Dobbie et al. v. Arctic Glacier Income Fund et al.; Larson et al., Proposed Defendants/Moving Parties [Indexed as: Dobbie v. Arctic Glacier Income Fund]
109 O.R. (3d) 607
2012 ONSC 773
Ontario Superior Court of Justice,
Leitch J.
February 1, 2012
Civil procedure -- Class proceedings -- Leave to appeal motion judge's ruling on Rule 21 motion and certification motion granted -- Supreme Court of Canada releasing two decisions subsequent to release of motion judge's reasons which were significant to pleading of negligence and negligent misrepresentation -- Those decisions creating correctness and conflict issue with respect to motion judge's conclusions.
Securities regulation -- Action -- Motion judge granting plaintiffs leave to commence proceedings against proposed defendants under s. 130 of Securities Act -- Proposed defendants being officers of subsidiary of defendant income fund -- Record containing no evidence that they had any role in corporate disclosure activities or public statements of income fund -- Leave to appeal order granted.
The defendants and proposed defendants brought a motion for leave to appeal the motion judge's ruling on a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, an order granting the plaintiffs leave to commence an action pleading causes of action under Part XXIII.1 of the Ontario Securities Act, R.S.O. 1990, c. S.5 ("OSA") and an order certifying the proceeding as a class proceeding.
Held, the motion should be granted in part.
Leave to appeal the Rule 21 motion should be granted in relation to the pleadings of negligence and negligent misrepresentation. After the release of the motion judge's reasons, the Supreme Court of Canada released two decisions which were significant to the pleading of negligence and negligent misrepresentation. Those cases created a correctness and conflict issue with respect to the motion judge's conclusions which would benefit from appellate review.
Leave to appeal should be granted with respect to the order granting leave to commence proceedings against the proposed defendants C and L under the OSA. [page608] C and L were officers of a subsidiary of the defendant Income Fund, but the record contained no evidence that they had any role in the corporate disclosure activities or public statements of the Income Fund. Leave ought to be granted on the issues of whether the motion judge erred in determining that L and C were de facto officers of the Income Fund, whether the motion judge erred in interpreting and applying the standard of "acquiescence" in s. 138.3(c) of the OSA, and whether the motion judge erred in determining that L and C were "probably aware that at least certain of the core documents in question contained misrepresentation" and that that was sufficient to establish a reasonable possibility that the proposed action against L and C would be resolved at trial in favour of the plaintiffs.
MOTION for leave to appeal an order made on a Rule 21 motion, certification order and an order granting leave to commence proceedings under the Securities Act.
Cases referred toMcCann v. C.P. Ships Ltd., [2009] O.J. No. 5182 (S.C.J.); Menegon v. Philip Services Corp., 2003 CanLII 36468 (ON CA), [2003] O.J. No. 8, 167 O.A.C. 277, 31 B.L.R. (3d) 29, 119 A.C.W.S. (3d) 525 (C.A.), affg 2001 CanLII 28396 (ON SC), [2001] O.J. No. 5547, [2001] O.T.C. 989, 23 B.L.R. (3d) 151, 111 A.C.W.S. (3d) 1090 (S.C.J.) [Leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 95]; Metzler Investment GMGH v. Gildan Activewear Inc., [2009] O.J. No. 5695 (S.C.J.); Pearson v. Boliden Ltd., [2002] B.C.J. No. 2593, 2002 BCCA 624, 222 D.L.R. (4th) 453, 175 B.C.A.C. 104, 7 B.C.L.R. (4th) 245, 119 A.C.W.S. (3d) 13 [Leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 29]; R. v. Imperial Tobacco Canada Ltd., [2011] 3 S.C.R. 45, [2011] S.C.J. No. 42, 2011 SCC 42, 308 B.C.A.C. 1, 419 N.R. 1, 2011EXP-2380, J.E. 2011-1326, 335 D.L.R. (4th) 513, 205 A.C.W.S. (3d) 92, 21 B.C.L.R. (5th) 215, 25 Admin. L.R. (5th) 1, 86 C.C.L.T. (3d) 1, [2011] 11 W.W.R. 215, 83 C.B.R. (5th) 169; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., [2011] 2 S.C.R. 175, [2011] S.C.J. No. 23, 2011 SCC 23, 306 B.C.A.C. 1, 82 C.C.L.T. (3d) 1, 416 N.R. 1, EYB 2011-190358, [2011] 7 W.W.R. 1, 2011EXP-1577, J.E. 2011-871, 331 D.L.R. (4th) 1, 18 B.C.L.R. (5th) 1, 5 R.P.R. (5th) 1, 81 B.L.R. (4th) 1; Silver v. Imax Corp., 2009 CanLII 72334 (ON SC), [2009] O.J. No. 5585, 86 C.P.C. (6th) 273 (S.C.J.); Silver v. Imax Corp., 2009 CanLII 72342 (ON SC), [2009] O.J. No. 5573, 66 B.L.R. (4th) 222 (S.C.J.) [Leave to appeal refused (2011), 105 O.R. (3d) 212, [2011] O.J. No. 656, 2011 ONSC 1035, 80 B.L.R. (4th) 228 (Div. Ct.)], consd Other cases referred to Ainslie v. CV Technologies Inc. (2008), 2008 CanLII 63217 (ON SC), 93 O.R. (3d) 200, [2008] O.J. No. 4891, 304 D.L.R. (4th) 713, 171 A.C.W.S. (3d) 964 (S.C.J.); Alvi v. Misir (2004), 73 O.R. (3d) 566, [2004] O.J. No. 5088, [2004] O.T.C. 1102, 135 A.C.W.S. (3d) 825 (S.C.J.); Aristocrat Restaurants Ltd. (c.o.b. Tony's East) v. Ontario, [2004] O.J. No. 5164 (S.C.J.); Boulanger