Posts by Dan Parlow

Dan Parlow
Thursday, December 12th, 2013    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

The Supreme Court of Canada has opened the door more widely to consumer class actions in a case which follows an Ontario Securities Commission settlement: AIC Limited v. Fischer, 2013 SCC 69.  The decision will be equally applicable to class action certification motions in British Columbia.

One of the fundamental requirements to certification of a class action is that (to use the Ontario language) “a class proceeding would be the preferable procedure for the resolution of the common issues”:  Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)(d).  The Court approached this “preferability requirement” from a consumer perspective, that is, whether the proposed class proceeding was preferable to other options (whether within or outside of the courts) from the point of view of providing access to justice.

In this case, the proposed class action relates to allegations of “market timing” against mutual fund managers who had previously entered into a settlement agreement with the Ontario Securities Commission following an OSC investigation.   That settlement specifically contemplated the prospect of civil proceedings being brought on behalf of investors.  Market timing is an investment strategy allowing some investors to profit from short-term market cycles by trading into and out of market sectors as they heat up and cool off.   The OSC, in its proceedings, had alleged that five defendant funds had engaged in such activities in disregard to the public interest and contrary to provisions in their prospectuses limiting the frequency of trading.    According to the settlement agreement, this practice breached the mutual fund manager’s requirement to exercise the powers and to discharge the duties of its office honestly and in good faith and in the best interests of the mutual fund and, in connection therewith, to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances. “Compliance with this duty requires that a mutual fund manager have regard to the potential for harm to a fund from an investor seeking to employ a frequent trading market timing strategy and take reasonable steps to protect a mutual fund from such harm to the extent that a reasonably prudent person would have done in the circumstances.”

The Supreme Court approached the preferability requirement by reference to what it termed the three principal goals of class actions, namely judicial economy, behaviour modification and access to justice.  In this case, the latter factor was the focus of the Court’s decision.  In a unanimous opinion, Mr. Justice Cromwell wrote at para. 26 that “[a] class action will serve the goal of access to justice if (1) there are access to justice concerns that a class action could address; and (2) these concerns remain even when alternative avenues of redress are considered…. To determine whether both of these elements are present, it may be helpful to address a series of questions” of which the court enumerated the following:

  • What Are the Barriers to Access to Justice?
  • What Is the Potential of the Class Proceedings to Address Those Barriers?
  • What Are the Alternatives to Class Proceedings?
  • To What Extent Do the Alternatives Address the Relevant Barriers?
  • How Do the Alternatively Proposed Proceedings Compare to the Class Proceedings?

Since the evidence at the certification stage will not allow for a detailed assessment of the merits or likely outcome of the class action or any alternatives to it, the court emphasized that the evidentiary burden applicable on a motion for certification is low.  This analysis has been applied both  to the preferability requirement in Ontario and to both the preferability and the commonality requirements to certification in the context of the similar British Columbia class actions regime: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57.   The test requires there to be “‘some basis in fact’ before certification will be approved rather than for the court resolve conflicting facts and evidence at the certification stage”

The court further held that the limited scope of the factual inquiry on the certification motion means that the motions court will often not be able to compare the potential recoveries and/or methods of distribution in the event of success in the class action and in the alternative or alternatives which may be available.

Being somewhat unusual in that the OSC proceeding had already run its course, the underlying Divisional Court had found it a convenient opportunity to consider the preferability requirement by reference to whether “the plaintiffs have achieved full, or at the very least substantially full, recovery”.  Since a mathematical calculation had led the Divisional Court to conclude that “the plaintiffs’ current claim against AIC and CI, over and above the OSC settlement, [was] $333.8 million” (para. 4), which the court qualified as a “significant amount of money” (para. 8), it had used that analysis as a basis to conclude that maintaining a class action was preferable to other options.

