COURT FILE NO.: 57453CP

DATE: 2015/10/28

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: John O’Neil (Plaintiff)

AND:

Sunopta, Inc., Steven R. Bromley and John H. Dietrich (Defendants)

BEFORE: Justice H. A. Rady

COUNSEL: Douglas Worndl, for the plaintiff

No one appearing, for the defendants

COURT FILE NO.: 1626CP

DATE: 2015/10/28

RE: Douglas Devlin, Pathway Multi Series Fund Inc. and Robert Rae (Plaintiffs)

AND:

Greg S. Noval, Leigh Bilton, Michael E. Coolen, Charles Dallas, Thomas J. Harp, Craig McKenzie, Alexander Squires, Robb D. Thompson, Richard Watkins, Leif Snethun, Sonde Resources Corp. (f.k.a. Canadian Superior Energy Inc.) and Challenger Energy Corp. (Defendants)

BEFORE: Justice H. A. Rady

COUNSEL: Douglas Worndl, for the plaintiffs

No one appearing for the defendants

HEARD: October 6, 2015

ENDORSEMENT

Introduction

[1] The plaintiffs move for an order for the following relief: a) approving a cy prѐs payment of a total of $12,125.95 CAD to the Canadian Foundation for Advancement of Investor Rights (FAIR Canada); and b) discharging NPT Ricepoint Class Action Services Inc. as the settlement administrator in this action, to be effective upon Ricepoint making the cy prѐs payment to FAIR Canada.

[2] The settlement agreement reached by the parties in this case was approved by court order on May 17, 2010. The issue of a payment of cy prѐs monies was not addressed in the settlement agreement nor in the settlement approval order.

[3] The Canadian administrator of the Canadian settlement fund has confirmed that $4,178.41 remains in the Canadian settlement account in the O’Neil v. Sunopta matter. The sum of $7,947.54 remains in the Canadian settlement account in the Devlin v. Noval matter. In the administrator’s opinion, it is not practical, economical or equitable to distribute these relatively modest amounts to class members. The cost of cheques, printing and postage would substantially or completely exhaust these funds. A second round of distribution would result in 94 percent of eligible claimants receiving cheques of $100 or less, which in the administrator’s experience often are uncashed. This would result in another positive balance when the cheques become stale dated after six months.

The Issue

[4] In this case, the plaintiffs propose FAIR Canada as the recipient of the cy prѐs distribution. The issue is whether FAIR Canada is an appropriate cy prѐs recipient in light of the decision Sorenson v. easyhome Ltd., 2013 ONSC 4017 (S.C.J.)

[5] Before discussing the issue, it is helpful to set out some information about FAIR Canada, which is set out in detail in the affidavit of Neil Gross, the executive director of FAIR Canada. It is a national non-profit organization dedicated to investor protection. It was founded in 2008. FAIR Canada is independent of governments, regulators and the financial industry. Its purpose is to be a national voice for investors in the area of securities regulation, speaking on behalf of Canadian shareholders and individual investors as consumers of financial products. It has been granted charitable status. Its charitable objects are to provide education to the public and to policy makers on investor protection issues, to conduct and make available public research on such issues and to hold public conferences, round tables and symposiums on them.

[6] FAIR Canada is funded by Market Regulation Services Inc. (MRS) and the Investment Dealers Association of Canada (IDA) using funds derived from fines levied against their member firms. Apparently, the MRS and IDA viewed the funding of FAIR Canada as a desirable use of their money for projects that benefit the public, recognizing that retail investors are differently situated from institutional market participants and lack a voice in policy debates pertaining to securities regulation.

[7] In 2012, the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada committed to provide additional funding for FAIR Canada’s operations. In 2013, the Jarislowsky Foundation established a permanent endowment fund for FAIR Canada. The OSC made a financial contribution to this endowment fund in 2014.

[8] FAIR Canada’s work includes:

• making submissions to securities regulators, governments, stock exchanges and other persons on priorities, policy, legislative change and enforcement;

• identifying emerging issues that affect individual investors and seeking reform to mitigate the possibility of harm to investors; and

• identifying conduct by issuers, registered persons and other market participants that is or may be detrimental to investors and where appropriate, encouraging action to enhance investors rights and protections.

[9] In furtherance of its objectives, FAIR has made over 140 written submissions to regulatory, industry and government stakeholders in Canada’s capital markets on issues such as:

• the OSC’s proposed whistle-blower program;

• the OSC’s no-contest settlement policy;

• the standard of conduct for investment advisors and dealers;

• crowdfunding; and

• mutual fund fees.

[10] It appears that FAIR Canada is one of only a very few organizations advocating for shareholders in Canada and it alone expresses the perspective of retail investors in policy making process.

[11] FAIR Canada has received cy prѐs distributions in the context of securities class actions in the past including in Dobbie v. Arctic Glacier Income Fund.

[12] From time to time, FAIR Canada has asked to intervene in court proceedings as a friend of the court to provide the perspective of Canadian retail investors. It retains counsel in that regard. The evidence is that it has retained counsel seasoned in class proceedings, including but not limited to Siskinds, in matters before the courts. It bears observing that the experienced class action bar is comprised of a relatively small group of firms.

Cy Prѐs Distributions

[13] The general rule is that cy prѐs distributions should not be approved where direct compensation to class members is practicable: Cassano v. Toronto Dominion Bank (2009), 2009 35732 (ON SC), 98 O.R. (3d) 543 (S.C.J.).

