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

46 O.R. (3d) 315

[1999] O.J. No. 5114

No. 387/99

Ontario Superior Court of Justice

Divisional Court

O'Driscoll, Archie Campbell and MacFarland JJ.

December 6, 1999

Civil procedure -- Class proceedings -- Certification -- Common issues -- Preferable procedure -- Representative plaintiff test -- Representative plaintiffs being shareholders of Alberta company developing gold mine in Indonesia -- Allegation that defendants conspired to increase share prices for their own benefit by fraudulent communications of gold resources -- Investors suffering loss when share values plummeting after disclosure that reports of gold resources fraudulent -- Representative plaintiffs seeking certification of seven intended class proceedings -- Claims advanced of conspiracy, fraudulent misrepresentation, negligence, negligent misrepresentation and breach of Competition Act -- No common issue for negligent misrepresentation claim -- Negligent misrepresentation claim requiring individual inquiries -- Some actions raising some common issues but not satisfying preferable proceeding and representative plaintiff tests -- Class Proceedings Act, 1992, S.O. 1992, c. 6.

NOTE: The catchlines above relate to a decision of Winkler J. of the Superior Court of Justice, reported at 1999 14794 (ON SCDC), 44 O.R. (3d) 173. An appeal of this judgment to the Divisional Court was dismissed on consent with respect to certain defendants and was dismissed with respect to the remaining defendants. The endorsement of the court was delivered by

Paul J. Pape and Donald H. Jack, for appellants. Brian P. Bellmore, for Rolando C. Francisco. Lawrence E. Thacker, for David G. Walsh et al. Joseph Groia, for John B. Felderhof. Robert Muir, for John B. Thorpe. James T. Eamon, for Hugh C. Lyons. Paul H. Le Vay, for Paul M. Kavanagh. H. Douglas Stewart, Q.C., for Bresea Resources Ltd.

ARCHIE CAMPBELL J.: --

The Facts

The facts are set out in the judgment of Winkler J., reported at (1998), 1998 14705 (ON SC), 41 O.R. (3d) 780, and in the factums.

The Parties

The claims against First Marathon, Kerry Smith, Nesbitt Burns, and Egizio Bianchini have been dismissed on consent. The only remaining defendants are the Bre-X insiders. The brokers are out of the case. Their departure disposes of the appellants' main argument, that the restrictions on the class certification "effectively blocked thousands of Nesbitt Burns customers from seeking justice and compensation for their losses" and that no "single plaintiff will now feel bold enough to sue Nesbitt Burns and its parent, the Bank of Montreal".

The Issues

1. Did Winkler J. err in restricting the common issues to conspiracy and fraud, and in not certifying negligent misrepresentation as a common issue?

2. Did Winkler J. err in restricting the plaintiff class to those investors who held Bre-X shares on March 26 1997, the date of public disclosure of possible fraud?

Reliance and Causation as Common Issues

To succeed in negligent misrepresentation the plaintiff must prove reliance and causation. They must prove that each of them relied on one or more particular misrepresentation and that the reliance caused them to incur a loss: Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626. 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. The Bre-X representations were not necessarily consistent with the representations of the brokerage houses who are no longer in the action. The plaintiffs bought their stock at different times through different brokerage houses in reliance on different representations, some of which might not have emanated from Bre-X. 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.

This is not a case like Maxwell v. MLG Ventures Ltd., [1995] O.J. No. 1136 (Gen. Div.), per Ground J. (offering circular), at para. 2 or Peppiatt v. Nicol (1993), 1993 5485 (ON SC), 16 O.R. (3d) 133, 20 C.P.C. (3d) 272 (Gen. Div.), per Chilcott J. (information package), at pp. 137-38, where the misrepresentations complained of were found in a single written document. In this case, unlike those cases, it is necessary to sort through and examine the individual effect, in terms of reliance by each plaintiff, of the myriad of different representations made by the remaining defendants and by the brokers who are now out of the litigation. Which individual representations did the individual investor hear and rely upon? Winkler J. properly applied the principle in cases such as Controltech Engineering v. Ontario Hydro, [1998] O.J. No. 5350 (Gen. Div.), per Sharpe J.; Mouhertos v. DeVry Canada (1998), 1998 14686 (ON SC), 41 O.R. (3d) 63, 22 C.P.C. (4th) 198 (Gen. Div.), per Winkler J.; Rosedale Motors v. Petro-Canada (1998), 1998 14721 (ON SC), 42 O.R. (3d) 776, [1998] O.J. No. 4496 (Gen. Div.), per Sharpe J., both in respect of common issues and preferable procedure.

Negligent Misrepresentation Distinguished from Fraud and Conspiracy

There are common issues in the fraud and conspiracy causes of action but no common issues in the negligent misrepresentation cause of action. As Winkler J. pointed out, the difference is that in the former as opposed to the latter it is contended that every representation, whenever made, is tainted by the fraud. One single overarching central fraud is alleged, as opposed to individual negligent misrepresentations. The allegation, that the single overall fraud permeates every statement, raises common issues regardless of whether individual issues may arise from the individual communications relied upon or not relied upon by the individual class members. If every representation was, as alleged, part of a single scam, it is not necessary to distinguish between the representations, as it would be in a case of negligent misrepresentation. Reliance and causation can easily be demonstrated on a common basis if it was a single lie from the beginning that there was gold in the ground in Busang. Reliance and damages cannot be demonstrated on a common basis when the details of each representation and the reliance of each investor have to be examined individually.

