Business groups decry ‘laxity’ in certifying class actions

The Canadian Chamber of Commerce is lamenting what it calls a “laxity” in certifying class actions in Canada, an issue it says is so significant that it threatens Canadian businesses.

The organization issued a joint statement with the U.S. Chamber Institute for Legal Reform last week in which they said “a tide” of class action lawsuits is a major concern for Canadian business.

“Canadian tribunals have reaffirmed their tradition of consistently lax class certification standards. In short, it is once again a relatively sure bet that a class proposed to a Canadian court will be certified in many areas, if properly framed and presented by plaintiffs’ counsel,” according to an analysis released jointly by the organizations.

The analysis cited a low threshold for certifying class actions in Canada. Many certified class actions go on to settle, which means certification essentially guarantees a win for the plaintiffs, according to the analysis.

The statement has incensed some members of the class action bar who say the current procedures are not only effective but they also provide a sole shot at justice to those who otherwise may not be able to afford it.

“This report from the Chamber of Commerce does not provide us with any way to help people get into courts in Ontario to determine if their rights have been violated,” says Siskinds LLP class action lawyer Daniel Bach.

Bach also says the analysis contains inaccuracies. “I honestly just think the Chamber of Commerce has not done its homework,” he says, citing, for example, a claim made by the chamber about the “minimal scrutiny” that goes into obtaining leave to pursue class actions under the Ontario Securities Act.

“That’s just not true,” says Bach.

“We have seen a number of cases fail the leave standard. . . . The leave test is working robustly,” he says.

Bach adds that to his knowledge, no case has gone through the leave hurdle unscathed. “In every case I’m aware of, the judge has looked at the case and cut cases down to make sure the core is getting through,” he says, calling the chamber’s statement an attempt to bring “American-style rhetoric” to Canadian litigation.

But Warren Everson, senior vice president of policy at the Canadian Chamber of Commerce, says the United States offers an example of what could happen if the legal system fails to control “excessive” class actions.

“This is an area where the presence of the Americans is interesting. They have a keen interest in this and their message to us over the last couple of years has been: ‘In America, we have a very, very sweeping problem with excessive class actions and Canada should be careful not to follow this,’” says Everson.

Everson also says lawyers have told the chamber it’s becoming easier to obtain class certification and “it’s very much true that if you get your class certified, you’re going to get some sort of settlement from the defence.”

The chamber says the issue is even worse in Quebec, which it calls “the most popular location for initiating class action.”

According to Montreal lawyer Eric Préfontaine, co-chairman of the class actions specialty group at Osler Hoskin & Harcourt LLP, Quebec courts had begun applying more scrutiny in certification motions between 2007 and 2011.
But he notes subsequent appeal decisions largely overturned the courts’ denials of certification.

“When you look at recent decisions by the Supreme Court, we see the trend is really that the interpretation of the provisions dealing with motions for authorization and class actions in general are to be interpreted basically very broadly,” says Préfontaine.

“The Supreme Court says the authorization is basically a filtering mechanism. But the filter, let’s [just] say the holes are too broad. So when you look at that, you know, I can certainly understand the defendants who are a little bit more concerned,” he adds.

Préfontaine suggests, however, that there’s a misconception on the part of defendants that certification of a class action will result in a favourable finding on the merits for the plaintiffs.

“Whenever there’s an authorization that’s granted, it becomes a file like any other file. What we see, however, is that the defendants would be more eager to settle because there’s already a decision granting authorization and they believe that their chances of success are not as good because of that,” says Préfontaine, noting that’s not the case, at least in principle.

In reality, when defendants believe they have a good position and decide to fight a class action, the courts don’t necessarily favour the plaintiffs, says Préfontaine, adding part of the burden of educating clients about the issue lies with the class action defence bar.

Another lawyer, Sharon Strosberg of Sutts Strosberg LLP, rejects the idea that certification results in immediate settlement.

“That’s nowhere close to reality,” she says.

“We’ve had a number of class actions that were certified on consent, but they haven’t automatically settled.
They’re all ongoing, so I reject that,” she adds, noting the purpose of certification isn’t to decide a case on the merits but to ensure it meets the procedural requirements.

If corporations have decided to settle a class action, it’s because they’ve determined it’s in their own best interest, according to Bach.

While access to justice is important, Everson says any lawyer or judge knows there are many frivolous and nuisance claims that come before the courts. The courts should be “careful not to certify excessively easily and ensure that a proper class exists before they certify,” he notes.

But Bach says there are proper barriers in place already to discourage those types of claims. “In Ontario, we have an adverse cost regime. People who fail the class certification stage, who fail at trial, are made to pay costs of the defendants, which has been highlighted by various law commissions as the reason why we don’t have non-meritorious class actions in Canada,” he says.

Yet according to the chamber’s analysis, the existence of third-party litigation funding has weakened the effect of an adverse cost system.

“The recent decisions approving particular [third-party funding] agreements, or approving of [such funding] in general, may diminish the salutary effect that ‘loser pays’ cost regimes in some Canadian provinces have had in deterring non-meritorious lawsuits, as plaintiffs and their attorneys turn to well-financed . . . companies willing to invest in litigation,” the analysis suggested.

Bach says the third-party litigation funding cases he’s aware of are securities-related claims. And those types of claims, he notes, haven’t risen in number.

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