v. Johnson & Johnson Corp. (2003), 2003 CanLII 45096 (ON SCDC), 64 O.R. (3d) 208, [2003] O.J. No. 1374, 226 D.L.R. (4th) 747, 170 O.A.C. 333, 32 C.P.C. (5th) 203, 122 A.C.W.S. (3d) 422 (Div. Ct.); Carom v. Bre-X Minerals Ltd. (1998), 1998 CanLII 14705 (ON SC), 41 O.R. (3d) 780, [1998] O.J. No. 4496, 78 O.T.C. 356, 41 B.L.R. (2d) 246, 43 C.C.L.T. (2d) 310, 27 C.P.C. (4th) 73, 83 A.C.W.S. (3d) 363 (Gen. Div.); Coulson v. Citigroup Global Markets Canada Inc., [2010] O.J. No. 1109, 2010 ONSC 1596, 92 C.P.C. (6th) 301; Deep v. M.D. Management, [2008] O.J. No. 961, 2008 ONCA 189, 64 C.C.L.I. (4th) 41, 164 A.C.W.S. (3d) 611, affg 2007 CanLII 22655 (ON SC), [2007] O.J. No. 2392, 35 B.L.R. (4th) 86 (S.C.J.); Dobbie v. Arctic Glacier Income Fund, [2011] O.J. No. 932, 2011 ONSC 25; Healey v. Lakeridge Health Corp., [2006] O.J. No. 4277, 38 C.P.C. (6th) 145, 152 A.C.W.S. (3d) 372 (S.C.J.); Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105, 23 A.C.W.S. (3d) 101; Lawrence v. Atlas Cold Storage Holdings Inc., [2006] O.J. No. 3748, 34 C.P.C. (6th) 41, 151 A.C.W.S. (3d) 408 (S.C.J.); McKenna v. Gammon Gold Inc., [2010] O.J. No. 1057, 2010 ONSC 1591; Mondor v. Fisherman, 2001 CanLII 28388 (ON SC), [2001] O.J. No. 4620, 18 B.L.R. (3d) 260, 8 C.C.L.T. (3d) 240, 15 C.P.R. (4th) 289, 109 A.C.W.S. (3d) 860 (S.C.J.); [page609] Odhavji Estate v. Woodhouse, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, 2003 SCC 69, 233 D.L.R. (4th) 193, 312 N.R. 305, J.E. 2004-47, 180 O.A.C. 201, 11 Admin. L.R. (4th) 45, 19 C.C.L.T. (3d) 163, 127 A.C.W.S. (3d) 178; Shaw v. BCE Inc., [2003] O.J. No. 2695 (S.C.J.); Sudbury Downs v. Ontario Harness Horse Assn., [2002] O.J. No. 5505 (S.C.J.); Syl Apps Secure Treatment Centre v. D. (B.), [2007] 3 S.C.R. 83, [2007] S.C.J. No. 38, 2007 SCC 38, 284 D.L.R. (4th) 682, 365 N.R. 302, J.E. 2007-1512, 227 O.A.C. 161, 49 C.C.L.T. (3d) 1, 39 R.F.L. (6th) 245, 159 A.C.W.S. (3d) 464, EYB 2007-122390 Statutes referred to Ontario Securities Act, R.S.O. 1990, c. S.5, ss. 130 [as am.], (1) [as am.], (a), 138.1 [as am.], 138.3 [as am.], (1) [as am.], (a), (b), (c), (d), Part XXIII.1 [as am.], 138.8 [as am.], (1) [as am.], (a), 138.14 [as am.] Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 21, 25, 25.11, 62.02(4)
A. Dimitri Lascaris, Michael G. Robb and Daniel Bach, for plaintiffs. Dana M. Peebles, for defendants/moving parties. Nigel Campbell and Andrew McLachlin, for Gary Cooley, proposed defendant/moving party. Jeff Leon and Eric Hoaken, for Frank Larson, proposed defendant/moving party.
[1] LEITCH J.: -- The defendants and the proposed defendants seek leave pursuant to rule 62.02(4) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] to appeal a number of orders made by Tausendfreund J. on March 1, 2011 [[2011] O.J. No. 932, 2011 ONSC 25]: a Rule 21 order, a certification order and a leave order, all of which are described in more detail below.
[2] The motion judge provided a very detailed analysis in thoughtful reasons following a lengthy certification hearing. However, since the release of his reasons, the Supreme Court of Canada released two decisions, which are significant to the pleading of negligence and negligent misrepresentation. I have found it appropriate to grant leave to appeal the Rule 21 order in relation to those pleadings and as a result have also granted leave to appeal the certification order. In addition, I have also granted the proposed defendants, Mr. Cooley and Mr. Larson, leave to appeal the orders granting the plaintiffs leave to commence proceedings against them under s. 130 of the Ontario Securities Act, R.S.O. 1990, c. S.5 ("OSA"). [page610] The Rule 21 Order
[3] The defendants' motion requesting that certain portions of the Statement of Claim be struck was granted in part. The common law pleadings alleging negligence, negligent misrepresentation and breach of trust against the Income Fund were struck; the plaintiffs were required to amend their pleading to plead the relevant provisions of the Securities Acts of other provinces and territories; the pleading alleging a cause of action under s. 130 of the OSA against the defendant Richard L. Johnson was struck; and the plaintiffs were granted leave to serve a fresh as amended Statement of Claim. The Leave Order
[4] The motion by the plaintiffs for leave to commence an action pleading causes of action under Part XXIII.1 of the OSA was granted, allowing the plaintiffs to file a fresh as amended Statement of Claim to plead these causes of action with respect to the disclosure documents released by the Income Fund between March 13, 2002 and June 30, 2008. The Certification Order
[5] The plaintiffs' motion requesting certification of the proceeding as a class proceeding was allowed, subject to the amendments ordered by the Rule 21 and OSA leave orders. The Test for Leave to Appeal
[6] Rule 62.02(4) provides that leave to appeal shall be granted where (a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or (b) there appears, to the judge hearing the motion, good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.
