CITATION: Fischer v. IG Investment Management Ltd., 2015 ONSC 3525

COURT FILE NO.: 06-CV-307599CP

DATE: 20150601

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DENNIS FISCHER, SHEILA SNYDER, LAWRENCE DYKUN, RAY SHUGAR, and WAYNE DZEOBA

Plaintiffs

– and –

IG INVESTMENT MANAGEMENT LTD., CI MUTUAL FUNDS INC., FRANKLIN TEMPLETON INVESTMENTS CORP., AGF FUNDS INC. and AIC LIMITED

Defendants

Joel P. Rochon, Peter R. Jervis, and Remissa Hirji for the Plaintiffs

Jessica Kimmel and Tamryn Jacobson for the Defendant CI Mutual Funds Inc.

David Di Paolo, and Margot Finley for the Defendant AIC Limited

Proceeding under the Class Proceedings Act, 1992

HEARD: May 29, 2015

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION AND OVERVIEW

1The Plaintiffs in this certified class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6, bring a motion to settle a de facto operational Discovery Plan and for the disclosure of additional documents from the two non-settling Defendants, AIC Limited and CI Mutual Funds Inc. For the reasons that follow, I dismiss the Plaintiffs’ motion.

2The Plaintiffs bring a profoundly novel negligence and breach of fiduciary duty action. There is no precedent for their action which alleges a failure by the Defendants, who are the managers of mutual funds, to prevent “market timing.” Market timing is not per se an illegal activity, and it is essential to note that AIC and CI are not alleged to be market timers. The fundamental allegation against these Defendants is that they permitted market timing activity to occur in some of the mutual funds that they managed, which benefited the market timers but harmed the Class Members. The market timers are expressly excluded from class membership, as are the Defendants.

3In their class action, the Plaintiffs bring a motion to require AIC and CI to produce for the examinations for discovery two main categories of documents: (1) mutual fund trading data not yet produced; and (2) the documents disclosed by AIC and CI respectively to the Ontario Securities Commission (“OSC”) in its investigation or probe of a mutual fund trading activity known as market timing. The Plaintiffs also request additional documents that they believe that the Defendants have but have not disclosed.

4Relying on the evidence of Dr. Eric Zitzewitz, an economics professor, about what is relevant, the Plaintiffs submit that the trading data and the OSC documents are relevant to the determination of the common issues. Based on Dr. Zitzewitz’s opinion, the Plaintiffs submit that the documents or information is necessary: (1) to determine the full extent of market timing; and (2) to understand the extent to which the Defendants are liable to the Class Members. In other words, the Plaintiffs submit that the not yet disclosed information is relevant to whether or not the Plaintiffs were negligent or in breach of their fiduciary duties to the Class Members, which are the novel common issues that the court certified for the class action.

5Further, relying on a comment made by the Divisional Court in certifying the class action, the Plaintiffs submit that the not yet disclosed information should be disclosed because the judge at the common issues trial or summary judgment motion might determine damages on an aggregate basis notwithstanding that aggregate damages was not certified as a common issue.

6Keeping the novelty of the Plaintiffs’ action in mind, the question for this motion is whether the trading data and the documents disclosed to the OSC, which overlap to a certain degree, are relevant to the common issues trial and should be produced for the examinations for discovery. In my opinion, the answer to this question is “no”.

7In reaching my opinion, I disagree with the opinion evidence of Dr. Zitzewitz, the Plaintiffs’ expert in economics, that all or more of the trading data information is relevant to the common issues about the alleged liability of the Defendants. I disagree with Dr. Zitzewitz’s opinion for three reasons. First, his opinion is outside his area of expertise. Second, even if he was qualified to give it, a legal expert’s opinion about relevancy on a question of domestic law is not admissible opinion evidence. Third, in any event, I disagree substantively with Dr. Zitzewitz’s legal opinion. For the reasons expressed below, the documents and information requested by the Plaintiffs are not legally relevant to the common issues.

8Outside the two main categories of documents, the Plaintiffs request for more documents is a non-transparent request for a further and better affidavit of documents. This request has not been justified.

B. PROCEDURAL AND FACTUAL BACKGROUND

9“Market timing” involves short-term “in-and-out” trading of mutual funds. The technique capitalizes on the fact that the value of a mutual fund (known as the Net Asset Value or “NAV”) is calculated only once per day, at 4:00 p.m. EST, and as a result, the prices of some funds do not necessarily reflect the “fair value” of the securities at the time the NAV is calculated. Investors using a market timing strategy will trade units of mutual funds that hold foreign equities when they believe that the price of the units in the fund may not reflect subsequent possible price movements in foreign markets. Effective market timing captures an arbitrage profit that adversely affects the long-term investors who hold on to their units in the mutual fund. This wealth transfer from arbitrage is known as “dilution.” In other words, in economic theory, the harm caused by market timing is a dilution.

10The OSC is responsible for the administration of the Ontario Securities Act, the Commodity Futures Act, and parts of the Business Corporations Act. Under s. 1.1 of the Ontario Securities Act, R.S.O. 1990, c. S.5, the OSC’s mandate is to provide protection to investors from unfair, improper, or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. The OSC has administrative, investigatory, quasi-judicial, and enforcement powers that it exercises in the public interest.

11Section 127 of the Ontario Securities Act provides the OSC with a broad range of enforcement powers to remedy breaches of Ontario’s securities laws. The OSC has the power to impose sanctions for conduct in the financial marketplace that is contrary to the public interest. Where the staff of the OSC alleges a breach of Ontario securities law, the OSC may initiate proceedings under s. 127. The OSC may make an order under s. 127 only after a contested hearing or a settlement approval hearing.

12In November 2003, the OSC launched an investigation or probe into whether investors in mutual funds had been harmed by market timing. Subsequently, the OSC commenced enforcement proceedings against five mutual fund managers; namely: AIC, CI, IG Investment Management Ltd., Franklin Templeton Investments Corp., and AGF Funds Inc.

13The OSC’s probe proceeded in three phases. During the OSC’s probe, in response to the OSC’s demands, the Defendants disclosed documents about trading activities in the managed funds and about the fund managers practices and procedures to self-regulate market timing in the funds they managed.

