed by the Divisional Court, that the 15 common issues he identified did not relate to the claim of negligent misrepresentation. Additionally, the motions judge held, and the Divisional Court confirmed, that if some of the common issues were applicable to negligent misrepresentation, nevertheless the preferable procedure was that they be determined in separate actions brought by individual plaintiffs. In short, the courts below have held that the plaintiffs' claims in conspiracy, fraudulent misrepresentation and breach of the Competition Act meet all of the components of the test in s. 5(1) of the CPA, but that the plaintiffs' claim in negligent misrepresentation fails both s. 5(1)(c) ("common issues") and s. 5(1)(d) ("preferable procedure"). Hence, the courts below refused to certify the claim in negligent misrepresentation as part of the class action.

[31] The plaintiffs sought leave to appeal from the decision of the Divisional Court upholding the motions judge's refusal to permit the claim in negligent misrepresentation to proceed as part of the class action. By Order dated March 14, 2000, a panel of this court (Osborne A.C.J.O. and Abella and Moldaver JJ.A.) granted the plaintiffs' motion for leave to appeal.

B. Issues

[32] There are two issues on this appeal:

(1) Did the Divisional Court err in failing to order that the class proceeding which will determine the 15 certified common issues should apply to the claim in negligent misrepresentation?

(2) Did the Divisional Court err by determining that a class action was not the preferable procedure for dealing with the negligent misrepresentation claim?

C. Analysis

(1) The "common issues" issue

[33] The motions judge certified 15 common issues for the class action. He explicitly held that these common issues are relevant to three of the legal claims advanced by the plaintiffs -- conspiracy, fraudulent misrepresentation and breach of the Competition Act.

[34] However, the motions judge further held that the 15 common issues did not relate to the plaintiffs' claim of negligent misrepresentation. He explained the different results for the torts of fraudulent misrepresentation and negligent misrepresentation in this fashion [at pp. 196-98 O.R.]:

The essence of each tort is the representation made by the defendant to the plaintiff. The plaintiffs contend that the series of statements contained in the press releases and other documentation emanating from Bre-X, notwithstanding their number and diversity of content, contain a common misrepresentation, namely that "gold was present in mineable quantities in the Busang". Thus they contend that a number of common issues arise from what they state is a singular misrepresentation.

The plaintiffs identify some 160 statements made by the defendants over a four-year period to a class indeterminate in number and national in scope. The statements were distributed to the public through various forms of media and subject to whatever editorial control that may have been exercised by the respective proprietors. The statements were received by investors with varying degrees of sophistication and knowledge, and more importantly, differing investment strategies.

A reduction of the numerous representations to a common representation requires analysis and characterization of each individual representation, the plaintiff's perception of the representation and the circumstances in which it was made. This is, of necessity, an individual inquiry. Thus, the plaintiffs' contention that a multitude of statements can be reduced to a single core representation is antithetical to the essence of a common issue in a class proceeding. That is to say, that the common trial in the class proceeding is intended to resolve issues which have been determined to be common between the defendants and the plaintiff class. As such, a resolution binds every class member. The existence of the common issue must be discernible at the certification stage since it provides the basis for the common issue trial and the viability of a class proceeding. The common issue cannot be dependent upon findings which will have to be made at individual trials, nor can it be based on an assumption to circumvent the necessity for the individual inquiries. As such, there is no prospect of a resolution in a trial on common issues which would advance this litigation in any manner as it relates to the claim in negligent misrepresentation.

However, I am of the view that the claim in fraudulent misrepresentation raises common issues. The plaintiffs' allegation is that the Bre-X operation was fraudulent. Therefore, it is contended, every representation, whenever made, is tainted by the fraud. The allegation that the fraud permeates every statement raises common issues regardless of whether individual issues may arise from the actual communications made to the class members.

(Emphasis added)

[35] In a relatively short endorsement, the Divisional Court agreed with the motions judge's reasoning and with the dichotomy he created. A. Campbell J. said [at p. 316 O.R.]:

There is a complex, overlapping, differing and sometimes inconsistent tissue of representations made by different people at different times. As Winkler J. pointed out, the case of each individual plaintiff requires an individual inquiry as to what representations he or she relied upon and how he or she was affected by the particular representation. These individual inquiries cannot be circumvented.

