Court File and Parties

COURT FILE NO.: CV-23-00700932-00CP DATE: 20240514 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ian Cluroe AND: Emerge Canada Inc. et al.

BEFORE: J.T. Akbarali J.

COUNSEL: Paul Guy and Garth Myers, for the plaintiff No one appearing, for the defendants

HEARD: In writing

Proceeding under the Class Proceedings Act, 1992

Endorsement

Overview

[1] The plaintiff in this putative class action seeks leave to discontinue the action pursuant to s. 29 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (“CPA”).

Background

[2] The defendant, Emerge Canada Inc. (“Emerge”) is the trustee and manager of twelve mutual funds established as trusts under Ontario law (the “Emerge ETFs”). Eleven other Emerge entities are also named as defendants in this action.

[3] The plaintiff’s claim alleges that, during the class period (i) Emerge violated the requirement that it maintain minimum excess working capital of $100,000, causing the Ontario Securities Commission to suspend Emerge’s registration and impose a cease-trade order over the Emerge ETFs, and (ii) Emerge improperly pre-paid itself management fees from the Emerge ETFs. The plaintiff alleges that Emerge is liable to the class for the pre-payment of fees totaling $4.7 million.

[4] The plaintiff brings this claim on behalf of a class of unitholder investors who invested in the Emerge ETF’s.

[5] The claim alleges that the first indication putative class members had that there were problems with the Emerge ETFs was on December 14, 2022, when Emerge issued a Material Change Report disclosing that its auditor, BDO Canada, had resigned.

[6] The plaintiff commenced his claim by way of Notice of Action dated June 12, 2023. A statement of claim was issued on July 11, 2023.

[7] In September 2023, the plaintiff’s counsel applied for funding from the Class Proceedings Fund for this action.

[8] On November 29, 2023, defendants’ counsel, Cheryl Woodin of Bennett Jones LLP advised that her firm was retained. However, Bennett Jones LLP did not appear on the record for the defendants then, or at any time thereafter.

[9] Emerge was wound up in December 2023.

[10] In January 2024, in connection with the plaintiff’s application for funding from the Class Proceedings Fund, Ms. Woodin advised the Fund that Emerge is no longer a going concern and has no assets that could be used to satisfy any judgment that might be obtained against it.

[11] Ms. Woodin also advised the Fund that Emerge’s insurance policy expired before the action was commenced, such that there is no insurance available to respond to the claim.

[12] In February 2024, the Fund denied funding to this action.

[13] Ms. Woodin thereafter advised plaintiff’s counsel that Bennett Jones LLP will not appear on the record for the defendants. None of the defendants have appointed counsel.

[14] On January 5, 2024, Emerge sent a status letter to unitholders advising that the receivable owed to certain unitholders was approximately $4.7 million.

[15] Given that the defendants have no assets or insurance from which a judgment could be satisfied, and given that the limitation period has not expired should any individual class member wish to assert a claim against the defendants, the plaintiff seeks leave to discontinue this action.

[16] Despite being served with the motion material, no defendant has responded. Accordingly, this motion is unopposed.

Analysis

[17] A discontinuance under s. 29 of the CPA requires court approval. It also requires the court to consider whether notice should be given under s. 19 of the CPA and what the notice should include.

[18] The test for leave to discontinue a class proceeding is whether the interests of the class will be prejudiced: Hudson v. Dr. Richard Austin, 2010 ONSC 2789, at para. 35.

[19] In considering a motion for discontinuance, the court should consider whether the proceeding was commenced for an improper purpose, whether there is a viable replacement party so that putative class members are not prejudiced; or whether the defendant will be prejudiced: Lam v. Canada Goose Holdings Inc., 2021 ONSC 2627, at para. 16.

[20] Approving a discontinuance is different than approving a settlement. A discontinuance need not be beneficial or in the best interests of the putative class members: Johnson v. North American Palladium Ltd., 2021 ONSC 3346, at para. 15.

[21] For the reasons that follow, I am satisfied in this case that leave to discontinue ought to be granted.

[22] First, the potential prejudice to the class lies in the fact that the limitation period will resume running. However, given that the earliest the limitation period could have started to run was December 14, 2022 when Emerge disclosed that its auditor resigned, there remain over six months for individual putative class members to seek to claim against the defendants should they wish to do so.

[23] Second, without any assets or insurance to satisfy the judgment, there is no prospect of recovery. Without a realistic prospect of recovery, the putative class members are not prejudiced by a discontinuance.

[24] Finally, plaintiff’s counsel proposes a notice plan that is satisfactory to alert putative class members that the claim has been discontinued. Counsel proposes to: (i) contact directly those class members who have contacted class counsel; and (ii) post information about the discontinuance on its website. This should reach any putative class member who is aware of the class proceeding and is thus not taking other steps to pursue their individual rights, if indeed they would be inclined to do so in the circumstances.

[25] Moreover, the draft order provides that the discontinuance will be effective 30 days from the date of the order, to ensure there is sufficient time to provide notice to class members before the action is discontinued.

[26] Order to go in accordance with the draft I have signed.

J.T. Akbarali J. Date: May 14, 2024