14Ultimately, after the disclosure of information, the OSC identified three market timers in the AIC managed mutual funds and five market timers in the CI managed mutual funds. The identification of the disruptive market timers was an aspect of the second phase of the Probe. What the OSC did in Phase Two is described on p.7 of its Report as follows:

Firms included in Phase Two were asked to submit a significant amount of detailed trading data for a two-year period ending on December 31, 2003 (review period). The most significant component of the data requested for frequent trading market timing was a list of all “round trip” trades exceeding $50,000 during the review period. A “round trip” was defined as a purchase or a switch into a fund followed by a redemption or switch out of the fund within five business days. This data was requested for all categories of funds except money market funds, which by their nature, are intended to accommodate short term trading. A cutoff threshold of $50,000 was chosen to yield sufficient data to enable us to perform a meaningful analysis using a risk based approach. A five-day time period was chosen because trading within this short duration of time was a reasonable indicator of potentially disruptive trading.

15Thus, the OSC staff exercised its expertise and professional judgment to define the disruptive market timers by setting: (a) the time period for the inquiry; (b) a threshold of $50,000 in trading; and (c) the five-day duration (in-and-out) for the investment.

16Pausing here, I make six observations about the work of the OSC and its relation to the issues in this class action. I will discuss the significance of these observations further in the analysis portion of these Reasons for Decision:

• First, whether a court will accept the OSC definition of market timing is an unsettled matter. It is a novel issue.

• Second, from the time of the certification motion until this Discovery Plan motion, the Plaintiffs have had an aspiration to identify additional disruptive market timers from those identified by the OSC.

• Third, to identify more disruptive market timers, it would be necessary to change the parameters of identification used by the OSC. For instance, lowering the threshold of $50,000 or enlarging the inquiry period or expanding the in-and-out time period might identify more disruptive market timers.

• Fourth, identifying more market timers would have the effect of increasing the calculation of dilution, which, in turn, might affect the calculation of a Class Member’s damages.

• Fifth, identifying more disruptive market timers would disqualify the newly identified distributive market timers from Class membership.

• Sixth, it does not necessarily follow that what is relevant to the OSC’s inquiries, which concern the regulation of the marketplace in mutual funds, is congruent or equivalent to what is relevant to a court’s inquiry about alleged negligence and breach of fiduciary duty by managers of mutual funds.

17It is worth emphasizing that the implications of adding more market timers, which for the purposes of the motion now before the Court, the Plaintiffs euphemistically describe as determining the full extent of market timing, is that it would reduce the class size and increase the measurement of the overall harm caused to the remaining Class Members by adding the harm caused by the newly identified disruptive market timers. For the purposes of this class action, the identification of more disruptive market timers is also significant because it was a factor in defining who should be excluded as a Class Member.

18Returning to the narrative, after the OSC’s identification of market timers, there were settlement negotiations between the OSC and the fund managers. Ultimately, a settlement was reached. Pursuant to the Settlement Agreements, the fund managers collectively paid $205.6 million directly to investors and former investors in their mutual funds. On December 10, 2004, CI signed a settlement agreement and agreed to pay $49.3 million. A few days later, on December 14, 2004, AIC signed a settlement agreement and agreed to pay $58.8 million.

19In 2006, the Plaintiffs commenced this action, seeking to certify a class of the same investors who benefitted from the OSC Settlements. The theory of the class action was that the fund managers were negligent and in breach of their fiduciary duty to the Class Members. The Plaintiffs’ claim is profoundly novel because: (1) it has yet to be determined as a legal matter whether there is a duty of care to prevent market timing; and (2) it has yet to be determined what counts in law as damages consequent upon a breach of any duty of care to prevent market timing.

20The novelty of this class action is novelty on steroids. The notion of market timing and the notion of the economic consequences of market timing are the theoretical construct of economists, and these economic ideas have yet to be adopted as legal concepts. The quantification of the harm caused by disruptive market timing, known as “dilution”, is a matter of economic opinion. The quantification of the dilution depends upon an economist opining a formula to identify a disruptive market timer and then opining a formula to measure the harmful effect of the disruptive market timer. Dilution is a matter of economic opinion for which the legal acceptance is presently unknown.

21In his affidavit for the certification motion Dr. Zitzewitz set out five different methods of estimating the harm caused to shareholders from dilution. Dr. Zitzewitz identified the results of the spline method to be the most accurate method. Based on the limited information available to him at the time of the certification motion, Dr. Zitzewitz opined that the spline methodology indicated that the AIC Class Members suffered $192.6 million of harm (dilution) and that the CI Class Members suffered $349.3 million of harm (dilution). Since the OSC had distributed only $58.8 million (31%) for AIC and only $49.3 million (10%) for CI, there was compensation to be had by a successful class action for negligence and breach of fiduciary duty.

22It was the theory of the Plaintiffs’ class action that the market timers had caused more damage than the compensation distributed by the OSC and that this money was recoverable by a common law claim for negligence and an equitable claim for breach of fiduciary duty. A court action would recover the money left on the table.

23Here it is worth reiterating that assuming a court were to decide that there was a duty of care or a fiduciary duty and a breach of duty in the case at bar, it remains to be determined whether dilution and what formulation of it would be a part of the calculation of the damages. How the OSC came to its calculation of damages is not known. The method to calculate dilution used to arrive at the settlement payments is not described in the OSC’s Report. The Report states that various approaches to quantifying harm to investors were considered, debated and evaluated.

24Returning again to the factual and procedural background, in 2010, I initially dismissed the Plaintiffs’ certification motion because I concluded that the preferable procedure for the Class Members’ claims had already occurred when the OSC distributed $205.6 million directly to the Class Members in the regulatory proceeding. See Fischer v. IG Investment, 2010 ONSC 296.

25The Plaintiffs appealed, and three of the five Defendants subsequently agreed to a consent certification and settlement. See: Fischer v. IG Investment Management Ltd., 2010 ONSC 5132 and Fischer v. IG Investment Management Ltd., 2010 ONSC 7147.

