COURT FILE NO.: CV-18-00611748-00CP
DATE: 20210518
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 M. Hunter and Jin-Zhi Pao, for the plaintiff
James D.G. Douglas, Ian C. Matthews and Adrian Pel, for the defendant
HEARD: April 1, 2021
reasons for decision
OVERVIEW
Nature of the hearing and background
[1] The plaintiff, Naheed Gilani (Gilani) brings a motion under s. 5 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the CPA), to certify this proposed class action against the defendant, BMO Investments Inc. (BMO Investments).
[2] Gilani brings the proposed class action on behalf of persons (the Class) who held units of a Bank of Montreal mutual fund (BMO Mutual Fund) through a “Discount Broker”.
[3] A Discount Broker does not provide investment recommendations or advice to clients, but instead provides “order-execution only” services, which are defined by the industry regulator, Investment Industry Regulatory Organization of Canada (IIROC) as the “acceptance and execution of orders from customers for trades that the Dealer Member has not recommended and for which the Dealer Member takes no responsibility as to the appropriateness or suitability of orders accepted or account positions held”.
[4] The BMO Mutual Funds were structured as trusts, with BMO Investments as the trustee under various declarations of trust (the Trust Instruments).
[5] BMO Investments, as trustee, entered into “Management Agreements” with itself as manager, delegating to the manager the authority and responsibility for day-to-day administration of the BMO Mutual Funds, including providing supervisory, administrative and investment advisory services.
[6] Pursuant to the Management Agreements, BMO Investments, as manager, has power and control over the trust property of each BMO Mutual Fund.
[7] The basis for the proposed class action is BMO Investments’ payment of “trailing commissions” to Discount Brokers. Gilani submits that BMO Investments paid a portion of the management fees it received (the Unearned Management Fees) to Discount Brokers as trailing commissions, for “shelf space” to list the BMO Mutual Funds on the trading platforms of the Discount Brokers.
[8] Gilani submits that such payment of the Unearned Management Fees was not permitted by the applicable Trust Instruments or Management Agreements, and resulted in significant losses to the Class members.
[9] Gilani pleads the following causes of action:
(i) BMO Investments, as trustee, breached its duties to the Class under the Trust Instruments to “exercise its powers and discharge its duties hereunder honestly, in good faith and in the best interests of the Funds” and to ensure that all remuneration paid, for services provided to BMO Mutual Funds, is “reasonable remuneration”;
(ii) BMO Investments, as trustee, breached a fiduciary duty owed to the Class by wrongfully paying the trailing commissions out of BMO Mutual Fund trust assets in a conflict of interest;
(iii) BMO Investments, as manager, breached a fiduciary duty owed to the Class by paying Unearned Management Fees to Discount Brokers as trailing commissions contrary to the best interests of the Class;
(iv) BMO Investments, as manager, breached contractual obligations owed to the Class to (a) act in the best interests of the BMO Mutual Fund and (b) comply with statutory obligations, by paying Unearned Management Fees to Discount Brokers as trailing commissions;
(v) BMO Investments, as trustee, breached s. 23.1 of the Trustee Act, R.S.O. 1990, c. T.23, by paying an expense that was not “properly incurred in carrying out the trust”;
(vi) BMO Investments is liable under s. 130 of the Securities Act, R.S.O. 1990, c. S.5, for an alleged prospectus misrepresentation in its “Fund Facts Documents” provided to investors in BMO Mutual Funds, by representing that BMO Investments paid trailing commissions for “services and advice”, when Discount Brokers did not provide advice to the Class; and
(vii) BMO Investments was unjustly enriched by the misuse of BMO Mutual Fund trust property to procure shelf space on the trading platforms, and the Class was deprived of the corresponding value of their BMO Mutual Fund units through the payment of Unearned Management Fees for trailing commissions, without juristic reason.
[10] BMO Investments submits that Gilani has no cause of action under s. 5(1)(a) of the CPA for any of the above claims, and asks that the certification motion be dismissed.
[11] In addition to the cause of action issues, BMO Investments:
(i) opposes the Class’ position that the end date of the class definition under s. 5(1)(b) of the CPA should be the date of notice of certification. BMO Investments submits that class membership should end as of the date of the certification order;
(ii) opposes certification of the Class’ proposed common issue under s. 5(1)(c) of the CPA on the availability and quantum of aggregate damages. BMO submits that there is no basis in fact for that proposed common issue;
(iii) submits that there is a basis in fact for additional common issues as to whether (a) claims, other than the prospectus misrepresentation claim, are barred by a limitation period and, if so, which limitation periods apply and (b) whether Class members who have redeemed their units in a BMO Mutual Fund have released some or all of their claims against BMO Investments; and
(iv) submits that drafting changes to some of the other proposed common issues are necessary to ensure that the common issues are clear, neutrally worded, and fair to both parties.
[12] Gilani opposes BMO’s position on the issues summarized at para. 11 above, except that Gilani agrees that the proposed common issue concerning the alleged release of claims is appropriate.
[13] BMO Investments does not oppose the preferability requirement under s. 5(1)(d) of the CPA nor that Gilani is an adequate representative plaintiff under s. 5(1)(e) of the CPA.
[14] Consequently, in these reasons, I address the above issues raised by BMO Investments.
The decision in Stenzler
[15] Gilani also relies on the decision of Belobaba J. in Stenzler v. TD Asset Management Inc., 2020 ONSC 111, in which the court certified a class action on behalf of persons who purchased units of TD mutual funds from Discount Brokers. In Stenzler, TD Asset Management Inc. (TDAM) allegedly “wasted Mutual Fund assets by improperly paying ‘trailing commissions’ to discount brokers, causing investor losses in the tens of millions of dollars”: at para. 1.
[16] In Stenzler, TDAM, like BMO Investments in the present case, submitted “that the plaintiff has no cause of action for the alleged losses and asks that the motion for certification be dismissed”: at para. 2.
[17] Many of the objections to the proposed causes of action raised in the present case by BMO Investments were also raised by TDAM in Stenzler. Belobaba J. also certified an aggregate damages common issue.
[18] With respect to the same issues considered by Belobaba J. in Stenzler, BMO Investments generally[^1] asks this court to either (i) distinguish the submissions made by BMO Investments as compared to those of TDAM or (ii) not follow Stenzler based on BMO Investments’ submissions.
[19] Gilani does not suggest that the court is bound by Stenzler, but submits that the decision is instructive as it addresses many of the same issues raised before this court.
Summary of conclusions
[20] For the reasons that follow, I certify this proposed class action. In brief, I conclude:
(i) There is a cause of action disclosed for each of the proposed claims. I reach my conclusion based on the pleadings and law in the present case, which are generally consistent[^2] with most of the “cause of action” conclusions reached by Belobaba J. in Stenzler;
(ii) Applying the approach I followed in Granger v. Ontario, 2020 ONSC 4101, the end date of class membership is the date of the certification order, without prejudice to the definition being amended from time to time by a new motion to certify, which, if granted, would be followed by a notice program;
(iii) There is a basis in fact for Gilani’s proposed common issue, under s. 5(1)(c) of the CPA, on the availability and quantum of aggregate damages;
(iv) There is no basis in fact for BMO Investments’ proposed limitations period common issue, since discoverability will be an individual issue for each Class member; and
(v) The drafting changes proposed by BMO Investments are not required to ensure that the proposed common issues are clear, neutrally worded, and fair to both parties.
FACTS
The parties
[21] Gilani is a chartered financial analyst and a certified financial planner. He has been working in the investment industry since 2004.
[22] In 2010, Gilani purchased units in the “Advisor Series” of the BMO Asian Growth and Income Fund. Gilani purchased his units through a full-service brokerage where Gilani was working as a financial advisor at the time.
[23] On or around March 4, 2011, Gilani transferred his BMO Mutual Fund units into an account with Scotia iTrade, a Discount Broker. He continued to hold these units with Scotia iTrade until October 17, 2018, when he redeemed them.
[24] BMO Investments was at all material times the trustee and manager of the BMO Mutual Funds. BMO Investments is a wholly-owned subsidiary of the Bank of Montreal and is affiliated with BMO InvestorLine Inc., a Discount Broker.
The proposed class
[25] Gilani defines the proposed class as “all persons, wherever they may reside or be domiciled, who held or hold, at any time on or prior to the date on which notice of certification is first published or disseminated in this proceeding, units of a BMO Mutual Fund through a Discount Broker, except for the Excluded Persons.”
[26] BMO Investments’ evidence about the proposed class was provided by affidavit from Kamlesh Samra (Samra), an employee of the Bank of Montreal who was authorized by BMO Investments to provide the evidence in her affidavit. Samra states that:
(i) BMO Investments cannot provide a precise estimate of the number of members in the proposed class, i.e. unitholders of BMO Mutual Funds through a Discount Broker;
(ii) Through Fundserv, a centralized online platform which enables manufacturers, distributors, and intermediaries to buy, sell and transfer units in a variety of investment funds, including units in BMO Mutual Funds, BMO Investments can determine how many accounts hold “Series D” units for each BMO Mutual Fund at a point in time;
(iii) Series D units of BMO Mutual Funds are only made available to Discount Brokers. Currently, the vast majority of unitholders who hold units in a BMO Mutual Fund through a Discount Broker now hold these units as Series D units; and
(iv) As of September 2020, the approximate number of accounts holding a Series D unit in a BMO Mutual Fund is 63,690. This is BMO Investments’ best information on the number of members in the proposed class, although (a) it does not include former holders of units in BMO Mutual Funds through Discount Brokers who have redeemed their units and (b) may count unitholders more than once since one proposed class member could hold Series D units in more than one Mutual Fund.
Discount Brokers
[27] Discount Brokers are regulated by IIROC. They provide “order-execution only” services to trade in a variety of equity securities (including mutual fund units), bonds and derivatives, and, as set out by IIROC, may accept and execute “orders from customers for trades that the Dealer Member has not recommended and for which the Dealer Member takes no responsibility as to the appropriateness or suitability of orders accepted or account positions held”. Discount Brokers are prohibited from providing investment recommendations or advice to clients.
The structure of the BMO Mutual Funds
[28] The BMO Mutual Funds are trusts governed by a declaration of trust (collectively, the Trust Instruments) in force from time-to-time.
[29] Each fund is categorized into different “series” with different characteristics, including different fees. There are currently approximately 22 different series of BMO Mutual Funds. Gilani held “Advisor Series” units through his Discount Broker. Advisor Series units are also held through dealers who provide advice.
BMO Investments’ role as trustee of the BMO Mutual Funds
[30] BMO Investments is the trustee of the trusts. The beneficial interest of each trust is divided into “units”, which are held by “unitholders”. The unitholders are the beneficiaries of the trusts. Gilani and the proposed Class members are or were unitholders of the BMO Mutual Funds.
[31] As trustee, BMO Investments “shall stand possessed” of the trust property of each BMO Mutual Fund for the unitholders of that BMO Mutual Fund.
[32] BMO Investments, as trustee, is and was at all material times required by the express language of the Trust Instruments to “exercise its powers and discharge its duties hereunder honestly, in good faith and in the best interests of the Funds” and to “exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances” (the Trustee’s Standard of Care).
[33] The Trust Instruments require BMO Investments, as trustee, to ensure that all remuneration paid for services provided to the BMO Mutual Funds is “reasonable remuneration”.
[34] In the simplified prospectus for the BMO Mutual Funds, BMO Investments describes its role as trustee as follows:
The trustee [BMO Investments] holds title to the securities owned by the BMO Trust Funds on behalf of unitholders, has exclusive authority over their assets and affairs and has a fiduciary responsibility to act in the best interest of the unitholders.
BMO Investments’ role as manager of the BMO Mutual Funds
[35] As trustee, BMO Investments delegated to itself, through Management Agreements, the authority and responsibility for day-to-day administration of the funds, including providing managerial, supervisory, administrative and investment advisory services.
[36] Pursuant to the Management Agreements, BMO Investments, as manager, has power and control over the trust property of each BMO Mutual Fund.
[37] The Management Agreements require BMO Investments, in its role as manager, to “exercise the powers and authorities granted hereunder and discharge its duties honestly, in good faith and in the best interests of each Fund and, in connection therewith, shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances” (the Manager’s Standard of Care).[^3]
[38] Under the Management Agreements, BMO Investments, as manager of the BMO Mutual Funds, must comply with securities legislation in Canada, including regulations, rules, national policies, national instruments and any decision of Canadian securities regulatory authorities, which includes the obligations on an investment fund manager under s. 116 of the Securities Act and s. 2.1 of National Instrument 81-107 (the Manager’s Compliance with Law Duty).[^4]
[39] As manager, BMO Investments is paid management fees out of the assets of the BMO Mutual Funds. These fees are disclosed both in the simplified prospectus that offers units in the BMO Mutual Funds to investors and in the Management Agreements.
[40] The Management Agreements contain specific terms relevant to the liability of BMO Investments as manager. Section 11 of the Master Management Agreement provides that BMO Investments is responsible for “any loss” if it breaches the Manager’s Standard of Care:
The Manager shall be responsible for any loss that arises out of the failure of the Manager […] to discharge any of the Manager’s responsibilities to a Fund to exercise the required degree of care set out in Section 9 [the Manager’s Standard of Care].
[41] Section 31 of the Master Management Agreement excludes liability of BMO Investments to any “securityholder”, unless BMO Investments breaches the Manager’s Standard of Care:
So long as the Manager […] has exercised its duties and powers in the manner required herein and has met the standard of care set within Section 9 [the Manager’s Standard of Care], then, except as otherwise stated in that section, the Manager shall not be liable to a Fund or any of its securityholders for the acts, omissions, receipts, neglects or defaults […] or for any loss occasioned by error in judgment on the part of the Manager, or for any other loss, damage or misfortune which may happen in the execution by the Manager of its duties hereunder.
Payment of trailing commissions on BMO Mutual Funds
[42] When trailing commissions are payable in respect of units in a series of a BMO Mutual Fund, BMO Investments, as manager, causes these commissions to be paid to the dealer out of the management fee it receives.
[43] A portion of the management fees that BMO Investments receives (as manager) from itself (as trustee) is used to pay trailing commissions to Discount Brokers. Gilani alleges that BMO Investments breached its trust duties by paying that portion as “unreasonable” remuneration (the Unearned Management Fees) to itself, as manager, to be paid to Discount Brokers as trailing commissions, to the detriment of the Class and for the benefit of BMO Investments obtaining shelf space on trading platforms of Discount Brokers.
[44] Trailing commissions are ongoing fees based on asset value. They are calculated as a percentage of the dollar value of the mutual fund holding of an investor and are paid on an ongoing basis for as long as the investor holds the mutual funds. They are not paid directly by the investor, but rather by the fund manager to the dealer.
[45] The long-standing industry rationale for the payment of trailing commissions to dealers is to compensate the dealers for the ongoing investment advice that they provide to their clients holding the mutual funds. However, Discount Brokers do not and cannot provide advice.
[46] Trailing commissions differ from one-time transaction fees in a fixed dollar amount that are typically charged by Discount Brokers to trade in securities such as common stocks and exchange traded funds.
[47] Starting in 2014, BMO Investments began to make “Series D” units available exclusively through Discount Brokers. The benefit of Series D units, compared to units in the Advisor and other series, is a lower management fee because the embedded trailing commission is reduced (although not to zero).[^5]
BMO Investments’ prospectus disclosures
[48] Mutual funds are sold to the investing public in Canada pursuant to simplified prospectuses, which incorporate by reference a number of other disclosure documents, including “Fund Facts Documents” which became a required disclosure starting in 2011.
[49] Prior to May 4, 2018, BMO Investments’ Fund Facts Documents consistently stated that trailing commissions are paid for the “services and advice” provided by dealers to their clients. The same Fund Facts Documents were used regardless of whether the funds were held through Discount Brokers or in the advisor channel, where ongoing investment advice is provided.
[50] As of May 4, 2018, the Fund Facts Documents for the BMO Mutual Funds were amended to refer to “services and/or advice”. This amendment occurred shortly after litigation was commenced against TDAM making similar allegations that the “services and advice” language was misleading.
Regulators ban the payment of trailing commissions to Discount Brokers
[51] On June 21, 2018, the Canadian Securities Administrators (CSA) announced a proposed ban on the payment of trailing commissions in the Discount Broker channel, explaining that:
In our view, the fees paid by a vast majority of DIY investors in this channel do not appear to align with the execution-only nature of the services they receive. We also observe no justifiable rationale for the practice of paying discount brokerage dealers an ongoing trailing commission for the sale of a mutual fund. […] this [trailing] fee also limits investor awareness and understanding of the fees associated with the purchase of such products in the discount brokerage channel.
