Court File No. CV-12-9949-00CL

ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) BETWEEN :

IAN SANSOM, ROBERT LUKAS, JOHN MCNAB and ED DORR, the proposed representatives of all terminated employees and retirees of Shaw Canada L.P. under Rule 10 of the Rules of Civil Procedure Plaintiffs

- and -

SHAW CANADA L.P., THE SHAW GROUP INC., STONE AND WEBSTER CANADA HOLDING ONE (N.S.) ULC, STONE AND WEBSTER CANADA HOLDING TWO, INC., STONE AND WEBSTER HOLDING ONE, INC., STONE AND WEBSTER HOLDING TWO, INC., J.M. BERNHARD, JR., JAMES GLASS, HARVEY VIGNEAULT, THOS E. CAPPS, JAMES F. BARKER, DANIEL A. HOFFLER, ALBERT D. MCALISTER, DAVID W. HOYLE, STEVE ALLISON, CRAIG PIERCE, and MICHAEL J. MANCUSO Defendants

BOOK OF AUTHORITIES OF THE PLAINTIFFS (Motion for Certification and Approval of Settlement returnable October 9, 2013)

KOSKIE MINSKY LLP 20 Queen Street West, Suite 900 Toronto ON M5H 3R3

Andrew J. Hatnay LSUC#: 31885W Email: [email protected] Tel: 416-595-2083 Fax: 416-204-2827

Jonathan Bida LSUC#: 54211D Tel: 416-595-2072 Fax: 416-204-2907

James Harnum LSUC#: 31371C Email: [email protected] Tel: 416-542-6285 Fax: 416-204-2819

Counsel to the Plaintiffs TO: DUFF & PHELPS CANADA RESTRUCTURING INC. the trustee in bankruptcy of Shaw Canada L.P.

Bay Adelaide Centre 333 bay Street, 14th floor Toronto, ON M5H 2R2

Bobby Kofman Telephone: 416-932-6228 Fax: 416-932-6200 Email: [email protected]

David Sieradzki Telephone: 416-932-6030 Fax: 416-932-6200 Email: [email protected]

AND TO: TORYS LLP TD Centre, P.O. Box 270 79 Wellington Street West, Suite 3000 Toronto, ON M5K 1N2

David Bish Telephone: 416-865-7353 Fax: 416-865-7380 Email: [email protected]

Adam Slavens Telephone: 416-865-7333 Fax: 416-865-7380 Email: [email protected]

Lawyers for Duff & Phelps Canada Restructuring Inc., the trustee in bankruptcy of Shaw Canada L.P., Stone and Webster Canada Holding One (N.S.) ULC, Stone and Webster Canada Holding Two, Inc.

AND TO: OSLER, HOSKIN & HARCOURT LLP 1 First Canadian Place, P.O. Box 50 Toronto, ON M5X 1B8

Laura Fric Telephone: 416-862-5899 Fax: 416-862-6666 Email: [email protected]

Marc Wasserman Telephone: 416-862-4908 Fax: 416-862-6666 Email: [email protected]

Lawyers for The Shaw Group Inc., Shaw Energy and Chemicals Inc., Shaw Environmental Inc., Shaw Overseas (Far East) Ltd., Stone & Webster Inc., Stone and Webster Holding One, Inc., Stone and Webster Holding Two, Inc., Field Services Inc., and Chicago Bridge and Iron

AND TO: PRICEWATERHOUSECOOPERS INC. 1 Robert Speck Parkway, Suite 1100 Mississauga, ON L4Z 3M3

Sharon Carew Telephone: 905-949-7375 Fax: 905-949-7447 Email: [email protected]

Administrator of Shaw Canada Pension Plan

TABLE OF CONTENTS

TAB DESCRIPTION

1A. Bellefeuille v. Canadian Pacific Railway, 2010 ONSC 5499

1B. Bellefeuille v. Canadian Pacific Railway, 2011 ONSC 2648

2. Zaniewicz v. Zugnhui Haixi Corp., 2013 ONSC 2959

3. Gariepy v. Shell Oil Co., [2002] O.J. No. 4022 (S.C.J.)

4. Sa’d v. The Remington Group Inc., 2013 ONSC 1404

5. Isaacs v. Nortel Networks Corp., [2001] O.J. No. 4851 (S.C.J.)

6. Chapman v. Benefits Plan Administrators, 2013 ONSC 3318

7. National Trust Co. v. Smallhorn, [2007] O.J. No. 3825 (S.C.J.)

8. Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (C.A.)

9. McKenna v. Gammon Gold Inc., 2010 ONSC 1591

10. Hollick v. City of Toronto, [2001] 3 S.C.R. 158

11. Fulawka v. Bank of Nova Scotia, 2012 ONCA 443

12. McCarthy v. Canadian Red Cross Society [2001] O.J. No. 2474 (S.C.J.)

13. Dabbs v. Sun Life Assurance Co. of Canada, [1998] O.J. No. 2811 (Gen. Div.)

14. Brimner v. Via Rail Canada Inc. et al. (2000), 50 O.R. (3d) 114 (S.C.J.)

15. Zaniewicz v. Zungui Haixi Corp., 2013 ONSC 5490

16. Serhan (Trustee of) v. Johnson & Johnson, 2011 ONSC 128

17. MacKinnon v. Ontario Municipal Employees Retirement Board, 2012 ONSC 4450 Page 1 2010 CarswellOnt 10758, 2010 ONSC 5499, 201 A.C.W.S. (3d) 936

2010 CarswellOnt 10758, 2010 ONSC 5499, 201 A.C.W.S. (3d) 936

Bellefeuille v. Canadian Pacific Railway

James Bellefeuille and Liliane Bellefeuille, Plaintiffs and Canadian Pacific Railway Limited and Canadian pacific Railway Company, Defendants

Ontario Superior Court of Justice

Patricia Hennessy J.

Heard: April 12, 2010 Judgment: November 5, 2010 Docket: C-8347/04

Proceedings: additional reasons at Bellefeuille v. Canadian Pacific Railway (2011), 2011 ONSC 188, 2011 CarswellOnt 986 (Ont. S.C.J.); andrefused leave to appeal Bellefeuille v. Canadian Pacific Railway (2011), 2011 ONSC 2648, 2011 CarswellOnt 2832 (Ont. Div. Ct.)

Counsel: Kathleen Erin Cullin, for Plaintiffs

Stephen F. Rosenhek, Rosalind H. Cooper, for Defendants

Subject: Civil Practice and Procedure; Environmental; Public

Civil practice and procedure --- Parties — Representative or class proceedings under class proceedings legislation — Conduct of class proceeding — Application of rules of practice and procedure

Civil practice and procedure --- Limitation of actions — Principles — Practice and procedure — Pleadings — Amending writ or pleadings

Environmental law --- Liability for environmental harm — Practice and procedure — Class proceedings

Civil practice and procedure --- Parties — Representative or class proceedings under class proceedings legislation — Jurisdiction

Jurisdiction to amend pleadings under R. 26.01 of Rules of Civil Procedure to convert individual action into class proceeding — Plaintiffs owned property near defendant railway's property and used water treatment and distribution system built by railway in 1943 — Diesel spills contaminated soil on railway land and surrounding property — In 2000, railway announced decision to decommission water treatment system, and advised that

some property owners would be without source of potable water due to diesel spills affecting groundwater — Plaintiffs and 54 others brought individual actions in respect of separate pieces of land, claiming damages for environmental contamination against railway — Plaintiffs brought motion for leave to amend and convert action to class proceeding — Motion granted — Court had jurisdiction to grant amendment sought — Section 35 of Class Proceedings Act, 1992 (CPA) states that rules of court apply to class proceedings — Rule 26.01 states that court shall grant leave to amend pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or adjournment — Court may allow plaintiffs to amend pleadings to bring class proceeding where, on threshold analysis, purposes of class proceeding will be fulfilled by such amendment — On threshold analysis, present claim appeared to have essential elements of class action, being more than one person having claim for damages arising from environmental contamination and its sequelae — Proposed claim was made by geographically defined group of property owners and occupiers allegedly affected by defendants' acts — Plaintiffs claimed same causal link between damages and company's alleged conduct.

Civil practice and procedure --- Pleadings — Amendment — Miscellaneous

Plaintiffs owned property near defendant railway's property and used water treatment and distribution system built by railway in 1943 — Diesel fuel spills on railway property contaminated soil on railway land and surrounding property — In 2000, railway announced decision to decommission its water treatment and distribution system, and advised that some property owners would be without source of potable water due to diesel spills affecting groundwater — In 2004 and 2005, plaintiffs and 54 others brought individual actions in respect of separate pieces of land, claiming damages for environmental contamination against railway — In 2008, plaintiffs brought motion to amend statement of claim to convert action to class proceeding, and sought substantive amendments to define defining classes, re-framing claim to include allegation that railway's announcement in 2000 and act of ceasing to deliver water to properties adversely affected public confidence in water supply and caused class members to suffer diminution of property values — Motion granted — Amendment granted to title action proceeding under Class Proceedings Act, 1992 (CPA) — Proceeding with fifty-five actions outside of CPA when it remained available to plaintiffs, against same defendants for same damages arising from same set of facts, did not make legal or common sense — Substantive amendments sought by plaintiffs would be dealt with in certification process, which would necessarily review pleadings within statutory context absent on motion to amend in regular action — No amendment made at present stage was definitive, as definition of class was live issue on certification motion — For purposes of having statement of claim to begin certification process, proposed amendment to add paragraphs defining proposed classes and representative plaintiffs allowed — Amendment also allowed to incorporate paragraphs dealing with claim for diminished property values flowing from announcement and actions of defendants in 2000 — Court's final framing of common issues would be made on basis of complete record, which record was not before court on present motion to amend. Cases considered by Patricia Hennessy J.:

Boulanger v. Johnson & Johnson Corp. (2003), 2003 CarswellOnt 1405, 32 C.P.C. (5th) 203, 226 D.L.R. (4th) 747, 170 O.A.C. 333, 64 O.R. (3d) 208 (Ont. Div. Ct.) — considered

Cloud v. Canada (Attorney General) (2004), 2004 CarswellOnt 5026, 73 O.R. (3d) 401, 192 O.A.C. 239, 27 C.C.L.T. (3d) 50, [2005] 1 C.N.L.R. 8, 2 C.P.C. (6th) 199, 247 D.L.R. (4th) 667 (Ont. C.A.) — considered

Dorus v. Teck Corp. (2005), 2005 BCSC 886, 2005 CarswellBC 1436 (B.C. S.C. [In Chambers]) — considered

Egglestone v. Barker (2001), 2001 CarswellOnt 1508, 9 C.P.C. (5th) 304 (Ont. S.C.J.) — followed

Fedex Ground Package System Inc. v. Au (2008), 2008 CarswellBC 2842, 2008 BCSC 1800 (B.C. S.C. [In Chambers]) — considered

Gaudet v. Sister Servants of Mary Immaculate (2007), 2007 CarswellSask 117, 2007 SKQB 54, (sub nom. J.G. v. Sister Servants of Mary Immaculate) 294 Sask. R. 99 (Sask. Q.B.) — considered

Maurice v. Canada (Minister of Indian Affairs & Northern Development) (2004), 2004 CarswellNat 1016, 2004 FC 528, 2004 CarswellNat 2722, 2004 CF 528 (F.C.) — considered

Pearson v. Inco Ltd. (2002), 2002 CarswellOnt 2446, 33 C.P.C. (5th) 264 (Ont. S.C.J.) — followed

Pearson v. Inco Ltd. (2004), 2004 CarswellOnt 557, 6 C.E.L.R. (3d) 117, 183 O.A.C. 168, 44 C.P.C. (5th) 276 (Ont. Div. Ct.) — referred to

Pearson v. Inco Ltd. (2005), 2005 CarswellOnt 6598, 205 O.A.C. 30, 78 O.R. (3d) 641, 261 D.L.R. (4th) 629, 20 C.E.L.R. (3d) 258, 43 R.P.R. (4th) 43, 18 C.P.C. (6th) 77 (Ont. C.A.) — referred to

Rylands v. Fletcher (1866), L.R. 7 Ex. 265, 4 Hurl. & C. 263, [1861-73] All E.R. Rep. 1 (Eng. Exch.) — considered

Smith v. Inco Ltd. (2010), 76 C.C.L.T. (3d) 92, 2010 CarswellOnt 4735, 2010 ONSC 3790, 52 C.E.L.R. (3d) 74 (Ont. S.C.J.) — referred to

Stevenson Estate v. Bank of Montreal (2009), 342 Sask. R. 88, 2009 SKQB 371, 2009 CarswellSask 661 (Sask. Q.B.) — considered

Western Canadian Shopping Centres Inc. v. Dutton (2001), (sub nom. Western Canadian Shopping Centres Inc. v. Bennett Jones Verchere) 201 D.L.R. (4th) 385, [2002] 1 W.W.R. 1, 286 A.R. 201, 253 W.A.C. 201, 8 C.P.C. (5th) 1, 94 Alta. L.R. (3d) 1, 272 N.R. 135, 2001 SCC 46, 2001 CarswellAlta 884, 2001 Carswel- lAlta 885, [2001] 2 S.C.R. 534 (S.C.C.) — followed

Statutes considered:

Class Actions Act, S.S. 2001, c. C-12.01

Generally — referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6

Generally — referred to

s. 2(1) — considered

s. 3 — considered

s. 7 — considered

s. 35 — considered

Courts of Justice Act, R.S.O. 1990, c. C.43

s. 66 — considered

Limitations Act, R.S.O. 1990, c. L.15

Generally — referred to

s. 45(1)(g) — considered

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

Generally — referred to

R. 1.04 — considered

R. 26.01 — considered

MOTION by plaintiffs to amend and file statement of claim seeking relief under Class Proceedings Act, 1992.

Patricia Hennessy J.:

1 The plaintiffs bring this motion, seeking to amend their statement of claim and seeking permission to file a fresh as amended statement of claim, in which relief is sought under the Class Proceedings Act, S.O. 1992, c. 6 ("CPA").

A. Facts

2 The plaintiffs are owners of residential and commercial property in Cartier, Ontario.

3 Canadian Pacific Railway Limited and Canadian Pacific Railway Company (together, "CPR"), the respondents on this motion and defendants in the main action, own property in Cartier that they have used as a rail yard and, specifically, as a locomotive fuelling and maintenance facility, from 1950 until 1981 (the "CPR property").

4 It is common ground that unintended leaks and spills of diesel fuel occurred on the CPR property between 1950 and 1981 and that, as a result, there is petroleum hydrocarbon soil contamination on part of the CPR and surrounding property.

5 In 1943, the defendants built a water treatment plant in Cartier to service water to CPR-owned employee residences and other CPR facilities. The water was chlorinated and regularly tested. As of October 2000, 35 private properties and the fire station were connected to the CPR water treatment system.

6 In 1995, the defendants' investigations revealed that properties up gradient from the CPR property were not affected by groundwater contamination.

7 In 1999, the defendants commenced sampling the groundwater outside of the CPR property, in the down gradient areas known to be affected by the contamination. The object of these investigations was to establish a

"footprint" of the contamination, as beyond the boundaries of the CPR property.

8 On October 20, 2000, CPR issued a press release announcing its decision to decommission the water treatment and distribution system in Cartier by the end of 2001. The release also advised that some property owners would be without a source of potable water due to diesel fuel releases that were affecting the groundwater below their land. The CPR offered financial assistance to these property owners.

9 Plans to purchase and demolish the houses in the affected area were discussed by the defendants as early as 1999, when they were exploring the option of decommissioning the water treatment facility. Between 2000 and 2002 the defendants purchased 19 homes in the affected zone and demolished them.

10 On October 26, 2000, a well-attended community meeting was held. During the meeting, the participants discussed the disclosure of contamination in Cartier by CPR, the decommissioning of the CPR water system, the installation of wells on affected properties, and the purchase of properties in the area affected by contamination.

11 The media widely supported the plan to purchase and demolish houses in Cartier. The moving parties admit that all residents and property owners in Cartier knew, or ought to have known, the facts relevant to any cause of action relating to contamination by early December 2000, at the very latest.

12 Many of the property owners whose properties were bought by CPR relocated within Cartier. The defendants advised the remaining property owners connected to the CPR water system that they could have wells dug at the defendants' cost.

13 CPR offered to arrange and pay for the drilling and installation of private water wells to the property owners who had been receiving water through the CPR water system. CPR also offered to subsequently test and confirm the potability of water from these private wells. In the end, 14 property owners, including the community centre and the fire station, accepted this offer.

B. Background to this Motion

14 Between September 2004 and March 2005, the Bellefeuille and 54 other actions were commenced by statements of claim in individual actions, each in respect of a separate piece of residential or commercial real estate in Cartier claiming damages for environmental contamination against the defendants. In February 2006, CPR served statements of defence in each of the 55 actions.

15 All of the plaintiffs in the individual actions were represented by Ms. Cullin of the law offices of Wall- bridge, Wallbridge. The plaintiffs submitted that prior to issuing the claims; they considered the possibility of proceeding as a class action. However, they decided against a class proceeding because Nordheimer J.'s decision in Pearson v. Inco Ltd. (2002), 33 C.P.C. (5th) 264 (Ont. S.C.J.) (".Pearson"), refusing to certify an environmental damage claim as a class action, indicated that the law at that time did not favour a class action. Although this decision was upheld by the Divisional Court in Pearson v. Inco Ltd. (2004), 44 C.P.C. (5th) 276 (Ont. Div. Ct.), it was overturned (and the action certified) by the Court of Appeal in 2005: see Pearson v. Inco Ltd. (2005), 18 C.P.C. (6th) 77 (Ont. C.A.) (".Pearson, (C.A.)")

16 In 2008, the plaintiffs brought this motion to amend, seeking to convert the Bellefeuille action to a class proceeding.

17 The proposed fresh as amended statement of claim is structured as a class proceeding with all of the ele-

ments of a class proceeding, including the definition of classes, the naming of representative plaintiffs and the pleading of damages on a class basis.

18 In addition, the plaintiffs seek orders under the CPA for certification. It was agreed that the motion to amend be heard first and that any motion for certification be heard separately if the motion to amend was successful.

19 CPR argues that there are significant differences between the original and the proposed amended statement of claim. In particular, the CPR submits that the plaintiffs originally claimed for general damages arising from damage to property and negative health effects associated with contamination of their properties. The statement of claim also claimed that property values had decreased as a result of the contamination. In the amended pleadings, the plaintiffs claim for compensatory damages for the diminution in their property values, resulting from the defendants' announcement and act of decommissioning the CPR water system. Under the amended claim, the proposed class includes 150 current and former property owners/occupiers who have been affected economically by this announcement and act.

C. Issues

20 Does the court have the power to grant leave to amend pleadings under Rule 26.01 of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, so that one or more single actions commenced as individual actions are converted into an action under the CPA?

21 Has the applicable limitation period expired, in respect of either the original claim or the amended claim?

22 If the court has the power to grant leave as described above, has the moving party met the test for the amendment?

D. Conversion to a Class Action

D.1 Jurisdiction

23 The respondents submit that this court does not have the jurisdiction to grant such an amendment.

24 There is very little reported case law in which courts have been faced with a plaintiff seeking to amend their statement of claim in an individual action to convert it to a class action. Courts in the following cases have dealt in some way with the issue of amending an individual pleading to convert it to a class action: Stevenson Estate v. Bank of Montreal (2009), 342 Sask. R. 88 (Sask. Q.B.) ("Stevenson."), Maurice v. Canada (Minister of Indian Affairs & Northern Development), [2004] F.C.J. No. 670 (F.C.) (".Maurice"), Dorus v. Teck Corp., [2005] B.C.J. No. 1339 (B.C. S.C. [In Chambers]) (".Dorus"), Gaudet v. Sister Servants of Mary Immaculate (2007), 294 Sask. R. 99 (Sask. Q.B.) (".Gaudet"), and Fedex Ground Package System Inc. v. Au, 2008 BCSC 1800 (B.C. S.C. [In Chambers]) (".Fedex"). None of these cases dealt squarely or discreetly with the question of jurisdiction of the court to make the amendment.

25 In Stevenson, supra, the plaintiffs applied to amend the statement of claim seeking to proceed under The Class Actions Act, S.S. 2001, c. C-12.01. In this case, Currie J., at para. 72, did not allow the pleadings to be amended because it would unduly delay and complicate the trial, and it would be inequitable to the defendants. It should be noted, however, that the court did not state that this was an impossibility. Rather, at para. 57, the

court held:

[I]n [The Class Actions Act] the legislature has made the commencement of an action under the Act as accessible as possible. A plaintiff need only state in the statement of claim that the action is so commenced. From this ease of accessibility I infer that the legislature did not intend a barrier between a plaintiff and the opportunity to apply for certification of an action as a class action.

26 In Maurice, supra, the plaintiffs brought a motion seeking leave to amend their statement of claim and to convert their existing action into a class action. Hugessen J. noted, at para. 3, "the proposed amendments are vast in scope and constitute a complete re-making of the original action so as to change it almost beyond recognition."

27 In Dorus, supra, the plaintiff asked that his amended statement of claim be converted into a class proceeding. In denying this application, Wong J. held, at para. 7, "to accede to converting this to a class action would merely complicate and delay it even more, aside from the concern of unfairness to the defendants." In coming to this conclusion, Wong J. considered that the litigation in question was five years old, and that, "in light of the history of the matter, this action should proceed in an expeditious matter" (at para. 6).

28 In Gaudet, supra, the Saskatchewan Queen's Bench did grant the amendment permitting an individual action be converted into a class action, again however, without dealing with the question of jurisdiction. In Gaudet, the action was originally started by four plaintiffs against three defendants. In the course of the action, six other plaintiffs individually commenced actions against the same defendants. The original plaintiffs brought a motion "to amend their pleadings to enable them to seek certification of a class action pursuant to The Class Actions Act" (at para. 17). The court granted the motion, holding that the reasons for the amendment were valid, and the "proposed amendments are necessary to determine the real questions in issue" (at para. 20).

29 The courts in the above cases dealt with the motion to amend to convert to a class proceeding on the merits of the amendment issue. The courts did not question whether or not such an amendment was possible under the relevant class action statute, nor did any of the parties appear to argue this point. The factors of fairness and prejudice were central to the analysis of each court.

30 Generally speaking, the courts in the above cases made an assessment of the prima facie merits of the proposed amended claims and whether or not such an amendment would meet the standard required by the relevant court's rules for amending pleadings. This included an assessment of the prejudice the defendant would suffer if the court granted the amendment and converted the individual action to a class action. There is no Ontario jurisprudence on the issue of jurisdiction to convert an individual action to a class proceeding.

31 Section 3 of the CPA allows a defendant to move to convert an action to a class proceeding at any stage of the proceedings. The plaintiffs submit that, in the absence of a clear prohibition on a plaintiff's right to convert an individual action to a class proceeding, the court has the power to make the order by analogy to s. 3. They further argue that the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, apply to class proceedings. As such, Rule 1.04 requires the court to interpret and apply the CPA liberally, with a view to achieving the just, most expeditious, and least expensive determination. I take this to mean that a multiplicity of proceedings should be avoided if there is another way to proceed that does not prejudice a party.

32 Section 2(1) of the CPA states that "one or more members of a class of persons may commence a proceeding in the court on behalf of the members of the class." Section 35 of the CPA states that "the rules of court

apply to class proceedings." Section 66 of the Courts of Justice Act, R.S.O. 1990, c. 43, provides for the making of the rules of court, which are the Rules of Civil Procedure. Macdonald J., for the Ontario Divisional Court, interpreted s. 35 of the CPA in Boulanger v. Johnson & Johnson Corp. (2003), 64 O.R. (3d) 208 (Ont. Div. Ct.), at para. 38, and held:

In my view, having considered s. 35 of the CPA and s. 66(3) of the CJA together, the legislature intended that the rules of court (known as the Rules of Civil Procedure...) should "supplement" the provisions of the CPA "in respect of practice and procedure", but without conflicting with the purpose for which the CPA was enacted.

33 In 1982, the Ontario Law Reform Commission published a report on class actions, recommending legislative reform to permit class actions in Ontario (see Ontario Ministry of the Attorney General, Ontario. Law Re- form Commission, Report on Class Actions (Toronto: Queen's Printer, 1982)). The Report on Class Actions noted three primary objectives of class proceedings legislation: judicial economy, increased access to the courts, and modification of the behaviour of actual or potential wrongdoers (Michael A. Eizenga et al., Class Actions Law and Practice, 2d ed. (Markham: LexisNexis Canada Inc., 2009), at para. 1.5). In Western Canadian Shop- ping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534 (S.C.C.), the Supreme Court of Canada summarized the purposes of class actions at paras. 27-29:

27 Class actions offer three important advantages over a multiplicity of individual suits. First, by aggregating similar individual actions, class actions serve judicial economy by avoiding unnecessary duplication in fact-finding and legal analysis. The efficiencies thus generated free judicial resources that can be directed at resolving other conflicts, and can also reduce the costs of litigation both for plaintiffs (who can share litigation costs) and for defendants (who need litigate the disputed issue only once, rather than numerous times) (citations omitted).

28 Second, by allowing fixed litigation costs to be divided over a large number of plaintiffs, class actions improve access to justice by making economical the prosecution of claims that would otherwise be too costly to prosecute individually. Without class actions, the doors of justice remain closed to some plaintiffs, however strong their legal claims. Sharing costs ensures that injuries are not left unremedied (citations omitted).

29 Third, class actions serve efficiency and justice by ensuring that actual and potential wrongdoers do not ignore their obligations to the public. Without class actions, those who cause widespread but individually minimal harm might not take into account the full costs of their conduct, because for any one plaintiff the expense of bringing suit would far exceed the likely recovery. Cost-sharing decreases the expense of pursuing legal recourse and accordingly deters potential defendants who might otherwise assume that minor wrongs would not result in litigation (citations omitted).

34 The flexibility to move between class proceedings and individual actions is also indicated by s. 7 of the CPA. This section allows the court to permit a class proceeding that fails certification to "continue as one or more proceedings between different parties and, for the purpose, the court may, (a) order the addition, deletion or substitution of parties; (b) order the amendment of the pleadings or notice of application; and (c) make any further order that it considers appropriate."

35 Rule 1.04 requires that the rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

36 Rule 26.01 states that the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

37 Reading these provisions together it is clear that the legislature has intended that all civil actions be managed in an efficient, economical, and effective way, with a view to ensuring that form does not trump substance so long as procedural fairness can be accorded to the parties. Additionally, the legislature specifically created a specialized proceeding to deal with claims that would otherwise entail unnecessary duplication, inefficient use of effort and resources and consequently act as a barrier to the legal process rather than ensuring access to it. The court should therefore look very carefully at any jurisdictional argument designed to prevent access to the CPA.

38 There is no explicit prohibition against converting a single action to a class proceeding by way of an amendment. Nor is there a policy reason for such a prohibition. Taking into account that the Rules are to be interpreted in harmony with the purposes of class proceedings, I am not convinced that there is any bar to amending an individual action so that it may become a proceeding under the CPA. Therefore the court may allow plaintiffs to amend their pleadings in order to bring a class proceeding, where on a threshold analysis, the purposes of a class proceeding will be fulfilled by such amendment.

39 On a threshold analysis, this claim appears to have the essential elements of a class action, being more than one person having a claim for damages arising from environmental contamination and its sequelae. The proposed claim is made by a geographically defined group of property owners, occupiers and business owners allegedly affected by the acts of the defendants. The plaintiffs claim the same causal link between their damages and the alleged conduct of the company.

40 Therefore, I find that on the preliminary question of whether the court has jurisdiction to make the requested amendment, the answer is yes.

D.2 Test for Amendment to Convert to Class Proceeding

41 Having found that this court may grant an amendment to an individual action, converting it to a class action, the next question is whether the court should grant the amendment to convert the Bellefeuille action into a class proceeding? Rule 26.01 provides that amendments shall be granted on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

42 The CPR submits that it would be prejudiced in an irreparable fashion if the amendment were made. They claim the following prejudice and unfairness:

• They are denied the opportunity to deal with the claimants on an individual basis with the view to effecting individual settlements

• The CPA confers substantial bargaining power on the representative plaintiffs and class counsel

• They have filed a statement of defence which they would not ordinarily have been required to do prior to a certification motion

• The lateness of the motion and the delay caused to the action

43 The first two points essentially identify statutory features of a class proceeding that apply to all parties.

On a certification motion, a judge will determine whether for statutory reasons, any proceeding should proceed under the CPA. If a case is certified, the CPA provisions with respect to settlement apply. All defendants in class proceedings have the same limitations. I do not find this to be a 'prejudice' as contemplated by the Rule.

44 With respect to the statement of defence, the defendants do not identify any particular paragraph that causes them prejudice. They argue that they would not have filed a statement of defence prior to the certification of the action had the plaintiffs originally commenced a class proceeding. In the statement of defence filed in this individual action, the CPR admits only its corporate description and sets out other facts that were agreed for the purposes of this motion. The salient facts in this case are not in dispute. The balance of the statement of defence denies strict liability for the release of contaminants, denies causing nuisance, denies that the property values have diminished, and denies that the plaintiffs have suffered any damages, including damages for clean-up. There is nothing in the statement of defence, either identified by the defendants or obvious on its face that would prejudice the defendants. The plaintiffs did bring this motion quite late and did not proceed with it expeditiously. The defendants did not take any steps to push the matter along nor did they identify any prejudice arising from the delay.

45 What is the alternative? Fifty-five actions, against the same defendants for the same damages arising from the same set of facts. The Court would be required to case manage the actions to come up with means for avoiding unnecessary duplication of fact-finding and legal analysis and the risk of inconsistent results. The parties and the court would be faced with identifying common issues potentially through a test case or a range of test cases. A structure would have to be established so that the decisions in the test cases bind all of the other plaintiffs, At each stage of this case management, counsel would require 55 sets of instructions or consent. If CPR succeeds in their jurisdictional argument, these decisions would have to be made without the help of the CPA, a statute that was set up specifically to deal with these issues. Proceeding with these actions outside of the CPA when it remains available to the plaintiffs does not make legal or common sense.

46 The amendment to title this action a proceeding under the CPA is granted.

47 The defendants have incurred the costs of preparing the statements of defence to each action and they should be compensated for any costs thrown away. Only the work that would not otherwise be required to defend the class proceeding should be claimed as costs.

E. Proposed Substantive Amendments

48 In addition to the requested amendment to convert the single action to a class proceeding, the plaintiffs request substantive amendments, adding paragraphs defining the proposed classes and re-framing their claim. Both of these matters will be dealt with in the certification process which will necessarily review the pleadings within the statutory context that is absent on a motion to amend in a regular action.

E.1 Reframing the Claim

49 The original claim pleads negligent conduct on the part of the defendants leading to soil contamination, which in turn led to property damage, injury to the health of the plaintiffs and diminution of property values. The statement of claim included allegations of negligence, negligent misrepresentation, nuisance and strict liability claiming general damages, including damages for diminution of value, special damages for clean-up of property, and punitive damages.

50 The new claim repeats the allegations of negligence, nuisance, negligent misrepresentation, and strict liability with respect to the escape of contaminants onto the plaintiffs' properties. In addition, the new claim includes an allegation that the October 2000 announcement and act of ceasing to deliver water to the properties adversely affected public confidence in the water supply and caused the proposed class to suffer a diminution of property values. The proposed amendment claims compensatory damages arising from the adverse effect on public confidence and subsequent diminution of property values. The following paragraphs in the proposed amendment make these new allegations:

[16] The Class Members state, by ceasing to deliver potable water to properties In Cartier, the Defendants undermined and adversely affected public confidence in the safety of the water supply in Cartier. The Class Members state that, in doing so, the Class Members have suffered and will continue to suffer a diminution in the value of their premises.

51 And with respect to the public meeting on October 6, 2000, they plead:

[17] ...The Class Members state that this public announcement was the first acknowledgment and confirmation to the public at large by the Defendants that they had permitted contaminants to escape from their property to properties in Cartier. The Class Members state that this public acknowledgment and confirmation resulted in a diminution of the property values in Cartier. In the proposed amended statement of claim, the plaintiffs no longer seek general damages for damage to property or injury to health. They seek only compensatory damages for the alleged diminution of property values and the damage to the property.

E.2 Proposed Class

52 The proposed class includes 150 former and current owners/occupiers of land and business owners in the area who have been affected economically by the acts of CPR in October 2000. Some members of the proposed class may be owners or occupiers of land that was not contaminated.

E.3 Discussion

53 The defendants argue strenuously that neither of these amendments should be granted as they constitute claims or parties added outside the limitation period.

54 With respect to the proposed amendment, the plaintiffs and the defendants agree that the limitation period began to run only when the diminution of the property values occurred, at the latest on or after October 26, 2000. This is the date the defendants announced that they were decommissioning the water plant in Cartier. The plaintiffs allege that this announcement, coupled with the defendants' concurrent public acknowledgment that they had caused environmental contamination in Cartier, caused a loss of confidence in the safety of the water supply in Cartier.

55 It is common ground that the limitation period in this case is six years from the time the cause of action arose (Limitations Act, R.S.O. 1990, c. L. 15, s. 45(1)(g)). Given that it is agreed that the limitation period began to run on October 26, 2000, the plaintiffs concede that the limitation period with respect to the claim for diminution of property values ended on October 26, 2006.

56 The 55 original claims were all served within the limitation period. The limitations issue is raised with respect to the alleged new cause of action and the additional plaintiffs.

57 As I see it, there is no Limitations Act issue with respect to the proposed amendment to convert this action to a class proceeding. The Bellefeuille action was commenced within the limitation period. The amendment seeking to proceed under the CPA is simply a procedural change. Any limitations issues that arise, arise only in the context of the definition of the class and the claim made in proposed paras. 16 and 17 and these matters are best dealt with in the certification process.

58 The decision in Egglestone v. Barker (2001), 9 C.P.C. (5th) 304 (Ont. S.C.J.) (".Egglestone") is instructive in this regard. In Egglestone, Cumming J. was faced with a motion to add a co-representative plaintiff in a proposed class action. This was opposed on the basis that the limitation period for the proposed co- representative plaintiff's claim had clapsed (at para. 12). In allowing the amendment, Cumming J. held that, while the limitations issue was live "in respect of any or all putative class members," it was not live on the motion, which was "merely a procedural step within the context of a procedural statute, the CPA" (at para. 14). For greater certainty, Cumming J. noted, at para. 21:

[21] [T]he Crown is free to raise the limitation of action issue in respect of any putative class member in its statement of defence, with that issue to be dealt with by the court with the necessary and proper record.

59 It is important to note that no amendment made at this stage is definitive, inasmuch as the definition of class is a live issue on the certification motion. This means, among other things, that the proposed class would be the subject of judicial analysis prior to the certification motion. The defendants are free to argue all issues with respect to the definition of the class or classes, including Limitation Act issues.

60 For the purposes of having a statement of claim to begin the certification process, I will allow the proposed amendment to add the paragraphs defining the proposed classes and the representative plaintiffs. It is ax- iomatic that this ruling does not bind the court hearing the certification motion with respect to the definition of the class. The amendment is granted solely for the purpose of permitting the plaintiffs a new pleading to enter into the certification process.

61 With respect to proposed paras. 16 and 17, the defendants argue that the plaintiffs are attempting to include a new cause of action after the expiry of the limitation period. The defendants call this a claim for "stigma" damages and describe the claim as unprecedented.

62 The Pearson, supra, case is instructive in this regard.

63 The plaintiffs submit that, but for Nordheimer J.'s decision to refuse certification in 2002, upheld by the Divisional Court in 2004, they would have commenced this action from the outset as a class proceeding. The plaintiffs point out that the claim in Pearson is a land contamination case, from airborne particles, in which property damages were originally sought on the basis of negligence. The Court of Appeal subsequently certified the action, largely because the plaintiffs had substantially narrowed the claim, but also because the legal landscape had changed with the Court of Appeal's decision in Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (Ont. C.A.); see Pearson, (C.A.), supra, at para. 44.

64 The plaintiffs here are in a similar position as the plaintiffs in Pearson (renamed Smith v. Inco Ltd., [2010] O.J. No. 2864 (Ont. S.C.J.) (".Smith") at trial). The plaintiffs in Pearson initially claimed damages for adverse health effects suffered and actual property damage from the environmental contamination according to the doctrine in Rylands v. Fletcher [(1866), 4 Hurl. & C. 263 (Eng. Exch.)] and on the basis of alleged negligence. That claim was not certified.

65 By the time the Pearson plaintiffs arrived at the Court of Appeal, their "theory of liability had evolved in an attempt to make the action more amenable to certification" (Pearson, (C.A.), supra, at para. 51). At the Court of Appeal, Pearson restricted the claim to the negative effect that Inco's conduct had on the values of the class members' properties. The defendants Inco argued that the theory that there was a connection between the 2000 MOE announcement of elevated nickel contamination and property values was advanced for the first time at the Court of Appeal, and that this theory had not been pleaded in the statement of claim.

66 The Court of Appeal examined the claim set out in the pleadings:

24. The ongoing discharge of contaminants (including known carcinogens) and other activities at the Re- finery, and the failure of the defendants to take proper or appropriate steps to prevent or minimize the effects of these contaminants and activities, has resulted in (but is not limited to) the following types of losses or injuries to property;

(b) loss of value of property owned, occupied or used by Class Members, including the complete devalu- ation of certain properties, and loss of the ability to sell, finance or mortgage numerous properties.

67 The Court of Appeal found that the above pleading was sufficient to cover the "newly evolved" theory of loss, i.e., a connection between the announcement and the diminution of property values. The court held, at para 52, "the appellant was only required to plead the facts upon which he relies, not the evidence, such as the 2000 announcement by the Ministry. There is no question that there is a conflict in the evidence about whether the 2000 MOE announcement did have an effect on property values ... That is an issue for trial."

68 Ultimately the Pearson, aka Smith case proceeded on the claim for damages arising from the diminution of property values. The plaintiffs here are proposing to amend this claim in a similar way, focusing on the question of economic loss, and claiming damages for the diminution of property values resulting from the CPR announcement that they would buy up properties and cease water distribution.

69 In Pearson, the Court of Appeal has found that an original claim for damages under the principle of Ry- lands v. Fletcher or negligence resulting in soil contamination can evolve into a claim for economic loss for diminished property values. Whether these are called stigma damages or not, they are not unprecedented and they do not constitute an entirely new cause of action. As such, the limitation issue raised as an objection to this proposed amendment is severely weakened.

70 I will allow the amendment to incorporate the paragraphs dealing with a claim for diminished property values flowing from the announcement and actions of the defendants in October 2000.

71 The framing of common issues will be one of the central features of the certification proceedings which; among other things, permits wide ranging examinations by the parties. The court's final framing of the common issues will be made on the basis of a complete record, which record is not before the court on this motion to amend.

F. Costs

72 If the parties cannot agree on costs, they may make written submissions within 21 days of the release of this decision. Submissions should be no longer than 3 pages, exclusive of a bill of costs. Reply submissions must be filed within 35 days after the decision. Submissions shall be filed with the Sudbury Trial Coordinator.

Motion granted.

END OF DOCUMENT

Case Name: Bellefeuille v. Canadian Pacific Railway Ltd.

RE: James Bellefeuille and Lillian Bellefeuille, Plaintiffs (Respondents), and Canadian Pacific Railway Limited and Canadian Pacific Railway Company, Defendants (Moving Parties)

[2011] O.J. No. 1937

283 O.A.C. 119

2011 ONSC 2648

Court File No. 19/11

Ontario Superior Court of Justice Divisional Court

T.P. Herman J.

Heard: March 9, 2011. Judgment: April 29, 2011.

(52 paras.)

Civil litigation -- Civil procedure -- Parties -- Adding or substituting parties -- After expiry of limitation period -- Class or representative actions -- Procedure -- Pleadings -- Amendment of -- Statement of claim -- To alter or add claim for relief -- Prejudice -- Appeals -- Leave to appeal -- Application by defendant for leave to appeal decision granting plaintiffs' motion to convert individual action to class action dismissed -- Plaintiffs were property owners seeking compensation for environmental contamination -- 54 other plaintiffs commenced individual actions and plaintiffs brought motion to convert -- Motions judge canvassed case law in determining court had jurisdiction -- Motions judge found prejudice to defendant could be compensated with thrown away costs order -- Motions judge found limitations issues with respect to potential new claimants because of class definition were best addressed at certification -- No reason to doubt correctness of decision. Page 2

Application by defendant for leave to appeal the decision granting the plaintiffs' motion to amend their Statement of Claim to convert the individual action to a class action. The defendants argued the motions judge lacked jurisdiction to make the order and the decision was incorrect. The plaintiffs were property owners seeking damages for environmental contamination. The contamination occurred when leaks and spills of diesel fuel on the defendant's property spread to surrounding properties. The plaintiffs initiated their action in 2004 and conceded that the limitations period expired in 2006. 54 other individual actions were commenced prior to 2006. The plaintiffs brought the motion to convert in 2008. The class was described as property owners, previous owners and business owners. The class definition had the potential to add 95 additional properties. The motions judge found the limitations issues with respect to potential new claimants were best dealt with at the certification hearing. The motions judge directed the plaintiffs to pay throw away costs to the defendant.

HELD: Application dismissed. There were no specific provisions in the legislation that addressed the jurisdiction of the court to convert an individual action to a class action. The motions judge canvassed the case law before determining she had jurisdiction. There was no reason to doubt the correctness of her decision. The motions judge considered the defendant's submissions on prejudice but reasonably concluded it could be compensated with throw away costs and it would not make legal sense to have 55 individual actions on the same facts. There was no reason to doubt the correctness of the motions judge's finding that potential limitations issues could be addressed at certification.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, S.O. 1992, c. 6, s. 2(1), s. 7, s. 35

Limitations Act, R.S.O. 1990, c. L.15,

Rules of Civil Procedure, Rule 1.04, Rule 26.01

Counsel:

Kathleen Erin Cullin, for the Plaintiffs/Respondents.

Steven F. Rosenhek, Rosalind H. Cooper, for the Defendants/Moving Parties.

ENDORSEMENT

1 T.P. HERMAN J.:-- The defendants, Canadian Pacific Railway Limited and Canadian Pacific Railway company (collectively, "CPR"), seek leave to appeal the decision of Hennessy J., dated Page 3

November 5, 2010, in which she granted the motion of James Bellefeuille and Lillian Bellefeuille to amend their statement of claim, converting their action to a class proceeding.

2 In seeking leave to appeal, CPR raises the following three issues:

1. Does the court have jurisdiction to convert an individual action to a class proceeding? 2. What is the test to be applied in deciding to grant leave to amend? 3. Should amendments be allowed which may have the effect of adding claims for property owners whose claims would otherwise be statute-barred?

3 CPR contends that there is reason to doubt the correctness of the motion judge's decision on all three issues and there are conflicting decisions with respect to the third issue. Furthermore, CPR submits that these are important issues of first instance and, as such, merit consideration by an appellate court.

Background

4 The plaintiffs, James Bellefeuille and Liliane Bellefuille ("the Bellefeuilles"), own property in Cartier, Ontario.

5 CPR also owns property in Cartier. The land was used as a railroad and a locomotive fuelling and maintenance facility from 1950 until 1981.

6 CPR built a water treatment system in 1943. That water system serviced not only the CPR property but several residential properties and the municipal fire station as well.

7 As a result of unintended leaks and spills of diesel fuel on the CPR property, there was soil contamination on part of the CPR property and on surrounding property.

8 In 1999, CPR discovered that groundwater outside of the CPR property had been affected by the contamination. On October 20, 2000, CPR issued a press release announcing its decision to decommission the water treatment and distribution system. A community meeting was held a few days later during which the contamination, the decommissioning of the water system, the installation of wells and the purchase of properties in the affected area were discussed.

9 According to the motion judge's reasons, the Bellefeuilles concede that the limitation period with respect to the claim for diminution of property values began to run on October 26, 2000 and therefore ended on October 26, 2006 (see Limitations Act, R.S.O. 1990, c.L.15).

10 The Bellefeuilles initiated their action against CPR on September 20, 2004. Between September 2004 and March 2005, 54 other individual actions were commenced against CPR. Each action related to a separate piece of property and sought damages for environmental contamination. Page 4

11 All the plaintiffs in the 55 individual actions were represented by the same lawyer. The Bellefuilles say that prior to issuing their claims, the plaintiffs considered the possibility of proceeding as a class action, but decided against the class action route because of the Superior Court decision in Pearson v. Inco Ltd. (2002), 33 C.P.C. (5th) 264 (Ont. S.C.). In that case, the court had refused to certify an environmental damage claim as a class action. The decision was upheld by the Divisional Court (Pearson v. Inco. Ltd. (2004), 44 C.P.C. (5h) 276), but was subsequently overturned, and the action certified, by the Court of Appeal (Pearson v. Inco Ltd. (2005), 18 C.P.C. (6th) 77).

12 In February 2006, CPR served statements of defence in each of the 55 actions.

13 In 2008, the Bellefeuilles brought a motion to amend their claim, seeking to convert it to a class proceeding under the Class Proceedings Act, S.O. 1992, c.6 ("CPA").

14 The amended claim is brought on behalf of the following proposed classes of claimants: Cartier property owners, previous property owners and business owners. This has the potential to result in approximately 95 additional properties becoming the subject of a claim.

15 The parties agreed that the motion to amend would be heard first and the motion for certification would be heard separately in the event the motion to amend was successful.