26The Plaintiffs pursued their appeal against the non-settling Defendants, AIC and CI, and my decision refusing certification was reversed by a series of judgments. For various reasons, three appellate courts concluded that I had erred in my preferable procedure analysis. See Fischer v. IG Investment Management Ltd., 2011 ONSC 292 (Div. Ct.); Fischer v. IG Investment Management Ltd., 2012 ONCA 47; and AIC Limited v. Fischer, 2013 SCC 69.

27In my appealed decision about certification, but for the preferable procedure criterion, I decided that the action was otherwise certifiable as a class action, and after the appeals were resolved, the action was certified as a class action by my order of July 25, 2014.

28Pursuant to the Certification Order, the AIC Class is defined as follows:

All persons in Canada, except Quebec, who purchased and/or redeemed and/or held or otherwise acquired shares or other ownership units of one or more of the AIC funds as set out at Schedule "A" attached hereto (the "AIC Funds") during the period from January 1, 1999 to September 30, 2003 (the "AIC Class Period"). Excluded from the AIC Class are AIC, the officers and directors of AIC, members of their immediate families and their legal representatives, heirs, successors or assigns, any entity in which AIC has or had a controlling interest, as well as the "Market Timing Traders" identified by the Ontario Securities Commission (OSC) in the settlement agreement between the OSC and AIC.

29Pursuant to the Certification Order, the CI Class is defined as follows:

All persons in Canada, except Quebec, who purchased and/or redeemed and/or held or otherwise acquired shares or other ownership units of one or more of the CI funds as set out at Schedule “A” attached hereto (the “CI Funds”) during the period from September 1, 1998 to September 30, 2003 (the “CI Class Period”). Excluded from the CI Class are CI, the officers and directors of CI, members of their immediate families and their legal representatives, heirs successors or assigns, any entity in which CI has or had a controlling interest, as well as the “Market Timing Traders” identified by the Ontario Securities Commission (OSC) in the settlement agreement between the OSC and CI.

30The Certification Order defined the following common issues:

a. Did the Defendants owe a fiduciary duty to the respective class members to take steps to prevent “market timing” activities in their funds?

b. If so, did the Defendants, or any of them, breach such a fiduciary duty and, if so, what was the nature of the breach?

c. Did the Defendants owe a duty of care to the respective class members to take steps to prevent “market timing” activities in their funds?

d. If so, did the Defendants, or any of them breach such a duty of care and, if so, what was the nature of the breach? (the “Common Issues”).

31The AIC Class Period is from January 1, 1999 to September 30, 2003. The CI Class Period is from September 1, 1998 to September 30, 2003.

32In my original decision on the certification motion, I did not certify the Plaintiffs’ proposed common issue relating to aggregate damages. I held that how the loss is experienced is an individual experience dependent upon various idiosyncratic factors. That determination was upheld by the Divisional Court, and was not challenged by the Plaintiffs at the Court of Appeal or before the Supreme Court of Canada.

33On the motion now before the court, the Plaintiffs, however, rely on the Divisional Court’s Reasons for Decision to argue that the discovery phase of this class action includes the disclosure of information relevant to the calculation of aggregate damages. At paragraph 78 of its Reasons, the Divisional Court stated:

78. With respect to the issue of how to quantify the damages and whether this can be done on an aggregate basis, I agree with the motion judge that there is no basis in the evidence to conclude that this is possible in this case. It may emerge at the end of the common issues trial, and perhaps even at the conclusion of discoveries, that there is a viable alternative to individualized damage assessments. If so, the issue can be revisited at that time. For present purposes, however, there is no evidentiary foundation to support the argument that damages can be assessed globally and no basis upon which to interfere with the motion judge's refusal to designate these as common issues at this time.

34Pausing here, I foreshadow to say that I do not agree with the Plaintiffs’ interpretation of the import of the Divisional Court’s comment at paragraph 78. I also foreshadow to say that the Divisional Court’s comment and the argument of this motion have identified a problem for this novel class action about which I will comment below in obiter dicta about possible solutions.

35After the Certification Order was settled in 2014, the action proceeded to the discovery stage and to the preparation of a Discovery Plan.

36On August 29, 2014, the Plaintiffs delivered the first draft of a proposed Discovery Plan. In the draft, the Plaintiffs requested a comprehensive amount of AIC’s and CI’s trading data and daily case or money market balances.

37On September 15, 2014, the Defendants delivered joint proposed revisions to the draft Discovery Plan. AIC and CI advised that they would disclose documents only in accordance with their revised Plan. Their revisions to the Discovery Plan excluded documents relevant only to the calculation of damages or to the calculation of aggregate damages.

38In light of the Defendants’ removal of the damage assessment information from the draft Discovery Plan, which excluded a comprehensive disclosure of trading data, on October 7, 2014, the Plaintiffs’ Class Counsel wrote Dr. Zitzewitz and asked him whether he had “any insight as to how the damage documents would play a role in the liability analysis so as to open the door for us to obtain these damage documents at this stage of the case?”

39On October 10, 2014, the Plaintiffs sent a further revised draft of the Discovery Plan, but the parties did not agree about its content. Nevertheless, the Defendants began disclosing documents and information in November 2014 under the de facto Discovery Plan.

40In making disclosure, the Defendants produced trading data and some of the documents disclosed to the OSC. However, the Defendants did not provide a comprehensive report of trading data, and their data focused on the market timers identified by the OSC. The Defendants did not disclose fund portfolio trading data and daily cash or money market balances.

41The Defendants submitted that in preparing the productions for the class action, the information and documents gathered for the OSC Probe were reviewed. They submit that they produced the relevant and not privileged OSC documents. Thus, based on their own assessment of relevance, the Defendants disclosed their contracts with the market timers identified by the OSC and the trading data provided to the OSC for those investors, but the Defendants did not produce their contracts with other investors or a comprehensive set of trading data.

42On February 24, 2015, Class Counsel wrote to counsel for the Defendants and advised that the Defendants’ disclosure of documents and information was deficient.

43On February 26, 2015, AIC’s counsel responded that the Plaintiffs’ request for additional documents must be dealt with by way of a motion.