The common issue cannot be dependent upon findings which have to be made, as here, at individual trials.

[36] There is no doubt that class actions are a new, different and, in many cases, complex development in the Ontario legal system. Because of this, a practice has developed of assigning a small number of judges to hear certification motions. Those judges develop an expertise which should be recognized and respected by appellate courts. As expressed by Carthy J.A. in Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673 at p. 677, 175 D.L.R. (4th) 409 (C.A.):

. . . I am mindful of the deference which is due to the Superior Court judges who have developed expertise in this very sophisticated area of practice. The Act provides for flexibility and adjustment at all stages of the proceeding and any intervention by this court at the certification level should be restricted to matters of general principle.

[37] Bearing in mind this admonishment, I have reached the reluctant conclusion that the Divisional Court and the motions judge have erred on a matter of general principle. I do not agree that there is a sufficient difference between the plaintiffs' claims in fraudulent misrepresentation and negligent misrepresentation to justify certification of the former and non-certification of the latter. In my view, the creation of such a dichotomy in this litigation is an error in logic, in principle and in policy. I reach this conclusion for several reasons.

[38] My first two reasons are contextual ones.

[39] First, s. 8(1) of the CPA provides that a certification order should set out the common issues of the class. Section 1 of the CPA defines "common issues" as:

(a) common but not necessarily identical issues of fact, or

(b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts.

[40] The observation I would make about this definition is that it represents a conscious attempt by the Ontario legislature to avoid setting the bar for certification too high. The important procedural objectives of the CPA, namely promoting access to justice and judicial economy, would not be realized if there was a requirement that the prospective plaintiffs in a class action present absolutely identical issues of fact or law.

[41] Second, the courts have also been wary of setting the bar too high on the common issues factor. In many cases, the Ontario courts have stated explicitly that certification should be ordered if the resolution of the common issues would advance the litigation. Resolution through the class proceeding of the entire action, or even resolution of particular legal claims in the action, is not required. In Campbell v. Flexwatt Corp. (1997), 1997 4111 (BC CA), 15 C.P.C. (4th) 1, 44 B.C.L.R. (3d) 343 (C.A.), Cumming J.A. said, at p. 18 C.P.C.:

When examining the existence of common issues it is important to understand that the common issues do not have to be issues which are determinative of liability; they need only be issues of fact or law that move the litigation forward. The resolution of a common issue does not have to be, in and of itself, sufficient to support relief. To require every common issue to be determinative of liability for every plaintiff and every defendant would make class proceedings with more than one defendant virtually impossible.

In Anderson v. Wilson, supra, Carthy J.A., speaking for a unanimous court, expressly adopted this reasoning.

[42] Against the backdrop of the low bar set by the legislature and judiciary for common issues, I turn to my third, and most important, reason for thinking that the courts below erred. Given the accepted definitions of the torts of fraudulent misrepresentation and negligent misrepresentation, I can see no logical or principled basis for treating them differently on the question of certification. I could understand an order certifying, or refusing to certify, both claims. I do not, however, understand why opposite orders were considered appropriate for the two claims.

[43] The best way to commence my discussion of my doubts on this issue is by setting out the motions judge's careful and accurate description of the elements of the two torts. He said [at pp. 195-96 O.R.]:

The constituent elements of a claim for fraudulent misrepresentation were enunciated by the Supreme Court of Canada in Parna v. G. & S. Properties Ltd., 1970 25 (SCC), [1971] S.C.R. 306 at p. 316, 15 D.L.R. (3d) 336 at p. 344:

". . . Anson on Contract [12th ed., p. 187], where "fraud" has been defined, reads:

[Fraud is] a false representation of fact, made with a knowledge of its falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it."

See also Derry v. Peek (1889), 14 App. Cas. 337 at p. 374, [1886-90] All E.R. Rep. 1 (H.L.).