[52] On September 17, 2020, the CSA announced that the ban on the payment of trailing commissions to Discount Brokers will be effective as of June 1, 2022.
Evidence relevant to aggregate damages
[53] BMO Investments pleads in its defence and submits in its factum that the Discount Brokers channel “accounts for approximately 2.5% of its mutual fund distribution”.
[54] Samra’s evidence was that:
(i) BMO Investments uses information provided through Fundserv as the basis for the payment of trailing commissions and that payment of trailing commissions is effected electronically by Fundserv in an automated manner;
(ii) The information that comes through Fundserv is not verified, but is used as the basis for payment of the trailing commissions;
(iii) BMO Investments is aware of the total quantum of trailing commissions it pays; and
(iv) The “vast majority of unitholders who hold units in a BMO Mutual Fund through a Discount Broker now hold these units as Series D units”.
ANALYSIS
Overview
[55] As I set out at paras. 9 and 11 above, there are 11 separate issues raised before the court on this certification motion.
[56] First, as listed at para. 9 above, under s. 5(1)(a) of the CPA, BMO Investments opposes the certification of each of the seven causes of action relied upon by Gilani.
[57] Second, as listed at para. 11 above, BMO raises four additional issues relating to concerns under ss. 5(1)(b) and (c) of the CPA.[^6]
[58] I address each of these 11 issues below. However, I first address the general principles governing certification, since those principles are relevant to each of the issues.
General principles governing certification
[59] Pursuant to s. 39(1)(a) of the CPA, the Act as it read before the October 1, 2020 amendments continues to apply to this action.
[60] Section 5(1) of the CPA provides that the court “shall” certify a class proceeding if the requirements under that section are met. The “legislative history of the [CPA] makes clear that the Act should be construed generously” and it is particularly important to keep that in mind at certification: Hollick v. Metropolitan Toronto (Municipality), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 14.
[61] At certification, the court should not consider whether a plaintiff’s claims are likely to succeed, but rather whether the action meets the low threshold to proceed as a class proceeding. As McLachlin C.J. held in Hollick: “the certification stage is decidedly not meant to be a test of the merits of the action”: at para. 16.
[62] The plaintiff only needs to establish that there is “some basis in fact” to show that the certification criteria (except for the cause of action requirement) are satisfied: Hollick, at para. 25.
[63] The governing principles were set out by Strathy J. (as he then was) in 578115 Ontario Inc. v. Sears Canada Inc., 2010 ONSC 4571, at para. 30:
(a) The C.P.A. is remedial and is to be given a generous, broad, liberal and purposive interpretation. The three goals of a class action regime, as recognized by the Ontario Law Reform Commission, Report on Class Actions, 3 vols. (Toronto: Ministry of the Attorney General, 1982) and by the Supreme Court of Canada are: judicial efficiency; improved access to the courts; and, behaviour modification, or the generation of “a sharper sense of obligation to the public by those whose actions affect large numbers of people”: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67 (S.C.C.) at para. 15; Ontario Attorney General's Advisory Committee on Class Action Reform, Report (Toronto: The Committee, 1990) at 16-18 and 20; Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, [2000] S.C.J. No. 63 at paras. 27-29.
(b) The C.P.A. is entirely procedural. The certification stage is not meant to be a test of whether the plaintiff's claim will succeed. In the event that subsections (a) through (e) of s. 5(1) of the C.P.A. are satisfied, certification of the action by the court is mandatory: C.P.A. s. 5(1), Bendall v. McGhan Medical Corp. (1993), 1993 CanLII 5550 (ON SC), 14 O.R. (3d) 734, [1993] O.J. No. 1948 at para. 39 (Gen. Div.).
(c) The C.P.A. provides the courts with a procedural tool to deal efficiently with cases involving large numbers of interested parties, as well as complex and often-intertwined legal issues, some of which are common and some of which are not: Hollick v. Toronto (City), above, at paras. 14 and 15; Bendall v. McGhan Medical Corp., above, at para. 40.
(d) Certification is a fluid, flexible procedural process. It is conditional, always subject to decertification. Certification is not a ruling on the merits. A certification order is not final. It is an interlocutory order, and it may be amended, varied or set aside at any time: C.P.A. ss. 5(5), 10(1) and 10(2); Bendall v. McGhan Medical Corp., above, at para. 42; Hollick v. Toronto (City), above, at para. 16; Ontario Attorney General’s Advisory Committee on Class Action Reform, Report, above, at 30-33.
(e) The court has no discretion to refuse to certify a proceeding as a class proceeding solely on the ground that one or more of the following are present: (i) the relief claimed would require individual damage assessments; (ii) the relief claimed relates to separate contracts; (iii) there are different remedies sought for different class members; (iv) the number or identity of class members is not known; (v) the identified class includes a sub-class whose members have claims or defences that raise common issues not shared by all class members: C.P.A. s. 6; Anderson v. Wilson (1997), 1997 CanLII 12104 (ON SC), 32 O.R. (3d) 400, [1997] O.J. No. 548 at para. 18 (Gen. Div.); varied (1998), 1998 CanLII 18878 (ON SC), 37 O.R. (3d) 235, [1998] O.J. No. 671 (Div. Ct.); rev’d, certification order varied (1999), 1999 CanLII 3753 (ON CA), 44 O.R. (3d) 673, [1999] O.J. No. 2494, (C.A.), leave to appeal to S.C.C. dismissed, [1999] S.C.C.A. No. 476, 185 D.L.R. (4th) vii.
(f) The Ontario class proceeding regime does not require common questions of fact and law applicable to members of the class to predominate over any questions affecting only individual members. It furthermore does not require that the representative plaintiff be typical: Hollick v. Toronto (City), above, at paras. 29 and 30; Bendall v. McGhan Medical Corp., above, at para. 48; Andersen v. St. Jude Medical Inc. (2003), 2003 CanLII 5686 (ON SC), 67 O.R. (3d) 136, [2003] O.J. No. 3556 at para. 48 (S.C.J.).
(g) In order to succeed on a certification motion, the plaintiff requires only a “minimum evidentiary basis for a certification order”. It is necessary that the plaintiff "show some basis in fact" for each of the certification requirements, other than the requirement in s. 5(1)(a) that the claim discloses a cause of action: Hollick v. Toronto (City), above, at paras. 22 and 25.
(h) “Some basis in fact” is an elastic concept and its application is difficult. It is not a requirement to show that the action will probably or possibly succeed. It is not a requirement to show that a prima facie case has been made out. It is not a requirement to show that there is a genuine issue for trial: Glover v. Toronto (City) (2009), 2009 CanLII 16740 (ON SC), 70 C.P.C. (6th) 303, [2009] O.J. No. 1523 at para. 15 (S.C.J.). [Emphasis in original.]
[64] Consequently, on this motion, I do not consider the merits of the action or the ultimate success of legal positions taken by the parties (unless it is plain and obvious that the legal arguments cannot succeed).
Section 5(1)(a) - causes of action
[65] I first address the applicable test under s. 5(1)(a) and then address each of the causes of action pleaded.
The applicable test
[66] The test under s. 5(1)(a) is the same as on a motion to strike: the “plaintiff satisfies this requirement unless, assuming all facts pleaded to be true, it is plain and obvious that the plaintiff’s claim cannot succeed”: Pro-Sys Consultants Ltd. v. Microsoft Corp., 2013 SCC 57, [2013] 3 S.C.R. 477, at para. 63.
[67] A claim should not be dismissed unless the court is satisfied “beyond reasonable doubt” that the claim cannot succeed: Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, at 980.
[68] The inquiry is into the legal adequacy of the causes of action pled, not the evidence for or against those causes of action: Brozmanova v. Tarshis, 2018 ONCA 523, at para. 25.
[69] “All allegations of fact pleaded are assumed to be true unless they are patently ridiculous, manifestly incapable of proof, or amount to bald conclusory statements unsupported by material facts”: Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337, at para. 58(b).
[70] “The pleading must be read generously to allow for drafting deficiencies and the plaintiff's lack of access to key documents and discovery information. The court should err on the side of permitting an arguable claim to proceed to trial”: Wright, at para. 58(d).
[71] No evidence is admissible: Wright, at para. 58(a). However, the court can assess documents incorporated by reference into the pleading in evaluating the legal tenability of the claim: Das v. George Weston Limited, 2018 ONCA 1053, at para. 74, leave to appeal ref’d [2019] S.C.C.A. No. 69.
[72] Consequently, the threshold for satisfying the cause of action requirement is “very low”: McLaren v. Stratford (City), [2005] O.J. No. 2288 (S.C.), at para. 21.
The effect of the Atlantic Lottery decision
[73] BMO Investments submits that the recent decision of the Supreme Court of Canada in Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, constitutes a “culture shift” to the law on a pleadings motion. I do not agree.
[74] In Atlantic Lottery, the Court struck the waiver of tort claim brought by the respondent as an independent cause of action for disgorgement. The claim was novel, and the court reviewed the pleadings and law thoroughly to conclude that it was plain and obvious that such a claim could not succeed.
[75] BMO Investments relies on paras. 18 and 19 from the reasons of Brown J.:
[S]ince Microsoft was decided, this Court has recognized in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 the need for a culture shift to promote ”timely and affordable access to the civil justice system” (para. 2). Where possible, therefore, courts should resolve legal disputes promptly, rather than referring them to a full trial (paras. 24-25 and 32). This includes resolving questions of law by striking claims that have no reasonable chance of success (S. G. A. Pitel and M. B. Lerner, “Resolving Questions of Law: A Modern Approach to Rule 21” (2014), 43 Adv. Q. 344, at pp. 351-52). Indeed, the power to strike hopeless claims is “a valuable housekeeping measure essential to effective and fair litigation” (Imperial Tobacco, at para. 19).
Of course, it is not determinative on a motion to strike that the law has not yet recognized the particular claim. The law is not static, and novel claims that might represent an incremental development in the law should be allowed to proceed to trial (Imperial Tobacco, at para. 21; Das v. George Weston Ltd., 2018 ONCA 1053, 43 E.T.R. (4th) 173, at para. 73; see also R. v. Salituro, 1991 CanLII 17 (SCC), [1991] 3 S.C.R. 654, at p. 670). That said, a claim will not survive an application to strike simply because it is novel. It is beneficial, and indeed critical to the viability of civil justice and public access thereto that claims, including novel claims, which are doomed to fail be disposed of at an early stage in the proceedings. This is because such claims present “no legal justification for a protracted and expensive trial” (Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, at para. 19). If a court would not recognize a novel claim when the facts as pleaded are taken to be true, the claim is plainly doomed to fail and should be struck. In making this determination, it is not uncommon for courts to resolve complex questions of law and policy (see e.g. Imperial Tobacco; Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Syl Apps; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261). [Emphasis added.]
[76] I do not agree that the above paragraphs constitute a culture shift on motions to strike pleadings.
[77] The court in Atlantic Lottery affirms the principles established throughout its jurisprudence (as the Court discusses at para. 19) that (i) a claim cannot be permitted to proceed merely because it is novel; (ii) a court may be able to resolve “complex issues of law and policy” based on the pleadings; and (iii) the court must review the existing law and the pleadings to determine whether a novel claim can proceed.
[78] However, the “plain and obvious” test remains the same. In Atlantic Lottery, Brown J. stated that a court should not permit a claim to proceed “simply because it is novel” (at para. 19). Nevertheless, Brown J. maintained the test that a claim (novel or not) should not be struck unless it is “hopeless” (at para. 18), consistent with the settled test in Hunt and recently affirmed in Wright.
[79] The court on a certification motion is not asked to determine whether the plaintiff will succeed on any particular claim. Instead, the court must only determine whether it is “plain and obvious”, on the pleaded facts and applicable law, that the claim cannot succeed. Unless the court finds that the defendant meets that high threshold, the merits of the pleaded cause of action are to be addressed at trial or, if applicable, on summary judgment.
[80] It is on that basis that I now address each of the seven causes of action challenged by BMO Investments.
Issue 1: Does the breach of trust claim against BMO Investments, as trustee, disclose a cause of action?
(i) The positions of the parties
[81] Gilani submits that “BMO Investments holds in trust all property of the BMO Mutual Funds for the benefit of the unitholders of the BMO Mutual Funds”. Gilani relies on (i) the duties of BMO Investments at trustee, as set out in the Trust Instruments, (ii) BMO’s public statements in its simplified prospectuses for the BMO Mutual Funds that it “holds title to the securities owned by the BMO Trust Funds on behalf of unitholders” and “has a fiduciary responsibility to act in the best interest of the unitholders”; and (iii) BMO Investments’ acknowledgement in the Trust Instruments that it “shall stand possessed” of the trust property of each BMO Mutual Fund.
[82] Gilani alleges that BMO Investments breached its trust duties by paying “unreasonable” remuneration (the Unearned Management Fees) to itself, as manager, to be paid to Discount Brokers as trailing commissions, to the detriment of the Class and for the benefit of BMO Investments obtaining shelf space on trading platforms.
[83] BMO Investments admits that (i) it is a trustee; (ii) the Class members are beneficiaries of the trusts; and (iii) BMO Investments has obligations under the Trust Instruments, including to act in accordance with the Trustee’s Standard of Care.
[84] However, BMO Investments submits that Gilani and the Class cannot bring an action for breach of trust because to allow such a claim would place BMO Investments, as a trustee, in a situation where it would owe “conflicting duties” to (i) the potential Class members (who held their BMO Mutual Funds through a Discount Broker) and (ii) other unitholders in the BMO Mutual Funds (who held their units with investment advisors).
[85] BMO Investments submits that it is plain and obvious that there is no breach of the Trust Instruments. BMO Investments submits that as a trustee paying management fees, it made a decision “on behalf of the Fund”, even if not beneficial to those unitholders who held their BMO Mutual Funds with Discount Brokers. BMO Investments submits that the Class members are seeking “special” consideration as unitholders dissatisfied with a decision made in the best interests of the BMO Mutual Funds.
[86] BMO Investments relies upon the analogy of a decision as to when to declare a mutual fund distribution, which could have different tax consequences for each unitholder depending on their personal circumstances.
[87] BMO Investments relies on the language in the Trust Instruments that it must act “in the best interests of the Funds” to support its submission that it cannot prefer the interests of one unitholder over another unitholder.
[88] Gilani submits that the Class members are not seeking “special consideration”. Instead, he submits that (i) BMO Investments breached the Trust Instruments by paying Unearned Management Fees (or “unreasonable remuneration”) for its personal benefit to obtain shelf space, and (ii) the proposed Class members who held their units with Discount Brokers suffered damage by the breach, since they paid for management fees for trailing commissions for advice which the Class members were not receiving from Discount Brokers.
[89] Gilani submits that even if those unitholders who held their BMO Mutual Funds with advisors suffered no damages by the breach (since the payment of trailing commissions to their advisors would have been for services and advice from their advisors or the opportunity to obtain such advice), the proposed Class members suffered damage by the breach of the Trust Instruments. Consequently, Gilani submits that there is no conflict between the interests of all unitholders.
[90] Gilani submits that the mutual fund distribution example relied upon by BMO Investments does not apply since, in that example, (i) there is no breach of BMO Investments’ obligation to act in the best interests of the BMO Mutual Funds and its unitholders; and (ii) as such, there are no Unearned Management Fees as the management fees are paid for “reasonable” management services and not for BMO Investments’ personal benefit.
[91] Gilani submits that the payment of Unearned Management Fees and “unearned” remuneration is a breach of the Trust Instruments, and those unitholders who suffer damages from the breach are entitled to bring a claim for breach of trust.
(ii) The applicable law
[92] A beneficiary has the right to hold the trustee accountable for any breach of trust or fiduciary duty arising from its role as trustee. In Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, [2018] 1 S.C.R. 224, the court held, at para. 18:
[T]he beneficiary of a trust has a right to hold the trustee to account for its administration of the trust property and to enforce the terms of the trust. Absent such a right, both the trustee’s obligation to act in accordance with its fiduciary duty and the terms of the trust itself would be substantially unenforceable. In effect, the trustee would hold beneficial as well as legal ownership of the trust property — which would, of course, be contrary to the division of legal and beneficial ownership upon which the trust relationship is premised. [Emphasis added.]