44The Plaintiffs’ motion to settle the Discovery Plan followed.

45In support of the motion, the Plaintiffs rely on the opinion of Dr. Zitzewitz, who is a Professor of Economics at Dartmouth College. Dr. Zitzewitz had filed an opinion for the certification motion, and for the motion, he swore an affidavit dated February 23, 2015 and a reply affidavit dated April 17, 2015. The expressed purpose of his reply affidavit was to evaluate the extent to which the trading data disclosed by the Defendants was adequate to respond to the common issues focussing on the trading data. It was Dr. Zitzewitz’s opinion that the disclosure was inadequate.

46Dr. Zitzewitz deposed that that the requested but missing trading data would allow the Plaintiffs to establish the scale and scope of the market timing trading activities in the Defendants’ funds, which was relevant to all of the common issues. He explained:

More specifically, the scale and scope of market timing are clearly relevant to questions 2 and 4, which ask whether fiduciary duties and duties of care were breached by Defendants and about the nature of these breaches. Furthermore, the scale and scope of market timing activities, and in particular the harm to other shareholders created by these activities, are relevant to the question of whether the Defendants had a duty to prevent these activities in the first place.

47It was Dr. Zitzewitz’s opinion that if the market timing was only of a de minimis amount, the fund managers would not be expected to have duties to prevent the market timing. However, if market timing occurred on a substantial or massive scale, this would be relevant to whether there was a duty and to whether the duty had been breached by the fund manager. It was Dr. Zitzewitz’s opinion that to determine whether or not the Defendants have breached their duties to the class, the Court must know the full extent of the market timing activity. He says that the detectable patterns with respect to the market timing activity can only be determined by reviewing the entirety of the trading data as a whole, not just the limited subset produced by the Defendants.

48Thus, Dr. Zitzewitz contends that the extent of market timing activity allowed by the Defendants is relevant to determining whether tort and fiduciary duties exist, whether these duties were breached, and the extent to which this market timing activity caused harm to the Class Members. In paragraphs 13 and 14 of his reply affidavit, Dr. Zitzewitz deposed:

13. Furthermore, both Defendants very likely earned either asset-based or trading fees from market timers other than the "Identified" timers. Completing the production of the fund share trading data requested in the Plaintiffs' request 1.2 will allow the Court to understand the composition of the market timing by all investors. The fee information requested by the Plaintiffs as part of that request is likewise central to the Court’s understanding of Defendants’ motivation for allowing market timing by accounts other than those of the "Identified Investors Traders." Understanding the extent, nature of, and motivation for allowing this activity is important to the Court's understanding of the nature of the breaches.

14. Important questions about this trading activity include: (1) what portion of this trading can the Defendants reasonably have been expected to prevent; (2) how much of it was in channels where the fund company could identify the investor (i.e., not in Omnibus accounts); and (3) how much of it was performed by the same investors day after day? The fund share trading data requested in the Plaintiffs' request 1.2 above would allow the Court to better answer these questions, and thus better understand the nature of the breaches.

49On cross-examination, for the motion now before the Court, Dr. Zitzewitz admitted that the Defendants had produced trading data for all the market timers who had been identified by the OSC. He admitted that the data provided was sufficient for him to calculate the dilution caused by these market timers. He admitted that the OSC Settlements were based on a substantial amount of market timing activity. He admitted that he already knew that the Defendants had permitted a substantial amount of market timing activity; i.e., far beyond anything that could be called de minimis. He admitted that he wished more information in order to identify more market timers.

50The Defendants submit that the Plaintiffs are disingenuously using Dr. Zitzewitz’s opinion about the relevance of the trading data to the common issues to obtain information only relevant to the assessment of damages. They submit that Dr. Zitzewitz is not qualified to give evidence about the legal issue of liability and that his extent-of-the-damages theory does not withstand analysis and is a stratagem for an examination for discovery fishing expedition.

51The Plaintiffs persist in supporting Dr. Zitzewitz’s opinion that the missing information is relevant to the common issues trial or a possible summary judgment motion, and on this motion, the Plaintiffs request the following trading data: (1) Daily NAV/share, shares outstanding, and total net asset value (Total NAV) for share classes of all mutual funds; (2) fund share trading data of all and not just the identified market timers; (3) fund portfolio trading data; and (4) daily cash or money market balances.

52The Defendants admittedly have all this data, but there is a dispute about the amount of human, technological, and financial resources that would be required to assemble the information from current data and from backup data, some of which is no longer under the control of the Defendants. Because of the Order that I shall make, it is not necessary to resolve this controversy about the feasibility of producing the information sought by the Plaintiffs.

53In this motion, the Plaintiffs also request the following specific documents that were produced to the OSC but that the Defendants have refused to produce: (1) responses to the Phase One letter from the OSC Probe; (2) responses and trading data provided in response to Phase Two of the OSC Probe; (3) responses and all trading data and account information provided in response to Phase Three of the OSC Probe; and (4) any analysis of the conduct of the market timers in the affected funds during the class period; and (5) any analysis of the harm done, or economic impact of the market timing activity in the affected funds including information with respect to the formula underlying the theoretical quantification of harm as set out in the OSC Probe.

54The Defendants admittedly have the OSC information and the documents that were provided to the OSC, and it seems that this information is more readily available for production.

55In this motion, the Plaintiffs request other relevant documents, including any analysis of market timing activity, email communications and minutes of relevant meetings of board and committee meetings. The Plaintiffs believe that there are more of these types of documents than the Defendants have yet disclosed and produced.

C. DISCUSSION AND ANALYSIS

1. Introduction – Disclosure in Class Actions for the Common Issues Trial

56The Defendants resist the Plaintiffs’ motion for disclosure and production of the trading information, the OSC documents, and various other documents, on the grounds of non-relevancy, proportionality, and settlement and litigation privilege. In my opinion, the motion can be decided using the measure of relevancy. In these circumstances, it is not necessary to address the issues of privilege or proportionality.

57In this introductory part of the analysis and discussion, I shall briefly discuss how relevancy is determined in the context of the discovery stage of a class action.