The tort of negligent misrepresentation has five constituent elements. There must be a duty of care arising from a special relationship between a representator and a representee. There must be a representation made that was untrue, inaccurate or misleading. The representor must have made the statement negligently. The representee must have reasonably relied upon the statement and further, suffered damage as a result of the reliance. See Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87 at p. 110, 99 D.L.R. (4th) 626.

[44] There are substantial similarities in these definitions of the two torts. A fraudulent misrepresentation is "a false representation of fact"; a negligent misrepresentation is one that is "untrue, inaccurate or misleading". A fraudulent misrepresentation can be one that is made "recklessly, without belief in its truth"; a negligent misrepresentation is one that is made "negligently" or, to employ the standard non-conclusory word, "carelessly". At least two of the 15 common issues that have been certified relate directly to the tort of fraudulent misrepresentation:

(g) Did Bre-X and or the named defendants represent that:

(i) There is gold in mineable quantities in the Busang? . . .

(h) Were the representations identified by issue (g) made knowing that they were false or recklessly, caring not whether they were false or without exercising reasonable care and attention?

These common issues relate to two of the four components of the tort of fraudulent misrepresentation -- a false statement and two potential reasons (knowledge or recklessness) for the statement. In my view, they relate equally to two of the five components of the tort of negligent misrepresentation -- a false statement and one potential reason (carelessness) for the statement. My conclusion, therefore, is that there is a sufficient overlap in the legal claims of the plaintiffs, grounded in fraudulent misrepresentation and negligent misrepresentation, to justify certification for both claims.

[45] Fourth, in my view there is a substantial overlap of factual issues common to both torts. There are two core issues in this litigation: first, was there gold in mineable quantities in the Busang; and second, if there was not, what was the various defendants' knowledge of the true state of affairs?

[46] The defendants' conduct with respect to the first question was manifested in the 160 statements and press releases which informed the public about exploration developments in the Busang. These 160 statements will have to be analyzed in the context of the fraudulent misrepresentation claim. The analysis might become somewhat complicated. For example, it cannot be said categorically that the fraud crystallized with the first press release on May 6, 1993 and that all of the other statements from Bre-X during the next four years were mere elaborations on the crystallized fraud. This would not be true for several of the named defendants who were not associated with Bre-X in 1993 -- for example, Francisco, Lyons and Kavanagh. It follows that an individualized assessment of each defendant's conduct will be required in the certified class action relating to fraudulent misrepresentation.

[47] Given this reality, I see no principled basis for treating the claim in negligent misrepresentation differently. Under both torts, the focus will be on the defendants, their knowledge and their conduct. Did they know (fraud) that there was no gold in the Busang? Were they careless about (negligence) their knowledge of the state of affairs in the Busang? The answers to these questions under the tort of fraudulent misrepresentation might be different for each defendant. Some might have participated in the fraud from its inception. Some might have joined the fraud later. Others might never have known that there was a fraud or participated in it in a fashion that might give rise to liability. Precisely the same thing can be said about the tort of negligent misrepresentation. Some of the defendants might have been careless about the state of affairs in the Busang from the outset. Some might have become careless later. Others might never have been careless or participated in Bre-X's affairs in a fashion that would give rise to liability. In short, the complexity that exists with respect to determining the defendants' states of mind and conduct is inherent in both torts. It follows that certification should either be granted or withheld for both claims.

[48] I make one other observation with respect to the overlap of factual issues common to both torts. Both the motions judge and the Divisional Court attached great significance to the fact that the contested representations by Bre-X were not made on a single occasion; rather, they took the form of 160 statements and press releases. In the eyes of the motions judge and the Divisional Court, this posed particularly difficult problems on the reliance component of the tort of negligent misrepresentation. As expressed by the Divisional Court [at pp. 316-17 O.R.]:

The alleged negligent misrepresentations include 160 or more Bre-X press releases over a four-year period beginning May 10, 1993. The representations were different in content and made at different times by different people for different reasons. . . . As Winkler J. pointed out, the case of each individual plaintiff requires an individual inquiry as to what representations he or she relied upon and how he or she was affected by the particular representation. These individual inquiries cannot be circumvented.