[14] Where the court is satisfied that a settlement amount (or what remains) cannot be distributed economically to individual class members, the court will approve a cy prѐs distribution to reputable organizations that will provide an indirect benefit to class members. See Sutherland v. Boots Pharmaceutical PLC, [2002] O.J. No. 1361 (S.C.J.) and Markson v. MBNA Canada Bank, 2012 ONSC 5891 (S.C.J.).

[15] I am satisfied that a cy près distribution is warranted.

[16] When identifying a suitable recipient, the court must have regard to the objectives of the Class Proceedings Act, including access to justice for class members and behavior modification of a defendant. Moreover, there should be some rational connection between the subject matter of a particular case, the interests of class members and the cy prѐs recipient. That takes me to the issue presented in this case.

The Sorenson v. easyhome Ltd. decision

[17] In his customary thoughtful and thorough analysis, Justice Perell rejected FAIR Canada as an appropriate cy prѐs recipient based on his conclusion that Siskinds, as class counsel, would receive an indirect benefit if such an order were made.

[18] His set out the rationale for his conclusion as follows:

[12] As may be noted, the settlement envisions what may be a very modest cy prѐs distribution. Recently, easyhome learned that Siskinds and FAIR Canada have linkages that were not known to the Defendants before the settlement. The linkages are that: (1) FAIR Canada has been a pro bono client of the firm; and (2) it and the law firm have been allies in making responses to the Ontario Securities Commission. More precisely, FAIR Canada took a similar position to Siskinds in submissions to the Ontario Securities Commission with regard to OSC Staff Notice 15-704, which related to so-called “no-contest settlements.” The Defendants submit that these linkages are such that the Court should consider requiring the parties to name a new cy prѐs beneficiary…

[13] Mr. Sorenson submits that none of the linkages rise to the level that would invalidate FAIR Canada as a cy prѐs beneficiary. He submits that the most that can be said is that FAIR Canada seeks to protect investors, and thus from time-to-time takes a similar view as Class Counsel, which practices investor protection litigation. He submits that in the absence of any pecuniary or personnel connection, FAIR Canada is an appropriate beneficiary.

[30] Cy prѐs relief should attempt to serve the objectives of the particular case and the interests of the class members. It should not be forgotten that the class action was brought on behalf of the class members and a cy prѐs distribution is meant to be an indirect benefit for the class members and an approximation of remedial compensation for them. However well meaning, the prospect of a cy prѐs distribution should not be used by Class Counsel, defence counsel, the defendant, or a judge as an opportunity to benefit charities with which they may be associated or which they may favour. To maintain the integrity of the class action regime, the indirect benefits of the class action should be exclusively for the class members.

[31] In the case at bar, I accept that since the class members were seeking to enforce shareholders’ rights that exist under Canadian securities law, the class members may obtain an indirect benefit by donating a portion of the settlement proceeds to an association that is dedicated to advancing investors’ rights, which I accept is a commendable project.

[32] However, in the case at bar, if Fair Canada is the cy prѐs recipient, then Class Counsel also obtains an indirect benefit because they can take credit for the class members’ contribution to Fair Canada, another client of the firm. Further, for those that are cynically minded, there is the optics or appearance of a business development synergy in Class Counsel’s supporting FAIR Canada’s mission and this synergy would be another indirect benefit to Class Counsel.

[33] In my opinion, however well meaning, it is inappropriate for Class Counsel to indirectly benefit from a cy prѐs distribution and it is inappropriate for Class Counsel to have any direct connection with a recipient of a cy prѐs distribution. I think that it is undesirable for courts to have to determine whether the connection rises to any particular level. Given that there are many other worthy recipients of cy prѐs distributions, in my opinion, in the circumstances of the case at bar, it is not in the best interests of class members to have a cy prѐs distribution to FAIR Canada, and I do not approve this aspect of the proposed settlement.

[19] I agree that the prospect of a cy prѐs distribution should not be used by anyone involved in the proceeding to benefit charities that they favour. The whole point is to benefit, albeit indirectly, class members.

Analysis

[20] The difficulty is that Sorenson may be interpreted as establishing a bright line rule that would disqualify organizations that would otherwise be highly or perhaps uniquely qualified to receive cy prѐs distributions, something recognized as commendable by the court.

[21] There was evidence before me that to the extent that Sorenson articulates such a rule, three leading shareholder rights organizations would be precluded from receiving such distributions in cases where leading class counsel (and not just Siskinds) are involved. One consequence could be to discourage qualified class counsel from taking pro bono briefs from charities and not-for-profit organizations seeking to intervene in matters for which they bring an important perspective.

[22] I respectfully disagree that it is undesirable to determine whether a connection rises to any particular level. In my view, the test should be whether a reasonable person in possession of the facts, rather than the cynically minded, would conclude that any real benefit is conferred.

[23] In this case, the evidence filed in the case demonstrates the following:

• Siskinds will not obtain any direct or indirect benefit from the proposed cy prѐs payments to FAIR Canada;

• there is no “business development synergy in Class Counsel supporting FAIR Canada’s mission”; and

• there has never been a referral of an actual or potential client by FAIR Canada to Siskinds, nor is there any understanding or expectation that such would occur.

[24] The proposed distributions are therefore approved and the settlement administrator shall be discharged once payment has been made.

“Justice H. A. Rady”

Justice H. A. Rady

Date: October 28, 2015