16 The motion judge granted the Bellefeuilles' amendment and also ordered that CPR be compensated for their costs thrown away for defending the individual plaintiffs' actions.

Does the court have jurisdiction to convert an individual action to a class proceeding?

17 CPR submits that the court has no jurisdiction to convert a civil claim to a class proceeding. In the alternative, CPS maintains that the issue of jurisdiction is open to serious debate.

18 One of the arguments put forward by CPR is that the result of converting this action to a class proceeding was to add statute-barred claims. However, at this stage of my reasons, I limit my consideration to whether the court has jurisdiction to convert a regular civil claim to a class proceeding. I will consider the issue of the addition of otherwise statute-barred claims separately.

Motion judge's decision

19 The motion judge reviewed various cases, noting that there was little reported case law. She also reviewed provisions of the CPA and the Rules.

20 The motion judge noted that there was no explicit prohibition against converting a single action to a class proceeding by way of an amendment, nor was there a policy reason for such a prohibition. She stated:

Taking into account that the Rules are to be interpreted in harmony with the Page 5

purposes of class proceedings, I am not convinced that there is any bar to amending an individual action so that it may become a proceeding under the CPA. Therefore the court may allow plaintiffs to amend their pleadings in order to bring a class proceeding, where on a threshold analysis, the purposes of a class proceeding will be fulfilled by such amendment.

21 The motion judge indicated further that, on a threshold analysis, the claim appeared to have the essential elements of a class action: there was more than one person with a claim for damages arising from environmental contamination; the claim was made by a geographically defined group of property owners, occupiers and business owners allegedly affected by the acts of the descendants; and the plaintiffs claimed the same causal link between their damages and the alleged conduct of CPR.

22 The motion judge concluded that the court had jurisdiction to make the requested amendments.

Analysis

23 There is no specific provision that addresses the conversion of an individual action to a class action.

24 Section 2(1) of the CPA states that "one or more members of a class of persons may commence a proceeding in the on behalf of the members of the class". CPR submits that the import of this provision is that class actions must be initiated under the Act by commencing a proceeding, not by converting an individual action to a class action.

25 Section 35 of the CPA provides that "the rules of court apply to class proceedings". In Boulanger v. Johnson & Johnson Corp. (2003), 64 O.R. (3d) 208 (Div. Ct.) at para. 38, the Court considered the application of the Rules of Civil Procedure to class actions. Macdonald J. stated:

In my view, having considered s. 35 of the CPA and s. 66(3) of the CJA [Court of Justice Act, R.S.O. 1990, c. 43] together, the legislature intended that the rules of court (known as the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 as amended), should "supplement" the provisions of the CPA "in respect of practice and procedure", but without conflicting with the purpose for which the CPA was enacted.

26 The motion judge referred to the following Rules: Rule 1.04, which requires that the rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits; and Rule 26.01, which states that the court should grant lead to amend a pleading unless there would be non-compensable prejudice.

27 The motion judge also referred to s. 7 of the CPA as an indication of the flexibility to move Page 6

between class proceedings and individual actions. That provision allows the court to permit a class proceeding that fails certification to continue as one or more proceedings between different parties.

28 There are few cases that deal with the conversion of a civil action to a class proceeding and none that directly address the question of whether the court has the requisite jurisdiction. There are no Ontario cases.

29 In a few cases, the court appears to have assumed it had the jurisdiction to grant such an amendment but it denied the amendment on the basis that, in the circumstances of the particular case, there would be prejudice or it would be unfair to the defendant were the amendment granted: Stevenson Estate v. Bank of Montreal, [2009] S.J. No. 597 (Sask. Q.B.); Maurice v. Canada (Minister of Indian Affairs and Northern Development, [2004] F.C.J. No. 670 (Fed. Ct.); Dorus v. Teck Corp., [2005] B.C.J. No. 1339 (B.C.S.C.).

30 In Stevenson, the action had already proceeded through pleadings, discovery, numerous applications and an appeal to the Court of Appeal and was ready for the pre-trial conference, the last step prior to trial. The court refused to allow the amendment to convert the action to a class proceeding on the basis that it would be inequitable to the defendants and it would delay and complicate the trial. However, Currie J. suggested at para. 57 that such an amendment would be legally possible:

The Act [The Class Actions Act, S.S. 2001, c.C-12.01] does not address the amendment of an existing action to plead the Act, but in the Act the legislature has made the commencement of an action under the Act as accessible as possible. A plaintiff need only state in the statement of claim that the action is so commenced. From this ease of accessibility I infer that the legislature did not intend a barrier between a plaintiff and the opportunity to apply for certification of an action as a class action.

31 The one case in which the court granted conversion from an individual action to a class action is Gaudet v. Sister Servants of Mary Immaculate, [2007] S.J. No. 115 (Sask. Q.B.). The plaintiffs in the Gaudet action and the plaintiffs in other actions sought leave to amend their statements of claim "to facilitate the presentation of an application for certification pursuant to The Class Actions Act, S.S. 2001, c.C.-12.01".

32 Again, the judge in Gaudet did not directly address the question of jurisdiction. However, the judge granted the amendment based on a variety of factors including: the plaintiffs said they would have difficulty pursuing their individual actions due to lack of financial resources and uncertain emotional capacity to testify repeatedly; there would be a risk of inconsistent verdicts without a class action or consolidation of the actions; and proceeding with numerous cases would increase the cost to all the parties, including the defendants.

33 CPR submits that Gaudet is distinguishable from the case at hand because the proposed class Page 7

in Gaudet did not include any plaintiffs who had not already commenced an action, while the Bellefeuilles' proposed class includes a significant number of new plaintiffs.

34 However, in all the cases cited by the motion judge and the parties, the court assumed it had jurisdiction to convert the action to a class proceeding. The motion judge in this case considered the relevant cases and the relevant provisions of the CPA and the Rules, as well as the policies underlying the CPA. In my opinion, there is no reason to doubt the correctness of her decision.

What is the test to be applied in deciding to grant leave to amend?

35 Having determined that the court had jurisdiction to grant the amendment, the motion judge then considered whether she should grant the amendment. In deciding that she would, the motion judge relied on the test in Rule 26.01, that is, the court should grant an amendment on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

36 It should be noted that the motion judge also conducted a threshold analysis, that is, whether the claim appeared to have the essential elements of a class action. She conducted this analysis in the context of determining whether she had the requisite jurisdiction to convert the action to a class proceeding.

37 CPR submits that the test the judge applied was inadequate. Given the unique nature of an amendment converting an individual action into a class action, it is CPR's contention that the court should have imposed additional requirements before granting the amendment. In particular, CPR submits that the would-be representative plaintiffs should be required to explain and justify the failure to initiate the action as a class proceeding at the outset.

38 In support of its position, CPR cites two cases: M.J. Dixon Construction limited v. Hakim Optical Laboratory Limited, [2009] O.J. No. 1297, 2009 CanLII 14046 (Ont. S.C.J.), at para 47; and Canadian Imperial bank of Commerce v. Petten, 2010 ONSC 6726 at para. 6 (Ont. S.C.J.). Both of these cases involved a motion to set aside a default judgment and in both cases, the court considered the effect on the integrity of the justice system under the rubric of prejudice.

39 There is nothing in any of the decisions cited by the parties which deal with conversion that would indicate the court should consider matters beyond prejudice to the defendant, other than a statement in Dorus v. Teck Corp. at para. 7, in which the court indicated that converting the matter to a class action would complicate and delay matters, "aside from the concern of unfairness to the defendants". In Stevenson, Currie J. also considered the fact that the conversion of the action would delay and complicate the trial.

40 In the case at hand, while the Bellefeuilles did not proceed with the motion expeditiously, the motion judge noted that the defendants did not take any steps to push the matter along and did not identify any prejudice arising from the delay. Furthermore, the Bellefeuilles provided a reason why Page 8

they did not initiate their claim as a class action: they understood that a class action was not advisable in view of the state of the law at the time.

41 The motion judge considered CPR's submission that there was prejudice based on the fact that they had already filed statements of defence in the individual actions, while they would not have been required to file a statement of defence in a class action claim prior to the certification motion. The motion judge reviewed the statement of defence and determined that there was nothing in it that would prejudice CPR. To the extent that there was prejudice, it was compensable, in that CPR had been put to the expense of preparing fifty-five statements of defence. The motion judge addressed this by ordering that CPR be compensated for their costs thrown away for defending the individual actions.

42 In addition to possible prejudice to CPR, the motion judge also considered the alternative, that is, fifty-five actions against CPR for the same damages arising from the same set of facts. She concluded that continuing with the separate actions did not make legal or common sense.

43 The motion judge gave thorough consideration to the circumstances of the case. In particular, she consider whether the claim met the threshold for a class proceeding and whether there was any non-compensable prejudice to CPR. She also considered the relative benefits of proceeding by way of a class action as compared to proceeding with fifty-five individual actions. There is, in my opinion, no reason to doubt the correctness of her decision.

Should amendments be allowed which may have the effect of adding claims for property owners whose claims would otherwise be statute-barred?

44 CPR submits that the motion judge erred in allowing amendments which have the effect of commencing new, statute-barred claims in respect of approximately 95 additional properties.

45 In her decision, the motion judge noted that the limitation period was six years and the Bellefeuilles agreed that the limitation period with respect to the claim for diminution of property values ended on October 26, 2006.

46 The motion judge stated that there was no Limitations Act issue with respect to the proposed amendment to convert the action to a class proceeding because such an amendment only involved a procedural change. Rather, any limitations issues arose in the context of the definition of the class and the possible addition of a new claim and would best be dealt with in the certification process. She noted that CPR was free to argue all issues with respect to the definition of the class or classes, including Limitations Act issues, in the certification motion.

47 CPR submits that the motion judge's approach is contrary to that adopted by the Court of Appeal in Frohlick v. Pinkerton Canada Ltd., (2008) 88 O.R. (3d) 401 (C.A.). Frohlick was an appeal from a motion judge's refusal to allow amendments to a statement of claim on the basis that the proposed amendments advanced a new and unrelated claim and this new claim was Page 9

statute-barred. In dismissing the appeal, Rouleau J.A. indicated that: "[R]ule 26.01 does not contemplate the addition of unrelated statute-barred claims by way of amendment to an existing statement of claim."

48 Frohlick is, in my opinion, distinguishable in that it was not a class action. The CPA provides a specialized process including a certification proceeding at which the definition of the class will be addressed.

49 CPR suggests that the motion judge implied at paragraph 57 of her reasons that otherwise statute-barred claims were preserved by the timely commencement of the Bellefeuilles' action. I do not read her reasons in that way. Rather, she indicated that the motion to convert the action to a class proceeding was procedural, not substantive, and limitations issues would be dealt with in the certification process.

50 I conclude that there is no reason to doubt the correctness of the motion judge's decision with respect to her treatment of claims which may be statute-barred, nor are there conflicting decisions. Furthermore, as long as CPR's rights are preserved with respect to raising limitations issues, there is no prejudice to them.

Conclusion

51 For the reasons set out above, I conclude that there is no reason to doubt the correctness of the motion judge's decision with respect to the three issues raised by CPR, nor are there conflicting decisions. The motion for leave to appeal is therefore dismissed.

52 I would encourage the parties to come to an agreement with respect to costs. If they are unable to do so, the Bellefeuilles may deliver written submissions within 14 days of the release of this decision. CPR has a further 14 days within which to deliver a written response. Submissions should be no more than 5 pages each, plus a bill of costs.

T.P. HERMAN J. cp/e/qllqs/qlvxw/qlced/qljxr/qlgpr Page 1

Case Name: Zaniewicz v. Zungui Haixi Corp.

Between Jerzy Robert Zaniewicz and Edward C. Clarke, Plaintiffs, and Zungui Haixi Corporation, Ernst & Young LLP, Fengyi Cai, Jixu Cai, Yanda Cai, Michelle Gobin, Michael W. Manley, Patrick A. Ryan, Elliott Wahle, Margaret Cornish, CIBC World Markets Inc., Canaccord Genuity Corp. (f.k.A. Canaccord Financial Ltd)., GMP Securities LP and Mackie Research Capital Corporation (f.k.A. Research Capital Corporation), Defendants

[2013] O.J. No. 2302

2013 ONSC 2959

116 O.R. (3d) 37

Court File No. CV-11-436360-00CP

Ontario Superior Court of Justice

P.M. Perell J.

Heard: May 21, 2013. Judgment: May 21, 2013.

(30 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Settlements -- Approval -- Motion by plaintiffs to certify proposed class action on behalf of current and former shareholders for settlement purposes allowed -- Plaintiffs alleged public offering prospectus and other disclosure documents contained misrepresentations -- Plaintiffs reached settlements with corporation and former directors and officers and with former auditor -- Defendants consented to certification for purpose of effecting settlement -- Under terms of settlement, corporation and former directors and officers agreed to pay $8 million and auditor agreed to pay $2 million for benefit of proposed class -- All criteria for certification of proposed class action were satisfied -- Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1). Page 2

Securities regulation -- Civil liability -- Misrepresentations in a prospectus -- Motion by plaintiffs to certify proposed class action on behalf of current and former shareholders for settlement purposes allowed -- Plaintiffs alleged public offering prospectus and other disclosure documents contained misrepresentations -- Plaintiffs reached settlements with corporation and former directors and officers and with former auditor -- Defendants consented to certification for purpose of effecting settlement -- Under terms of settlement, corporation and former directors and officers agreed to pay $8 million and auditor agreed to pay $2 million for benefit of proposed class -- All criteria for certification of proposed class action were satisfied -- Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1).

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5, s. 5(1)

Securities Act, RSO 1990, c S.5, Part XXIII.1,

Counsel:

Charles M. Wright, for the Plaintiffs.

Linda Fuerst, for Ernst & Young LLP.

Christiann Jordaru, for Michael W. Manley.

Derek Ricci, for CIBC World Markets Inc., Canaccord Genuity Corp. and Mackie Research Capital Corporation and GMP Securities LP.

Margaret L. Waddell, for Michelle Gobin.

Deborah Berlach, for Zungui Haixi Corporation.

James Wilson, for Patrick A. Ryan, Elliott Wahle and Margaret Cornish.

REASONS FOR DECISION

1 P.M. PERELL J.:-- In this proposed class action under the Class Proceedings Act, 1992, S.O. 1992, Jerry Robert Zaniewicz and Edward C. Clarke bring an action on behalf of the current and former shareholders of Zungui Haixi Corporation. They allege that Zungui's public offering prospectus and other disclosure documents, including its audited and unaudited financial statements, contained representations that were untrue. Page 3

2 Messrs. Zaniewicz and Clarke are residents of Ontario. Each purchased common shares of Zungui that were offered by a prospectus. Mr. Clarke also purchased common shares in the secondary market.

3 The Defendants are: (a) Zungui, which has appeared through its Court appointed litigation receiver, Matthew Gottlieb; (b) Zungui's former directors and officers, including Fengyi Cai, Jixu Cai and Yanda Cai (collectively the "Cai Brothers") and Michelle Gobin, Michael W. Manley, Patrick A. Ryan, Elliot Wahle and Margaret Cornish, (c) Ernst & Young LLP, Zungui's former auditor; and (d) the underwriting syndicate for Zungui's IPO, including CIBC World Markets Inc., Canaccord Genuity Corp., GMP Securities LP, and Mackie Research Capital Corporation.

4 Messrs. Zaniewicz and Clarke have reached two settlements against that cover all of the Defendants except for the Defendants that comprise the underwriting syndicate.

5 In the motions now before the Court, Messrs. Zaniewicz and Clarke seek to certify this action for settlement purposes, and they seek related relief, including approval of the notice of certification, which include notice of a settlement approval hearing. They also seek an order approving the plan for disseminating the notice and they seek the appointment of an administrator to disseminate the notice of certification and of the hearing for settlement approval.

6 The motions for certification of the action for settlement purposes are on consent or unopposed.

7 For the reasons that follow, I grant the relief requested.

8 Zungui is an Ontario public company that indirectly owns a shoe company called Mengshida. Mengshida is incorporated and operates only in the People's Republic of China.

9 In December 2009, Zungui made an initial public offering in Canada that raised approximately $40 million, principally for use in Mengshida's operations.

10 After the IPO closed, Zungui traded on the TSX Venture Exchange, and this action arose out of a 77% fall in the value of Zungui's traded shares. The fall occurred on August 22, 2011, allegedly because Zungui announced that it had accounting and audit issues. After August 22, 2011, Zungui never traded again. Its shares are now unmarketable.

11 Mr. Zaniewicz, a Zungui shareholder, commenced the Action on October 3, 2011. His Statement of Claim was filed on November 2, 2011. Since then, there have been three amendments to the Statement of Claim: (1) to add Mr. Clarke and to correct a description of the underwriter Defendants; (2) following the granting of leave under Part XXIII.1 of the Ontario Securities Act, R.S.O. 1990, c. S.5 to plead misrepresentation in secondary market disclosure as against the Defendants, Fengyi Cai, Jixu Cai and Yanda Cai; and (3) to give effect to terms of the two proposed settlements requiring, essentially, that the Plaintiffs: (i) plead a broader proposed class to include people who were shareholders of one of Zungui's subsidiaries, Southern Trends International Page 4

Holding Company (BVI)), who entered into an agreement with Zungui, before its IPO, to exchange their Southern Trends shares for Zungui shares on a 1 for 5,000 basis; (ii) plead a right of action for Southern Zungui Acquirors, against all Defendants except those of the underwriting syndicate; and (iii) plead a proposed class period that commences on the date of Zungui's incorporation.

12 All Defendants, except for the Cai Brothers, have appeared in the Action. The Cai Brothers were noted in default on August 10, 2012.

13 No Statements of Defence have been served to date.

14 As noted above, subject to court approval, there are two settlements. The first is the Zungui Settlement. Matthew Gottlieb as Litigation Receiver of Zungui, Michelle Gobin, Michael W. Manley, Patrick A. Ryan, Elliott Wahle, and Margaret Cornish have reached an agreement where in exchange for a full and final release, including a release of the Cai Brothers, they will pay $8.0 million for the benefit of the proposed class and provide pre-discovery production in the ongoing prosecution of the action.

15 The Zungui Settling Defendants have agreed to consent to certification solely for the purpose of effecting the settlement. The Cai Brothers, though they will be released under the Zungui Agreement, are not parties to the Zungui Agreement and have not agreed to consent to certification. They are, of course, in default and their consent is not required; they cannot oppose the certification of the Action against them: Topacio v Batac, [2011] O.J. No. 711 at para 14 (S.C.J.).

16 The second settlement is the Auditor Settlement. The Defendant Ernst & Young LLP together with the Zungui Settling Defendants have reached an agreement with the Plaintiffs to pay $2.0 million for the benefit of the proposed class and provide pre-discovery production in the ongoing prosecution of the Action. The Plaintiffs and the proposed class (excluding people who may choose to opt-out of the Action) will provide a form of full and final release to the Auditor Settling Defendant and certain of its affiliated entities.

17 Ernst & Young LLP has has also agreed, solely in order to effect the Auditor Agreement, to consent to certification for settlement purposes, subject also to its satisfaction as to the form of certification order sought, the content of the proposed notice of certification, and the proposed method of distributing the notice.

18 Before engaging in the negotiations for the settlement, Messrs. Zaniewicz and Clarke received a preliminary damages estimate from an expert who estimated the damages at approximately $23.7 million for primary market purchasers, secondary market purchasers and Southern Zungui Acquirors. This figure is comprised of $10.1 million in primary market damages, $12.9 million in secondary market damages, and $0.7 million in damage to Southern Zungui Acquirors.

19 Messrs. Zaniewicz and Clarkes' counsel estimates the applicable liability limits under Part XXIII.1 of the Securities Act, RSO 1990, c S.5 for Zungui at $8 million minimum and at most $11 Page 5

million. For the individual defendants, the estimate in the aggregate is $950,000. For Ernst & Young LLP, the estimate is $1 million.

20 The underwriting syndicate Defendants have filed expert evidence on primary market damages in their materials opposing certification of the Action against them. Their estimate of primary market damages is very different; approximately $1.2 million compared to the Plaintiffs' $10.1 million.

21 It seems that the settlements are being financed by insurance proceeds. There has been no discovery to date, and it is possible that evidence might later emerge that an insured executive (i.e. an insured under a responsive directors' and officers' insurance policy) committed a deliberate or fraudulent act, and the act is the source of the Plaintiffs' claims. If so, exclusions in the insurance policies will likely preclude coverage, not just for that individual, but for Zungui. Further, if such conduct occurred before the effective date of the policy (or its renewal, as applicable) and if that act was not disclosed to the policy underwriter, then Plaintiffs' counsel understands there may not be coverage for the claims.

22 Under both settlement agreements, the Parties have agreed to define the Class as follows:

All persons or entities wherever they may reside or be domiciled, other than Excluded Persons and Opt-Out Parties, who acquired Eligible Shares.

Excluded Persons are: Each Defendant, the past or present subsidiaries or affiliates, officers, directors, partners, legal representatives, consultants, agents, successors and assigns of Zungui and any member of each Defendants' families, their heirs, successors or assigns, and includes any Southern Zungui Acquirers who acted as a consultant or provided other professional services to Zungui or its subsidiaries in connection with the [IPO] initial public offering of Zungui.

Eligible Shares are defined in the Zungui Agreement as:

The Shares acquired by a Class Member or Opt-Out party during the Class Period including all shares of the capital of Southern Trends that were converted to shares of Zungui under the Share Exchange Agreement.

Eligible Shares are defined in the Auditor Agreement as:

The Shares acquired by a Class Member or Opt-Out party during the Class Page 6

Period;

Shares are defined in the Agreements as:

Common shares of Zungui, including shares in the capital of Southern Trends that were converted to shares of Zungui under the Share Exchange Agreement; and

Class Period is defined in the Agreements as:

The period from August 11, 2009 through August 22, 2011 inclusive.

23 The Parties to the Zungui Agreement have agreed to a single common issue, as follows:

Did Zungui's Class Period disclosure documents contain one or more misrepresentations within the meaning of the Securities Act, R.S.O. 1990, c. B-16, as amended, or at common law?

24 The Parties to the Auditor Agreement have also agreed to a single common issue, as follows:

Did the Auditors' Reports contain one or more misrepresentations within the meaning of the Securities Act, R.S.O. 1990, c. S.5, as amended, or at common law?

25 The Plaintiffs propose a single form of notice of certification and pending settlement approval hearings. A copy of the notice is attached as Schedule A to this judgment.

26 The Plan of Notice provides that the First Notice will be: (a) mailed, electronically or physically, as may be required, to those persons and entities that have previously contacted Siskinds for the purposes of receiving notice of developments in the Action, and to the largest twenty five (25) shareholders, excluding those that have been identified as Excluded Persons; (b) posted on Siskinds' website, in both French and English, at www.classaction.ca; (c) published in English in the business/legal sections of the national weekend editions of The Globe and Mail, The National Post, and in French in the business section of La Presse; and (d) published in English in the business/legal section of the South China Morning Post in the People's Republic of China (Hong Kong).

27 Pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c.6, the court shall certify a proceeding as a class proceeding if: (a) the pleadings disclose a cause of action; (b) there is an identifiable class; (c) the claims of the class members raise common issues of fact or law; (d) a class Page 7

proceeding would be the preferable procedure; and (e) there is a representative plaintiff who would adequately represent the interests of the class without conflict of interest and who has produced a workable litigation plan.

28 Where certification is sought for the purposes of settlement, all the criteria for certification must still be met: Baxter v. Canada (Attorney General) (2006), 83 O.R. (3d) 481 (S.C.J.) at para. 22. However, compliance with the certification criteria is not as strictly required because of the different circumstances associated with settlements: Bellaire v. Daya, [2007] O.J. No. 4819 (S.C.J.) at para. 16; National Trust Co. v. Smallhorn, [2007] O.J. No. 3825 (S.C.J.) at para. 8; Nutech Brands Inc. v. Air Canada, [2008] O.J. No. 1065 (S.C.J.) at para. 9.

29 Having reviewed the motion record, I am satisfied that all of the criteria for certification set out in s. 5 of the Class Proceedings Act, 1992 have been satisfied. I grant certification and the related relief requested.

30 Order to go. I have endorsed the Record and signed the Order.

P.M. PERELL J.

*****

Schedule A

NOTICE OF CERTIFICATION FOR SETTLEMENT PURPOSES AND NOTICE OF COURT HEARING FOR SETTLEMENT APPROVALS

IN ZUNGUI HAIXI CORPORATION SECURITIES CLASS ACTION

READ THIS NOTICE CAREFULLY. IT MAY AFFECT YOUR RIGHTS

Who this Notice is For:

This notice is directed to everyone that acquired shares of Zungui Haixi Corporation ("Zungui") from August 11, 2009 through to and including August 22, 2011.

What the Action is About

The Plaintiffs, Jerzy Zaniewicz and Edward Clarke have commenced an action in the Ontario Superior Court of Justice against: (a) Zungui; (b), Ernst and Young LLP, Zungui's auditor; (c) Zungui's former directors including, certain of its former executive officers; and (d) the underwriting syndicate for Zungui's initial public offering on the Toronto Stock Exchange. Page 8

The Plaintiffs allege that Zungui's initial public offering ("IPO") prospectus and some of Zungui's other disclosures were materially misleading. The Plaintiffs claim damages on behalf of purchasers of Zungui's shares from August 11, 2009 through to and including August 22, 2011.

Class Certification to give effect to Two Proposed Settlements

The Plaintiffs have entered into proposed Settlements, with (1) Zungui, Michelle Gobin, Michael Manley, Patrick Ryan, Elliott Wahle and Margaret Cornish ("Zungui Settlement"), and (2) Ernst and Young LLP ("E&Y Settlement"). The Settlements are described below.

On * , 2013, the Court certified the action Zaniewicz, et al. v. Zungui Haixi Corporation, et al., Court File No.: CV-11-436360-00CP as a class proceeding for settlement purposes. Certification against the Settling Defendants was obtained with their consent, but is conditional upon the Court's approval of the Settelments. Certification was also granted against the Defendants, Fengyi Cai, Yanda Cai and Jixu Cai, who did not attend the action.

In granting certification, Siskinds LLP was appointed Class Counsel and the Court appointed Jerzy Zaniewicz and Edward Clarke as the Representative Plaintiffs of the following class:

All persons, wherever they may reside or be domiciled, other than Excluded Persons and Opt-Out Parties, who acquired Eligible Shares.*

*The terms "Eligible Shares, Excluded Persons and Opt-Out Parties" are defined in the Settlement Agreements which can be found on the website of Siskinds LLP, at http://www.classaction.ca.

The Terms of the Proposed Settlements

The Settlements are compromises of disputed claims and are not admissions of liability, wrongdoing or fault on the part of any of the Settling Defendants, all of whom have denied, and continue to deny, the allegations made against them. The Non-Settling Defendants continue to deny liability.

For persons who acquired Zungui shares under its IPO, the claims that have been brought against the underwriting syndicate, that is, the claims against the Defendants CIBC World Markets Inc., Canaccord Genuity Corp., GMP Securities LP and Mackie Research Capital Corporation ("Non-Settling Defendants") will continue to be prosecuted. Under the Settlements, the Settling Defendants have agreed to provide discovery information for the claims against the Non-Settling Defendants.

In the aggregate, the Settlements with the Settling Defendants have a value of $10 million to the class members before deductions for legal fees and expenses to administer the settlement. The Page 9

Zungui Settlement is for $8 million. The E&Y Settlement is for $2 million.

The expert retained by the Plaintiffs estimates total damages to shares traded during the Class Period are approximately $20 million. Experts retained by the Defendants estimate damages, if any, to be much lower. Due to litigation risks, Class Counsel propose that claims for purchases over the TSX-V or alternative trading venues will be modestly discounted, and claims of persons who bought before Zungui's IPO will be more significantly discounted.

The certification of the Action was conditional and will be of no force or effect if the Court does not approve either of the Settlements or if the Settling Defendants terminate the Settlement Agreements. Settling Defendants may terminate their Settlement Agreements if Class Members holding a certain number of Eligible Shares exclude themselves from the Class, a process known as "opting-out", described further below.

The Plaintiffs recommend the Settlements to class members. Class Counsel recommends each of the Settlements as fair and reasonable. In reaching the Settlements, Class Counsel considered the estimated total damages suffered by Class Members, legal limitations on the value of certain claims that could be advanced, the challenges of obtaining evidence or enforcing a judgment in the People's Republic of China, where Zungui carries on business, and the value of a relatively early settlement.

A more complete explanation of the Settlements and why Class Counsel recommends the Settlements will be provided to the Court and may be reviewed by you. The materials Class Counsel will file with the Court for the purposes of seeking approval of the Settlements will be posted at http://www.classaction.ca no later than June 29, 2013.

Copies of the Settlement Agreements and the proposed Plan of Allocation (the proposed methodology for distributing the combined settlement monies ("Settlement Amount") may be found on the website of Class Counsel, at http://www.classaction.ca.

Participating in the Settlements or Excluding Yourself from the Class Action and the Settlements

Unless a class member opts out, if one or both of the Settlements are approved, the Class Member will be entitled to participate in the Settlement(s) and will be bound by the terms of the Settlement(s). A class member who participates (i.e., does not opt out) will not be permitted to bring other legal proceedings in relation to the matters alleged in the action against the Defendants, including the Non-Settling Defendants, or any person released by an approved Settlement. Conversely, persons who opt-out of the class action will not be able to participate in the Settlements and make a claim to receive compensation from the Settlement Amount.

If you wish to opt-out you must submit a completed Opt-Out Form, and any supporting documentation to Class Counsel, Siskinds LLP, at the following address, postmarked no later than Page 10

* , 2013 (the "Opt-Out Deadline"):

Nicholas C. Baker Siskinds LLP P.O. Box 2520 London, ON Canada N6A 3V8

Siskinds LLP will mail or email Opt-Out Forms to any Class Member who contacts it and requests an Opt-Out Form. Opt-Out Forms may also be obtained from the website of Siskinds LLP, at http://www.classaction.ca.

Next Step - Settlement Approval Hearings will be held in Toronto, Ontario

Each Settlement must be approved by the Court before it can come into force and effect and before Class Members can make a claim for compensation.

Class Members may, but are not required to, attend the Settlement Approval Hearings that will be held on August 26, 2013 at 10 a.m., at Osgoode Hall, 130 Queen Street West, Toronto, Ontario. At the same time, Class Counsel will request that the Court approve the Settlement and also approve its claim for legal fees, to be paid out of the Settlement Amount, and which will not exceed 30% of the Settlement Amount, plus disbursements and applicable taxes.

If the Settlements are approved by the Court, then a further notice will be published that will explain how Class Members can make a claim to receive compensation from the Settlement Amount. To receive this notice by mail or email, you may provide contact information to Class Counsel.

Class Members that approve of or do not oppose the Settlements do not need to appear at the Approval Hearing or take any other action at this time.

Class Members May Object to the Settlements

Class Members that wish to comment on or object to one or both of the Settlements should do so in writing. All comments or objections should be received by Class Counsel (at the address listed below) no later than August 19, 2013. Class Counsel will file any and all such submissions with the Court. Class Members may attend the Approval Hearing whether or not an objection was delivered. The Court may permit Class Members to participate in the Approval Hearing whether or not an objection was made.

A written objection should include:

(i) the Class Member's name, address, telephone number, fax number (where applicable) and email address; (ii) a brief statement outlining why they object to the proposed Settlements; and Page 11

(iii) a statement as to whether the objector intends to appear at the Approval Hearing in person or through a lawyer, and, if through a lawyer, the name, address, telephone number, fax number, and email address of the lawyer.

For any further questions relating to the Action, further information, or to deliver an objection please contact Plaintiffs' counsel:

Nicole Young Siskinds LLP 680 Waterloo Street London, ON N6A 3V4 Tel: 1.800.461.6166 ext. 2380 (toll free) Email: [email protected] cp/e/qlcct/qlpmg/qlmll/qlhcs Page 1

Case Name: Gariepy v. Shell Oil Co.

PROCEEDING UNDER The Class Proceedings Act, 1992 Between Michael Gariepy, Lyne Marion, Wayne McGowan, Paul Berthelot and Dale Elliott, plaintiffs, and Shell Oil Company, E.I. Du Pont de Nemours and Company and Hoechst Celanese Corporation, defendants

[2002] O.J. No. 4022

[2002] O.T.C. 776

21 C.L.R. (3d) 98

26 C.P.C. (5th) 358

117 A.C.W.S. (3d) 690

Court File No. 30781/99 (London)

Toronto Court File No. 99-CT-030781CP

Ontario Superior Court of Justice

Nordheimer J.

Heard: October 11, 2002. Judgment: October 22, 2002.

(70 paras.)

Practice -- Persons who can sue and be sued -- Individuals and corporations, status or standing -- Class or representative actions, for damages -- Class actions, certification, considerations (incl. whether class action appropriate) -- Settlements -- Court approval, class actions -- Barristers and solicitors -- Compensation -- Measure of compensation -- Class actions.

Motion by the representative plaintiffs to certify their action against Du Pont as a class proceeding, Page 2

to approve a settlement in that proceeding, and to approve the fees charged by counsel for the plaintiffs. The plaintiffs brought claims against Du Pont, Shell and Celanese for alleged defects in polubutylene plumbing pipe and acetal insert fittings, claiming that the products were unsuitable for use in potable water plumbing systems. The plaintiffs asserted causes of action including negligent design, failure to warn, misrepresentation and breach of warranty. A previous motion to certify the actions against Shell and Celanese had been dismissed and was under appeal. The proposed settlement with Du Pont involved Du Pont making payments to Canadian homeowners with the defective products from a $30 million fund. The settlement also contained a clause that would have barred any cross-claims, third party claim, or contribution and indemnity claim against Du Pont, leaving the class members restricted to making claims against only Shell and Celanese. Counsel for the class stated that their investigations and research enabled them to negotiate a settlement that was fair, reasonable and in the best interests of the class. There were no objections from potential class members to the proposed class, and members were able to opt out of the settlement. The settlement also included payment of $4.5 million to class counsel, including disbursements and taxes. Class counsel had previously entered into retainer agreements with the representative plaintiffs that would have resulted in approximately twice the amount in fees, and the time invested by all counsel at their regular hourly rates was approximately the amount of fees they would receive under the settlement. Some of the fees were for counsel in other provinces.

HELD: Motion allowed in part. There was an identifiable class and a common issue for settlement purposes, and the settlement agreement provided a workable plan for the resolution of the common issue. Certification of the class in the settlement context was the appropriate procedure for resolution. The other defendants did not have the right to make submissions on the appropriateness of the settlement. The other defendants were not affected by the fact that the class and Du Pont wanted to resolve their outstanding issues, and the settlement agreement may have actually benefited the other defendants. The settlement provided a measure of certainty in the result, the factual basis for the claims were very well known, the terms and conditions were balanced and proper, similar types of settlements had been approved in the United States, there were no objectors, and the settlement was reached after prolonged arm's length negotiations between very experienced counsel. The settlement was approved subject to resolution of the bar order and the proposed fees to class counsel. The bar order was appropriate but it should have been restricted to matters that could have been raised as part of the action and it should have been clear that it did not operate with respect to claims made by anyone who opted out of the settlement. Provisional approval of the proposed settlement was granted, subject to those concerns. Approval of the fees was adjourned for counsel to address concerns about whether the court had the jurisdiction or expertise to approve fees for solicitors outside of Ontario, to address how the lump sum was to be divided among counsel, and whether the time spent on the previous unsuccessful certification application should have been included.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 5, 29(2), 32(2), 32(4). Page 3

Counsel:

Michael A. Eizenga and Dawn M. Sullivan, for the plaintiffs. David W. Kent, for the defendant, Shell Oil Company. Jeffrey S. Leon and Laura F. Cooper, for the defendant, E.I. Du Pont De Nemours and Company. J. D. Timothy Pinos and Glenn M. Zakaib, for the defendant, Hoechst Celanese Corporation.

1 NORDHEIMER J.:-- Three representative plaintiffs (Paul Berthelot, Dale Elliott and Ross Baptist) move to certify this action as a class proceeding and to approve a settlement under the Class Proceedings Act, 1992, S.O. 1992, c. 6 with respect to the plaintiffs' claims against the defendant, E.I. Du Pont De Nemours and Company. For the purposes of this motion, Ross Baptist was added as a representative plaintiff.

2 This case is somewhat unusual because the motion to grant certification and approve the settlement follows my decision on July 9, 2002 in which I denied certification of this action as a class proceeding with respect to the plaintiffs' claims against the other two defendants. That decision is currently under appeal.

3 The claims asserted in this action arise out of alleged defects in two products, polybutylene plumbing pipe and acetal insert fittings. The plaintiffs allege that fittings made from acetal resin, supplied by the defendants, Hoechst Celanese Corporation and E.I. Du Pont De Nemours and Company, and pipe made from polybutylene resin, supplied by the defendant, Shell Oil Company, are unsuitable for use in potable water plumbing systems. The plaintiffs allege that if such fittings and piping are used in potable water plumbing systems, they will fail prematurely leading to leaks and damages consequent on such leaks. The plaintiffs assert causes of action including negligent design, failure to warn, misrepresentation and breach of warranty.

4 In the proposed settlement, DuPont agrees to make payments to Canadian homeowners with polybutylene plumbing and heating systems from a fund of up to $30 million. The terms and conditions are set out in a settlement agreement entered into between Class Counsel and DuPont on February 13, 2002 and amended on March 15, 2002. Pursuant to the proposed settlement, settlement class members will be deemed to have released DuPont from all claims against it arising from polybutylene plumbing and heating systems, but will retain their rights to pursue their claims against the non-settling defendants, Shell and Celanese. On the basis of "bar order" language agreed upon by Class Counsel and DuPont, cross-claims, third party claims and all claims for contribution and indemnity are to be barred against DuPont. As a consequence of the bar order, settlement class members will be restricted to making "several" claims only against Shell and Celanese.

5 The proposed settlement was reached after Class Counsel had conducted a significant amount Page 4

of investigation. As part of the investigation, Class Counsel retained expert witnesses, interviewed dozens of installers and plumbers, examined the plumbing in many structures, arranged for scientific analysis on failed plumbing parts and interviewed hundreds of other witnesses and class members throughout Canada. In addition, Class Counsel reviewed hundreds of documents that were produced in the course of litigation which has been ongoing for many years in the United States over these issues.

6 Class counsel say that these investigations and research, including the plaintiffs' involvement earlier in these proceedings regarding motions brought by the defendants disputing the jurisdiction of this court, as well as the plaintiffs' preparation for the substantive litigation, enabled them to negotiate a Settlement Agreement that they are confident is fair, reasonable and in the best interests of the class. It is not disputed that the parties entered into the proposed settlement after months of arm's length negotiations. It should also be noted that the negotiation of the fees to be paid to Class Counsel took place after the other terms of the proposed settlement had already been agreed upon by Class Counsel and DuPont.

7 Class counsel advise that the settlement discussions were guided by many factors including: discussions with homeowners with PB plumbing and/or heating systems, an analysis of the facts and law applicable to the claims of the settlement class, a consideration of the burdens and expense of litigation, including the risks and uncertainties associated with certification, trials and appeals, a consideration of a fair and cost-effective method of resolving the claims of the settlement class and a consideration of other settlements in Canada and the United States.

8 While it is the plaintiffs' position that this litigation has merit, in evaluating settlement options, Class Counsel have understandably assessed the risks associated with the litigation. Those risks include various risks that are necessarily associated with this type of litigation including procedural risks related to certification, risks associated with complex scientific evidence and the assertion of some novel causes of action. In addition, there is the ever present reality that even if the plaintiffs are successful on each and every material issue in the litigation, appeals by the defendants could significantly delay a resolution for many years. In this case, the procedural risks relative to certification are obvious given my decision, at first instance, to deny certification against the other two defendants.

9 There are companion proposed class proceedings ongoing in British Columbia and Quebec. This proposed settlement applies to all three actions and requires the approval of the courts in all three Provinces. Hearings seeking approval of the proposed settlement are scheduled to take place in British Columbia on November 7, 2002 and in Quebec on November 19, 2002.

10 The proposed definition of the settlement class, subject to certain exclusions as set out in the Settlement Agreement, is as follows:

All persons and entities (1) who own or who previously owned or will own any improvements to real property to structures in Ontario and any of the Canadian Page 5

provinces or territories other than British Columbia or Quebec, in which there is or was during the time of such ownership, a polybutylene plumbing system with acetal insert fittings, and/or (2) who own or who previously owned or will own any improvements to real property or structures in Ontario and any of the Canadian provinces or territories other than British Columbia, in which there is or was during the time of such ownership a polybutylene heating system with acetal insert fittings.

11 The settlement class will consist of the following subclasses:

(i) All persons and entities resident in Ontario, or with a right to recover in Ontario, as a result of ownership of a unit with a polybutylene plumbing system with acetal insert fittings in Ontario; (ii) All persons and entities resident in provinces and territories other than Ontario, Quebec or British Columbia, or with a right to recover in provinces or territories other than Ontario, Quebec or British Columbia, as a result of ownership of a unit with a polybutylene plumbing system with acetal insert fittings in provinces or territories other than Ontario, Quebec or British Columbia; and (iii) All persons and entities resident in provinces or territories other than British Columbia, or with a right to recover in provinces or territories other than British Columbia, as a result of ownership of a unit with a polybutylene heating system with acetal insert fittings in provinces or territories other than British Columbia.

12 Reduced to its basics, therefore, a person is a member of the settlement class if they own, have owned, or will own property that contains or has contained a polybutylene plumbing or heating system with acetal insert fittings. Polybutylene pipe is identifiable because it is usually grey plastic. Insert fittings are distinguishable from non-insert fittings by their mechanical structure (i.e. the fitting is inserted into the inside of the pipe). Acetal insert fittings are usually grey plastic and held in place with a metal crimp ring on the outside of the pipe. The fittings may carry the following markings: bow, Q, SG, W or A/I.

13 A website has been set up as part of the settlement process. It contains photographs of components of polybutylene plumbing and heating systems which were posted in conjunction with the notice of the proposed settlement. Copies of the photographs can also be obtained through a toll-free number. In addition, if the settlement is approved, inspectors will be available, if necessary, to assist in determining if a property has a polybutylene plumbing or heating system.

14 Pursuant to the proposed settlement, DuPont has agreed to the following:

(a) DuPont will pay 25% of the reasonable cost of a replumb of a polybutylene plumbing system with acetal insert fittings provided that such replumb has Page 6

been completed within 15 years of the installation of the unit's polybutylene plumbing system; (b) DuPont will pay 25% of the actual cost of repair of physical damage to tangible property caused by a leak in a polybutylene plumbing system with acetal insert fittings occurring within 15 years of its installation (to the extent not reimbursed by insurance), provided a replumb of the property unit has been completed; (c) DuPont will pay $200 of the cost of repair of a polybutylene heating system with acetal insert fittings, provided that all acetal insert fittings in such system are replaced within 15 years of installation of the unit's polybutylene heating system; and (d) DuPont will pay the expenses of maintaining a claims processing facility to administer the settlement.

15 It is proposed under the settlement that no property owner with the subject plumbing and/or heating will be excluded due to limitations issues. Provided a Settlement Class member's replumb of a polybutylene plumbing system or replacement of a polybutylene heating system occurs within one year from the date of notice of final Court approval, DuPont will make payments to those Settlement Class Members even if the polybutylene plumbing and heating systems were installed more than 15 years before the settlement.

16 Other features of the proposed settlement are that it does not require class members to:

(a) distinguish between acetal insert fittings manufactured with Delrin versus those manufactured with Celcon; (b) establish any liability against DuPont or any other entity; or (c) establish any failure or leak in the polybutylene plumbing or heating system.

17 DuPont has also agreed to:

(a) Pay solicitors' fees and expenses to Class Counsel of $4.5 million, subject to Court approval, which fees and expenses are in addition to the other funding; and (b) Fund a notice campaign informing prospective Class Members of the approval of the settlement, the claims process and their opt out rights.

18 DuPont and Class Counsel have agreed that settlement class members will be deemed to have released all claims against DuPont arising from their polybutylene plumbing and heating systems but will retain their claims against the non-settling defendants, Shell and Celanese. Settlement class members will also be deemed to have assigned to DuPont all claims against any entity that manufactured component parts of the systems, except for their rights against Shell and Celanese, and to have waived subrogation against DuPont for future losses to the extent allowed by applicable Page 7

insurance policies.

19 Crossclaims, third party claims, and all claims for contribution and indemnity are to be barred against DuPont, on the basis of the following language proposed jointly by Class Counsel and DuPont:

THIS COURT ORDERS that all claims for contribution, indemnity, or other claims over, whether asserted or unasserted or asserted in a representative capacity, inclusive of interest, GST and costs, relating to polybutylene plumbing and heating systems, including (but not limited to) all claims for or in respect of the subject matter of the Class Actions, by any Non-Settling Defendant or any other person or party, against the Settling Defendant, are barred, prohibited and enjoined in accordance with the following terms:

(a) The Plaintiffs shall not make joint and several claims against the Non-Settling Defendants but shall restrict their claims to several claims against each of the Non-Settling Defendants such that the Plaintiffs shall be entitled to receive only those damages proven to have been caused solely by each of the Non-Settling Defendants; (b) The Non-Settling Defendants may obtain an Order providing for discovery from the Settling Defendant as deemed appropriate by the Court; and (c) Except as otherwise provided herein, nothing in this Judgment shall prejudice or in any way interfere with the rights of the Settlement Class Members to pursue all of their other rights and remedies against the Non-Settling Defendants.

