Class actions: Supreme Court of Canada upholds the status quo over authorization criteria in Quebec
On October 30, the Supreme Court of Canada released its long-awaited decision in Desjardins Financial Services Firm Inc. v. Asselin1 (the “Asselin decision”). Ever since leave to appeal was granted in June 2019,2 practitioners and litigants have been kept in suspense, anticipating a potential amendment to the analytical framework of the criteria for authorization of a class action in Quebec.
However, far from liberalizing or restricting the interpretation and application of the authorization criteria in Article 575 of the Quebec Code of Civil Procedure (“CCP”), the Asselin decision maintains the status quo with respect to the legal framework for authorizing a class action in Quebec. The Court reiterated the position and the principles it developed in Infineon,3 Vivendi,4 and Oratoire Saint-Joseph,5 which form the jurisprudential basis for this critical procedural stage, without modifying the applicable law.
In 2011, the plaintiff moved to authorize a class action against the defendants with respect to principal-protected investment vehicles that, as a result of the 2008 financial crisis and the collapse of the asset-backed commercial paper (“ABCP”) market, did not ultimately generate any returns, though investors were able to recover the value of their original investment.
Alleging that the investment vehicles were offered to the public and presented to investors as providing an attractive return potential, the applicant contends that one of the defendants is contractually liable for making false representations because it failed to disclose the “risk” associated with the investment, and that the other defendant is extracontractually liable for designing flawed investment vehicles and for mismanaging the funds.
In 2016, the Superior Court dismissed the proposed class action having found no contractual relationship with one of the defendants, as well as insufficient allegations to justify a cause of action against it; and the implausibility of the proposed syllogism against the other in light of the allegations in the motion and not permitting to engage its extracontractual liability.6 Furthermore, since the proposed action is based on representations made at the time that the investment vehicles in dispute were being marketed, the authorization judge concluded that the assessment of such a cause of action does not lend itself to adjudication by way of a class action.
The Court of Appeal,7 in a much-publicized decision, overturned the Superior Court’s judgment and authorized the class action against the defendants.
In its decision, the Court of Appeal reaffirmed the flexible, liberal, and generous approach to the authorization conditions to facilitate access to justice, a class action being a vehicle for achieving the twin goals of deterrence and victim compensation. The Court also urged authorization judges to exercise caution when weighing evidence at the authorization stage and indicated that one must be able to “read between the lines” when considering allegations that are imperfect, but which true meaning is nonetheless clear.
The Court of Appeal concluded that the motion, when properly assessed and understood, alleges a generalized and systematic breach of the duty to inform in the sale of investment vehicles to all class members, giving rise to the contractual liability of one defendant, as well as the extracontractual liability of the other defendant with respect to the design and management of the investments in dispute. Accordingly, the defendants’ liability can be debated on a common basis and will depend on the merits of the case.
II. The decision of the Supreme Court of Canada
The majority of the Supreme Court of Canada, written by Justice Kasirer, upheld the authorization to institute the class action against the defendants on essentially the same grounds as those of the Quebec Court of Appeal.
The Asselin decision reaffirms the flexible, liberal, and generous approach to the authorization criteria in order to achieve the twin goals of deterrence and victim compensation and access to justice. The decision also reaffirms that the legal threshold for authorization to institute a class action in Quebec is a low one.
A. Reminders from the Asselin Decision
In keeping with the Court’s case law, and without modifying the interpretation and application of the authorization criteria under Article 575 CCP, the Asselin decision contains some useful reminders.
1. The standard for appellate intervention
From the outset, the majority opinion reiterates that a judgment dismissing a class action is entitled to deference on appeal, particularly because of the discretionary nature of authorization judges’ decisions.
However, if the motion judge errs in analyzing certain aspects of the authorization conditions, misunderstands the proposed legal syllogism, or assumes the role of arbiter of the facts, any of these may constitute a reviewable error warranting appellate intervention.
2. What it means to “read between the lines”
The Court of Appeal’s use of this expression, in this case, created considerable controversy. Refusing to see this as a change in the law or a loosening of authorization criteria, the majority opinion states that this figurative or metaphorical expression was intended as a warning against the excesses of literalism in the analysis of an application for authorization to institute a class action, and not an invitation to search for allegations that are missing from the application.
Without relieving the plaintiff of its burden of demonstration and without inventing wording not found in the pleadings, the following measures are appropriate for a motion judge to assess an application for authorization:
a) The judge may draw inferences or presumptions from the allegations in the application to establish the existence of an arguable case;
b) Conversely, no inference may be drawn in the complete absence of allegations, nor may the authorization judge add to the text or read into the application something that is not written therein; and
c) The applicant must advance facts that are specific enough to allow the legal syllogism to be considered, but it is not necessary to provide step-by-step details of the legal argument to be made in the submissions on the merits of the case.
Thus, the analytical approach at the authorization stage makes it possible to overlook certain defects of form in order to understand the “full message” of the allegations in the application, based on the wording therein.
3. Demonstration of an arguable case (Article 575(2) CCP)
As we know, the onus on the plaintiff at the authorization stage is simply to establish an “arguable case” in light of the facts and the applicable law.