[7] The defendants submit that both tests are met on this motion.
[8] Essentially, the defendants submission is that, at a minimum, the decisions of the motion judge are open to serious debate; this area of law would benefit from appellate scrutiny and the outcome of the appeal "would be of significant interest to every public company in Canada, to all of their current and future shareholders across the country, to securities regulators, [page611] and to the entire national bars of corporate counsel, class action counsel and securities litigation lawyers" (para. 31 of the defendants' factum respecting the Rule 21 motion).
[9] On the other hand, the plaintiffs note that this is the second decision where leave to proceed under Part XXIII.I of the OSA has been granted and a class action has been certified involving common-law misrepresentation, the first being Silver v. Imax, 2009 CanLII 72334 (ON SC), [2009] O.J. No. 5585, 86 C.P.C. (6th) 273 (S.C.J.) (common law misrepresentation action), 2009 CanLII 72342 (ON SC), [2009] O.J. No. 5573, 66 B.L.R. (4th) 222 (S.C.J.) (leave under the OSA) and leave to appeal those decisions was denied ((2011), 105 O.R. (3d) 212, [2011] O.J. No. 656, 2011 ONSC 1035 (Div. Ct.)). Overall, the position of the plaintiffs is that on this motion "the defendants make essentially the same arguments rejected by Justice Corbett on the failed leave to appeal motion in the Imax class action".
Part A -- The defendants' motion for leave to appeal the Rule 21 order
[10] As the motion judge described, in para. 20 of his reasons, the defendants challenged the following causes of action under Rules 21 and 25: (i) the common-law pleading against the Income Fund; (ii) the pleading of an underlying antitrust conspiracy; (iii) the pleading under s. 130 of the OSA; (iv) the pleading of negligence; (v) the pleading of negligent misrepresentation.
[11] The conclusions of the motion judge that the plaintiffs have a statutory claim against the Income Fund under s. 130 of the OSA (para. 28) and that the pleading of the antitrust conspiracy could stand (para. 32) are not challenged.
[12] The defendants submit that the motion judge erred in failing to rule on alleged deficiencies in the Statement of Claim respecting the pleading against the individual defendants, the pleading of vicarious liability, the pleading of punitive damages and the defendants' assertions that the pleadings did not comply with rule 25.11. (Issues A, B, C and D in the defendants' factum #1 respecting the Rule 21 order.)
[13] With respect to this challenge, the plaintiffs submit that these issues do not meet the general importance test. The plaintiffs submit that I cannot conclude that it is desirable to grant [page612] leave to appeal in relation to these issues or that the appeal would involve matters of such importance that leave to appeal should be granted. I agree. I have reached a similar conclusion to that expressed by Corbett J. in Silver v. Imax Corp. (Div. Ct.), supra, at para. 56, where he observed that these challenges "are discrete pleadings issues that do not transcend the interest of the parties". They are not matters of "importance", and it is not "desirable" that leave to appeal be granted on these issues.
[14] In addition, the defendants submit that the motion judge erred in failing to strike the pleading under s. 130 of the OSA (Issue E in the defendants' factum #1 respecting the Rule 21 order). Section 130(1) provides a right of action for damages to purchasers who have purchased securities offered by a prospectus, which contains a misrepresentation relied on by that purchaser. The representative plaintiffs have not purchased their units under a prospectus and, as a result, they do not personally have a cause of action under s. 130(1)(a) of the OSA.
[15] The defendants challenge the decision of the motion judge in two respects as it relates to s. 130 of the OSA. Firstly, the defendants submit that as a result of the decision in Menegon v. Philip Services Corp., 2001 CanLII 28396 (ON SC), [2001] O.J. No. 5547, 23 B.L.R. (3d) 151 (S.C.J.), at para. 38, affd 2003 CanLII 36468 (ON CA), [2003] O.J. No. 8, 31 B.L.R. (3d) 29, leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 95, and Pearson v. Boliden Ltd., 2002 BCCA 624, [2002] B.C.J. No. 2593, 222 D.L.R. (4th) 453 (C.A.), at p. 500 D.L.R., leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 29, the law is clear that secondary market purchasers, such as the representative plaintiffs, cannot plead a statutory cause of action available only to primary market purchasers. The defendants submit that it was insufficient that the motion judge stated that he would be "guided by" Boulanger v. Johnson & Johnson Corp. (2003), 2003 CanLII 45096 (ON SCDC), 64 O.R. (3d) 208, [2003] O.J. No. 1374 (Div. Ct.), at pp. 213, 219 O.R.
[16] The defendants acknowledge that in Healey v. Lakeridge Health Corp., [2006] O.J. No. 4277, 38 C.P.C. (6th) 145 (S.C.J.), at p. 173 C.P.C., the court held that a representative plaintiff can represent a subclass with a different cause of action, which does not "differ significantly", and the Boulanger decision followed that principle. The defendants' position is that the common-law claim of the plaintiffs is not fundamentally the same claim as the statutory cause of action for prospectus misrepresentation available to other class members.
[17] I agree with the plaintiffs that for both a primary and secondary market purchaser, the key to the claim is whether there was a misrepresentation and the core of the claim is the same. Although the primary market purchaser faces more of an [page613] evidentiary burden than a secondary market purchaser, I agree with the plaintiffs that their causes of action are essentially the same. I also agree that the conclusion of the motion judge is consistent with McCann v. C.P. Ships Ltd., [2009] O.J. No. 5182 (S.C.J.), at para. 33, and Metzler Investment GMBH v. Gildan Activewear Inc., [2009] O.J. No. 5695 (S.C.J.), at para. 37, where it was found that secondary market purchasers could assert primary market claims.