20 Notice of the hearing to approve the settlement was placed in Canadian newspapers and other media in accordance with the Plan of Notice approved by the Courts of British Columbia, Ontario and Quebec. The notice was also posted on a website, and made available at a specified toll-free number. The notice required that any objections to the proposed settlement were to be received by Class Counsel on or before September 20, 2002. No objections were, in fact, received.

21 Under the proposed settlement, there is a claims administration process. It has been designed such that class members can prepare their claims easily and then have those claims processed fairly and efficiently. The Canadian Polybutylene Claims Facility ("CPCF") is managed by the UAB Group Ltd., which is a company related to the claims administrator for one of the settlements of polybutylene litigation which has occurred in the United States. Claims have been managed in that settlement for years, and the CPCF will use a similar process.

22 The CPCF will provide information regarding the settlement and manage the process for opting out or making a claim through the website, the toll-free number and direct mail. All communications will be available in English and French. The CPCF will preserve all claim information, documentation and polybutylene system components received in the event they are Page 8

required in any further proceedings involving these or other parties.

23 It is submitted that there are other benefits which accrue to the Settlement Class members from the proposed settlement. For instance, no settlement class member will be required to hire his or her own lawyer, be cross-examined, attend at examinations for discovery, or appear at a trial. Thus it is said that the Settlement Agreement generates efficiencies not only for the settlement class as a whole, but also for each of the settlement class members individually.

24 I earlier mentioned that no objections have been received to the proposed settlement. Since notice of this hearing was published, Class Counsel advise that they have communicated with hundreds of potential class members throughout Canada. In addition, the CPCF has received over 350 phone calls and over 3,470 "hits" on their website from potential class members. It is reported that the response from potential Settlement Class members has been overwhelmingly positive. Further, the three proposed representative plaintiffs have reviewed the Settlement Agreement and discussed its terms with Class Counsel. All three representative plaintiffs agree with the proposed settlement and have instructed Class Counsel to seek its approval.

25 The Notice Plan provides for comprehensive coverage of the settlement, if approved. The notice program will involve publication in two national newspapers, 52 other newspapers in ten provinces and two territories, two national magazines and two provincial magazines. A press release will be distributed through the Canadian wire service. In addition, a website and dedicated toll-free telephone number have been established. The costs associated with the Notice Plan will be paid by DuPont pursuant to the terms of the Settlement Agreement.

26 Any class member who is not satisfied with the terms of the settlement, and wishes to individually pursue his or her claim against DuPont, may opt out of the settlement. The proposed opt out period is 90 days following the first publication of Notice of court approval of the Settlement Agreement. A person can opt out by completing an opt out form which they will return to the CPCF by mail on or before the deadline. The opt out procedure is clearly described in the Notice.

Analysis

Should the action be certified as a class proceeding?

27 The first issue is whether this action should be certified as a class proceeding for the purposes of the proposed settlement. The requirements for certification in a settlement context are the same as they are in a litigation context and are set out in section 5 of the Class Proceedings Act, 1992. However, their application need not, in my view, be as rigorously applied in the settlement context as they should be in the litigation context, principally because the underlying concerns over the manageability of the ongoing proceeding are removed.

28 In my earlier decision on certification, I found that there were properly pleaded causes of Page 9

action and that conclusion remains true on this motion. In my earlier decision, I found, in essence, that there was an identifiable class regarding the plumbing pipe but not with respect to the inserts. The problem with the latter was the fact that visual inspection cannot necessarily determine whether a fitting is made of Celcon (Celanese's product) or Delrin (DuPont's product) or some other plastic material. That issue is eliminated in the proposed settlement as DuPont is prepared to reimburse settlement class members regardless of the actual manufacturer of the fitting. It is not necessary, therefore, for the settlement class members to identify the specific product in order to participate in the proposed settlement.

29 It is necessary for the insert to be an acetal insert for someone to qualify for participation in the settlement, but, as I earlier noted, pictures of acetal inserts will be provided to allow for that identification to take place. Counsel point out that insert fittings are easily distinguishable from non-insert fittings (such as compression fittings) by their mechanical structure (i.e. they go inside of the pipe rather than outside). Acetal fittings are also distinguishable from non-acetal fittings (e.g. copper) by the appearance of the material. The CPCF can also provide assistance to Settlement Class members if necessary.

30 I am satisfied, therefore, that there is an identifiable class.

31 The plaintiffs propose that the settlement class be certified on the basis of the following common issue:

What claims does the DuPont Settlement Class have against DuPont USA arising from their ownership of real property or structures containing polybutylene plumbing or heating systems with acetal insert fittings?

I am satisfied that this constitutes a common issue for settlement purposes.

32 The Settlement Agreement provides a workable plan for the resolution of this common issue. DuPont has agreed to settle all claims against it on a nationwide basis with property owners who have, or had, polybutylene plumbing and/or heating systems with acetal insert fittings. Settlement Class members will not be required to establish any liability against DuPont or any other entity, nor will they be required to establish any failure or leak in the polybutylene plumbing or heating system. Furthermore, no Settlement Class member will be excluded due to the age of their plumbing and/or heating system so any problems surrounding limitations issues are avoided.

33 I am also satisfied that certification in this settlement context provides the preferable procedure for the resolution of this matter. The Settlement Agreement provides an efficient plan to expeditiously and inexpensively resolve the claims of the Settlement Class members against DuPont. The Settlement Agreement allows the Settlement Class members to resolve their claims against DuPont in a summary fashion.

34 Dale Elliott and Paul Berthelot are Ontario homeowners with polybutylene pipe and acetal Page 10

insert fittings in their plumbing systems. They are proposed representatives of the Ontario plumbing sub-class. Ross Baptist is an Alberta homeowner with polybutylene pipe and acetal insert fittings in his plumbing and heating systems. He is the proposed representative of the extra-provincial plumbing and heating sub-classes. These three individuals constitute proper representative plaintiffs for the settlement class.

35 I am satisfied therefore that the action should be certified as a class proceeding for the purposes of settlement.

Should the settlement be approved?

36 By virtue of section 29(2) of the Act, class action settlements must be approved by the Court to be binding. Before turning to my consideration of the settlement itself, I wish to address an issue that arose in the approval hearing and that is the right, if any, of the non-settling defendants to make submissions regarding the adequacy of the settlement. In this regard I am not dealing with the issue of the proposed bar order. I will deal with that later as a separate issue and one on which there was no dispute that the non-settling defendants have a direct interest and a clear right to make submissions.

37 Counsel for Shell did not attempt to make any submissions beyond its concerns respecting the bar order but counsel for Celanese did. Celanese insists that it has the right to make such submissions on the basis that it is a party to the proceeding and therefore entitled to participate in all steps in the proceeding. In the alternative, Celanese submits that it has the right to make such submissions because it has a direct interest in the settlement. I do not accept that either of these grounds gives Celanese the right to make such submissions. Just because Celanese is a named party in the action does not, in and of itself, give Celanese the right to make submissions on a settlement between the plaintiff and another defendant. In any interlocutory proceeding, the right to make submissions is directly related to whether the party is affected by the relief being sought. By way of example, if the plaintiff and one defendant were disputing the propriety of questions asked at that defendant's examination for discovery, a co-defendant would not automatically have the right to make submissions on that motion. The co-defendant would have to show that its interests would be impacted by the decision on the questions before it would have the right to make submissions. Similarly, if there was a dispute as to whether a statement of claim disclosed a cause of action against one defendant, other defendants would not have the right to make submissions on that issue.

38 Aside from the bar order, I do not see how Celanese is affected by the fact that the plaintiffs and DuPont wish to resolve the issues that are outstanding between them. I appreciate that the proposed settlement impacts on products made by Celanese because DuPont is prepared to contribute to replumbs which involve either company's products. That fact, however, does not adversely affect Celanese. On the contrary, it may benefit Celanese insofar as settlement class members will have to account for any monies they receive from DuPont respecting problems which are, in fact, those of Celanese's making. Further, and as will become clearer when I deal with the bar Page 11

order, the bar order, if approved, would further benefit Celanese by requiring settlement class members to make only several, as opposed to joint and several, claims against the non-settling defendants.

39 I also do not accept that Celanese has a direct interest in the settlement. Again putting aside the bar order, Celanese asserts it has a direct interest because the settlement may cause relevant evidence to be destroyed. In particular, Celanese complains that if a Settlement Class member undertakes a replumb and then continues with a claim against Celanese, evidence of the original installation and original parts may be lost. While this is, of course, true, I fail to see how that reality adversely affects Celanese. If evidence is lost or destroyed, it is a matter that redounds to the detriment of the plaintiffs not Celanese. If the plaintiff cannot adequately prove his or her case because the original parts are no longer available, or the particulars of the original installation cannot be established, the plaintiff is the one that suffers the consequences. In any event, the proposed settlement contains terms directed to this issue. It may be that those terms need to be strengthened or expanded. In that limited aspect, it may be that Celanese has some right to make input but that concern alone cannot justify the broad right of participation in this process for which Celanese contends.

40 Ultimately, the court can and must control its own process. The court ought to be wary of allowing parties, who are clearly adverse in interest to the plaintiffs, to weigh in on matters such as the settlement of claims involving other parties in the guise of "protecting" the plaintiff class. In my view, except for those narrow instances to which I have referred where the interests of non-settling defendants are clearly engaged, non-settling defendants have no general right to involve themselves in the approval of a settlement to which they are not parties. I find this to be the case whether the non-settling defendants are, or are not, named parties in the proceeding where the settlement is sought to be approved. The non-settling defendants here suggest that the approach is different where the non-settling defendants are actual parties to the litigation in which the settlement is reached. They contend that Mr. Justice Cumming so held in Knowles v. Wyeth-Ayerst Canada Inc. (2001), 16 C.P.C. (5th) 343 (Ont. S.C.J.). In my view, a fair reading of Mr. Justice Cumming's decision does not lead to that conclusion. While Mr. Justice Cumming did point out that the fact that Servier was not a party in that case raised further obstacles to its right to make submissions on the settlement, I cannot find anything in his decision which suggests that he would have been anymore favourably disposed towards Servier's participation had it, in fact, been a party to the proceeding.

41 Simply put, non-settling defendants have no standing to make submissions, as Celanese sought to do here, against the approval of the settlement on the basis that the settlement class members were not receiving enough under the settlement or that the settlement class members were unlikely to take up the settlement in sufficient numbers. If the court has any concerns in those respects regarding a proposed settlement, then the answer is for the court to appoint independent counsel to review the settlement and advise on such issues. To conclude otherwise would permit non-settling defendants to take on a role which fits neither comfortably nor properly on their shoulders given that the non-settling defendants' fundamental position is, after all, that the plaintiffs Page 12

have no legitimate claim to advance in the first place.

42 In determining whether to approve a settlement the Court will consider whether the settlement is fair, reasonable and in the best interests of the class as a whole. In the leading case on class action settlements, Dabbs v. Sun Life, Assurance Company of Canada, [1998] O.J. No. 1598 (Gen. Div.) Mr. Justice Sharpe approved the following list of considerations for the approval of a proposed settlement:

1. Likelihood of recovery, or likelihood of success 2. Amount and nature of discovery evidence 3. Settlement terms and conditions 4. Recommendation and experience of counsel 5. Future expense and likely duration of litigation 6. Recommendation of neutral parties if any 7. Number of objectors and nature of objections 8. The presence of good faith and the absence of collusion

43 Mr. Justice Sharpe also found helpful, as do I, the following judgment of Callaghan A.C.J.H.C. in Sparling v. Southam Inc. (1988), 66 O.R. (2d) 225 (H.C.J.) at pp. 230-231:

"In approaching this matter, I believe it should be observed at the outset that the courts consistently favour the settlement of lawsuits in general. To put it another way, there is an overriding public interest in favour of settlement. This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial court system.

"In deciding whether or not to approve a proposed settlement under s. 235(2) of the Act, the court must be satisfied that the proposal is fair and reasonable to all shareholders. In considering these matters, the court must recognize that settlements are by their very nature compromises, which need not and usually do not satisfy every single concern of all parties affected. Acceptable settlements may fall within a broad range of upper and lower limits.

"In cases such as this, it is not the court's function to substitute its judgment for that of the parties who negotiate the settlement. Nor is it the court's function to litigate the merits of the action. I would also state that it is not the function of the court [to] simply rubber-stamp the proposal.

"The court must consider the nature of the claims that were advanced in the Page 13

action, the nature of the defences to those claims that were advanced in the pleadings, and the benefits accruing and lost to the parties as a result of the settlement."

44 It is not the function of the court in reviewing a settlement to reopen the settlement or to attempt to re-negotiate it in the hope of improving its terms. Simply put, the court must decide either to approve the settlement or to reject it. Similarly, in deciding whether to approve the settlement, the court must be wary of second-guessing the parties in terms of the settlement that they have reached. Just because the court might have approached the resolution from a different perspective, or might have reached a resolution on a different basis, is not a reason to reject the proposed settlement unless the court is of the view that the settlement is inadequate or unfair or unreasonable.

45 In this particular case, I questioned the absence of any provision in the settlement which would allow members of the settlement class to be reimbursed for repairs alone without the requirement of undertaking a replumb. One of the reasons for not including such a provision was the parties' wish to have finality and not to be faced with a series of claims by the same Settlement Class member. While that issue could have been addressed in another way, for the court to insist on such a provision as part of the approval of the settlement would be to engage in the "arm chair quarterbacking" of the settlement which the court ought not to do. I also note that if any member of the proposed settlement class finds the absence of that, or any other, provision troublesome, he or she may opt out of the settlement.

46 Matching the proposed settlement against the factors from Dabbs, I would make the following observations:

(a) This is a complicated action. The likelihood of recovery, or likelihood of success, is very much uncertain as, indeed, is the issue of whether certification itself is appropriate. This settlement provides a measure of certainty in the result for those members of the Settlement Class who wish to partake of it. (b) While there has yet to be any discovery in this case, voluminous materials are available to class counsel because of the many years of litigation that have occurred in the United States. The factual basis for the claims are therefore very well known notwithstanding that this action itself has only just begun. (c) I find the settlement terms and conditions to be balanced and proper for the resolution as proposed. (d) The settlement is recommended by Class Counsel who are very experienced in the area of class proceedings. (e) The prosecution of these claims will involve significant future expense and the litigation itself will likely take a considerable period of time to get to Page 14

trial. (f) While there are no recommendations from neutral parties, I would note in this regard that similar types of settlements have been approved in the United States. (g) There are no objectors to the proposed settlement. (h) The settlement was reached after prolonged arm's length negotiations involving very experienced counsel on both sides.

47 For all of these reasons, therefore, I am satisfied that the settlement is fair and reasonable and one which ought to be approved subject to the resolution of two remaining issues - the proposed bar order and the proposed fees payable to Class Counsel.

The proposed bar order

48 The jurisdiction of the court to grant a "bar order" and the considerations in so doing are extensively canvassed by Mr. Justice Winkler in Ontario New Home Warranty Program v. Chevron Chemical Co. (1999), 46 O.R. (3d) 130 (S.C.J.). I do not intend to repeat that analysis. Rather I shall simply express my agreement with it and with its conclusion that the court does have the jurisdiction to grant such orders in appropriate cases.

49 The bar order sought here is very much like the one that was before Winkler J. Subject to some specific concerns raised, I believe that it is an appropriate order to grant in this case. The practical reality is that no single defendant would agree to a settlement in this type of litigation without such a provision. This point was aptly made in In re Nucorp Energy Securities Litigation, 661 F. Supp. 1403 where District Court Judge Irving said, at p. 1404, that without the ability to obtain a bar order:

"... partial settlement of any federal securities case before trial is, as a practical matter, impossible. Any single defendant who refuses to settle, for whatever reason, forces all other defendants to trial. Anyone foolish enough to settle without barring contribution is courting disaster. They are allowing the total damages from which their ultimate share will be derived to be determined in a trial where they are not even represented."

50 I now turn to the specific concerns raised regarding this proposed bar order. Those concerns are best expressed by Shell in its factum as follows:

(a) its application is overbroad, as it will apply to claims which do not originate in proceedings governed by the settlement; (b) it fails to expressly cap the non-settling defendants' exposure to the Settlement Class, and; (c) it fails to provide any particular discovery rights in favour of the non-settling defendants against DuPont. Page 15

51 I accept the first concern as legitimate. However, I believe that this results from imperfection in the language used in the bar order as opposed to any attempt to be overly inclusive in its scope. The intention of the bar order is to preclude claims arising from the subject matter of the action. In other words, it is to be restricted to matters that are, or could have been, raised as part of that action. The bar order is not intended to, nor should it, go beyond those matters. Further, it should be made clear that the bar order does not operate with respect to any claims by anyone who opts out of the settlement, that is, the bar order applies only to the claims of the settlement class members.

52 There is also a concern in this regard that the terms of the settlement appear to bind future owners of polybutylene systems. The court has no ability to bind individuals who are not currently before it. The only people who can be bound are those that are currently covered by the class and those who may become subject to it during the opt out period. Again, counsel for the plaintiffs say that is all that was intended.

53 The second concern is not one which I believe should be addressed in the bar order. In essence the non-settling defendants want the court, as part of the bar order, to stipulate that the any recovery by each and every settlement class member has henceforth been reduced to 75% of what they would otherwise recover against the non-settling defendants. Put another way, the non-settling defendants want this court to rule that, regardless of whether any given settlement class member takes advantage of the settlement, they will be deemed to have received the benefits of the settlement.

54 I do not consider that to be a fair result. There may be any number of reasons why a settlement class member may not want to avail himself or herself of the settlement. One principal reason may be that the person does not wish to engage in a full replumb. In my view, the settlement class members should be free to make those choices. It is always open, at the trial of any of these claims, to the non-settling defendants to submit to the trial judge that a reduction in damages ought to be made as a consequence of this settlement, if it is ultimately approved and implemented. The plaintiffs can make their submissions as to whether that is appropriate in any given case. I do not believe that I should be foreclosing such submissions at this time. In this respect, this case is different than Ontario New Home Warranty Program v. Chevron Chemical Co., supra, where it appears that there was an overall repair cost to which all defendants had arguably contributed and therefore had varying degrees of possible liability. The settlement payments in that case had to be accounted for against the overall damages figure. Here, there may be cases where the ultimate liability is solely that of one of the non-settling defendants. If the particular plaintiff in such a case has not received any benefit from this settlement, and if the decision not to take the benefits of this settlement was properly made by that plaintiff, then I do not see any reason why that plaintiff's damages should be impacted by the existence of this settlement. The bottom line is that there is the distinct possibility of very different factual situations arising with respect to the non-settling defendants and, therefore, the appropriate impact of the settlement on the claims remaining against them ought to be dealt with by the trial judge.

55 The third concern regarding discovery is also not one that should be dealt with at this time Page 16

except to provide, as the current proposed bar order does, that the non-settling defendants retain their rights to seek discovery from DuPont if they can satisfy the court that such discovery is necessary. The non-settling defendants seek to alter the bar order so as to make DuPont subject to an obligation to submit to documentary and oral discovery (including a positive obligation to deliver an affidavit of documents) unless DuPont can convince the court to order otherwise. I believe that suggestion places the onus on the wrong party. In light of the fact that the remaining claims can only be advanced if they are several claims against the non-settling defendants, it is not clear at this stage that information which DuPont has will have any relevance to those claims. Instead of placing the onus on DuPont in these circumstances to have to prove that it has no relevant information (in a situation where DuPont will not be involved in the claim and therefore will have a limited ability to demonstrate that fact), I consider it fairer to place the onus on the non-settling defendants to establish that such relevant information is in the possession of DuPont and that it ought to be produced.

56 Contrary to the submissions of the non-settling defendants, I do not read Mr. Justice Winkler's decision in Ontario New Home Warranty Program v. Chevron Chemical Co., supra, as having granted the type of order which the non-settling defendants seek here. Rather, I read his decision as simply outlining the types of information that the non-settling defendants might be able to obtain "on motion to this court". If Mr. Justice Winkler had determined that such information had to be supplied by the settling defendants, then I fail to see why he would have included the proviso that a motion had to be brought to obtain it.

Summary

57 In the end result, I grant provisional approval to the proposed settlement, subject to the following concerns being addressed through amendments to the language of the settlement terms:

(i) the settlement must include only those claims that are, or could have been, advanced in the action; (ii) the settlement must only apply to persons who are part of the proposed settlement class as at the time of the settlement, i.e., it does not apply to future owners of homes which may contain such systems; (iii) the only persons covered by the settlement are those who do not opt out of the settlement; (iv) the plan administrator will preserve all product received and will maintain and preserve all records created through the implementation of the settlement, and; (v) a proper caution or warning will be given to all settlement class members about the need to document existing installations prior to undertaking a replumb and to preserve all products removed as a consequence of the replumb. Page 17

58 I leave it to counsel to work out the necessary amendments to the terms of the settlement to ensure that these concerns are addressed. Once that has taken place, a further hearing should be held to make the approval of the settlement final. Approval of the fees for class counsel.

59 I turn to the final issue and that is the approval of the fees which DuPont has agreed to pay Class Counsel as part of the settlement. I am able to separate my consideration of this aspect of the overall settlement from my approval of the basic settlement itself due to the fact that Mr. Eizenga advised me that he was prepared to separate the approval of the settlement proper from the approval of the fees so that the settlement could proceed. In other words, counsel were prepared to "take their chances" on the fees issue in order to allow the settlement itself to move forward. I wish to commend plaintiff's counsel for the manifest fairness they demonstrate in taking that position.

60 Class Counsel's fees were resolved through a process of negotiations between the parties. Ultimately it was agreed that DuPont would pay fees and disbursements to Class Counsel in the total amount of $4.5 million inclusive of taxes. This amount includes the anticipated costs associated with the continued work required of Class Counsel as the implementation of the settlement proceeds. It bears repeating that the amount of the fees which DuPont has agreed to pay is over and above the amount set aside to address the claims of settlement class members.

61 Class Counsel, at some earlier point, entered into retainer agreements with the representative plaintiffs which provide that Class Counsel would pay all expenses associated with the litigation and would only be paid legal fees and be reimbursed for disbursements and taxes in the event of success in the litigation. The agreements provided for payment on the basis of a contingency fee of 30% of the first $10 million, or any part thereof, of damages awarded, 20% of the second $10 million or any part thereof, and 10% of all additional amounts, plus disbursements and taxes. These retainer agreements have not, as yet, been approved by the court as required by section 32(2) of the Class Proceedings Act, 1992 which states:

"An agreement respecting fees and disbursements between a solicitor and a representative party is not enforceable unless approved by the court, on the motion of the solicitor."

If the court does not approve the retainer agreements, then the court is to determine the amount owing to the solicitors for fees and disbursements under section 32(4) of the Act. Co-counsel in British Columbia and Quebec were retained under comparable contingency terms.

62 In support of their request for approval of the amount to be paid under the settlement for fees and disbursements, Class Counsel point to the fact that the value of the Settlement Agreement would give rise, under the retainer agreements, to Class Counsel being entitled to legal fees of $6,050,000 plus disbursements and taxes. The $4,500,000 inclusive of disbursements and taxes which DuPont has agreed to pay is clearly below that amount. In fact, after taxes and disbursements, the fees that will be paid are $3,023,956 which is almost exactly one-half of the amount provided for in the retainer agreements. Page 18

63 Class Counsel also point to the fact that significant time has been expended by them in pursuing this litigation. To date, I am told that the time invested in the file by all co-counsel is approximately $3,098,928 including taxes valued at regular hourly rates. Further, Class Counsel funded all of the disbursements associated with advancing the claims and did not apply to the Class Proceedings Fund for assistance. I am told that disbursements in excess of $1,279,507 inclusive of taxes have been incurred to date.

64 Class Counsel also note that considerable work remains to be done by them respecting the settlement including:

(a) responding to questions from class members regarding the Settlement Agreement; (b) assisting class members with the completion and submission of their claims; (c) assisting class members with the appeals process where necessary; (d) monitoring the quality of service of the CPCF; (e) involvement in any other matters which may arise as the Settlement Agreement is implemented.

65 Finally, Class Counsel offer certain comparatives to justify the fees to be received. They say that the fees and disbursements and taxes to be paid amount to 14.75% of the total value of the settlement. Once disbursements and taxes are paid, the legal fees remaining will amount to only 9.5% of the total value of the settlement. Class Counsel are required to pay all disbursements before applying settlement monies to fees. In this case, as I noted above, after the payment of all disbursements and applicable taxes, approximately $3,023,956 of the $4,500,000 will remain to pay fees. This equates to a multiplier of approximately 1.04 on the total time expended to date on the litigation by Class Counsel (including co-counsel).

66 I raised with counsel at the hearing a few concerns. First, I questioned my jurisdiction to approve fees for solicitors outside the Province of Ontario. In other words, I am uncertain on what basis I would necessarily approve the fees of lawyers from British Columbia, Quebec and the United States. For one thing, assuming that I can claim some knowledge, as part of my experience in fixing the costs of proceedings generally in this court, regarding the prevailing rates for lawyers in Ontario as well as some general idea of the amount of time that certain matters consume in the process of being litigated in Ontario, I am clearly without that level of knowledge when it comes to other jurisdictions. I also question why this court is being asked to pass on the fees to be received by lawyers in British Columbia and Quebec when the courts of those Provinces must also give their approval to the settlement.

67 Second, even assuming that I should approve the fees of all counsel involved, I am being asked in this case to approve a lump sum or block fee which the various lawyers involved will subsequently divide up among themselves. I am not convinced that that is the appropriate approach. Page 19

It seems to me that counsel ought to have decided already what each group of counsel involved is going to receive from the total fees so that I can, in turn, measure the amount which each counsel group is to receive against their contribution to the overall prosecution of the litigation.

68 Third, I also questioned the appropriateness of using time spent on the certification motion as a justification for the reasonableness of the fees to be received. DuPont did not participate in the certification motion. The certification motion only involved the non-settling defendants and it was unsuccessful - at least it was before me. Certification has not been argued in the other Provinces. I question whether the time spent in a losing endeavour can provide a justification for the fees arising from a separate settlement. I will leave that concern at this time, however, as I intend to return to the whole issue of the approval of the fees at a later date.

69 As may be apparent, I am not prepared to approve the fees sought at this time. I am therefore going to adjourn the motion insofar as it seeks the approval of the fees. That aspect of the motion may be brought back before me once counsel have addressed at least the second concern by agreeing on the distribution that is to be made among themselves of the fees which are sought to be approved. Before bringing the matter back, however, counsel ought to consider how to address the first concern. In that regard, counsel may wish to consider whether it is more appropriate to ask each of the courts, before whom approval must be sought, to only approve the fees for the lawyers in their specific Province. That route, however, raises other issues including which court should approve the fees being paid to U.S. counsel and what happens to any "surplus" created if a court reduces the fees for a particular group of counsel. Another alternative which counsel may wish to consider is whether some form of joint hearing by all three courts has to be held to address these issues.

70 On a final point, I suggest that any issue about the costs arising from this motion be addressed when the matter is brought back before the court for the final approval of the settlement. I will leave it up to counsel to determine if that final approval should await the approval hearings in Quebec and British Columbia in case further issues arise with respect to the basic settlement. cp/e/qlrme Page 1

Case Name: Sa'd v. Remington Group Inc.

Proceeding under the Class Proceedings Act, 1992 Between Samir Sa'd, Plaintiff, and The Remington Group Inc., Rouge Residences I Inc. and Rouge Residences II Inc., Defendants

[2013] O.J. No. 978

2013 ONSC 1404

115 O.R. (3d) 627

Court File No. 11-CV-434778

Ontario Superior Court of Justice

P.M. Perell J.

Heard: March 6, 2013. Judgment: March 6, 2013.

(42 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Class counsel -- Fees -- Settlements -- Approval -- Motion by the plaintiff Sa'd for certification of his action as a class action, for approval of a settlement and for approval of class counsel's fee allowed -- The members of the proposed class purchased condominium units from the defendants -- Sa'd advanced claims for damages for breach of contract, unjust enrichment and negligent misrepresentation -- The defendants agreed to pay $578,000 to a settlement fund -- Counsel requested fees of $144,500 plus disbursements -- All of the criteria for certification were met -- The settlement agreement was fair and reasonable and class counsel's fee request was also reasonable -- Class Proceedings Act, s. 5(1).

Legal profession -- Barristers and solicitors -- Compensation -- Fees and disbursements -- Professions -- Legal -- Barristers and solicitors -- Motion by the plaintiff Sa'd for certification of his action as a class action, for approval of a settlement and for approval of class counsel's fee allowed Page 2

-- The members of the proposed class purchased condominium units from the defendants -- Sa'd advanced claims for damages for breach of contract, unjust enrichment and negligent misrepresentation -- The defendants agreed to pay $578,000 to a settlement fund -- Counsel requested fees of $144,500 plus disbursements -- All of the criteria for certification were met -- The settlement agreement was fair and reasonable and class counsel's fee request was also reasonable -- Class Proceedings Act, s. 5(1).

Professional responsibility -- Self-governing professions -- Remuneration -- Fees -- Motion by the plaintiff Sa'd for certification of his action as a class action, for approval of a settlement and for approval of class counsel's fee allowed -- The members of the proposed class purchased condominium units from the defendants -- Sa'd advanced claims for damages for breach of contract, unjust enrichment and negligent misrepresentation -- The defendants agreed to pay $578,000 to a settlement fund -- Counsel requested fees of $144,500 plus disbursements -- All of the criteria for certification were met -- The settlement agreement was fair and reasonable and class counsel's fee request was also reasonable -- Class Proceedings Act, s. 5(1).

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, s. 5(1), s. 29(2)

Counsel:

Sean M. Grayson for the Plaintiff.

Michael F. Cooper for the Defendants.

REASONS FOR DECISION

P.M. PERELL J.:--

I. INTRODUCTION

1 The Plaintiff, Samir Sa'd brings a motion: (a) to have his action certified as a class action under the Class Proceedings Act, 1992, S.O. 1992 for settlement purposes; (b) for approval of the Settlement Agreement signed on January 23, 2013; and (c) for approval of Class Counsel's fee. Class Counsel is the law firm of Roy Elliott O'Connor LLP. There are also requests for ancillary relief.

2 The Defendants, The Remington Group Inc., Rouge Residences I Inc. ("Rouge I"), and Rouge Residences II Inc. ("Rouge II") consent to Mr. Sa'd motions for certification and for approve of the Page 3

Settlement Agreement.

II. FACTUAL BACKGROUND

3 Mr. Sa'd and other members of the proposed class purchased condominium units from Rouge I and Rouge II in a development in Markham, Ontario that included the Rouge Bijou Condominium Residences. Mr. Sa'd alleges that they were overcharged for development charges. There are approximately 400 class members.

4 The Defendants Remington Group, Rouge I, and Rouge II were the developers of the residential project in Markham.

5 On September 12, 2011, Mr. Sa'd commenced this proposed class action, and on September 29, 2011, the Defendants delivered a Notice of Intent to Defend.

6 In his Statement of Claim, Mr. Sa'd advances claims for general damages in breach of contract, unjust enrichment, and/or negligent misrepresentation.

7 No steps were taken in the litigation, but the parties attempted to settle the action.

8 A serious risk in pursuing the litigation is that Rouge I and Rouge II were likely judgment proof and the claim against Remington Group would depend upon piercing the corporate veil.

9 After months of negotiations, the parties signed a Settlement Agreement dated January 23, 2013.

10 From the negotiations, Mr. Sa'd determined that purchasers had different responses to the development charges; that is: (a) Some purchasers paid the full amount of the disputed charges; (b) Some purchasers paid $3,000 of the disputed charges; (c) Some purchasers signed an Amendment to the Agreement of Purchase and Sale that capped the adjustments due on closing; (d) Some purchasers paid the disputed charges at closing, but upon complaint were given additional consideration and signed a Full and Final Mutual Release (the "Levy Adjustment Release"); (e) Some purchasers disputed the development charge increase and paid the charge in escrow which funds have or are being returned to them; and (f) Some purchasers were successful in the Small Claims Court and have been reimbursed.

11 The Settlement Agreement will provide compensation to those purchasers in categories (a) to (d) above. There are 257 individuals in categories (a), (b) and (c). There are 145 individuals in category (d).

12 The key terms of the Settlement Agreement are as follows:

* The Defendants have agreed to pay $578,000.00 to a settlement fund, to be divided among two groups of Class Members; non-releasing and releasing Page 4

Class Members. * Non-Releasing Class Members (Class Members who did not sign a release in favour of any of the Defendants) will receive their pro rata share of approximately $400,875.00. * The share of Non-Releasing members will depend upon the number of opt-outs. If no opt-outs are received, Class Members who paid $3,000.00 will recover approximately $1,978.27 less legal fees. Thus, for example, if the Court approves a contingency fee of 25%, Class Members who paid $3,000 would receive a net recovery of $1,483.70. By way of further example, for class members that paid $7,680.59, they would receive a gross amount of approximately $5,064.75 less legal fees for a net amount of $3,798.56. * Class Members who previously signed a Levy Adjustment Release on closing will receive $300 less legal fees for a net amount of approximately $225 each. * The Settlement Agreement provides that this settlement is dependent on the number of class members participating in this settlement. If more than 10 Non-Releasing Class Members who are to be paid their pro rata share of the settlement fund opt out, or more than 15 Releasing Class Members opt-out, the Settlement Agreement will be void and of no effect for all Class Members. * The Defendants may, at their sole discretion, agree to a higher participation threshold.

13 Counsel is requesting legal fees of $144,500.00 plus disbursements to be deducted from the settlement fund. This is 25% of the total settlement fund under the retainer agreement between Mr. Sa'd and Class Counsel

III. CERTIFICATION

14 Pursuant to s. 5(1) of the Class Proceedings Act, 1992, the court shall certify a proceeding as a class proceeding if: (a) the pleadings disclose a cause of action; (b) there is an identifiable class; (c) the claims or defenses of the class members raise common issues of fact or law; (d) a class proceeding would be the preferable procedure; and (e) there is a representative plaintiff or defendant who would adequately represent the interests of the class without conflict of interest and there is a workable litigation plan.

15 Where certification is sought for the purposes of settlement, all the criteria for certification must still be met: Baxter v. Canada (Attorney General) (2006), 83 O.R. (3d) 481 (S.C.J.) at para. 22. However, compliance with the certification criteria is not as strictly required because of the different circumstances associated with settlements: Bellaire v. Daya, [2007] O.J. No. 4819 (S.C.J.) at para. 16; National Trust Co. v. Smallhorn, [2007] O.J. No. 3825 (S.C.J.) at para. 8; Nutech Page 5

Brands Inc. v. Air Canada, [2008] O.J. No. 1065 (S.C.J.) at para. 9.

16 The proposed class is defined as follows:

All individuals, corporations or partnerships who or which purchased condominium units from the Defendants or any of one of them, in the properties known as Rouge Residences I and II and who were charged by and paid to the Defendants, or any one of them, an increased development and/or other charge above what the Defendants were themselves charged, but not including the Individuals Who Paid Into Escrow and the Small Claims Court Claimants.

17 The proposed common issue is as follows:

Did the Defendants, or any of them, charge the class excess development fees?

18 Having reviewed the motion record, I am satisfied that all of the criteria for certification set out in s. 5 of the Class Proceedings Act, 1992 have been satisfied.

IV. SETTLEMENT APPROVAL

19 Under s. 29(2) of the Class Proceedings Act, 1992, a settlement of a class proceeding must be approved by the court to be binding on the parties.

20 To approve a settlement of a class proceeding, the court must find that in all the circumstances the settlement is fair, reasonable, and in the best interests of those affected by it: Dabbs v. Sun Life Assurance, [1998] O.J. No. 1598 (Gen. Div.) at para. 9; Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.) at paras. 68-73.

21 In determining whether to approve a settlement, the court, without making findings of facts on the merits of the litigation, examines the fairness and reasonableness of the proposed settlement and whether it is in the best interests of the class as a whole having regard to the claims and defences in the litigation and any objections raised to the settlement: Baxter v. Canada (Attorney General) (2006), 83 O.R. (3d) 481 (S.C.J.) at para. 10.

22 When considering the approval of negotiated settlements, the court may consider, among other things: (a) likelihood of recovery or likelihood of success; (b) amount and nature of discovery, evidence or investigation; (c) settlement terms and conditions; (d) recommendation and experience of counsel; (e) future expenses and likely duration of litigation and risk; (f) recommendation of neutral parties, (g) if any; number of objectors and nature of objections; (h) the presence of good faith, arms- length bargaining and the absence of collusion; (i) the degree and nature of communications by counsel and the representative parties with class members during the litigation; and (j) information conveying to the court, the dynamics of and the positions taken by the parties during the negotiation: Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429 Page 6

(Gen. Div.) at pp. 440-44, aff'd (1998), 41 O.R. (3d) 97 (C.A.), leave to appeal to S.C.C., [1998] S.C.C.A. No. 372; Parsons v. The Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.) at paras. 71-72; Frohlinger v. Nortel Networks Corp., [2007] O.J. No. 148 (S.C.J.) at para. 8; Kelman v. Goodyear Tire and Rubber Co., [2005] O.J. No. 175 (S.C.J.) at paras. 12-13; Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd. (2005), 74 O.R. (3d) 758 (S.C.J.) at para. 117; Sutherland v. Boots Pharmaceutical plc, [2002] O.J. No. 1361 (S.C.J.) at para. 10.

23 A reasonable and fair settlement is inherently a compromise and a reasonable and fair settlement will not be and need not be perfect from the perspective of the aspirations of the parties. That some class members are disappointed or unsatisfied will not disqualify a settlement because the measure of a reasonable and fair settlement is not unanimity or perfection. See: Baxter v. Canada (Attorney General), [2006] O.J. No. 4968 (S.C.J.) at para. 21; Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.) at p. 440, aff'd (1998), 41 O.R. (3d) 97 (C.A.), leave to appeal to S.C.C., [1998] S.C.C.A. No. 372.

24 In the case at bar, the Settlement Agreement was the product of arms-length good faith negotiations between counsel for the parties. Under the agreement, the Defendants have agreed to settle this action by establishing a settlement fund of $578,000.00 to be distributed among members of the Class in accordance with the terms of the Settlement Agreement. If this settlement is approved Class members will receive a refund of between 52% to 73% of the disputed development charges.

25 It is the opinion of Class Counsel that in the circumstances the Settlement Agreement is fair and reasonable and in the best interests of the Class Members. Mr. Sa'd also supports the settlement.

26 There was one objector to the settlement. The objection was as follows:

[I]if the builder is willing to settle, they should pay each class action member back the full amount that is owed ... AND the builder should pay for your firm's legal expenses. The final amount paid to the class action members should not be less than what we over-paid to the builder. It does not seem fair that we still do not get full restitution from the builder. This is not enough of a punitive measure against the builder. Class action members paid the builder in good faith at closing and they essentially ripped us off for a few thousand dollars each.

27 The objector is disappointed in the amount of the settlement, but that disappointment does not show that the settlement is unfair or unreasonable or that it is not in the best interests of the class members, which is my own conclusion. The objector also has the alternative of opting out of the class and suing in Small Claims Court for a full recovery with the attendant risks and transaction costs.

28 In my opinion, the settlement is a fair and reasonable one. The case at bar is an example of the Class Proceedings Act, 1992 working for its intended purposes of providing access to justice, Page 7

behaviour modification, and judicial economy. It is unlikely that but for a class action that the 400 class members would have obtained access to justice.

29 I approve the settlement in accordance with the Class Proceedings Act, 1992.

V. FEE APPROVAL

30 On July 6, 2001, Mr. Sa'd and Class Counsel entered into a retainer agreement that provides for a 25% contingency fee calculated after all expenses including disbursements have been deducted.

31 The services performed by Class Counsel before this hearing have a value of approximately $150,000.00 pre-tax, totaling approximately $170,000.00 in fees inclusive of HST.

32 Class Counsel is requesting to be paid its contingency fee of 25% of the Settlement Fund as agreed to in the Retainer Agreement inclusive of taxes and disbursements. Its fee request is $144,500.00 inclusive of tax and disbursements. Thus, the fees requested are less than the value of the services rendered.

33 Class Counsel will expend additional time and incur additional disbursements in finalizing this proceeding.

34 Class Counsel is also seeking to have approval of a referral fee of 15% paid out of its fee paid to Carlson & Kociper PC by Class Counsel. This payment will not result in any additional payments from the class.

35 Mr. Sa'd consents and supports the payment of the fees being requested by Class Counsel. He also consents and supports referral payment from Class Counsel to Calrson & Kociper PC.

36 The fairness and reasonableness of the fee awarded in respect of class proceedings is to be determined in light of the risk undertaken by the lawyers in conducting the litigation and the degree of success or results achieved: Maxwell v. MLG Ventures Ltd. (1996), 30 O.R. (3d) 304 (Gen. Div.); Windisman v. Toronto College Park Ltd., [1996] O.J. No. 2897 (Gen. Div.); Serwaczek v. Medical Engineering Corp., [1996] O.J. No. 3038 (Gen. Div.); Parsons v. Canadian Red Cross Society (2000), 49 O.R. (3d) 281 (S.C.J.).

37 Where the fee arrangements are a part of the settlement, the court must decide whether the fee arrangements are fair and reasonable, and this means that counsel are entitled to a fair fee, which may include a premium for the risk undertaken and the result achieved, but the fees must not bring about a settlement that is in the interests of the lawyers, but not in the best interests of the Class Members as a whole: Sparvier v. Canada (Attorney General), [2006] S.J. No. 752 (Q.B.) at para. 43, aff'd [2007] S.J. No. 145 (C.A.).

38 Fair and reasonable compensation must be sufficient to provide a real economic incentive to Page 8

lawyers to take on a class proceeding and to do it well: Gagne v. Silcorp Ltd. (1998), 41 O.R. (3d) 417 (C.A.); Parsons v. Canadian Red Cross Society (2000), 49 O.R. (3d) 281 (S.C.J.); Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 (S.C.J.) at paras. 59-61.

39 Factors relevant in assessing the reasonableness of the fees of Class Counsel include: (a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (c) the degree of responsibility assumed by Class Counsel; (d) the monetary value of the matters in issue; (e) the importance of the matter to the class; (f) the degree of skill and competence demonstrated by Class Counsel; (g) the results achieved; (h) the ability of the class to pay; (i) the expectations of the class as to the amount of the fees; (j) the opportunity cost to Class Counsel in the expenditure of time in pursuit of the litigation and settlement: Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 (S.C.J.) at para. 67; Endean v. Canadian Red Cross Society, [2000] B.C.J. No. 1254 (S.C.); Wamboldt v. Northstar Aerospace (Canada) [2009] O.J. No. 2583 (S.C.J.) at para. 33.

40 In my opinion, considering the facts described above and the factors relevant to assessing the reasonableness of Class Counsel's fee request, I am satisfied that Class Counsel's fee request should be approved, and I do so in accordance with the Class Proceedings Act, 1992.

VI. CONCLUSION

41 For the above reasons, I certify this action for settlement purposes, approve the settlement, and approve Class Counsel's fee as requested.

42 Order accordingly

P.M. PERELL J. cp/e/qllqs/qlrdp/qlhcs Page 1

Indexed as: Isaacs v. Nortel Networks Corp.

Between Robert Isaacs, plaintiff, and Nortel Networks Corporation, defendant

[2001] O.J. No. 4851

[2001] O.T.C. 885

15 C.C.E.L. (3d) 78

31 C.C.P.B. 41

16 C.P.C. (5th) 69

110 A.C.W.S. (3d) 246

Court File No. 01-CV-17707

Ontario Superior Court of Justice

Charbonneau J.

Heard: September 20, 2001. Judgment: October 19, 2001.

(54 paras.)

Practice -- Persons who can sue and be sued -- Individuals and corporations, status or standing -- Class or representative actions, certification, considerations.

Motion by the plaintiff, Isaacs, to certify the action as a class proceeding pursuant to section 5 of the Class Proceedings Act. Isaacs claimed that he and a large number of other employees were wrongfully dismissed by the defendant, Nortel Networks. Isaacs claimed that he and others had received only minimum notice together with an offer of a severance package which was well below what they were entitled to receive under applicable common law principles regulating dismissal without cause. Page 2

HELD: Motion allowed. The criteria set out in section 5 of the Act had been met. The statement of claim disclosed a cause of action, namely, wrongful dismissal and breach of contract. There was an identifiable class that could be represented by Isaacs. Although some issues would be specific to individual plaintiffs, such as the determination of the reasonable notice period for each employee, there were numerous common issues between the various class members. A class action was a preferable procedure for the resolution of the common issues. The individual issues to be resolved would be greatly advanced by the class proceedings and there would be substantial economies for all parties of a collective resolution in one trial. The action was certified as a class action with respect to certain common issues.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, ss. 1, 5(1), 8, 37.

Counsel:

Dougald Brown, for the plaintiff. I.H. Fraser and Mary J. Gleason, for the defendant.

CHARBONNEAU J.:--

Introduction

1 This is a motion brought by the plaintiff to certify this action as a class proceeding pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the "Act").