However, the Supreme Court ultimately rejected that analysis as an overly narrow assessment having regard to the nature and limitations of the certification process.  Adopting the mathematical test would set the stage for future certification motions to be considered based on a detailed assessment of the merits, which the Supreme Court has repeatedly said is not appropriate for that stage.   The court held at para. 46 that “[w]ithout that [detailed] sort of examination, the most that can be done is to assess on the appropriately limited evidentiary record whether the access to justice barriers that may be addressed by a class proceeding remain even after the alternative process has run its course.”  In the end, the court held that although in assessing the comparative analysis, the representative plaintiff will necessarily have to show some basis in fact for concluding that a class action would be preferable to other litigation options, that “plaintiff cannot be expected to address every conceivable non-litigation option in order to establish that there is some basis in fact to think that a class action would be preferable.”  In such a situation, the evidentiary burden then shifts to the defendant who relies on a specific non-litigation alternative to raise it.

In assessing the access to justice question, the court considered first, the economic barrier arising from the nature of the claim – being effectively a series of small claims which individually are not large enough to support viable actions.  Access to justice requires access to a process that has the potential to provide in an economically feasible manner just compensation for the class members’ individual economic claims should they be established. The second barrier is that, as a result of the nature of the claim, “there is potentially no access to a fair process, geared towards protecting the rights of class members, to seek a resolution of the common issues for what could potentially be a class of over a million members. Thus, traditional litigation cannot achieve either the substantive or the procedural dimensions of access to justice in a case such as this.”

The court concluded that the proposed class action would address both substantive and procedural barriers, by making it economically and procedurally feasible to advance on behalf of the class a group of individual claims that would otherwise not be feasible to pursue individually.   Since the mutual fund dealers had not discharged their burden of proving the existence of a realistic alternative procedure for providing access to justice, the class action was certified.

 

Posted by Dan Parlow (posts) | Filed under Financial Transactions, Litigation and ADR | ....
Dan Parlow
Thursday, June 23rd, 2011    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

A seemingly counter-intuitive process has just come a bit closer to being the final law of Canada.

We often act for clients who are asserting or defending claims against multiple parties.  These can arise in a myriad of situations, for instance:

  • claims by purchasers of land may target the buyer’s lawyer and realtor as well as the vendor
  • developers’ construction claims may assert wrongdoing by contractors, subcontractors, engineers and architects
  • actions alleging securities misrepresentations may target the issuer, the issuer’s principals, and the underwriters

In most cases the various defendants will have very different legal positions and, just as importantly, the prospects of recovery against deep-pocketed or insured defendants will be drastically different than against others.

It only makes sense, therefore, that settlements between some, but not all, parties to the dispute should be explored by all parties.    For instance:

  • a defendant whose potential liability is minimal may wish to pay a relatively small sum early  to avoid being entangled in the morass of a lengthy dispute;
  • a plaintiff may find it advantageous to collect some money from one defendant to fund its claims against the others;
  • even where multiple defendants have similar prospects of liability, differences in personality or in the availability of funding may dictate completely different responses to the litigation.

Recently, the Ontario Court of Appeal ruled that settlements involving some but not all parties – sometimes called “Mary Carter agreements” – must be immediately disclosed to level the playing field between the remaining parties: Aecon Buildings, a Division of Aecon Construction Group Inc. v. Stephenson Engineering Limited (2010 ONCA 898, 328 D.L.R. (4th) 488)    There has been considerable buzz about this ruling and whether it will be applied in British Columbia.

Arguments in favour of immediate disclosure focus on the notion that a plaintiff shouldn’t recover more than the total amount of its losses and costs (except in rare cases involving punitive damages).  People also insist that if a defendant claims “over” against a third party, that party should know whether the defendant is truly fighting the primary claim or is whether its position is a mere fiction.

Consider, for example, the common scenario where a developer claims its prime contractor provided deficient building and the contractor claims that fault actually originated in misleading architectural plans and/or deficient structural steel of its subcontractor.     Even if – leaving aside the possible architect’s negligence – the owner recognizes the source of the deficient steel, it must claim against the party it has a direct contract with.     The contractor wishing to wash its hands of the dispute may pay a small sum upfront and pass on to the owner any recovery against the subcontractor.

Another scenario is that the owner and contractor may be related parties such that the owner’s shareholders will not, in reality, gain anything unless blame can be passed further down the line to the subcontractors.   In this case, it may be argued that the subcontractor should be entitled to be informed of any “sweetheart deal”.