[18] Although Menegon and Pearson seem to preclude a cause of action on the part of a secondary purchaser, there is nothing in those cases that suggests that a representative plaintiff cannot advance claims on behalf of other class members that are not his own claims. In Menegon, plaintiff's counsel argued that the representative plaintiff should be allowed to continue as the representative plaintiff even though he had no cause of action himself. That argument was rejected, but this is a different situation. The representative plaintiffs do have a cause of action, but not all the causes of action held by class members.
[19] Secondly, the defendants submit that the motion judge erred in rejecting their submission that the representative plaintiffs from Ontario cannot assert the statutory cause of action under the OSA on behalf of purchasers in other provinces. However, I agree with the plaintiffs that Coulson v. Citigroup Global Markets Canada Inc., [2010] O.J. No. 1109, 2010 ONSC 1596, 92 C.P.C. (6th) 301, at paras. 146-47, is not a conflicting decision. The motion judge followed the decision of Strathy J. in McKenna v. Gammon Gold Inc., [2010] O.J. No. 1057, 2010 ONSC 1591 and permitted the claim for a national class to stand but required the plaintiffs to amend the Statement of Claim to plead the relevant provisions of the securities legislation in other provinces.
[20] I am satisfied that overall the test for leave to appeal is not met with respect to the decision of the motion judge not to strike the pleading under s. 130 of the OSA.
[21] Finally, with respect to the Rule 21 order, the defendants submit that the motion judge erred in failing to strike the pleadings of conspiracy, negligence and negligent misrepresentation. (Issues F, G and H in the defendants' factum #1 respecting the Rule 21 order.)
[22] I will deal first with the pleading of conspiracy. The defendants take issue with the view of the motion judge, at para. 31, that Aristocrat Restaurants Ltd. (c.o.b. Tony's East) v. Ontario, [2004] O.J. No. 5164 (S.C.J.) and Sudbury Downs v. Ontario Harness Horse Assn., [2002] O.J. No. 5505 (S.C.J.) must be distinguished from the present case as both pleaded conspiracy [page614] as a cause of action which is not advanced here. The motion judge concluded that if the defendants required further details, the appropriate course would be a demand for particulars.
[23] The plaintiffs outlined their position, at para. 86 of their factum, as follows:
To be clear, the Plaintiffs do not plead the tort of "conspiracy." Rather, the admitted participation of certain defendants and Arctic Glacier International, Inc. in an anti-competitive conspiracy is pled simply as a material fact which the Defendants failed to disclose on a timely basis. In other words, the plaintiffs do not argue that the Defendants' liability arises from the Anti-Competitive Conspiracy itself -- they argue rather that the Defendants' liability arises from the failure to disclose that conspiracy, and from the Defendants' patently false assertion, made repeatedly during the Class Period, that the Income Fund and its subsidiaries operated lawfully in a "very competitive" packaged ice industry.
[24] I am satisfied that, as the plaintiffs submitted, the claim is a claim in misrepresentation based on the plaintiffs' allegation that the defendants did not disclose its involvement in anti-competitive behaviour and that the defendants instead represented that the Income Fund and its subsidiaries operated lawfully in a "very competitive" packaged-ice industry. As a result, I am not inclined to grant leave respecting the decision of the motion judge not to strike the pleading of conspiracy.
[25] I turn next to the defendants' challenges respecting the decisions of the motion judge not to strike the pleadings of negligence and negligent misrepresentation. It is in relation to these conclusions that I have determined that leave to appeal ought to be granted.
[26] With respect to the pleading of negligent misrepresentation, there are many decisions, at a similar stage of proceeding as this one, that have grappled with the question of whether a common-law claim of misrepresentation in the secondary market exists. (See Imax, at para. 40, where van Rensburg J. noted that, while there are no reported cases in Ontario where a common-law claim of misrepresentation in the secondary market has been considered at trial, such claims have been permitted to proceed under Rule 21, where there is a class proceeding certification motion.)
[27] As I previously noted, the motion judge provided a very detailed analysis in thoughtful reasons following a lengthy certification hearing. However, since the release of his reasons, we have the benefit of two decisions from the Supreme Court of Canada which are significant to the pleading of negligence and negligent misrepresentation.
[28] The first is the decision in R. v. Imperial Tobacco Canada Ltd., [2011] 3 S.C.R. 45, [2011] S.C.J. No. 42, 2011 SCC 42, 335 D.L.R. (4th) 513. [page615] Of interest in that case is the fact that the Supreme Court of Canada considered it useful to review the purpose of the test in Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93 (applied in Odhavji Estate v. Woodhouse, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, 2003 SCC 69 and referred to in Syl Apps Secure Treatment Centre v. D. (B.), [2007] 3 S.C.R. 83, [2007] S.C.J. No. 38, 2007 SCC 38) and its application.
[29] While the court cautioned that "the motion to strike is a tool that must be used with care" and "[t]he approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial" (see para. 21), nevertheless, the court also noted [at para. 22] that
[i]t is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant may not be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted.
[30] It is clear from Imperial Tobacco that the court emphasized [at para. 23] the need to analyze the pleadings as of the date of the motion and that "[t]he judge on the motion to strike cannot consider what evidence adduced in the future might or might not show".
[31] Imperial Tobacco is also important for its guidance in relation to claims for negligent misrepresentation, and in particular the conclusion therein on the argument that the defendants' claim in negligent misrepresentation in that case would result in indeterminate liability as set out in paras. 97, 99 and 100:
Canada submits that allowing the defendants' claims in negligent misrepresentation would result in indeterminate liability, and must therefore be rejected. It submits that Canada had no control over the number of cigarettes being sold. It argues that in cases of economic loss, the courts must limit liability to cases where the third party had a means of controlling the extent of liability. . . . . .
