SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ED J. MCKENNA, Plaintiff/Moving Party
- and -
GAMMON GOLD INC., et al. Defendants/Respondents
BEFORE: G.R. Strathy J.
COUNSEL: Margaret Waddell, A. Dimitri Lascaris and Daniel Bach, for the plaintiff
Paul J. Martin, Laura F. Cooper & Vera Toppings, for the defendants Gammon Gold Inc., et al.
DATE HEARD: Case Conference January 10, 2012 and by Written Submissions
E N D O R S E M E N T
(Settlement of Certification Order: Class Definition and Representative Plaintiff)
1This endorsement addresses two questions raised by the defendant Gammon Gold Inc. (“Gammon”) arising out of the certification of this action, in light of my subsequent reasons addressing the conspiracy claims: McKenna v. Gammon Gold Inc., 2011 ONSC 6630. The resolution of these questions is necessary to settle the terms of the certification order and I will give brief reasons for my conclusions.
Class Definition
2The first issue is the class definition. In my reasons certifying the action, McKenna v. Gammon Gold Inc., 2010 ONSC 1591, I approved a primary market misrepresentation claim under s. 130 of the Securities Act, S.O. 1990, c. S.5 and a claim against the Underwriters for unjust enrichment and waiver of tort. The class definition was limited to persons who acquired Gammon’s securities from the Underwriters in Canada under the prospectus. In light of the certification of the conspiracy claims for both primary and secondary market purchasers, the class definition must be expanded.
3Gammon raises concerns with respect to the class definition. The first is whether or not “early sellers” in the secondary market should be excluded from the class. The second is what Gammon refers to as the “arbitrary class period beginning and end dates.”
(a) Early Sellers
4In my reasons on certification, I addressed this question in relation to the primary market claim at paras. 119 to 122. I accepted the proposition that in securities misrepresentation cases, it will usually be appropriate to exclude early sellers from the class, because shareholders who dispose of their securities before the correction of the misrepresentation cannot suffer a loss due to the misrepresentation. The effect of the misrepresentation remains reflected in the market value of their securities at the time of sale. I referred to: Pearson v. Boliden Ltd. (2002), 2002 BCCA 624, 222 D.L.R. (4th) 453 (B.C.C.A.) at paras. 92-93 and Carom v. Bre-X Minerals Ltd. (1999), 1999 CanLII 19916 (ON SCDC), 46 O.R. (3d) 315 (Div. Ct.) at paras. 21-23, var'd on other grounds (2000), 2000 CanLII 16886 (ON CA), 51 O.R. (3d) 236 (C.A.); see also Kerr v. Danier Leather Ltd. (2004), 2004 CanLII 8186 (ON SC), 46 B.L.R. (3d) 167 (Ont. S.C.J.) at para. 345, rev'd on other grounds (2007), 2007 SCC 44, 36 B.L.R. (4th) 95 (S.C.C.). A similar conclusion was reached by Perell J. in Coulson v. Citigroup Global Markets Canada Inc., 2010 ONSC 1596, [2010] O.J. No. 1109 at paras. 135-139.
5I concluded, however, that notwithstanding the general rule, it would be premature to exclude the early sellers, because Gammon had alleged that there had been partially corrective disclosure within a few weeks of the issuance of the prospectus and the onus would be on Gammon to show that early sellers had not suffered a loss.
6It is well established that a class may include persons who may not ultimately have a claim against the defendant and that this is not fatal to the class definition: see Boulanger v. Johnson & Johnson Corp., 2007 CanLII 735 (ON SC), [2007] O.J. No. 179, 40 C.P.C. (6th) 170 (S.C.J.) at para. 22, leave to appeal ref’d [2007] O.J. No. 1991 (S.C.J.), referring to Bywater v. Toronto Transit Commission, [1998] O.J. No. 4913 (Gen. Div.) at para. 10. In Silver v. Imax Corp., 2009 CanLII 72334 (ON SC), [2009] O.J. No. 5585, 86 C.P.C. (6th) 273, van Rensburg J. made observations to this effect at para. 107:
The submission by the defendants in this case that the class is overbroad because some of the class members may not have claims depends on their contention that there will be individual issues (such as reliance and damages) to be decided after the common issues have been determined. While the plaintiffs assert that reliance (based on the efficient market theory) and damages (contending that an aggregate assessment will be appropriate) will not be individual issues in this case, even if they are wrong and individual issues remain after the determination of the common issues, this is not an impediment to certification. As Cullity J. noted in Heward v. Eli Lilly & Co., 2007 CanLII 2651 (ON SC), [2007] O.J. No. 404 (S.C.), at para. 69, "whenever, because of the existence of individual issues, a judgment on the common issues in favour of the plaintiffs will not determine a defendant's liability, it will always be possible -- and invariably likely -- that an acceptable class will include persons who will not have valid claims".