[93] Academic commentaries further support the recourse available to a beneficiary of a trust against the trustee. In Donovan W.M. Waters, Mark R Gillen & Lionel D Smith, Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012) [Waters’ Law of Trusts in Canada], the authors state, s. 18.III:
[T]he essence of a trust is a beneficiary’s right of recourse against the trustee for proper administration, and if the beneficiary is altogether denied that recourse it is highly questionable whether the settlor has created a trust at all.
[94] Trust duties are owed to the unitholders, and not to the trust, which is not a legal entity with separate existence. Anita Anand and Edward Iacobucci comment in “The Boundaries of Corporate Law and Trust Law: An Analysis of Locking v. McCowan” (2016) 62:2 McGill Law Journal 577 at 589 and 595:
To say that trustees owe a duty to the trust rather than to unitholders is to assume that somehow the trust has objectives and goals distinct from its unitholders. The trust has no separate legal existence and is merely a legal relationship among its beneficiaries (unitholders), and its trustees.
It would be peculiar, as a functional matter, to outline what amounts to fiduciary obligations in the DOT, but then not allow the parties who benefit from these duties (the unitholders) from suing to enforce them.
[95] The role of a trustee is “of utmost loyalty to the beneficiary”. It is “not to mediate between interests”, but is rather “to secure the paramountcy of [the beneficiary’s] interests”: Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at para. 43.
(iii) Analysis
[96] It is not plain and obvious that the class members cannot sue BMO Investments for breach of trust. It is not plain and obvious that (i) BMO Investments’ “conflicting duties” submission will succeed or that (ii) Gilani is seeking “special consideration” for the interests of unitholders who held their BMO Mutual Funds with Discount Brokers.
[97] Gilani does not plead that BMO Investments made a decision for the benefit of the BMO Mutual Funds, consistent with its duty as trustee, which benefitted some unitholders and disadvantaged the proposed Class members. In that manner, the pleading is not similar to the distribution example relied upon by BMO Investments at the hearing.
[98] Instead, Gilani alleges that BMO Investments, as trustee, paid Unearned Management Fees and unreasonable remuneration to itself, as manager, for its own benefit to be paid as trailing commissions to Discount Brokers to obtain shelf space. Gilani submits that BMO Investments’ decision was not made in the best interest of the BMO Mutual Fund or its unitholders.
[99] BMO Investments’ submission does not distinguish between damages and breach. The alleged breach is based on BMO Investments not acting in the best interests of the BMO Mutual Funds by paying Unearned Management Fees to itself as manager for trailing commissions to Discount Brokers. It is not “beyond reasonable doubt” that such conduct could be a breach of trust.
[100] The damages are suffered by the potential Class members who paid for such fees for trailing commissions from which they could not benefit, since they could not receive advice from Discount Brokers. On the other hand, the same breach would not necessarily cause damage to unitholders who held their BMO Mutual Funds with advisors, since they received the advice (or had the opportunity to receive such advice) for which trailing commissions were historically paid.
[101] Consequently, there is arguably no conflict between unitholders arising out of the alleged breach of trust. The proposed Class members, under the Valard principles and those discussed above by the commentators, could have the right to hold BMO Investments accountable for breach of trust or fiduciary duty, even if other unitholders did not suffer the same (or any) damage from the breach. Otherwise, the Class member unitholder beneficiaries arguably would be left with no recourse to remedy a breach, where other unitholder beneficiaries did not suffer the same (or any) damage.
[102] Further, it is arguable that imposing a requirement on BMO Investments to act in the best interests of its beneficiaries is consistent with BMO Investments’ own decision to structure the BMO Mutual Funds as trusts. As Wakeling J.A. stated in Valard Construction Ltd. v. Bird Construction Co., 2016 ABCA 249, at para. 110:
Asking a trustee to shoulder an onerous burden is not unfair. ‘[N]o one is obligated to accept the office of trustee’. [Footnote omitted.]
[103] Gilani pleads all the requisite elements of a breach of trust claim, including that: (i) BMO Investments is trustee; (ii) the Class members are beneficiaries of the BMO Mutual Fund trusts; (iii) BMO Investments breached the Trustee’s Standard of Care imposed on it by the Trust Instruments; and (iv) the breach resulted in damages to the Class members.
[104] For the above reasons, it is not plain and obvious that the “conflicting duties” defence relied upon by BMO Investments would succeed at a common issues trial or on summary judgment.
(iv) The decision in Stenzler
[105] In Stenzler, TDAM opposed certification of the breach of the trust claim on the basis that no unitholder, including the class members who held TD mutual funds with Discount Brokers, had standing to bring the action since “there is nothing in the [declaration of trust] that provides unitholders with a right of action for any of the losses allegedly sustained”: at para. 15.
[106] Belobaba J. held, at paras. 16-18, that the breach of trust claim disclosed a cause of action against TDAM, as trustee. He relied on the decision in Valard and the commentaries set out above. He concluded, at para. 18:
[I]t is at least arguable that the plaintiff/unitholder can sue the defendant for the alleged breaches of the prescribed standard and duty of care. Given the points listed above, I cannot conclude that this core claim about the plaintiff's standing to sue has no chance of success.
[107] At the present hearing, BMO Investments submitted that it (i) was not relying on a standing argument and (ii) accepted the principle from Valard that a beneficiary has a right to sue a trustee for breach of trust.
[108] In Stenzler, TDAM relied on the applicable declaration of trust which provided that TDAM was obliged to act in the best interests of the Fund, with the rights of the unitholders limited to those in the declaration of trust: at paras. 15-16.
[109] In the present case, BMO Investments submits that it does not seek to advance an argument that a unitholder cannot have “standing” to bring a claim, but instead relies on the Trustee’s Standard of Care (similar to TDAM’s trust obligation) to submit that BMO Investments would have “conflicting duties” if the Class members could bring a claim for damages to their fund value by BMO Investments’ payment of trailing commissions.
[110] However, the “conflicting duties” defence raised by BMO Investments is similar to the “standing” defence raised by TDAM. Both defences ask the court to distinguish between a duty to the “Fund” and a duty to the unitholders/beneficiaries, when the relevant issue is whether the trustee breached its duties to the beneficiaries under the applicable legal principles of trust law.
[111] Consequently, while I do not rely on the Stenzler decision directly in support of the breach of trust claim, I find that Belobaba’s J. approach and reliance on the authorities is consistent with my conclusion that the breach of trust claim in the present case discloses a cause of action.
(v) Conclusion
[112] For the above reasons, I find that the breach of trust claim against BMO Investments, as trustee, discloses a cause of action.
Issue 2: Does the breach of fiduciary claim against BMO Investments, as trustee, disclose a cause of action?
(i) The positions of the parties
[113] Gilani submits that BMO Investments, as trustee, owes a fiduciary duty to Class members and breached that duty by paying Unearned Management Fees out of trust assets to itself, as manager, for trailing commissions to Discount Brokers.
[114] BMO Investments relies on the same “conflicting duties” defence to submit that it is plain and obvious that no claim can be brought against it for breach of fiduciary duty as a trustee.
(ii) The applicable law
[115] The following legal principles are not in dispute:
(i) A trustee-beneficiary relationship is a per se fiduciary relationship that imposes duties on the trustee that beneficiaries are entitled to enforce: Elder Advocates, at para. 33;
(ii) “[T]he ‘hallmark’ characteristic of a trust is the fiduciary relationship existing between the trustee and the beneficiary, by which the trustee is to hold the trust property solely for the beneficiary’s enjoyment”: Valard, at para. 17;
(iii) The trustee-beneficiary relationship has been described as “the most intense of all fiduciary relationships”, such that “the trustee will be held to the highest fiduciary standards”: Eileen E. Gillese, The Law of Trusts, 3rd ed (Toronto: Irwin Law, 2014), at 10-11;
(iv) The trustee’s specific or discretionary obligations under a trust instrument must be exercised, as fiduciaries, in the best interests of the beneficiaries: Albert H. Oosterhoff, Robert Chambers and Mitchell McInnes, Oosterhoff on Trusts, 9th ed (Toronto: Carswell, 2019) at 901 (with respect to the exercise of a trustee’s discretion); and
(v) The beneficiaries of a trust have the right to hold the trustee to account for its administration of trust property, otherwise “the trustee’s obligation to act in accordance with its fiduciary duty […] would be substantially unenforceable”: Valard, at para. 18.
(iii) Analysis
[116] It is settled law that a trustee relationship connotes a fiduciary duty between a trustee and a beneficiary. It is not necessary to determine whether such a relationship existed in the present case, as the claim is pleaded and BMO Investments does not submit that it is plain and obvious that it cannot owe fiduciary duties to unitholders.
[117] To the contrary, as noted above, BMO Investments states in the simplified prospectus that it “has a fiduciary responsibility to act in the best interest of the unitholders”.
[118] BMO Investments does not challenge any of the relevant legal principles. Rather, it submits that, just as with the breach of trust claim, there is no cause of action for a breach of fiduciary claim because imposing such an obligation would place BMO Investments into a situation in which it would owe “conflicting [fiduciary] duties” to the unitholders.
[119] For the reasons I discuss above in relation to the breach of trust claim, it is not plain and obvious that such a defence would succeed in response to a fiduciary duty claim.
[120] It is not plain and obvious that the distribution example relied upon by BMO Investments applies on the facts as alleged in the present case. In the distribution example, individual unitholders may face different tax consequences as a result of a mutual fund distribution. There is arguably no fiduciary breach if the trustee makes a distribution payment which is in the best interests of the Fund, on behalf of the unitholders collectively, even if some unitholders are negatively affected by personal tax considerations.
[121] However, in the present case, Gilani relies on an alleged breach of fiduciary duty by BMO Investments as trustee, paying a portion of “unearned” and “unreasonable” management fees to itself, as manager, so that the impugned management fees can be used to pay trailing commissions to Discount Brokers for BMO Investments’ personal benefit of obtaining shelf space. As pleaded, such a payment is not for the benefit of the unitholders and, as such, would be inconsistent with BMO Investments’ fiduciary obligations, as trustee, to act in the best interests of the unitholders.
[122] Consequently, there is an arguable claim that beneficiaries of a fiduciary obligation are entitled to sue a fiduciary upon a breach, if such beneficiaries suffered damage by the breach, regardless of whether other beneficiaries (unitholders who held BMO Mutual Fund units through an advisor) did not suffer damage. The obligation of BMO Investments to pay “reasonable” remuneration for management fees is a specific obligation under the Trust Instruments which must be exercised, by BMO Investments as a fiduciary, in the best interests of the beneficiaries and not in its personal interest.
[123] As with the breach of trust claim, BMO Investments owes its fiduciary obligations to the beneficiaries, who are entitled to enforce an alleged breach of those duties.
(iv) The decision in Stenzler
[124] In Stenzler, Belobaba J. dismissed TDAM’s “standing” submission, which TDAM also relied on to address the tenability of the fiduciary clam against it, as a trustee: at paras. 17 and 19. Belobaba J. held that “[t]he claim against TDAM as trustee and fiduciary, in my view, is solidly within the four corners of the [declaration of trust] and conventional trust law”: at para. 19.
[125] BMO Investments again seeks to distinguish its “conflicting duties” defence from the “standing” defence raised by TDAM in Stenzler.
[126] However, as with the breach of trust cause of action, the “conflicting duties” defence raised by BMO to the fiduciary duty is similar to the “standing” defence raised by TDAM. Both defences ask the court to distinguish between a duty to the “Fund” and a duty to the unitholders/beneficiaries, when the relevant issue is whether the fiduciary breached its duties to the beneficiaries under the applicable legal principles of fiduciary law.
[127] Consequently, while I do not rely on the Stenzler decision directly in support of the breach of fiduciary duty claim in the present case, I find that Belobaba’s J. approach and reliance on the authorities is consistent with my conclusion that the fiduciary duty claim in the present case discloses a cause of action.
(v) Conclusion
[128] For the above reasons, I find that the breach of fiduciary duty claim against BMO Investments, as trustee, discloses a cause of action.
Issue 3: Does the breach of fiduciary claim against BMO Investments, as manager, disclose a cause of action?
(i) Positions of the parties
[129] Gilani alleges that BMO Investments, as manager, breached a fiduciary duty owed to the Class members. There are two bases for the alleged fiduciary duty.
[130] First, Gilani submits that BMO Investments, as manager, owes an ad hoc fiduciary duty to Class members because (i) it undertook to act in the best interests of the Class members as unitholders; (ii) the Class members are a defined person or class of persons vulnerable to BMO Investments’ control; and (iii) the Class members had a financial interest that stood to be adversely affected by BMO Investments’ exercise of discretion or control as a manager.
[131] Gilani submits that BMO Investments, as manager, breached an ad hoc fiduciary duty by paying trailing commissions to Discount Brokers in a conflict of interest, to obtain shelf space on the trading platforms of Discount Brokers.
[132] BMO Investments relies on the same “conflicting duties” defence to submit that as manager, BMO Investments only undertook to act in the interests of the “Fund” and not in the interests of the Class members. BMO Investments submits that the Class members have a “special” interest that they cannot pursue.
[133] Second, Gilani submits that BMO Investments was a trustee de son tort and, as such, owed fiduciary duties to the Class members on this basis as well as being an ad hoc fiduciary. Gilani submits that BMO Investments, as a manager, undertook to possess and administer trust property as if it were a trustee.
[134] BMO Investments relies on the terms of the Trust Instruments that the trustee “shall stand possessed” of the trust property to submit that it is plain and obvious that a trustee de son tort claim must fail.
(ii) The applicable law
- Ad hoc fiduciary
[135] An ad hoc fiduciary duty arises “in cases not covered by an existing category in which fiduciary duties have been recognized”: Elder Advocates, at para. 29. Three elements are required to establish an ad hoc fiduciary relationship, at paras. 29-36:
(i) The fiduciary must undertake to act in the best interests of the beneficiaries, by forsaking the interests of all others in favour of those of the beneficiary. The undertaking can be found in the relationship between the parties, by imposition of statutory responsibility, or under an express agreement to act as trustee of the beneficiary’s interests;
(ii) The duty must be owed to a defined person or class of persons vulnerable to the fiduciary’s control “in the sense that the fiduciary has a discretionary power over them”; and
(iii) The claimant must show a legal or substantial practical interest of the beneficiary that stands to be adversely affected by the fiduciary’s exercise of discretion or control.
[136] The undertaking may be the result of the “express or implied terms of an agreement” but that is not the only possible source of an undertaking by a fiduciary: Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247, at para. 77.
[137] A “mutual understanding” may not be necessary to establish an ad hoc fiduciary relationship. What is critical is an undertaking on the part of the fiduciary: Galambos, at para. 66.
[138] Section 116(a) of the Securities Act requires that every investment fund manager “shall exercise the powers and discharge the duties of their office honestly, in good faith and in the best interests of the investment fund”.
[139] In Wright, the court stated that the undertaking under s. 116 is provided by the fund manager to the “investors”: at para. 113.
[140] The courts have held that the obligations of a manager under s. 116 of the Securities Act includes an obligation to take into account the best interests of the unitholders of the fund as a whole: Crown Hill Capital Corporation et al, 2013 ONSEC 32, at para. 109, aff’d 2016 ONSC 3041 (Div. Ct.); 1426505 Ontario Inc v. Jovian Capital Corporation, 2019 ONSC 3799, at para. 65; and Pro-Financial Asset Management Inc. et al, 2017 ONSEC 9, at paras. 129-130 (all as cited by Belobaba J. in Stenzler, at para. 17).
[141] While vulnerability alone cannot support a fiduciary claim, it is relevant to the assessment of whether an undertaking has been given since fiduciary law aims to protect vulnerable people in their transactions with others: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at 404-05; Elder Advocates, at para 28.
- Trustee de son tort
[142] A trustee de son tort is an entity which, although not formally appointed as trustee, takes it upon itself to possess and administer trust property as if it were a trustee: Air Canada v. M & L Travel Ltd, 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787, at 808; Waters’ Law of Trusts in Canada, s. 11.IIA1.
[143] A trustee de son tort is personally liable for breaches of trust committed while acting as a trustee and is fully subject to fiduciary obligations. Liability is strict and “does not depend on dishonesty”: Air Canada, at para. 33; Gillani v. Karmali, 2013 ONSC 1691, at para. 74, rev’d on other grounds 2014 ONCA 325 (citing Waters’ Law of Trusts in Canada).
(iii) Analysis
- Ad hoc fiduciary
[144] Based on the above law, it is not plain and obvious that BMO Investments, as manager, could not owe an ad hoc fiduciary duty to the Class members.
[145] BMO Investments chose to establish its BMO Mutual Funds as trusts, with obligations owed to the beneficiaries as a trustee. It then chose to delegate responsibility to itself, as manager, for providing day-to-day managerial, supervisory, administrative and investment advisory services to the BMO Mutual Funds.