I agree with Canada that the prospect of indeterminate liability is fatal to the tobacco companies' claims of negligent misrepresentation. Insofar as the claims are based on representations to consumers, Canada had no control over the number of people who smoked light cigarettes. This situation is analogous to Cooper v. Hobart, where this Court held that it would have declined to apply a duty of care to the Registrar of Mortgage Brokers in respect of economic losses suffered by investors because "[t]he Act itself imposes no limit and the Registrar has no means of controlling the number of investors or the amount of money invested in the mortgage brokerage system" (para. 54). While this statement was made in obiter, the argument is persuasive. [page616]
The risk of indeterminate liability is enhanced by the fact that the claims are for pure economic loss. In Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, the Court, per Rothstein J., held that "in cases of pure economic loss, to paraphrase Cardozo C.J., care must be taken to find that a duty is recognized only in cases where the class of plaintiffs, the time and the amounts are determinate" (para. 62). If Canada owed a duty of care to consumers of light cigarettes, the potential class of plaintiffs and the amount of liability would be indeterminate.
[32] In my view, Imperial Tobacco creates a correctness and conflicts issue with respect to whether the reporting issuer in this case owed a duty of care as claimed.
[33] In addition, I am also satisfied that the same correctness and conflicts issue now exists in relation to the pleading of detrimental reliance. Many courts have grappled with the adequacy of the pleadings respecting detrimental reliance. (See Silver v. Imax Corp., supra; Carom v. Bre-X Minerals Ltd. (1998), 1998 CanLII 14705 (ON SC), 41 O.R. (3d) 780, [1998] O.J. No. 4496 (Gen. Div.); Shaw v. BCE Inc., [2003] O.J. No. 2695 (S.C.J.); Deep v. M.D. Management, 2007 CanLII 22655 (ON SC), [2007] O.J. No. 2392, 35 B.L.R. (4th) 86 (S.C.J.), affd [2008] O.J. No. 961, 2008 ONCA 189; Mondor v. Fisherman, 2001 CanLII 28388 (ON SC), [2001] O.J. No. 4620, 18 B.L.R. (3d) 260 (S.C.J.); Lawrence v. Atlas Cold Storage Holdings Inc., [2006] O.J. No. 3748, 34 C.P.C. (6th) 41 (S.C.J.).)
[34] As the motion judge noted, the plaintiffs here pled reliance in a very general way. He allowed the pleading of negligent misrepresentation to proceed to trial and observed that the appropriate remedy for the defendants was a demand for particulars. He applied the reasoning of Cumming J. in Mondor, at paras. 65 to 67, holding that actual reliance on a misrepresentation is a question of fact, which may be inferred from all of the circumstances. He was also guided on the issue by the comments of Rady J. in McCann. At the time of her decision, as she stated at para. 59, "the case law is in a state of evolution and the court, in certain circumstances, is prepared to relax the otherwise strict requirement to establish individual reliance".
[35] However, subsequent to these decisions relied on by the motion judge, the Supreme Court of Canada in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., [2011] 2 S.C.R. 175, [2011] S.C.J. No. 23, 2011 SCC 23 has provided some guidance on what it referred to as the [at para. 129] "fourth Cognos requirement -- reasonable reliance". Sharbern dealt with a claim for alleged misrepresentations in an offering memorandum and disclosure statement used to sell real property. The court concluded that the common-law claim of misrepresentation failed on the basis of the third Cognos requirement; it had not been established that the defendant had acted negligently in making the misrepresentation -- the third Cognos requirement. [page617] However, the court emphasized the need to establish the five requirements set out in Cognos and specifically commented on the fourth Cognos requirement.
[36] With respect to the requirement of reliance, the court noted that Sharbern had not adduced evidence of actual reliance and had relied upon a statutory deeming provision. The court, at para. 129, stated the following:
While the trial judge appears to have contemplated the necessity of individual trials on the issue of reliance at the outset of this litigation, her failure to differentiate between the common law and statutory claims in her reasons conveys the impression that the statutory deeming provision can establish common law reliance, removing the need for further trials. This approach would be problematic. I do not think a plaintiff may dip into a statutory cause of action for a helpful element in order to establish the "actual reliance" required to maintain a common-law claim for negligent misrepresentation.
[37] In my view, this commentary of the Supreme Court of Canada emphasized the need for actual reliance. Therefore, in my view, actual reliance must be pled.
[38] Paragraph 102 from the fresh as amended Statement of Claim considered by the motion judge pled that the plaintiff and each of the other class members read and acted upon the disclosure documents containing the alleged misrepresentations. In para. 103, it is alleged that the plaintiffs and every other class member relied upon the omissions and misrepresentations by the act of purchasing or acquiring units in the open market.
[39] While strictly speaking Sharbern stands for the proposition that deemed reliance is insufficient to establish the actual reliance required to maintain a common law claim for negligent misrepresentation, I disagree with the plaintiffs that Sharbern is as limited in scope as they submit. I am of the view that the Sharbern decision creates a correctness and conflict issue with respect to the conclusions of the motion judge which would benefit from appellate review. If there is a substitute for actual reliance, what is it?
[40] I agree with the conclusion of Corbett J. in the Imax leave to appeal (Div. Ct.), supra, at para. 55, that "[t]he relationship between common-law and statutory claims of misrepresentation is important, and merits appellate consideration". While he thought it was appropriate at that time to defer the issue to trial, in my view, considering the subsequent development of the case law, I have come to the conclusion that leave ought to be granted with respect to these issues.
[41] Lastly, I turn to the defendants' challenge of the motion judge's conclusions regarding the pleading of negligence. The [page618] motion judge succinctly summarized the claim in negligence simpliciter, in para. 43, as follows:
The plaintiffs advance a cause of action in negligence simpliciter based on Income Fund representations to the primary market during the class period through the four Fund prospectuses published prior to the s. 138.14 OSA limitation period and the two published afterwards.