7The class definition will determine those who are bound by the decision. It will not determine who is entitled to relief. While the class definition should not be unnecessarily broad, it should not be unduly restrictive, particularly when the scope of those entitled to relief is uncertain.
8I am not satisfied that the scope of those entitled to relief with respect to the conspiracy cause of action can be identified with a reasonable degree of certainty at this time. In particular, until such time as there are findings concerning the nature of the conspiracy and the acts done in furtherance of the conspiracy, it cannot be said with certainty that early sellers have suffered no damages as a result of the conspiracy. For that reason, I decline to exclude early sellers from the class. I see no particular downside to including them, and there is a risk that their rights will be affected if they are excluded.
(b) Class Period
9As the action as originally certified was limited to prospectus purchasers, there was no need to define the class period. With the certification of the conspiracy claim, that issue must now be addressed.
10The class period proposed on the certification motion was October 10, 2006 to August 10, 2007. The first date was the date of a press release issued by Gammon, in which it was stated that Gammon was on track to attain annual production of 400,000 gold equivalent ounces by the end of the 2006 calendar year. The end of the class period coincides with the date on which Gammon allegedly disclosed that it was unlikely to meet its projected production target for 2007. This disclosure allegedly corrected the misrepresentations that had been made during the Class Period, in the prospectus, regulatory filings and public statements.
11Gammon argued on the certification motion that the alleged “misrepresentations” were nothing more than overly optimistic “projections”, which had been made, in one form or another, prior to the proposed start date of the class period. It also argued that the end date is arbitrary, because, according to the plaintiff’s own expert, there had been partially corrective disclosure prior to the proposed end date of the class period.
12The plaintiff is entitled to define the class period with reference to his theory of the case – in this case, the theory is that during the class period, which is bounded by specific public statements, Gammon’s securities were trading at an inflated price and purchasers during that period suffered damages as the truth was gradually disclosed. There is at least some basis in fact for this theory and therefore for the class definition. The dates are not arbitrary.
Representative Plaintiff
13The second issue is whether Mr. McKenna is a suitable representative for the secondary market purchasers in relation to their conspiracy claim, which has now been certified, along with the same claim on behalf of the primary market purchasers. In my reasons on certification I addressed some of Gammon’s concerns about the adequacy of Mr. McKenna as a representative plaintiff. It was not necessary to address many of Gammon’s other concerns, because I had not certified the common law misrepresentation claims and I had not yet addressed the conspiracy claim.
14Gammon says that in light of the certification of the conspiracy claim on behalf of both primary and secondary market purchasers, it is necessary to determine whether Mr. McKenna can adequately represent both groups.
15In my view, there is no conflict between the interests of the primary and secondary market purchasers, in relation to the conspiracy claim, that warrants the appointment of a separate representative plaintiff to assert that claim on behalf of the secondary market purchasers. Both groups will share the common objective of establishing the fact of a conspiracy, its breadth and its scope. They will share a common interest in establishing the participants in the conspiracy. While the secondary market purchasers may have an interest in establishing that the acts in furtherance of the conspiracy were broader than those affecting the primary market purchasers, their interests are compatible.
16As the plaintiff points out, in McCann v. CP Ships Ltd., [2009] O.J. No. 5182 (S.C.J.), secondary market purchasers were appointed to represent a class that included primary market purchasers. In Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25, [2011] O.J. No. 932 (S.C.J.), a similar order was made. Justice Tausenfreund relied on Hughes v. Sunbeam Corp., 2002 CanLII 45051 (ON CA), [2002] O.J. No. 3457, 61 O.R. (3d) 433 at para. 15 (C.A.) and Boulanger v. Johnson and Johnson Corp., 2003 CanLII 45096 (ON SCDC), [2003] O.J. No. 1374, 64 O.R. (3d) 208 at para. 41 (Div. Ct.), to the effect that as long as the plaintiff has a cause of action against the defendant, he or she may assert other causes of action that are not their personal causes of action but which are asserted by them on behalf of class members. This case is stronger, because Mr. McKenna has the same cause of action as the secondary market purchasers. I realize that both McCann and Dobbie were cases in which the representative plaintiffs were secondary market purchasers and Mr. McKenna is a primary market purchaser, but I do not consider the distinction significant.
17For these reasons, I approve the appointment of Mr. McKenna as a representative on behalf of both primary and secondary market purchasers in relation to the conspiracy claim.
18Counsel should endeavour to agree on a form of order to give effect to my conclusions on the conspiracy claim and these reasons. If necessary, a case conference can be arranged.
G.R. Strathy J.
DATE: January 17, 2012