2 The plaintiff contends that he was wrongfully dismissed and claims damages arising from the failure of the defendant to provide reasonable notice of termination of his employment or payment in lieu thereof including:

i) loss of salary and other monetary compensation during the reasonable notice period; ii) loss of benefits during the reasonable notice period; iii) loss of retiree benefits; iv) pension loss; v) loss of Transitional Retirement Allowance; vi) loss of contributions to the Nortel Investment Plan during the reasonable notice period; and, vii) loss of stock option benefits during the reasonable notice period; Page 3

3 The plaintiff alleges that starting in December 2000, his dismissal and that of a large number of other employees was carried out by Nortel for the purpose of reducing its workforce. The plaintiff further alleges that Nortel provided only minimum notice together with an offer of a severance package which was well below what he was entitled to receive under applicable common law principles regulating dismissal without cause.

4 The plaintiff brings this action on his own behalf and on behalf of all members of the following class:

All persons employed by Nortel Networks Corporation in Ontario who received notice of termination of employment at any time on or after December 1, 2000 until the date of certification of this proceeding who, at the time of receipt of notice of termination, were fifty (50) years of age or older and had a vested right to a pension benefit. The class does not include employees who have executed a binding full and final release in favour of Nortel, or who were dismissed for just cause, or who were unionized employees in a bargaining unit.

Background Facts

5 Nortel is a very large corporation carrying business in the field of telecommunications and networking technologies.

6 As a result of extensive reporting in the media as outlined in the affidavit material, it is a well-known fact that Nortel is in the process of rationalizing its operations due to financial difficulties created by a downturn in market conditions. An important component of this rationalization is the downsizing of its workforce. There is evidence before the court that as much as 30,000 employees have been layed off worldwide in the last year. This number represents about 1/3 of the Nortel's total workforce.

7 The plaintiff is 54 years of age. He worked 33 years with Nortel and since 1991 he held a senior management position. On May 31, 2001 he was notified that his employment would terminate as of July 30, 2001. The notice of dismissal was combined with a settlement proposal. Mr. Isaacs was offered two options. The options may be described as follows: In Option A, he retires two months after receiving the notice, receives his pension entitlement plus, as an incentive, a lump sum payment equivalent to 6 months of salary and other benefits. In Option B, should he elect not to retire, he is terminated and paid a lump sum payment in lieu of notice, equivalent to approximately 16 months of salary. The lump sum payment would be subject to reduction if the plaintiff obtained gainful employment with Nortel or another employer during the sixteen-month period. In both cases, the plaintiff would have to sign a full and final release of any further claim against Nortel.

8 A number of employees fifty (50) years of age or over were dismissed starting in December 2000. They all received a similar although not identical proposal. The plaintiff alleges that all the members of the proposed class are entitled to much more by way of severance payments and Page 4

benefits than either option provides.

9 The defendant strongly resists the plaintiff's claim for certification.

The Test for Certification

10 The test for certification of a class proceeding is prescribed by s. 5 of the Act, which provides as follows:

5.-(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if

(a) the pleadings or the notice of application discloses a cause of action; (b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant; (c) the claims or defences of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class. (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues, for the class, an interest in conflict with the interests of other class members.

(a) Cause of action:

11 The statement of claim discloses a cause of action namely wrongful dismissal. This is conceded by the defendant. The cause of action is for breach of contract, the plaintiff alleging that the defendant breached the implied term of the employment contract requiring the defendant to give the plaintiff reasonable notice of his dismissal. As a general rule, the plaintiff and other class members would be entitled to damages equivalent to all the salary and benefits they would have been entitled to if they had continued as employees of Nortel for the reasonable notice period. Without admitting what any given dismissed employee would actually receive during that period, Nortel concedes that damages would be quantified based on this general rule subject to the issue of mitigation and the receipt of salary and/or benefits from another employer during the relevant period. Page 5

(b) Identifiable action:

12 Nortel does not take the position that there is no identifiable class. Rather, the defendant takes the position that the class proposed by the plaintiff is deficient in several respects. First of all, Nortel points to the fact that the class excludes "employees who have executed a binding full and final release". In other words, the proposed class purports to include those who have signed a release but whose release is found not to be binding. The defendant submits that this would then make the class definition dependent on the resolution of that particular issue.

13 The weight of the reported decisions in this area favour a definition which is precise, objective and presently ascertainable. On that basis, in Bywater v. T.T.C. (1998), 27 C.P.C. (4th) 172, Winkler J. rejected a suggestion by the defendant that the class be restricted to the passengers in the train who had actually suffered injury resulting from smoke inhalation and not only those who were exposed to smoke. He reasoned that this restriction would have for result the necessity of determining whether the potential class member had suffered injury from smoke inhalation before being able to determine if he or she was a member of the class. Winkler J. felt that this would run counter to the three purposes of a class definition namely:

1. Identifying those persons who have a potential claim for relief against the defendant. 2. Defining the parameters of the lawsuit so as to identify those persons who are bound by its result, and 3. Describing who is entitled to notice.

14 The plaintiff indicates that some of the individuals who would otherwise qualify as class members have opted for either option A or B and signed releases not to seek further relief as required by Nortel. The plaintiff submits that these releases are likely invalid because the release were signed when Nortel had failed to properly disclose that it had triggered the application of clause 11.2 of the Pension Plan. The defendant's representative has admitted since the delivery of the statement of claim that clause 11.2 was invoked by Nortel. The plaintiff maintains that this would have important impact on the pension entitlements of all dismissed employees. The plaintiff submits that s. 74(1) of the Pension Benefits Act [R.S.O. 1990, c. P.8] would apply to this situation and would provide substantially enhanced pension benefits on termination in the form of "grow-in rights". The plaintiff, therefore, submits that the releases would be found invalid because of misrepresentation and/or failure to disclose all material facts.

15 The plaintiff did not sign a release and the plaintiff's statement of claim did not plead and rely on clause 11.2 and/or the applicable provisions of the Pension Benefits Act.

16 The plaintiff submits that notice of the class action should be provided to all dismissed employees who otherwise qualify, irrespective of the existence of a release. At a later date, if the issue of the release comes up, that issue may be determined as a common issue for those members of the class who have signed a release. A sub-class could be established for that purpose. Page 6

17 There are several difficulties with the plaintiff's position. First of all, the plaintiff's claim, as disclosed by the statement of claim, does not raise in any way the issue of a non-binding release. Indeed, the plaintiff has not settled his claim with Nortel and hence not signed any type of release. The cause of action as pleaded is fundamentally different than what it would be with this added issue. The issue of the binding nature of any given release will in large part be an inquiry into individual facts. For each individual who signed a release, the particular misrepresentation or failure to inform will necessitate an inquiry into the particular circumstances giving rise to the signing of the release. It will vary from case to case and be subject to elements like presence or absence of independent legal advice, the actual information and knowledge of the individual when he/she signed the release and to what extent he/she relied on the information coming directly from the defendant.

18 The issue of the existence of a binding release becomes a threshold issue, the resolution of which may make the other issues moot. Moreover, if a release is declared invalid, many different and complex issues will likely arise.

19 I have come to the conclusion that the class definition should simply exclude all the employees who have settled their claim with Nortel and signed a release. The class definition will be amended accordingly.

20 The defendant also objected to the word "vested" and suggested that it be replaced by the words:

"either (i)two years continuous service while a member of the Nortel Networks Limited Managerial and Non-Negotiated Pension; or (ii) for employees aged 53 or older, two years continuous service with Nortel Networks."

The plaintiff agrees with this suggestion and the class definition will be varied accordingly.

21 The defendant also urged the court to create sub-classes based on the differences in the nature of the pension entitlement for various individuals. There is no need for sub-classes at this time. This matter may be raised at a later time if and when clearly divergent and conflicting interests arise.

22 The plaintiff submitted the following 16 common issues:

1. Were the Plaintiff and members of the Plaintiff class terminated without cause? 2. Were the Plaintiff and members of the Plaintiff class entitled to reasonable notice? Page 7

3. Does eight weeks' notice under the Employment Standards Act satisfy Nortel's obligation to members of the Plaintiff class under the Act and/or at common law? 4. Is Nortel entitled to require members of the Plaintiff class to sign a release in order to obtain payment in lieu of reasonable notice? 5. Are members of the Plaintiff class with more than five years' service entitled to severance pay of up to 26 weeks pursuant to s. 58(2) of the Employment Standards Act without signing a release in favour of Nortel? 6. Are the members of the Plaintiff class entitled to damages equal to the salary and bonuses they would have earned during the reasonable notice period? 7. Are the members of the Plaintiff class entitled to damages for loss of benefits during the reasonable notice period equal to the cost of benefit replacement or their out-of-pocket losses suffered as a consequence of being without insurance coverage during the reasonable notice period? 8. Are the members of the Plaintiff class who participate in Part I or Part II of the Nortel Pension Plan entitled to the difference between the commuted value of their pension benefit at termination and the commuted value of the pension benefit they would have been entitled to at the end of the reasonable notice period? 9. Are the members of the Plaintiff class who participate in Part III of the Nortel Pension Plan entitled to the difference between the value of their pension accounts at termination and the value their accounts would have had at the end of the reasonable notice period? 10. Does Nortel hold the opinion that the employment of a significant number of members of the Plan is being terminated as a result of the discontinuance or reorganization of part of Nortel's business? 11. Has Nortel given notice to the Administrator of the Pension Plan to grant terminated employees the same rights in respect of benefits that would otherwise be available on a partial termination under the Pension Benefits Act? If so, what are those rights and what are the effective dates of any special terminations invoked by Nortel under clause 11.2 of the Plan? 12. Has Nortel informed members of the Plaintiff class of their rights under either a voluntary or involuntary partial plan termination under either a special termination or a partial plan termination? 13. In the absence of disclosure by Nortel of pension rights under either a voluntary or involuntary partial plan termination, are releases signed by employees who would otherwise be in the Plaintiff class binding under either a special termination or a partial plan termination? 14. Are members of the Plaintiff class who meet the eligibility requirements of the TRA (age 55 and four years' service) at the end of the reasonable notice Page 8

period entitled to a TRA payment calculated as of the end of the reasonable notice period? 15. Are members of the Plaintiff class who otherwise meet the eligibility requirements for the TRA entitled to the TRA if they are terminated and do not sign a release in order to initiate an immediate pension? 16. Are members of the Plaintiff class who would be entitled to initiate an early retirement pension during the notice period entitled to compensation for Nortel's refusal to provide them with supplementary health and medical benefits provided to employees who retire from active employment?

23 During submissions, it was conceded by both sides that issue 9 was moot as Part III was not applicable to any class member.

24 In view of my ruling in relation to those employees who have signed a release, issue 13 is also not applicable.

25 Section 8(1) of the Act provides that a certification order should set out the common issues of the class. Section 1 of the Act defines "common issues" as:

a) common but not necessarily identical issues of fact, or b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts.

26 The basic principle which applies in relation to the element of common issue is that certification should be ordered if a common issue is identified by the court and the resolution of that common issue will meaningfully advance the litigation: see Carum v. Bre-X Minerals Ltd [2000] O.J. No. 4014 (Ont. C.A.). The corollary to this principle is that whether or not certification is ordered in relation to certain common issues, no particular issue should be identified and certified as a common issue unless the court is satisfied its resolution will meaningfully advance the litigation.

27 The defendant takes the position that the plaintiff cannot seek to have a common issue certified unless it is specifically and clearly raised within the four corners of the plaintiff's statement of claim. Here, the claim is confined to a claim for compensation as a result of an alleged wrongful dismissal. There is no mention of the Employment Standards Act or the Pension Benefits Act. As a result, issues 3, 4, 5, 10, 11, 12, and 15 cannot be common issues within the confines of this action as pleaded.

28 Mr. Fraser relies on this passage in Lau v. Bayview Landmark Inc. (1999), 40 C.P.C. (4th) 301 where Winkler J. states:

The connection between these elements (cause of action, identifiable class and common issues) is readily apparent in the conceptual nature of a class proceeding. A class cannot exist absent a core element of commonality. That Page 9

core element of commonality must arise from the cause of action as pleaded.

29 In Lau, Winkler J was setting out the principle that a common or similar cause of action is not enough although it is essential. It must also raise issues common to all the members of the class. This issue must in turn relate directly to the factual and legal scenario pleaded.

30 However, the mere fact that a specific head of compensation properly within the limits of the cause of action or even an alternative cause of action common to all members and clearly based on the same factual situation has not been specifically pleaded, should not warrant refusing to certify certain issues. This is particularly so if the statement of claim can be amended without prejudice to the defendant. It must be remembered that the action is at its inception. The statement of claim can still be amended without leave of the court.

31 Applying the above-noted principles, I have already concluded that issue 13 should not be certified. Similarly issues 4, 5, and 15 have no relevance to the plaintiff's claim. The defendant has made a settlement offer to the plaintiff which basically says we will provide you with A or B if you sign a release. Neither the acceptance nor refusal of the offer, nor the request for the execution of a release, are issues in the action. They are merely questions of settlement negotiations.

32 The defendant admits that common issues 3, 6, 7, 8, 14, and 16 are issues which must be decided for each member of the class. The defendant argues however that they are matters of individual damage assessment and that this will depend on a determination of the reasonable notice period for each individual, which will necessarily require the taking into account of individual factors such as failure to mitigate or actual alternative gainful employment with another employer during the notice period.

33 On the other hand, the plaintiff tries to justify the inclusion of these issues as common issues on the basis that their resolution would establish the common principles applicable to all assessments of the individual damages.

34 Issues 1 and 2 have been identified by the plaintiff as common issues which should be certified. I disagree. Issue 1 is a question of fact which would depend on the particular facts of each case. The defendant has apparently admitted in cross-examination that none of the potential members of the class was dismissed for caused. Counsel has reiterated that position during submissions. This is an action in contract not in tort. On that basis, the principle enunciated by Winkler J in Bywater v. TTC (supra) has no application. The defendant would have to plead cause and prove cause in any given case. I am of the view that the defendant's admissions would prevent them from doing so. On the other hand, if post-termination conduct was discovered against one or two individuals during the litigation, this would give rise to an individual not a common issue. In relation to issue 2, although it is a basic common issue of law for all members of the class, it cannot be said that the resolution of that issue in the context of a class action would meaningfully advance the litigation. Page 10

35 Issues 3, 6, 7, 8, 14 and 16 are certainly common issues. Although in some cases some of the issues appear to be the formulation of obvious legal principles, their resolution is nevertheless essential and to do so in the confines of a class action will bind all parties to the applicable principle. This will advance the litigation and particularly streamline and make more efficient the assessment of damages phase of the litigation. This is particularly the case for issues 7, 8, 14 and 16. The defendant is incorrect in saying the issues raise individual issues like length of notice and mitigation for each member. The defendant is simply identifying individual issues, which will need to be addressed during the second phase of the litigation.

36 The defendant submits that s. 37 of the Act precludes certification of the action with the common issues 10, 11 and 12. Section 37 of the Act states as follows:

37. This Act does not apply to:

(a) a proceeding that may be brought in a representative capacity under another Act; (b) a proceeding required by law to be brought in a representative capacity; or (c) a proceeding commenced before this Act comes into force.

37 The defendant argues that the wrongdoing alleged against Nortel, which is intended to be covered by these four issues, could all be the subject of complaints to the Superintendent under the Pension Benefits Act. As such, the defendant maintains the matters may be the subject of a representative proceeding before the Superintendent under the Pension Benefits Act.

38 The complaint before the Superintendent cannot be characterized as a representative proceeding for the purpose of s. 37 of the Act. The Pension Benefits Act provides for a two step process, the second step of which may or may not occur. The first step is a complaint to the Superintendent. Subsequently, the person affected by the Superintendent's decision may appeal to the Financial Services Tribunal. When this happens and only then, the Tribunal is granted exclusive jurisdiction to deal with the matter. Although, in certain circumstances an order by the Superintendent or ultimately by the Financial Services Tribunal may have the same effect as an order in a representative action, it cannot be said that all proceedings under s. 87 of the Pension Benefits Act necessarily have the hallmark of a representative action. In my opinion, it is simply an alternative proceeding, which could lead to similar results. This is particularly so when the action in question is one for wrongful dismissal and the main reason to invoke the provisions of the Pension Benefits Act is to properly assess the compensation to which the employee is entitled to receive during the reasonable notice period.

39 I adopt these words of Cummings J. in Stern v. Imasco Ltd. (1999), 38 C.P.C. (4th) 347 (Ont. S.C.) in relation to a claim of oppression under the Canada Business Corporations Act as being equally applicable to a proceeding pursuant to s. 87 of the Pension Benefits Act: Page 11

There are significant policy objectives underlying the CPA. These are meant to facilitate the administration of justice in redressing civil wrongs. The three objectives of the statute are to foster access to justice, provide for judicial economy and modify behaviour: Abdool v. Anaheim Management Ltd. (1995), 21 O.R. (3d) 453 (Ont. Div. Ct.) at p. 472. Where the criteria of the CPA are met such that certification would be given, then a claim of oppression under the CBCA should logically be able to be brought by way of a class proceeding. A purposive interpretation is to be given to the CPA. The utilization of the CPA is complementary and facilitative to achieving the objectives of the oppression remedy provisions of the CBCA.

As well, the statement of claim in the instant situation includes asserted claims beyond the claim of oppression. It would be anomalous and counterproductive to the policy goals of the CPA if there could be a class proceeding in respect of non-oppression claims and yet the claim of oppression had to be pursued as a separate action because of s. 37(a) of the CPA.

40 For all these reasons, I conclude that s. 37(a) does not constitute a bar to a class proceeding in relation to the plaintiff's claim based upon the rights conferred by the combined effects of s. 11.2 of the Pension Plan and s. 74 of the Pension Benefits Act.

Preferable Procedure

41 The defendant submits four reasons why a class action is not the preferable procedure to resolve the common issues:

1. All the individual members have large claims which they will have no difficulty in pursuing separately. Access to justice is therefore not an issue favouring a class action. 2. The real issue here is the assessment of the exact compensation, if any, owed to each individual. Results will likely be very different and some may not be entitled to any damages whatsoever. There is therefore no judicial economy because the common issues are "completely subsumed by the plethora of individual issues, which will necessitate individual trials for each class member": Hollick v. Toronto (City) (1999), 46 O.R. (3d) 257 (C.A.); Mouhteros v. DeVry Canada Inc. (1998), 41 O.R. (3d) 63 (Gen. Div.). 3. There would be no cost economies for the various plaintiffs and in fact those members who have no right to an immediate pension may be imposed additional costs and delays in relation to the actuarial evidence required for others. Page 12

4. The proposed class action deals with a number of dismissals made in the course of ongoing operations at Nortel over a set period. It does not deal with a single event of mass termination as a result of merger, closure, or insolvency.

42 The fact that the individual claims may be large is not a bar to certification as a class action. The fundamental test is whether one or more of the three goals of the Act will be promoted. Surely a number of important common issues have been identified. Their collective resolution in one trial in the context of a class action will greatly assist judicial economy. The Act provides for streamlined procedures which will also assist in that regard. It would be naive not to recognize that for any individual to launch and sustain an individual action against a behemoth such as Nortel is a daunting task even when the plaintiff may ultimately be awarded several hundred dollars. Access to justice would certainly be enhanced in a class proceeding.

43 It is true that in all claims there may be individual issues remaining to be resolved after the common issues have been determined. However, the resolution of the common issues will have greatly advanced the litigation. In many cases, the individual issues such as exact length of notice, mitigation and reduction for alternative income during the period will be simple issues which will likely not require a formal hearing. This is not a case where the individual issues are the only issues of substance and the common issues mere facade.

44 There will be substantial economies for all individuals at all stages of the proceeding. Many of the normal costs of litigation will be shared between all the members of the class. Many examinations for discoveries will be avoided totally or substantially shortened. If actuarial evidence will only benefit certain members of the class, there are mechanisms to ensure that these costs are shared only by those who derive a benefit from that evidence. It will be up to the representative plaintiff to deal with this and obtain court directions or the creation of a subclass if required.

45 Is there really a difference between a mass termination of 1/3 of a corporation's workforce as a result of merger as compare to as a result of a rationalization caused by a downturn in the economy? Is there a difference if the mass termination is carried out on the same day by a simultaneous notice to all employees as compared to by a number of notices over a three or six-month period?

46 One of the important elements in deciding this question will be the proposed class definition. That definition will need to specify a number of easily ascertainable objective elements which will ensure the greatest similarity of claim by all members. Here the definition only includes individuals over 49 years of age with certain vested pension rights and who have been dismissed within a specific period of time. Employees, who have signed a release, unionized employees in a bargaining unit or employees who have been dismissed for just cause are specifically excluded. This is a very homogenous group and once the plaintiff has been able to satisfy a court that all the elements in s. 5 of the Act are satisfied, there appears to be no discretion to deny certification.

Representative Plaintiff Page 13

47 I am satisfied that the proposed plaintiff would fairly and adequately represent the interests of the class. There is no apparent conflict of interest on the part of the proposed representative plaintiff with the interests of the other class members. It may be that one or more sub-class will be required but this will be left for a later date if and when established.

48 I had indicated to counsel that this motion would proceed in two phases, if I granted certification. The second phase will principally address the litigation plan. A better and more detailed litigation plan is required. The plaintiff is required to submit a new litigation plan. The plan will have to take into account the common issues as redefined by these reasons. It will also need to provide clear guidance as to the procedure that will be followed to decide the individual issues which will necessarily follow the resolution of the common issues.

Notice to Class Members

49 Nortel submits that it should be allowed to serve the notice of the class action on the class members. This would prevent disclosure to the plaintiff of the name and address of certain employees who wish this information kept confidential. In an affidavit filed in support of Nortel's position, Mr. Schnider states that one employee complains about having been solicited by the plaintiff's law firm. That employee apparently had her own counsel and was upset that another law firm was approaching her with this.

50 I fail to see the difficulty with a notice of class action being sent to the class members by the plaintiff's law firm. It is merely an information package. A class member may seek legal counsel to fully understand the notice. A notice of opting-out is included with the package and an employee may simply return it if he/she wishes not to participate in the class action. This is a simple process and I fail to see what confidential information or privacy right will be affected by allowing the representative Plaintiff to send the notices.

51 The representative plaintiff is the one with the legal duty to ensure that all class members are properly notified. I am of the opinion that that duty may not be delegated to the defendant or any other person.

Conclusion

52 The action is certified as a class action with common issues 3, 6, 7, 8, 9, 10, 11, 12, 14, and 16 subject only to delivery and approval of a more detailed litigation plan and a reformulation of the class definition and the common issues in accordance with the present reasons. The plaintiff shall provide the plan and the new list of common issues within twenty (20) days after which counsel are requested to communicate with my assistant to set a time for a teleconference to address any particular issues that may arise.

53 The time period in the class definition will cover the period from December 1st, 2000 to the date of the release of these reasons. Page 14

54 The interim order prohibiting Nortel from terminating payment of salaries and benefits will cease to have effect on the 31st day of October 2001.

CHARBONNEAU J. cp/d/qlala Page 1

Case Name: Chapman v. Benefit Plan Administrators Ltd.

RE: Brian Chapman, Plaintiff, and Benefit Plan Administrators Limited, David N. Harvey, Anthony F. Cooper, BBC Actuarial Services Limited, Welton Beauchamp Atlantic Inc., Plenus Consultants, Douglas Taylor, Tom Baldwin, Michael Edwards, David Flett, John Jansen, Robert Munro, Patrick Murdock, David Philp, Brian Taylor, Michael Ashby and Frank Biekx, Defendants Proceeding under the Class Proceedings Act, 1992

[2013] O.J. No. 3035

2013 ONSC 3318

Court File No. 08-CV-346438-CP

Ontario Superior Court of Justice

B.A. Conway J.

Heard: June 3, 4 and 11-13, 2013. Judgment: June 27, 2013.

(87 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Common interests and issues -- Definition of class -- Representative plaintiff -- -- Application by Chapman to certify class proceeding allowed -- Chapman commenced action against trustees, administrative agent and actuaries of benefit plan for negligence and breach of trust resulting from early retirement being permitted when plan having solvency issues -- It was not plain and obvious that claims against defendants could not succeed -- Class was readily identifiable and definition accepted -- Existence and breach of duty of care and causation were proper common issues -- Restitution and damage issues not certified as common questions -- Class proceeding was preferable method of addressing issues in claim -- Chapman appropriate representative plaintiff -- Class Proceedings Act, s. 5(1).

Pensions and benefits law -- Private pension plans -- Administration of pensions -- Administrators, Page 2

trustees and custodians -- Application by Chapman to certify class proceeding allowed -- Chapman commenced action against trustees, administrative agent and actuaries of benefit plan for negligence and breach of trust resulting from early retirement being permitted when plan having solvency issues -- It was not plain and obvious that claims against defendants could not succeed -- Class was readily identifiable and definition accepted -- Existence and breach of duty of care and causation were proper common issues -- Restitution and damage issues not certified as common questions -- Class proceeding was preferable method of addressing issues in claim -- Chapman appropriate representative plaintiff -- Class Proceedings Act, s. 5(1).

Application by Chapman to certify a class proceeding. Chapman commenced a proceeding against the trustees, administrative agent and actuaries of a benefit plan. The claim alleged that the defendants were negligent and in breach of trust by permitting workers to retire early at a time when the plan was having solvency issues. The defendants opposed the class certification.

HELD: The application was allowed. It was not plain and obvious that Chapman's damages claim, argument that the administrative agent owed plan members a duty of care, claim against the plan administrator in his personal capacity and the claim against the actuaries by beneficiaries of the pension plan for breach of fiduciary duty or negligence could not succeed. It was not plain and obvious that the claim against the trustees could not succeed if it was amended from negligence to breach of trust. The proposed class was derived from the membership of the plan during the class period and was therefore readily identifiable. The fact that class members might have different levels of recovery did not create a conflict within the class or make the class definition unacceptable. There was no basis to deny certification due to speculation the trustees might seek recovery of benefits from early retirees if the claim was successful which might create a conflict between early retirees and other class members. The existence and breach of a duty of care by the defendants and causation were proper common issues. The fact that the trial judge would need to examine decisions by various defendants over a period of years did not detract from the commonality of those issues. Restitution and damage issues were not certified. The nature of the appropriate remedy and how it should be calculated were better left to the trial judge. A class proceeding was the preferable method to address the issues raised in the claim. Chapman was an appropriate representative plaintiff. The defendants' argument that Chapman was in a conflict with other class members and suffered no damages because he had not yet retired was rejected. Chapman's litigation plan was satisfactory.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, S.O. 1992, c. 6, s. 5(1)

Pension Benefits Standards Act, 1985, R.S.C. 1985. c. 32 (2d. Supp.),

Pension Benefits Standards Regulations, 1985, SOR/87-19, s. 2(1) Page 3

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21

Counsel:

Geoffrey D.E. Adair, Q.C., for the Plaintiff.

Michael A. Eizenga, Jonathan G. Bell and Ilan Ishai, for the defendants Benefit Plan Administrators Limited and David N. Harvey.

John P. Mullen, for the defendants Anthony F. Cooper and BBC Actuarial Services Limited.

Jonathan Bida, for the defendants Douglas Taylor, Plenus Consultants and Welton Beauchamp Atlantic Inc.

Clifton P. Prophet and Nicholas Kluge, for the defendants John Jansen, Brian Taylor, David Flett, Mark Ashby, David Philip and Frank Biekx.

Freya Kristjanson and Amanda Darrach, for the defendants Tom Baldwin, Michael Edwards and Patrick Murdoch.

REASONS FOR DECISION (re: Certification Motion)

1 B.A. CONWAY J.:-- The plaintiff seeks to certify this action as a class proceeding.

2 The claim relates to the Eastern Canada Car Carriers Pension Plan (the "Plan"). The plaintiff claims that from January 1, 2000 to March 13, 2006 (the "Class Period"), the Plan trustees consented to granting early retirement benefits ("ERBs") to Plan members at a time when the Plan had ongoing solvency issues and could not afford these benefits.

3 In August 2007, the trustees reduced benefits and service benefits under the Plan, effective January 1, 2008, to address the Plan's solvency deficiency. The plaintiff has sued the Plan trustees, administrative agent and actuaries. He claims that the benefit and service credit reductions resulted (in part) from the defendants' negligence or breach of trust with respect to the granting of consent to payment of ERBs during the Class Period.

4 The plaintiff seeks to certify this action on behalf of a class comprised of all members, former members and retired members of the Plan, except those who were trustees during the Class Period.

5 For the reasons that follow, I certify this action as a class proceeding. Page 4

Overview

6 The Plan is a federally registered multi-employer, negotiated contribution, defined benefit plan. It was established by way of a pension trust agreement in 1962 and restated in 1971 between the Teamsters Union, Locals 938, 880 and 106, and the Motor Transport Industrial Relations Bureau of Ontario (Car Carriers Division).1 The Plan is funded by contributions from participating employers and Plan members negotiated through the collective bargaining process.

7 The Plan is administered by a board of trustees, half of whom are appointed by the union and half by the participating employers. The defendant trustees (the "Trustees") are alleged to have been trustees during the Class Period.

8 Pursuant to the trust agreement, the Trustees have broad administrative powers and are permitted to delegate certain of their rights and duties to an administrative agent. The defendant Benefit Plan Administrators Limited ("BPAL") was the administrative agent during the Class Period. The defendant Mr. Harvey was the President of BPAL during that time.

9 The trust agreement reserves the power to the Trustees to increase or reduce the rate of benefit accrued under the Plan and/or the amounts being paid to retired members.

10 The normal retirement age under the Plan is 65. However, a member is entitled to receive ERBs, with the consent of the Trustees on the advice of the Plan actuary, after reaching age 55 with the requisite years of service.2 According to the plaintiff, the Trustees had a regular practice of granting consent to payment of ERBs to any eligible member who applied for them.

11 The plaintiff's evidence is that up to December 31, 1999, the Plan was able to afford these ERBs, as it had a "solvency ratio"3 of at least 1. Over the next six years, however, the Plan's solvency ratio declined. According to actuarial reports prepared by the Plan's actuary, the Plan had a solvency ratio of .97 as at December 31, 2001, declining to .8 as at December 31, 2005.

12 These actuarial reports contained an assumption that there would be no consent to payment of ERBs. The plaintiff's position is that this assumption did not reflect the reality that the Trustees were in fact regularly consenting to granting ERBs.

13 The plaintiff's evidence is that despite this falling solvency ratio, the Trustees continued to consent to ERBs to all who applied. He states that in the first nine months of 2005 alone, 22 early retirement consents were given, increasing the Plan liabilities by $42,000 per month.

14 The plaintiff claims that by December 31, 2005, the solvency deficiency of the Plan was approximately $43 million. He does not claim that all of the solvency deficiency was attributable to the granting of consent to ERBs -- he acknowledges that it also resulted from changes in interest rate and mortality assumptions. However, based on his expert's report, he claims that one-third of the Plan's solvency liabilities, $14.5 million, resulted from the granting of consent to ERBs during Page 5

the Class Period.

15 The federal pension regulator, the Office of the Superintendent of Financial Institutions Canada ("OSFI") became involved. On March 17, 2006, it sent a letter to the Trustees (c/o BPAL) setting out its review of the actuarial valuation report of the Plan as at December 31, 2002. OSFI had numerous issues with that report, including the assumption that no future consents to payment of ERBs would be granted.

16 In March 2006, the Trustees announced that the Plan was ending the practice of granting consent to payment of ERBs.

17 OSFI issued an interim management report in July 2006. The OSFI report made various findings that the Trustees had not complied with pension legislation and OSFI guidelines, including that they granted consent to payment of ERBs after January 1, 2004 without first obtaining actuarial advice.

18 In August 2007, the Trustees announced that because the Plan was under-funded, it had approved a reduction in service credits and benefits for active, deferred and retired members of the Plan effective on or about January 1, 2008 (the "Benefit Reductions"). According to the plaintiff, the changes were:

* Pensions for retired members would be reduced effective January 1, 2008 by 10%. * Bridge benefits then being paid to some retired members would be reduced by 10% effective January 10, 2008. * Accrued benefits for active and deferred vested members would be reduced by 10% effective January 1, 2008. * Service benefits earned by active members on or after January 1, 2008 would be reduced as of that date from $88 per month to $70 per month per year of service.

19 In late 2009, most of the active members left the Teamsters Union and opted to terminate their membership in the Plan. They have or are in the process of joining the Canadian Auto Workers' Union (the "CAW") and becoming members of a new pension plan (the "CAW Plan"). Arrangements are being worked on (subject to regulatory approval) to transfer assets representing their entitlement under the Plan to the CAW Plan.

The Claim and the Defendants

20 The crux of the plaintiff's claim is this: but for the defendants' negligence and breach of trust in respect of the granting of consent to ERBs during the Class Period, the Plan's solvency deficiency as at December 31, 2005 would have been $14.5 million less. In turn, the Benefit Reductions would have been one-third less. The plaintiff seeks to recover that portion of the Benefit Reductions that is Page 6

attributable to the defendants' negligence and breach of trust.4

21 The plaintiff seeks to hold various parties responsible for his claim.

22 BPAL and Mr. Harvey: As noted, BPAL was the administrative agent for the Plan during the Class Period. The plaintiff alleges that Mr. Harvey was the individual at BPAL responsible for ensuring that BPAL's duties to the Plan were carried out. The plaintiff's position is that BPAL's role went beyond providing mere day-to-day administrative duties and that it provided advice and guidance to the Trustees.5 The plaintiff claims that BPAL and Mr. Harvey were negligent in performing their duties with respect to the Plan.

23 The Trustees: The plaintiff claims that the Trustees are the ultimate authority governing the Plan. The plaintiff originally claimed against the Trustees in negligence. At the hearing, counsel for the Trustees acknowledged that claims against trustees are generally framed in breach of trust and undertook to amend the statement of claim to allege breach of trust instead of negligence.

24 Mr. Cooper: He was the consulting actuary to the Plan from 1995 until 2004. The plaintiff pleads that he was negligent in performing his actuarial duties and that his employer BBC Actuarial Services Limited ("BBC") is vicariously responsible for his actions.

25 Mr. Taylor: The plaintiff alleges that Mr. Taylor became the consulting actuary to the Plan in early 2004, initially working with Mr. Cooper in 2003 and then replacing him as consulting actuary in 2004.6 The plaintiff claims that he was negligent in performing his actuarial duties and that his employers Welton Beauchamp Atlantic Inc. ("Welton") and Plenus Consultants ("Plenus") are vicariously responsible for his conduct.

Indemnity Undertaking

26 The plaintiff acknowledges that the Trustees have an indemnity from the Plan assets and that any judgment against the defendants may (directly or indirectly) have to be paid out of the Plan. The plaintiff recognizes that this might have created a conflict in the class because those who transferred to the CAW Plan will not be affected by any indemnity payment out of the Plan and those who remain in the Plan will be affected by an indemnity payment.

27 The plaintiff has therefore undertaken (the "Indemnity Undertaking") to limit the claim against each defendant to its several share of liability and to disavow any relief in respect of which the Plan is required to indemnify the defendant in question.

Certification Test

28 Section 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the "Act") states that the court shall certify an action as a class proceeding if:

(a) the pleadings or the notice of application discloses a cause of action; Page 7

(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant; (c) the claims or defences of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

29 The general principles are well settled:

* Certification requires "a cause of action shared by an identifiable class, from which common issues arise that can be resolved in a fair, efficient and manageable way that will advance the proceeding and achieve access to justice, judicial economy and the modification of behaviour of wrongdoers": Sauer v. Canada (A.G.), [2008] O.J. No. 3419 (S.C.J.), at para. 14, leave to appeal to Div. Ct. refused (2009), 246 O.A.C. 256. * The question is not whether the plaintiff's claims are likely to succeed on the merits but whether the claims can appropriately be prosecuted as a class proceeding: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 16. * The test for certification is to be applied in a purposive and generous manner, to give effect to the important goals of class actions: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, at paras. 26-29; Hollick, at paras. 15-16; Cavanaugh v. Grenville Christian College, 2012 ONSC 2995, 27 C.P.C. (7th) 271, at paras. 60-63, aff'd 2013 ONCA 139. * In order to succeed on a certification motion, the plaintiff requires only a minimum evidentiary basis for a certification order. It is necessary that the plaintiff show "some basis in fact for each of the certification requirements", other than the requirement in s. 5(1)(a) that the claim discloses a cause of action: Hollick, at para. 25.

First Requirement, s. 5(1)(a) - Cause of Action

30 The test under s. 5(1)(a) is the same as that under Rule 21 of the Rules of Civil Procedure, Page 8

R.R.O. 1990, Reg. 194. The claim should be permitted to proceed unless it is plain and obvious that it cannot succeed. No evidence is admissible for the purpose of the test. Allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proven and assumed to be true: see Cavanaugh, at paras. 64-67.

BPAL and Mr. Harvey

31 BPAL and Mr. Harvey argue that it is plain and obvious that a claim against them in negligence cannot succeed.

No Damages

32 They argue that the plaintiff cannot establish damages, an essential element of negligence, because:

* the Plan beneficiaries were never entitled to benefits at a certain level, as the Trustees had the power under the trust agreement to increase or decrease benefits; * the claim for damages is inherently flawed because it is based on a solvency test which is simply a theoretical tool; and * the proposed class has suffered no damages as a whole. Some members of the class received ERBs and those payments offset any damages that other class members may have suffered. The class damages are therefore a "zero sum game".

33 I reject these arguments.

34 First, the fact that the Trustees have the ability to adjust benefit levels does not eliminate a claim for damages where the benefits are reduced as a result of the defendants' alleged misconduct. To hold otherwise would insulate a trustee or any other defendant from the consequences of any wrongdoing that results in the depletion of the trust fund.7

35 Second, the claim for damages is not a claim for a theoretical solvency deficiency. The claim is for a portion of the Benefit Reductions that occurred as a result of the solvency deficiency.

36 Third, I do not accept the "zero sum game" argument. The claim is for losses sustained as a result of the Benefit Reductions. Some class members may be able to prove these losses. Some class members may not (e.g. if the ERBs they received offset any losses they sustained) -- in that case, the member's damages will be zero, not a negative amount. I fail to see how the fact that some members can prove damages while others cannot results in the overall class damages being equal to zero.

No Duty of Care from BPAL to Plan Beneficiaries Page 9

37 BPAL argues that it owed no duty of care to the Plan beneficiaries. It argues that its only duty was to the Trustees pursuant to its contract with them and that there are no facts alleged that would give rise to a duty of care to the beneficiaries. It relies on the case of Weldon v. Teck Metals Ltd., 2012 BCSC 1386, in which a claim was dismissed against a manager of pension plan funds.

38 In Weldon, Teck converted its employees' defined benefit plan to a defined contribution plan. The plaintiff brought a proposed class action against various defendants, including the "Society", the manager of the plan funds, claiming that the Society breached a duty to warn the plan beneficiaries of the conversion. The Society brought a successful summary judgment motion to dismiss the claim against it. The court found that under the terms of the Society's trust agreement with Teck, there was nothing that gave it a role in creating or advising on the terms of the pension plan, nor were there any facts alleged that went beyond the scope of its contract. As such, there were no facts or allegations that could give rise to a duty from the Society to the beneficiaries.

39 In Froese v. Montreal Trust Co. of Canada, (1996), 137 D.L.R. (4th) 725 (B.C.C.A.), leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 399, on the other hand (considered and distinguished by the court in Weldon), an employer ceased making contributions to a pension plan. The custodial trustee was found liable for failing to warn beneficiaries of the danger that created to the pension fund. The court held that a custodial or administrative trustee, in addition to contractual duties provided in the trust indenture, owes an overarching common law duty to consider the interests of beneficiaries. However, the court said this obligation arises only within the function assigned to or assumed by the trustee or administrator. Because the custodial trustee in that case was making payments from the fund, it had a duty to the beneficiaries to take action when the company stopped making its contributions into the fund.

40 What I take from those cases is that an administrative agent or custodial trustee may be found to have a common law duty to pension plan beneficiaries beyond the terms of its contract in certain circumstances. Whether that duty will arise will depend on the court's factual findings about the role played and functions assumed by the administrative agent or custodial trustee with respect to the pension plan.

41 The plaintiff pleads in that BPAL "is the day to day manager of the Plan and the Fund" (para. 18).8 He alleges that BPAL "inter alia, appoints such investment managers, Consulting Actuaries and Chartered Accountants as may be necessary to ensure both the businesslike operation of the Plan and its compliance with the Pension Benefits Standards Act, 1985 (Canada)". He alleges that BPAL appointed BBC to provide consulting actuarial services to the Plan (paras. 18 and 19).

42 In pleading the particulars of BPAL's alleged negligence, the plaintiff specifically ties BPAL's actions to the payment of ERBs. For example, he pleads that BPAL continued to advise the Trustees to grant consent to requests for early retirement during the Class Period and that BPAL knew or ought to have known that this advice would be relied upon by the Trustees (para. 26D(b)). He pleads that BPAL failed to obtain actuarial certificates prior to "granting consent to the payment of Page 10

[ERBs] (subject to later ratification by the Trustees)" (para. 26D(f)).

43 These facts are assumed to be true for purposes of the s. 5(1)(a) analysis. Given the breadth of the allegations about BPAL's managerial and advisory role with respect to the Plan, and in light of Weldon and Froese, it is not plain and obvious that the plaintiff cannot succeed in establishing that BPAL owed a duty of care to the Plan beneficiaries.

Mr. Harvey

44 Mr. Harvey argues that he cannot be sued in his personal capacity because the plaintiff has admitted that Mr. Harvey was acting in the course of his employment at all times. He argues that the claim against him is therefore subsumed in the claim against BPAL. He cites Canadian Imperial Bank of Commerce v. Deloitte & Touche (2003), 172 O.A.C. 59 (Div. Ct.) in support of this argument.

45 I disagree that CIBC stands for the general proposition put forth by Mr. Harvey. Rather, Swinton J. noted at para. 27,9 that "the Ontario Court of Appeal confirmed that officers or employees of a corporation can be held personally liable for tortious conduct, even when they are acting in the course of their duty, provided that the tort is properly pleaded against the individual". In CIBC, the court found there were no allegations properly pleaded against the individuals and that it was plain and obvious that the tort claim against them would fail.

46 In this case, the plaintiff has made separate allegations of negligence against Mr. Harvey in his personal capacity. It is not plain and obvious that this claim against Mr. Harvey will fail.10

The Trustees

47 The Trustees rely on BPAL's submissions under s. 5(1)(a). However, they concede that if I reject those submissions, the allegations in the statement of claim give rise to a cause of action against them for breach of trust.11 I agree.

48 The plaintiff has undertaken to amend the statement of claim to plead breach of trust instead of negligence. On this basis,12 the s. 5(1)(a) requirement has been met for the Trustees.

Mr. Cooper and BBC

49 In McLaughlin v. Falconbridge Ltd. (1999), 36 C.P.C. (4th) 40 (S.C.J.), leave to appeal to Div. Ct. refused, [1999] O.J. No. 5641, Winkler J. (as he then was) held that it was not plain and obvious that a claim by beneficiaries of a pension plan against the plan actuary for breach of fiduciary duty could not succeed. Mr. Cooper acknowledges that in light of this decision, it is not plain and obvious that a claim against him and BBC for negligence will fail.13 I agree. The s. 5(1)(a) requirement has been met for Mr. Cooper and BBC.

Mr. Taylor, Welton and Plenus Page 11

50 Mr. Taylor argues that it is plain and obvious that the claim against him (and his employers) in negligence must fail. He argues that the allegations against him do not give rise to a duty of care to the Plan beneficiaries, only to the Trustees. He argues that even if such a duty exists, the allegations do not establish a breach of that duty.

51 The plaintiff's allegations against Mr. Taylor (and his employers) include that Mr. Taylor: (a) was retained from December 2003 to March 2006 to provide actuarial services and/or assist Mr. Cooper in his work for the Plan (paras. 8, 22); (b) provided advice regarding the feasibility of granting consent to early retirement (para. 22); (c) knew Mr. Cooper was using false assumptions and did not so advise the Trustees (para. 26C(e)); and (d) in preparing or assisting in the actuarial valuations to the Plan, failed to accurately quantify the liabilities of the Plan (para. 26C(f)).

52 Again, these facts are assumed to be true. In light of McLaughlin, I cannot say that on the basis of these alleged facts it is plain and obvious that the plaintiff cannot establish a duty of care from Mr. Taylor to the Plan beneficiaries or a breach of that duty. The s. 5(1)(a) requirement has been met for Mr. Taylor and his employers.

Second Requirement, s. 5(1)(b) - Identifiable Class

53 The purpose of the class definition is to identify persons who have potential claim for relief against the defendant, define the parameters of the lawsuit so as to identify those persons who are bound by its result, and describe who is entitled to notice under the Act. The class definition must not be unduly narrow or broad: Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172, at para. 10. The class definition must employ objective criteria that are unrelated to the merits of the claims and that allow individuals to determine whether or not they are a member of the class. The class defined must bear a rational relationship to the common issues: Western, at para. 38; Hollick, at para. 17.

54 The membership of the Plan -- the proposed class -- consists of approximately 3500 individuals. The class is readily identifiable.