On the other hand, to encourage settlements and minimize litigation there is a strong argument that disclosure of such settlements to remaining parties should not be required, at least until it is time to enter judgment.   One reason concerns secrecy – the settling defendant will almost always wish to protect its own name through a confidentiality clause; if secrecy cannot be assured it will often not be willing to settle.  Another argument is that commercial parties are best left to settle their own disputes in their own ways, without having the court as a big brother.  There is nothing stopping the remaining parties from asking whether there has been a settlement with some parties, and  at what price.

In my own experience, and in that of other litigators I have spoken with on this matter,  settlements of entire cases often follow after partial settlements are made, even if not yet disclosed.  The more  It follows that partial settlements should be encouraged on whatever terms, so long as there is no deceit or subterfuge involved.

It does not appear that the Supreme Court of Canada shares my view on this.  Today in an interim ruling on the Aecon appeal the court moved a step closer to endorsing the requirement for immediate disclosure: http://scc.lexum.org/en/2011/2011scc33/2011scc33.html .

Once this appeal is finally heard and judgment rendered, we will know whether the immediate disclosure principle applies in BC.  In the meantime, parties wishing to enter into “Mary Carter” settlements must beware.  Plaintiffs in particular must know that if they fail to immediately disclose such a settlement to the remaining parties to the dispute, they may well face a stay of the entire proceedings.   For this reason, confidential partial settlements are not currently part of the landscape in British Columbia.

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Dan Parlow
Friday, March 4th, 2011    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

The Supreme Court of Canada, in a recent decision favouring freedom of speech, has ruled against a claim that assumed injury to groups of people from inaccurate and hurtful comments intended to malign the group.

In Malhab v Diffusion Métromédia CMR, a radio show host radio host known for his provocative remarks made accusations concerning Montréal taxi drivers whose mother tongue is Arabic or Creole.  While commenting on the taxi industry in Montréal, he made accusations of uncleanliness, arrogance, incompetence, corruption and ignorance of official languages.  A member of these ethnic groups brought a class action on behalf of all affected groups.

The court noted that attacks on a person’s reputation can involve allegations of fact or merely offensive and insulting comments.  An affected person is only entitled to compensation if fault, injury and a causal connection are all present.

The court held that reconciling the rights of freedom of expression and the protection of reputation is a moving target.   As society evolves, intersection point between these two competing principles will change.

This case related to provable harm.  The court noted that while fault is determined by looking at the conduct of the person making the statement, injury is assessed by looking at the impact of that conduct on the victim, and liability for defamation can only be found where a connection exists between the fault and the injury.

Most importantly, in determining the existence of injury resulting from an insulting statement, the court can look only at objective factors, asking the question whether an ordinary person would believe that the remarks made, when viewed as a whole, brought discredit on the reputation of the victim?

Ultimately,  the court held that since the protection of reputation is an individual right that is intrinsically attached to the person, only those who have suffered personal injury can become entitled to compensation.  This contributes to maintaining the balance between freedom of expression and the right to the protection of reputation.

As a result, an individual will not be entitled to compensation solely because he or she is a member of a group about which offensive comments have been made.  The group members seeking compensation must establish that  they personally suffered damage to their reputations.  Simply being members of the maligned group is not sufficient unless the court can infer that an ordinary person would have believed that the wrongful and scornful comments made caused actual damage to the reputation of each member of the group.  In this case, there was no reasonable basis for inferring that the reputation of all taxi drivers working in Montréal whose mother tongue is Arabic or Creole had in fact been damaged.

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Dan Parlow
Tuesday, January 18th, 2011    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

On January 10, 2011, the British Columbia Securities Commission (the “Commission”) overturned the proxy solicitation process employed by the Mutual Fund Dealers Association of Canada (MFDA) in connection with a special meeting of its members.  It is a rare case in which the governance standards of a self-regulated organization were subjected to review by a higher authority, and ironic given the MFDA’s role as regulator of the operations, standards of practice and business conduct of its member-dealers.  The MFDA’s mandate is “to enhance investor protection and strengthen public confidence in the Canadian mutual fund industry.”