[49] With respect, I think it is a mistake, at this early juncture of the litigation, to overemphasize the number and diversity of Bre-X's representations. One of the potential benefits of a class action with certified common issues relating to the knowledge and conduct of the defendants is that the resolution of those issues might narrow substantially the subsequent inquiries on the plaintiffs' side of the coin. As I understand the theory of the plaintiffs, the named defendants participated in a scheme to promote Bre-X shares by embarking on a program of issuing press releases they knew to be false, that portrayed the assay results from the Busang site as demonstrating the existence of a gold mine of staggering dimensions. If these facts can be established by the plaintiffs, the questions raised in para. 8(f) of the order declaring the common issues must be addressed. What did the individual defendants know about the promotional fraud? Here, if knowledge of the fraud cannot be attributed to a given defendant, the lesser degree of complicity respecting carelessness can be addressed. At this stage of the proceedings, the court does not know what this will entail by way of evidence. It is possible -- I put it no higher -- that fixing the knowledge and conduct of each Bre-X insider will present a much clearer picture. For example, if the moment when a Bre-X insider became careless about a representation or representations in which he participated could be isolated, the subsequent consideration, admittedly in individual trials, of such issues as duty of care and reliance might be rendered more focussed and manageable. This would "move the litigation forward". In short, the existence of 160 representations should not be used as a reason to refuse certification as a class action; rather, certification is, potentially, a way of reducing those 160 representations to a much smaller number of relevant ones.

[50] Fifth, in this action and in five companion actions, the plaintiffs made claims against five stock brokerage firms which provided investment advice and services to them. The motions judge concluded that the claims of fraudulent misrepresentation and negligent misrepresentation against the brokerage firms raised common issues appropriate for certification. He said [at pp. 236-38 O.R.]:

. . . I accept the plaintiffs' contention that common issues are raised on the basis that it is arguable that a finding can be made at a common issue trial that there is a point in time at which the analysts were, or ought to have been, aware of the alleged fraud.

The essence of misrepresentation is the negligent statement. If a point in time is fixed at which the analysts knew or ought to have known of the alleged fraud, then any statement to the contrary after that point is an inaccurate, negligently made statement. Such a finding would advance the litigation.

I agree with this analysis. In my view, if the words "Bre-X insiders" were substituted for "analysts", this reasoning would be equally applicable.

[51] In summary, the motions judge and the Divisional Court certified 15 common issues as appropriate for resolution in a class proceeding. The focus of these common issues is the knowledge and conduct of the defendants, the Bre-X insiders. The conduct, especially the reliance, of the plaintiffs stays on the sidelines at this juncture in the litigation. The plaintiffs advance four claims against the defendants. The courts below certified three of them, including the claim for fraudulent misrepresentation. I agree with these components of the courts' decisions. However, the courts below refused to certify the claim in negligent misrepresentation. For the above reasons, I am of the view that they erred in this refusal. After setting out the definitions of fraudulent and negligent misrepresentation, the motions judge said [at p. 196 O.R.]: "The essence of each tort is the representation made by the defendant to the plaintiff." I agree with that statement. However, in my view it serves to bind together, not divide, the treatment of both claims under the CPA.

(2) The "preferable procedure" issue

[52] Section 5(1)(d) of the CPA provides that a court shall certify a class proceeding if it would be the preferable procedure for the resolution of the common issues. The motions judge concluded that a class proceeding was not the preferable procedure for the claim of negligent misrepresentation. He said [at p. 202 O.R.]:

I have concluded that there are no common issues concerning the claim in negligent misrepresentation but even if I had not so concluded, I would nevertheless find that a class proceeding is not the preferable procedure for the resolution of any such issues for the reasons particularized in the SNC- Carom II and Brokers actions.

The Divisional Court agreed with the motions judge's reasoning and conclusion on this point.

[53] The SNC-Carom II and Brokers actions were companion actions brought by the plaintiffs against, respectively, companies which analyzed Bre-X's Busang project and stock brokerage firms which advised, and sold shares to, the plaintiffs. The crucial fact of these companion actions was that the claims of negligence and negligent misrepresentation were the only claims against the defendants. After a careful review of the relevant factors, the motions judge determined that a class proceeding was not a preferable procedure.