[146] In fulfilling its role as manager, BMO Investments agreed to abide by the Manager’s Standard of Care and the Manager’s Compliance with Law Duty, which (like s. 116 of the Securities Act) provides that BMO Investments shall exercise its powers and discharge its duties as manager honestly, in good faith and in the best interests of each BMO Mutual Fund.
[147] Given the contractual and statutory obligations imposed on BMO Investments as manager, it is arguable that BMO Investments has undertaken to act in the best interest of unitholders.
[148] Further, as I discuss above, commentators have noted that a trust is a relationship between the trustee and the beneficiary with respect to property. It is not a separate entity with its own legal personality. BMO Investments’ role as a manager with delegated authority from itself as trustee could be an additional basis on which to find that BMO Investments undertook to act in the unitholders’ best interests as a manager.
[149] BMO Investments again relies on the “conflicting duties” argument, submitting that “[c]ourts refuse to recognize ad hoc fiduciary obligations where the asserted undertaking to a distinct subgroup could conflict with existing obligations to other constituencies”. BMO Investments submits that it is “conceptually ‘impossible’ for [BMO Investments], as manager, to owe simultaneous obligations to act: (i) in the best interests of the BMO Mutual Funds, and (ii) the best interests of the DIY Unitholders”. Consequently, BMO Investments submits that “[i]t is plain and obvious that Gilani’s ad hoc fiduciary claim will fail”.
[150] However, as I discuss above, there is not necessarily any conflict between duties to the fund or to the proposed class members. It is pleaded that BMO Investments, as manager, undertook the same fiduciary obligation for all unitholders, and that BMO Investments allegedly acted contrary to the best interests of the BMO Mutual Funds (i.e. all unitholders), by using a portion of its management fees for its benefit of obtaining shelf space.
[151] While the unitholders who do not hold their BMO Mutual Funds with a Discount Broker may not suffer a loss from an alleged breach of fiduciary duty, their interests are not necessarily in “conflict” with unitholders who suffered damage when trailing commission were paid on behalf to Discount Brokers to allegedly benefit BMO Investments.
[152] It is also arguable that vulnerability can be established at trial. As pleaded, BMO Investments as trustee ceded control over the BMO Mutual Fund assets to itself as manager, and elected to undertake responsibility for the day-to-day affairs of the BMO Mutual Funds for the benefit of the unitholders, through control and discretion over those assets.
[153] With respect to the second requirement of an ad hoc fiduciary duty, it is not plain and obvious that there is no “defined person or class of persons” to whom BMO Investments owes the fiduciary duty. The BMO Mutual Funds are trusts. In trust law, the rule regarding certainty of objects provides that “a trust can be created with a fluctuating class of beneficiaries (who are owed a fiduciary duty) so long as there is conceptual certainty as to who the objects of the trust are at a given time”: Robin F. Hansen, “Legal personality and the Canadian REIT” (2017) 23:4 Trusts & Trustees 400 at 402; Jones v. T. Eaton Co. Ltd., 1973 CanLII 14 (SCC), [1973] S.C.R. 635, at 650-651. See also Anand and Iacobucci, at 592.
[154] Consequently, while the individual unitholders of the BMO Mutual Funds change, the class of persons could be found to be clearly defined since it is possible to determine whether an individual is a member of the unitholder class at any particular point in time.
[155] Finally, ad hoc fiduciary duties require that the alleged fiduciary’s power “may affect the legal or substantial practical interests of the beneficiary”. It is arguable that the Class members’ interest in the value of their units of the BMO Mutual Funds, over which BMO Investments as manager has control and discretion, is a property interest which qualifies to be protected. As the court held in Elder Advocates, “[t]he most obvious example is an interest in property”: at paras. 34-35.
[156] Consequently, the claim for breach of an ad hoc fiduciary duty against BMO Investments, as manager, discloses a cause of action.
- Trustee de son tort
[157] Given my findings on the tenability of an ad hoc fiduciary claim against BMO Investments as a manager, it is not necessary for Gilani to also establish a cause of action on the basis of a trustee de son tort claim. Nevertheless, I find that it is not plain and obvious that such a claim will fail, and I address the issues briefly below.
[158] Gilani has pleaded that (i) the Trust Instruments and Management Agreements delegated to BMO Investments, as manager, “the administration of the day-to-day business and affairs of each BMO Mutual Fund”; (ii) as such, BMO Investments, as manager, was granted the right to administer the trust assets and, in essence, to assume the office and function of a trustee; and (iii) BMO Investments had possession or control of the property of the BMO Mutual Funds and administered that property in order to carry out these responsibilities.
[159] BMO Investments relies on the Trust Instruments, which provide that BMO Investments, as trustee, “shall stand possessed” of trust property. However, I do not find that this singular statement renders it plain and obvious that BMO Investments could not be found to possess the trust property in its capacity as manager.
[160] At a common issues trial or on summary judgment, the “stand possessed” term would have to be read in the context of BMO Investments’ other obligations as manager, which include the right to administer the trust assets as well as carry on “the administration of the day-to-day business and affairs of each BMO Mutual Fund”.
[161] Evidence at trial could assist with the determination of how the assets were held, managed and administered, which could support Gilani’s position. The court could need to consider whether there was any distinction put into place with respect to BMO Investments’ “possession” of the trust property given its virtually unlimited administrative role.
[162] Consequently, the claim against BMO Investments, as manager, for breach of fiduciary duty as a trustee de son tort discloses a cause of action.
[163] BMO Investments relies on the same “conflicting duties” defence to respond to any fiduciary obligations it may allegedly owe as a manager, whether as an ad hoc fiduciary or as a trustee de son tort. However, I do not find that it is plain and obvious that such a defence would be successful, for the reasons I discuss above.
(iv) The decision in Stenzler
[164] Belobaba J. did not distinguish between the various bases of establishing fiduciary obligations on TDAM, as manager. He relied on the case law, set out at para. 140 above, and concluded that “[t]he claim against TDAM as manager and fiduciary may arguably be less solid but I agree with the plaintiff that it is not plain and obvious that it has no chance of success”: at paras. 17 and 19.
[165] BMO Investments again seeks to distinguish its “conflicting duties” defence from the “standing” defence raised by TDAM in Stenzler.
[166] However, as with the breach of trust cause of action, the “conflicting duties” defence raised by BMO to the fiduciary duty claim against it as manager is similar to the “standing” defence raised by TDAM. Both defences ask the court to distinguish between a duty to the “Fund” and a duty to the unitholders/beneficiaries, when the relevant issue is whether the fiduciary breached its duties to the beneficiaries under the applicable legal principles of fiduciary law.
[167] Consequently, while I do not rely on the Stenzler decision directly in support of the breach of fiduciary duty issue claim against BMO Investments, as manager, I find that my conclusion that the fiduciary duty claim in the present case discloses a cause of action is consistent with the approach and reliance on the authorities by Belobaba J.
(v) Conclusion
[168] For the above reasons, I find that the breach of fiduciary duty claim against BMO Investments, as manager, discloses a cause of action.
Issue 4: Does the breach of contract claim against BMO Investments, as manager, disclose a cause of action?
(i) Positions of the parties
[169] The breach of contract claim against BMO Investments, as manager, under the Management Agreements is based on two submissions.
[170] First, Gilani submits that the Class members, as unitholders of the BMO Mutual Fund trusts, can enforce the Management Agreements as third party beneficiaries to the contracts since (i) there was an explicit or implicit intention of the contracting parties to extend the benefit of the Management Agreement to the unitholders; and (ii) the conduct or loss came within the scope of the contract.
[171] BMO Investments submits that because it was required to provide services to “each fund”, then it is plain and obvious that its contractual obligations as manager are not owed to the unitholders.
[172] Second, Gilani submits that the Class members can “step into the shoes” of BMO Investments, as trustee, to enforce the Management Agreements. Gilani submits that “special circumstances” exist to permit such a contractual claim, since BMO Investments, as trustee, will not bring an action against itself to enforce the alleged breach of the Management Agreement due to a conflict of interest.
[173] BMO Investments submits that it is plain and obvious that the Class members cannot step into the shoes of the trustee because there is no pleading that they attempted any other avenue of relief to compel BMO Investments, as trustee, to act.
(ii) The applicable law
- Third party beneficiary
[174] A third party can enforce the terms of a contract if: (i) there is an intention, explicit or implicit, on behalf of the contracting parties to extend the benefit of a contractual provision to the third party; and (ii) the conduct or issue comes within the scope of the contract: London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299; Fraser River Pile and Dredge Ltd v. Can-Dive Services Ltd, 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108, at paras. 28 and 32; Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 98.
[175] The principled exception to the privity rule can be used as a defence, as well as by a plaintiff to enforce terms of a contract against a defendant: Brown, at paras. 110-111; Seelster Farms Inc. v. Ontario, 2020 ONSC 4013, at paras. 190-191.
[176] There is no requirement that the third party be specifically named in the agreement in order to be a beneficiary. It is sufficient for them to be an “ascertainable group or class of persons” to whom the conferral of a benefit is intended: Brown, at para 101; Seelster Farms, at paras. 23, 196-198, 201.
[177] Third party beneficiaries must be “squarely in the contemplation of the contracting parties”: Seelster Farms, at para. 196.
2 Stepping into the shoes of the trustee
[178] In Testa v. Testa, 2015 ONSC 2381, at paras. 31-32, relied upon by BMO Investments, the court held that “only after the beneficiary has exhausted every reasonable avenue of relief to force the trustee to act, may the beneficiary assume the position of an incapacitated trustee and sue to recover trust property”. See also Oliveira v. Zareh, 2015 ONSC 4293, at paras. 65-66.
[179] However, the beneficiary of a trust can step into the shoes of a trustee to pursue a cause of action that has vested in the trustee without exhausting all recourses where there are special circumstances, including (i) “where by reason of conflict of interest or duty it is impossible or difficult for the trustees to sue”, (ii) if the beneficiary alleges that there is a “failure by the trustees in performing their duties as trustees to protect the trust estate or to protect the interests of the beneficiary in the trust estate”, or (iii) to “recover trust property (as opposed to suing debtors of the trust)”: Kwinter v. Metrowest Development Ltd, 2007 ABQB 713, at para. 36; Grenon v. Canada Revenue Agency, 2017 ABCA 96, at para. 42.
(iii) Analysis
- Third party beneficiary
[180] It is arguable that a court could find an intention under the Management Agreements to extend the benefits under those agreements to the unitholders.
[181] Under the Management Agreements:
(i) BMO Investments delegated the managerial functions of the BMO Mutual Funds to itself;
(ii) BMO Investments structured the BMO Mutual Funds as a trust so that, as trustee, it had a direct relationship and obligation to the unitholders as beneficiaries;
(iii) BMO Investments is required, as a manager, to comply with the Manager’s Standard of Care and, as such, “to exercise … the powers and discharge the duties honestly, in good faith and in the best interests” of each BMO Mutual Fund, and to “exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances”;
(iv) Under the Manager’s Compliance with Law Duty, BMO Investments is required, as manager, to comply with the applicable law, including s. 116 of the Securities Act, which sets out obligations substantially similar to those arising under the Manager’s Standard of Care;
(v) BMO Investments is responsible, under s. 11 of Master Management Agreement, for “any loss that arises out of the failure of the Manager […] to discharge any of the Manager’s responsibilities to a Fund to exercise the required degree of care set out in s. 9 [the Manager’s Standard of Care]” [Emphasis added]; and
(vi) Under s. 31 of the Master Management Agreement, unless BMO Investments breaches the Manager’s Standard of Care, it “shall not be liable to a Fund or any of its securityholders [which includes unitholders] for the acts, omissions, receipts, neglects or defaults […] or for any loss occasioned by error in judgment on the part of the Manager, or for any other loss, damage or misfortune which may happen in the execution by the Manager of its duties hereunder.” [Emphasis added.]
[182] BMO Investments submits that it is plain and obvious that only BMO Investments as trustee can enforce the Management Agreement against BMO Investments as manager. BMO Investments submits that otherwise, any unitholder could bring an action whenever dissatisfied with the manager’s conduct, even though the manager was hired by the trust.
[183] BMO Investments submits that it is plain and obvious that it contracted with “the Fund”, and, as such, owes its contractual duties to the Fund, not to individual unitholders.
[184] Gilani does not submit that its contractual claim would allow every unitholder in any mutual fund to sue a manager for any damages as a third party beneficiary. Instead, Gilani submits that the court deciding this issue on the merits will have to consider:
(i) the words used in the Manager’s Standard of Care and Manager’s Compliance with Law Duty in the context of the Management Agreements, read as a whole,
(ii) the purpose, nature and industry context of the Management Agreements, and
(iii) witness and documentary evidence such as BMO Investments’ disclosure documents and the Trust Instruments.
[185] I agree with Gilani’s submission. It is not plain and obvious that a third party beneficiary claim could not succeed.
[186] By way of example, ss. 11 and 31 of the Master Management Agreement make BMO Investments responsible for any loss arising out of its failure to adhere to the Manager’s Standard of Care, and set out specific situations in which BMO Investments, in its managerial role, will not be liable to unitholders. Such language supports Gilani’s submission that the Management Agreements explicitly or implicitly extended the benefit of the Manager’s Standard of Care and Manager’s Compliance with Law Duty to unitholders.
[187] If the unitholders were held not to be third party beneficiaries of the Manager’s Standard of Care, ss. 11 and 31 could be rendered nugatory because BMO Investments, as manager, could only be sued by itself, as trustee, to recover any loss. Gilani submits that is an absurd result because BMO Investments will not sue itself to recover losses for breaches of the Management Agreements. It is only unitholders who would possibly do so.
[188] It is arguable that it would be illogical for BMO Investments to carefully circumscribe its liability to unitholders in s. 31 and provide an explicit exception for a breach of the Manager’s Standard of Care, if it did not intend to be held responsible for such a breach by unitholders. As such, it is not plain and obvious that unitholder enforcement of a breach of the Manager’s Standard of Care or Manager’s Compliance with Law Duty would take it “by surprise” (as submitted by BMO Investments).
[189] Moreover, it is not plain and obvious that Gilani’s interpretation is commercially irrational, contrary to the submission of BMO Investments. If unitholders cannot enforce the Manager’s Standard of Care or Manager’s Compliance with Law Duty, then the provisions fettering BMO Investments’ actions as manager could be meaningless and provide BMO Investments, as manager, with a license to act without accountability.
[190] Further, it is not plain and obvious that unitholders could not bring an action against BMO Investments for its contractual breaches as a manager, when it was BMO Investments who unilaterally delegated management duties to itself when it otherwise would have owed a standard of care as trustee to manage the BMO Mutual Funds within the terms of the trusts.
[191] As to the second prong of the test to establish contractual liability to a third party, Gilani pleads that BMO Investments’ alleged misconduct falls within the scope of the Manager’s Standard of Care and Manager’s Compliance with Law Duty contained in the Management Agreements.
- Stepping into the shoes of the trustee
[192] In the alternative submission (if the unitholders cannot bring a contract claim as third party beneficiaries), it is not plain and obvious that a court could not find “special circumstances” to permit the Class member unitholders to step into the shoes of BMO Investments, as trustee, to bring a breach of contract claim against BMO Investments, as manager.
[193] It is arguable that there is no other “reasonable avenue of relief” to force BMO Investments to sue itself and that “by reason of conflict of interest or duty it is impossible or difficult for the trustees to sue”.
[194] A court could find that BMO Investments has failed to enforce the Management Agreements against itself, as manager. In particular, BMO Investments takes the position that it has not breached the Manager’s Standard of Care or the Manager’s Compliance with Law Duty. BMO Investments strongly opposes the merits of any claim against it.
[195] Consequently, it is not plain and obvious that a court would find it necessary or reasonable for Gilani to have exhausted his recourses before stepping into the shoes of BMO Investments, as trustee, to bring the breach of contract claim against BMO Investments as beneficiary.
[196] Further, a court could find that the unitholders could step into the shoes of BMO Investments, as trustee, to sue BMO Investments, as manager, since, based on the pleadings, (i) there has been a “failure by the trustees in performing their duties as trustees to protect the trust estate or to protect the interests of the beneficiary in the trust estate” or (ii) an action is required to “recover trust property (as opposed to suing debtors of the trust)”: Kwinter, at para. 36.
(iv) The decision in Stenzler
[197] This cause of action was not considered by the court in Stenzler.
