Court File and Parties

Court File No.: CV-15-527095 Date: 2017-07-07 Ontario Superior Court of Justice

Between: ZHENG LOU, Plaintiff – and – LONDON LIFE INSURANCE COMPANY and BAOMIN YI, a.k.a. Robin Yi, Defendants

Counsel: Cameron Fiske and Paul Bates, for the Plaintiff Crawford Smith and James Gotowiec, for the Defendant London Life Insurance Company Mark M. O'Donnell, for the Defendant, Baomin Yi

Heard: June 21, 2017

Perell, J.

Reasons for Decision

A. Introduction

[1] The Plaintiff Zheng Lou brought this action against London Life Insurance Company and Baomin Yi, an intermediary agent, an investment advisor, who sold her an investment product available from London Life. Ms. Lou now brings a two-branched motion: (1) for court approval of the settlement that she has reached with Mr. Yi; and (2) to convert her action against London Life into a class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6.

[2] London Life does not oppose the first branch of Ms. Lou’s motion, but it submits that any order approving the settlement should protect its discovery rights in the litigation and its rights to claim over against Mr. Yi.

[3] London Life opposes the second branch of Ms. Lou’s motion, and it submits that Ms. Lou’s claim does not satisfy the threshold test for the conversion of an individual action into a class action. Ms. Lou submits that there is no special threshold test for the conversion of an individual action and, rather, the applicable rule for amending a pleading, Rule 26, has been satisfied and therefore, the court should permit her to amend her Statement of Claim to bring it under the Class Proceedings Act, 1992, S.O. 1992, c. 6.

[4] For the reasons that follow, I dismiss Ms. Lou’s motion.

B. Factual and Procedural Background

[5] Ms. Lou is a paralegal licensed by the Law Society of Upper Canada as well as a licensed mortgage broker. She has been licensed as a paralegal since 2008 and as a mortgage broker since 2010. On April 29, 2015, Ms. Lou drafted her own Statement of Claim and had it issued against London Life and Mr. Yi.

[6] In her Statement of Claim, Ms. Lou alleges that Mr. Yi misrepresented the performance of an investment loan program offered by London Life in which Ms. Lou borrowed $100,000 from the National Bank to invest in a variable annuity contract, sometimes referred to as a segregated fund. Her claim against London Life is based on vicarious liability, breach of fiduciary duty, and non-compliance with IIROC (Investment Industry Regulatory Organization of Canada) by-laws. She seeks general damages of $129,478.61, aggravated damages of $50,000, and punitive damages of $1 million.

[7] Ms. Lou proposes to amend her Statement of Claim to convert it into a class action on behalf of the following class:

All Chinese speaking persons who invested in the London Life Insurance Company’s Segregated Fund between January 1, 2005 and February 3, 2017.

[8] In the proposed amended Statement of Claim, “Chinese” is defined as “Mandarin, Cantonese, and dialects thereof.” There is no definition of “Segregated Fund.”

[9] In the proposed amended Statement of Claim, Ms. Lou alleges that London Life’s intermediary agents would misclassify most of the Class Members by stating on “Know Your Client” forms that the Class Members had a high-risk tolerance when that was not the case. She alleges that the intermediary agents misrepresented the nature of the segregated funds and that each Class Member relied on the misrepresentations in deciding to invest with London Life over a 12-year period.

[10] London Life delivered a Statement of Defence on May 28, 2015. In its current Statement of Defence, London Life pleads that a Segregated Fund is not a single “fund” like a mutual fund and, rather, is an individual variable annuity contract that allows the premiums to be allocated to one or more segregated funds offered by London Life.

[11] Mr. Yi delivered a Statement of Defence on June 1, 2015.

[12] On October 4, 2016, Ms. Lou’s counsel advised the Defendants that she intended to amend the Statement of Claim to convert her individual action into a class action.

[13] Subsequently, Ms. Lou negotiated a settlement with Mr. Yi. The settlement provides that Ms. Lou will limit her personal claim against London Life to its several and independent liability. Under the settlement, Ms. Lou undertakes to seek a bar order.

[14] Ms. Lou deposed that after she commenced her action against Mr. Yi, she discovered, through her counsel, that other investors had similar experiences with other intermediary agents selling London Life segregated fund investment products to the Chinese community.