[54] The crucial difference in the present appeal is that a class action has already been certified for three of the four claims advanced by the plaintiffs. The question then becomes: if most of the plaintiffs' claims will proceed in a class proceedings context, is there a strong reason to exclude the claim in negligent misrepresentation from the proceedings? In my view, for several reasons, the answer to this question is "No".

[55] First, and at a general level, I am not aware of any Ontario case, before this one, in which some of the potential claims were certified while others were not certified. Anderson v. Wilson, supra, Dabbs v. Sun Life Assurance Co. of Canada (1998), 1998 14855 (ON SC), 40 O.R. (3d) 429, 22 C.P.C. (4th) 381 (Gen. Div.), Maxwell v. MLG Ventures Ltd., [1995] O.J. No. 1136 (Gen. Div.), and Peppiatt v. Nicol (1993), 1993 5485 (ON SC), 16 O.R. (3d) 133, 20 C.P.C. (3d) 272 (Gen. Div.) are all cases in which certifications were ordered. In several of these cases there were multiple claims advanced by the plaintiffs. On the other hand, Hollick v. Metropolitan Toronto (Municipality) (1999), 1999 2894 (ON CA), 46 O.R. (3d) 257, 181 D.L.R. (4th) 426 (C.A.), [See Note 2 at end of document] Controltech Engineering Inc. v. Ontario Hydro, supra, Rosedale Motors Inc. v. Petro-Canada Inc., supra, Mouhteros v. DeVry Canada Inc. (1998), 1998 14686 (ON SC), 41 O.R. (3d) 63, 22 C.P.C. (4th) 198 (Div. Ct.), and Abdool v. Anaheim Management Ltd. (1995), 1995 5597 (ON SCDC), 21 O.R. (3d) 453, 121 D.L.R. (4th) 496 (Div. Ct.) are all cases in which certification was refused. Again, in several of these cases there were multiple claims against the defendants. The implicit message from these results is that the courts seem to employ a starting point or presumption -- I put it no higher -- in favour of either complete certification or no certification. The decisions of the motions judge and Divisional Court in the present matter are not in tune with these results.

[56] Second, in my view there is substantial merit in trying to utilize the CPA to deal with as many issues as possible. On this point, the motions judge's analysis of the relationship among the three claims he certified is instructive [at p. 202 O.R.]:

Since I have found a class proceeding to be the preferable procedure for resolving the common issues in respect of the claim in conspiracy, I have concluded as well that it is in keeping with the goals of the CPA to determine the common issues arising out of the claims in fraudulent misrepresentation and breach of the Competition Act as part and parcel of the inquiry. The determination of the common issues proposed for the claims in fraudulent misrepresentation and under the Competition Act will not unduly complicate the common issue trial. In my view, it advances the goals of judicial economy to take advantage of the opportunity for efficiency presented by the common issue trial necessary for the claim in conspiracy. The fact that there will be a common issue trial between the same parties, on a claim which arises from the same background circumstances, favours including the common issues arising from claims in fraudulent misrepresentation and breach of the Competition Act, even though the plaintiffs may still have to engage in lengthy individual trials to determine the actual liability of the defendants on the claims. In these unique circumstances, the efficiencies achieved on the one hand, offset the inefficiencies on the other.

I agree with this analysis. I would simply extend it to the plaintiffs' fourth claim, the one in negligent misrepresentation.

[57] Third, I observe that the plaintiffs and defendants accept that detrimental reliance is an element of both the torts of fraudulent and negligent misrepresentation. Moreover, they agree that the reliance component will have to be dealt with at individual trials on the issue of fraudulent misrepresentation. Yet the defendants do not use this two-track scenario as a basis for challenging, by way of appeal or cross- appeal, the certification of the claim in fraudulent misrepresentation. In my view, this silence tells in favour of moving the negligent misrepresentation claim onto the same unchallenged track on which the fraudulent misrepresentation claim is already situated.

[58] Fourth, the fact that determination of some of the common issues relevant to the claim in negligent misrepresentation (or indeed the other three claims) will not resolve the entire litigation is not determinative. Certification can be the preferable procedure in situations far short of final resolution of the lawsuit.