(v) Conclusion
[198] For the above reasons, the breach of contract claim against BMO Investments, as manager, discloses a cause of action.
Issue 5: Does the claim against BMO Investments under section 23.1 of the Trustee Act disclose a cause of action?
(i) The positions of the parties
[199] Gilani submits that BMO Investments can be liable as a trustee under s. 23.1 of the Trustee Act for payment of management fees which were not properly incurred to carry out the trust. Gilani submits that s. 23.1 is a stand-alone provision that allows a beneficiary to challenge an expense and is not limited to the passing of accounts.
[200] BMO Investments submits that s. 23.1 can only be applied upon the passing of accounts by a trustee and, as such, it is plain and obvious that this cause of action will fail. BMO Investments relies on the “immediately adjacent” location of s. 23.1, which follows the “passing of accounts” in s. 23 of the Trustee Act.
[201] BMO Investments further submits that even if s. 23.1 could apply, ss. 66 and 67 of the Trustee Act would oust s. 23.1 since the Trust Instruments expressly provide for the payment of a management fee and, as such, payment could not be challenged under s. 23.1.
(ii) The applicable law
[202] The Trustee Act permits a trustee to pay expenses directly from trust property. However, s. 23.1 provides that a trustee’s payment from the trust fund may be disallowed later and the trustee forced to personally pay for the expense if it was not “properly incurred in carrying out the trust”. Section 23.1 provides:
Expenses of trustees
(1) A trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may,
(a) pay the expense directly from the trust property; or
(b) pay the expense personally and recover a corresponding amount from the trust property. 2001, c. 9, Sched. B, s. 13 (1).
Later disallowance by court
(2) The Superior Court of Justice may afterwards disallow the payment or recovery if it is of the opinion that the expense was not properly incurred in carrying out the trust. 2001, c. 9, Sched. B, s. 13 (1).
[203] Section 23.1 immediately follows s. 23 of the Trustee Act, which refers to the procedure on the passing of accounts.
[204] Sections 66 and 67 of the Trustee Act provide:
Subject to section 67, unless otherwise expressed therein, this Act applies to all trusts whenever created and to all trustees whenever appointed.
The powers, rights and immunities conferred by this Act are in addition to those conferred by the instrument creating the trust, and have effect subject to the terms thereof.
[205] The test for whether an expense was not properly incurred is “whether the expense incurred arose out of an act within the scope of the trusteeship duties and powers, whether in the circumstances it was reasonable, and whether it was something that his duty as the trustee required him to do.”: Waters’ Law of Trusts in Canada, s. 22.I(A)(1).
[206] In Irwin v. Ruberry, 2015 ONSC 1821, relied upon by Gilani, the court disallowed a claim for reimbursement under s. 23.1, on a passing of accounts, for cable and telephone services, when it was not possible for the estate to enjoy those services: at para. 53. The issue of whether s. 23.1 could apply outside the passing of accounts was not before the court.
[207] The parties provided no authorities on the issue of whether expenses can be disallowed prior to the passing of accounts. Consequently, adopting the approach in Atlantic Lottery, the court must review the applicable law and pleadings to determine whether it is plain and obvious that s. 23.1 applies only on the passing of accounts.
[208] In Michipicoten First Nation v. Michipicoten First Nation Community Trust, 2014 ONSC 594, relied upon by BMO Investments, the applicant, the Chief and Counsel of the Michipicoten First Nation on behalf of the beneficiaries of the Michipicoten First Nation Community Trust, sought to prevent the passing of accounts: at para. 1.
[209] The court allowed the accounts to be passed in their entirety. The issue of whether expenses could be disallowed under s. 23.1 without a passing of accounts was not before the court. Consequently, the comment of the court, at para. 10, that: “[s]ections 23 and 23.1 of the Trustees [sic] Act describes some of the procedure to be used on a passing of accounts in a non-estates situation” is obiter.
[210] The comments of Waters, Smith and Gillen, relied upon by BMO Investments, do not address whether an expense can be disallowed prior to the passing of accounts. In s. 22(I)(A)(1) of Waters’ Law of Trusts in Canada, the authors state:
The check upon trustees is that their claim for indemnification is made at the time of the passing of their accounts by the court; if they incurred any expenses improperly, reimbursement for those items will be disallowed, and any payment direct from the trust property made the subject of an order for reinstatement.
(iii) Analysis
[211] BMO Investments submits that it is plain and obvious that the claim under s. 23.1 cannot succeed because (i) s. 23.1 applies only on the passing of accounts, and (ii) ss. 66 and 67 oust the jurisdiction of s. 23.1 even if it could apply. I address each of these submissions below.
- Is it plain and obvious that s. 23.1 applies only on the passing of accounts?
[212] I do not agree with BMO Investments that because s. 23.1 is “immediately adjacent” to s. 23, it is plain and obvious that trustee expenses cannot be challenged prior to the passing of accounts.
[213] No temporal limitation is contained in s. 23.1. Further, while s. 23 is entitled “Filing of accounts”, and specifically refers to the process of passing of accounts, s. 23.1 is not part of that section, and instead is a separate provision entitled “expenses of trustees”. Section 23.1 makes no reference to the passing of accounts.
[214] Other provisions in the Trustee Act explicitly provide for certain events to take place in the context of a passing of accounts: see ss. 36(4), 57(3), and 61(3). Consequently, it could be inferred from the lack of reference to the passing of accounts in s. 23.1 (and the fact that it is not a subsection of s. 23) that the disallowance of an expense pursuant to s. 23.1(2) is a remedy not exclusively reserved for a passing of accounts.
[215] None of the cases relied upon by BMO Investments addresses the issue.
[216] Further, there is a tenable argument that Gilani and the Class members did not (and could not) receive the advice that is the purported justification for the payment of trailing commissions to Discount Brokers, which could render the expense “not properly incurred in carrying out the trust”.
[217] Consequently, it is not plain and obvious that the “immediately adjacent” submission raised by BMO Investments will succeed.
- Sections 66 and 67 of the Trustee Act
[218] BMO Investments also submits that s. 23.1 cannot apply to the payment of management fees from which trailing commissions are paid since ss. 66 and 67 of the Trustee Act provide that the “powers, rights and immunities” under the Act are to only ”have effect subject to the terms” of the trust instrument.
[219] BMO Investments submits that given that (i) the Trust Instruments provide that the manager is entitled to a management fee as set out in the in the Management Agreement and (ii) the manager was paid the specified management fee, it is plain and obvious that any application of s. 23.1, if at all, would be ousted by the Trust Instruments.
[220] I do not agree. It is arguable that the provisions of the Trust Instruments support the opposite interpretation, i.e. to maintain the protection of s. 23.1.
[221] The Trust Instruments only authorized the payment of reasonable remuneration to the manager (which Gilani alleges did not occur for payment of the Unearned Management Fees). Consequently, payment of unreasonable and unearned management fees would arguably not be permitted by the Trust Instruments and, as such, the Trust Instruments would not oust s. 23.1.
[222] Further, s. 1.5 of the Amended and Restated Master Declaration of Trust dated May 4, 2018 (the Master Declaration of Trust) provides that the Trust Instruments “shall be construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable in Ontario”. Section 12.1 of the Master Declaration of Trust states that the enumerated powers of BMO Investments are “[b]y way of supplement to the provisions of any act of any province or territory of Canada for the time being relating to trustees”.
[223] Consequently, it is not plain and obvious that the Trust Instruments permit unreasonable management fees to be paid as expenses without challenge.
(iv) The decision in Stenzler
[224] In Stenzler, Belobaba J. held that the s. 23.1 claim against TDAM disclosed a cause of action. He held, at para. 26:
This appears to be a viable claim. The submissions made by the defendant as to why this statutory provision cannot apply to the action herein are not persuasive. Provincial legislation, such as the Trustee Act, is not ousted by the DOT: see, for example, sections 9.1 and 2.8 of the DOT which properly provide that provincial trust laws will continue to apply. TDAM also argues that s. 23.1(2) of the Trustee Act only applies to applications to pass accounts. I agree with the plaintiff that no such express limitation is found in s. 23.1. Nor does it necessarily follow that any judicially disallowed expense must invariably revert to the trust. Here again, I agree with the plaintiff. There is nothing in s. 23.1 of the Trustee Act that limits the court's discretion to craft a remedy in law or equity that compensates the appropriate beneficiaries if an expense is disallowed. In any event, I note that the plaintiff pleads in the alternative that if the impugned trailing commissions cannot be paid to the class member/beneficiaries that they be repaid to the TD Mutual Funds.
[225] Consequently, Belobaba J. held that even though the s. 23.1 claim was novel, “on the facts herein it has at least a chance of succeeding”: at para. 27. His decision was not based “simply” on the novelty of the claim, but rather (as required in Atlantic Lottery) on the applicable law and pleadings before him.
[226] I agree and adopt the reasons of Belobaba J., based on the similar issues raised in this hearing and my analysis of the issues as set out above.
(v) Conclusion
[227] For the above reasons, I find that the claim under s. 23.1 of the Trustee Act discloses a cause of action.
Issue 6: Does the prospectus misrepresentation claim under s. 130 of the Securities Act disclose a cause of action?
(i) Positions of the parties
[228] From 2011 until May 4, 2018, BMO Investments’ Fund Facts Documents stated that trailing commissions are paid for the “services and advice” provided by dealers to their clients. The same Fund Facts Documents were used regardless of whether the funds were held through Discount Brokers or in the advisor channel where ongoing investment advice is provided.
[229] Gilani submits that he has pleaded the requisite elements for a prospectus misrepresentation claim under s. 130 of the Securities Act. In particular, Gilani alleges that:
(i) The Fund Facts Documents, which are incorporated by reference into the simplified prospectus for the BMO Mutual Funds, contained a common statement that trailing commissions are paid for “services and advice” to Class members;
(ii) The common statement is a misrepresentation within the meaning of the Securities Act by falsely representing that trailing commissions are only paid to dealers that provide services and advice to investors, when in fact trailing commissions are also paid to Discount Brokers even though they do not (and cannot) provide services or advice to their clients; and
(iii) The common statement was material to investors and they have been harmed by it.
[230] BMO Investments submits that it is plain and obvious that the prospectus misrepresentation claim cannot succeed. BMO Investments submits:
(i) Gilani has no personal cause of action since he purchased his BMO Mutual Funds in 2010, prior to the Fund Facts Document coming into existence, and his acquisition of additional BMO Mutual Fund units after 2011 was subject to a prospectus exemption. BMO Investments further submits that Gilani cannot assert a cause of action, on behalf of the Class, that he cannot assert personally;
(ii) In any event, the s. 130 claim cannot stand because (a) it is not a misrepresentation and (b) “it does not plead the requisite ‘market impact’ of the alleged misrepresentation”; and
(iii) Any claim brought under s. 130 would be limited to December 28, 2015, three years prior to the issuance of the claim on December 28, 2018, based on s. 138(b)(ii) of the Securities Act.
[231] I address below each of the issues raised by BMO Investments.
(ii) Sub-issue 1: Is it plain and obvious that Gilani (a) has no personal cause of action and (b) cannot assert a prospectus misrepresentation claim on behalf of the Class?
- The positions of the parties and overview
[232] It is not disputed that Gilani purchased his BMO Mutual Funds units in 2010, before the existence of the Fund Facts Documents. Consequently, he could not have a prospectus misrepresentation claim relating to the purchase of his BMO Mutual Fund units.
[233] However, Gilani submits that he still has a personal cause of action because he pleaded in his Reply that he acquired some BMO Mutual Fund units through reinvestment on an ongoing basis after the Fund Facts Documents came into existence.
[234] BMO Investments submits that even if the pleading of reinvestment was accepted as true, Gilani would still have no personal cause of action based on the Fund Facts Documents since such reinvestment would be subject to a prospectus exemption under s. 2.18(1) of National Instrument 45-106 as a “distribution of a security of the investment fund’s own issue if … applied to the purchase of the security that is of the same class or series as the securities to which the dividend or distribution out of earnings, surplus, capital or other sources is attributable”.
[235] BMO Investments further submits that the prospectus misrepresentation claim cannot share a common issue of fact or law since “[t]he conduct relating to the s. 130 claim (allegedly deficient disclosure) differs from the conduct related to the other causes of action (whether the payment of trailing commissions to discount brokers out of management fees was improper)”.
[236] BMO Investments submits that “[t]here is a temporal disconnect between the s. 130 claim (disclosure prior to purchasing units) and any of the other claims (payment of trailing commissions on an ongoing basis after purchase).” [Emphasis in original.]
[237] Gilani submits that the prospectus misrepresentation claim shares a common issue of fact with the other causes of action since they all derive from the impugned payment of trailing commissions to Discount Brokers.
[238] I make no finding on whether Gilani has a personal cause of action. That issue may affect the merits of Gilani’s personal claim but does not affect certification since I find that Gilani can assert the prospectus misrepresentation claim because it shares a common issue of fact or law with the other causes of action. I now address this latter issue.
- The applicable law on pleading causes of action not personally held by the representative plaintiff
[239] It is settled law that “a representative plaintiff can assert a cause of action against a defendant on behalf of other class members which he or she does not assert personally, provided that the causes of action all share a common issue of fact or law”: Matoni v. C.B.S. Interactive Multimedia Inc. (c.o.b. Canadian Business College), 2008 CanLII 1539 (ON SC), [2008] O.J. No. 197 (S.C.), at para. 73, citing Cullity J. in Healey v. Lakeridge Health Corp., [2006] O.J. No. 4277 (S.C.), at para. 21; see also Boulanger v. Johnson & Johnson Corp. (2003), 2003 CanLII 45096 (ON SCDC), 64 O.R. (3d) 208 (Div. Ct.), at paras. 33, 41 and 48.
- Analysis
[240] Under the cases cited above, the issue before the court is not whether the conduct or timing in relation to the causes of action is different. Instead, the court must determine whether the causes of action share a common issue of law or fact.
[241] In the present case, all claims have a common factual nexus because they arise from BMO Investments’ payment of trailing commissions to Discount Brokers, whether contrary to an alleged representation made at the time of purchase of the BMO Mutual Funds, or in relation to the impugned breach of trust, fiduciary duty, and other causes of action arising from that same payment of trailing commissions to Discount Brokers.
[242] Further, the adequacy of the prospectus disclosure (i.e. that trailing commissions were paid for “services and advice” provided by brokers) is relevant to whether BMO Investments can defeat Gilani’s other claims. BMO Investments relies on the prospectus disclosure for limitation period defences to all causes of action (para. 36 of the statement of defence), as well as to defeat claims for damages (para. 151 of the statement of defence), unjust enrichment (para. 148 of the statement of defence), as well as general pleadings of statutory disclosure to defeat all causes of action (paras. 66, 71-72 of the statement of defence).
[243] Consequently, on the pleadings, the prospectus misrepresentation claim and the other causes of action all share a common issue of law or fact.
[244] Finally, even if the prospectus misrepresentation claim and the other causes of action did not share a common factual or legal issue (which I do not accept), I would not deny certification if the certification tests were otherwise met (which I so find as set out in these reasons). The Class could appoint another class member who purchased BMO Mutual Funds after the Fund Facts Documents came into existence to ensure that a representative plaintiff had a personal cause of action for the statutory misrepresentation claim. This issue would not be fatal to certification, even if BMO Investments’ position on both of the above issues were accepted by the court.
[245] For the above reasons, I do not find that it is plain and obvious that Gilani cannot assert a prospectus misrepresentation claim on behalf of the Class even if he has no personal cause of action.
(iii) Sub-issue 2: Is it plain and obvious that the s. 130 claim cannot stand because (a) it is not a misrepresentation and (b) “it does not plead the requisite ‘market impact’ of the alleged misrepresentation”?
- Positions of the parties
[246] BMO Investments submits that it is plain and obvious that because (i) the management fee was disclosed in the Fund Facts Documents, and (ii) the amount paid for management fees was accurately stated, there can be no misrepresentation under the Securities Act.
[247] BMO Investments further submits that even if there was a misrepresentation, it is plain and obvious that it could not have a “market impact”, because the market understood what management fees were being paid, so that the representation could have no effect on the unit price.
[248] Gilani submits that the representation in the Fund Facts Documents is that trailing commissions are paid to brokers for “services and advice” provided to Class Members. Gilani submits that the representation is false and misleading, since BMO Investments pays trailing commissions to Discount Brokers who do not (and cannot) provide advice to their clients.
[249] Gilani further submits that such a misrepresentation could have a “market impact”, because the payment of trailing commissions that reduces investor returns impacts the value of the BMO Mutual Funds and would have assumed significance in a reasonable investor’s deliberations.
