Court File and Parties

COURT FILE NO.: CV-18-00611748-00CP DATE: 2020-11-09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NAHEED GILANI, Plaintiff AND: BMO INVESTMENTS INC., Defendants

BEFORE: Justice Glustein

COUNSEL: Michael G. Robb, Anthony O’Brien, Garrett Hunter, Eva Markowski and Gigi Pao, for the plaintiff James D.G. Douglas and Ian C. Matthews, for the defendant

HEARD: October 29, 2020

Reasons for Decision

Nature of issue and overview

[1] The defendant, BMO Investments Inc. (BMOII), seeks a direction from the court that its proposed summary judgment motion (the SJ Motion) be heard concurrently with the certification motion to be brought by the plaintiff, Naheed Gilani (Gilani).

[2] At the hearing, Gilani reserved the right to oppose any scheduling of the SJ Motion. I do not address this issue in these Reasons. The only issue upon which directions were sought was whether the SJ Motion should be heard concurrently with the certification motion. The issue of whether the SJ Motion could be scheduled at any time was not before the court, and there were no submissions or case law on the issue.

[3] Consequently, if Gilani opposes any scheduling of the SJ Motion (or any other summary judgment motion proposed by BMOII), the parties will be required to attend at a further hearing for directions on that issue.

[4] For the reasons I discuss below, I find that the SJ Motion should not be heard concurrently with the certification motion.

[5] In brief, the SJ Motion would (i) require significant responding evidence (including the possibility of expert evidence), (ii) require lengthy cross-examinations of affiants and perhaps other witnesses summoned to provide evidence, and (iii) would increase expense and delay.

The availability of partial summary judgment is not addressed in these Reasons

[6] In their written submissions for this scheduling hearing, both parties relied significantly on case law which addresses the availability of partial summary judgment.

[7] In particular, BMOII submitted that:

(i) The SJ Motion should not be viewed as a request for partial summary judgment. BMOII submitted that the results of the SJ Motion would be dispositive for many of the proposed class members; and

(ii) Even if BMOII did seek partial summary judgment, it would be an appropriate process since the issues BMOII sought to raise in the SJ Motion related to limitation periods and the alleged releases, which were “extricable” from trial issues.

[8] Gilani submitted that:

(i) BMOII was seeking partial summary judgment. Gilani submitted that the results of the SJ Motion would not be dispositive of the class action; and

(ii) The issues BMOII sought to raise in the SJ Motion related to limitation periods and the alleged releases which were not “extricable” from trial issues, such that partial summary judgment would not be an appropriate process.

[9] I do not address these submissions in these Reasons. If the SJ Motion is brought before the court, it will then be necessary to decide whether (i) the SJ Motion (or any cross summary judgment motion Gilani may seek to bring) is a partial summary judgment motion; and (ii) if so, whether the SJ Motion or any cross-summary judgment motion is appropriate under the existing case law.

[10] Consequently, I now address the narrow issue of whether the SJ Motion should be scheduled concurrently with the certification motion.

Nature of the action

[11] Gilani commenced this proposed class proceeding on December 28, 2018 and amended his claim as of July 27, 2020. He seeks to recover compensation for losses flowing from money taken out of alleged trust assets and paid to “Discount Brokers” (brokers who provide “order-execution only services”) from “BMO Mutual Funds” (mutual funds in which BMOII was the trustee).

[12] Gilani proposes certification on behalf of a class of persons, who “held or hold … units of a BMO Mutual Fund through a Discount Broker”.

[13] Gilani advances a number of causes of action based on BMOII’s payment of trailing commissions to Discount Brokers: (i) breach of standard of care in the declarations of trust or other trust instruments which governed the BMO Mutual Funds (the Trust Instruments), (ii) breach of fiduciary duty, (iii) breach of the agreements by which BMOII acted as manager for the BMO Mutual Fund Trusts (the Management Agreements), (iv) disallowance of an expense under s. 23.1 of the Trustee Act, R.S.O. 1990, c. T. 23, (v) unjust enrichment, and (vi) a claim under s. 130 of the Securities Act, R.S.O. 1990, c. S. 5, for misrepresentations in the “Fund Facts Documents” which Gilani alleges were incorporated by reference into the simplified prospectuses used to distribute BMO Mutual Fund units to the class.