1. Discussion and Analysis

2. Settlement Approval

[15] At the moment, Ms. Lou’s action is a regular action under the Rules of Civil Procedure and she is not a party under a disability. There is no need, and the court has no jurisdiction, to approve settlements in regular actions. Pursuant to s. 29 of the Class Proceedings Act, 1992, settlement approvals are required for class actions, but the case at bar is not yet a class action and it is not yet even a proposed class action.

[16] Where there are co-defendants in a regular action, if one or more of them settles, then settlement should be disclosed to the court, but the court does not approve, sanction, or allow the settlement, and it is not for the court to impose terms or conditions to the settlement reached by the parties.

[17] I, therefore, dismiss the motion for settlement approval. I note that Mr. Yi remains a party to the litigation for the purposes of cross-claims brought by London Life.

3. Conversion of an Individual Action into a Class Proceeding

[18] Rule 26.01 provides: “[o]n motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.”

[19] Under the rule amendments must be allowed, unless the responding party can demonstrate prejudice that cannot be compensated for by costs: Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 56 O.R. (3d) 768 (C.A.); King’s Gate Developments Inc. v. Drake (1994), 17 O.R. (3d) 841 (C.A.).

[20] Although the general rule is that amendments are presumptively approved, the court has a residual right to deny amendments where appropriate and the court will consider whether: (a) the opposing party will suffer an injustice not compensable in costs; (b) the proposed amendment is an issue worthy of trial and prima facie meritorious; (c) the amendment would have been struck if originally pleaded; and (d) the amendment contains sufficient particulars: Marks v. Ottawa (City), 2011 ONCA 248 at para. 19; Daniele v. Johnson (1999), 45 O.R. (3d) 498 (Div. Ct.) at paras. 11-15; Simrod v. Cooper, [1952] O.W.N. 720 (H.C.J. Master) at p. 721, aff'd [1952] O.W.N. 723 (H.C.J.); Vaiman v. Yates (1987), 60 O.R. (2d) 696 (H.C.J.) at p. 698; Harcar v. WJ Properties, [2017] O.J. No. 3346 (S.C.J. Master).

[21] In Bellefeuille v. Canadian Pacific Railway, 2010 ONSC 5499, leave to appeal ref’d 2011 ONSC 2648 (Div. Ct.) and Great Canadian Gaming Corp. v. British Columbia Lottery Corp., 2017 BCSC 574, courts in Ontario and British Columbia held that the court has jurisdiction to convert an individual action into a class proceeding.

[22] Ms. Lou submits that the test for conversion from an individual action to a proposed class action has a low threshold, which has been met in the case at bar. She says that the test is not the same as the test for certification. She says that she has demonstrated that at least two other persons allege that they have been defrauded or victimized by London Life in the same fashion as her and that there is a definable group of investors to form a class with common issues for determination. Further, Ms. Lou submits that the requirements of Rule 26 for an amendment have been satisfied, and in these circumstances, it is mandatory to allow the requested amendments.

[23] London Life submits that the test for the conversion of an individual action into a proposed class action goes beyond Rule 26 and is not superficial and without going so far as would be the case for a certification motion, for a plaintiff to be granted permission to amend his or her statement of claim to convert it to a class action, he or she must prima facie demonstrate that the purposes of a class action; i.e. access to justice, behaviour modification and judicial economy, could be satisfied.

[24] London Life submits that Ms. Lou does not meet the threshold test for conversion of an individual action into a proposed class action. It says that the class definition is vague and unworkable to identify a class. It says that no judicial economy will be achieved because the case will inevitably lead to individual issues trials where the major work will have to be done with little achieved by the common issues trials. It says that it is already too late to add claims against the investment advisors who would appear to be protected by the running of limitation periods.

[25] Further London Life submits that there are no access to justice concerns because where individuals have had concerns or complaints, they have already commenced proceedings and there is no evidence that any other proposed Class Members have complaints relating to individual variable annuity contracts that have not had them resolved. Further still, no behaviour modification is warranted in the circumstances of this case where the investment product is sound and individual putative Class Members have recourse against their investment advisors for misrepresentations.

[26] The case law supports London Life’s submission that while the prerequisites of Rule 26 must be satisfied, there is an additional threshold test to determine whether an individual action may be converted into a proposed class action.