- The applicable law
[250] A “material fact” is a “fact that would reasonably be expected to have a significant effect on the market price or value of the securities”: Securities Act, s. 1(1).
[251] It is settled law that “the applicable standard is defined in strictly economic terms” because “the market impact definition is the one that the statute embraces”: Miller v. FSD Pharma, Inc., 2020 ONSC 4054, at paras. 63-64. See also Kerr v. Danier Leather Inc. (2005), 2005 CanLII 46630 (ON CA), 77 O.R. (3d) 321 (C.A.), at para. 53, aff’d 2007 SCC 44, [2007] 3 S.C.R. 331, at para. 18; Cornish v. Ontario Securities Commission, 2013 ONSC 1310 (Div. Ct.), at paras. 65-66, 72.
- Analysis
[252] The issue before the court is whether it is plain and obvious that the “services and advice” statement in the Fund Facts Documents cannot be a misrepresentation which could reasonably be expected to have a significant effect on the market price or value of the BMO Mutual Funds. For the reasons that follow, I agree with Gilani that BMO Investments has not met this high threshold.
[253] While the total amount of management fees was stated in the Fund Facts Documents, it is not plain and obvious that an investor reading the “services and advice” statement in the same documents would have understood that trailing commissions were being paid to Discount Brokers, since they cannot provide advice.
[254] I agree with the conclusion of Belobaba J. with respect to the same alleged prospectus misrepresentation in Stenzler, at para. 30. He held that a prospectus misrepresentation cause of action was pleaded because the plaintiff alleged that the “services and advice” statement:
is a misrepresentation … because it falsely represents that trailing commissions are only paid to dealers that provide services and advice to investors when in fact trailing commissions are also paid to discount brokers even though they do not provide services or advice to their clients.
[255] Further, the payment of Unearned Management Fees reduces investor returns. While an investor would have known of the total management fees, it is not plain and obvious that a reasonable investor would have known that some of those management fees were being paid allegedly for Unearned Management Fees for “unreasonable” remuneration so that BMO Investments could pay trailing commissions to Discount Brokers, unrelated to management, and to allegedly benefit the trustee and manager while reducing the return of the unitholders.
[256] It is not plain and obvious that if a unitholder knew that a portion of management fees was being diverted (as alleged) to pay trailing commissions to Discount Brokers, such factual information would not have a market impact on the value of the BMO Mutual Funds. It is not plain and obvious that such information could not have “assumed actual significance in a reasonable investor’s deliberations”: Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175, at para. 61(iii).
[257] Consequently, I do not find that it is plain and obvious that (i) the “services and advice” representation cannot serve as the basis for a prospectus misrepresentation claim, or (ii) there could be no market impact of the “services and advice” representation in the Fund Facts Documents.
(iv) Sub-issue 3: Is it plain and obvious that the prospectus misrepresentation claim is statute-barred for claims before December 28, 2015?
- The position of the parties
[258] At the hearing, both parties made detailed submissions on whether the s. 130 claim (if it could be brought) would be statute-barred for all claims prior to December 28, 2015, based on s. 138(b)(ii) of the Securities Act, which requires that all such claims be brought no later than “three years after the date of the transaction that gave rise to the cause of action”.
[259] BMO Investments submits it is plain and obvious that discoverability does not apply to s. 130 claims and, as such, all prospectus misrepresentation claims are statute-barred prior to December 28, 2015. BMO Investments submits that s. 138(b)(ii) expressly sets out a limitation period which is based on a fixed event (the date of the transaction) unrelated to a plaintiff’s knowledge.
[260] Gilani submits that BMO Investments’ position is not plain and obvious. Gilani submits that discoverability applies to prospectus misrepresentation claims, since s. 138(b)(ii) links the limitation period to an event (the “transaction”) which is an element of the cause of action.
- The applicable law
[261] Section 138 provides:
Unless otherwise provided in this Act, no action shall be commenced to enforce a right created by this Part more than,
(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of any action, other than an action for rescission, the earlier of,
(i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or
(ii) three years after the date of the transaction that gave rise to the cause of action.
[262] BMO Investments relies on Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at para. 24, for the principle that discoverability cannot apply if the limitation period is “explicitly linked by the governing legislation to a fixed event unrelated to the injured party’s knowledge or the basis of the cause of action”. In Ryan, the limitation period under s. 5 of the Survival of Actions Act, R.S.N.L. 1990, c. S-22, ran from the “expiration of 1 year after the date of death of the deceased”, so the court held that the legislature had excluded the application of the discoverability principle.
[263] BMO Investments further relies on Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90, 118 O.R. (3d) 641, at para. 25, aff’d 2015 SCC 60, [2015] 3 S.C.R. 801, at paras. 79, 130 and 180, in which the court considered the limitation period under s. 138.14(a)(i) of the Securities Act which limited a claim to “three years after the date on which the document containing the misrepresentation was first released”. The court held that discoverability did not apply because the limitation period was explicitly linked by the governing legislation to a fixed event (the release of the document) unrelated to the injured party’s knowledge or the basis of the cause of action.
[264] BMO Investments also relies on Persaud v. Talon International Inc., 2018 ONSC 5377, in which the s. 138(a) limitation period under the Securities Act expired “180 days after the date of the transaction that gave rise to the cause of action” (almost identical language to s. 138(b)(ii)). Perell J. held that there was no cause of action on the statutory misrepresentation claims since those claims “involve absolute limitation periods (i.e., discoverability is not a factor)”: at para. 109.
[265] Gilani relies on Pioneer v. Godfrey, 2019 SCC 42, in which the court held that the applicable limitation period under s. 36(4)(a)(i) of the Competition Act, R.S.C. 1985, c. C-34, which prescribed claims no later than two years from “a day on which the conduct was engaged in”, was subject to discoverability. The court held that the “conduct” was part of the event triggering the limitation period and was an element of the cause of the action: at paras. 43-46.
[266] In Pioneer, the court held that because the impugned anti-competitive agreements were “by their nature, unknown to s. 36(1)(a) claimants”, then without discoverability, the cause of action under s. 36(1)(a) would be rendered “almost meaningless” [Emphasis in original.]: at para. 46.
[267] In Fanshawe College of Applied Arts and Technology v. AU Optronics Corp., 2016 ONCA 621, 132 O.R. (3d) 81, relied upon by the court in Pioneer, the Court of Appeal considered whether discoverability applied to the same limitation period under s. 36(4)(a)(i) of the Competition Act. The court in Fanshawe College held that since the act which was the basis of the limitation period was “related to the underlying cause of action” and was a “constituent element of the cause of action subject to the limitation period”, discoverability applied to the limitation period: at paras. 18 and 45.
[268] Consequently, Gilani submits that because the impugned misrepresentation would, by its “nature”, be unknown to the Class members, then without discoverability applying to s. 138(b)(ii), the cause of action for prospectus misrepresentation would be rendered “almost meaningless”.
[269] Gilani also relies on Stenzler and the recent decision in McCorquodale v. RBC Global Assets Management Inc., 2021 BCSC 144, at paras. 92 and 98, in which both courts considered the same limitation period at issue in the present case (and its equivalent in British Columbia). Both courts held that it was not plain and obvious that (i) the prospectus misrepresentation claim was statute-barred or (ii) discoverability did not apply to s. 138(b)(ii) or its equivalent in British Columbia.
- Analysis
[270] Gilani submits that the analysis of the Supreme Court in Pioneer and the Court of Appeal in Fanshawe College should apply to the “transaction” at issue under s. 138(b)(ii), so that discoverability would apply because the transaction setting out the prospectus misrepresentation was part of the event triggering the limitation period and, as such, was an element of the cause of the action.
[271] Gilani asks the court to follow Stenzler and McCorquodale and find that it is not plain and obvious that the prospectus misrepresentation claim is statute-barred under s. 138(b)(ii).
[272] BMO Investments submits that the “date of the transaction” is an event unrelated to the cause of action and that the decisions in Ryan, Green, and Persaud support a finding that it is plain and obvious that prospectus misrepresentation claims prior to December 28, 2015 are statute-barred under s. 138(b)(ii).
[273] I find that the law is not settled on the issue.
[274] There are conflicting decisions at the certification stage. The courts in Stenzler and McCorquodale interpret the same (or equivalent) provision at issue in this case, and find that it is not plain and obvious that s. 138(b)(ii) removes discoverability from statutory prospectus claims. The decision in Persaud finds the opposite on virtually the same statutory language.
[275] The limitation period in Ryan is based on death, so it could not be related to the cause of action. Similarly, the limitation period in Green is based on the date a document “was first released”. These “unrelated” dates may be contrasted with a limitation period under s. 138(b)(ii) that runs from “the transaction that gives rise to the cause of action”, which is arguably related to the underlying cause of action.
[276] The statutory language at issue in Pioneer and Fanshawe, with the limitation period running from the date “the conduct was engaged in” could be viewed as more similar to the present case, in which the starting date for the limitation period under s. 138(b)(ii) is the “date of the transaction that gave rise to the cause of action”. It is arguable that because the impugned misrepresentation would, by its “nature”, be “unknown” to the Class members, then without discoverability applying to s. 138(b)(ii), the cause of action for prospectus misrepresentation would be rendered “almost meaningless”
[277] Consequently, a court could view the limitation period under s. 138(b)(ii) as being “related to the underlying cause of action”, under the approach in Pioneer and Fanshawe College. Such a conclusion would also be consistent with the approach in Stenzler and McCorquodale (albeit contrary to the approach in Persaud).
[278] Based on the Atlantic Lottery approach, I must determine whether it is plain and obvious that s. 138(b)(ii) is not subject to discoverability. For the above reasons, I find that the issue is not settled and, as such, the prospectus misrepresentation claim for damages before December 28, 2015 discloses a cause of action.
[279] In any event, Gilani pleads and relies upon the principle of fraudulent concealment, which would defeat any limitation period at issue in the present case, including s. 138(b)(ii), even if it applied.
[280] At para. 50 of his Reply to the Statement of Defence of BMO Investments Inc., Gilani pleads:
BMO Investments deliberately concealed the existence of the misrepresentations giving rise to the cause of action under section 130 of the OSA (or the equivalent provisions of the Other Canadian Securities Legislation, if necessary). It would be unconscionable for BMO Investments to rely on the advantage conferred by section 138 of the OSA that it only obtained by concealing the existence of its misconduct.
[281] Fraudulent concealment operates to stay the limitation period. The doctrine of fraudulent concealment applies to the limitation periods listed in the Schedule to the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, which includes s. 138 of the Securities Act: Giroux Estate v. Trillium Health Centre (2005), 2005 CanLII 1488 (ON CA), 74 O.R. (3d) 341 (C.A.), at para. 33.
[282] In Giroux Estate, at para. 29, Moldaver J.A. (as he then was) held that “the doctrine of fraudulent concealment is not dependent upon the particular wording of the limitation provision”.
[283] The foundational question to determine whether fraudulent concealment arises is “whether it would be, for any reason, unconscionable for the defendant to rely on the advantage gained by having concealed the existence of a cause of action” [Emphasis in original.]: Pioneer, at para. 54.
[284] In the present case, Gilani pleads that BMO Investments deliberately concealed the existence of its alleged misrepresentation—that it was paying trailing commissions for “services and advice” provided by brokers. In such circumstances, it is not plain and obvious that fraudulent concealment could not apply (even if discoverability did not apply to the limitation period under s. 138(b)(ii)).
[285] Given the pleading, Gilani can claim that it would be unconscionable to permit a trustee—upon whom the most stringent fiduciary duties are placed—to rely on the advantage it gained by concealing the existence of the misrepresentations giving rise to the cause of action under s. 130 of the Securities Act.
[286] Consequently, even if it is plain and obvious that discoverability does not apply to s. 138(b)(ii) (which I do not find), the pleading of fraudulent concealment permits Gilani to respond to any limitation period defence that might be raised.
(v) The decision in Stenzler
[287] In Stenzler, Belobaba J. held that the prospectus misrepresentation claim was viable based on the same representation in the TDAM Fund Facts, which was incorporated into the simplified prospectus: at para. 29.
[288] In Stenzler, Belobaba J. held, at para. 30:
The plaintiff pleads that this is a material misrepresentation that provides the basis for a claim under s. 130 of the OSA. It is a misrepresentation, says the plaintiff, because it falsely represents that trailing commissions are only paid to dealers that provide services and advice to investors when in fact trailing commissions are also paid to discount brokers even though they do not provide services or advice to their clients. The trailing commissions are paid for no purpose that benefits investors. The representation is “material,” adds the plaintiff, because the unauthorized and wasteful depletion of the mutual fund and resulting reductions in the investor's rate of return is at least arguably “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities”. I accept these submissions.
[289] Belobaba J. further held that the submissions of TDAM that the claim was statute-barred “are best left for the next stage of this proceeding”: at para. 31.
(vi) Conclusion
[290] For the above reasons, I find that the prospectus misrepresentation claim in the present case discloses a cause of action. I also find that it is not plain and obvious that the prospectus misrepresentation claim is statute-barred prior to December 28, 2015.
Issue 7: Does the unjust enrichment claim disclose a cause of action?
(i) Positions of the parties
[291] Gilani submits that BMO Investments was enriched by its alleged misuse of BMO Mutual Fund trust property. In particular, Gilani submits that BMO Investments paid itself the Unearned Management Fees out of trust assets and then used those Unearned Management Fees to pay trailing commissions to Discount Brokers to gain or retain access to investors using the Discount Brokers’ trading platforms (i.e. for shelf space) for its own benefit.
[292] Gilani submits that the Class members suffered a corresponding deprivation by the reduction in value of their BMO Mutual Fund units resulting from the payment of the Unearned Management Fees.
[293] Gilani submits that there is no juristic reason for the enrichment since the trailing commissions were paid out of the BMO Mutual Fund trust assets as a result of BMO Investments’ own wrongful acts and omissions.
[294] BMO Investments submits that it is plain and obvious that there is a “disconnect” between the unitholders’ deprivation (caused by the payment of management fees) and BMO Investments’ alleged benefit by paying some of the management fees as trailing commissions to Discount Brokers. BMO Investments submits that these are separate transactions and cannot be considered “the same thing from different perspectives”, or “essentially two sides of the same coin”, as those tests have been set out in the case law. Consequently, BMO Investments submits that it is plain and obvious that any enrichment due to obtaining shelf space is not causally connected to a decrease in mutual fund value.
[295] BMO Investments submits that it was the Discount Brokers who were enriched by the impugned transaction since they received payment of the trailing commissions, so that it is plain and obvious that the “enrichment” requirement cannot be met.
[296] BMO Investments further submits that it is plain and obvious that there is a juristic reason for the alleged deprivation because the Management Agreements expressly authorize the management fees.
(ii) The applicable law
[297] The elements of unjust enrichment are well-established. There must be: (i) an enrichment of the defendant, (ii) a corresponding deprivation of the plaintiff, and (iii) no juristic reason for the enrichment: Pro-Sys, at para. 85.
[298] The law of unjust enrichment provides relief “where justice and fairness require one party to restore a benefit to another”: Moore v. Sweet, 2018 SCC 52, at para. 38. The defendant’s alleged enrichment and the plaintiff’s corresponding deprivation are closely related; a “straightforward economic approach is taken to both of them”: Moore, at para. 41.
[299] Enrichment and deprivation are “the same thing from different perspectives”, or “essentially two sides of the same coin.” A plaintiff must prove that “the transaction that enriched the defendant … caused the plaintiff’s impoverishment”: Moore, at paras. 41 and 43.
[300] In Moore, Côté J. described the relationship between enrichment and deprivation as follows, at para. 49:
[A] robust approach to the corresponding deprivation element focuses simply on what the plaintiff actually lost — that is, property that was in his or her possession or that would have accrued for his or her benefit — and on whether that loss corresponds to the defendant's enrichment, such that we can say that the latter was enriched at the expense of the former. [Emphasis in original.]
[301] The nature of the correspondence between such gain and loss may vary from case to case: Moore, at para. 43.
[302] To establish that the defendant was enriched and the plaintiff correspondingly deprived, it must be shown that something of value—a tangible benefit—passed from the plaintiff to the defendant: Moore, at para. 41.
[303] “The fact that a plaintiff has a contractual claim against one defendant does not preclude the plaintiff from advancing his or her case by asserting a separate cause of action [for unjust enrichment] against another defendant if it appears most advantageous”: Moore, at para. 51.