This was either a fraud from the beginning or it was not. If the former, there is a common issue. If the latter, each representation must be examined in terms of its individual effect on each individual investor: see paras. 78, 79 of the judgment of Winkler J [reported 1999 14794 (ON SCDC), 44 O.R. (3d) 173 at pp. 197-98].

Preferable Procedure

Even if it could be argued that there is an inconsistency (despite the great difference in position between the insiders and the brokers) in saying that some aspects of the brokers actions raised common issues in negligent misrepresentation (see paras. 243, 255 [pp. 236, 238 O.R.]), but that no aspects of the insider actions raise such common issues (para. 78 [p. 197]), no error in that regard could have affected the result in light of the correct conclusion that a class action is not the preferable procedure for the negligent misrepresentation claims.

Although there may be an arguable irony, in giving the insiders a defence in the class action that they were negligent but not fraudulent, the fact remains that in a negligent misrepresentation case any common issues would be completely subsumed by the plethora of individual issues which would necessitate separate trials for virtually every class member.

So far as preferable procedure is concerned, the reasoning in relation to the broker actions applies equally to the insider actions: see paras. 256-75 [pp. 239-44].

Because each class member will have to participate in an individual trial in order to establish reliance, causation, and damages in respect of the various separate representations, and because these individual issues are much complicated by the particular relationship between each investor and his or her investment adviser, this is not a case where simple mini-trials on the issue of causation and damages could realistically or efficiently piggyback a common issue trial. Winkler J. pointed out that the details of each representation had to be analyzed in terms of the thought processes and actions of each investor after each representation and that the actions taken by the class members after each representation would have to be scrutinized as well.

This formed an adequate basis for his discretionary conclusion that a class action was not the preferable procedure for the negligent misrepresentation claims.

The management and trial of a class action procedure, quite apart from all the theoretical considerations referred to in the jurisprudence, involve some very practical considerations and a realistic approach is required when considering the question of preferable procedure. It defeats the purpose of the legislation to certify a class action that is too big and complicated to manage effectively. Some measure of deference is advisable when reviewing the discretion exercised, as here, by a trial judge with considerable experience in the management and settlement of class actions: Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673 at p. 677, 175 D.L.R. (4th) 409 (C.A.); Campbell v. Flexwatt (1997), 1997 4111 (BC CA), 15 C.P.C. (4th) 1 at p. 12, 44 B.C.L.R. (3d) 343 (C.A.).

Anderson v. Wilson

Nothing in the Court of Appeal decision in Anderson v. Wilson, released after the judgment of Winkler J., affects the matter. Both the Divisional Court and the Court of Appeal in Anderson v. Wilson held that it is not necessary to demonstrate that the common issues will in themselves determine liability. The common issue need only be an issue of fact or law that will move the litigation forward.

Advance the Litigation

There are many different ways to express the principle that the determination of the proposed common issue will move the litigation forward, for instance:

. . . decide and dispose of one aspect of the case that will move the litigation forward [in a meaningful way]?

(Rosedale Motors v. Petro Canada, at p. 785.)

It is not necessary, in order to proceed with a class action, to demonstrate that the common issues will in themselves determine liability. The common issues need only be issues of fact or law that move the litigation forward: Campbell v. Flexwatt Corp. . . .

(Anderson v. Wilson (1998), 1998 18878 (ON SC), 37 O.R. (3d) 235 at p. 243, 156 D.L.R. (4th) 735 (Div. Ct.), affirmed in the Court of Appeal.)

Winkler J. said there was "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".

It is not helpful to parse the use by Winkler J. of the expression "contribute to the case in a legally material way". There is no difference between "meaningful" and "legally material". They mean the same thing.

Winkler J. did not err in identifying or applying the "move the litigation forward" test.

March 26, 1997

The appellants sought a class certification for all those persons in Canada who purchased shares of Bre-X from May 1, 1993 to March 26, 1997 (the date of public disclosure of possible fraud) and suffered a loss as a result. Winkler J. described the class as all those persons in Canada who held shares in Bre-X as of March 26, 1997, the day of the public disclosure that there was no gold, and suffered a loss as a consequence.

It is no part of the plaintiff's case that the market price before March 26, 1997 would have been any different if all the defendants' representations were true. It is common ground that those who sold before then could not have relied to their detriment on any representation. No shareholder loss before then could have been caused by any misrepresentation. Any loss before then was caused by the sale, not by the fraud.

Winkler J. held that the losses did not arise from the delicts alleged in the causes of action pleaded, and therefore could not be included in the class.

He correctly held that a Bre-X shareholder who sold her shares before March 26, 1997 was always in the same identical position whether or not there was any gold.

There is therefore no error in the temporal description of the class.

Representative Plaintiffs

Although there is some reference in the responding material to the appropriateness of the representative plaintiffs, particularly now that the brokers are out of the case, that issue is not before the court on this appeal.

The identification of representative plaintiffs is an interlocutory decision that can be changed by the supervising judge if required by changing circumstances. Even if leave to appeal were sought, there is no reason for this court to deal with that matter. Winkler J. has ample jurisdiction to deal with any change in the representative plaintiffs that results from the taking out of the brokers.

Conclusion

For these reasons, the appeal is dismissed.