Law Times

PAGE 8 FOCUS ON Should regulatory proceedings trump class actions? Class Actions Fischer ruling P BY JULIUS MELNITZER For Law Times rivate class actions and regulatory enforcement proceedings But to what extent, if any, should a successful Ontario Securities Commission enforcement proceed- ing trump the right of investors to sue the offenders for damages in a civil court? In January, the Ontario Court be powerful deterrents to unlawful behaviour. can both owing, and which the plaintiffs' expert estimates at $333 million." Unless the plaintiffs had were, the court determined, enti- tled to sue by way of class action in the civil courts. "It cannot be said that the OSC process is a pref- erable procedure for recovering damages it failed to recover in the first place, "achieved full or at the very least substantially full recovery, " they of Appeal addressed the issue in Fischer v. IG Investment Management Ltd. It ruled that capital markets participants who settle complaints with the OSC for less than the full value of investors' damages remain liable to class action lawsuits. The towards consolidating the role of class actions as a meaningful form of protection for investors. "This decision provides long- ruling goes a long way Court of Appeal. It upheld the Divisional Court' ruling but on different reason- ing while leaving little doubt that it wouldn't tolerate judicial con- structs that made it more difficult for plaintiffs to satisfy the test for preferable procedure. The ruling puts considerable CI and AIC appealed to the s " the court concluded. awaited crisp guidance to judges, lawyers, and corporations as to the critical role class actions play in providing for access to justice in the context of securities cases," says Joel Rochon of Rochon Genova LLP. He, along with colleagues Peter Jervis and Sakie Tambakos, represented the class. "Class actions will not be easily displaced by opaque procedures which provide no meaningful direct rights of participation to victims of corporate wrongdoing. market-timing scandal when the OSC com- menced proceedings against five mutual funds, IG Investment Management Ltd., Franklin Templeton Investments Corp., AGF Funds Inc., CI Mutual Funds Inc., and AIC Ltd., for failing to act in the public interest in relation to market-timing activ- ity in their dealings. The regulatory proceedings ended when Fischer arose in the wake of the 2004 " the funds agreed to pay $205 million to aggrieved investors. All of the settlements specified that they were without prejudice to the rights of investors to bring civil suits Fischer provides 'crisp guidance' on the role of class actions in ensuring access to justice, says Joel Rochon. against the mutual fund managers with respect to the same subject matter. Dennis Fischer and other representa- behaviour modification that underpinned Ontario' tive plaintiffs initiated the class action after the OSC proceedings ended. The plaintiffs sought to recover the difference between the OSC settlement and the hundreds of millions of additional dollars they main- tained were necessary to make full com- pensation to the investors. "The evidence we adduced estimated the total damages as close to $760 million, resulting in a shortfall of about $500 mil- lion," says Rochon. But Justice Paul Perell of the Ontario Court. "Our concern with Justice Perell' sion was his conclusion that the decision- making powers of the regulator trumped the role of the courts in large, complex securities cases and no matter what The plaintiff appealed to the Divisional s deci- s class action legislation. outcome of the regulatory proceedings was, the courts could not intervene further by certifying a class action," says Rochon. IG, Franklin, and AGF settled before the Superior Court of Justice refused to certify the case. Although the matter otherwise met the requirements for certification, he rea- soned, class proceedings weren't the prefer- able procedure to resolve the claims because the OSC process had provided the plaintiffs with access to justice and the settlement had satisfied the goals of deterrence and the court heard the appeal. CI and AIC remained as defendants. As the Divisional Court saw it, Perell had misconceived the purpose of the civil action. "It is necessary to recognize what this pressure on the remaining defen- dants to settle to avoid the cost of a lengthy and complex trial. "CI and AIC will probably set- April 16, 2012 • lAw Times than securities cases. It could affect virtu- ally any class action that follows regula- tory enforcement proceedings in which those who sustained losses have recovered damages. "Ontario's Class Proceedings Act tle, too, now because they don't seem to have much of a defence left," says lawyer Kirk Baert. However that may be, Fischer's impact applies to matters other requires that a class action be the preferable procedure for resolving a dispute before it can be certified, Toronto's Goodmans LLP. He, along with " says Benjamin Zarnett of colleagues Jessica Kimmel and Melanie Ouanounou, represented CI. "So arguably, Fischer could apply in any case where com- panies are holding up an alternative pro- cess, whether it' action is about," the appeal court wrote. "It is not about the $108 million in losses already recovered from these two defen- dants; it is about the losses over and above that amount that the plaintiffs allege are still voluntary one, as a preferable alternative to a class action." But defendants have filed an application for leave to appeal to the Supreme Court of Canada. At press time, Rochon was prepar- ing his responding materials. LT s a regulatory process or a stay tuned. The two remaining Heydary-1-LT_Apr2-12.indd 1 www.lawtimesnews.com 12-03-28 4:13 PM

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