58In the sections that follow, I shall discuss the disclosure of information to determine aggregate damages and the comments of the Divisional Court. Then, I shall discuss the relevance of the disclosure of trading data to the determination of the common issues to determine liability. Next, I will discuss the request for disclosure of the balance of the OSC documents. Finally, I will discuss the matter of the disclosure of the other documents requested by the Plaintiffs.

59I have described the law associated with the scope of discovery in class actions and of refusals motions in class actions in a series of decisions including: Axiom Plastics Inc. v. E.O. Dupont Canada, 2011 ONSC 4510; 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., 2012 ONSC 6549; CIBC v. Deloitte & Touche, 2013 ONSC 917; and Fehr v. Sun Life Assurance Company of Canada, 2015 ONSC 2908. See also Ontario v. Rothmans Inc., 2011 ONSC 2504, leave to appeal to Div. Ct. refused, 2011 ONSC 3685 (Div. Ct.). I will not repeat the discussion here, and I will rather focus on the role of relevance in the determination of the scope of documentary and oral discovery in a class action.

60What facts are in issue, which is to say, what facts are contested or disputed, is explained by the idea of materiality. Evidence that does not address any issue arising from the pleadings or the indictment (a fact in issue) or the credibility of a witness (perception, memory, narration, or sincerity) is immaterial, and it is inadmissible: Sopkina, Lederman, Bryan, The Law of Evidence in Canada (2nd ed.), paras. 2.36, 2.50. Documents or information that is not possibly relevant need not be disclosed for documentary and oral discovery in any action, including class actions.

61To be relevant, evidence must increase or decrease the probability of the truth of the facts in issue: R. v. Morris, [1983] 2 S.C.R. No. 190; Cloutier v. The Queen, [1979] 2 S.C.R. No. 709. Relevance is about the tendency of the evidence to support inferences. In R. v. Arp, [1998] 3 S.C.R. No. 339 at para. 38 the Supreme Court of Canada stated:

To be logically relevant, an item of evidence does not have to firmly establish, on any standard, the truth or falsity of a fact in issue. The evidence must simply tend to "increase or diminish the probability of the existence of the fact in issue."

62In R. v. Pilon, 2009 ONCA 248, [2009] O.J. No. 1172 (C.A.) at para. 33, Justice Doherty stated:

Evidence is relevant if, as a matter of common sense and human experience, it makes the existence of a fact in issue more or less likely. Relevance is assessed by reference to the material issues in a particular case and in the context of the entirety of the evidence and the positions of the parties.

63In determining relevance, it is very helpful to ask how or in what way the evidence would contribute to showing the existence or non-existence of the material fact. In their text, Evidence - Principles and Problems (9th ed.) (Toronto: Carswell, 2011) at pp. 158-9, Professors Delisle, Stuart, and Tanovich, explain the value of this approach:

The next time someone says to you that the evidence is clearly relevant ask the proponent of the evidence to articulate for you what premise she is relying on. If she has no premise the evidence is irrelevant. If she has a premise you can debate with her the validity of the premise. What experience does she base it on? Is there contrary experience? Is the premise based on myth? Is the premise always true, sometimes or only rarely? These latter parameters do not affect relevance since relevance has a very low threshold but may affect the probative worth which may cause rejection of the evidence if the probative value is outweighed by competing considerations. Approaching discussions in this way may yield a more intelligent discussion than the oftentimes typical exchange of conclusory opinions.

64In class proceedings, the general rule is that the examinations for discovery are restricted to just the issues that have been certified: 1176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada, [2003] O.J. No. 5703 (Master) at paras. 6 and 9; Andersen v. St. Jude Medical Inc., [2006] O.J. No. 3659 (Master), aff'd [2006] O.J. No. 5769 (S.C.J.); T.L. v. Alberta (Child, Youth and Family Enhancement Act, Director), 2010 ABQB 203 at para. 18; Abdulrahim v. Air France, 2010 ONSC 3953. However, the approach of restricting the scope of the common issues trial and the associated discovery process to the certified questions is not an absolute rule: Pennyfeather v. Timminco Limited, 2011 ONSC 4257; Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2008 CanLII 42422 (ON SC), [2008] O.J. No. 3304 (S.C.J.).

65In my opinion, the general or normal rule about the scope of discovery in a class action applies in the immediate case. Thus, to succeed on this motion, the Plaintiffs must demonstrate that the information and documents that they seek to have included in the Discovery Plan are relevant to the common issues on liability.

2. Disclosure of Information to Determine Aggregate Damages

66At the certification motion in the immediate case, the Plaintiffs attempted and failed to have the issue of aggregate damages certified as a common issue. If the issue of aggregate damages had been certified, then the damages assessment documents; i.e. a comprehensive set of trading data, would have become relevant to the common issues trial and producible for the discovery process.

67Although aggregate damages or any damages issue was not certified, the Plaintiffs argue, nevertheless, that the Divisional Court’s appellate certification decision entails that damages documents; i.e. a comprehensive set of trading data, be produced at the discovery stage. In other words, the Plaintiffs submit that the Divisional Court held that that trading data was relevant to the determinations to be made at the common issues trial and should be produced for the examinations for discovery.

68The Plaintiffs make this submission because, as set out above, the Divisional Court’s reasons indicate that the issue of certifying a common issue related to aggregate damages can be “revisited” depending on what evidence arises at discovery. The Defendants submit that it follows that it would only be possible to revisit the issue if trading data was disclosed at the examinations for discovery.

69In The Law of Class Actions in Canada (Toronto: Canada Law Book, 2014), the authors, Warren K. Winkler, Paul M. Perell, Jasminka Kalajdzic and Alison Warner, state:

Strictly speaking, it is for the common issues judge to determine whether the conditions for an aggregate assessment have been satisfied because that judge makes the assessment. For this reason, it is unnecessary that the availability of aggregate damages be certified as a common issue: Ironworkers Ontario Pension Fund (Trustee of) v. Manulife Financial Corp; Dugal v. Manulife Financial, 2013 ONSC 4083 at para. 95. Nevertheless, the practice has developed to certify questions about an aggregate assessment of damages when the court on the certification motion believes that there is a reasonable likelihood that the preconditions will be satisfied at trial.

