Law Times

Law Times • sepTember 8, 2015 Page 11 www.lawtimesnews.com Split decision on certification raises eyebrows BY YAMRI TADDESE Law Times hen the Ontario Divisional Court released a split decision in June declining certification in a class action matter, the case quickly became the topic of water cooler chatter among the class action bar. Who was right? Was it the majority, which found the case lacked a sufficient connection to Ontario because only one of the class members resides in the province? Or did Justice Harriet Sachs get it right in her dissent when she pointed to the fact that the defendant operates in Ontario? No matter who a lawyer may agree with, the message is clear, says Craig Lockwood, a class ac- tion lawyer at Osler Hoskin & Harcourt LLP: Checking off the requirements for certification doesn't always mean the court will allow a matter to continue as a class action. "Just because you tick the box, it doesn't mean you get to move on to the next stage. You have to really satisfy the court that this is actually a viable class proceeding that should go ahead as a class proceeding in this ju- risdiction," says Lockwood. The majority, he notes, is say- ing: "'Look, you may be able to tick the boxes but, you know, in practical terms it doesn't make sense to have a class action heard in Canada.' I think this is a perfect example where techni- cally, all of the boxes probably could have been ticked . . . but I think the court is taking a more restrained and pragmatic ap- proach to it." The plaintiff in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP is one of 57 accredited inves- tors who allege they invested in an American corporation after relying on an accounting firm's audit of the company. The Toronto- and Montreal-based auditors found the corporation was "clean," according to the court. The investors, who then invested a total of $7,594,965, lost their money when it turned out the business in fact operated without financial control over what was an all-cash business and later shut down. Nine of the potential class members were looking to par- ticipate in the proposed class proceedings and had no ob- jection to the litigation going forward in Ontario, the court heard. But only one of the class members actually resides in this province. "Counsel for the plaintiff noted that this demonstrated that 20 per cent of the class was content that the action go for- ward as a class proceeding in Ontario," wrote Justice Thomas Lederer on the majority's behalf. "This is not an objective exercise, where 12 (or 20 per cent) would be enough but 11 (or 19 per cent) would not. This should be the result of a subjec- tive analysis taking into account all of the relevant factors." At the Superior Court, which denied certification, at the heart of the jurisdictional question was whether there was a suffi- cient connection to Ontario. "For the judge, the case is founded on the financing of an American corporation," wrote Lederer. "It concerns investors, not resident in Ontario, mak- ing substantial investments in American dollars in that corpo- ration. For counsel, the case is about an audit done in Ontario by an auditor whose business is located in Toronto and Mon- treal. The proposition is that, if the perspective of the judge is correct, there is no real and sub- stantial connection to Ontario but, if counsel is right, there is." The majority on the Divi- sional Court gave "a reluctant endorsement" to the judge's po- sition, according to Lockwood. Said Lederer: "The motion judge did not forget that this was an action against a Canadi- an-based accounting firm. He determined, looking at the facts as a whole, that this was not suf- ficient to demonstrate a real and substantial connection to On- tario. Deference would suggest that this finding should be left to stand." But in her dissent, Sachs begged to differ. "The proposed class action is an action against a firm of accountants that is resident in Ontario and actively carries on business here. Its only other office is in Montreal. It has no assets in the United States. The subject of the action is the audit work done in Ontario by this ac- counting firm. The partner who did the work is a partner in the firm's Toronto office," she wrote. "The proposed representa- tive plaintiff is a Toronto-based investment fund that is regis- tered in Manitoba. The invest- ment in question was made out of their Toronto office." If the plaintiff had proposed an action against the people who were in charge of arranging the financing for the American cor- poration, which had attached the accounting firm's review to its promotional material, Sachs said she would have agreed with the motion judge's assessment of the weak connection to Ontario. "However, this is not the ac- tion that the representative plaintiff is proposing to pursue," she wrote. "Its action is a claim against a firm of accountants that resides in Ontario and actively con- ducts business here in relation to an audit that the firm per- formed in Ontario. Conceived of in this way, it cannot be said FOCUS You're prepared for all the legal issues involved in your client's divorce – but what about all the financial aspects? Get the benefit of more than 30 years of accounting, valuation, and tax experience with Financial Principles of Family Law. 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W See Jurisdiction, page 12 The dissent is instructive to class action plaintiffs on how to structure their claims in order to proceed in Ontario, says Craig Lockwood.

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