Action against Desjardins Financial Services Firm by investors can proceed
The threshold to certify class actions remains low in Quebec, the Supreme Court of Canada has found in ruling that a lawsuit by investors against mutual fund sellers and managers in that province can proceed.
In a 6/3 decision Desjardins Financial Services Firm Inc. v. Asselin, the Supreme Court allowed the appeal in part, limiting the scope of damages being sought. In upholding the Quebec Court of Appeal decision, the court narrowed the class action’s punitives claim.
The court noted that once the four conditions set out in art. 1003 of the former Code of Civil Procedure are met, a judge must authorize a class action. As well, she or he has no residual discretion to deny authorization on the pretext that a class action is not the most appropriate vehicle for the litigation. The authorizing judge’s role is to simply filter out frivolous claims.
“It's a very significant victory for investors, and class actions generally, from a plaintiff's perspective,” Bruce Johnston, counsel for the plaintiff respondent in the case, told Canadian Lawyer.
The decision “refers to the obligations of companies proposing investments,” said Johnston, a partner in Trudel Johnston & Lespérance in Montreal, and some of the court’s reasoning in the decision could be applicable to claims by investors outside Quebec.
The plaintiffs in the class “are alleging omission; by definition, omission can affect all members of a class without the need to inquire” into the specifics of each. “It may be that it will have some echo outside of Quebec.”
Today’s decision was also consistent with the majority reasoning in recent Supreme Court judgments on Quebec class actions, notably Infineon Technologies AG v. Option consommateurs, Vivendi Canada Inc. v. Dell’Aniello, and L’Oratoire Saint‑Joseph du Mont‑Royal v. J.J., which all confirmed a low threshold for authorization.
“It really reaffirms” those decisions, says Johnston; and the Quebec Court of Appeal decision in the case has already been cited over 100 times in Quebec case law, he says.
“The fact that the Supreme Court accepted to hear this case, there was speculation that state of law as expressed in Infineon, Vivendi, and St. Joseph was going to be modified. “The answer was no; the Court of Appeal has interpreted our line of cases correctly” in respect to certification, and finding that “if you allow the certification/authorization stage to get out of hand procedurally, you are creating delays which really should be dealt with at the merit stage.”
The representative class plaintiff and respondent, Ronald Asselin, was a long-time member of the financial cooperative Desjardins Group, which offers various financial services to investors. In 2005 and then in 2007, he purchased principal-protected term deposits from Caisse Desjardins that were not redeemable before maturity.
Following the economic crisis of 2008, Asselin was informed that although the principal was protected his investments would not yield any return and would continue not to be cashable until the end of the term. He later received a report that his deposits had yielded 0 per cent growth. In 2011 he filed an application for authorization of a class action against Desjardins Financial Services Firm Inc. on behalf of all persons holding the same types of products.
Asselin alleged that investors had not been informed of a specific risk that could affect their yield. He argued that the Firm was contractually liable to the members of the class action group for breaching its duty to inform, and alleged both direct and indirect fault. He also argued that the Firm’s Management was extracontractually liable to the group’s members for breaching its duties of competence with regard to design and management, resulting in a loss of all the assets allocated to the return.
Quebec’s Superior Court dismissed the motion to authorize the class action against the Firm and its Management, finding that Asselin had not shown that his proposed action in contractual liability against Firm and in extracontractual liability against Management met the condition of art. 1003(b) of the former Code of Civil Procedure of Quebec, namely that “the facts alleged seem to justify the conclusions sought.”
She also found there were no common questions as stipulated in art. 1003(a): “the recourses of the members raise identical, similar or related questions of law or fact.”
The Court of Appeal allowed Asselin’s appeal and authorized the class action against both Firm and Management.
In his reasons for the majority, Justice Nicholas Kasirer noted the “dual fault” of Desjardins: in failing to inform its own representatives of a specific risk in a product it was selling, and of the representatives then failing to inform investors.
“The proposed class action against [the Desjardins] Firm concerns … a contractual breach of its duty to inform that grounds both its direct liability, for its failure to provide information to its representatives, and its indirect liability, for the incomplete information provided by the representatives to the group’s members,” Justice Kasirer wrote.
“In both cases, the alleged omissions are systematic in nature. They do not depend on each client’s individual characteristics,” he wrote.
The “typical argument” presented against investor class actions is that one needs “to inquire of each individual what information they had, and how that factored into their decision,” Johnston says.
“The majority found that the omission by the defendant to inform its own people of the risks necessarily trickled down to each individual plaintiff. Also, the obligation to provide information is what’s called in civil law ‘an obligation of result.’ That means you have to do it, and if you don’t do it the court can presume that the plaintiff would not have contracted had they had the information they were entitled to. That’s a very significant point. And there’s a disagreement between the majority and dissent as to whether that’s available.”
Dissenting in part, Justice Suzanne Côté, with Justices Michael Moldaver and Russell Brown concurring, took “a much stricter view of what type of case can be authorized, or certified, as a class action,” said Johnston.
They would have would have refused authorization of the class action against the Firm but allowed it against the Management, for compensatory and not punitive damages.
The dissenting justices found that the only contract that could trigger the Firm’s contractual liability in this case was the contract between each client and the Firm by way of a representative; this was a contract for services, the sole purpose of which was providing financial advice. The nature of the relationship between client and financial advisor is highly individualized, and as such it would be impossible to find common questions so as to satisfy the requirements for class actions, the minority found.
The case will now be allowed to proceed on the merits, involving tens of thousands of people, he says.