70The Divisional Court’s comments did not certify the issue of aggregate damages. The Divisional Court simply recognized that it sometimes happens that aggregate damages can be coincidentally determined at trial notwithstanding that they were not certified as a common issue. That is all the Divisional Court meant when it said that the matter of aggregate damages could be revisited; it always can be. There is, however, nothing in the Divisional Court’s comments that entails the production of a comprehensive set of trading data at this juncture of this particular class action.

71Persisting in their submission, the Plaintiffs submit that damages are virtually always assessed on an aggregate basis (i.e. on a per share/per unit basis) in securities class proceedings and the economic evidence, when discovered and presented, will very likely support such an assessment in the immediate case. I do not see, however, how this submission helps the Plaintiffs for four reasons.

72First, it is not the case that damages are always assessed on an aggregate basis in securities class proceedings. Second, and more to the point, the immediate case is not a securities misrepresentation case, but a super-novel negligence and breach of fiduciary duty case. Third, and even more to the point, as observed earlier, how damages are measured for a mutual fund manager’s breach of a duty is at the moment a legal unknown. Fourth, and most to the point, in the circumstances of this case, in my opinion, the Divisional Court’s obiter observation was wrong; it will not be possible to revisit aggregate damages in the case at bar.

73In my equally obiter opinion, it will not be possible to revisit the matter of aggregate damages or even damages generally after the examination for discoveries or even at the common issues trial, because the most that could be achieved at the common issues trial is a determination of what legally counts for the measure of damages in a case of this nature. This is an entirely theoretical matter and determining how to measure damages does not depend upon having a comprehensive set of trading data.

74The case at bar is novel and has no parallel with other damages assessments. Dilution for market timing has not yet been approved as a measure of damages. The case at bar is not a breach of contract case where the difference in market value on a resale or replacement purchase is a legally recognized measure of damages. It is not a property destruction case where the expense of repair is a recognized measure of damages. It is not a securities misrepresentation case, where the adverse adjustment to the market price of the security caused by a corrective disclosure is a known measure of damages. And, I repeat the observation above that dilution is an entirely theoretical construct of economists from the idea of market timing, which is another theoretical construct of economists. The formulas of both market timing and of dilution can be differently theorized and formulated. The proper measure of damages for the case at bar is not yet known.

75This brings me to a problem that I alluded to earlier in these Reasons for Decision. The assessment of damages remains an individual issue because the effect of dilution on an individual investor will depend upon his or her idiosyncratic trading of mutual funds. However, assuming the case at bar gets as far as the individual assessments of damages, it obviously would be helpful for the determination of the individual issues trials to know what formula for the measure of damages is legally recognized as a matter of law. Thus, in the case at bar, while not a certified a common issue, I suggest that the parties ask the common issues judge or the judge hearing a summary judgment motion to determine what is the legally accepted formula for calculating damages assuming there is a breach of a duty to not permit market timing.

76To be clear, the determination of the formula or measure for the calculation of damages does not require any additional trading data to be produced than already produced.

77In any event, whatever the Divisional Court may have said, in my opinion, a comprehensive set of trading data from AIC and CI is not required for the case at bar because it is outside the scope of the certified common issues that define what is relevant for the Discovery Plan.

3. Disclosure of Trading Data and the Determination of Liability

78Relying largely on Dr. Zitzewitz’s opinion, the Plaintiffs submit that the missing trading data should be produced because it is relevant to the common issues about liability. I have already noted above that I disagree with Dr. Zitzewitz’s opinion, and in this section, I will explain the substantive aspects of my disagreement.

79Expert evidence is admissible to assist triers of fact. It is not admissible to assist triers of law. Unless qualified as an expert or testifying about a matter of everyday human experience, a witness’s opinion about the facts is inadmissible: R. v. Graat, [1982] 2 S.C.R. 919. A witness that is qualified by education or experience to provide the trier of fact with an opinion that is outside the trier of fact’s knowledge and experience may provide an opinion to assist the trier of fact to come to his or her own conclusion: R. v. Mohan, [1994] 1 S.C.R. 9; R. v. Marquard, 1993 CanLII 37 (SCC), [1993] 4 S.C.R. 223; R. v. Abbey, 1982 CanLII 25 (SCC), [1982] 2 S.C.R. 24. Relevance is an issue for the trier of the law, and what is legally relevant is a matter of domestic law and within the province of the court not within the discipline of economics. Dr. Zitzewitz is simply not qualified to give opinion evidence about legal relevance. While qualified to give evidence about economics, Dr. Zitzewitz cannot testify about legal relevance.

80Further, unlike, say the proof of foreign law, relevance in the domestic law of negligence and fiduciary duties is not a question of fact to be proven by any expert. Thus, assuming Dr. Zitzewitz was qualified to give a legal opinion, his legal opinion is not admissible.

81In any event, in my opinion, Dr. Zitzewitz’s opinion about relevance is wrong.

82The elements of a claim in negligence are: (1) the defendant owes the plaintiff a duty of care; (2) the defendant's behaviour breached the standard of care; (3) the plaintiff suffered compensable damages; (4) the damages were caused in fact by the defendant's breach; and, (5) the damages are not too remote in law: Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 at para. 3.

83In the case at bar, only the first two elements, the wrongdoing elements, were certified as common issues, and, thus, for Dr. Zitzewitz’s opinion to be legally correct, it must be the case that knowing the full extent of the harm caused by all the market timers in AIC and CI mutual funds would contribute to the proof of a duty of care or it would contribute to the proof that the Defendants breached the standard of care. But, in the case at bar, it is not the case that information about the extent of dilution would contribute to the proof of either constituent element of the tort of negligence and, therefore, Dr. Zitzewitz’s opinion about relevance is wrong.