The case involved a proposal to alter MFDA’s by-laws respecting the length of terms of directorship (“Proposal”). BCSC panel directed the MFDA to cease improperly soliciting proxies regarding a pending and controversial vote.

The Proposal

The Proposal was written by a four-person task force including two sitting directors whose very continuation in office was contingent upon approval of the proposal, giving rise to an inherent appearance of self-interest.

Although the task force believed that the proposal was supported by a “significant majority” of its members, they worried that they were at risk of defeat by a minority of opposed members who could prevent approval if the attendance at the meeting was low.  To mitigate this risk, the MFDA contacted members and asked them their opinions about the proposal, and offered them the opportunity, in the event they could not be present, to provide a proxy in favour of an MFDA director supportive of the Proposal.  However, no alternate or non-director proxy was offered.

The conflict of interest was refuted by the MFDA saying they acted with the “sincere intention of encouraging member participation in an important process and with absolutely no intention of pressuring any member.   However, the Commission appeared to doubt this intention, noting the MFDA’s failure to contact known opponents to the proposal.

Managing the Potential Conflict

The Commission drew a clear distinction between the proxy solicitation process among corporations and regulators. A shareholder of a corporation is entitled to vote arbitrarily, motivated only by self-interest.   However, it was held that the very relationship between the MFDA and a member creates an “inherent and foreseeable” risk that the member may feel pressure to vote in favour of management-sponsored resolutions if MFDA directors are involved in the proxy solicitation process.

In holding that this process would have led an objective observer to question the integrity and credibility of the MFDA, the Commission directed that any proxy solicitation be conducted through independent proxy solicitation service providers. Further, the Commission directed that the MFDA board’s role should be limited to ensuring that this independent process is appropriate and is being followed; and directed that MFDA members’ votes be kept confidential from its officials.

MFDA as SRO

In its judgment, the Commission panel did praise the MFDA as an effective and credible regulator of mutual fund dealers generally, and emphasized that despite this finding on a narrow internal governance issue it was “not making any adverse findings about the MFDA’s overall integrity or credibility as” a self-regulatory organization.

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Dan Parlow
Friday, December 24th, 2010    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

Thanks to Richard Sehmer for his assistance with this article

On November 29, the British Columbia Court of Appeal released what may prove to be an important judgment on the adjustment of waterfront land boundaries as a result of either soil deposits or the ebbing of water adjacent to one’s property (“accretion”). The focus of this appeal, which is cited as Bryan’s Transfer Ltd. v. Trail (City), 2010 BCCA 531, was whether sections 94-96 of the Land Title Act, R.S.B.C. 1996, c. 250 constitutes an exclusive code regarding this issue.

The Surveyor General, under these sections, is charged with the overall responsibility for ensuring the integrity of the land survey system and the proper definitions of boundaries. The landowner, in this case, whose land had been altered by the flow of the Columbia River, submitted that the Province of British Columbia is not competent to empower the Surveyor General with the exclusive jurisdiction to determine legal questions relating to this issue.

The dispute arose after a dam was erected upstream on the river, and, as a result of the water subsiding, the land-owner’s adjacent property was extended. Further, the City (of Trail) announced that they were going to add to an existing water line and build a service road on this extended land.   After the landowner filed an accretion application pursuant to section 94(1)(c) of the Act, the Surveyor General expressed an opinion that there was no evidence of lawful accretion to his property.

The common law doctrine of accretion (as defined by Dickson J. in Re Chuckry and the Queen in Right of the Province of Manitoba, [1972] 3 W.W.R. 561 (Man. C.A.)) states that this “accreted” land is owned by the adjacent property owner.    In interpreting the statutory provisions relevant to accretion, Madame Justice Kirkpatrick, for the Court of Appeal, cited numerous authorities and concluded that if the legislature had intended to eclipse the common law, they would have done so expressly.

Since 2007, the land-owner has been attempting to sue the City for trespass and bar it from construction on ‘his’ accreted land. This decision will allow him to do pursue that claim.

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