55 The defendants argue that the definition of the proposed class is overly broad and that there are inherent conflicts within the class. They argue that:

* the class definition includes retired, active and partly vested members, all of whom may have different levels of damages or no damages at all; * the class definition includes members who received ERBs during the Class Period (approximately 248 individuals, according to the defendants' evidence). Those people benefited from the very conduct that is the source of the plaintiff's complaint and are therefore not rationally connected to the common issues; * the Indemnity Undertaking disadvantages those who have become members of the CAW Plan. Since the CAW members are not continuing Page 12

members of the Plan, they had no reason to limit their claim for damages against defendants entitled to indemnity from the Plan. The Indemnity Undertaking now limits the CAW members' recovery of damages; * the recipients of ERBs are at risk if the litigation is successful. If the plaintiff proves that any of the defendants was liable with respect to the payment of ERBs, the Trustees may seek to recover the ERBs from those Plan members.

56 The plaintiff acknowledges that not all members of the proposed class will be able to prove damages. The plaintiff concedes that in the case of some ERB recipients, the ERBs they received might offset or eliminate any losses they sustained from the Benefit Reductions. However, he argues that whether those individuals suffered a net gain or loss cannot be determined at this point. Excluding them from the proposed class would potentially deprive them of recovering a net loss. Counsel for BPAL conceded at the hearing that there could be ERB recipients who sustained a net loss.14

57 I agree that excluding the ERB recipients would unduly narrow the class. All members of the proposed class, including the ERB recipients, have a common interest in recovering any Benefit Reductions resulting from the defendants' alleged wrongdoing and are rationally connected to the common issues. Whether and to what extent individual class members are able to prove their damages is a matter to be determined. The fact that class members may have different levels of recovery does not mean there is a conflict in the class or take this outside an acceptable class definition. The representative plaintiff need not show that everyone in the class shares the same interest in the resolution of the common issues: Hollick, at para. 21.

58 With respect to the Indemnity Undertaking, it does not give rise to an inherent conflict in the class. All of the proposed class members will have the same limitation on their right to recover damages. The CAW members may be limited from what their recovery might have been without the Indemnity Undertaking. If they do not wish to accept this limitation, they can opt-out of the class proceeding and pursue their rights individually. If they choose not to opt-out, their interest will be the same as, and not adverse to, that of the other class members.

59 Finally, I reject the submission that there is a conflict because of a potential risk to the ERB recipients. The Trustees cite MacDougall v. Ontario Northland Transportation Commission (2006), 31 C.P.C. (6th) 86 (Ont. S.C.J.), aff'd (2007), 221 O.A.C. 150 (Div. Ct.) in support of their argument that the court should deny certification because of this potential risk.

60 In MacDougall, the plaintiffs sought to certify an action to challenge, among other things, amendments to a pension plan that provided for a contribution holiday, an early retirement program and enhanced retirement benefits. The court refused certification. The court held that if the litigation was successful and the amendments were invalidated, the active employees in the class could face adverse consequences since the amendments actually benefited them. There was a direct link Page 13

between the successful outcome of the litigation and the adverse consequences to the active employees: see paras. 75-79.

61 In this case, the argument is that if the plaintiff is successful in proving that any of the defendants is liable, the Trustees might bring a claim against the ERB recipients for return of the ERB payments. This risk, in my view, is theoretical, not actual. It is speculative at best. The defendants point to no cases in which a trustee has sued a plan beneficiary for the return of benefits that were paid as a result of a defendant's breach of trust or negligence. This future theoretical risk is no basis to deprive the class members of access to justice through a class proceeding.

62 I approve the following class definition:

All active members, terminated, fully and partly vested members, retired members and beneficiaries or annuitants in receipt of monthly benefits, of the Eastern Canada Car Carriers Pension Plan ("ECCCPP") except all such persons serving as trustees of the ECCCPP at any time from January 1, 2000 to March 13, 2006.

Third Requirement, s. 5(1)(c) - Common Issues

63 An issue is common where it constitutes a substantial ingredient of each class member's claims and where its resolution is necessary to the resolution of each member's claim. The commonality question should be approached purposively; the central question is whether certifying a class would avoid duplication of fact-finding or legal analysis. It is not necessary that common issues predominate over non-common issues or that the resolution of the common issues would be determinative of each class member's claim: Hollick, at para. 18; Western, at para. 39.

64 The plaintiff's proposed common issues are set out in Appendix A.

(i) Questions 1-6 - Liability, Causation and Apportionment

65 The defendants had objected to the fact that the reference to "negligence" in common issues #1 to 4 conflated the elements of duty, breach of duty, and damages. I had noted the same problem and raised the concern that including the damages element affected the commonality of those questions. The plaintiff's counsel agreed at the hearing that the questions referring to negligence should be broken down to separate the issues of duty and breach of duty from those relating to damages.

66 The defendants' other primary objection is that the questions are too broad, complex and unworkable for a common issues trial.15 They submit that the trial judge will have to determine whether (and at what point) each defendant breached a duty to Plan members over a period of six years; whether (and to what extent) the payment of ERBs contributed to the Plan's solvency deficiency; whether (and to what extent) the payment of the ERBs caused or contributed to the Page 14

Benefit Reductions; and how any liability is to be apportioned among defendants.

67 I disagree that these issues are unworkable in a common issues trial. These issues have a common focus on the conduct of the defendants and whether that conduct ultimately contributed to the Benefit Reductions. The fact that the trial judge will be required to examine decisions made by various defendants or conduct occurring over a period of years does not detract from the commonality of these issues.

68 Further, the issue of causation is a common one. That issue is whether the defendants' conduct caused or contributed to the Benefit Reductions. It will not be necessary for the trial judge to analyze the individual circumstances of Plan beneficiaries to answer that question. This is distinct from the issue of whether (if the plaintiff establishes liability), individual Plan members can prove that they suffered damages as a result of these Benefit Reductions.

69 Litigation of these issues in a class proceeding will avoid duplication of fact-finding and legal analysis. It will advance the proceeding in a meaningful way. I have made the modifications noted in para. 65 above. I have further amended question #1 to refer to breach of trust on the part of the Trustees.16 I approve the common issues set out in Appendix B.

(ii) Questions 7 and 8 - Restitution and Damages

70 Issues #7 and 8 relate to what the appropriate remedy is -- restitution or damages -- and whether damages can be assessed in the aggregate. I decline to certify those as common issues. The nature of the appropriate remedy and how it is to be calculated will depend on the determination of the common issues on liability and apportionment. Those are better left to the common issues trial judge.17

Fourth Requirement, s. 5(1)(d) - Preferable Procedure

71 The preferability analysis has two branches. They are meant to capture the two ideas of: (i) whether the class proceeding would be a fair, efficient and manageable method of advancing the claim; and (ii) whether a class proceeding is preferable to other reasonably available means of resolving the dispute: Markson v. MBNA Canada Bank, 2007 ONCA 334, 85 O.R. (3d) 321, at para. 69, leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 346; Hollick, at paras 27 to 31.

72 The defendants submit that a class proceeding is not the preferable procedure. They submit that if the Plan members wish to take any action with respect to the Benefit Reductions, they should do so through OSFI. They point to the powers that OSFI has under the Pension Benefits Standards Act, 1985, R.S.C. 1985, c. 32 (2d. Supp.) to take such remedial measures as it considers appropriate. They submit that OSFI has the expertise in pension matters, is neutral, and is in a better position to deal with the competing interests of the various Plan beneficiaries.

73 I reject this argument. This litigation is not, as the defendants suggest, simply about allocation Page 15

of Plan funds among different groups of beneficiaries. The litigation is about the conduct of the defendants and whether they acted improperly, to the detriment of the Plan beneficiaries. A class proceeding is, in my view, the preferable procedure to determine this issue.

74 Further, there is no basis for me to conclude that OSFI, even if it has the power to do so, is willing to or interested in pursuing any action for the benefit of the Plan beneficiaries. OSFI required the Trustees to address the solvency deficiency in 2007 by making the Benefit Reductions. There is no reason to think that even if the plaintiff requested OSFI's involvement at this stage, OSFI would have the interest or resources to take action.

75 The Trustees make one other argument on preferable procedure. They argue that because the only remedy for breach of trust is restitution, a class proceeding is not the preferable procedure to pursue a claim against the Trustees. They submit that restitution can be sought by the plaintiff in an individual proceeding.

76 The Trustees rely on the case of Potter v. Bank of Canada (2006), 27 C.P.C. (6th) 242 (S.C.J.), aff'd in part (2007), 85 O.R. (3d) 9 (C.A.) for the proposition that the only remedy for breach of trust by a pension plan trustee is restitution, not damages. I disagree that Potter forecloses a remedy in damages in all circumstances. The Court of Appeal left open the possibility of a remedy in damages in a particular case if the plaintiff can establish that it would serve the "requirements of fairness and justice": Potter (C.A.), at paras. 18-31.

77 Even if the Trustees' interpretation of Potter is correct, the plaintiff is not restricted to a remedy in restitution as against the other defendants, as his claim is for negligence. It would not serve the interests of judicial economy for the plaintiff to bring an individual claim against the Trustees for restitution while pursuing a class proceeding against the other defendants for damages.

78 The class proceeding is the preferable procedure for this action.

Fifth Requirement, s. 5(1)(e) - Representative Plaintiff

79 The proposed representative plaintiff, Mr. Chapman, became an active member of the Plan in 1993. He was a union steward at his place of employment and served as a trustee of the Plan for one year.

80 Mr. Chapman continued as an active member until late 2009 when he, along with most of the other active Plan members, joined the CAW. He is a former member of the Plan but still has an interest in the Plan assets as they are to be transferred to the CAW Plan pursuant to the pension transfer agreement.

81 The defendants argue that Mr. Chapman is not a suitable representative plaintiff because, as a CAW member, he has an interest in conflict with other members of the class. I have already determined that the fact that some members of the class have joined the CAW Plan does not create a Page 16

conflict in the class.

82 The defendants further argue that Mr. Chapman is not a suitable plaintiff because he has suffered no damages, given that he has not yet retired and is not currently entitled to benefits.

83 The Benefit Reductions applied to all Plan members, including active members. Accrued benefits and service benefits were reduced for active members. It will have to be determined whether and to what extent those reductions translate into recoverable future losses. Nonetheless, Mr. Chapman has an interest in pursuing what he claims are his future losses, as do the other class members. I am satisfied that he will fairly and adequately represent the interests of all class members.

84 Finally, the defendants argue that Mr. Chapman has not put forth a workable litigation plan because it does not address the complexities of this litigation. In my view, the plan is satisfactory. The plan does not need to contain the details of how Mr. Chapman proposes to prove his claim. The plan provides a reasonable framework for all of the steps Mr. Chapman will take in the class proceeding to get to the common issues trial and to address any individual issues remaining thereafter.

Decision

85 The plaintiff's action is certified as a class proceeding in accordance with these reasons.

86 If the parties require assistance in settling the form of the certification order, I may be spoken to.

87 If the parties are unable to agree on costs, they may make submissions to me in accordance with a timetable agreed between them or if they cannot agree, by the plaintiff within 30 days and the defendants within 20 days thereafter. Cost submissions shall not exceed 5 pages, double spaced, exclusive of bill of costs. The defendants are to coordinate their submissions to the greatest extent possible.

B.A. CONWAY J.

*****

APPENDIX A - PLAINTIFF'S PROPOSED COMMON ISSUES

1. Was there any negligence in respect of the granting of consent to the payment of early retirement benefits on the part of the defendant former Trustees in their administration of the ECCCPP Plan and Fund from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? 2. Was there any negligence in respect of the granting of consent to the payment of Page 17

early retirement benefits on the part of the defendants BPAL and Harvey in their administration of the ECCCPP Plan and Fund from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? 3. Was there any negligence in respect of the granting of consent to the payment of early retirement benefits on the part of the defendants Cooper and Taylor in their role as actuarial advisors or consulting actuaries to the ECCCPP Plan and Fund over the period from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? 4. Did any such negligence on the part of any of the defendants cause in whole or in part the pension benefit reductions effected on or about January 1, 2008 by the ECCCPP and if so to what extent? 5. If the deterioration in the solvency valuation of the ECCCPP over the period from January 1, 2000 - March 13, 2006 was caused by the breaches of more than one of the defendants, how is liability to be apportioned among them? 6. Are the defendants BPAL, BBC Actuarial Services Limited ("BBC"), Welton Beauchamp Atlantic Inc. and/or Plenus Consultants vicariously liable for any such breach on the part of their respective employees, David N. Harvey, Anthony F. Cooper and Douglas Taylor? 7. Is this an appropriate case for an equitable remedy requiring the at fault defendants to jointly and severally repay to the Fund the amount by which any solvency deficiency in the Fund was caused or contributed by their negligence or breach of duty? 8. Can damages be assessed in the aggregate and if so, what are the aggregate damages?

*****

APPENDIX B - APPROVED COMMON ISSUES

1. Did the defendant former Trustees commit a breach of trust in respect of the granting of consent to the payment of early retirement benefits from the ECCCPP Plan and Fund from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? 2. Did the defendants BPAL and Harvey have a duty of care to the beneficiaries of the ECCCPP Plan in respect of the granting of consent to the payment of early retirement benefits from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? If so, did those defendants breach that duty? 3. Did the defendants Cooper and Taylor have a duty of care to the beneficiaries of Page 18

the ECCCPP Plan in respect of the granting of consent to the payment of early retirement benefits from January 1, 2000 - March 13, 2006 which caused or contributed to the extent of the solvency deficiency existing as of March 13, 2006? If so, did those defendants breach that duty? 4. Did any such breach of duty on the part of any of the defendants cause in whole or in part the pension benefit reductions effected on or about January 1, 2008 by the ECCCPP and if so, to what extent? 5. If the deterioration in the solvency valuation of the ECCCPP over the period from January 1, 2000 - March 13, 2006 was caused by the breaches of more than one of the defendants, how is liability to be apportioned among them? 6. Are the defendants BPAL, BBC Actuarial Services Limited ("BBC"), Welton Beauchamp Atlantic Inc. and/or Plenus Consultants vicariously liable for any such breach on the part of their respective employees, David N. Harvey, Anthony F. Cooper and Douglas Taylor? cp/e/qlrxg/qlrdp

1 The trust agreement has since been amended or restated four times. The latest restatement was on June 1, 2005.

2 The plaintiff provides this description from the Plan members' booklet dated January 1998, at p. 5.

3 The term "solvency ratio" is defined in s. 2(1) of the Pension Benefits Standards Regulations, 1985, S.O.R./87-19.

4 The plaintiff also makes claims against BPAL, Mr. Harvey and the Trustees with respect to certain related party transactions. The plaintiff's counsel confirmed at the hearing that he is not seeking to have any of those claims certified.

5 BPAL disputes this characterization of its role with respect to the Plan.

6 Mr. Taylor disputes that he was ever formally retained as the Plan actuary.

7 The defendants argue that the plaintiff takes no issue with previous increases to the Plan benefits, only with the Benefit Reductions. I reject that submission. The plaintiff is entitled to choose the subject matter of his complaint. The defendants also argue that the Benefit Reductions would not have been necessary had there not been benefit increases in previous Page 19

years. That is a causation issue, and is for trial.

8 The plaintiff amended his statement of claim during the course of the hearing. All references are to the plaintiff's Amended Fresh Statement of Claim.

9 She cites ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 O.R. (3d) 101 (C.A.), leave to appeal to S.C.C. refused, [1999] S.C.C.A. No. 124.

10 Mr. Harvey also argues that he is protected from liability for negligence since he was Chairman of the Trustees' meetings and s. 2.12 of the trust agreement limits the liability of the Chairman to gross negligence. The allegations against Mr. Harvey in the claim are broadly worded and not restricted to his conduct in his capacity as Chairman. It is not plain and obvious that the claim against him in negligence will fail on this basis.

11 The allegations include granting consent to the payment of ERBs, failing to review the actuarial valuations of Mr. Cooper that contained inaccurate assumptions; and failing to cause actuarial valuations to be filed with OSFI (paras. 26F(b), (c) and (i)).

12 This amendment must be made before I sign the certification order.

13 The allegations include advising BPAL and the Trustees from 2000 to 2006 that it was reasonable to continue the practice of granting ERBs; failing to advise them that it would be prudent to discontinue this practice; and failing to properly quantify the solvency liabilities of the Plan (paras. 26A(b), (e) and (f)).

14 For example, if a Plan member received ERBs the year before the Benefit Reductions, it is possible that the gain associated with the ERBs could be offset by the ongoing reduction in the benefits received by that member.

15 The defendants acknowledge that the plaintiff re-worded the common issues during the course of the hearing to address some of their concerns.

16 This accords with the plaintiff's undertaking to amend the claim to plead breach of trust instead of negligence. I have also removed the wording about "administration of the Plan" in question #2. BPAL had argued that this wording was not neutral. The plaintiff's counsel agreed to these amendments at the hearing.

17 The plaintiff's counsel noted at the hearing that he did not feel strongly about certifying the remedy issues as he could always deal with them after or during the liability phase of the trial. Page 1

Case Name: National Trust Co. v. Smallhorn

RE: National Trust Company, Applicant, and Robert M. Smallhorn, Stuart J. Galbraith, John D. Jamieson and Edward C. O'Brien, Respondents

[2007] O.J. No. 3825

64 C.C.P.B. 70

52 C.P.C. (6th) 123

2007 CarswellOnt 6388

Court File No. 07-CV-335151CP

Ontario Superior Court of Justice

J.L. Lax J.

Heard: September 18, 2007. Judgment: October 5, 2007.

(20 paras.)

Civil procedure -- Parties -- Class or representative actions -- Certification -- The joint motion seeking an order certifying the proceeding as a class proceeding and approving the notice of certification and manner of service was granted -- Both issues were issues that were shared by the class members, and their determination would advance the issues in the proceeding in a meaningful way and facilitate the regulatory approval that would ultimately be required.

Pensions and benefits law -- Pensions -- Administration of pensions -- Surplus funds -- The joint motion seeking an order certifying the proceeding as a class proceeding and approving the notice of certification and manner of service was granted -- Both issues were issues that were shared by the class members, and their determination would advance the issues in the proceeding in a meaningful way and facilitate the regulatory approval that would ultimately be required. Page 2

The parties jointly sought an order certifying the proceeding as a class proceeding, and approving the notice of certification and manner of service -- The respondents were all former employees of the applicant trust company, and members or former members of its pension plan -- The applicant sought to wind up the plan and distribute an actuarial surplus to the "sharing group" as defined in an agreement -- To give effect to the proposed surplus distribution, the applicant commenced this application and jointly with the respondents, moved to certify the proposed respondent class, consisting of 4,977 individuals who comprised the members of the sharing group -- The respondents named agreed to act as representative respondents for the proposed class -- HELD: The requirements for certification had been met, and the orders sought were granted -- The proposed class was objectively ascertainable, rationally bounded, and not unnecessarily broad -- Both issues were issues that were shared by the class members, and their determination would advance the issues in the proceeding in a meaningful way and facilitate the regulatory approval that would ultimately be required -- Certification was the preferable procedure by which to resolve the common issues in this case in respect of the entire class -- The proposed notice of certification met the requirements of s. 17(6) of the Class Proceedings Act, and the proposed method of notice and 30-day opt-out period were appropriate.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)

Counsel:

D. Stamp and C.T. Lockwood, for the Applicant.

A. Kaplan and R. Matlin, for the Respondents.

ENDORSEMENT

1 J.L. LAX J.:-- The applicant, National Trust Company, and the respondents, jointly seek an order certifying this proceeding as a class proceeding, and if certification is granted, approving the notice of certification and manner of service.

2 National Trust sponsors the Scotiabank Pension Plan for Former Employees at National Trust Company (the "Plan") for current and former employees of National Trust. The respondents are all members or former members of the Plan. The Bank of Nova Scotia acquired National Trust on August 14, 1997. After the acquisition, the majority of active members in the Plan became employees of Scotiabank (most of them transferring in 1999) and Scotiabank became a participating employer under the Plan. In June 1999, there was a partial wind-up of the Plan affecting members Page 3

who were retired or terminated between 1997 and 1999 (the "Partial Wind-Up Members").

3 Over the years, the Plan has accumulated a large actuarial surplus. The applicant now seeks to wind up the pension plan and to distribute the surplus to the "Sharing Group" as defined in an agreement (the "Surplus Sharing Agreement"). If certified, they will seek an order approving the Surplus Sharing Agreement between the applicant and the members of an unincorporated association, "The National Trust Pension Surplus Members Group Committee" ("the "Committee"). The respondents are all members of this Committee.

4 The Committee and the applicant have been engaged in discussions regarding the respective entitlements of members, former members and the applicant to the surplus since 2003. Before this, the applicant had been engaged in similar discussions with a group of the Partial Wind-Up Members, who formed the Association for the Equitable Recovery of the National Trust Pension Surplus ("AFTER") in 1999 to seek a distribution of Plan surplus to Partial Wind-Up Members. These discussions with AFTER, and later with the Committee, ultimately culminated in the Surplus Sharing Agreement, which was executed in June 2007 and contemplates a distribution of surplus to Partial Wind-Up Members as well as to other members and former members of the Plan.

5 The terms of the Surplus Sharing Agreement, which are subject to both court approval and regulatory approval, provide that upon termination of the Plan, and following transfer of assets from the Plan on account of active and certain disabled Plan members who will be transferred to the Scotiabank Replacement Plan, the Surplus will be divided equally between the applicant and the Sharing Group. After providing notice to the class, and after the expiry of the opt-out period, the parties intend to return to seek approval of the settlement on the terms of the Surplus Sharing Agreement, subject to regulatory approval.

6 To give effect to the proposed Surplus distribution, the applicant commenced this Application and jointly with the respondents, moves to certify the proposed respondent class, consisting of 4,977 individuals who comprise the members of the Sharing Group. The respondents named have agreed to act as representative respondents for the proposed class.

7 The Class Proceedings Act, 1992, S.O. 1992, c. 6 (the "CPA") provides that the court shall certify the proceeding as a class proceeding if all of the criteria set out in section 5(1) of the CPA are met. Section 5(1) provides:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

8 These requirements may be applied less stringently when certification is sought on consent in the context of intended settlement approval as is the case here: Bona Foods Ltd. v. Ajinomoto U.S.A. Inc. (2004), 2 C.P.C. (6th) 15 (Ont. S.C.J.).

(a) Disclosure of a cause of action - section 5(1)(a)

9 The notice of application seeks a declaration that National Trust is entitled to receive the Surplus in the manner and on the terms of the Surplus Sharing Agreement and for a declaration that National Trust is entitled to transfer assets from the Plan on account of active and disabled Plan members who will be transferred to the Scotiabank Replacement Plan effective prior to the Wind-Up date. In Vivendi Universal Canada Inc. v. Jellinek, [2006] O.J. No. 3687, Hoy J. was faced with a similar application and expressed the view that it would have been preferable to frame the application to focus on the justiciable issue rather than on the approval of the settlement of that issue. There, as here, the issues for determination are linked to terms of the Surplus Sharing Agreement, for which approval has not yet been sought, but is forthcoming. Nonetheless, Hoy J. was satisfied that in this special context, the requirements of section 5(1)(a) were met in that case and having regard to the less rigorous approach to be taken in these kind of cases, I am satisfied they are met in this case.

(b) An identifiable class - section 5(1)(b)

10 The proposed respondent class consists of: (i) members and former members who were entitled to benefits or other payments under the Plan on or after June 24, 1997 (the date on which Scotiabank announced its acquisition of National Trust); (ii) the surviving spouse of any deceased member or former member of the Plan who was in receipt of a survivor pension from the Plan on or after June 24, 1997, or an individual entitled to a deferred vested benefit or other death benefit on or after this date upon the death of a member or former member of the Plan; (iii) all persons who were members of the Plan on or after June 24, 1997 and who ceased membership on or after this date with no payment owing to them; and where individuals identified in (i), (ii) or (iii) have died or die after June 24, 1997 and prior to the Wind-Up Date, the person entitled to a survivor pension or death benefit on the Wind-Up Date, or the beneficiary of the deceased individual named under the Page 5

Plan, or the estate of the deceased individual.

11 The proposed class comprises all members of the Sharing Group as defined in the Surplus Sharing Agreement and no one who is not in the Sharing Group. The Sharing Group is, in turn, exhaustive of all members, former members, spouses and other beneficiaries entitled to benefits or other payments from the Plan as well as certain former members and others no longer entitled to benefits or other payments from the Plan. The proposed class is objectively ascertainable, rationally bounded, and is not unnecessarily broad: see, Hollick v. Toronto (City), [2001] 3 S.C.R. 158 at paras. 17 and 18. I am satisfied that this requirement is met.

12 The common issues raised in respect of all members of the proposed class are:

(i) Is National Trust entitled to receive the Surplus in the manner and on the terms of the Surplus Sharing Agreement? (ii) Is National Trust entitled to transfer assets from the Plan on account of active and certain disabled members who will be transferred to the Scotiabank Replacement Plan effective prior to the Wind-Up Date, in the manner and on the terms of the Surplus Sharing Agreement?

13 In considering section 5(1)(a) of the CPA, I noted that the application frames the issues with reference to the settlement between the parties. The same comment applies to the common issues as they too are linked to the Surplus Sharing Agreement. In view of the less rigorous approach that is taken on motions of this kind, I am prepared to find that this requirement is met. Both issues are issues that are shared by the class members. Their determination would advance the issues in the proceeding in a meaningful way and facilitate the regulatory approval that will ultimately be required.

(d) Preferable Procedure - section 5(1)(d)

14 The Committee and the applicant have been engaged in discussions regarding the respective entitlements of members, former members and the applicant to the surplus since in or about 2003. Before this, there were discussions with AFTER, the group seeking a distribution of the Surplus to Partial Wind-Up Members. The details of the proposed surplus sharing arrangements have been conveyed to members of the Sharing Group through several initiatives, including an initial information package from the Committee and National Trust in 2005; a second information package in 2006; a series of information sessions held in various cities across Canada in November/December 2006; and a website.

15 The proposed class of 4,977 individuals reside across ten provinces and in a limited number of cases, internationally. There are current addresses for all but 13 individuals. To date, 3,756 of the 4,977 members of the Sharing Group have expressly affirmed in writing their endorsement of the Page 6

terms of the Surplus Sharing Agreement and approximately 3/4 of the proposed class have retained Koskie Minsky. Only 8 members of the Sharing Group have voted against it. The Surplus Sharing Agreement will not bind members of the proposed class who opt out of the class proceeding and they will be able to make submissions to the court at the settlement hearing. I find that certification is the preferable procedure by which to resolve the common issues in this case in respect of the entire class.

Representative Respondents - section 5(1)(e)

16 As I noted earlier, the respondents are all members or former members of the Plan and are also members of the Committee. They have been actively involved with the claims that the Committee has advanced on behalf of the members and former members of the Plan, including providing instructions to legal and actuarial advisors with respect to the negotiation of the Surplus Sharing Agreement. None of the proposed representative respondents has an interest in conflict with the interests of other class members on the common issues for the class. Moreover, all members of the class have an equal interest in the determination of whether National Trust is entitled to the Surplus, or a portion thereof, and a determination as to the terms of the proposed Surplus Sharing Agreement. On the basis of their affidavit evidence, I am satisfied that Robert M. Smallhorn, Stuart J. Galbraith, John D. Jamieson and Edward O'Brien would fairly and adequately represent the interests of the class comprised of the Sharing Group.

Notice and Opt-Out period

17 Where certification is sought for the purpose of effecting settlement, the courts have recognized that a workable litigation plan is unnecessary for certification: Bona Foods Ltd. at para. 30. Section 17 of the CPA sets out the requirements for the content and service of the Notice of Certification, which is attached as a schedule to the draft order. The applicant, with the support of the representative respondents have proposed a method of notifying the class members of the proceeding by newspaper advertisements in a weekend edition of the Globe & Mail (in English) and in La Presse (in French), supplemented by direct mailings of the Notice of Certification to the known addresses of all members of the class other than those who have retained Koskie Minsky to execute the Surplus Sharing Agreement on their behalf.

18 The applicant proposes an opt-out period of 30 days, which is appropriate, given the extensive communications with members of the class to date. The courts have approved a 30-day opt-out period in the context of a class certification for the purposes of settlement: Elliott v. Currie (2001), 12 C.P.C. (5th) 233 (Ont. S.C.J.); Paramount Pictures (Canada) Inc. v. Dillon, [2006] O.J. No. 2368 (S.C.J.); Vivendi, supra. The class members have been kept apprised of the progress of negotiations over several years and the vast majority have explicitly consented to the proposed sharing of the Surplus with only 8 dissents. I am satisfied that the proposed Notice of Certification meets the requirements of section 17(6) of the CPA and that the proposed method of notice and 30-day opt-out period are appropriate. Page 7

19 Finally, the requested order pursuant to s. 22 of the CPA that the costs associated with the Notice of Certification be paid from the Plan is approved.

20 For the above reasons, I find that the requirements for certification have been met and the orders sought on the motion are granted. I have signed the order provided to me at the hearing.

J.L. LAX J. cp/e/qlgxc/qllkb/qlcas/qltxp Page 1

Cloud et al. v. The Attorney General of Canada et al. [Indexed as: Cloud v. Canada (Attorney General]

73 O.R. (3d) 401

[2004] O.J. No. 4924

Docket: C40771

Court of Appeal for Ontario,

Catzman, Moldaver and Goudge JJ.A.

December 3, 2004 *Applications for leave to appeal to the Supreme Court of Canada were dismissed with costs May 12, 2005 (Major, Fish and Abella JJ.)

Civil procedure -- Class proceedings -- Certification -- Identification of class -- Common issues -- Preferable procedure -- Action with respect to injuries suffered by members of First Nations who were residents at residential school operated by federal government and church -- Claims for breach of fiduciary duty, negligence, assault, sexual assault, battery and breach of aboriginal rights -- Certification granted -- Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1).

The plaintiffs, who were members of various First Nations, sought to bring a class proceeding pursuant to the Class Proceedings Act, 1992 (the ôCPAö) on behalf of the former students of the Mohawk Institute Residential School (the ôSchoolö), which was located near the Six Nations Reserve in Brantford, Ontario. The plaintiffs sought damages for breach of fiduciary duty, negligence, assault, sexual assault, battery and breach of aboriginal rights. They alleged that the residential school was designed and operated to create an atmosphere of fear, intimidation and brutality, and that it had the aim of promoting the assimilation of native children. The plaintiffs also sought damages on behalf of their family members pursuant to the Family Law Act, R.S.O. 1990, c. F.3. The action was against those alleged to be responsible for running the residential School from 1922 to 1969; that is, the plaintiff's action was on behalf of the approximately 1,400 native children that attended the Sc hool and against the Attorney General of Canada, the General Synod of the Anglican Church of Canada, the Incorporated Synod of the Diocese of Huron and the New England Company, an English charitable organization with the mission of teaching the Christian religion and Page 2

English language to the native peoples of North America.

The plaintiffs sought certification of the action pursuant to s. 5(1) of the CPA. Haines J. dismissed the motion, and his order was affirmed by a majority of the Divisional Court (Gravely and Valin JJ., Cullity J., dissenting). The court found that the action should not be certified, primarily because there was no identifiable class of plaintiffs and no common issues and, therefore, a class action could not be the preferable procedure. The action was viewed as one in which the issues were almost exclusively unique to each student and hence required adjudication individual by individual. Leave to appeal having been granted, the plaintiffs appealed.

Held, the appeal should be allowed.

The criteria for certification under s. 5(1) of the CPA were satisfied. With respect to the cause of action criterion set out in s. 5(1)(a), the parties agreed that the pleadings disclosed causes of action, including the claims for breach of fiduciary duty owed to the student class and to the members of the families and sibling classes.

To satisfy the identifiable class requirement of s. 5(1)(b), each class must be bounded and not of unlimited membership and there must be some rational relationship between the classes and the common issues. It is not necessary that all class members fully share a cause of action; the shared interest need only extend to the resolution of the common issues. All the dimensions of this requirement were satisfied. [page402]

The underlying question for the common issues requirement of s. 5(1)(c) is whether allowing the action to proceed as a representative one will avoid duplication of fact-finding or legal analysis. An issue will be common only if its resolution is necessary to the resolution of each class member's claim and if it is a substantial ingredient of each of the class members' claims. However, an issue can constitute a substantial ingredient even if it makes up a very limited aspect of the liability question and even though many individual issues remain to be decided. That there are numerous issues that require individual resolution does not undermine the commonality conclusion. Rather, that is to be considered in the assessment of whether a class action would be the preferable procedure. The task posed by s. 5(1)(c) is to test whether there are aspects of the case that meet the commonality requirement rather than to elucidate the various individual issues that may remain after the common trial.

Cullity J. approached the commonality issue correctly and reached the right result. He found that a substantial part of each claim was the alleged breach of the various legal duties said to be owed to all class members. The need to determine the existence of these duties and whether they were breached in respect of all class members was a significant part of the claim of each class member. A significant part of the claim of every class member focused on the way that the defendants ran the School. No individual can succeed in his or her claim to recover for harm suffered without establishing the defendants' obligations and their breach. The common trial will take these claims to the point where only causation and harm remain to be established. The claim for an aggregate Page 3

assessment of damages for the breaches found and the claim for punitive damages for the respondents' conduct also met the commonality requirement.

The preferability requirement of s. 5(1)(d) has two core concepts: (1) whether or not the class action would be a fair, efficient and manageable method of advancing the claim; and (2) whether the class action would be preferable to other reasonably available means of resolving the claims of class members. The analysis must keep in mind the three principal advantages of class actions, namely judicial economy, access to justice and behaviour modification, and must consider the degree to which each would be achieved by certification. The inquiry must take into account the importance of the common issues in relation to the claim as a whole, but the preferability requirement can be met even where there are substantial individual issues. The common issues need not predominate over the individual issues; rather, the critical question is whether, viewing the common issues in the context of the entire claim, their resolution will significantly advance the action. In the immediate case, the nature and exten t of the legal duties owed by the defendants to the class members and whether those duties were breached will be of primary importance in the action as framed. The resolution of these common issues takes the action framed in negligence, fiduciary duty and aboriginal rights up to the point where only harm, causation and individual defences such as limitations remain for determination. To resolve the debate about the existence of the legal duties on which the claim is founded and whether these duties were breached is to significantly advance the action. A single trial of the common issues will achieve substantial judicial economy and enhance access to justice.

The workable litigation plan requirement of s. 5(1)(e)(ii) was satisfied. Accordingly, the action satisfied all the requirements of s. 5(1) of the CPA and must therefore be certified.

Cases referred to

Bonaparte v. Canada (Attorney General) (2003), 64 O.R. (3d) 1, [2003] O.J. No. 1046 (C.A.) (sub nom. Lafrance Estate v. Canada (Attorney General)); [page403] Carom v. Bre-X Minerals Ltd. (2000), 51 O.R. (3d) 236, [2000] O.J. No. 4014, 196 D.L.R. (4th) 344, 1 C.P.C. (4th) 62, 11 B.L.R. (3d) 1 (C.A.) (sub nom. 3218520 Canada Inc. v. Bre-X Minerals Ltd.); Hollick v. Toronto (City), [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67, 205 D.L.R. (4th) 19; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); Rumley v. British Columbia, [2001] 3 S.C.R. 184, [2001] S.C.J. No. 39, 95 B.C.L.R. (3d) 1, 205 D.L.R. (4th) 39, 275 N.R. 342, [2001] 11 W.W.R. 207, 2001 SCC 69, 10 C.C.L.T. (3d) 1, 9 C.P.C. (5th) 1; Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534 , [2000] S.C.J. No. 63, 94 Alta. L.R. (2d) 1, 201 D.L.R. (4th) 385, 272 N.R. 135, [2002] 1 W.W.R. 1, 2001 SCC 46, 8 C.P.C. (5th) 1 (sub nom. Western Canadian Shopping Centres Inc. v. Bennett Jones Verchere)

Statutes referred to Page 4

Class Proceedings Act, R.S.B.C. 1996, c. 50

Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 5(1), 10, 24, 25

Crown Liability Act, S.C. 1952-53, c. 30

Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50, s. 24(1) [as am.]

Family Law Act, R.S.O. 1990, c. F.3

Indian Act, R.S.C. 1906, c. 81

APPEAL from the order of the Divisional Court (Gravely and Valin JJ., Cullity J., dissenting) (2003), 65 O.R. (3d) 492, [2003] O.J. No. 2698.

Kirk M. Baert and Russell M. Raikes, for appellants.

Paul Vickery, Monika Lozinska and Donald Padget, for respondent Attorney General of Canada.

Robert B. Bell, for respondent New England Company.

Brian T. Daly and Lisa Gunn, for respondent Diocese of Huron.

The judgment of the court was delivered by

GOUDGE J.A.: --

Introduction

[1] The appellants seek to bring this action on behalf of the former students of the Mohawk Institute Residential School [the ôSchoolö], a native residential school in Brantford, Ontario, and their families. They seek to recover for the harm said to have resulted from attending the School. The action is against those said to be responsible for running the School, namely Canada, the Diocese of Huron and the New England Company.

[2] The question before us is whether the action should be certified pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the ôCPAö).

[3] The motion judge and the majority of the Divisional Court found that the action should not be Page 5

certified, primarily because [page404] they saw no identifiable class of plaintiffs and no common issues, and, therefore, a class action could not be the preferable procedure. Rather, they viewed the case as one in which the issues were almost exclusively unique to each student and hence required adjudication individual by individual.

[4] Cullity J. dissented in the Divisional Court. He found that the criteria for certification set out in s. 5(1) of the CPA were met. He found that there were common issues of sufficient relative importance in the context of the action as a whole that it should be certified.

[5] In a case like this, set in the context of a residential school, the primary challenge is to determine if there are common issues and then, in light of the almost inevitable individual issues, to assess the relative importance of those common issues in relation to the claim as a whole. That question is centre stage in this appeal.

[6] Cullity J. decided in favour of certification. I agree with his conclusion and, in large measure, with his analysis. Thus, for the reasons that follow, I would allow the appeal and certify the action.

The Background

[7] The legislative context for this appeal is found in s. 5(1) of the CPA. It provides that an action must be certified if certain specified criteria are met. The subsection reads as follows:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

[8] The facts relevant to this appeal centre on the Mohawk Institute Residential School which was located in Brantford near the Six Nations Reserve. The School began its existence in 1828 as a Page 6

residential school for First Nations children. It was founded by the New England Company, an English charitable organization dating back to the 17th century, with the mission of teaching the Christian religion and the English language to the native peoples of North America.

[9] The New England Company ran the School until 1922, when it leased the School to the federal government. Under the lease, Canada agreed to continue the School as an educational institution for native children and agreed to continue to train them in the teachings and doctrines of the Church of England. Indeed, in 1929, Canada sought to appoint an Anglican clergyman as principal of the School and looked to the Bishop of the Diocese of Huron to nominate appropriate candidates, a selection process that was repeated in 1945. The lease also entitled the New England Company to maintain some measure of control over the premises. It was renewed in similar terms in 1947 and ran until 1965, when the New England Company sold the School to Canada. Four years later, in 1969, the School closed.

[10] This action covers the years from 1922 to 1969. During that time, there were 150 to 180 students at the School each year, ranging in age from four to 18 and split roughly equally between boys and girls. All were native children, that is Indians within the meaning of the Indian Act, R.S.C. 1906, c. 81, as amended. In all, approximately 1,400 native children attended the School in these years. They constitute the primary class of claimants proposed for this action. The appellants put forward two additional classes, a ôsiblingsö class (namely the parents and siblings of the students) and a ôfamiliesö class (namely their spouses and children).

[11] The appellants are members of the various First Nations from which the students came. They allege that Canada, the New England Company and the Diocese of Huron, either singly or together, were responsible for the operation and management of the School.

[12] Broadly put, their claim is that the School was run in a way that was designed to create an atmosphere of fear, intimidation and brutality. Physical discipline was frequent and excessive. Food, housing and clothing were inadequate. Staff members were unskilled and improperly supervised. Students were cut off from their families. They were forbidden to speak their native [page406] languages and were forced to attend and participate in Christian religious activities. It is alleged that the aim of the School was to promote the assimilation of native children. It is said that all students suffered as a result.

The Judgments Below

[13] The statement of claim commencing this action was issued on October 5, 1998. It seeks damages on behalf of the students for breach of fiduciary duty, negligence, assault, sexual assault, battery, breach of aboriginal rights and breach of treaty rights. Damages are also claimed on behalf of the siblings and families of the students for breach of fiduciary duty and for loss of care, guidance and companionship pursuant to the Family Law Act, R.S.O. 1990, c. F.3. Finally, the statement of claim advances a claim for punitive damages. Page 7

[14] In June of 2001, the appellants sought certification of the action pursuant to the CPA, although they excluded the claims for sexual assault from that request.

[15] Haines J. dismissed the motion. He dealt in turn with each of the criteria for certification set out in s. 5(1) of the CPA. He found that it is plain and obvious that any claims arising from acts or omissions before May 14, 1953, when the Crown Liability Act, S.C. 1952-53, c. 30 came into effect, cannot succeed because the Superior Court of Justice has no jurisdiction to consider those claims. For the period from 1953 to 1969 he concluded that the pleadings were sufficient to disclose a cause of action for breach of fiduciary duty, for the torts alleged, and for breach of aboriginal rights, but not for breach of treaty rights. Finally, he found it plain and obvious that the claims of the siblings and family members could not succeed.

[16] The motion judge then examined whether there was an identifiable class and whether there were any common issues. He found neither, because in essence he could see no cause of action common to all the students who attended the school between 1922 and 1969. He found that the circumstances and experiences of the students were far too diverse to support the notion that the respondents owed identical duties to each student, nor could it be said that, to the extent these duties were breached against one, they were breached against all.

[17] The motion judge then briefly addressed the preferability criterion. He concluded that it was not met because of the wide variety of important individual issues requiring independent inquiry, and thus certification would not serve the objectives of access to justice, judicial economy and behaviour modification. [page407]

[18] Lastly, the motion judge found the appellants to be suitable representatives but the proposed litigation plan to be unworkable in that it sought a common minimum award of damages for each student who had attended the school.

[19] In dismissing the motion for certification, the motion judge summed up his conclusion at para. 80 of his reasons:

I have concluded that the statement of claim does disclose a cause of action with respect to certain claims of the student plaintiffs. I have found, however, that the plaintiffs have failed to establish there is an identifiable class and have failed to demonstrate their claims raise common issues. In the result, the motion for certification is dismissed.

[20] On appeal, the majority of the Divisional Court upheld this conclusion. They agreed with the motion judge that the Superior Court of Justice has no jurisdiction over claims arising before May 14, 1953, and that the claims of family members under the Family Law Act must fail because they are based on legislation first enacted in 1978 that cannot be given retroactive effect, as decided in this court's decision in Bonaparte v. Canada (Attorney General) (2003), 64 O.R. (3d) 1, [2003] O.J. No. 1046 (C.A.). Page 8

[21] Although the majority noted that the motion judge found no common issues, they did not discuss either that conclusion or his finding that there was no identifiable class. Rather, they found it necessary to address only the preferability criterion in s. 5(1)(d) of the CPA. They concluded that there was no evidence of access to justice difficulties with individual students pursuing individual claims and no need to consider behaviour modification because residential schools are now a thing of the past in Canada. Most importantly, they concluded that no judicial economy would be achieved by certification because no matter how any common issues might be framed, their resolution would do nothing to avoid or limit the individual claims which would be inevitable, given the diverse experiences of each student. Finally, they said that a class action would be unfair to the defendants and would create an unmanageable trial.

[22] Cullity J. dissented. He found each of the five criteria in s. 5(1) of the CPA to be satisfied, and concluded that the appeal should be allowed and the action certified.

[23] In addressing whether the pleadings disclose a cause of action as required by s. 5(1)(a), he found that claims against the Crown for vicarious liability for the actions of its employees prior to May 14, 1953, can be brought in the Superior Court of Justice because of the jurisdiction given to that court by the Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50 as amended, and because the ban in s. 24(1) of the Crown Liability Act does not [page408] extend to claims like this because they could have been brought against the Crown before May 14, 1953, in the Exchequer Court.

[24] Similarly, he found that the claim against the Crown for breach of fiduciary duty is a claim in equity that could have been brought against the Crown in the Exchequer Court before May 14, 1953, and can therefore now be brought in the Superior Court even if it arises before that date. Although he does not say so expressly, it is implicit in his reasons that he treated the claim for breach of aboriginal rights in the same way, because he found it to be a common issue as well.

[25] However, he agreed with the motion judge that the claims in tort for breach of duty owed by the Crown directly to class members can only be advanced if they arose after May 14, 1953. Finally, he also agreed that the claim pursuant to the Family Law Act cannot stand.

[26] He found that the requirement that there be an identifiable class was also met. He held that the members of the class of individuals who were students at the school between 1922 and 1969 could be ascertained by objective criteria rationally linked to the common issues he identified.

[27] He also concluded that the families and siblings of the students both constituted identifiable classes, provided that the claim for breach of fiduciary duty owed to them by the Crown could be said to disclose a cause of action sufficient to meet the criterion in s. 5(1)(a).

[28] He then turned to examine in more detail whether the claims of class members raised common issues as required by s. 5(1)(c). He began by describing the sizeable challenge faced by the motion judge on this score, given that the litigation plan first presented by the plaintiffs proposed a Page 9

list of 53 common issues. Many, such as how the operations of the school were funded, were drafted with such particularity that their resolution would be of little moment in the trial of these claims. He quite rightly pointed out that although class actions often require active and continual management of the proceedings by the court, plaintiffs' counsel nonetheless has the responsibility to establish that the criteria for certification are met, including the identification of common issues. Counsel cannot expect the judge on a certification motion to single-handedly fashion the common issues in order to meet the requirements of s. 5(1)(c).