84It is doctrinal tort law that assuming a duty of care is established, a breach of duty is established by the standard of care of the reasonable man or woman. In Ryan v. Victoria (City), 1999 CanLII 706 (SCC), [1999] 1 S.C.R. 201, Justice Major discussed negligence and the standard of care; he stated at para. 28:

28. Conduct is negligent if it creates an objectively unreasonable risk of harm. To avoid liability, a person must exercise the standard of care that would be expected of an ordinary, reasonable and prudent person in the same circumstances. The measure of what is reasonable depends on the facts of each case, including the likelihood of a known or foreseeable harm, the gravity of the harm, and the burden or cost which would be incurred to prevent the injury. In addition, one may look to external indicators of reasonable conduct, such as custom, industry practice and statutory or regulatory standards. Thus, the standard of care of professionals is typically proven by evidence of the behaviour of other professionals to avoid causing foreseeable harm.

85It is worth noting that the standard of care is an objective measure not a subjective measure. It is a measure of what an ordinary, reasonable and prudent mutual fund manager would do in the same circumstances. It is a measure of behaviour and not a measure of the consequences of misbehaviour. In the case at bar, knowledge of the full extent of the damage caused by all the market timers in AIC and CI mutual funds is a subjective measure of the consequences of the alleged misconduct, and this knowledge would not contribute to the proof of the objective standard of reasonable conduct, and it would not contribute to whether that objective standard was breached by acting or failing to act.

86While it will take longer to explain the point, knowledge of the full extent of the damage caused by all market timers in AIC and CI mutual funds would also not contribute to the proof of the novel pure economic loss duty of care posited for the case at bar.

87This conclusion about relevancy follows because simply showing that some harm has happened as proof of a duty of care is to reason backward. This result-driven backward reasoning process begs the question of whether a person has duty of care by moving from the desired remedy for a breach of duty (compensation for the harm) to a finding that the person had a duty. This conclusion about relevancy also follows because a review of the legal test for determining whether there is a duty of care reveals that the test does not include as a factor understanding the full extent of the harm subjectively suffered by the plaintiff.

88In Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), the House of Lords adopted a two-step analysis to determine whether there was a duty of care between a plaintiff and a defendant: (1) Is there a sufficiently close relationship between the plaintiff and the defendant such that in the reasonable contemplation of the defendant, carelessness on its part might cause damage to the plaintiff? and, (2) Are there any considerations that ought to negative or limit: (a) the scope of the duty; (b) the class of persons to whom it is owed; or (c) the damages to which a breach of it may give rise?

89As developed by the case law in Canada, if the relationship between the plaintiff and the defendant does not fall within a recognized class whose members have a duty of care to others, then whether a duty of care to another exists involves satisfying three requirements: (1) foreseeability, in the sense that the defendant ought to have contemplated that the plaintiff would be affected by the defendant's conduct; (2) sufficient proximity, in the sense that the relationship between the plaintiff and the defendant is sufficient prima facie to give rise to a duty of care; and (3) the absence of overriding policy considerations that would negate any prima facie duty established by foreseeabilty and proximity. Thus, whether a relationship giving rise to a duty of care exists depends on foreseeability, moderated by policy concerns: Anns v. Merton London Borough Council, supra; Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R 114 at para. 4.

90In reviewing the legal test for a duty of care, it may be noted that knowledge of the full extent of damage actually suffered by the plaintiff would not contribute to determining whether the damage was reasonably foreseeable in the first instance.

91In reviewing the legal test for a duty of care, it may be noted that knowledge of the full extent of the damage actually suffered would also not contribute to determining whether the type of relationship between the plaintiff and defendant is proximate; i.e., so close that the defendant may reasonably be said to owe the plaintiff a duty to take care not to injure him or her: Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562 (H.L.).

92The proximity inquiry probes whether it would be unjust or unfair to hold the defendant subject to a duty of care having regard to the nature of the relationship between the defendant and the plaintiff: Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38 at para. 26. The focus of the probe is on the nature of the relationship between victim and alleged wrongdoer and the question is whether the relationship is one where the imposition of legal liability for the wrongdoer's actions would be appropriate. See Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41 at para. 23. The determination of proximity does not depend upon knowing the full extent of the consequences of the defendant’s acts or omissions.

93In reviewing the legal test for a duty of care, it further may be noted that knowledge of the full extent of the consequences of the defendant’s acts or omissions does not inform the second stage of the duty of care analysis where the question to be asked is whether there exist broad public policy considerations that would make the imposition of a duty of care unwise, despite the fact that harm was a reasonably foreseeable consequence of the conduct in question and there was a sufficient degree of proximity between the plaintiff and the defendant such that the imposition of a duty would be fair. The second stage of the analysis is about the effect of recognizing a duty of care on other legal obligations, the legal system, and society more generally: Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 at para. 37; Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263 at para. 51.

94I conclude that information and documents about the full extent of the harm allegedly suffered in the case at bar would not contribute to the proof of a duty of care. The information is relevant to the measure of damages, but damages was not certified as a common issue in the case at bar.

95Turning to the claim that ACI and CI are liable for breach of fiduciary duty, the elements of a claim for breach of fiduciary duty are: (1) a fiduciary relationship; (2) a fiduciary duty; and (3) breach of the fiduciary duty: Canadian Aero Services Ltd. v. O'Malley, 1973 CanLII 23 (SCC), [1974] S.C.R. 592 at para. 616; Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377; Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574; Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99; Aronowicz v. Emtwo Properties Inc. (2010), 2010 ONCA 96, 98 O.R. (3d) 641 (C.A.); Galambos v. Perez, 2009 SCC 48 at para. 37.

96Put shortly, I do not see how knowledge of the extent of harm caused contributes to the proof of the existence of a fiduciary relationship, the duties attendant to that fiduciary relationship, and whether those attendant fiduciary duties have been breached.

97The foremost duty of a fiduciary is loyalty. In Canadian Aero Service Ltd. v. O'Malley, supra at p. 606, Justice Bora Laskin, as he then was, stated that a fiduciary obligation “betokens loyalty, good faith and avoidance of a conflict of duty and self-interest”. In the English case of Bristol and West Building Society v. Mothew, [1996] 4 All E.R. 698 (C.A.) at p. 711, Millett, L.J. stated:

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.