Background to the scheduling issue

[14] The parties attended a telephone case conference with the court on July 30, 2020. The issue of sequencing the certification motion and the SJ Motion was discussed. Gilani presented a timetable which did not include the SJ Motion being heard at certification. BMOII presented a timetable which did include the SJ Motion being heard at certification. Consequently, the court scheduled this motion for directions to decide whether the two motions should be heard together.

[15] At the case conference, the court ordered a timetable requiring the parties to exchange certification records by November 6, 2020, with the balance of any scheduling issues to be either agreed upon by the parties or set by the court after the motion for directions.

[16] In accordance with the timetable, BMOII delivered its Statement of Defence and a draft Notice of Motion for summary judgment on September 14. Gilani delivered his Reply on September 30. Pleadings are now closed. The parties have exchanged certification records and the reply certification record of Gilani was due on November 6, 2020.

The SJ Motion

[17] BMOII relies on three grounds for the SJ Motion. BMOII submits:

(i) Every BMO Mutual Fund at issue in the action is governed by one of three declarations of trust (“DOT”). BMO relies on (a) both the Current Retail and Advisor DOT and the Current Guardian DOT, to submit that any claims against it as trustee or manager were released upon redemption of the units, and (b) the Current LifeStage Plus DOT, to submit that that any claims against it as trustee were released upon redemption of the units. BMOII refers to the relevant passages in the DOTs as the “Alleged Releases”;

(ii) The statutory misrepresentation claim advanced by Gilani on behalf of proposed class members is statute-barred for all claims prior to December 28, 2015. BMOII submits that under s. 138(b)(ii) of the Securities Act, the three year limitation period runs from the date of the transaction, and, as such, discoverability does not apply to the limitation period; and

(iii) All other claims advanced by Gilani prior to December 28, 2016 are statute-barred. BMOII submits that the two-year common law limitation period, which provides for discoverability, can run no later than when class members received a disclosure document (at the time of purchase) which BMOII submits disclosed the payment of trailing commissions in respect of the BMO Mutual Funds they held.

[18] Gilani has filed a lengthy Reply to the BMOII Statement of Defence which addresses each of the above issues. In summary, Gilani submits:

(i) The Alleged Releases do not have the effect claimed by BMOII. Gilani submits that the interpretation advanced by BMOII is contrary to other contractual terms, including (a) the standard of care required of BMOII under the DOTs and (b) the obligation of BMOII under the Management Agreements to be responsible for any loss arising out of the breach of its standard of care contained therein.

Gilani further submits that even if BMOII’s interpretation is correct, (a) the parties were not ad idem on the terms of the Alleged Releases; (b) the precondition for application of the Alleged Releases has not been fulfilled; and (c) the Alleged Releases are void, voidable, unconscionable, or unenforceable. Gilani submits that BMOII is not able to enforce any such release given its alleged breach of trust and fiduciary obligations, and the alleged statutory illegality;

(ii) The s. 138 three-year limitation period under the Securities Act incorporates the doctrine of discoverability and, in the alternative (a) the applicable limitation period for distributions which were reinvested did not commence until, at the earliest, the date of acquisition by reinvestment; and (b) in any event, the limitation period is suspended because (1) BMOII engaged in fraudulent concealment of its alleged misconduct and (2) as a trustee and fiduciary, it would be unconscionable for BMOII to rely on s. 138; and

(iii) The two-year limitation period does not run from the disclosure documents, given the alleged misrepresentations by BMOII in the Fund Facts Documents in its simplified prospectuses. Gilani further submits that class members suffered an ongoing loss because when funds were taken out of trust property, the class members suffered reduced unit value as well as foregone investment growth that would have been realized had those funds remained in trust for the duration they held their BMO Mutual Fund units.

Analysis

[19] I first address the relevant law, and then apply that law to the facts of the present case.

The applicable law

[20] The only case provided by the parties in which the court addressed whether a summary judgment motion and certification motion should be heard concurrently was McKenna v. Gammon Gold (2009), 2009 CanLII 66994 (ON SC), 84 C.P.C. (6th) 148 (Ont. S.C.).

[21] The facts in McKenna were different from the present case. In McKenna, the defendant waited until a November 25, 2009 case conference to propose that a summary judgment motion be heard concurrently with the certification motion scheduled for December 14, 2009. In the present case, BMOII raised the scheduling issue shortly after receipt of Gilani’s proposed certification schedule, so late timing is not a factor.