[304] In Pro-Sys, the Supreme Court rejected the passing-on defence for all of restitutionary law: at paras 24-29. Consequently, a defendant cannot defeat an unjust enrichment claim by submitting that it is not enriched because its ill-gotten monetary gains were subsequently spent securing a benefit.
(iii) Analysis
[305] I do not agree with BMO Investments that it is plain and obvious that the unjust enrichment claim cannot succeed.
[306] On the pleadings, BMO Investments paid itself Unearned Management Fees out of the trust assets for the purpose of paying trailing commissions to Discount Brokers for shelf space on their trading platforms. Such payment directly enriched BMO Investments with unearned funds. BMO Investments was also indirectly enriched since the payment of Unearned Management Fees saved BMO Investments from incurring a marketing expense it was otherwise obliged to pay.
[307] It is not plain and obvious that a “causal connection” between the deprivation and enrichment could not be found, or that the deprivation and enrichment are not “the same thing from a different perspective” or “two sides of the same coin”.
[308] On the pleadings, the corresponding deprivation arises because of the reduction in value of the BMO Mutual Funds resulting from the payment of the Unearned Management Fees that BMO Investments paid itself so that it could then use those funds to pay trailing commissions. Consequently, it is arguable that the enrichment occurs when BMO Investments receives the Unearned Management Fees for the purpose of paying trailing commissions. Both the alleged deprivation and enrichment occur in the same transaction.
[309] Second, even under BMO Investments’ “separate transaction” approach, it is not plain and obvious that the deprivation and enrichment (i) do not correspond under “a straightforward economic approach”, (ii) are not “the same thing from different perspectives”, or (iii) are not “essentially two sides of the same coin”.[^7]
[310] Based on the pleadings, BMO Investments is using the funds wrongfully obtained to pay for trailing commissions, i.e. to secure the benefit for itself, which was the basis for the alleged wrongful deprivation through the payment of Unearned Management Fees. It is not plain and obvious that a “straightforward economic approach” would not find a corresponding deprivation in such circumstances.
[311] Otherwise, a defendant could avoid an unjust enrichment claim by improperly taking funds from the plaintiff and then spending them in a manner that benefits the defendant. Such a result would appear inconsistent with the “robust” approach to unjust enrichment discussed in Moore and the prohibition against a passing-on defence as set out in Pro-Sys.
[312] Finally, based on the pleading, it is not plain and obvious that the Management Agreements provide a juristic reason for the enrichment. The Trust Instruments only provide for the payment of “reasonable” management fees for the benefit of the unitholders as beneficiaries. Similarly, while the management fees are set out in the Management Agreements, BMO Investments charges those management fees for its services, under the contractual requirement that it act in the best interests of the BMO Mutual Funds. The payment of the Unearned Management Fees so that BMO Investments could pay trailing commissions to Discount Brokers is arguably (i) not permitted under the relevant contracts, and (ii) contrary to the Trustee’s Standard of Care, the Manager’s Standard of Care, and the Manager’s Compliance with Law Duty.
(iv) The decision in Stenzler
[313] In Stenzler, Belobaba J. held that the claim for unjust enrichment did not disclose a cause of action on the pleadings because there was a “fatal disconnect between the plaintiff’s alleged loss and the defendant’s alleged unjust enrichment”. He also held that there was no pleading of a “gain” by the defendant and “no pleading that the defendant kept any portion of the trailing commissions for its own benefit and enrichment”: at paras. 34-35.
[314] Consequently, Belobaba J. held that the pleadings could not support a finding that the enrichment and deprivation were “two sides of the same coin”.
[315] In the present case, it is not plain and obvious that a causal connection cannot be established. The “shelf space” allegation causally connects the deprivation (payment of Unearned Management Fees) to enrichment (receipt of Unearned Management Fees for the purpose of paying for shelf space through trailing commissions). Consequently, in the present case there is a pleading that “the defendant was enriched ‘at the plaintiff’s expense’”: Stenzler, at para. 35.
(v) Conclusion
[316] For the above reasons, I find that it is not plain and obvious that the unjust enrichment claim cannot succeed.
Other issues raised by BMO Investments
[317] I now review the four other issues raised by BMO Investments in response to the certification motion, as summarized at para. 11 above.
Issue 1: Section 5(1)(b): the end date of the class definition
[318] It is not disputed that the proposed class definition satisfies the three purposes of section 5(1)(b): it identifies those with a claim for potential relief; it defines the parameters of the lawsuit so as to identify those bound; and it describes who is entitled to notice of certification: Sun-Rype Products Ltd v. Archer Daniels Midland Co., 2013 SCC 58, [2013] 3 S.C.R. 545, at para. 57.
[319] The class is not overly broad or over-inclusive and is defined by objective criteria: Pearson v. Inco Ltd. (2005), 2006 CanLII 913 (ON CA), 78 O.R. (3d) 641 (C.A.), at para. 57; Hollick, at para 17. It is limited to unitholders who hold or held their BMO Mutual Funds through Discount Brokers.
[320] The only issue before the court under s. 5(1)(b) is whether the class definition should end as of the date of the certification order (as proposed by BMO Investments) or as of the date of notice of certification (as proposed by Gilani).
(i) Positions of the parties
[321] Gilani submits that “[g]iven that trailing commissions continue to be paid to Discount Brokers on BMO Mutual Funds, an earlier end-date would exclude individuals who potentially have a claim against BMO Investments for no principled reason. Closing class membership at the notice date means those claims are not prejudiced, while ensuring that effective notice can be given and opt out rights can be exercised.”
[322] BMO Investments submits that the end date of Gilani’s proposed class definition is “problematic” because it “includes people who do not meet the attributes for class membership on the date of a potential certification order”.
(ii) The applicable law
[323] There is no case law that directly addresses whether the end date of the class definition should be on certification or notice.
[324] Gilani relies on decisions in which the court ordered the end date of the class definition to be upon notice. However, there is no discussion in any of those cases about whether the end date of the class definition was raised as an issue before the court.
[325] In Matoni, the court ordered the end date of the class definition to be at the date of notice, “to ensure that notification of class members is effective”: at para. 86.
[326] In 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation (2008), 2008 CanLII 8421 (ON SC), 89 O.R. (3d) 252 (S.C.), Perell J. relied on Matoni and made the same order without further comment: at para. 97.
[327] Lax J. made the same order without any comment in Griffin v. Dell Canada Inc., 2009 CanLII 3557 (Ont. S.C.), at para. 70.
[328] In Berg v. Canadian Hockey League, 2017 ONSC 2608, Perell J. discussed the concerns arising from an end date past the certification date, since the court would not have any evidence as to class membership after the certification date.
[329] In Berg, the plaintiff proposed an open-ended, rolling end date until the last notice of certification was issued, with notices of certification being issued on a running basis on two or more occasions after the order certifying the action as a class proceeding: at para. 156.
[330] Perell J. held that a rolling period would not be appropriate unless there was “certainty that the predicament of the new class members is common with those Class Members at the time of certification”: at para. 158. He held, at para. 160:
[T]he approach [of an open-ended class period] ignores the fundamental problem that there has been no adjudication to determine whether the circumstances of the new class members, (who in the case at bar, at the time of the original certification motion, were not even playing hockey for OHL Clubs), are such that the criteria for certification continue to be satisfied for them. Who's to say that the evidentiary record has not changed between the date of certification and the next notice of certification?
[331] Consequently, Perell J. ordered the end date of the class definition to be the date of the certification order “without prejudice to the definition being amended from time to time by a new motion to certify, which, if granted, would be followed by a notice program”: at para. 162.
[332] In Granger, the issue of the end date of the class definition arose because potential class members could have been subject to retention of DNA profiles after certification. The representative plaintiff did not seek an end date as of delivery of the notice of certification (or on a running basis), but instead submitted that the appropriate end date should be the date of the certification order, provided that the order was “without prejudice to the definition being amended from time to time by a new motion to certify, which, if granted, would be followed by a notice program”, adopting the approach of Perell J. in Berg: see Granger, at para. 102.
[333] The defendant in Granger agreed that the end date for class membership should be the date of the certification order, but submitted that the “without prejudice” caveat was redundant and not necessary: at para. 102.
[334] In Granger, I adopted the approach in Berg and defined the end date of class membership as of the certification order, subject to the “without prejudice” caveat from Berg, as I found that “[s]uch a term clarifies the temporal issue for any future motion to add new class members, even if not strictly required under the CPA”: at paras. 103-106.
(iii) Analysis
[335] I apply the same approach as in Granger, since this case presents the same concern of the inclusion of new class members after certification.
[336] Gilani seeks certification of Class members who, after the date of a certification order but “at any time on or prior to the date on which notice of certification is first published or disseminated”, held or hold units of a BMO Mutual Fund through a Discount Broker.
[337] The same “fundamental problem” exists as in both Berg and Granger. There has been no adjudication to determine the circumstances of those proposed class members who begin to hold units of a BMO Mutual Fund through a Discount Broker after certification but before notice. Adopting the comments of Perell J. in Berg, “[w]ho’s to say that the evidentiary record has not changed”?
[338] I do not find it appropriate to include prospective class members when there is no evidence before the court on membership past the certification date. If an impugned practice continues after certification (as alleged in Berg and Granger), the plaintiff can always return to the court with a new motion to certify, which, if granted, would be followed by a notice program.
(iv) The decision in Stenzler
[339] In Stenzler, Belobaba J. approved a class definition that included all persons who held or hold any unit of a TD Mutual Fund through a Discount Broker, “at any time prior to the conclusion of the trial of the common issues in this proceeding”: at paras. 36-38.
[340] The reasons in Stenzler do not suggest that either party sought to limit the end date for the class definition, as in the present case.
(v) Conclusion
[341] For the above reasons, I find that the end date of the class definition shall be the date of the certification order without prejudice to the definition being amended from time to time by a new motion to certify, which, if granted, would be followed by a notice program.
Issue 2: Is there a basis in fact to certify the proposed common issue of aggregate damages?
[342] Gilani’s proposed common issues are set out at Schedule “A” to these reasons. There is no dispute that they raise common issues of fact and law that are necessary for the resolution of each class member’s claim. The proposed common issues are substantially the same as those certified in Stenzler: at paras. 40-44 (and in the Appendix to those reasons).
[343] BMO Investments agrees that there is some basis in fact to certify each of the proposed common issues under s. 5(1)(c), except for the contested proposed common issue of aggregate damages, which I address below.
(i) Positions of the parties
[344] Gilani proposes the following common issue related to aggregate damages:
Can the amount of any monetary relief be determined on an aggregate basis? If so, what is the amount and what is the appropriate method or procedure for distributing that amount to the Class Members?
[345] Gilani submits that there is some basis in fact, on the evidence before the court, to certify the proposed aggregate damages common issue under s. 24(1) of the CPA. BMO Investments submits that Gilani has not met the “some basis in fact” threshold required to certify the proposed aggregate damages common issue.
(ii) The applicable law
[346] The underlying question on certifying a common issue is whether certification would avoid duplication of fact-finding or legal analysis. An issue is common where it constitutes a substantial ingredient of each class member’s claims and “where its resolution is necessary to the resolution of each class member’s claim”: Western Canadian Shopping Centres Inc v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, at para. 39; Hollick, at para. 18.
[347] The preconditions under s. 24(1) for an aggregate damages claim are that (i) monetary relief is claimed on behalf of some or all class members (s. 24(1)(a)); (ii) no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant’s liability (s. 24(1)(b)); and (iii) the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members (s. 24(1)(c)).
(iii) Analysis
[348] BMO Investments submits that there is no basis in fact to establish either of the preconditions under ss. 24(1)(b) and (c). I do not agree.
- Section 24(1)(b)
[349] BMO Investments submits that the precondition under s. 24(1)(b) cannot be met because BMO Investments will raise limitations defences on an individual basis, such that assessment would not be the only step required to determine the amount of its liability. I do not agree.
[350] The issue before the court on a claim for aggregate damages is whether an assessment of damages is the only step to determine the amount of liability. While any particular investor may be subject to a limitations defence, the assessment of the amount of the alleged improper transfer of funds is all that is required to determine the amount of BMO Investments’ liability.
[351] Even if BMO Investments’ submission were accepted (which I do not find), there would still be a basis in fact under s. 24(1)(b) for aggregate damages that are not subject to a limitation period. For those damages, the assessment could not depend on individual limitation issues. Since s. 24(1) of the CPA allows the court to “determine the aggregate or a part of a defendant’s liability to class members”, there is a basis in fact, at a minimum for those damages, that only the assessment is required to determine BMO Investment’s monetary liability under s. 24(1)(b).
- Section 24(1)(c)
[352] BMO Investments also submits that there is no basis in fact to establish the requirement under s. 24(1)(c) that “the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members”. I do not agree.
[353] A significant component of the aggregate monetary relief is the quantum of the trailing commissions paid by BMO Investments to Discount Brokers. The payment of trailing commissions is a transaction between BMO Investments and the Discount Brokers. There is no reason to require Class members to provide proof as to the quantum of the trailing commissions. The information will be in the hands of BMO Investments and, if necessary, third parties such as the Discount Brokers or Fundserv.[^8]
[354] BMO Investments relies on evidence from its authorized representative, Samra, that BMO Investments cannot provide a “precise estimate” of class size because its information from its transfer agency system, which primarily comes “from information made available to it via Fundserv”, “does not enable BMO [Investments] to determine how many unitholders hold or held units in BMO Mutual Funds through a Discount Broker”.
[355] However, the issue relevant to s. 24(1)(c) is not whether BMO Investments can precisely determine class size. The issue is whether there is a basis in fact that “the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members”. Consequently, the s. 24(1)(c) requirement is met if there is some evidence which could support calculation of damages for some or part of the claim, and for all or some of the class members, without proof by individual class members.
[356] Samra’s evidence, and BMO Investment’s acknowledgement of the comparative size of the Discount Broker platform, establish a basis in fact for the s. 24(1)(c) requirement. I review this evidence below.
[357] First, BMO Investments states in its defence and in its factum that the Discount Broker channel “accounts for approximately 2.5% of its mutual fund distribution”. Consequently, there is some basis in fact that BMO Investments can (i) determine the value of BMO Mutual Fund assets held through the Discount Broker channel, and (ii) quantify the amount of trailing commissions paid to Discount Brokers as a function of that asset value.
[358] Second, BMO Investments acknowledges that, through Fundserv, it has access to some records of trailing commissions paid. Samra agreed in her cross-examination that “the information that’s provided through Fundserv is used as the basis for the payment of trailing commissions”.
[359] This evidence supports a finding that the subset of trailing commissions attributable to unitholders in the Discount Broker channel could be identified with supplemental information obtained from third-party production orders.
[360] Third, Samra’s affidavit evidence is that (i) “the vast majority of unitholders who hold units in a BMO Mutual Fund through a Discount Broker now hold these units as Series D units”; and (ii) “Fundserv does, however, allow [BMO Investments] to determine approximately how many accounts hold units in ‘Series D’ units for each BMO Mutual Fund at a point in time”.
[361] On that evidence, there is a basis in fact that BMO Investments can determine the value (or some approximate value) of BMO Mutual Fund assets held through the Discount Broker channel, as it will know the value of assets of Series D units of the BMO Mutual Funds. The fact that BMO Investments has records to identify, at a minimum, trailing commissions paid by Series D unitholders, is not “something that requires an expert methodology”: Grossman v. Nissan Canada, 2019 ONSC 6180, at para. 57.
[362] Section 24(1)(c) requires only that all or part of the defendant’s liability be reasonably capable of proof without individualized assessments. Since BMO Investments has access to records through Fundserv regarding Series D unitholders, then at a minimum there is some basis in fact that the aggregate damages for Series D unitholders (who necessarily are part of the Class) may be calculated.
(iv) The decision in Stenzler
[363] In Stenzler, Belobaba J. certified the same proposed common issue for aggregate damages. He held that the aggregate damages question “is certified because the damages in question can reasonably be determined without proof by individual class members” and “class member losses can be established through the defendant’s own records”: at para. 43 (and Appendix in Stenzler).
[364] In the present case, I reach the same conclusion as Belobaba J.
(v) Conclusion
[365] For the above reasons, I find that there is some basis in fact to certify the proposed common issue of aggregate damages.
Issue 3: Is there a basis in fact to certify BMO Investments’ proposed limitations issue question?
(i) Positions of the parties
[366] BMO Investments proposes certification of the following common issue:
Excluding the prospectus misrepresentation claim,[^9] are the other claims of some or all Class Members barred by a limitation period? If so, what limitation periods apply?