98Misconduct by a person who is a fiduciary does not necessarily mean that there has been a breach of fiduciary duty; rather, for there to be a breach of fiduciary duty, the misconduct must involve the particular duties that the law imposes on the particular fiduciary. As Justice Southin observed in Girardet v. Crease & Co. (1987), 1987 CanLII 160 (BC SC), 11 B.C.L.R. (2d) 361 (S.C.) at p. 362: “The word ‘fiduciary’ is flung around now as if it applied to all breaches of duties by solicitors, directors of companies and so forth. But ‘fiduciary’ comes from the Latin ‘fiducia’ meaning ‘trust’. Thus, the adjective ‘fiduciary’ means of or pertaining to a trustee or trusteeship.” In Girardet v. Crease & Co., the plaintiff sued her lawyer for negligence in advising her to settle a personal injury claim, and Justice Southin said that it was a perversion of words to say that simple carelessness in giving advice was a breach of fiduciary duty. To be classified as fiduciary misconduct, the misconduct must involve the particular quality of duties that the law imposes on particular fiduciaries. Thus, at p. 362, Justice Southin observed:

That a lawyer can commit a breach of the special duty of a trustee, e.g., by stealing his client’s money, by entering into a contract with the client without full disclosure, by sending a client a bill claiming disbursements never made and so forth is clear. But to say that simple carelessness in giving advice is such a breach is a perversion of words. The obligation of a solicitor of care and skill is the same obligation of any person who undertakes for reward to carry out a task. One would not assert of an engineer or physician who had given bad advice and from whom common law damages were sought that he was guilty of a breach of fiduciary duty. Why should it be said of a solicitor?

99In Lac Minerals Ltd. v. International Corona Resources Ltd., supra, La Forest, J. at p. 647 and Sopinka, J. at pp. 597–98 adopt Justice Southin’s comments. Justice Sopinka stated at p. 596 that fiduciary obligation “must be reserved for situations that are truly in need of the special protection that equity affords.” In Varcoe v. Sterling (1992), 1992 CanLII 7478 (ON SC), 7 O.R. (3d) 204 (Gen. Div.) at p. 229; affd. (1993), 1992 CanLII 7730 (ON CA), 10 O.R. (3d) 574 (C.A.), a case where a stockbroker was liable for negligence but not for breach of fiduciary duty, Justice Keenan put it simply: “But not every wrong done by a fiduciary is a breach of that duty. It must be a wrong which is a betrayal of that trust component of the relationship.”

100For present purposes, the point I am making is that knowing the full extent of the harm caused does not tell us whether the behaviour alleged to have caused the harm is tainted by the odour of a breach of fiduciary duty. Dr. Zitzewitz is wrong in thinking that information about the full extent of dilution will be probative of whether there has been a breach of fiduciary duty.

101Before leaving this part of the discussion, it is necessary to point out that had I determined that comprehensive trading data was relevant to the common issues, I would have ordered the information to be disclosed and produced notwithstanding the repercussions this might have to the structure of this particular class action. Parties are frequently added or let out of an action as a result of the disclosures made at examinations for discovery and although this is more complicated in a class action and exaggeratedly complicated in this particular class action, it is not a reason not to order the disclosure to be made.

4. Disclosure of the OSC Documents

102The Plaintiffs submit that the yet undisclosed OSC documents are about the same market timing activities that are the subject matter of the class action and, therefore, these documents should be produced in the class action for the common issues trial.

103To the extent that this submission is made as a means to obtain the comprehensive trading data it fails, because I have just ruled that the disclosure of trading data, while relevant to the calculation of damages, is not relevant to the issues that were certified for the common issues trial.

104The Plaintiffs’ submission also fails as a justification for the production of the undisclosed OSC documents. The fact the OSC documents are about the same market timing activities simply begs the question of whether the additional OSC documents are relevant to the proof of the common issues that were certified for this particular class proceeding.

105Both the legal and the factual footprints of the OSC Probe and the action at bar are not identical. What was relevant evidence for the regulatory proceedings may or may not be relevant evidence for the judicial proceedings, and if the information is relevant to both proceedings, it may be relevant at some later stage of the class action.

106In the case at bar, the Defendants’ witnesses depose that AIC and CI have disclosed the OSC information and documents that are relevant for the common issues trial and that they have not produced the irrelevant or privileged material.

107The Defendants submit that they are compliant with the de facto Discovery Plan, and I have no reason to doubt them. The mere fact that this action is a follow up to the OSC proceedings does not entail that all of the OSC documents should be disclosed at this juncture.

5. Disclosure of Other Documents

108This brings the discussion to the Plaintiffs’ apprehension or suspicion that the Defendants are in truth not compliant with the de facto Discovery Plan, pursuant to which production has been undertaken beginning in November of last year.

109In Paul M. Perell and John W. Morden, The Law of Civil Procedure in Ontario (2nd ed.) (Markham, NexisLexis, 2014), I discuss inadequate disclosure of documentary discovery at pp. 624-625 as follows:

A party who considers the affidavit of documents of an opposite party to be unsatisfactory or insufficient may move for an order for a further and better affidavit, and, in support of such motion, the moving party may file an affidavit and exhibits showing the facts upon which the allegation is based. In order to succeed on the motion, the party must satisfy the court that a relevant document had been omitted from the affidavit of documents. A party may move for a further and better affidavit of documents from his or her opponent, but the motion must be based on more than speculation, intuition or guesswork, and for an order requiring a better affidavit, the moving party must demonstrate some basis for concluding that his or her opponent has overlooked or withheld documents. There must be some evidence that there has been an omission such that production and/or inspection ought to be ordered, and there is no right to in effect “rummage through an opponent’s filing cabinets” or computers, etc., to see if there is anything interesting. However, the level of proof required should take into account the fact that one party has access to the documents and the other does not. [citations omitted]

110In my opinion, the Plaintiffs do not satisfy the test for an order for a further and better affidavit of documents.

D. CONCLUSION

111For the above reasons, I dismiss the Plaintiffs’ motion.

112If the parties cannot now agree about the completion of the Discovery Plan, I will finalize the Plan at a case conference.

113If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the submissions of the Defendants within 20 days of the release of these Reasons for Decision, followed by the Plaintiffs’ submissions within a further 20 days. I alert the parties that my present inclination is to order costs in the cause.

Perell, J.