[42] On this motion, the defendants submit that the motion judge did not address their submission that a common law cause of action for representation in a prospectus does not exist and instead incorrectly confined his analysis to the question of whether such a duty of care has been replaced by s. 130 of the OSA; whether the duty of care owed by the directors and trustees is to the Income Fund and not to the unit holders; and whether such a claim is subsumed by the pleading of negligent misrepresentation.
[43] In addition, the defendants submit that the motion judge incorrectly interpreted Menegon, supra, and his decision conflicts with Alvi v. Misir (2004), 2004 CanLII 47790 (ON SC), 73 O.R. (3d) 566, [2004] O.J. No. 5088 (S.C.J.).
[44] Having concluded that the duty of care in negligent misrepresentation needs to be re-examined in light of Imperial Tobacco, it seems to me that leave ought also to be granted in relation to the claim for negligence. The Imperial Tobacco decision as it relates to the issue of indeterminate liability mandates that result even though the plaintiffs submit that, because the negligence claim is advanced only by purchasers who purchased shares under the prospectus, they are not alleging a duty to the investing public at large.
Part B -- The defendants' motion for leave to appeal the certification order
[45] Having reached the conclusions set out above respecting the motion for leave to appeal the Rule 21 order, I am satisfied that the motion for leave to appeal the certification order must also be granted. The conclusions in relation to the Rule 21 order impact the certification requirement set out in s. 5(1)(a), the definition of the class, the delineation of the common issues and the question of whether the representative plaintiffs fairly and adequately represent the interests of the class. I appreciate that the plaintiffs submit that reliance need not be part of the class definition but that issue should ultimately be resolved once the issues identified above respecting the Rule 21 order have been determined. [page619]
[46] The defendants raised other issues on their motion for leave to appeal the certification order. They challenge the decision of the motion judge with respect to the class definition, asserting that it is unworkable because it includes late buyers and early sellers and they challenge his conclusion that damages are a common issue. Having found that leave to appeal should be granted with respect to the issues discussed in relation to the Rule 21 motion, it is unnecessary and, in my view, inappropriate to deal with these other submissions.
Part C -- The defendants' motion for leave to appeal the order granting leave to proceed under Part XXIII.1 of the OSA
[47] Section 138.3(1)(a), (b), (c) and (d) of the OSA provides as follows:
138.3(1) Where a responsible issuer or a person or company with actual, implied or apparent authority to act on behalf of a responsible issuer releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer's security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages against, (a) the responsible issuer; (b) each director of the responsible issuer at the time the document was released; (c) each officer of the responsible issuer who authorized, permitted or acquiesced in the release of the document; (d) each influential person, and each director and officer of an influential person, who knowingly influenced, (i) the responsible issuer or any person or company acting on behalf of the responsible issuer to release the document, or (ii) a director or officer of the responsible issuer to authorize, permit or acquiesce in the release of the document[.]
[48] A responsible issuer is defined to include a reporting issuer. The Income Fund is a reporting issuer. It was incorporated in the province of Alberta and its head office is in Winnipeg, Manitoba. It is a mutual fund trust listed on the Toronto Stock Exchange.
[49] There is an evidentiary threshold and a good faith requirement for an action under s. 138.3 as set out in s. 138.8(1):
138.8(1) No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that, (a) the action is being brought in good faith; and [page620] (b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.
[50] The defendants' first submission is that the motion judge was obliged to consider and define the purpose of the leave test and the meaning of "reasonable possibility" of success at trial. They point to what they submit are differing perspectives on these issues which they assert the motion judge was obliged to resolve. In para. 106, the motion judge specifically adopted the comments of van Rensberg J. in Imax that "the statutory cause of action was introduced as 'remedial legislation' . . . 'the leave test . . . should be interpreted so as to permit access to the courts by shareholders with legitimate claims'".
[51] In addition, at para. 122, he concurred with the comments of both van Rensberg J. and Lax J. in Ainslie v. CV Technologies Inc. (2008), 2008 CanLII 63217 (ON SC), 93 O.R. (3d) 200, [2008] O.J. No. 4891 (S.C.J.) and concluded that he was satisfied that Part XXIII.1 is "on the one hand remedial, while on the other, it seeks 'to protect defendants from coercive litigation and to reduce their exposure to costly proceedings'".
[52] In my view, these paragraphs do not put into question the correctness of the decision of the motion judge nor do they reflect a conflict with other decisions. I agree with the comment of Corbett J. in Imax at footnote ten:
The defendants argue that Ainslie v. CV Technologies Inc. per Lax J. is a "conflicting decision". It is not. Lax J. found that the leave provision is for the benefit of defendants, not plaintiffs, and does not permit early discovery. van Rensburg J. does not hold otherwise. Her Honour does not find that the leave provision benefits plaintiffs, or ought to be construed to benefit plaintiffs. Rather, Her Honour finds that the leave provision, which benefits defendants, ought to be construed to permit apparently meritorious claims to proceed. Lax J. does not hold otherwise. (Citations omitted)
[53] I reach a similar conclusion with respect to the defendants' criticism of the statement of the motion judge, at para. 130, that "[t]he applicable standard is more than a mere possibility of success, but it is a lower threshold than a probability". The defendants' submission that more was required and that an appeal court needs to clearly set out the purpose and definition of the test is not a sufficient basis to grant leave to appeal.
[54] Turning next to the issue of the limitation period, section 138.14 of the OSA provides as follows:
138.14 No action shall be commenced under section 138.3, (a) in the case of misrepresentation in a document, later than the earlier of, [page621] (i) three years after the date on which the document containing the misrepresentation was first released, and (ii) six months after the issuance of a news release disclosing that leave has been granted to commence an action under section 138.3 or under comparable legislation in the other provinces or territories in Canada in respect of the same misrepresentation; (b) in the case of a misrepresentation in a public oral statement, later than the earlier of, (i) three years after the date on which the public oral statement containing the misrepresentation was made, and (ii) six months after the issuance of a news release disclosing that leave has been granted to commence an action under section 138.3 or under comparable legislation in another province or territory of Canada in respect of the same misrepresentation; and (c) in the case of a failure to make timely disclosure, later than the earlier of, (i) three years after the date on which the requisite disclosure was required to be made, and (ii) six months after the issuance of a news release disclosing that leave has been granted to commence an action under section 138.3 or under comparable legislation in another province or territory of Canada in respect of the same failure to make timely disclosure.