[29] By the time of the appeal to the Divisional Court, the appellants had reworked their list and were proposing eight more broadly framed common issues. Cullity J. found that with some further refashioning there were common issues sufficient to satisfy s. 5(1)(c). He placed considerable reliance on the reasons of [page409] the Supreme Court of Canada in Rumley v. British Columbia, [2001] 3 S.C.R. 184, [2001] S.C.J. No. 39, 205 D.L.R. (4th) 39 which were released after the decision of the motion judge here. He focused on the duty of care said to be owed to all members of the student class and the fiduciary duty owed both to them and the families and siblings classes. He found that the common issues could be defined in terms of these duties and their breach. He described his conclusion about the common issues at paras. 25 and 31 of his reasons:

As in Rumley, they would include a failure to have in place management and operations procedures that would reasonably have prevented abuse and, in addition, issues similar to those described by the Court of Appeal in Bonaparte as the essence of the claims for breach of fiduciary duty against the Crown in that case: namely, whether ôthe very purpose of the Crown's assumption of control over the primary plaintiffs was to strip the Indian children of their culture and identity, thereby removing, as and when they became adults, their ability aeto pass on to succeeding generations the spiritual, cultural and behavioural bases of their people.'ö

.....

While I would not accept without modification the original formulation -- or the reformulation -- of the common issues proposed on behalf of the plaintiffs, such issues could, I believe, be defined in terms of the existence and breach of duties of care, and fiduciary duties, owed by the defendants to class members -- and the infringement of the aboriginal rights of the members -- with respect to the purposes, operations, management and supervision of the Mohawk Institute and with respect to each of the categories of harm referred to in paras. 51 and 52 of the statement of claim. The issues relating to the existence and breach by the Crown of duties of care in tort would be confined to conduct that occurred after May 13, 1953. I would also include as common issues the claim for punitive damages arising from any of the above breaches that are proven and the possibility of an aggregate assessment of damages.

[30] He did, however, go on to reject the claim for vicarious liability, finding that because the Page 10

claim addressed the conduct of particular employees towards particular students it could not qualify as a common issue.

[31] Finally, he turned to the preferability requirement of s. 5(1)(d). He found that any deference owed to the motion judge on this issue was displaced because the preferability analysis can be properly done only in light of the common issues identified and the motion judge identified none. He went on to conclude that the trial of the common issues he identified would be a fair, efficient and manageable method of advancing the claims pleaded and would be preferable to other procedures. Unlike his colleagues, he accepted the evidence of the vulnerability of class members and thus found that the objective of access to justice would be served to an appreciable extent by certification. [page410] However, he gave most weight to the judicial economy to be achieved by having one trial of the common issues rather than 1,400.

[32] In summary, he found that the focus of the trial of the common issues would be on the conduct of the respondents rather than on the precise circumstances of particular class members and that the existence of individual issues such as limitation periods or causation of harm to individual students was not enough to outweigh the conclusion that resolution of the common issues would significantly advance this action.

[33] He concluded by finding that although the proposed litigation plan required reformulation in light of his findings, its deficiencies were not sufficient to deny the motion. He would have allowed the appeal, granted certification and left the details of the litigation plan to be resolved by counsel under the supervision of the judge assigned to case manage the proceedings.

Analysis

[34] With leave, the appellants appeal to this court, seeking an order setting aside the orders of the Divisional Court and the motion judge and certifying the action. They invite us to do so on the basis of the reasoning of Cullity J. which they fully endorse. They argue that all five of the criteria in s. 5(1) of the CPA are met and that the court must therefore certify. The respondents contest each of these, some more vigorously than others, most pointedly the preferability requirement.

[35] Before addressing in turn each of these factors, it is helpful to repeat the full subsection and set out the principles applicable to its application as they have been developed by the Supreme Court of Canada and this court. Section 5(1) reads as follows:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the [page411] class and of notifying class members of the proceeding, and (iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

[36] The Supreme Court of Canada has issued three important decisions to guide the development of class actions in Canada: Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534, [2000] S.C.J. No. 63, 201 D.L.R. (4th) 385; Hollick v. Toronto (City), [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67, 205 D.L.R. (4th) 19, and Rumley, supra. In Hollick, the Supreme Court of Canada had its first opportunity to enunciate the interpretive approach to be applied to the CPA in general and to its certification provisions in particular.

[37] Speaking for the court at paras. 14-16, McLachlin C.J.C. made clear that in light of its legislative history, the CPA should be construed generously and that an overly restrictive approach must be avoided in order to realize the benefits of the legislation as foreseen by its drafters, namely serving judicial economy, enhancing access to justice and encouraging behaviour modification by those who cause harm. She underlined the particular importance of keeping this principle in mind at the certification stage.

[38] In addition, she emphasized that the certification stage is decidedly not meant to be a test of the merits of the action, but rather focuses on its form. As she said at para. 16, ôThe question at the certification stage is not whether the claim is likely to succeed, but whether the suit is appropriately prosecuted as a class action.ö

[39] For its part, this court has said that because of the expertise developed in this new and evolving field of class actions by the small group of judges across the province who have significant experience in hearing certification motions, an appellate court should proceed with deference and should restrict its intervention to matters of general principle. See Carom v. Bre-X Minerals Ltd. (2000), 51 O.R. (3d) 236, [2000] O.J. No. 4014 (C.A.). This admonition is somewhat complicated in this particular case because both Haines J. and Cullity J. have been part of that small group.

[40] It is against this backdrop then that the debate between the parties on each of the requirements of s. 5(1) must be considered.

The Cause of Action Criterion -- s. 5(1)(a) Page 12

[41] It is now well established that this requirement will prevent certification only where it is ôplain and obviousö that the pleadings disclose no cause of action, as that test was developed in [page412] Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93.

[42] Although the parties originally differed on whether that test is met here, by the time of argument in this court they had come to agree that the appellants' pleadings disclose the following causes of action within the meaning of that test:

(a) The claim for vicarious liability of the defendants over the full period of this action, namely 1922 to 1969 (although the appellants do not contest Cullity J.'s conclusion that these claims do not give rise to any common issue); (b) The claim for breach of fiduciary duty owed to the members of the student class over the full time frame of the action; (c) The claim for breach of fiduciary duty owed to the members of the families and siblings classes over the full time frame of the action (given this court's decision in Bonaparte, supra); and (d) The claims for negligence of the defendants but only between 1953 and 1969.

[43] I agree with the parties that these causes of action survive the test in s. 5(1)(a). Although it was not the subject of separate argument before us, I would reach the same conclusion concerning the claim for breach of the aboriginal rights of the members of the student class over the full time frame of the action, because this claim is so closely akin to the claim for breach of fiduciary duty.

[44] On the other side of the coin, the appellants also now properly concede that the following claims cannot be proceeded with:

(a) The claims of the members of the families and siblings classes pursuant to the Family Law Act; (b) The claims for negligence occurring before 1953; and (c) The claims for breach of treaty rights (which the motion judge found were not made out on the pleadings and which the appellants did not thereafter pursue).

The Identifiable Class Requirement -- s. 5(1)(b)

[45] Hollick, supra, at para. 17, describes what is necessary to meet this requirement. The appellants are required to show that the three proposed classes are defined by objective criteria which can be used to determine whether a person is a member without [page413] reference to the merits of the action. In other words, each class must be bounded and not of unlimited membership. As well, there must be some rational relationship between the classes and the common issues. The appellants have an obligation, although not an onerous one, to show that the classes are not unnecessarily broad and could not be defined more narrowly without arbitrarily excluding some people who share the same interest in the resolution of the common issues. Page 13

[46] As I have said, Haines J. found that the appellants failed to establish any identifiable class. In my view, he applied the wrong test in doing so by requiring that all students fully share a cause of action. This is inconsistent with Hollick, supra, which makes clear that the shared interest need only extend to the resolution of the common issues. The application of a wrong test is an error in principle and the decision which results can attract no deference. For its part, the majority of the Divisional Court did not address the identifiable class issue. However, Cullity J. found that the requirement in s. 5(1)(b) had been satisfied by the appellants.

[47] In my view, he was correct in doing so. The appellants satisfy all the dimensions of this requirement. Membership in the student class is defined by the objective requirement that a member have attended the school between 1922 and 1969. Membership in the families class requires that a person meet the objective criterion of being a spouse, common-law spouse or child of someone who was a student. Likewise, the siblings class is defined as the parents and siblings of those students. None of the three proposed classes is open-ended. Rather all are circumscribed by their defining criteria. All three classes are rationally linked to the common issues found by Cullity J. in that it is the class members to whom the duties of reasonable care, fiduciary obligation and aboriginal rights are said to be owed and they are the ones who are said to have experienced the breach of those duties. Finally, because all class members claim breach of these duties and that they all suffered at least some harm as a result, thes e classes are not unnecessarily broad. All class members share the same interest in the resolution of whether they were owed these duties and whether these duties were breached. Any narrower class definition would necessarily leave out some who share that interest. Thus I conclude that the identifiable class requirement is met.

The Common Issues Requirement -- s. 5(1)(c)

[48] As with each of the criteria in s. 5(1), the common issues requirement must be discretely addressed and satisfied for the [page414] action to be certified. However, there is no doubt that this analysis will often overlap with that required by other factors in s. 5(1). Indeed in some cases these inquiries may be somewhat interdependent. For example, the identification of common issues will often depend in part upon the definition of the identifiable class and vice versa. This particular interrelationship is reflected in the requirement that there be some rational relationship between the identifiable class and the common issues. Hence the discussion of common issues must have in mind the identifiable class, just as the discussion of identifiable class proceeded in light of the common issues.

[49] Moreover, like the other criteria in s. 5(1), save for the disclosure of a cause of action, the common issues criterion obliges the class representative to establish an evidentiary basis for concluding that the criterion is met. McLachlin C.J.C. put it this way in Hollick, supra, at para. 25: ôIn my view, the class representative must show some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action.ö Page 14

[50] Hollick also makes clear that this does not entail any assessment of the merits at the certification stage. Indeed, on a certification motion the court is ill-equipped to resolve conflicts in the evidence or to engage in finely calibrated assessments of evidentiary weight. What it must find is some basis in fact for the certification requirement in issue.

[51] Hollick also explains the legal test by which the common issues requirement is to be assessed. After dealing with the identifiable class factor, the Supreme Court addressed this question at para. 18:

A more difficult question is whether ôthe claims . . . of the class members raise common issuesö, as required by s. 5(1)(c) of the Class Proceedings Act, 1992. As I wrote in Western Canadian Shopping Centres, the underlying question is ôwhether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysisö. Thus an issue will be common ôonly where its resolution is necessary to the resolution of each class member's claimö (para. 39). Further, an issue will not be ôcommonö in the requisite sense unless the issue is a ôsubstantial . . . ingredientö of each of the class members' claims.

[52] This requirement has been described by this court as a low bar. See Carom, supra, at para. 42. Indeed this description is consistent with the commonality finding in Hollick itself. The class action proposed there was on behalf of some 30,000 people who lived in the vicinity of a landfill site that was alleged to cause harm through noise and physical pollution. The Supreme Court found that the issue of whether the site emitted pollutants into [page415] the air met the test of s. 5(1)(c) because each class member would have to show this or see his claim fail. The court did not see this conclusion to be at all undermined by the fact that this common issue was but one aspect of the liability issue and a small one at that. It clearly accepted that after the trial of the common issue the many remaining aspects of liability and the question of damages would have to be decided individually. Yet it found the commonality requirement to be met.

[53] In other words, an issue can constitute a substantial ingredient of the claims and satisfy s. 5(1)(c) even if it makes up a very limited aspect of the liability question and even though many individual issues remain to be decided after its resolution. In such a case the task posed by s. 5(1)(c) is to test whether there are aspects of the case that meet the commonality requirement rather than to elucidate the various individual issues which may remain after the common trial. This is consistent with the positive approach to the CPA urged by the Supreme Court as the way to best realize the benefits of that legislation as foreseen by its drafters.

[54] Neither the reasons of the motion judge nor those of the majority of the Divisional Court reflect this approach to the commonality assessment. The motion judge focused on those aspects of the claim that in his view would require individual determination, student by student. Although he did not have the benefit of the Supreme Court decision in Hollick, supra, he did not analyze what parts of the claim could be said to be common as explained in that decision. Moreover, in my view, Page 15

he erred in his ultimate conclusion that there were no common issues. For its part, the majority of the Divisional Court felt it unnecessary to address this criterion.

[55] On the other hand, I think Cullity J. approached the commonality issue correctly and reached the right result. As I have described, rather than focusing on how many individual issues there might be and concluding from that that there could be no common issues, Cullity J. analyzed whether there were any issues the resolution of which would be necessary to resolve each class member's claim and which could be said to be a substantial ingredient of those claims.

[56] Relying on Rumley, he found that a substantial part of each claim was the alleged breach of the various legal duties said to be owed to all class members. For the student class these duties are framed in negligence, fiduciary obligation and aboriginal rights. For the other two classes the claim is one of fiduciary obligation. The need to determine the existence of these duties and whether they were breached in respect of all class members [page416] is a significant part of the claim of each class member. Finally, he found that the claim for an aggregate assessment of damages for the breaches found and the claim for punitive damages for the respondents' conduct also met the commonality requirement. Thus he found that s. 5(1)(c) was met.

[57] The appellants urge us to adopt Cullity J.'s conclusion. On the other hand, the respondents attack it in several ways.

[58] The respondents' basic challenge is that the claims of the class members are so fundamentally individual in nature that any commonality among them is superficial. I do not agree. Cullity J. focused on the appellants' claim of systemic breach of duty, that is whether, in the way they ran the School, the respondents breached their lawful duties to all members of the three classes. In my view, this is a part of every class member's case and is of sufficient importance to meet the commonality requirement. It is a real and substantive issue for each individual's claim to recover for the way the respondents ran the School. As the analysis in Hollick, supra, exemplifies, the fact that beyond the common issues there are numerous issues that require individual resolution does not undermine the commonality conclusion. Rather, that is to be considered in the assessment of whether a class action would be the preferable procedure.

[59] The respondents also argue that the claim of systemic negligence in running the School cannot serve as a common issue because the standard of care would undoubtedly change over time as educational standards change. However, in my view this argument is answered by Rumley, which was also a claim based on systemic negligence in the running of a residential school for children. There the Supreme Court found that the class action proceeding is sufficiently flexible to deal with whatever variation in the applicable standard of care might arise on the evidence. In that case the claim covered a 42-year period. Here, in analogous circumstances, the negligence claim covers only 16 years, from 1953 to 1969.

[60] The respondents also say that the affidavit material shows that many of the appellants and other class members did not suffer much of the harm alleged, such as loss of language and culture. Page 16

They argue that this underlines the individual nature of these claims and negates any commonality. Again, I disagree. There is no doubt that causation of harm will have to be decided individual by individual if and when it is found in the common trial that the respondents owed legal duties to all class members which they breached. However, this does not undermine the conclusion that whether such duties were owed, what the standard of care was, and whether the respondents breached those duties [page417] constitute common issues for the purposes of s. 5(1)(c).

[61] Equally the respondents' assertion of limitations defences does not undermine the finding of common issues. In the context of these issues, these defences must await the conclusion of the common trial. They can only be dealt with after it is determined whether there were breaches of the systemic duties alleged and over what period of time and when those breaches occurred. Only then can it be concluded when the limitations defence arose. Moreover, because an inquiry into discoverability will undoubtedly be a part of the limitations debate and because that inquiry must be done individual by individual, these defences can only be addressed as a part of the individual trials following the common trial. As with other individual issues, the existence of limitations defences does not negate a finding that there are common issues.

[62] The respondents other than Canada also argue that, at least for them, the finding of common issues by Cullity J. is undermined by their assertion that their proximity to Canada in exercising control over the operation of the School varied over time. Again, I disagree. At best that assertion may provide these respondents with a defence to the appellants' claims in the common trial for certain periods of time. Nonetheless the common issues remain and require resolution.

[63] Lastly, the respondents say that in reaching his conclusion about common issues, Cullity J. should not have relied on Rumley, but should have distinguished it. They say this essentially for two reasons. First, Rumley involved sexual abuse of students and therefore there could be little debate about the duty to prevent it owed by those running the school, whereas, here, the legal duties alleged are seriously contested. Second, they say that in Rumley there were very few individual issues requiring resolution because, for example, sexual abuse had been found to occur and there were no issues of vicarious liability or limitations requiring individual resolution.

[64] In my view, neither of these renders Rumley inapplicable to this case. Although the existence of the systemic duty of care to all students and its precise nature may be more hotly contested here than in Rumley, nonetheless the issue is a significant one requiring resolution for each class member and is a proper common issue.

[65] Moreover, at para. 33 of Rumley, the Supreme Court made clear that the comparative extent of individual issues is not a consideration in the commonality inquiry although it is obviously a factor in the preferability assessment. Although the court underlined that it was dealing with the British Columbia Class Proceedings Act, R.S.B.C. 1996, c. 50 (which explicitly states that [page418] the common issues requirement may be met whether or not these issues predominate over individual issues, whereas the CPA is silent on the point), in my view the same approach is Page 17

implicit in the CPA. A weighing of the relative importance of the common issues and the remaining individual issues is necessarily an important part of the preferability inquiry. I do not think that the CPA contemplates a duplication of that task as part of the commonality inquiry. The CPA's silence on the point cannot be read as mandating the opposite of the B.C. legislation. Thus the extent of individual issues that may remain after the common trial in this case does not undermine the conclusion that the commonality requirement is met.

[66] I therefore agree that the appellants have met the commonality requirement. A significant part of the claim of every class member focuses on the way that the respondents ran the School. It is said that their management of the School created an atmosphere of fear, intimidation and brutality that all students suffered and hardship that harmed all students. It is said that the respondents did this both by means of the policies and practices they employed and because of the policies and practices they did not have that would reasonably have prevented abuse. Indeed, it is said that their very purpose in running the School as they did was to eradicate the native culture of the students. It is alleged that the respondents breached various legal duties to all class members by running the School in this way.

[67] In the affidavits of the ten representative plaintiffs there is a clear showing of some basis in fact supporting this description of the way in which the School was run. Although their cross-examinations support the conclusion that students were not all treated the same way and did not all experience the same suffering, the appellants have shown some basis in fact for their assertion that the management and operation of the School raises the common issues required for certification by s. 5(1)(c). They have met their evidentiary burden.

[68] The appellants acknowledge that if they are successful in the common issues trial it will be necessary to separately establish causation of harm and quantification of damages for each individual class member for all three classes.

[69] Nevertheless, it is my view that whether the respondents owed legal obligations to the class members that were breached by the way the respondents ran the School is a necessary and substantial part of each class member's claim. No individual can succeed in his or her claim to recover for harm suffered because of the way the respondents ran the School without establishing these obligations and their breach. The common trial will take [page419] these claims to the point where only causation and harm remain to be established. In my view, it will adjudicate a substantial part of each class member's claim by doing so. Hence the appellants have met the commonality requirement.

[70] I also agree with Cullity J. that in a trial of these common issues, the claims for an aggregate assessment of damages and punitive damages are properly included as common issues. The trial judge should be able to make an aggregate assessment of the damages suffered by all class members due to the breaches found, if this can reasonably be done without proof of loss by each individual member. Indeed, this is consistent with s. 24 of the CPA. As well, given that the common trial will Page 18

be about the way the respondents ran the School and their alleged purpose in doing so, it can also properly assess whether this conduct towards the members of the three classes as a whole should be sanctioned by means of punitive damages.

[71] In summary, I agree with Cullity J. that the appellants have met the requirements set by s. 5(1)(c) of the CPA. The focus of the common trial will be on the conduct of the respondents as it affected all class members, and how and for what purpose they ran the School. Although evidence from individuals that speaks to the respondents' systemic conduct may be relevant to this, findings of causation and extent of harm must await the individual trials to follow.

[72] As the class action proceeds, the judge managing it may well determine that the common issues should be restated with greater particularity in light of his or her experience with the class proceeding. To permit that process to unfold with flexibility, at this stage. I would state the common issues in general terms, as follows:

(1) By their operation or management of the Mohawk Institute Residential School from 1953 to 1969 did the defendants breach a duty of care owed to the students of the School to protect them from actionable physical or mental harm? (2) By their purpose, operation or management of the Mohawk Institute Residential School from 1922 to 1969 did the defendants breach a fiduciary duty owed to the students of the School to protect them from actionable physical or mental harm, or the aboriginal rights of those students? (3) By their purpose, operation or management of the Mohawk Institute Residential School from 1922 to 1969 did the defendants breach a fiduciary duty owed to the families and siblings of the students of the School? [page420] (4) If the answer to any of these common issues is yes, can the court make an aggregate assessment of the damages suffered by all class members of each class as part of the common trial? (5) If the answer to any of these common issues is yes, were the defendants guilty of conduct that justifies an award of punitive damages? (6) If the answer to that is yes, what amount of punitive damages is awarded?

The Preferable Procedure Requirement -- s. 5(1)(d)

[73] As explained by the Supreme Court of Canada in Hollick, supra, at paras. 27-28, the preferability requirement has two concepts at its core. The first is whether or not the class action would be a fair, efficient and manageable method of advancing the claim. The second is whether the class action would be preferable to other reasonably available means of resolving the claims of class members. The analysis must keep in mind the three principal advantages of class actions, namely judicial economy, access to justice and behaviour modification, and must consider the degree to which each would be achieved by certification.

[74] Hollick also decided that the determination of whether a proposed class action is a fair, Page 19

efficient and manageable method of advancing the claim requires an examination of the common issues in their context. The inquiry must take into account the importance of the common issues in relation to the claim as a whole.

[75] At para. 30 of that decision the court also makes clear that the preferability requirement in s. 5(1)(d) of the CPA can be met even where there are substantial individual issues and that its drafters rejected the requirement that the common issues predominate over the individual issues in order for the class action to be the preferable procedure. This contrasts with the British Columbia legislation in which the preferability inquiry includes whether the common issues predominate over the individual cases.

[76] In Ontario it is nonetheless essential to assess the importance of the common issues in relation to the claim as a whole. It will not be enough if the common issues are negligible in relation to the individual issues. The preferability finding in Hollick itself was just this and the requirement was therefore found not to be met. That decision tells us that the critical question is whether, viewing the common issues in the context of the entire claim, their resolution will significantly advance the action. [page421]

[77] Neither the motion judge nor the majority of the Divisional Court properly addressed this vital aspect of the preferability inquiry, and thus their conclusion cannot stand. As Cullity J. said, the determination of whether, in the context of the entire claim, the resolution of the common issues will significantly advance the action can only be done in light of the particular common issues identified. Here the motion judge found none and therefore could not make this assessment. The majority of the Divisional Court did not address the common issues requirement but simply stated its conclusion that any attempt to formulate common issues in terms of systemic negligence would not significantly advance the litigation given the numerous individual claims. With respect, without an articulation of what the common issues are, any assessment of their relative importance in the context of the entire claim cannot be properly made. It would risk a conclusion based not on relative importance but simply on the existen ce of a large number of individual issues. It would also preclude any appellate review.

[78] On the other hand, as I have outlined, Cullity J. found that in the context of the entire claim the resolution of the common issues he found would significantly advance the action and that otherwise the preferability requirement was met. I agree with that conclusion.

[79] As they did with the common issues, the respondents contest this finding in several different ways. Here too their primary attack is that the vast majority of issues require individual determination. They say that these issues involve individual acts of abuse, different perpetrators, unique individual circumstances both before and after attendance at the school widely varying impacts and damage claims, and an array of different limitations, triggers and discoverability issues. They argue that the common issues are negligible in comparison and that their resolution will not significantly advance the action. Page 20

[80] I do not agree. An important part of the claims of all class members turns on the way the respondents ran the School over the time frame of this action. The factual assertion is both that the respondents had in place policies and practices, such as excessive physical discipline, and that they failed to have in place preventative policies and practices, such as reasonable hiring and supervision, which together resulted in the intimidation, brutality and abuse endured by the students at the School. It is said that the respondents sought to destroy the native language, culture and spirituality of all class members. The legal assertion is that by running the School in this way the respondents were in breach of the various legal obligations they owed to all class [page422] members. Together these assertions comprise the common issues that must be assessed in relation to the claim as a whole.

[81] I agree with Cullity J. that whether framed in negligence, fiduciary obligation or aboriginal rights, the nature and extent of the legal duties owed by the respondents to the class members and whether those duties were breached will be of primary importance in the action as framed. If class members are to recover, they must first succeed on this issue. It is only at that point that individual issues of the kind raised by the respondents would arise. Save for those relating to limitations, they are all aspects of harm and causation, both of which the appellants acknowledge they will have to establish individual by individual. The limitations questions are all individual defences, which the appellants also acknowledge will require individual adjudication.

[82] The resolution of these common issues therefore takes the action framed in negligence, fiduciary duty and aboriginal rights up to the point where only harm, causation and individual defences such as limitations remain for determination. This moves the action a long way.

[83] The common issues are fundamental to the action. They cannot be described as negligible in relation to the consequential individual issues nor to the claim as a whole. To resolve the debate about the existence of the legal duties on which the claim is founded and whether these duties were breached is to significantly advance the action.

[84] This assessment is not quantitative so much as qualitative. It is not driven by the mere number of individual adjudications that may remain after the common trial. The finding in Rumley demonstrates this. The class there was defined as students at the residential school between 1950 and 1992 who reside in British Columbia and claimed to have suffered injury, loss or damages as a result of misconduct of a sexual nature occurring at the school. The common issues were defined very similarly to those in this case. The Supreme Court recognized that following their resolution, adjudication of injury and causation would be required individual by individual. Although the number of individual adjudications appears to have been uncertain, the time frame of the action alone suggests that it might be relatively high. Yet the court was able to conclude that the common issues predominated over those affecting only individual class members, which is a consideration required by the British Columbia legislati on. This [was] an even higher standard than that set for preferability under the CPA, namely that viewed in the context of the entire claim, the resolution of the common issues must significantly advance the action. However, in both cases the assessment Page 21

[page423] is a qualitative one, not a comparison of the number of common issues to the number of individual issues.

[85] In this case that qualitative assessment derives from the reality that resolving the common issues will take the action a long way. That assessment is also informed in an important way by the considerations of judicial economy and access to justice. Because residential schools for native children are no longer part of the Canadian landscape, the third objective of class proceedings, namely behaviour modification, is of no moment here.

[86] However, I think that a single trial of the common issues will achieve substantial judicial economy. Without a common trial, these issues would have to be dealt with in each individual action at an obvious cost in judicial time possibly resulting in inconsistent outcomes. As Cullity J. said, a single trial would make it unnecessary to adduce more than once evidence of the history of the establishment and operation of the School and the involvement of each of the respondents.

[87] Access to justice would also be greatly enhanced by a single trial of the common issues. I do not agree with the majority of the Divisional Court that there is nothing in the record to sustain this conclusion. The affidavit material makes clear that the appellants seek to represent many who are aging, very poor, and in some cases still very emotionally troubled by their experiences at the School. Cullity J. put it this way at para.á46 of his reasons:

While the goal of behavioural modification does not seem to be a value that would be achieved to any extent by certification, I am satisfied that the vulnerability of members of the class -- as evidenced by the uncontradicted statements in the affidavits sworn by the representative plaintiffs -- is such that the objective of providing access to justice would be served to an appreciable extent. Each of the representative plaintiffs referred to the poverty of many of the former students, their inability to afford the cost of individual actions and the effect such proceedings would have on the continuing emotional problems from which they suffer as a result of their experiences at the Mohawk Institute. These statements were not challenged on cross-examination and, unlike my colleagues, I see no reason to reject their truth or their significance.

[88] In short, I think that the access to justice consideration strongly favours the conclusion that a class action is the preferable procedure. The language used by the Chief Justice in Rumley at para. 39 is equally apt to this case:

Litigation is always a difficult process but I am convinced that it will be extraordinarily so for the class members here. Allowing the suit to proceed as a class action may go some way toward mitigating the difficulties that will be faced by the class members. [page424]

[89] The respondents also attack Cullity J.'s preferability finding by saying that a class action would be unfair to them and would create an unmanageable proceeding. I do not agree. The Page 22

common issues require resolution one way or the other. It is no less fair to the respondents to face them in a single trial than in many individual trials. Nor, at this stage, is there any reason to think that a single trial would be unmanageable. The common issues centre on the way the respondents ran the School and can probably be dealt with even more efficiently in one trial than in 1,400.

[90] That conclusion is not altered even if one takes into consideration the individual adjudications that would follow. The fact of a number of individual adjudications of harm and causation did not render the action in Rumley unmanageable and does not do so here. Moreover, the CPA provides for great flexibility in the process. For example, s. 10 allows for decertification if, as the action unfolds, it appears that the requirements of s. 5(1) cease to be met. In addition, s. 25 contemplates a variety of ways in which individual issues may be determined following the common issues trial other than by the presiding trial judge. Thus at this stage in the proceedings, when one views the common issues trial in the context of the action as whole, there is no reason to doubt the conclusion that the class action is a manageable method of advancing the claim.

[91] Lastly, the respondents argue that Cullity J. was wrong because the class action is not preferable to other means of resolving class members' claims. They support this position with fresh evidence filed in this court describing the alternative dispute resolution system that has been put in place by Canada to deal with claims of those who attended native residential schools.

[92] Even if we were to admit this fresh evidence, I do not agree that this ADR system displaces the conclusion that the class action is the preferable procedure. It is a system unilaterally created by one of the respondents in this action and could be unilaterally dismantled without the consent of the appellants. It deals only with physical and sexual abuse. It caps the amount of possible recovery and, most importantly in these circumstances, compared to the class action it shares the access to justice deficiencies of individual actions. It does not compare favourably with a common trial.

[93] Thus I conclude that each of the respondents' attacks must fail and that Cullity J. was correct to find that the appellants have met the preferability requirement. [page425]

The Workable Litigation Plan Requirement -- s. 5(1)(e)(ii)

[94] Although it was not strenuously pursued in oral submissions, the respondents also argue in their factums that the action cannot be certified because the appellants have not yet produced a workable litigation plan.

[95] I do not agree that the appellants' certification motion should fail on this basis. The litigation plan produced by the appellants is, like all litigation plans, something of a work in progress. It will undoubtedly have to be amended, particularly in light of the issues found to warrant a common trial. Any shortcomings due to its failure to provide for when limitations issues will be dealt with or how third-party claims are to be accommodated can be addressed under the supervision of the case management judge once the pleadings are complete. Most importantly, nothing in the litigation plan exposes weaknesses in the case as framed that undermine the conclusion that a class action is the Page 23

preferable procedure.

Conclusion

[96] I conclude that the appellants have shown that their action satisfies all the requirements of s. 5(1) of the CPA. It must therefore be certified and remitted to the supervision of the Superior Court judge assigned to manage the action.

[97] That judge will undoubtedly face significant challenges as this class action unfolds. If they prove insurmountable, the CPA provides remedies. However, the CPA also provides the judge with much flexibility in addressing these challenges and assessing them at this stage of the proceedings, I am not persuaded that they cannot be satisfactorily met within this form of proceeding.

[98] I would therefore allow the appeal, set aside the orders of the Divisional Court and the motion judge and substitute an order certifying the action consistent with these reasons.

[99] The parties have given us proposed bills of costs. However given the amounts at stake, I invite the parties to make written submissions as to the costs here and below. These submissions are to be exchanged and filed within six weeks of the release of these reasons and are not to exceed five pages, double spaced. Within a further two weeks, each party may then file a written reply not to exceed three pages, double spaced.

Order accordingly.

[page426] Page 1

Case Name: McKenna v. Gammon Gold Inc.

Between Ed J. McKenna, Plaintiff, and Gammon Gold Inc., Russell Barwick, Colin P. Sutherland, Dale M. Hendrick, Fred George, Frank Conte, Kent Noseworthy, Canek Rangel, Bradley Langille, Alejandro Caraveo, BMO Nesbitt Burns Inc., Scotia Capital Inc. and TD Securities Inc., Defendants Proceeding under the Class Proceedings Act, 1992

[2010] O.J. No. 1057

88 C.P.C. (6th) 27

2010 CarswellOnt 1460

2010 ONSC 1591

Court File No. 08-0036143600CP

Ontario Superior Court of Justice

G.R. Strathy J.

Heard: December 14-16, 2009. Judgment: March 16, 2010.

(187 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Common interests and issues -- Definition of class -- Sub-class -- Members of class or sub-class -- Representative plaintiff -- Motion by plaintiff to certify class action allowed in part -- Plaintiff claimed defendants made misrepresentations in connection with sale of securities, which caused decline in share price when true state of affairs disclosed -- Action certified with respect to two claims and certification of third claim adjourned -- Pleading disclosed causes of actions for misrepresentation in prospectus, unjust enrichment, conspiracy and other claims -- Clear connection to Ontario -- Class action preferable procedure -- Proposed plaintiff could fairly and adequately represent class, but there should be sub-class of those who had sold securities and Page 2

representative for non-resident class members.

Motion by the plaintiff to certify a class action. The plaintiff purchased shares in the defendant, Gammon Gold Inc. ("Gammon"), a gold and silver producer. Under a short-form prospected dated April 2007, Gammon made a public offering of 10 million common shares at a price of $20 per share. The plaintiff purchased 1000 shares of Gammon in the public offering. The plaintiff claimed that the defendants made misrepresentations, in public filings and other forms, the effect of which was to overestimate the actual and anticipated production rate at Gammon's Mexican mines and to misrepresent the real state of Gammon's business, which resulted in the inflation of the value of the shares. The plaintiff further claimed that when the true state of affairs was disclosed, in August 2007, the share price declined and he and other investors lost money. Although the plaintiff did not purchase shares on the secondary market, he claimed that certain continuous disclosure documents issued by Gammon between April 2006 and October 2007, and oral statements made by some of Gammon's officers and directors also claimed misrepresentations and, accordingly, he sought to represent all shareholders who acquired Gammon securities, whether under the prospectus or in the secondary market, at any time between April 2006 and August 2007. The plaintiff asserted claims for prospectus misrepresentation, negligent misrepresentation, negligence, reckless misrepresentation, conspiracy unjust enrichment and waiver of tort.

HELD: Motion allowed in part. Action certified with respect to Securities Act claim and unjust enrichment claim, and certification of conspiracy claim was adjourned. The pleading disclosed causes of actions for misrepresentation in the prospectus, negligent misrepresentation, conspiracy, unjust enrichment and waiver of tort. There was clearly a connection between Ontario and the plaintiff's claim as the plaintiff was a resident of Ontario and acquired his shares in Ontario and it was a reasonable assumption that a number of other share purchases were also residents of Ontario. There was on unfairness in subjecting the defendants to Ontario jurisdiction, but it would be unfair to require the plaintiff to pursue his claim elsewhere. Furthermore, it was appropriate to certify a class that included non-residents residents who engaged in a cross-border transaction because in acquiring securities of a Canadian company, they could reasonably expect that their legal rights in relation to that acquisition would be subject to Canadian jurisdiction, however it was not appropriate to include non-residents who purchased securities outside Canada. In addition, it was not appropriate to certify the secondary market claim. A class action was the preferable procedure as it would promote the goals of access to justice, judicial economy and behaviour modification. The proposed plaintiff could fairly and adequately represent the class, had no conflict with the class and was represented by experienced counsel who produced a workable litigation plan, however, there should be a sub-class of those who had sold their securities as well as a representative on behalf of non-resident class members.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5, s. 5(1), s. 8 Page 3

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 17.02, Rule 17.02(a), Rule 17.02(f), Rule 17.02(g), Rule 17.02(h), Rule 17.02(o), Rule 17.02(p), Rule 21.01(1)(b), Rule 25.06(8)

Securities Act, S.O. 1990, c. S. 5, s. 130, s. 130(1), s. 130(1)(c), s. 130(7), s. 131, s. 131.1(1), s. 138(b)(i), s. 138.3, s. 138.3(1), s. 138.8, s. 138.8(1), s. 138.13

Securities Exchange Act of 1934,

Counsel:

A. Dimitri Lascaris, Michael J. Peerless and Monique Radlein, for the plaintiff.

Ronald Slaght Q.C. and Nadia Campion, for the defendants BMO Nesbitt Burns Inc., Scotia Capital Inc., and TD Securities Inc.

Paul J. Martin and Laura F. Cooper, for the defendants Gammon Gold Inc., et al.

DECISION ON CERTIFICATION

1 G.R. STRATHY J.:-- This is a motion by the plaintiff, Ed McKenna, to certify a proposed class action pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the "C.P.A."). He claims that the defendants made misrepresentations in connection with the sale of the securities of Gammon Lake Resources Inc., now known as Gammon Gold Inc. ("Gammon"). He seeks to represent all persons (the "Class" or "Class Members") who acquired Gammon's shares between October 10, 2006 and August 10, 2007 (the "Class Period").

2 Gammon is a gold and silver producer. It is a reporting issuer under the Securities Act, S.O. 1990, c. S. 5 (the "Securities Act"). During the Class Period, Gammon's common shares were traded on the Toronto Stock Exchange (the "TSX"), the AMEX Stock Exchange in the United States (the "AMEX"), and elsewhere.

3 Under a short-form prospectus dated April 19, 2007 (the "Prospectus") Gammon made a public offering of 10 million common shares at a price of $20 per share, for gross proceeds of $200 million. Mr. McKenna purchased 1,000 shares of Gammon in the public offering.

4 Mr. McKenna claims that the value of Gammon's shares was inflated by the defendants' misrepresentations and that when the true state of affairs was disclosed, in early August 2007, the share price declined and he and other investors lost money. While Mr. McKenna did not buy Gammon shares in the secondary market, that is, through the stock exchange, he seeks to represent all shareholders who acquired Gammon securities, whether under the Prospectus or in the secondary Page 4

market, at any time during the Class Period.

I. Background

5 Gammon is incorporated in Quebec. Its registered office is in Montreal and its head office is in Halifax. Its mining operations are based in Mexico, where it has three operating mines, including its flagship mining property, the Ocampo Project in Chihuahua State ("Ocampo").

6 The individual defendants were senior officers and/or directors of Gammon during some or all of the Class Period. Gammon and these individual defendants will be referred to as the "Gammon Defendants." The remaining defendants, BMO Nesbitt Burns Inc., Scotia Capital Inc. and TD Securities Inc. (the "Underwriters") were members of the syndicate that underwrote the securities offered under the Prospectus. BMO Nesbitt Burns Inc. was the lead underwriter.

7 As a reporting issuer under the Securities Act, Gammon was subject to various public disclosure obligations, including the obligation to file reports of any material changes in its financial position with the Ontario Securities Commission, as well as interim and annual consolidated financial statements. It also had an obligation to ensure that the Prospectus provided full and accurate disclosure of all material facts relating to the securities proposed to be issued.

8 The commencement of the Class Period on October 10, 2006 is marked by the date of a press release issued by Gammon in which it was stated, among other things, that Gammon was on track to attain annual production of 400,000 gold equivalent ounces ("GEO") by the end of the 2006 calendar year. The plaintiff claims that this announcement caused the price of Gammon's stock to rise from $11.88 on October 6, 2006 to $12.50 on October 10, 2006, on high trading volumes. Gammon's stock price continued to climb for the balance of October and closed at $14.75 on October 31, 2006, an increase of 18% over the closing price on the last trading day before the commencement of the Class Period.

9 Mr. McKenna claims that the press release contained a misrepresentation, as Gammon was not in fact on track to achieve the stated production rate. He claims that the defendants made additional misrepresentations during the Class Period, in public filings and in other forms, the effect of which was to overestimate the actual and anticipated production rate at Gammon's Mexican mines and to misrepresent the real state of Gammon's business.

10 Mr. McKenna alleges that in the Prospectus, and in Gammon's regulatory disclosure documents during the Class Period, the defendants made the following misrepresentations, among others:

(a) they materially overstated Gammon's GEO production rate at Ocampo and another gold and silver mine; (b) they falsely stated that Gammon maintained adequate internal disclosure controls and procedures to ensure, among other things, that management Page 5

did not make unreasonable projections; (c) they materially understated Gammon's stock option expense for the fiscal years that ended on July 31st in 2004 and 2005, the five month period that ended December 31, 2005, and the fiscal year that ended on December 31, 2006; (d) they falsely stated that Gammon's financial reports had been prepared in accordance with generally accepted accounting principles; (e) they unreasonably projected that Gammon would produce 400,000 GEO in 2007, and 480,000 GEO in 2008; (f) they failed to disclose that a company from which Gammon procured its Mexican labour force was controlled by the brother of Gammon's President and Chairman of the Board, and that Gammon was being overcharged for labour; (g) they failed to disclose, on a timely basis, that Gammon was experiencing severe equipment failures and other technical difficulties at Ocampo in the first and second quarters of 2007; and (h) they failed to disclose that Gammon's reported production figures were improperly calculated.

11 The end of the Class Period, August 9, 2007, is the date on which Gammon made certain regulatory filings for the second quarter of 2007. Mr. McKenna alleges that, on that day, and during a conference call with analysts on the following day, Gammon and its officers disclosed for the first time that Gammon was unlikely to meet its 2007 production projection of 400,000 GEO. This disclosure allegedly corrected the misrepresentations that had been made during the Class Period, in the Prospectus, regulatory filings and public statements.

12 The corrective information that was allegedly revealed for the first time on August 9 and 10, 2007 included the following:

(a) Gammon had experienced severe equipment failures at Ocampo in the first and second quarters of 2007; (b) Gammon's GEO production had fallen by 16% from the first quarter to the second quarter of 2007, making it highly unlikely that Gammon's previous production estimates would be met; and (c) Gammon had been including zinc precipitate in its GEO production totals, thus causing those production totals to be materially overstated.

13 The plaintiff claims that Gammon's stock price fell as a result of these disclosures. Prior to the release of the information on August 9, 2007 Gammon's shares traded at $11.22 per share. Over the next five trading days, the shares fell to a low of $8.10 per share, a decrease of $3.12, or 28%. Moreover, the share price of $8.10 constituted roughly a 60% decline from the price at which Gammon had sold shares under the Prospectus less than four months earlier. Page 6

14 Mr. McKenna alleges that the defendants' misrepresentations caused the shares offered under the Prospectus to be offered at an inflated price, and claims that he, and the other Class Members who purchased Gammon shares under the Prospectus, relied upon those misrepresentations to their detriment.

15 He further alleges that certain continuous disclosure documents issued by Gammon during the Class Period, and oral statements made by some of Gammon's officers and directors also contained misrepresentations. Accordingly, he asserts claims against the Gammon Defendants not only on behalf of primary market purchasers, but also on behalf of persons who acquired Gammon securities in the secondary market, who allegedly relied to their detriment on the misrepresentations and purchased Gammon securities at inflated prices.

16 The Plaintiff asserts various causes of action. His claims against the Gammon Defendants overlap with, but are not the same as, the causes of action asserted against the Underwriters.

17 The Plaintiff asserts against the Gammon Defendants claims on behalf of both primary and secondary market purchasers. On behalf of primary market purchasers, the Plaintiff asserts claims for: (1) prospectus misrepresentation under s. 130 of the Securities Act; (2) negligent misrepresentation; (3) negligence; (4) reckless misrepresentation; and (5) conspiracy. On behalf of secondary market purchasers, the Plaintiff asserts all these causes of action against the Gammon Defendants, except for s. 130 of the Securities Act.

18 The Plaintiff asserts against the Underwriters claims only on behalf of primary market purchasers. The causes of action asserted are: (1) prospectus misrepresentation under s. 130 of the Securities Act; (2) negligence; (3) negligent misrepresentation; (4) unjust enrichment; and (5) waiver of tort.

II. The Issues

19 The primary issue in the motion before me is whether this action should be certified as a class action. The test is set out in s. 5 of the C.P.A. and I will discuss and apply it in the course of these reasons. The motion raises two overarching additional issues, which have been problematic in class actions, and which I will briefly explain in order to put the principal issues in context.

20 The first important issue is whether it is appropriate to certify this proceeding as a "global" class action on behalf of all purchasers of Gammon securities during the Class Period, wherever they may be situated. The purchasers of Gammon securities are widely dispersed around the world. The issue raises important questions concerning the court's jurisdiction and the recognition and enforceability of the court's judgment which would, of course, purport to bind all members of the Class who do not opt out. I will discuss this issue when I consider the Class definition under s. 5(1)(b) of the C.P.A.

21 The second important issue is whether a plaintiff claiming negligent misrepresentation must Page 7

prove that he or she actually relied on the alleged misrepresentation and suffered damages as a result. This issue does not arise in connection with the plaintiff's claim for prospectus misrepresentation under s. 130(1) of the Securities Act, because that section provides a remedy "without regard to whether the purchaser relied on the misrepresentation." The statute makes it unnecessary for the purchaser under a prospectus to prove that he or she relied on the alleged misrepresentation. The issue is, however, important in the plaintiff's common law claim for negligent misrepresentation, which is advanced as an independent cause of action in relation to the Prospectus, and also in the secondary market claim. If the claim for misrepresentation requires proof of actual reliance, as the defendants assert, then it arguably gives rise to a need to examine whether each purchaser relied upon the alleged misrepresentations and, if so, which ones. The defendants say that these individual issues would make this proceeding unmanageable and unsuitable for certification as a class action. I will examine this question when I discuss the common issue that the plaintiff proposes in relation to the misrepresentation claim.