[59] On this point, the decision of this court in Anderson v. Wilson, supra, is instructive. In that case, the court certified claims in negligence and breach of contract by patients exposed to Hepatitis B through electroencephalogram tests administered by the defendant clinics. The court found that the class proceeding could not resolve the ultimate issues of liability and damages because it could not provide an answer to the pivotal question of causation. In those circumstances, Carthy J.A. framed the question in these terms, at p. 683 O.R.:

The question then becomes whether there are sufficient common issues left to justify certification. In my view, it seems sensible with this number of potential plaintiffs and the similarities that are evident in their claims, that any potential efficiency in advancement of their claims through the flexibility provided by the CPA should, where reasonable, be utilized.

[60] In my view, this passage evinces a proper understanding of, and respect for, the objectives of the CPA. The CPA does provide a flexible procedure for dealing with multiple plaintiffs with similar claims, usually arising out of a single accident, catastrophe or other major event.

[61] Carthy J.A. then proceeded to answer his own question in Anderson v. Wilson. He said, at pp. 683-84 O.R.:

In this case, the common issue as to the standard of conduct expected from the clinics from time to time, and whether they fell below the standard, can fairly be tried as a common issue. Resolving this issue would move the litigation forward. The participation of the class members is not needed for that inquiry, although their later evidence may bear upon whether standards, such as the use of gloves, were actually met in individual cases. Isolating this one major issue, the class action proceeding clearly appears to be the preferable method of resolution to the benefit of all parties.

[62] A similar analysis can be made in the present appeal. The major common issue in this action is the knowledge and conduct of the Bre-X insiders. What did they know about gold in the Busang and when did they know about it? And, given their knowledge, what did they tell the public and what legal rubrics (innocent, false, careless, anti-competitive, conspiratorial) should be attached to their statements? The answers to some of these questions may become complicated. Moreover, different answers may be required for different defendants. However, the complications are offset by two overarching considerations. First, the presence and the stories of the plaintiffs are not required for the first stage of the lawsuit. The focus is on the defendants, their knowledge and their conduct. The determination of these matters, although perhaps difficult, will move the litigation forward. Second, it is uncontroverted that there will be a class proceeding with respect to three of the plaintiffs' claims. In that context, it seems sensible and desirable to place the claim of negligent misrepresentation on the same litigation track.

Disposition

[63] I think it important, and fair, to place the disposition of this appeal in a proper context. The Bre-X debacle has given rise to seven separate lawsuits involving three different groups of defendants -- the Bre-X insiders, external analyst corporations and stock brokerage firms. The plaintiffs have sought certification of all of their legal claims in all seven actions. A single judge, Winkler J., has been charged with dealing with all class proceedings aspects of these actions. In a series of comprehensive, careful and, I might say, timely decisions, the motions judge has resolved many important and difficult issues, including whether there are causes of action, the definition of the plaintiff class, mechanisms for non- residents of Ontario to participate (or not) in the class proceedings, and, ultimately, the appropriateness of certification of class actions in terms of the statutory criteria of "common issues" and "preferable procedure". In all of this, the vast majority of the motions judge's decisions have been accepted by the parties.

[64] The sole exception -- and it is a minor one in the grand scheme of the lawsuits relating to Bre-X -- is this appeal, which challenges the decisions of the Divisional Court and the motions judge refusing to certify the plaintiffs' claim in negligent misrepresentation against the Bre-X insiders.

[65] For the reasons I have outlined above, I would allow the appeal. Paragraph 9 of the Order of the Superior Court of Justice should be amended by deleting reference to the claim in negligent misrepresentation.

[66] In my view, the appellants are entitled to their costs of the appeal, including the motion for leave to appeal. The appellants are also entitled to their costs in the Divisional Court. The costs order of the motions judge should stand.

Order accordingly.

Notes

Note 1: Mr. Walsh is deceased. The action continues against his estate with his wife, Jeannette Walsh, as estate trustee.

Note 2: Leave to appeal granted on September 21, [2000] S.C.C.A. No. 41.