[22] However, the factors considered by Justice Strathy (as he then was) in McKenna can be applied more generally to the issue of concurrent scheduling. Those factors include: at paras. 19-23:

(i) whether hearing the motions concurrently would “promote litigation efficiency or reduce costs”,

(ii) whether “the outcome of the summary judgment motion would completely dispose of the action”,

(iii) whether the summary judgment motion can be heard without delaying the certification hearing,

(iv) whether the defendant has delivered a statement of defence, and

(v) whether there is “demonstrable prejudice to the defendants in being required to bring a motion for summary judgment after certification”.

[23] The McKenna factors are consistent with the non-exhaustive factors for scheduling pre-certification motions addressed by Justice Strathy in Cannon v. Funds for Canada Foundation, 2010 ONSC 146, at para. 15:

(i) whether the motion will dispose of the entire proceeding or will substantially narrow the issues to be determined,

(ii) the likelihood of delays and costs associated with the motion,

(iii) whether the outcome of the motion will promote settlement,

(iv) whether the motion could give rise to interlocutory appeals and delays that would affect certification,

(v) the interests of economy and judicial efficiency, and

(vi) generally, whether scheduling the motion in advance of certification would promote the “fair and efficient determination” of the proceeding.

[24] In the present action, the scheduling of motions is governed by the prior version of s. 12 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (CPA),[^1] which provided:

The court, on the motion of a party or class member, may make any order it considers appropriate respecting the conduct of a class proceeding to ensure its fair and expeditious determination and, for the purpose, may impose such terms on the parties as it considers appropriate.

[25] Consequently, the court must consider which approach to scheduling provides the most “fair and expeditious determination” of the matters before the court in the proposed (or certified) class proceeding.

[26] Section 4.1 of the CPA does not apply. Section 4.1 provides that:

If, before the hearing of the motion for certification, a motion is made under the rules of court that may dispose of the proceeding in whole or in part, or narrow the issues to be determined or the evidence to be adduced in the proceeding, that motion shall be heard and disposed of before the motion for certification, unless the court orders that the two motions be heard together.

[27] However, s. 39 of the CPA restricts the application of the recent amendments to the CPA to those class actions brought after October 1, 2020, the effective date of the amendments. Since the Gilani claim was issued before that date, s. 4.1 does not apply and I consider the scheduling issues under the applicable case law and statutes prior to October 1, 2020.

Application of the law to the facts of this case

[28] BMOII submits that the two motions can easily be heard concurrently without additional expense or delay. First, BMOII submits that it will restrict its analysis to the transactional documents such as the DOTs and disclosure documents (already before the court on the certification motion), governed by what it submits is settled law.

[29] Second, BMOII submits that determining any restrictions on the class definition and class size, through reliance on the Alleged Releases and limitation periods, would enhance judicial efficiency, as the matters could be addressed at one hearing, with the result promoting settlement and allowing for a common appeal route. I do not agree.

[30] The SJ Motion seeks to dramatically reduce the class size and the potential recovery of the class. Based on its Reply, Gilani submits that he is entitled to defend the SJ Motion by relying on extensive documentary production, affidavit evidence, and cross-examination which would not be required on the certification motion. I agree.

[31] In order to address the issues raised in its Reply, it is reasonable for Gilani to seek to respond to the SJ Motion in the manner he proposes. By way of example:

(i) Gilani will require all of the transactional documents to be considered in order for the court to interpret the Alleged Releases. Under this approach, the court would then have to consider the appropriate standard of care, including reading the Trust Instruments as a whole and taking into account surrounding circumstances;

(ii) Gilani will require the court to address whether BMOII breached its trust and fiduciary obligations in order to determine whether the Alleged Releases are contrary to public policy, void, voidable, unconscionable, or unenforceable. This approach requires a review of all transactional documents and, by asking the court to consider BMOII’s role as trustee and alleged fiduciary, may require viva voce evidence and expert reports;

(iii) Gilani will require evidence, either from his affiants or from BMOII representatives, with respect to alleged fraudulent concealment, in order to address the s. 138 three-year limitation period, as well as a detailed review of all the investment-related documents;

(iv) With respect to the common law limitation issue, Gilani will ask the court to consider the other documents in which misrepresentations were allegedly made, such as the Fund Facts Documents and the simplified prospectuses, to respond to the BMOII discoverability submission based on the disclosure documents; and

(v) Gilani may require expert evidence as to the reduced unit value and the foregone investment growth in order to respond to the common law two-year limitation period issue.