22 Against this background, I turn to the test for certification.

III. The Test for Certification

23 The requirements of certification of a class action are set out in s. 5 of the C.P.A.:

5.(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

24 There must be a cause of action, shared by an identifiable class, from which common issues arise, that can be resolved in a fair, efficient, and manageable way that will advance the proceeding and achieve access to justice, judicial economy, and the modification of behaviour of wrongdoers: Page 8

Sauer v. Canada (Attorney General), [2008] O.J. No. 3419 (S.C.J.) at para. 14, leave to appeal to Div. Ct. refused, [2009] O.J. No. 402 (Div. Ct.). The motion is procedural not merits-based. The question is whether the claims can appropriately be prosecuted as a class proceeding: Hollick v. Toronto (City), [2001] 3 S.C.R. 158 at paras. 16, 25, 28-29. The plaintiff must show "some basis in fact" for each of the certification requirements, other than the requirement that the pleading disclose a cause of action: Hollick v. Toronto (City), above, at para. 25; Taub v. Manufacturers Life Insurance Co. (1998), 40 O.R. (3d) 379 (Gen. Div.), aff'd (1999), 42 O.R. (3d) 576 (Div. Ct.).

25 I will consider each of the s. 5 requirements in order.

(a) Causes of Action Asserted

26 The first criterion for certification is that the pleading must disclose a cause of action. The test in Hunt v. Carey Canada, [1990] 2 S.C.R. 959, 1990 CarswellBC 216, which applies to motions under Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, reg. 194, is applicable for this purpose as well. The pleading will be acceptable unless it contains a radical defect or it is "plain and obvious" that it could not succeed: Anderson v. Wilson (1999), 44 O.R. (3d) 673 (C.A.) at p. 679, leave to appeal to S.C.C. denied, [1999] S.C.C.A. No. 476; 1176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada Ltd. (2002), 62 O.R. (3d) 535 (S.C.J.) at para. 19, leave to appeal granted, 64 O.R. (3d) 42 (Div. Ct.), aff'd (2004), 70 O.R. (3d) 182 (Div. Ct.); Healey v. Lakeridge Health Corp., [2006] O.J. No. 4277 (S.C.J.) at para. 25. No evidence is admissible on this aspect of the motion, and the material facts pleaded are accepted as true, unless patently ridiculous or incapable of proof.

27 The pleading must be read generously to allow for drafting inadequacies and the lack of information available to the plaintiff in the early stages of the action: Hunt v. Carey Canada Inc., above, at 980; Anderson v. Wilson, above, at 679. It will be struck only if it is plain, obvious, and beyond reasonable doubt that the plaintiff cannot succeed: Hollick v. Toronto (City), above, at para. 25; Cloud v. Canada (Attorney General) v. Canada (Attorney General), above, at para. 41; Abdool v. Anaheim Management Ltd. (1995), 21 O.R. (3d) 453 (Div. Ct.) at p. 469. Matters of law not fully settled in the jurisprudence must be permitted to proceed: Ford v. F. Hoffmann-LaRoche Ltd. (2005), 74 O.R. (3d) 758 (S.C.J.) at para. 17(e).

28 The plaintiff asserts multiple causes of action in the Amended Amended Fresh as Amended Statement of Claim (the "Statement of Claim"). These include:

(i) a claim under s. 130 of the Securities Act against all defendants in relation to the Prospectus; (ii) negligent misrepresentation against all defendants; (iii) reckless misrepresentation against the Gammon Defendants; (iv) negligence against all defendants; (v) conspiracy against the Gammon Defendants; and (vi) unjust enrichment and waiver of tort against the Underwriters. Page 9

29 I will now examine whether the pleading discloses each of these causes of action.

(i) Section 130 of the Securities Act

30 As noted earlier, s. 130 of the Securities Act provides a purchaser of a security under a prospectus with a remedy for misrepresentation, regardless of whether the purchaser relied on the misrepresentation. The remedy is available against the issuer and underwriters of the security as well as directors of the issuer and others who have signed the prospectus or have allowed their reports or statements to be used in the prospectus. The remedy is significant in the context of a class action, because it dispenses with the requirement that each class member prove that he or she relied on the misrepresentation, a requirement that frequently makes misrepresentation claims unsuitable for certification.

31 Section 130 provides:

(1) Where a prospectus together with any amendment to the prospectus, contains a misrepresentation, a purchaser who purchases a security offered by the prospectus during the period of distribution has, without regard to whether the purchaser relied on the misrepresentation, a right of action for damages against,

(a) the issuer or a selling security holder on whose behalf the distribution was made; (b) each underwriter of the securities who is required to sign the certificate required by section 59; (c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed; (d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and (e) every person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in clauses (a) to (d),

or, where the purchaser purchased the security from a person or company referred to in clause (a) or (b) or from another underwriter of the securities, the purchaser may elect to exercise a right of rescission against such person, company or underwriter, in which case the purchaser shall have not right of action for damages against such person, company or underwriter [emphasis added].

32 A "misrepresentation" is defined as an untrue statement of material fact or an omission to state Page 10

a material fact that is required to be stated or that is necessary to make a statement not misleading. A "material fact" is a fact that would reasonably be expected to have a significant effect on the market price of the securities.

33 The defendants do not dispute that the plaintiff could have a valid cause of action under s. 130 of the Securities Act. They say, however, that the claim is time-barred by s. 138(b)(i), which provides that no such action shall be commenced more than "180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action." This assertion is based on a pleading that on May 10, 2007 Gammon issued and filed with the securities regulators a quarterly report that disclosed a first quarter loss of over US$10 million and other information that, collectively, was a partially corrective disclosure of the previous misrepresentations. This resulted in a significant negative impact on Gammon's share price on May 11 and 14, 2007, the trading days following this disclosure.

34 The defendants say that a large proportion of Gammon shareholders would have acquired actual knowledge of these facts and that all of Gammon's shareholders ought reasonably to have known of the fact at that time. The Gammon Defendants therefore say that the limitation period began to run on May 14, 2007, and expired on November 10, 2007, approximately three months before the commencement of this action. They say that the statutory misrepresentation claim of every Class Member is barred by the expiry of the limitation period.

35 In addition, the Underwriters rely on statements made by Mr. McKenna on his cross-examination to the effect that he formed the belief in May or June of 2007 that Scotia Capital had failed to conduct adequate due diligence in connection with the public offering. They say that Mr. McKenna knew or ought to have known of the alleged misrepresentations as of that date and that his claim is time-barred for that reason as well. They also say that, for this reason, he is not a suitable representative plaintiff on behalf of Prospectus purchasers.

36 Prior to the hearing of the certification motion, counsel for the Underwriters sought leave to bring a motion for, among other things, summary judgment dismissing the plaintiff's s. 130 Securities Act claim on the ground that it was time-barred. I refused the request on several grounds. In particular, I was not satisfied that hearing the motion prior to certification would promote litigation efficiency: McKenna v. Gammon Gold Inc., [2009] O.J. No. 5151.

37 There is no doubt that a putative class action can be dismissed, even prior to certification, where the claim of the proposed representative plaintiff is time-barred on the face of the pleading: Stone v. Wellington County Board of Education (1999), 120 O.A.C. 296, [1999] O.J. No. 1298 (C.A.); Farquar v. Liberty Mutual Insurance Co. (2004), 43 C.P.C. (5th) 361, [2004] O.J. No. 148 (S.C.J.). I note that in both these cases, however, while the motion was brought prior to certification, the defendants had delivered statements of defence pleading the limitations issue.

38 Where the resolution of the limitations issue depends on a factual inquiry, such as when a plaintiff knew or ought to have known of the facts constituting the action, the issue should not be Page 11

resolved at certification: Serhan (Trustee of) v. Johnson & Johnson (2006), 85 O.R. (3d) 665, [2006] O.J. No. 2421 (Div. Ct.) at paras. 140-145. Accordingly, it is not plain and obvious in this case that the claims of the class generally, or of Mr. McKenna personally, are statute barred due to limitations.

39 If the defendants consider that the limitation period is an issue that can be resolved on a common basis, they may move to have it added as a common issue. Alternatively, the defendants may bring a motion for summary judgment on this issue, if so advised, at a future date. If necessary and appropriate, the plaintiff may move to add another representative plaintiff.

40 It is pleaded that Mr. Langille resigned as a director of Gammon on or about April 3, 2007, a date before the Prospectus was filed. The remedy under s. 130(1)(c) of the Securities Act only applies to persons who were directors at the time the prospectus was filed. It is plain and obvious on the face of the pleading that the claim against Mr. Langille cannot succeed and it should be dismissed.

(ii) Negligent Misrepresentation

41 The plaintiff pleads a cause of action in negligent misrepresentation against both the Gammon Defendants and the Underwriters. He pleads that the Gammon Defendants intended that the Class Members would rely on the misrepresentations, which they did to their detriment by purchasing Gammon securities at inflated prices under the Prospectus and in the secondary market. He also pleads that the plaintiff "directly or indirectly" relied upon the misrepresentations. He makes similar allegations against the Underwriters in connection with the Prospectus.

42 The requirements of a claim for negligent misrepresentation were summarized by the Supreme Court of Canada in the leading case of Queen v. Cognos Inc., [1993] 1 S.C.R. 87, [1993] S.C.J. No. 3 ("Cognos") at para. 33:

... (1) there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. [emphasis added]

43 The plaintiff has properly pleaded the essential ingredients of negligent misrepresentation. As I will explain later in these reasons, I do not accept the "non-reliance theory of misrepresentation" advanced by plaintiff's counsel and set out as follows in his factum:

... Canadian and other common law Courts have increasingly recognized that, in appropriate circumstances, reliance per se is not an essential element of a Page 12

common law misrepresentation claim. ... If causation can be established by some means other than reliance, then the plaintiff can state a valid cause of action.

44 In my respectful view, for reasons I will explain under the common issues analysis, this is not the law of Canada. While reliance can be established by inference, it remains a necessary ingredient of the cause of action of negligent misrepresentation.

(iii) Reckless Misrepresentation

45 The Statement of Claim includes a heading before para. 202 entitled "Reckless Misrepresentation, Negligence and Negligent Misrepresentation of the Gammon Defendants." The plaintiff pleads that those defendants owed a duty to the Class to disseminate accurate information, that the information disseminated by the defendants, including the Prospectus, contained misrepresentations, that the defendants knew that the misrepresentations were false and that the plaintiff and investors would rely on them, which they did to their detriment by purchasing Gammon's securities. Apart from the heading itself, there is no pleading that the Gammon Defendants acted recklessly or not caring whether the representations were true or false.

46 Reckless misrepresentation is not itself a cause of action: Hurst v. PriceWaterhouseCoopers (PWC) LLP, Canada, [2009] O.J. No. 1415 (S.C.J.). A pleading of "reckless misrepresentation" may be regarded as being, in substance, a pleading of fraudulent misrepresentation, if the necessary elements of that cause of action are pleaded. Some claims have been allowed to proceed on that basis: Canadian Imperial Bank of Commerce v. Deloitte & Touche (2003), 33 C.P.C. (5th) 127, [2003] O.J. No. 2069 (Div. Ct.); Silver v. Imax Corp. [2009] O.J. No. 5585 ("Silver v. Imax - Certification") at paras. 76-80; McCann v. CP Ships, [2009] O.J. No. 5182 (S.C.J.) at paras. 39-43.

47 A pleading of fraudulent misrepresentation requires that there be: (a) a false representation of fact; (b) made with knowledge of its falsehood or recklessly, without belief in its truth; (c) with the intention that it should be acted upon by the plaintiff; and (d) actually inducing the plaintiff to act on it to his or her detriment: Parna v. G & S Properties Ltd. [1971] S.C.R. 306, (1970), 15 D.L.R. (3d) 336.

48 In Mondor v. Fisherman (2002), 22 C.P.C. (5th) 346, [2002] O.J. No. 1855, Cumming J. permitted a claim to proceed in a class action where the plaintiff alleged that the defendants were "willfully blind" and that they were reckless in their negligent misrepresentation, "not caring whether it was true or false." There is no such pleading in this case. Apart from the request in para. 3(e) of the statement of claim for a declaration that the misrepresentations were made recklessly, and the heading before para. 202, there is no pleading of recklessness or willful blindness and certainly no pleading of fraud.

49 The rule remains that fraud is a serious allegation and it must be pleaded with particularity: see Rule 25.06(8) of the Rules of Civil Procedure, R.R.O. 1990, reg. 194; Lo Faso v. Ferracuti, [2009] O.J. No. 4568 (S.C.J.). Pleadings of fraud may raise issues for insurers and regulators and Page 13

they have, of course, serious costs consequences if not made out. When it comes to fraud, a plaintiff is required to fish or cut bait. A defendant is entitled to know if fraud is being alleged and a plaintiff cannot hide behind ambiguous pleadings to avoid the consequences of an unsuccessful pleading of fraud.

50 While the authorities to which I have referred indicate that some measure of flexibility will be permitted in allowing a claim for reckless misrepresentation to proceed where it is in substance a pleading of fraudulent misrepresentation, counsel for the plaintiff did not suggest that a claim for fraud is being made. The pleading in this case does not contain the necessary elements of fraudulent misrepresentation and therefore does not disclose a cause of action.

(iv) Negligence

51 The statement of claim alleges that the Underwriters owed a duty to the Class, at common law and under the Securities Act, to ensure that the Prospectus provided full, true and plain disclosure of material facts and that the Underwriters failed to exercise appropriate diligence in connection with the Prospectus. In the course of the submissions, reference was made to the decision of Van Rensburg J. in Silver v. Imax - Certification, above, at paras. 81-88, in which it was held that a similar pleading was in substance a claim for negligent misrepresentation without the element of reliance and the claim was not certified; see also Deep v. M.D. Management (2007), 35 B.L.R. (4th) 86, [2007] O.J. No. 2392 (S.C.J.).

52 Plaintiff's counsel acknowledged that the claim for negligence was really subsumed by the negligent misrepresentation claim and said that it would be abandoned. Counsel for the plaintiff requested leave to amend but was unable to identify any basis or theory on which a claim for negligence could be asserted. For this reason, I do not propose to grant leave at this time.

(v) Conspiracy

53 The plaintiff pleads that:

* the Gammon Defendants "wrongfully, unlawfully, maliciously and lacking bona fides" agreed to conceal from investors material facts relating to Gammon's mining operations and stock options practices; * the predominant purpose of some but not all of the Gammon Defendants was to inflate the price of Gammon's shares and increase the value of their own holdings; * various acts were carried out allegedly in furtherance of the conspiracy, including misstating, distorting or withholding material facts; * the conspiracy was unlawful because the Gammon Defendants knowingly and intentionally committed those acts when they knew that there was no reasonable assurance that their misrepresentations were accurate, and in so doing they violated the Securities Act, the United States Securities Page 14

Exchange Act of 1934, and the reporting requirement of the TSX and AMEX; and * the conspiracy was directed towards the plaintiff and other Class Members and the Gammon Defendants knew in the circumstances that it would, and it did in fact, cause loss to the plaintiff and the other Class Members.

54 A pleading of conspiracy must include particulars of: (1) the parties and their relationship; (2) an agreement to conspire; (3) the precise purpose or objects of the alleged conspiracy; (4) the overt acts that are alleged to have been done by each of the conspirators; and (5) the injury and particulars of the special damages suffered by reason of the conspiracy: see Perell J. in 2038724 Ontario Ltd. v. Quizno's Canada Restaurant Corp., (2008), 89 O.R. (3d) 252, [2008] O.J. No. 833 at para. 90 ("Quizno's - S.C.J."), rev'd on other grounds (2009), 96 O.R. (3d) 252, [2009] O.J. No. 1874 (Div. Ct.)("Quizno's - Div. Ct."), referring to Aristocrat Restaurants Ltd. v. Ontario, [2003] O.J. No. 5331 (S.C.J.); Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 37 O.R. (3d) 97 (C.A.); D.G. Jewelry Inc. v. Cyberdiam Canada Ltd., [2002] O.J. No. 1465 (S.C.J.); Cineplex Corporation v. Viking Rideau Corporation (1985), 28 B.L.R. 212, [1985] O.J. No. 304 (Ont. H.C.J.).

55 In Silver v. Imax - Certification, Van Rensburg J. referred to the requirements of a pleading of conspiracy as set out in the leading case of Normart Management Limited v. West Hill Redevelopment Company Limited et al., above, at p. 98:

[T]he statement of claim should describe who the several parties are and their relationship with each other. It should allege the agreement between the defendants to conspire, and state precisely what the purpose or what were the objects of the alleged conspiracy, and it must then proceed to set forth, with clarity and precision, the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance and in furtherance of the conspiracy; and lastly, it must allege the injury and damage occasioned to the plaintiff thereby.

56 The pleading of conspiracy in this case is very similar to (and in some instances tracks word-by-word), the pleading in Silver v. Imax - Certification, in which the plaintiffs were represented by the same counsel. Some of the objections made by the defendants to the pleading in that case are similar to the objections made here.

57 The defendants say that the pleading in this case is deficient because it lacks particularity with respect to the overt acts committed by each conspirator, the alleged agreement between the parties, when the agreement was entered into and what its terms were. They say there is a duty to plead the cause of action with particularity: OZ Merchandising Inc. v. Canadian Professional Soccer League Inc., [2006] O.J. No. 2882 (S.C.J.) at para. 14, 24-25; Noldin v. Prince, [1999] O.J. No. 2148, 1999 CanLII 37350 (C.A.) at paras. 3-5; Research Capital Corporation v. Skyservice Airlines Inc., [2008] O.J. No. 2526, 2008 CanLII 30703 (S.C.J.) at paras. 48, 50 varied on other grounds 2009 ONCA 418. Page 15

58 They also say that the pleading is deficient because it fails to particularize the damage or injury allegedly caused by the conspiracy: Aristocrat Restaurants Ltd. v. Ontario, [2004] O.J. No. 5164 (S.C.J.) at para. 41. The pleading of special damage is an indispensable element of a legally sufficient conspiracy pleading, absent which the claim should be struck: Robinson v. Medtronic Inc., [2009] O.J. No. 4366 (S.C.J.) at paras. 107, 111; Apotex Inc. v. Plantey USA Inc., [2005] O.J. No. 1860 (S.C.J.) at paras. 61-63.

59 The defendants also say, as was asserted in Silver v. Imax - Certification, that the claim for conspiracy must fail because the alleged conspirators are Gammon and its officers and directors. Since a corporation must necessarily act through its directing minds, the actions of those individuals, in reaching an agreement on a course of action within the scope of their responsibilities, cannot give rise to an actionable conspiracy: Normart Management Ltd. v. West Hill Redevelopment Co., above; Craik v. Aetna Life Insurance Co. of Canada, [1995] O.J. No. 3286 (Gen. Div.) at para. 23, aff'd [1996] O.J. No. 2377 (C.A.); Accord Business Credit Inc. v. Bank of Nova Scotia, [1997] O.J. No. 2562 (Gen. Div.) at para. 34.

60 In Silver v. Imax - Certification, Van Rensburg J. referred to the decision of the Court of Appeal in Normart Management Limited v. West Hill Redevelopment Company Limited et al., above, at para. 92:

It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they contract and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identify or interest from that or the corporations such as to make the acts or conduct complained of those of the directing minds [emphasis added].

61 She found that that the conspiracy claim was properly pleaded, at paras. 94-96:

In the present case, while the plaintiffs have alleged that the acts or omissions alleged in the Claim were authorized, ordered and done by the Individual Defendants while engaged in the management, direction, control and transaction of its business affairs and are therefore acts and omissions for which IMAX is vicariously liable (paras. 85 and 86), the plaintiffs have also alleged that the actions of the Individual Defendants are independently tortious and that such defendants are personally liable (para. 87).

The allegations against the Individual Defendants in the Claim include the assertion that they were acting "wrongfully, unlawfully, maliciously and lacking bona fides" (para. 52) and that they were motivated to increase the value of their own holdings in IMAX (para. 53(e)). Page 16

The Claim pleads all of the necessary elements of the cause of action of conspiracy. There are allegations in the Claim that may, if true, give rise to personal liability on the part of the Individual Defendants. Their conduct is at issue both as agents for the Corporation and in their personal capacities. It is not therefore plain and obvious that the conspiracy claim is deficient, and accordingly such claim will not be struck.

62 The defendants say that the plaintiff has not appropriately pleaded simple motive conspiracy -- i.e., that the predominant purpose of the defendants' conduct, whether or not the conduct is unlawful in itself, was to cause injury to the plaintiff: Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452, 1983 CarswellBC 812. The defendants say that the pleading fails to assert a predominant purpose to injure. The defendants say that the plaintiffs must plead that the Gammon Defendants committed one or more unlawful acts in furtherance of the alleged conspiracy: Starkman v. Canada (Attorney General), [2000] O.J. No. 3764 (S.C.J.) at para. 11; Apotex Inc. v. Plantey USA Inc., above, at paras. 58-59.

63 The plaintiff says that he has pleaded both simple motive conspiracy and unlawful means conspiracy in the alternative. The pleading of the latter is that the defendant's conduct was unlawful, was directed at the plaintiff, and the defendant knew or ought to have known that injury to the plaintiff would result: Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., above, at paras. 33-34; Hunt v. Carey Canada Inc., at paras. 42-43. The plaintiff says that there is a proper pleading of unlawful means conspiracy because he alleges that the Gammon Defendants' conduct in making the misrepresentations and manipulating the Gammon stock options was unlawful, that it was directed at the public and in particular the plaintiff and the Class and in the circumstances the Gammon Defendants knew or ought to have known that injury to the Plaintiff and the other Class Members would result.

64 In this case, as in Silver v. Imax - Certification, the facts pleaded amount to an assertion that the individual defendants were acting not only for Gammon's benefit, but also for their own benefit, and to that extent, to the detriment of Gammon. Specifically, the individual defendants are alleged to have enriched themselves by manipulating the grant dates of Gammon stock options, thereby enabling themselves to exercise options, to the detriment of Gammon, at impermissibly low prices. It is not plain and obvious that the conspiracy claim must fail. The tort of conspiracy has been properly pleaded. The pleadings allege that the Gammon Defendants:

(a) reached an agreement; (b) with a common intention (to inflate the share price); (c) to commit acts that were either unlawful (under the Securities Act and other statutes) and likely to cause injury to the class members, or had the predominant purpose of causing injury to the class members; and (d) thereby caused damage to be suffered by the class members. Page 17

65 Moreover, the plaintiff has provided sufficient particulars of the overt acts (the misrepresentations) that were allegedly undertaken in furtherance of this conspiracy. The plaintiff has pleaded facts to establish that the conduct of the defendant directors and officers of Gammon was either tortious in itself, or exhibited a separate interest from that of the corporation. Lastly, the plaintiff has pleaded facts to ground the vicarious liability of the corporation for the acts of the defendant directors and officers. These factual assertions, if proven, would entitle the plaintiff to relief against the Gammon Defendants under the tort of conspiracy: Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., above; see also, G.H.L. Fridman, The Law of Torts in Canada, 2nd ed. (Toronto: Carswell, 2002) at pp. 765-772 and Normart Management Ltd. v. West Hill Redevelopment Co., above.

66 It is, however, fundamental to a proper pleading of conspiracy that the plaintiff must allege damages that are separate and distinct from the damages suffered from the underlying tort itself. In Quizno's - S.C.J., Perell J. found that the pleading lacked particulars in this regard. As he did not certify the action, which was allowed to continue as an ordinary action, he ordered the plaintiff to provide particulars of the special damages. He stated that, had he certified the action, he would not have ordered particulars beyond those sustained by the representative plaintiff. Special damages suffered by the class would be an individual issue. In Quizno's - Div. Ct., the decision of Perell J. was reversed and the action certified as a class action.

67 In McCann v. CP Ships Ltd. above, Rady J. found that there was no pleading of special damages in relation to the conspiracy claim which were distinct from those flowing from the pleading of negligence or negligent misrepresentation. She granted leave to amend to provide particulars of the special damages.

68 I propose to follow the course adopted by my colleagues and to order the plaintiff to provide particulars of the special damages suffered by the representative plaintiff.

(vi) Unjust Enrichment and Waiver of Tort

69 The plaintiff pleads that the Underwriters have been unjustly enriched at the expense of the Class Members and that there is no juristic reason for the enrichment. He also pleads, in the alternative to a claim for damages, that Class Members are entitled to waive the tort claim and instead "elect to claim payment of the underwriting commissions generated by the Underwriters as a result of their failure of diligence and care." The plaintiff relies upon Garland v. Consumers Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, and says that the pleading contains the necessary allegations of (a) enrichment of the defendant; (b) a corresponding deprivation of the plaintiff; and (c) an absence of juristic reason for the enrichment. The Underwriters acknowledge that the claims are adequately pleaded and I agree.

Summary with respect to cause of action requirement

70 In summary, I conclude that the pleading, as it now stands, discloses the following causes of Page 18

action:

(a) the statutory cause of action for misrepresentation in the Prospectus, under s. 130 of the Securities Act, as against all defendants; (b) a cause of action in negligent misrepresentation under the Prospectus and in the secondary market; (c) a cause of action against all defendants for conspiracy, but particulars of the special damages suffered by the representative plaintiff must be provided; and (d) a claim against the Underwriters for unjust enrichment and waiver of tort in connection with the Prospectus.

Other Claims

71 For the sake of good order, I will comment briefly on two additional "claims" that were the subject of submissions.

72 First, the statement of claim pleads that the plaintiff "intends promptly to deliver a notice of motion seeking leave under s. 138.8(1) of the [Securities Act] to amend this statement of claim to plead the causes of action [for misrepresentation in the secondary market] set out in s. 138.3 of the [Securities Act]."

73 Section 138.3 of the Securities Act, contained in Part XXIII.1 entitled "Civil Liability for Secondary Market Disclosure," gives shareholders of a reporting issuer a statutory cause of action for misrepresentation in relation to the secondary market "without regard to whether the person or company relied on the misrepresentation." The remedy is available against the issuer, directors, certain officers and others. Certain defences and limits of liability are also available or applicable. Section 138.8 stipulates that no action may be commenced under s. 138.3 unless leave is granted by the court on being satisfied that the action is brought in good faith and that there is a "reasonable possibility" that the action will be resolved at trial in favour of the plaintiff. The origins of the section were considered by Lax J. in Ainslie v. CV Technologies Inc. (2008), 93 O.R. (3d) 200, [2008] O.J. No. 4891. The statutory remedy was recently discussed and leave granted to commence a s. 138.3 claim in a separate decision issued by Van Rensburg J. in the Imax case: Silver v. Imax Corp., [2009] O.J. No. 5573 ("Silver v. Imax - s. 138").

74 Unlike the plaintiff in Silver v. Imax - s. 138, and notwithstanding the statement in his pleading, Mr. McKenna has not sought leave under s. 138.8.

75 While s. 138.3 does not preclude a common law action for negligent misrepresentation, a right that is preserved by s. 138.13, the "deemed reliance" provision in s. 138.3 is unavailable to Mr. McKenna. Hence the debate in this case about the need to establish reliance in a claim for common law misrepresentation and about the suitability of reliance as a common issue, which I shall discuss shortly. Page 19

76 The second point is that the statement of claim contains allegations that the Gammon Defendants "manipulated" the dates of stock options granted to insiders and misstated Gammon's stock option expense in the Prospectus and other filings. The pleading states, at para. 198, that as a result of these manipulations, the financial statements of Gammon, which were incorporated by reference into the Prospectus, understated Gammon's stock option expense. Para. 204 states that the Gammon Defendants selected option exercise prices that were below market ("in the money" options), issued options while they were in possession of positive information and signed financial statements that they knew understated Gammon's stock option expense. There is no separate claim for damages in respect of the stock options.

77 The Gammon Defendants say that the true nature of the stock option pleading relates to wrongs committed by Gammon's officers and directors against the corporation itself and, as such, it is a derivative claim that the plaintiff has no standing to assert. They say it offends the rule in Foss v. Harbottle (1843), 2 Hare 460, 67 E.R. 189. The fact that the claim is made in a proposed class action does not overcome the rule: Everest Canadian Properties Ltd. v. Mallmann (2008), 46 B.L.R. (4th) 198, [2008] B.C.J. No. 1258 (C.A.).

78 The defendants also say that the plaintiff has failed to plead any "corrective disclosure" in relation to the stock options that could possibly have had an effect on the value of Gammon's shares. Thus, the plaintiff has failed to plead that he suffered detriment as a result of the alleged manipulation of stock options, a necessary ingredient of the misrepresentation claim at common law and under s. 130.

79 Mr. McKenna admits that a derivative claim would be unsustainable. He says, however, that he is not seeking to recover the harm he indirectly suffered as a result of Gammon receiving less consideration for its shares than it would have received, but for the manipulation of the option dates. He says that his pleading simply means that Gammon's net income was understated as a result of the improper pricing of the stock options and Gammon falsely represented that the financial statements accurately represented its financial picture.

80 I accept the submission of the plaintiff that the pleading of the stock options is not asserted as a cause of action and it is simply a part of the misrepresentation claim, to the effect that the price of Gammon's shares was improperly inflated as a result of the mis-statement of its stock option expense.

(b) The Proposed Class

81 The description of the Class is broad:

All persons, [other than certain excluded persons related to the parties] who acquired securities of [Gammon] during the period from the opening of trading on October 10, 2006 to the close of trading on August 10, 2007 (the "Class Period"), whether over a stock exchange, or pursuant to a prospectus, or Page 20

otherwise ...

82 The purpose of the class definition is set out in the oft-cited case of Bywater v. T.T.C., [1998] O.J. No. 4913, 27 C.P.C. (4th) 172 (Gen. Div.) at para. 10:

(a) it identifies the persons who have a potential claim against the defendant; (b) it defines the parameters of the lawsuit so as to identify those persons bound by the result of the action; and (c) it describes who is entitled to notice.

83 The class definition must not contain merit-based elements: Markson v. MBNA Canada Bank (2007), 85 O.R. (3d) 321 (C.A.) at para. 19, rev'g (2005), 78 O.R. (3d) 39 (Div. Ct.), which aff'd (2004), 71 O.R. (3d) 741, (S.C.J.), leave to appeal to S.C.C. ref'd, [2007] S.C.C.A. No. 346; Ragoonanan v. Imperial Tobacco Canada Ltd. (2005), 78 O.R. (3d) 98 (S.C.J.), leave to appeal ref'd [2008] O.J. No. 1644 (Div. Ct.). There must be a rational relationship between the class, the causes of action, and the common issues, and the class must not be unnecessarily broad or over-inclusive: Pearson v. Inco Ltd. (2006), 78 O.R. (3d) 641 (C.A.) at para. 57, leave to appeal refused, [2006] S.C.C.A. No. 1, rev'g [2004] O.J. No. 317 (Div. Ct.), which had aff'd [2002] O.J. No. 2764 (S.C.J.).

84 The class description in this case, simple though it may appear to be, gives rise to a number of issues. First, as I noted earlier, the Class has no geographic boundaries and includes individuals and institutions, anywhere in the world, who purchased securities of Gammon during the Class Period. This raises a jurisdictional issue. Second, the Class includes persons who sold their securities before the end of the Class Period (the so-called "early sellers"), and therefore before the alleged misrepresentations were corrected. Third, the Class includes persons who received all, some or none of the alleged misrepresentations and who relied upon some, all or none of them. The defendants say that the class description is flawed for all these reasons, which I shall discuss in turn.

(i) The Jurisdiction Issue

A. Introduction

85 The issue is whether the Class should include persons outside the jurisdiction. There are really two issues here. The first is whether the court has jurisdiction over all or some of the defendants in this action. This is the "jurisdiction simpliciter" issue that can arise in every action. The second issue, unique to class actions, is whether the court should extend its jurisdiction to adjudicate on the claims of class members outside the jurisdiction who do not opt out of the class action. The resolution of these issues involves different, but related, considerations.

86 I will begin by setting out the positions of the parties and will then review the authorities and explain my conclusions. Page 21

87 The plaintiff submits that "an international class is appropriate" and notes that Ontario courts have certified actions encompassing class members who were resident in other provinces and countries: Ford v. F. Hoffman-La Roche Ltd. (2005), 74 O.R. (3d) 758, 2005 CarswellOnt 1095 (S.C.J.), at para. 31; Nantais v. Telectronics Proprietary (Canada) Ltd. (1995), 25 O.R. (3d) 331, 1995 CarswellOnt 994 (Gen. Div.) at para. 4 and 83; Robertson v. The Thomson Corp. (1999), 43 O.R. (3d) 161, 1999 CarswellOnt 301 (Gen. Div.); Mondor v. Fisherman (2002), 22 C.P.C. (5th) 346, 2002 CarswellOnt 1601 (S.C.J.) at para. 12. In Mandeville v. Manufacturers Life Insurance Co., [2002] O.J. No. 5387 (S.C.J.) Nordheimer J. certified a worldwide class.

88 The plaintiff also refers to the decision of Sharpe J.A. in Currie v. McDonald's Restaurants Canada Ltd. (2005), 74 O.R. (3d) 321 (C.A.) ("Currie") at para. 15, to the effect that "there are strong policy reasons favouring the fair and efficient resolution of interprovincial and international class action litigation." While this is of course true, there are equally strong policy reasons, discussed in that decision, why the court must not act beyond its jurisdictional competence. I will discuss this decision below.

89 The Gammon Defendants submit that the courts of a province can only exercise jurisdiction over a person and determine their legal rights on the basis of:

(a) presence within the territory, (b) submission or attornment to the jurisdiction, or (c) a "real and substantial connection" between the province and the matters at issue.

In the case of non-resident Class Members, they submit that the third factor is the only one in play.

B. "Real and Substantial Connection": Muscutt and Van Breda

90 In determining whether there is a real and substantial connection with the action, sufficient to base jurisdiction over a defendant, the courts in recent years have applied the "Muscutt" test: Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.); see also McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2003), 66 O.R. (3d) 112 (S.C.J.) at para. 16. This the test was recently simplified and reformulated by the Court of Appeal in Van Breda v. Village Resorts Ltd., 2010 ONCA 84, [2010] O.J. No. 402 ("Van Breda"). The test remains "real and substantial connection," but the analytical process has been simplified.

91 In Van Breda, the Court of Appeal stated that the application of the test requires the court to consider whether the case falls within one of the connections or categories in sub-rule 17.02 of the Rules of Civil Procedure (other than sub-rule (h), "damage sustained in Ontario" and sub-rule (o), "necessary and proper party"). If so, jurisdiction over the defendant will be presumed to exist (para. 72 of Van Breda).

92 The core aspects of the real and substantial connection test will be the first two Muscutt factors - - the connection of the plaintiff's claim to the forum and the connection of the defendant to Page 22

the forum. In assessing the latter, the primary focus will be on things done by the defendant within the jurisdiction (para. 89 of Van Breda). This will not always require that the defendant carry on physical activity within the jurisdiction; if the defendant can reasonably foresee that its actions will cause harm in the forum it may be appropriate for the court to take jurisdiction.

93 Under Van Breda, the principles of order and fairness will remain linked to the question of real and substantial connection (para. 98). This is not simply a matter of tallying the contacts between the jurisdiction and the plaintiff on the one hand and the defendant on the other. It requires, however, that the interests of both parties be considered and balanced. The Court of Appeal said that Muscutt factors 3 and 4 (unfairness to the defendant in assuming jurisdiction and unfairness to the plaintiff in not assuming jurisdiction) should be collapsed and considered together, and they should "serve as an analytic tool to assess the relevance, qualify and strength of those connections, whether they amount to a real and substantial connection, and whether assuming jurisdiction accords with the principles of order and fairness" (at para. 98).

94 The Court of Appeal in Van Breda instructs us that the other Muscutt factors (the involvement of other parties to the suit, the court's willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis, whether the case is interprovincial or international in nature, and comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere) will also serve as analytic tools to assist the court in assessing the significance of the connections between the forum, the claim and the defendant, and will remain relevant to the existence of a real and substantial connection.

95 Sharpe J.A. summarized the reformulated test, including the approach to be taken to forum non conveniens, at para. 109 of Van Breda:

To summarize the preceding discussion, in my view, the Muscutt test should be clarified and reformulated as follows:

* First, the court should determine whether the claim falls under rule 17.02 (excepting subrules (h) and (o)) to determine whether a real and substantial connection with Ontario is presumed to exist. The presence or absence of a presumption will frame the second stage of the analysis. If one of the connections identified in rule 17.02 (excepting subrules (h) and (o)) is made out, the defendant bears the burden of showing that a real and substantial connection does not exist. If one of those connections is not made out, the burden falls on the plaintiff to demonstrate that, in the particular circumstances of the case, the real and substantial connection test is met * At the second stage, the core of the analysis rests upon the connection between Ontario and the plaintiff's claim and the defendant, respectively. Page 23

* The remaining considerations should not be treated as independent factors having more or less equal weight when determining whether there is a real and substantial connection but as general legal principles that bear upon the analysis. * Consideration of the fairness of assuming or refusing jurisdiction is a necessary tool in assessing the strengths of the connections between the forum and the plaintiff's claim and the defendant. However, fairness is not a free-standing factor capable of trumping weak connections, subject only to the forum of necessity exception. * Consideration of jurisdiction simpliciter and the real and substantial connection test should not anticipate, incorporate or replicate consideration of the matters that pertain to forum non conveniens test. * The involvement of other parties to the suit is only relevant in cases where that is asserted as a possible connecting factor and in relation to avoiding a multiplicity of proceedings under forum non conveniens. * The willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis is as an overarching principle that disciplines the exercise of jurisdiction against extra-provincial defendants. This principle provides perspective and is intended to prevent a judicial tendency to overreach to assume jurisdiction when the plaintiff is an Ontario resident. If the court would not be prepared to recognize and enforce an extra-provincial judgment against an Ontario defendant rendered on the same jurisdictional basis, it should not assume jurisdiction against the extra-provincial defendant. * Whether the case is interprovincial or international in nature, and comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere are relevant considerations, not as independent factors having more or less equal weight with the others, but as general principles of private international law that bear upon the interpretation and application of the real and substantial connection test. * The factors to be considered for jurisdiction simpliciter are different and distinct from those to be considered for forum non conveniens. The forum non conveniens factors have no bearing on real and substantial connection and, therefore, should only be considered after it has been determined that there is a real and substantial connection and that jurisdiction simpliciter has been established. * Where there is no other forum in which the plaintiff can reasonably seek relief, there is a residual discretion to assume jurisdiction.

C. Jurisdiction in Class Actions -- Currie

96 While the Van Breda test applies to the determination of the court's jurisdiction in both the Page 24

usual form of action and a class action, the defendants say that the test for the exercise of the court's jurisdiction is modified where the issue is the court's jurisdiction not over a non-resident defendant, but over a non-resident class member or what the defendants describe as a "passive, absentee plaintiff." The defendants say that in such cases, the further issue is the connection between the forum and the foreign class members and any unfairness to such persons if the court declines jurisdiction: McNaughton Automotive Ltd. v. Co-Operators General Insurance Co., above, at paras. 24-25.

97 In this case, the defendants say, there is no connection between Ontario and the non-resident members of the Class. Gammon is incorporated in Quebec, based in Nova Scotia and has its mining operations in Mexico. They say that the only connections between the claims in this action and Ontario are the filing of the Prospectus with the Ontario Securities Commission and the distribution of various public statements of Gammon in accordance with Ontario securities law.

98 The defendants say that the court must also consider whether a judgment of this court will be recognized and enforced in courts outside Ontario and, most important from their perspective, whether a judgment will be considered to be binding against non-resident shareholders and given preclusive effect in their "home" jurisdictions. In the absence of a real and substantial connection between Ontario and the claims of purchasers of Gammon shares in New York or Manitoba, for example, would the courts of those jurisdictions treat an Ontario judgment as precluding an action in their jurisdictions? See: Canada Post Corp. v. Lépine, [2009] 1 S.C.R. 549; Englund v. Pfizer Canada Inc., [2006] S.J. No. 9 (Q.B.); Currie, above. If not, then the defendants run the risk that Class Members who have not opted out may be free to take a second bite at the defendant in their "home" jurisdictions if they are dissatisfied with the result in this action.

99 The defendants also raise the question of what law governs the claims of non-residents. While the provincial securities statutes may be relatively uniform (and the plaintiff says they are, but has not pleaded the law of other provinces) and while the court has jurisdiction to apply foreign law, the diversity of applicable laws could make the action unmanageable. The defendants submit that persons who purchased Gammon shares outside Ontario, have no cause of action under s. 130 of the Securities Act: Pearson v. Boliden Ltd. (2002), 222 D.L.R. (4th) 453 (B.C.C.A.) at paras. 64-66. See also McNaughton Automotive Ltd. v. Co-Operators General Insurance Co., above, at paras. 37-38.

100 Lastly, the defendants submit that there is no real and substantial connection in this case between Ontario and shareholders outside Canada. They rely on the observations of Rady J. in McCann v. CP Ships Ltd., at para. 83:

It is difficult to understand the basis on which an Ontario court could or should take jurisdiction over the class members as proposed. Where is the real and substantial connection between, for example, the Ontario Court and a French citizen residing in France who purchased securities over the TSE? It strikes me as judicial hubris to conclude that an Ontario court would have jurisdiction in those Page 25

circumstances.

101 In reply, the plaintiff says that notwithstanding these comments, the class certified by Rady J. was not limited to prospectus purchasers. As well, in Kerr v. Danier Leather, [2004] O.J. No. 1916, 2004 CarswellOnt 6608 (S.C.J.), at para. 351, rev'd on other grounds (2005), 77 O.R. (3d) 321, 2005 CarswellOnt 7296 (C.A.), a prospectus misrepresentation case, Cumming J. certified a national class. In Pearson v. Boliden itself, the British Columbia Court of Appeal created sub-classes for non-residents.

102 The plaintiff says that, at a minimum, in view of the similarities of the provincial and territorial securities statutes, there should be a single pan-Canadian class.

103 This brings me to the decision of the Court of Appeal in Currie. In that case, the Court of Appeal addressed the issue of enforcement of a foreign class action judgment in Ontario. The Court of Appeal refused to give preclusive effect to a judgment in Illinois, implementing a settlement of a class action suit, which purported to bind Canadian and other international class members who had not opted out.

104 The Court of Appeal held that before enforcing a foreign class action judgment, it is necessary to consider whether the foreign court had an appropriate basis for assuming jurisdiction and whether the rights of Ontario residents were adequately protected.

105 Sharpe J.A., who gave the judgment of the Court, noted that class actions have unique features, one of which is the involvement of the "unnamed, non-resident class plaintiff" who, unlike the plaintiff in a typical lawsuit, does not come to Ontario asking for access to our courts and thereby attorning to the court's jurisdiction. He suggested that a court considering the enforcement of a foreign class action judgment must look to the real and substantial connection test and the principles of order and fairness from the perspective of the party against whom enforcement is sought. One aspect of this analysis would be to examine whether it would be reasonable for that party to expect that its rights would be determined by the foreign court. He gave the example of an Ontario resident who engages in a cross-border transaction, such as buying goods from a foreign mail order merchant or purchasing securities over a foreign stock exchange - that person might reasonably expect that claims in relation to those transactions could be litigated in the foreign jurisdiction. Where there is no such contact between the plaintiff and the foreign jurisdiction, the court must nonetheless look to whether there is a "real and substantial connection" between the subject matter of the class action litigation and the foreign jurisdiction. In the case before the Court of Appeal, McDonald's had its head office in Illinois and the allegedly wrongful act occurred in the United States. Sharpe J.A. referred to the observations of Cumming J. in Wilson v. Servier Canada Inc., (2000), 50 O.R. (3d) 219, [2000] O.J. No. 3392 (S.C.J.) at para. 83, that Ontario courts have certified national class actions "if there is a real and substantial connection between the subject-matter of the action and Ontario" in the expectation that "other jurisdictions on the basis of comity should recognize the Ontario judgment" (at para. 22). Page 26

106 Another aspect of the analysis would be to examine whether the procedures adopted in the "foreign" jurisdiction were "sufficiently attentive to the rights and interests of the unnamed non-resident class members. Respect for procedural rights, including the adequacy of representation, the adequacy of notice and the right to opt out, could fortify the connection with [the foreign] jurisdiction and alleviate concerns regarding unfairness" (at para. 25). In the context of the case before him, Sharpe J.A. stated, at para. 25:

Given the substantial connection between the alleged wrong and Illinois, and given the small stake of each individual class member, it seems to me that the principles of order and fairness could be satisfied if the interests of the non-resident class members were adequately represented and if it were clearly brought home to them that their rights could be affected in the foreign proceedings if they failed to take appropriate steps to be removed from those proceedings.

107 He concluded, at para. 30 that a three part test should apply to the recognition of a foreign class action judgment:

In my view, provided (a) there is a real and substantial connection linking the cause of action to the foreign jurisdiction, (b) the rights of non-resident class members are adequately represented, and (c) non-resident class members are accorded procedural fairness including adequate notice, it may be appropriate to attach jurisdictional consequences to an unnamed plaintiff's failure to opt out. In those circumstances, failure to opt out may be regarded as a form of passive attornment sufficient to support the jurisdiction of the foreign court. I would add two qualifications: First, as stated by LaForest J. in Hunt v. T & N plc., above at p. 325, "the exact limits of what constitutes a reasonable assumption of jurisdiction" cannot be rigidly defined and "no test can perhaps ever be rigidly applied" as "no court has ever been able to anticipate" all possibilities. Second, it may be easier to justify the assumption of jurisdiction in interprovincial cases than in international cases: see Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 at paras. 95-100 (C.A.).