[367] BMO Investments submits that because every Class member holds their BMO Mutual Funds through a Discount Broker, the “do-it-yourself” or “DIY” nature of their investment approach is a basis in fact for the court to determine, as a common issue, whether the causes of action are barred by a limitation period and, if so, what limitations period applies.
[368] Gilani submits that the DIY nature of the investment does not support a common issue on the limitation period. Discoverability will necessarily apply to each class member’s claim, requiring the court to determine the abilities and circumstances of each investor, irrespective of the fact that the Class members held their BMO Mutual Funds with Discount Brokers.
(ii) The applicable law
[369] I set out the applicable law on certification of a common issue at para. 346 above.
[370] Discoverability is an inherently individualistic assessment, requiring examination of a class member’s personal circumstances and knowledge. In Cloud v. Canada (Attorney General) (2004), 2004 CanLII 45444 (ON CA), 73 O.R. (3d) 401 (C.A.), at para. 61, the court commented on the individual nature of discoverability issues:
In the context of these issues, these defences must await the conclusion of the common trial. They can only be dealt with after it is determined whether there were breaches of the systemic duties alleged and over what period of time and when those breaches occurred. Only then can it be concluded when the limitations defence arose. Moreover, because an inquiry into discoverability will undoubtedly be a part of the limitations debate and because that inquiry must be done individual by individual, these defences can only be addressed as a part of the individual trials following the common trial. As with other individual issues, the existence of limitations defences does not negate a finding that there are common issues.
[371] Similarly, Belobaba J. held in Fresco v. Canadian Imperial Bank of Commerce, 2020 ONSC 6098, at para. 18:
It is certainly ‘possible’ in cases where there is clear evidence of class-wide commonality (in class members' personal circumstances) that a class-wide limitations order can be made. But such cases will be few and far between because class-wide commonality in limitation period determinants will rarely be established.
(iii) Analysis
[372] I do not find that there is a basis in fact for the proposed limitation period common issue. Even if every class member takes a DIY approach, a limitation defence will still require individual assessment of when each investor knew or ought to have known of the payment of trailing commissions to Discount Brokers in an alleged breach of the Trust Instruments, Management Agreements, and Fund Facts Document.
[373] The timing of such knowledge is not a common issue determined solely by the fact that each Class member is a DIY investor. There is no basis in fact to support BMO Investments’ submission that there is a relationship between (i) being a DIY investor and (ii) knowing that trailing commissions are paid to Discount Brokers.
[374] Regardless of how an investor holds a BMO Mutual Fund, each investor’s personal circumstances and knowledge of the payment of trailing commissions to Discount Brokers will have to be considered on an individual basis.
[375] Consequently, I agree with Gilani’s submission that “BMO Investments’ reliance on the fact that the Class Members all hold their funds through a Discount Broker, ‘foregoing investment advice in favour of a ‘do it yourself’ approach’, is misplaced because it does not change the fact that the ‘abilities’ and ‘circumstances’ of investors in the Discount Broker channel are not likely to be uniform”.
[376] Discoverability will turn on an examination of each Class Member’s personal circumstances and knowledge of the payment of trailing commissions to Discount Brokers.
[377] In Stenzler, Belobaba J. dismissed TDAM’s objection that the representative plaintiff was not suitable because his claim was statute-barred. Belobaba J. held, at para. 47:
The defendant's only objection under this requirement is that the plaintiff's own claim is statute-barred and thus he cannot serve as a representative plaintiff. However, the plaintiff's evidence is that there is no limitations issue - he first became aware that trailing commissions were being paid to discount brokers toward the end of 2017 and the statement of claim was issued in March 2019, within the two-year period.
[378] The evidence of the representative plaintiff in Stenzler is the same type of evidence that would have to be led for each Class member in the present case, regardless of being a DIY investor. The commonality of a DIY investment approach, relied upon by BMO Investments, does not lead to a common discoverability argument for the same reason as discussed in Stenzler—the issue of when an investor first became aware or ought to have become aware that trailing commissions were being paid to Discount Brokers must be assessed on an individual basis, given the timing and nature of the disclosure they received, their knowledge, and their level of sophistication, all of which raise individual issues.
(iv) The decision in Stenzler
[379] There is no indication in Belobaba J.’s reasons that TDAM sought certification of a common limitations period issue.
(v) Conclusion
[380] For the above reasons, I do not certify a common limitation period issue as proposed by BMO Investments.
Issue 4: Drafting issues
(i) Positions of the parties
[381] Gilani submits that the proposed common issues are clear, neutrally worded, and fair to both parties.[^10]
[382] BMO Investments “proposes provisional revisions to a number” of common issues which it describes as “vague or imprecisely-drafted”.
(ii) The applicable law
[383] The relevant principles on drafting common issues are not in dispute.
[384] Strathy J. (as he then was) held, in 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2011 ONSC 1941, at para. 3:
My objective is to state common issues that fairly reflect the pleadings, the evidentiary record and the conclusions in my reasons. The common issues should be clear, neutrally-worded and fair to both parties. They should be phrased in such a way that their answers will advance the litigation.
[385] Common issues are adjudicated on the pleadings. In Rooney v. ArcelorMittal, 2018 ONSC 1878, Rady J. rejected drafting changes that sought to link the common issues to a particular pleading. She held, at para. 87:
The proposed additional words in common issues 1, 5, 11, 13, 15 and 17 (“as pleaded and particularized in Schedule B of the Second Fresh as Amended Statement of Claim”) are unnecessary. The common issues will be adjudicated on the basis of the case as pleaded. Further, it is possible that the common issues will be changed or refined as the case proceeds through documentary and oral discoveries.
(iii) Analysis
[386] The proposed changes fall in two categories: (i) BMO Investments’ submission that proposed common issues should be linked to particular paragraphs in the pleadings and (ii) BMO Investments’ drafting changes, which it submits are necessary to ensure that the proposed common issues are clearly worded. I address each of these categories below.
- Proposed drafting changes to link common issues with particular paragraphs in the pleadings
[387] Many of BMO Investments’ proposed drafting changes seek to link the proposed common issue to specific paragraphs of the Fresh as Amended Statement of Claim (see the changes to proposed common issues 1, 4, 5, 9, and 10).
[388] However, as Rady J. held in Rooney, “the common issues will be adjudicated on the basis of the case as pleaded”: at para. 87. At a common issues trial (or on summary judgment if applicable), the parties and the court can rely on evidence related to all of the allegations in the pleadings to answer the proposed common issues which should not be limited in advance to any particular paragraphs of the pleading.
[389] In Rooney, the court rejected an even broader link of the common issues to the pleadings, when the defendant sought to connect the proposed common issues to the allegations “as pleaded and particularized in Schedule B of the Second Fresh as Amended Statement of Claim”. Rady J. held that a link was “unnecessary”: at para. 87.
[390] In my view, it is even more inappropriate to link specific paragraphs of a pleading to a common issue, for the same reasons as set out in Rooney. The approach proposed by BMO Investments would unnecessarily restrict the parties and the court from considering the evidence relevant to the whole case in rendering a conclusion on the common issues.
[391] A restriction to specific paragraphs of the pleadings for any particular proposed common issue makes them less clear. All of the allegations in the claim will be considered by the court at a common issues trial in determining whether the merits of the claim support the plaintiff’s (or the defendant’s) allegations.
[392] Consequently, I reject the proposed drafting changes to link proposed common issues to particular paragraphs in the pleadings, and I adopt the comments of Rady J. in Rooney.
- Changes related to the drafting of the proposed common issues
[393] The other proposed changes do not make the proposed common issues clearer.
[394] At proposed common issue 2, the question as drafted by Gilani asks “Did the Defendant, as the trustee of the BMO Mutual Funds owe a fiduciary duty? If so, to whom was the duty owed?”
[395] At proposed common issue 3, the question as drafted by Gilani asks “Did the Defendant, as the manager of the BMO Mutual Funds owe a fiduciary duty? If so, to whom was the duty owed?”
[396] The changes submitted by BMO Investments to proposed common issues 2 and 3 seek to add a question of “[If BMO Investments owes a fiduciary duty] what is the nature and content of that duty?”
[397] The proposed changes are unnecessary and make the questions less clear. The court at the common issues trial will be required to determine whether BMO Investments owed a fiduciary duty to the Class members. The “nature and content” of that duty is part of the analysis a court must undertake to answer the proposed common issues as drafted by Gilani. It is not a separate common issue. Consequently, the proposed drafting changes fail to meet the test as set out by Strathy J. in Pet Valu.
[398] At proposed common issue 5, the question as drafted by Gilani asks “Did the Defendant, as manager of the BMO Mutual Funds, breach the Management Agreements? If so, when and how?”
[399] BMO Investments seeks to refer to particular standards of care from the Management Agreements (i.e. the Manager’s Standard of Care and the Manager’s Compliance with Law Duty).[^11] However, that change is unnecessary and confusing to the issue of whether BMO Investments breached the Management Agreements. The proposed common issue of the contractual breach will be determined on the basis of the entire agreement, taken in context with any other relevant evidence.
[400] The approach by BMO Investments on proposed common issue 5 is also inconsistent with the comments in Rooney, which caution against limiting the scope of proposed common issues when the court hearing the common issue trial (and the parties) should be able to determine issues based on all of the pleadings and the evidence before it. The common issues judge should not be restricted to either specific paragraphs of the pleading or particular provisions of the constating agreements.
[401] Similar concerns arise with respect to BMO Investments’ changes to proposed common issues 9 and 10. BMO Investments seeks to circumscribe the questions asking if there was enrichment or deprivation by setting out particular means in which the enrichment or deprivation could be found, rather than allowing the parties and the court to rely on the pleadings and the evidence at trial. Those proposed drafting changes (i) do not make the questions clearer for the same reasons as set out in relation to proposed common issue 5, and (ii) are inconsistent with the approach in Rooney that I adopt in these reasons.
(iv) The decision in Stenzler
[402] It does not appear from the reasons in Stenzler that TDAM challenged the wording of any of the proposed common issues, which were virtually identical to the common issues proposed by Gilani in the present case: see Appendix in Stenzler.
(v) Conclusion
[403] I agree with the wording of the proposed common issues as drafted by Gilani, and reject the proposed changes of BMO Investments.
A note on sections 5(1)(d) and (e) of the CPA
[404] The preferability of the proceeding by class action and the adequacy of the representative plaintiff are not challenged, so I only address them briefly.
[405] BMO Investments does not contest that there is some basis in fact that a class action is the preferable procedure under s. 5(1)(d). It would be uneconomical for Gilani, and likely virtually all Class members, to pursue this litigation on an individual basis: Dadzie v Her Majesty the Queen in Right of Ontario, 2017 ONSC 7101, at para. 27.
[406] The resolution of the common issues is highly significant in relation to the other issues raised in the action and a resolution of these issues would substantially advance Class members’ claims. In Stenzler, Belobaba J. found that similar litigation was “ideally suited to proceed as a class action”: at para. 46.
[407] BMO Investments does not contest that there is some basis in fact that Gilani is an adequate representative plaintiff under s. 5(1)(e). Gilani is qualified and capable of protecting the interests of the Class. He is a Class member. He believes that he can fairly and adequately represent the interests of the Class and is committed to fulfilling his responsibilities if appointed. Gilani’s interests are not in conflict with the Class on the common issues. The litigation plan provides a workable means of advancing the litigation.
ORDER AND COSTS
[408] For the above reasons, I certify the proposed class action. Counsel may provide the court with a draft order on consent or return to the court to address the terms of the order if required.
[409] If the parties cannot agree on costs, they shall deliver written costs submissions to the court. Gilani shall deliver submissions of no more than five pages by June 1, 2021 (not including a costs outline or bill of costs). BMO Investments shall deliver their responding submissions of no more than five pages by June 15, 2021 (not including a costs outline or bill of costs). Gilani shall deliver a reply costs submission (if required) of no more than three pages by June 22, 2021.
[410] I thank counsel for their thorough submissions which were of great assistance to the court.
GLUSTEIN J.
Date: 202105118
Schedule A LIST OF Common Issues
Having regard to the allegations of the Plaintiff and the Defendant in the pleadings:
Breach of Trust
- Did the Defendant, as the trustee of the BMO Mutual Funds, breach the “Standard of Care of Trustee” set out in the Trust Instruments? If so, when and how?
Breach of Fiduciary Duty
Did the Defendant, as the trustee of the BMO Mutual Funds, owe a fiduciary duty? If so, to whom was the duty owed?
Did the Defendant, as the manager of the BMO Mutual Funds, owe a fiduciary duty? If so, to whom was the duty owed?
If the answer to the first question in (2) and/or (3) is yes, did the Defendant breach its fiduciary duty? If so, when and how?
Breach of Contract
- Did the Defendant, as the manager of the BMO Mutual Funds, breach the Management Agreements? If so, when and how?
Section 23.1 of the Trustee Act
- Should the payment of the Unearned Management Fees by the Defendant be disallowed as an expense pursuant to section 23.1 of the Trustee Act?
Prospectus Misrepresentation
Did the Fund Facts Documents, and the Simplified Prospectuses which incorporate the Fund Facts Documents, contain a misrepresentation within the meaning of the OSA (and, as applicable, the Other Canadian Securities Legislation)?
If the answer to (7) is yes, is the Defendant liable to the Class Members pursuant to section 130 of the OSA (and, as applicable, the equivalent provisions of the Other Canadian Securities Legislation)?
Unjust Enrichment
Has the Defendant been enriched?
If the answer to (9) is yes, have the Class Members suffered a corresponding deprivation?
If the answer to (10) is yes, is there a valid juristic reason for the enrichment of the Defendant?
Remedies
Is the Defendant liable to account to the Class Members?
If the Defendant is found liable on any claims asserted by the Class Members, as set out above, what remedies, including damages and/or equitable remedies, are the Class Members entitled to receive?
How should recoveries under each type of remedy be measured?
Can the amount of any monetary relief be determined on an aggregate basis? If so, what is the amount and what is the appropriate method or procedure for distributing that amount to the Class Members?
Interest
- Should the Defendant be ordered to pay an equitable rate of interest and/or pre-judgment and post-judgment interest pursuant to the CJA? If so, what is the appropriate measure or amount of such interest?
Administration and Distribution
- Should the Defendant pay the costs of administering and distributing the recovery? If so, what amount should the Defendant pay?
COURT FILE NO.: CV-18-00611748-00CP
DATE: 20210518
ONTARIO
SUPERIOR COURT OF JUSTICE
NAHEED GILANI
Plaintiff
AND:
BMO INVESTMENTS INC.
Defendant
REASONS FOR DECISION
Glustein J.
Released: May 18, 2021
[^1]: The only cause of action dismissed by Belobaba J. at issue in the present case is the unjust enrichment claim. Belobaba J. refused to dismiss any of the other causes of action at issue in the present case which were raised before him, i.e. the claims based on breach of trust, breach of fiduciary duty, breach of s. 23.1 of the Trustee Act, prospectus misrepresentation under s. 130 of the Securities Act, or the certification of the proposed common issue seeking aggregate damages.
[^2]: See footnote 1 above.
[^3]: (e.g. s. 9 of the Amended and Restated Master Management Agreement dated May 4, 2018 (the Master Management Agreement))
[^4]: (e.g. ss. 1(c) and 8 of the Master Management Agreement)
[^5]: Gilani does not accept that the introduction of Series D units resolves the issues raised in this class action. Gilani submits that the only acceptable solution is not to pay any trailing commissions to Discount Brokers.
[^6]: The parties agree that there is a basis in fact for a proposed common issue as to the effect of the alleged release. I agree that BMO Investments’ proposed common issue for the release is appropriate.
[^7]: By way of example, in Moore, the court held that the enrichment was sufficiently connected to the deprivation where the benefit was conferred indirectly by the plaintiff in the form of payment of insurance premiums that made it possible for the defendant to collect the policy proceeds: at paras. 39 and 52.
[^8]: As I discuss at para. 26(ii) above, Samra’s evidence is that “Fundserv is a centralized online platform which enables manufacturers, distributors, and intermediaries to buy sell and transfer units in a variety of investment funds, including units in BMO Mutual Funds”.
[^9]: This proposed common issue regarding the limitations period excludes the prospectus misrepresentation claim under the Securities Act because the BMO Defendants submit that discoverability does not apply to the s. 138(b)(ii) limitation period.
[^10]: Gilani does not oppose the terms of the proposed common issue on the release, as drafted by BMO Investments.
[^11]: BMO Investments also proposed changes to questions 5, 9, and 10 to refer to particular paragraphs from the pleadings, as I discuss above.