[32] Given the above evidentiary scope of the SJ Motion, the certification motion will proceed far more efficiently and expeditiously than the SJ Motion. It is reasonable for Gilani to respond to the SJ Motion as he proposes. Such evidence will be voluminous, may include expert evidence, and will likely require lengthy cross-examinations and interlocutory motions on refusals, undertakings, or the summoning of witnesses. I agree with Gilani that the SJ Motion will be “protracted, complex and evidence-intensive”.

[33] Consequently, the SJ Motion would delay the certification hearing and cause unnecessary costs to be incurred. There is no demonstrable prejudice to BMOII in being required to bring a motion for summary judgment after certification. Hearing the motions concurrently would not “promote litigation efficiency or reduce costs”.

[34] Moreover, if the SJ Motion is heard after certification, the parties will have a common set of issues and class definition set by the court, which would provide a framework that could either narrow the summary judgment issues, or at a minimum, better define them for the parties and the court.

[35] By way of example, BMO can raise its statutory defence under s. 138(b)(ii) of the Securities Act, based only on the pleadings, at the s. 5(1)(a) stage of the certification analysis. If there is no cause of action for any class members prior to December 28, 2015, the court can make that determination at that time. There would be no need to address the vast evidentiary record required for a fraudulent concealment issue on summary judgment.

[36] However, if the court holds that there is a tenable claim that the three-year limitation period does not apply, based (for example) on Gilani’s reliance on fraudulent concealment, then BMOII will have to consider whether it is appropriate to seek determination of the fraudulent concealment issue at summary judgment.

[37] Consequently, the determination of issues on certification may be relevant to the issues before the court on summary judgment and, as such, the SJ Motion should not be heard concurrently with the certification motion.

[38] Further, the certification motion will proceed quickly. All evidence on the certification motion will have been delivered by November 6, 2020, and the matter could be heard in the spring of 2021.

[39] Gilani also modified his approach to certification of common issues to ensure compliance with what Gilani submits is a similar certification decision by Justice Belobaba in Stenzler v. TD Asset Management Inc., 2020 ONSC 111; leave to appeal denied 2020 ONSC 5987, which Gilani submits will limit any opposed issues.

[40] The proposed timetable of spring 2021 is not unreasonable for the certification motion, but could not be implemented for the SJ Motion, which would need much more time for production of motion records, cross-examinations, interlocutory motions, and delivery of factums.

[41] It is not efficient to transform a relatively straightforward certification motion into a complex evidence-driven summary judgment. Gilani cannot be faulted for seeking to ensure that the claims of its class members are not surgically excised without responding with all evidence reasonably necessary for that purpose.

[42] In the present case, the more efficient way to address the BMOII defences is to first hear the certification motion. Once the common issues, class definition, and tenable causes of action have been determined, the SJ Motion (if appropriate) can be narrowed to the remaining concerns with the necessary evidence. Attempting to have the two heard concurrently is not consistent with the judicial efficiency required under s. 12 of the CPA and under Cannon.

Order and costs

[43] For the above reasons, I order that the SJ Motion not be heard concurrently with the certification motion.

[44] As for costs, both parties agreed that partial indemnity costs of $20,000 are reasonable for this scheduling motion. I agree with that assessment, and note that it is consistent with the costs award I made in Singh v. RBC Insurance Agency Ltd., 2020 ONSC 182, which also addressed an opposed scheduling issue.

[45] Further, I rely on my decision in Singh, at paras. 81-85, and order that the costs of $20,000 are payable to Gilani in any event of that certification motion, as part of the case management process leading to the certification hearing.

[46] I thank counsel for their thorough submissions which were of great assistance to the court.

GLUSTEIN J.

Date: 2020-11-09

COURT FILE NO.: CV-18-00611748-00CP DATE: 2020-11-09

ONTARIO SUPERIOR COURT OF JUSTICE

NAHEED GILANI Plaintiff

AND:

BMO INVESTMENTS INC. Defendant

REASONS FOR DECISION Glustein J.

Released: November 9, 2020

[^1]: Section 12 was amended as of October 1, 2020, but the amended section does not apply since the Gilani claim was issued before that date – see s. 39 of the CPA and paragraph 27 of these Reasons for Decision.