[55] The issue respecting the limitation period was set out by the motion judge, in para. 98, as follows:
As a further preliminary matter, I must address the limitation period, as it applies to a claim under Part XXIII.1 of the OSA. The class period proposed by the plaintiffs is March 13, 2002 to September 18, 2008. Part XXIII.1 of the OSA did not come into force until December 31, 2005.
[56] His conclusion on this issue was set out, in para. 103, as follows:
The Statement of Claim details a series of 53 documents disseminated by the Income Fund for public consumption between March 13, 2002 and June 30, 2008. In many of these documents, the Income Fund repeatedly asserts that it is a good corporate citizen operating lawfully in a competitive industry. The plaintiffs allege that this repeated assertion is a misrepresentation. Whether that is so is an issue to be left to the trial judge, assuming leave is granted. What I find at this stage of the proceedings is that this repeated misrepresentation is one continuing fact situation: Attorney General of Canada v. Confederation Trust Company, 2003 CanLII 18103 (ON SC), [2003] O.J. No. 2754 at paras. 26-28. As such, commencing with the Income Fund Prospectus of March 13, 2002, the plaintiffs may rely on the disclosure documents in support of their position that these documents contain misrepresentations. [page622]
[57] I agree with the plaintiffs that the motion judge made only a preliminary determination and I am satisfied there is no correctness issue with respect to his decision to leaving this issue to the trial judge.
[58] The defendants also asserted on the motion respecting the leave order, as they did on the Rule 21 motion, that the draft pleading was inadequate. The conclusion of the motion judge that the draft pleading was adequate and "the pleading of an anti-competitive conspiracy may stand" (para. 178) relates back, as he noted, to his conclusion on the Rule 21 motion which I earlier found did not raise a correctness issue.
[59] I will next deal with the defendants' submission that there is good reason to doubt the correctness of the conclusion of the motion judge that the evidentiary threshold of the leave test was met.
[60] At its simplest, the plaintiffs submit that the claim under the OSA is straightforward: it is misleading for a responsible issuer to state it is a good corporate citizen operating in a very competitive market when it is engaged in unlawful conduct.
[61] The plaintiffs and the defendants take a different view of the significance and materiality of the guilty pleas of Mr. Cooley and Mr. Larson and the 2007 judgment of the Alberta court. The defendants submit that there is good reason to doubt the correctness of the decision of the motion judge that the plaintiffs had a reasonable possibility of establishing statutory liability against the defendants for the class period. Their position is that the evidence does not support the pleading of an anti-competitive conspiracy.
[62] On the other hand, the plaintiffs point out that their claim is based on misrepresentations in core documents, as defined in s. 138.1, and under s. 138.3(1) liability arises upon showing a core document contains a misrepresentation. They say that statements that the Income Fund was a good corporate citizen operating lawfully in competitive markets were misleading.
[63] I am satisfied that there is no good reason to doubt the correctness of the order of the motion judge that the plaintiffs met the leave test under s. 138.3(1).
[64] Finally, the defendants submit that leave ought to be granted in relation to the damages cap and it is important that the Divisional Court determine whether a judge has an obligation to consider the pleading and evidence before allowing a claim over the damages cap to proceed. However, I am satisfied there is no basis for leave in relation to this issue -- there is neither a correctness nor conflicts issue. [page623]
Part D -- The motions of the proposed defendants Mr. Cooley and Mr. Larson for leave to appeal the orders granting leave to commence proceedings against them under the OSA
[65] Pursuant to s. 138.3(1) of the OSA, a plaintiff has a cause of action against each officer of the responsible issuer who authorized, permitted or acquiesced in the release of the document, but only against each influential person who knowingly influenced the release of the documents.
[66] As previously set out, s. 138.8 provides that a court shall grant leave to commence an action under s. 138.3 only where it is satisfied that the action is being brought in good faith and there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.
[67] Mr. Cooley challenged the good faith of the plaintiff in asserting the claim against him based on his assertion that the lack of foundation for the claim in the pleading was tantamount to bad faith. The motion judge ultimately found that that plaintiffs met the good faith test under s. 138.8(1)(a) of the OSA. I find it unnecessary to comment on this argument presented on Mr. Cooley's behalf because I have concluded that for other reasons there is good reason to doubt the correctness of the decision of the motion judge in relation to Mr. Cooley and Mr. Larson.
[68] Mr. Cooley and Mr. Larson were officers of a subsidiary of the responsible issuer, the Income Fund. Mr. Larson was a senior vice-president and from 2003 onwards, the executive vice-president of the subsidiary. Mr. Cooley became vice- president, sales and marketing of the subsidiary prior to the filing of the third-quarter 2005 report.
[69] Both Mr. Cooley and Mr. Larson admitted their involvement in certain anti-competitive conduct by the subsidiary in the United States through its subsidiary, Arctic International. I am inclined to agree with the position presented on Mr. Cooley and Mr. Larson's behalf that the significance of the guilty plea with respect to the activity of the operating entity was misconceived in relation to the consideration of the issues under s. 138.
[70] In the fresh as amended Statement of Claim, the plaintiff pled, in para. 120, that Mr. Larson and Mr. Cooley were insiders of the Income Fund and thus were "influential persons" of the Income Fund within the meaning of the OSA.
[71] In his decision, the motion judge found that Mr. Cooley and Mr. Larson were not "influential persons" of the Income [page624] Fund and had not knowingly influenced the Income Fund to release the disclosure documents which are in contention.