[27] In Bellefeuille v. Canadian Pacific Railway, supra, the Bellefeuilles brought an action against Canadian Pacific Railway for environmental nuisance caused by the spill of diesel fuel. The Bellefeuilles were one of 55 individual actions brought by the law firm Wallbridge, Wallbridge. The firm had contemplated a class action, but had decided that that route was foreclosed by the authority of Pearson v. Inco Ltd., (2002) 33 C.P.C. (5th) 264 (Ont. S.C.J.), aff’d (2004), , 44 C.P.C. (5th) 276 (Ont. Div. Ct.). However, when the Pearson decision was overturned by the Court of Appeal ((2005) , 18 C.P.C. (6th) 77 (Ont. C.A.)), the Bellefeuilles applied to amend their statement of claim to assert an environmental damages class action. Justice Hennessy held that there was jurisdiction to grant the amendment, and she granted it. At paragraph 38 of her decision, she stated that the court may allow plaintiffs to amend their pleadings in order to bring a class action where, on a threshold analysis, the purposes of a class proceeding will be fulfilled by such amendment. Justice Herman dismissed the Railway’s application for leave to appeal.

[28] In Great Canadian Gaming Corp. v. British Columbia Lottery Corp., 2017 BCSC 574, supra, Great Canadian Gaming Corp. sued the British Columbia Lottery Corp. Great Canadian Gaming Corp. provided operational services to casinos under agreements with the Lottery Corporation, and it alleged that the agreements had been breached. Two years after the action was commenced, Great Canadian Gaming Corp. brought a motion to convert its action into a class action. Justice Skolrood agreed with the analysis in Bellefeuille v. Canadian Pacific Railway, supra, and he held that the court had jurisdiction to convert an individual action into a class action, but he declined to exercise that jurisdiction in the circumstances of that case.

[29] In exercising his discretion to refuse the amendment, Justice Skolrood stated that the following factors were relevant: (a) history of the proceedings; (b) the length and reason for the delay in seeking to convert the action; (c) the expiry of any limitation periods; (d) the presence or absence of other prejudice to either party; (e) the likelihood or otherwise of a proper class eventually being defined; (f) the conduct of the parties; and (g) whether conversion is consistent with, or would advance, the overriding objectives of a class proceeding, namely judicial economy, access to justice and behaviour modification. Taking into account the relevant factors, he concluded that it was not an appropriate case in which to grant the conversion amendment.

[30] Applying Bellefeuille v. Canadian Pacific Railway and Great Canadian Gaming Corp. v. British Columbia Lottery Corp. to the circumstances of the immediate case, I do not allow the conversion of the action from an individual action into a proposed class action.

[31] This action was commenced in 2015 as an individual action involving one investment advisor, intermediary agent and it was defended as such. Converting that action into a class action involving an unknown number of intermediary agents over a 12-year period is, in magnitude, the equivalent of changing a procedural minnow into a procedural whale.

[32] It is now 2017, and there are very serious limitation period issues, and there is more than a little traction to London Life’s submissions that there are serious problems about the class definition, common issues, and the preferable procedure criteria. There is also a serious issue about the suitability of Ms. Lou as a putative Representative Plaintiff when she has partially settled her own claim while the rest of the putative Class Members’ circumstances will be different than hers from the outset.

[33] Further still, whether the underlying claim is suitable for a class action is decidedly problematic. A similar misrepresentation case against an insurance company, Williams v. Mutual Life Assurance Co. of Canada, [2000] O.J. No. 3821 (S.C.J.), aff'd. , [2001] O.J. No. 4952 (Div. Ct.), aff'd. sub nom Kumar v. Mutual Life Assurance Co., [2003] O.J. No. 1160 (C.A.), leave to appeal ref'd. [2003] S.C.C.A. No. 283, was not certifiable, and it would be a very challenging matter to distinguish that case. See also: Fehr v. Sun Life Assurance Co. of Canada, 2015 ONSC 6931, 2016 ONSC 455, and 2016 ONSC 7659, another similar case to the one at bar that was not certifiable.

[34] In my opinion, the case at bar does not meet the threshold test for conversion from an individual action into a class action.

C. Conclusion

[35] For the above reasons, I dismiss Ms. Lou’s motion. If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with London Life’s submissions within 20 days of the release of these Reasons for Decision followed by Ms. Lou’s submissions within a further 20 days.

Perell, J.

Released: July 7, 2017