At the authorization stage, pure questions of law may be resolved by the court if the outcome of the proposed action depends on its doing so.
Otherwise, when the cause of action is dependent on the assessment of facts, the authorization judge cannot rule on the merits of the conclusions in light of the alleged facts; the screening function is merely to ensure that frivolous or unsustainable claims are dismissed, so that the parties are not subjected to unnecessary litigation.
The corollary of this flexible approach is that the plaintiff does not have the burden of proving each element of the syllogism according to the usual civil standard. A class action may be authorized without evidence on a balance of probabilities, as long as it is supported by “some evidence.” In each case, to assess the sufficiency of the evidence and the allegations, an authorization judge must consider the particular features of the context and what would ultimately have to be proved at trial.
4. The existence of identical, similar, or related questions of law or fact (Article 575(1) CCP)
The case law calls for a flexible approach to the common interest that must exist among the class. It follows that the fact that the situation of all members of the class are not perfectly identical does not mean that commonality does not exist or is not uniform; a class action may be authorized as long as certain issues are common to all members of the group.
The majority opinion specifically reiterates that:
a) The threshold to establish the existence of common issues at the authorization stage is low;
b) Unlike other provinces, the CCP does not require common issues to predominate over individual issues. Rather, a single common issue is sufficient as long as it advances the litigation in a manner that is not insignificant; and
c) The issue must be common to the class members, but need not call for a common answer.
Thus, the fact that some individual issues remain and may need to be analyzed at the end of the class action is not an obstacle to satisfying this authorization criterion.
B. The outcome of the application in this case
Based on the principle that authorization to institute a class action must be granted once the four criteria of Article 575 CCP have been met, because the Court has no residual discretion to deny authorization on the ground that the action would not be the most appropriate procedural vehicle, and since any doubt must weigh in favour of continuing the proceedings, the Supreme Court of Canada has authorized the institution of the class action in this case.
Despite the criticisms levelled against the drafting of the motion, which was acknowledged to be lacking in elegance, and refusing to see in it a cause of action based on representations made individually to each class members at the time of their investment in the financial vehicles in dispute, the Court was satisfied that the motion was sufficient to establish an arguable case against the defendants, and that this case lends itself to adjudication by way of a class action, taking into account the legal framework relating to the causes of action and the substance of the allegations.
Thus, the defences available to the defendants relating to the adequacy of the information communicated to investors, the impact of the 2008 financial crisis on returns, and the scope of a judicial release with respect to the ABCP market and other markets will have to be debated and examined at trial.
C. Partial dissent
For her part, Justice Côté, whose reasons are supported by Justices Moldaver and Rowe, would have dismissed the authorization to institute a class action with respect to the alleged breach of the duty to inform by one of the defendants, and would have authorized the class action against the other defendant with respect to the alleged faults in the design and management of the investments, but only with respect to the claim for compensatory damages, excluding punitive damages.
Although in certain circumstances, a class action alleging breaches of the duty to inform by financial advisers may be possible, the allegations in the application were insufficient in this case. Since the analysis of the duty to inform would normally require an individual examination of each member’s particular circumstances, an allegation establishing the presence of a breach that is systemic in nature would have been required to satisfy the requirements of Article 575(1) CCP.
With respect to the alleged faults in the design and management of the investments by the other defendant, Justice Côté also confirmed the Court of Appeal’s decision that the four criteria of Article 575 CCP are met with respect to the claim for compensatory damages only.
Indeed, with respect to the claim for punitive damages, Justice Côté noted that an authorization judge may interpret a pure question of law at this stage if it does not require the analysis of evidence. From the perspective of judicial economy and proportionality, if the issue can be decided at this stage, it is not advisable to defer the matter to the trial on the merits. In the case at bar, the plan of arrangement for the restructuring of the ABCP market, approved by the courts, provided for a release in favour of several financial institutions, including the defendants. Contrary to the findings of the majority, Justice Côté concluded that the ABCP release could be construed without evidence being adduced at this stage, and therefore should have precluded any claim for punitive damages in this case.
As the Supreme Court of Canada rightly points out, the authorization to institute a class action is only a preliminary decision that can be modified during the trial and does not in any way prejudge the outcome of the litigation, nor does it prejudice the rights of the defendant.
Such is the case in Asselin, a decision rendered at the authorization stage of a class action and which content and comments are based on a low threshold of proof, derived from allegations that are considered generously and without considering the required evidence through the applicable burden for the actual determination of rights.
1 2020 SCC 30.
2 Desjardins Financial Services Firm Inc. v. Asselin, 2019 CanLII 58133 (SCC).
3 Infineon Technologies AG v. Option consommateurs, 2013 SCC 59.
4 Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1.
5 L’Oratoire Saint‑Joseph du Mont‑Royal v. J.J., 2019 SCC 35.
6 Asselin c. Fiducie Desjardins inc., 2016 QCCS 839.
7 Asselin c. Desjardins Cabinet de services financiers inc., 2017 QCCA 1673.