[72] However, the motion judge found that Mr. Cooley and Mr. Larson were "de facto officers" of the Income Fund who authorized, permitted or acquiesced in the release of the impugned documents, within the meaning of s. 138.3(1)(c).
[73] Mr. Cooley and Mr. Larson assert that the motion judge erred in law by virtue of the fact that the plaintiffs did not plead that Mr. Larson and Mr. Cooley were de facto officers and only pled that they were influential persons, which engaged the more stringent test for granting leave to commence the action under s. 138.3. The plaintiffs submit that nonetheless this issue was debated before the motion judge.
[74] In any event, Mr. Larson and Mr. Cooley also submit that the motion judge erred in determining that they were de facto officers on the basis that there was no evidence on the record that would support a finding that they had any role with the Income Fund or its release of the impugned documents. They submit that the conclusion of the motion judge was based on the fact that they were officers of the operating company, which is a conclusion inconsistent with his findings relating to Mr. Bailey. With respect to his findings relating to Mr. Bailey, the motions judge stated the following, at para. 153:
For the period prior to December 29, 2006, when Bailey held the position of the VP of Accounting and Corporate Comptroller of Arctic, the plaintiffs characterize this position as an "officer" of the Income Fund. They rely on Moments Corp. (Re), 2006 LNONOSC 778 at para. 101 where the Ontario Securities Commission ("OSC") articulated the test for determining if a person is a de facto director or officer. The OSC found that if a person is "an integral part of the mind and management of the company," then that person is a de facto director or officer. The defendants dispute this characterization and the application of the Momentas Corp. test to these facts. They state that the only evidence with respect to Bailey's role in Arctic prior to December 29, 2006, is a reference to Bailey, as one of the officers of Arctic, as senior management of the Income Fund. The defendants state that this is insufficient. I agree.
[75] Therefore, the motion judge stated that the fact that Mr. Bailey was an officer of the operating company was insufficient to make him a de facto officer of the Income Fund. In contrast, with respect to Mr. Cooley and Mr. Larson, the motion judge concluded as follows, at paras. 158 and 163:
The parties agree that during the Class Period, Larson was a senior Vice President, and from 2003 onwards, the Executive Vice-President of Arctic, although a resident and citizen of the United States. Based on my finding above, as an officer of Arctic, he was a de facto officer of the Income Fund. [page625] . . . . .
As Larson (and as did Cooley), by virtue of his guilty plea, admitted his involvement in anti-competitive conduct in the United States, it is clear that he, as an officer of the Income Fund (which was a responsible issuer), was probably aware that at least certain of the core documents in question contained misrepresentations. That is sufficient, in my view, to find that there is a reasonable possibility that the plaintiffs will succeed at trial against Larson as a de facto officer of the Income Fund.
[76] I agree with Mr. Larson and Mr. Cooley that the record contains no evidence that they had any role in the corporate disclosure activities or public statements of the Income Fund. There is no evidence that they knew that the statements, including the alleged misrepresentations, were being made; that they participated in the formation of any such statements or had the opportunity to intervene, influence or reflect on such statements. I agree with Mr. Cooley that there is an absence of evidence as to what role a vice-president of marketing of an operating entity would have with respect to the release of information by an entity that he held no office in. I agree with Mr. Larson that the record contains no evidence that he had any role in the corporate disclosure activities or public statements of the Income Fund.
[77] It is not enough that the plaintiffs submit that the disclosure documents were about the businesses in which Mr. Cooley and Mr. Larson were key officers; it can be inferred that as members of senior management they were asked about operations; and it is reasonably possible that they read the documents in which it was stated that the market was competitive and they made no disclosure of anti-competitive behaviour.
[78] I agree with the caution expressed by van Rensberg J. in Silver v. Imax Corp., 2009 CanLII 72342 (ON SC), [2009] O.J. No. 5573, supra, at para. 330, that "[t]he statutory leave provision is designed to prevent an abuse of the court's process through the commencement of actions that have no real foundation, actions that are based on speculation or suspicion, rather than evidence".
[79] Because the pleadings did not contain any allegation that Mr. Larson and Mr. Cooley were de facto officers, nor was there any pleading that they authorized, permitted or acquiesced in the release of the impugned documents, there is good reason to doubt the correctness of the order which is the subject of this leave motion.
[80] I am also satisfied that this leave motion raises an issue of importance, which justifies the granting of leave to appeal: what pleading is required for an individual director to be exposed to a class action and on what basis ought leave to be granted pursuant to s. 138.3(1)? [page626]
[81] I agree with the submission on behalf of Mr. Cooley and Mr. Larson that the decision of van Rensberg J. in Silver v. Imax, supra, in paras. 424 to 426, in relation to the individuals she referred to as "the remaining directors" conflicts with the decision of the motion judge, in that she found that individuals who were board members of the reporting issuer, but not on the audit committee and who had a "limited role in respect of the company's financial reporting" and were not "party to the discussions of the audit committee and did not see the reports provided to the audit committee" were individuals against whom leave would not be granted to commence an action, even though they had approved the impugned documents.
[82] With respect to the motion judge, I am satisfied that leave ought to be granted in respect of the following questions as proposed by counsel for Mr. Larson: (a) did the motion judge err in determining, for the purpose of a leave test, that Mr. Larson and Mr. Cooley were de facto officers of the Income Fund; (b) did the motion judge err in interpreting and applying the standard of "acquiescence" as contained in s. 138.31(c) of the OSA; (c) did the motion judge err in determining, for the purpose of the leave test and in the absence of any evidence to this effect in the record, that both Mr. Larson and Mr. Cooley "was probably aware that at least certain of the core documents in question contained misrepresentation" and that this was sufficient to establish a reasonable possibility that the proposed action against Mr. Larson and Mr. Cooley would be resolved at trial in favour of the plaintiffs?
Motion granted in part.