108 Although Currie involved the enforcement in Ontario of a judgment in a foreign class action, the mirror image of the principles stated by the Court of Appeal are applicable to the exercise of jurisdiction by this court in a class action that seeks to include class members outside the jurisdiction. It must be asked whether the assumption of jurisdiction would satisfy the real and substantial connection test and the principles of order and fairness. This is an issue of whether it is appropriate to assume jurisdiction over the legal rights of an individual who has neither attorned nor agreed to this Court's jurisdiction. In considering this issue from the perspective of the non-resident class member, it is appropriate to ask, as did Sharpe J.A., whether the non-resident has done something that would give rise to a reasonable expectation that legal claims arising out of the Page 27

activity could be litigated in the jurisdiction. The court should also ask whether it would be reasonable from the perspective of the defendant that class action litigation in the jurisdiction should finally dispose of claims of non-resident class members.

109 This will not be the end of the analysis, as Sharpe J.A. pointed out at paras. 23-25 of Currie. The principles of order and fairness require that, even if there is a substantial connection between the wrong and the jurisdiction and the plaintiff might have expected that his or her legal rights would be resolved in the jurisdiction, the procedures adopted must ensure that the rights of absent class members are adequately protected. This calls for consideration of appropriate representation for such class members, appropriate notice and an informed and meaningful opportunity to opt out.

110 The relevant authorities were reviewed by Van Rensburg J. in Silver v. Imax - Certification, who noted that presence of non-resident class members could raise issues of applicable law but concluded that those issues need not be resolved at the certification stage. She found that there was a real and substantial connection with Ontario. Imax had its head office in Ontario, it was a reporting issuer under the Securities Act and its shares were traded on the TSX. The alleged misrepresentation was made in Ontario and the conduct of some of the defendants was alleged to have taken place in Ontario.

D. Application of jurisdictional tests in this case

111 In this case, dealing first with the s. 130 Securities Act claim, which is against all defendants, it seems to me that there is clearly a presumption of a real and substantial connection under a number of heads within Rule 17.02 of the Rules of Civil Procedure: the plaintiff claims in respect of personal property in Ontario, his shares (17.02(a)); it is a claim in respect of a contract made in Ontario to acquire his shares (17.02(f)); and a tort -- misrepresentation, committed in Ontario (17.02(g)); and is against a person resident or carrying on business in Ontario, at least in connection with the Underwriters and likely in relation to Gammon by virtue of its listing its shares on the TSX and entering into the underwriting agreement in Ontario (17.02(p)).

112 At the second stage of the Van Breda test, there is clearly a connection between Ontario and the plaintiff's claim. Mr. McKenna is a resident of Toronto and acquired his shares in Gammon in Ontario. It is a reasonable assumption that a number of the purchasers under the Prospectus were also residents of Ontario and acquired their shares in a similar fashion. There are also a number of connections between Gammon, the Underwriters and Ontario:

(a) Gammon's shares were traded on the TSX and the evidence suggests that the volume of trading was substantially higher on the TSX than on the AMEX; (b) Gammon was a reporting issuer in Ontario; (c) the Underwriters have offices in Ontario, carry on business in Ontario, are registered as dealers under the Securities Act and are members of the TSX; (d) the underwriting agreement was made in Ontario, was expressly subject to Page 28

Ontario law and called for closing of the offering in Ontario; (e) the prospectus was filed with the Ontario Securities Commission; and (f) one of the directors of Gammon, Mr., Hendrick, was resident in Ontario;

113 The activities of Gammon and the individual defendants in concluding the underwriting agreement in Ontario, filing the Prospectus with the OSC and listing Gammon's share on the TSX are clearly substantial connections with Ontario. Gammon and its officers and directors could reasonably expect that in closing the underwriting in Ontario and issuing the Prospectus through underwriters based in Ontario, their rights, and the rights of purchasers under the Prospectus, would be determined by the courts of Ontario, subject to appropriate safeguards to ensure that the court's judgment would be given preclusive effect in the case of non-resident purchasers. There is no unfairness in subjecting the defendants to Ontario jurisdiction. It would be unfair to require Mr. McKenna to pursue his claim in another province, such as Nova Scotia or Quebec, which have technical connections to Gammon, but no real or substantial connection with Mr. McKenna or the issues in this case.

114 The real and substantial connection test does not require a finding that Ontario has the most real and substantial connection. As the cause of action is for prospectus misrepresentation, however, Ontario's connection with the claim as a whole is greater than any other jurisdiction and is both real and substantial. Having come to Ontario for the purposes of making and closing the public offering, and having listed the shares on the TSX, it seems to me that Gammon can reasonably be taken to have submitted itself to Ontario jurisdiction for the purposes of the determination of its rights and liabilities under the Prospectus.

115 The second issue is whether the principles of order and fairness support the extension of the court's jurisdiction to require class members out of the jurisdiction to either opt out or be bound by the result. Following the example given by Sharpe J.A., in Currie, where non-resident class members have engaged in a cross-border transaction, acquiring securities of a Canadian company, in Canada, through a Canadian underwriter, they can reasonably expect that their legal rights in relation to that acquisition would be subject to Canadian jurisdiction and, in this case, a jurisdiction with a real and substantial connection to the defendants and the issues. The same could reasonably be said of Class Members in other provinces. For this reason, subject to appropriate safeguards with respect to representation and notice, it is appropriate to certify a class that would include non-residents who made purchases from the underwriters in Canada and under the Prospectus.

116 It is not appropriate to include within the Class those persons who purchased securities from the Underwriters or their agents outside Canada. The acquisition of those securities in a jurisdiction outside Canada would not give rise to a reasonable expectation that the acquiror's rights would be determined by a court in Canada.

117 Like Van Rensburg J. in Silver v. Imax - Certification, I do not find it necessary at this stage to make a determination of the law applicable to the claims of non-resident members of the class Page 29

who purchased their securities from underwriters in other provinces. Given the similarity between s. 130 of the Securities Act and the securities laws of other provinces of Canada, this may not be an issue with respect to Class Members from other provinces. I will require the appointment of a separate representative for Class Members located outside Canada who purchased their shares in Canada. In the event either party wishes to plead foreign law with respect to the rights of Class Members outside Ontario, the issue can be addressed at a later date.

118 As will become apparent, I do not consider it appropriate to certify the secondary market claim. Had I done so, I would have limited the Class to those who acquired their shares on the TSX, who, for the reasons set out above, could reasonably contemplate that their rights would be determined by the courts of the jurisdiction where the shares were acquired.

(ii) The early sellers

119 Counsel for the Gammon Defendants submits that in a "true" securities misrepresentation action, the investors suffer losses because they have purchased shares which have an artificially inflated value as a result of misrepresentations and because they continue to hold the shares until the truth is revealed and the share price drops. Counsel submits that the Class must be limited to those investors who held the shares on the date of the "revelation" of the true state of affairs, because anyone who sold before that date benefited from the inflated share price. Any loss suffered by an "early seller" must have been due to circumstances other than the alleged misrepresentation. Counsel relies on Pearson v. Boliden Ltd. (2002), 222 D.L.R. (4th) 453 (B.C.C.A.) at paras. 92-93 and Carom v. Bre-X Minerals Ltd. (1999), 46 O.R. (3d) 315 (Div. Ct.) at paras. 21-23, var'd on other grounds (2000), 51 O.R. (3d) 236 (C.A.); see also Kerr v. Danier Leather Ltd. (2004), 46 B.L.R. (3d) 167 (Ont. S.C.J.) at para. 345, rev'd on other grounds (2007), 36 B.L.R. (4th) 95 (S.C.C.).

120 Subsection 130(7) of the Securities Act provides that in an action for damages pursuant to ss. (1), the defendant is not liable for all or any portion of such damages that the defendant proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon. This provision is similar to the corresponding provision in the take-over bid remedy contained in s. 131 and to which I referred in Allen v. Aspen Group Resources, [2009] O.J. No. 5213 at paras. 106-125. I stated in that case at para. 122:

Given this onus, and the complex legal and factual issues that will probably be involved in the resolution of value, depreciation and date of measurement, I prefer to follow the approach taken by Cumming J. in Danier Leather, rather than to prejudge those issues by excluding particular members of the class at this time. As Cumming J. noted, and as the subsequent trial before Lederman J. demonstrated, the C.P.A. is sufficiently flexible to address these issues in an efficient manner.

121 I accept that, as a general rule and on the authority of the cases referred to by counsel for the Page 30

Gammon Defendants, it may be appropriate to exclude "early sellers" because no damages are suffered until the misrepresentation is disclosed -- shareholders who dispose of their securities before this date cannot suffer a loss as a result of the misrepresentation. In Allen v. Aspen, where shares in the acquiring company were exchanged for shares in the aquiree, it was alleged that the transfer ratio was skewed because of misrepresentations affecting the value of the acquiror's shares. I concluded that it was preferable to leave this issue for trial.

122 This case, as well, is an exception to the general rule. As I noted earlier, in asserting that Mr. McKenna's claim was time barred, the Gammon Defendants said that there had been partially corrective disclosure as early as May 10, when Gammon's public filing disclosed a US$10 million first quarter loss. This was slightly over three weeks after the Prospectus was issued. Representations of various kinds continued to be made for the remainder of the Class Period. It would be arbitrary at this stage to conclude that "early sellers" could not have suffered a loss as a result of the alleged misrepresentations in the Prospectus and the onus of proving this should be on the defendants at trial.

(iii) Is the Class overly broad?

123 The defendants submitted on the certification motion that the proposed Class was unmanageably broad, because it covered a long time period during which different misrepresentations, in various formats, were made to a wide-ranging group of shareholders. For the reasons that I will discuss in the next section, the proposed common issues arising from the negligent misrepresentation claim are not appropriate for certification and I do not propose to certify a class for the secondary market misrepresentation claim.

124 The resolution of common issues lies at the heart of a class proceeding by avoiding duplication of fact-finding or legal analysis and promoting access to justice, judicial efficiency and behavior modification: Western Canadian Shopping Centres Inc. v. Dutton (2001), 201 D.L.R. (4th) 385 (S.C.C.) at para. 39, Hollick v. Toronto (City), above, at para. 18, Fresco v. Canadian Imperial Bank of Commerce, [2009] O.J. No. 2531 at para. 51.

125 In Singer v. Schering-Plough Canada Inc., [2010] O.J. No. 113 at para. 140, I set out a number of principles, identified in the authorities, that are applicable to the common issues analysis:

A: The underlying foundation of a common issue is whether its resolution will avoid duplication of fact-finding or legal analysis: Western Canadian Shopping Centres Inc. v. Dutton, above, at para. 39.

B: The common issue criterion is not a high legal hurdle, and an issue can be a common issue even if it makes up a very limited aspect of the liability question Page 31

and even though many individual issues remain to be decided after its resolution: Cloud v. Canada (Attorney General), above, at para. 53.

C: There must be a basis in the evidence before the court to establish the existence of common issues: Dumoulin v. Ontario, [2005] O.J. No. 3961 (S.C.J.) at para. 25; Fresco v. Canadian Imperial Bank of Commerce, above, at para. 21. As Cullity J. stated in Dumoulin v. Ontario, at para. 27, the plaintiff is required to establish "a sufficient evidential basis for the existence of the common issues" in the sense that there is some factual basis for the claims made by the plaintiff and to which the common issues relate.

D: In considering whether there are common issues, the court must have in mind the proposed identifiable class. There must be a rational relationship between the class identified by the Plaintiff and the proposed common issues: Cloud v. Canada (Attorney General), above at para. 48.

E: The proposed common issue must be a substantial ingredient of each class member's claim and its resolution must be necessary to the resolution of that claim: Hollick v. Toronto (City), above, at para. 18.

F: A common issue need not dispose of the litigation; it is sufficient if it is an issue of fact or law common to all claims and its resolution will advance the litigation for (or against) the class: Harrington v. Dow Corning Corp., [1996] B.C.J. No. 734, 48 C.P.C. (3d) 28 (S.C.), aff'd 2000 BCCA 605, [2000] B.C.J. No. 2237, leave to appeal to S.C.C. ref'd [2001] S.C.C.A. No. 21.

G: With regard to the common issues, "success for one member must mean success for all. All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent." That is, the answer to a question raised by a common issue for the plaintiff must be capable of extrapolation, in the same manner, to each member of the class: Western Canadian Shopping Centres Inc. v. Dutton, above, at para. 40, Ernewein v. General Motors of Canada Ltd., [2005] B.C.J. No. 2370, above, at para. 32; Merck Frosst Canada Ltd. v. Wuttunee, 2009 SKCA 43, [2009] S.J. No. 179 (C.A.), at paras. 145-146 and 160.

H: A common issue cannot be dependent upon individual findings of fact that Page 32

have to be made with respect to each individual claimant: Williams v. Mutual Life Assurance Co. of Canada (2000), 51 O.R. (3d) 54, [2000] O.J. No. 3821 (S.C.J.) at para. 39, aff'd [2001] O.J. No. 4952, 17 C.P.C. (5th) 103 (Div. Ct.), aff'd [2003] O.J. No. 1160 and 1161 (C.A.); Fehringer v. Sun Media Corp., [2002] O.J. No. 4110, 27 C.P.C. (5th) 155, (S.C.J.), aff'd [2003] O.J. No. 3918, 39 C.P.C. (5th) 151 (Div. Ct.).

I: Where questions relating to causation or damages are proposed as common issues, the plaintiff must demonstrate (with supporting evidence) that there is a workable methodology for determining such issues on a class-wide basis: Chadha v. Bayer Inc., [2003] O.J. No. 27, 2003 CanLII 35843 (C.A.) at para. 52, leave to appeal dismissed [2003] S.C.C.A. No. 106, and Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2008 BCSC 575, [2008] B.C.J. No. 831 (S.C.) at para. 139.

J: Common issues should not be framed in overly broad terms: "It would not serve the ends of either fairness or efficiency to certify an action on the basis of issues that are common only when stated in the most general terms. Inevitably such an action would ultimately break down into individual proceedings. That the suit had initially been certified as a class action could only make the proceeding less fair and less efficient": Rumley v. British Columbia, [2001] 3 S.C.R. 184, [2001] S.C.J. No. 39 at para. 29.

126 I might have added a further proposition:

K. An issue is not "common" simply because the same question arises in connection with the claim of each class member, if that issue can only be resolved by inquiry into the circumstances of each individual claim: Nadolny v. Peel (Region), [2009] O.J. No. 4006 (S.C.J.) at para. 50; Fresco v. Canadian Imperial Bank of Commerce, [2009] O.J. No. 2531 at para. 51.

127 The plaintiff raises eighteen common issues, but condenses them as follows:

(a) whether the Defendants owed a duty to the Class Members to ensure that Gammon's Class Period disclosure documents (including the Prospectus) and their public oral statements did not contain a misrepresentation; (b) whether the Gammon disclosure documents issued, or the public oral statements made by the Defendants, during the Class Period contained one or more misrepresentations; (c) whether the Defendants made those misrepresentations negligently; (d) whether a Class Member must demonstrate, at common law, that she relied Page 33

in whole or in part upon the misrepresentations in order to have a claim against the Defendants; (e) whether the Gammon Defendants, or some of them, conspired one with the other, and/or with persons unknown, to deceive the Class Members for the purpose of maintaining and increasing the price of Gammon's securities; (f) whether the Underwriters were unjustly enriched by their failure to perform their duties to the Class Members; and (g) whether any of the Gammon Defendants ought to pay punitive damages.

128 The plaintiff says that these common issues are a substantial part of the claims of Class Members and that their resolution does not require an examination of individual circumstances and will advance the claim of each Class Member. I will begin by dealing with the first four groups of common issues, which deal with the misrepresentation claims.

(i) Misrepresentation as a common issue

129 The pleading of common law misrepresentation, in relation to both the Prospectus and the secondary market claim, asserts that the plaintiff and Class Members relied to their detriment on the misrepresentations "by purchasing Gammon securities pursuant to the Prospectus and/or in the secondary market at inflated prices." Mr. McKenna also pleads that he and other Class Members "directly or indirectly relied" on the defendants' misrepresentations.

130 The plaintiff has attempted to finesse the thorny issue of reliance in a misrepresentation class action by making reliance a common issue. He proposes the following common issue in relation to the misrepresentation claim:

(9) ... must a Class Member demonstrate that she relied in whole or in part upon the misrepresentations in order to have a claim against the Underwriters?

131 Under the heading "Damages", the plaintiff asks:

(13) To the extent that Class Members must demonstrate that they relied upon the Defendants' misrepresentations in order to have a claim against the Defendants, what is the procedure whereby the Class Members must demonstrate their individual reliance?

132 I have noted earlier the leading decision of the Supreme Court of Canada in Cognos in which it was stated at para. 33 that one of the requirements of the tort of negligent misrepresentation is that "the representee must have relied, in a reasonable manner, on said negligent misrepresentation." The important role of reliance in both the proximity and causation analyses is highlighted by Allen M. Linden and Bruce Feldthusen, Canadian Tort Law (8th ed.), (Toronto: LexisNexis, 2006) at p. 446:

Finally, misrepresentations do not injure anyone directly. The plaintiff must take Page 34

some action in reliance on the statement before any harm occurs. This gives the plaintiff opportunities for self-protection not available in most physical injury situations. The reasonableness of the plaintiff's reliance is central to the duty-of-care analysis; critical to the issue of causation in fact; and also relevant to the question of contributory negligence.

133 Words are at the root of the action for misrepresentation. Like the tree that falls in the forest and is heard by no one, unless the words reach someone's eyes or ears, they result in no action and they cause no damage. Reasonable reliance plays a role in the proximity analysis by defining the scope of what the defendant can reasonably foresee. It also plays a role in the damages analysis by establishing causation. The role of reliance as an essential ingredient of a claim for negligent misrepresentation has been repeatedly affirmed by the highest authority: BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12, [1993] S.C.J. No. 1. In Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, La Forest J., giving the judgment of the Supreme Court of Canada, stated at para. 24:

In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by the plaintiff on the defendant's words. Thus, if "proximity" is meant to distinguish the cases where the defendant has a responsibility to take reasonable care of the plaintiff from those where he or she has no such responsibility, then in negligent misrepresentation cases, it must pertain to some aspect of the relationship of reliance. To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a "special relationship" whenever these two factors inhere.

134 The Ontario Court of Appeal has confirmed the reliance requirement in two recent cases: Abarquez v. Ontario (2009), 95 O.R. (3d) 414, [2009] O.J. No. 1814 (C.A.); White v. Colliers Macaulay Nicholls Inc. (2009), 95 O.R. (3d) 680, [2009] O.J. No. 2188 (C.A.). In the latter case, Blair J.A. adopted the Cognos test, but noted, at para. 25, that in addition the plaintiff must prove that the misrepresentation was material in the sense that it would be likely to influence the conduct of the plaintiff or likely to operate on the plaintiff's judgment. He also confirmed, at para. 36, that for a representation to be actionable, damages must result from relying on it, referring to the fifth requirement in the Cognos test.

135 It has been generally accepted that the cause of action in negligent misrepresentation requires proof that the plaintiff relied on the misrepresentation. It is for this reason that courts have usually Page 35

concluded that negligent misrepresentation claims give rise to such individual inquiries as to reliance that they are unsuitable for certification: Mouhteros v. DeVry Canada Inc., [1998] O.J. No. 2786 (Gen. Div) at para. 30; Abdool v. Anaheim Management Ltd. et al (1995), 21 O.R. (3d) 453 (Div. Ct.) at para. 129; Sherman v. Drabinsky (1990), 74 O.R. (2d) 596 (H.C.J.), aff'd [1994] O.J. No. 4419 (C.A.); Moyes v. Fortune Financial Corp. (2002), 61 O.R. (3d) 770 (S.C.J.), aff'd (2003), 67 O.R. (3d) 795 (Div. Ct.); Controltech Engineering Inc. v. Ontario Hydro, [1998] O.J. No. 5350 (Gen. Div.) at para. 16; Rosedale Motors Inc. v. Petro-Canada Inc. (1998), 31 C.P.C. (4th) 340, [1998] O.J. No. 5461 (Gen. Div.) at para. 27; Williams v. Mutual Life Assurance Co. of Canada (2003), 226 D.L.R. (4th) 112 (Ont. C.A.) at para. 48; Nadolny v. Peel (Region), [2009] O.J. No. 4006 (S.C.J.) at para. 93; Matoni v. C.B.S. Interactive Multimedia Inc., [2008] O.J. No. 197 (S.C.J.); McKay v. CDI Career Development Institutes Ltd. (1999), 30 C.P.C. (4th) 101, [1999] B.C.J. No. 561 (S.C.) at paras. 39-42; Olar v. Laurentian University (2004), 6 C.P.C. (6th) 276, [2004] O.J. No. 3716 (Div. Ct.) at paras. 25-26; Samos Investments Inc. v. Pattison, 2001 BCSC 1790, 22 B.L.R. (3d) 46 (S.C.) aff'd 2003 BCCA 87, 30 B.L.R. (3d) 177 (C.A.); Huras v. COM DEV Ltd., [1999] O.J. No. 2560, 36 C.P.C. (4th) 31 (S.C.J.) at para. 19.

136 Issues of reasonable reliance have usually been considered to be individual issues that are not capable of being resolved on a common basis: Lacroix v. Canada Mortgage and Housing Corp., [2009] O.J. No. 316, 68 C.P.C. (6th) 111 (S.C.J.) at para. 97; Lawrence v. Atlas Cold Storage Holding Inc. (2006), 34 C.P.C. (6th) 41, [2006] O.J. No. 3748 (S.C.J.), at paras. 91-93; Carom v. Bre-X Minerals Ltd. (2000), 51 O.R. (3d) 236 (C.A.) at para. 57; Serhan (Estate Trustee) v. Johnson & Johnson (2004), 72 O.R. (3d) 296 (S.C.J.) at paras. 57-60.

137 Exceptions may be made where there is a single representation made to all members of the class or there are a limited number of representations that have a common import: see, for example, Hickey-Button v. Loyalist College of Applies Arts & Technology, (2006), 211 O.A.C. 301, [2006] O.J. No. 2393.

138 In Carom v. Bre-X Minerals Ltd. (1998), 41 O.R. (3d) 780, [1998] O.J. No. 4496 (Gen. Div.), Winkler J., as he then was, referred to Cognos and Hercules Management Ltd. v. Ernst & Young as well as Parna v. G. & S. Properties Ltd., above, in support of the need to prove reliance in negligent misrepresentation cases. He rejected the proposition that proof of reliance could be supplanted by a "fraud-on-the-market" theory, which has found favour in the United States, based on the proposition that in an efficient securities market the market price of the securities reflects the misrepresentations. He concluded, at para. 40:

The torts of fraudulent and negligent misrepresentation are neither novel nor undeveloped in Canada. Both have been canvassed by the Supreme Court of Canada and the pronouncements of that court on the elements of each must be considered to be settled law. In my view, the presumption of reliance created by the fraud on the market theory can have no application as a substitute for the requirement of actual reliance in either tort. In the context of the torts of Page 36

fraudulent and negligent misrepresentation a presumption of the nature advocated for by the plaintiffs does not exist in Canadian common law. Indeed, to import such a presumption would amount to a redefinition of the torts themselves [emphasis added].

139 The plaintiff relies upon what his counsel described in argument as the "non-reliance theory of misrepresentation" in support of the proposition that, contrary to the authorities set out above, the plaintiff is not required to establish that he or she relied upon the representation.

140 The submission is based, at least in part, on the two recent class action decisions of this court in which similar arguments, made by the same plaintiff's counsel, have been adopted. In the first case, McCann v. CP Ships, above, Rady J, after considering a number of authorities to which I shall refer shortly, concluded, at para. 59, that "the case law is in a state of evolution and the court, in certain circumstances, is prepared to relax the otherwise strict requirement to establish individual reliance." She concluded that the plaintiff should be given an opportunity to demonstrate at trial why individual reliance is not necessary and, if it is necessary, class members should be given an opportunity to prove it as a common issue. In the second case, Silver v. Imax - Certification, similar arguments were made and the same authorities were considered. Van Rensburg J. concluded that it was not necessary to determine, at the certification stage, whether a plaintiff was required to prove direct reliance and that the issue could be left for argument at trial.

141 In this case, the plaintiff cites many of the authorities that were referred to by Rady J. in McCann v. C.P. Ships in support of the proposition that Canadian and common law courts have recognized that reliance per se is not an essential element of a common law misrepresentation claim and that the plaintiff need simply establish that the impugned statements caused the plaintiff to sustain damage. The plaintiff's counsel says "If causation can be established by some means other than reliance, then the plaintiff can state a valid cause of action."

142 In my respectful view, some of the authorities referred to by the plaintiff are not cases of negligent misrepresentation -- as Van Rensburg J. pointed out at para. 73 of Silver v. Imax - Certification, they are cases of negligence or negligent mis-statement where the mis-statement had been made to someone other than the plaintiff, but the plaintiff suffered damages as a result.

143 Thus, in Haskett v. Equifax Canada Inc. (2003), 63 O.R. (3d) 577 (C.A.), leave to appeal to S.C.C. dismissed, [2003] S.C.C.A. No. 208, the plaintiff in a proposed class action sued two credit reporting agencies claiming that their negligence in the preparation of credit reports damaged his ability to obtain credit. The claim was based in negligence, not in negligent misrepresentation. Reliance by the plaintiff was not an issue because the reports were made to other parties, not to the plaintiff. The third party recipient relied, however, on the misrepresentation. In Spring v. Guardian Assurance plc, [1994] 3 All E.R. 129 (H.L.), the issue involved the liability of an employer to an employee for negligently prepared letters of reference. Again, the plaintiff was not the immediate recipient of the mis-statement. In Lowe v. Guarantee Co. of North America (2005), 80 O.R. (3d) Page 37

222 (C.A.), the plaintiff sued medical assessors, alleging that they were negligent in their preparation of evaluations for accident benefit insurers. In this case, again, the plaintiff's reliance was not an issue because the statements complained of were made to third parties, not to the plaintiff. The causes of action are properly described as negligence or negligent mis-statement, not negligent misrepresentation.

144 In Collette v. Great Pacific Management Co. (2004), 26 B.C.L.R. (4th) 252, [2004] B.C.J. No. 381 (C.A.), leave to appeal to S.C.C. refused [2004] S.C.C.A. No. 174, the plaintiff's claim was against a financial advisor for failing to undertake appropriate due diligence before offering investments for sale. The claim was expressed as a breach of duty in providing professional services and was framed in both contract and tort. It was alleged that, in providing their services, the defendants had a duty to screen out poor investments before offering them to their clients and that, but for their negligence in failing to do so, the plaintiff and other class members would not have purchased the investment. If the investments had not passed the defendants' flawed due diligence inquiry, they would not have been made available to their clients: the class members.

145 It was argued by the defendants that the investors could not succeed without proof of their individual reliance on representations by the defendants that they had carried out due diligence. Mackenzie J.A., giving the judgment of the British Columbia Court of Appeal stated at paras. 33 and 34:

The respondents submit that the investors cannot succeed without proof of reliance on the misrepresentation by each investor individually, particularly with respect to the claims, for negligent misrepresentation. The chambers judge concluded that proof of reliance was required for the claims in tort but not in contract.

The reason for insistence on reliance is to establish causation. If causation can be established otherwise, then reliance is not required: see Henderson, [1995] 2 A.C. 145, supra, per Lord Goff at 776, and Yorkshire Trust Co. v. Empire Acceptance Corp. Ltd. (1986), 24 D.L.R. (4th) 140 at 145-47, 69 B.C.L.R. 357 at 354-55, 22 E.T.R. 96 (S.C.) per McLachlin J. Here if the mortgage units had not passed the due diligence test they would not have been offered for sale by the respondents to any clients. Causation is therefore established between a breach of due diligence duty and the investors' loss, independently of proof of individual reliance. In my view, proof of reliance does not present an obstacle to the appellant's case as framed. The appellant's case adequately links a breach of duty causally to the investors' losses. [emphasis added]

146 The words in italics indicate that the Court of Appeal was not deciding that reliance is not an essential ingredient of the tort of negligent misrepresentation. It was simply saying that the claim Page 38

could be established in negligence as breach of a duty to conduct due diligence; but for that breach, the units would not have been offered for sale and the plaintiffs would not have suffered damages. The claim was framed as a breach of duty in both negligence and contract, not as an action in negligent misrepresentation. In the case before me, the plaintiff puts this aspect of his case in negligent misrepresentation.

147 The plaintiff also relies on Yorkshire Trust Co. v. Empire Acceptance Corp. Ltd. (1986), 24 D.L.R. (4th) 140, [1986] B.C.J. No. 3254 (S.C.), which was referred to by both Rady J. and Van Rensburg J. In that case, a company, Empire, invested in mortgages for the benefit of its clients. Once a mortgage was arranged, it was assigned to the clients, but Empire continued to manage the mortgage investment. Empire obtained a mortgage for some of its clients on the strength of an appraisal that showed there was sufficient equity in the property. The appraisal proved to be wrong and the investors ended up with nothing. Empire sued the negligent appraiser on the ground that it had a duty to its clients and recovered a judgment. In the meantime, Empire went into receivership and its general creditors claimed an interest in the funds that had been recovered as a result of the judgment. The investors claimed that the funds were held on constructive trust for them.

148 McLachlin J., as she then was, found that the funds had been held by Empire, and hence were held by the receiver, on a constructive trust for the investors. It was argued by the receiver that the investors suffered no detriment because they had no cause of action against the appraiser as they themselves had not relied on the appraisal. It was in this context that McLachlin J. considered authorities that had found a representor liable to persons other than the representee whom he or she knew or ought to have known would have been affected by their mistake. After reviewing the role of reliance in negligent misrepresentation, and observing that it had a diminished role in restricting the class of plaintiffs and in establishing a causal link between the statement and the plaintiff's loss, she observed, at paras. 19-21:

It is my view that in the appropriate case, where proximity and the necessary causal connection between the negligence and the loss can be established apart from reliance, recovery may be had for a negligent statement without reliance, whether on the basis of simple negligence or an extension of the doctrine propounded by Hedley Byrne, [1964] A.C. 465, supra. ...

This case, like the Ministry of Housing v. Sharp, [1970] 2 Q.B. 223, and Whittingham v. Crease & Co., [1978] B.C.J. No. 1229, cases, does not follow the usual pattern of actions for negligent misrepresentation: the investors did not rely on the appraisal in the sense of considering it and acting on the strength of it. However, their loss was caused by the negligent appraisal just as effectively as they had done so. The agreement between the investors and Empire stipulated that an appraisal of the property had been obtained. Their money was invested on the basis that there was sufficient equity in the property to secure the mortgage. Page 39

Had the appraisal been done properly, it would have shown insufficient equity in the property to secure a second mortgage; Empire would never have granted a second mortgage; and Empire could not then have assigned any such mortgage to the investors. Because the appraisal was negligently performed, the investors placed their money in a property which did not provide sufficient security and lost it. It might be argued that this is a form of reliance. At very least, both foreseeability of the loss and a causal connection between the negligent appraisal and the investors' loss are established.

... I conclude that the investors had a cause of action against the appraisers.

149 This decision can be regarded as consistent with the authorities referred to earlier, in which a negligent mis-statement caused damage to someone other than the representee and formed a basis for a claim for damages for negligence. It was referred to in Collette v. Great Pacific Management Co., above, and like that case was fundamentally an action in negligence. In the case before me, as I have noted, the plaintiff puts his claim squarely in negligent misrepresentation. In the case of the secondary market claim, he says that Class Members relied on the misrepresentations to their detriment by purchasing Gammon securities at inflated prices. He pleads that he "directly or indirectly" relied on the misrepresentations in the Prospectus -- unlike the plaintiffs in the foregoing cases, Mr. McKenna and the Class Members are the representees and he claims that they have suffered damages as a result of misrepresentations made to them.

150 The plaintiff also relies on Eaton v. HMS Financial Inc., 2008 ABQB 631, 64 C.P.C. (6th) 295, in which a class of investors alleged that they had been induced to invest in a fraudulent investment. They sued not only the principals of the scheme but lawyers, financial institutions and others who played incidental roles in their losses. Some of the financial institutions argued that the claims against them for negligent misrepresentation would require individual assessments of the reliance issue. The plaintiffs argued that a direct causal link between the fraudulent scheme and the investors' losses could be established by means other than reliance. Rooke J. declined to decide the issue, leaving it to the judge at the common issues trial to determine the extent to which individual reliance needed to be analyzed.

151 I accept the proposition that in a case of misrepresentation proof of reliance can be made by inference, as opposed to direct evidence. The point was made by Cumming J. in Mondor v. Fisherman, (2001), 15 C.P.R. (4th) 289, [2001] O.J. No. 4620 (S.C.J.), in which he noted, at para. 61 that the "fraud on the market" theory has been expressly rejected in Canada and he noted the observation of Winkler J. in Carom v. Bre-Ex Minerals Ltd., referred to above, to the effect that the ingredients of negligent misrepresentation are well known. Cumming J. held, however, that whether or not someone actually relied on a misrepresentation can be inferred from all the circumstances: see Kripps v. Touche Ross & Co., [1997] B.C.J. No. 968, 89 B.C.A.C. 288 at para 101; NBD Bank, Canada v. Dofasco Inc. (1999), 46 O.R. (3d) 514 at 547 (C.A.). Page 40

152 Similar observations were made by Hoy J. in Lawrence v. Atlas Cold Storage Holding Inc., above, at paras. 88-93 in which she considered a motion to strike negligent misrepresentation claims in a proposed class action in which claims were made under s. 130 of the Securities Act, as well as on the basis of negligent misrepresentation and fraudulent misrepresentation. Hoy J. concluded, referring to NBD Bank, Canada v. Dofasco Inc., above, and Mondor v. Fisherman, above, that the claim should not be struck because the plaintiff might be able to satisfy the trial judge that in all the circumstances actual reliance on the alleged misrepresentation could be inferred. She observed, however, at para. 93, that the issue could impact the appropriateness of misrepresentation as a common issue:

This need to determine reliance, as a matter of fact, with respect to each member of the class, as opposed to being able to rely on a class-wide presumption of reliance on publicly distributed information as a matter of law [i.e., under s. 130 of the Securities Act], will of course significantly impact on certain issues in certification.

153 The action was ultimately settled, and certified without opposition: [2009] O.J. No. 4271 and for that reason the common issues were not discussed in detail.

154 In some cases examination of the surrounding circumstances may be a preferable means of determining reliance rather than the self-serving statement of the plaintiff saying "I relied on it." This does not mean, however, that reliance can be inferred on a class-wide basis. The need to examine the individual circumstances of each shareholder would, as Hoy J. suggested, make certification of the claim problematic.

155 The need for proof of reliance in misrepresentation claims was once again confirmed by the Court of Appeal in Boulanger v. Johnson & Johnson Corp. (2003), 174 O.A.C. 44, [2003] O.J. No. 2218. In that case, the plaintiff brought a proposed class action in connection with the marketing and sale of a prescription drug called Prepulsid. The plaintiff claimed, among other things, that the manufacturer's filings with Health Canada were negligently prepared and failed to disclose important information. The Court of Appeal agreed, at para. 11, with the motion judge that the pleading of negligent misrepresentation could not be sustained because of the lack of reliance by consumers on the statements in the regulatory filings:

The motions judge also concluded that these pleadings could not be sustained on the basis of negligent misrepresentation. Again I agree. It is clear that in Canada, actual reliance is a necessary element of an action in negligent misrepresentation and its absence will mean that the action cannot succeed. See Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 at para. 18. Here there is absolutely no assertion of reliance by the appellant (or by anyone on her behalf) on the representations of the respondents to Health Canada. Indeed there is no pleading of reliance on the fact of regulatory approval. This complete Page 41

absence of reliance is fatal to a negligent misrepresentation claim. Thus these paragraphs of the statement of claim cannot be said to disclose a reasonable cause of action based on misrepresentation [emphasis added].

156 The Court concluded, however, at para. 14, that a claim could be made out in either negligence or negligent misstatement:

The appellant's allegation is that the standard of care required of the respondents includes taking reasonable care in the filings they made to obtain regulatory approval and that without that approval, Prepulsid would not have been available to harm the appellant. These filings are pleaded as an aspect of the respondents' conduct which caused the appellant harm and which fell below the standard required of a reasonable drug manufacturer. They are one of the ways in which the appellant says the respondents were negligent. Framed this way, I cannot say that it is plain and obvious that such a claim will fail. Indeed the claim could appropriately be viewed as one of negligent misstatement. See Haskett v. Equifax Canada Inc., [2003] O.J. No. 771 (C.A.), leave to appeal to S.C.C. requested.

157 In McCann v. CP Ships, Rady J. concluded, at paras. 59-60, that the law on the issue of reliance is in a state of evolution and that in some cases the courts have been prepared to relax the requirement. She adopted the language of Rooke, J. in Eaton v. HMS Financial Inc., above, to the effect that it was too early to determine whether individual reliance is necessary and the plaintiff should be given an opportunity to demonstrate at trial why individual reliance is not necessary. In addition, she found that if reliance is a necessary prerequisite to recovery, class members should have an opportunity to prove it as an individual issue.

158 In Silver v. Imax (Certification), Van Rensburg J. expressed doubt about the plaintiff's theory that reliance is not a necessary ingredient of misrepresentation in light of the decision of the Supreme Court of Canada in Cognos. She found it unnecessary to rule on this issue for the purposes of certification, stating that the pleading disclosed a cause of action in negligent misrepresentation, notwithstanding the absence of a pleading of direct individual reliance, and that if the plaintiffs were not able to prove reliance it would remain open for them to argue at trial that reliance is not required.

159 With deference to my colleagues who have come to a different conclusion, I accept the submission of counsel for the defendants that there is authority, binding on me, that makes proof of reliance a necessary requirement of a negligent misrepresentation claim. This is why the legislature has seen fit to relieve the investing public of this onerous requirement in the primary market through s. 130(1) and s. 131.1(1), which contain "deemed reliance provisions," and in the secondary market by a similar provision in s. 138.3(1) of the Securities Act. The right to pursue the latter claim is subject to the plaintiff passing the initial hurdle in obtaining leave under s. 138.8 by showing that the action is brought in good faith and has a reasonable prospect of success. Page 42

160 I conclude that the need to prove reliance as a necessary element of negligent misrepresentation, and the inability to establish reliance as a common issue, makes the common law misrepresentation claims, in both the secondary and primary markets, fundamentally unsuitable for certification. In this case, multiple misrepresentations are alleged throughout the ten month Class Period, in press releases, regulatory filings, conference calls, annual reports and a multitude of other written and oral forms. The alleged misrepresentations relate to a variety of complaints, not simply the level of gold production. The plaintiff complains of undisclosed equipment failures, contracts with insiders, stock option expenses, non-compliant financial statements and inadequate disclosure controls. Individual inquiries would have to be made into what alleged misrepresentations were made to each class member and whether he or she relied upon any of those representations. As was stated by Winkler J. in Mouhteros v. DeVry Canada Inc., above, at para. 30:

Assuming that the misrepresentation issues identified above were capable of a common resolution, such resolution would be but the beginning, and not the end of the litigation. With respect to the claim for misrepresentation in tort, the plaintiff must prove reasonable reliance on a misrepresentation negligently made. Reliance is an essential element of the tort. The question of reliance must be determined based on the experience of each individual student, and will involve such evidentiary issues as to how the student heard about DeVry, whether the student saw any of the advertisements and if so, which ones, what written representations were made to the student prior to enrolment, whether the student met with an admissions officer, and whether the student relied on some or all of these in deciding to enrol in DeVry. The inquiry will not end there, however. If the class members are able to demonstrate reliance, they must show that they relied to their detriment. Damages will require individual assessment.

161 There is no basis on which reliance could be resolved as a common issue. The need to determine the issue individually would give rise to a multitude of questions in each case concerning the representations communicated to a particular investor, the experience and sophistication of the investor, other information or recommendations made to the investor and whether there was a causal connection between the misrepresentation(s) and the acquisition of the security. The inability to determine the defendants' liability without individual inquiries as to reliance makes the proceeding unsuitable for certification in relation to the negligent misrepresentation claim.

162 For these reasons, to the extent that the proposed common issues identified above as (a), (b), (c) and (d) relate to the claim for negligent misrepresentation at common law, as opposed to the s. 130 claim, they are unsuitable for certification. To the extent that they (or specifically enumerated common issues) relate to the claims for negligence or "reckless misrepresentation", they will not be certified for the reasons set out under the cause of action analysis.

163 This conclusion does not prevent the plaintiff from bringing a properly-structured claim for misrepresentation in the secondary market under s. 138.3(1) provided its requirements are met. The Page 43

plaintiff is entitled to pursue the claim for misrepresentation under the Prospectus, under s. 130 of the Securities Act and common issues dealing with that claim will be certified.

(ii) Conspiracy common issues

164 I will defer certification of the common issues relating to conspiracy until the plaintiff delivers particulars of the special damages alleged to have been suffered by the representative plaintiff, and any further motions by the defendants in relation to that pleading.

(iii) Unjust enrichment

165 The underwriters do not dispute that the cause of action in unjust enrichment raises common issues that are appropriate for certification. Those common issues will be certified.

(iv) Damages

166 The plaintiff's summary of the common issues, set out above, does not list damages as a common issue, presumably because the quantum of damages would be an individual issue. The list of common issues in the notice of motion, however, includes the question: "If the Defendants are liable to the Class Members, what is the price at which Gammon's shares would have traded had the Defendants made no representations?" It seems to me, that in the context of the s. 130 claim, the appropriate common issue is, to use the statutory language, "What was the depreciation in value, if any, of the Gammon shares as a result of the misrepresentations in the Prospectus." In light of s. 130(7) of the Securities Act, the defendants would have the onus of proving that the depreciation in value of the shares was not due to the misrepresentation. It seems to me that this issue could be determined on a common basis. I leave it to counsel to consider whether there should be a common issue certified with respect to damages and, if so, to bring the appropriate motion.

(v) Punitive damages

167 The defendants assert that the claim for punitive damages is not appropriate for certification because punitive damages should be awarded where the compensatory damages fail to achieve the goals of retribution, deterrence and denunciation: Whiten v. Pilot Insurance Co. (2002), 209 D.L.R. (4th) 257, [2002] 1 S.C.R. 595 ("Whiten") at para. 94. They say that this determination can only be made after the determination of individual entitlement to damages.

168 The defendants refer to Robinson v. Medtronic Inc., [2009] O.J. No. 4366 (S.C.J.) in which Perell J. undertook an extensive review of the case law concerning certification of claims for punitive damages in class proceedings. While noting that such claims have been certified in a number of cases, Perell J. held that punitive damages will not be categorically certifiable as a common issue (at para. 166). Instead, the determination of whether a punitive damages claim is appropriate will depend on whether it has "the commonality necessary for a common issue" (at para. 166). Referring to Justice Binnie's judgment in Whiten, above, Perell J. held (at para. 170) that the Page 44

assessment of punitive damages at a common issues trial will require an appreciation of:

(a) the degree of misconduct; (b) the amount of harm caused; (c) the availability of other remedies; (d) the quantification of compensatory damages; and (e) the adequacy of compensatory damages to achieve the objectives of retribution, deterrence, and denunciation.

169 The certification of punitive damages as a common issue will only be appropriate where the common issues judge will be in a position to assess these factors. Applying this test to the case before him, Perell J. held (at para. 172) that:

... the common issues associated with negligence and with conspiracy ... will not be dispositive of Medtronic's liability because proof of causation and proof of damages will depend on individual trials that will follow the common issues trial. Whether Medtronic caused any harm and the amount of it will not be known until the individual issues are determined. [emphasis in original]

In the case before him, punitive damages could not be assessed by the common issues judge before determination of the individual issues.

170 Applying Justice Perell's test to the case presently before me, I find that the requirements for the certification of punitive damages as a common issue have been met. The nature of the present securities class action, as opposed to the product liability action before Perell J., makes the degree of misconduct, causation, harm, and the quantification of compensatory damages determinable by the common issues judge. There is no need for individual proof of loss to enable a common issues judge to assess punitive damages.

(d) Preferable Procedure

171 For a class proceeding to be the preferable procedure for the resolution of the claims of the class, it must represent a fair, efficient, and manageable procedure that is preferable to any alternative method of resolving the claims: Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (C.A.) at paras. 73-75, leave to appeal to S.C.C. ref'd, [2005] S.C.C.A. No. 50.

172 The preferability inquiry should be conducted through the lens of the three principal advantages of a class proceeding: judicial economy, access to justice and behaviour modification: "Preferable" is to be construed broadly and is meant to capture the concepts of whether the class proceeding would be a fair, efficient and manageable method of advancing the claim and whether a class proceeding would be preferable to any other means of resolving the dispute.

173 The preferability determination must be made by looking at the importance of the common Page 45

issues in relation to the claims as a whole: Markson v. MBNA Canada Bank, 2007 ONCA 334, 85 O.R. (3d) 321 at para. 69, leave to appeal dismissed [2007] S.C.C.A. No. 346. In considering the preferable procedure criterion, the court should consider:

(a) the nature of the proposed common issue; (b) the individual issues which would remain after determination of the common issue; (c) the factors listed in the C.P.A.; (d) the complexity and manageability of the proposed action as a whole; (e) alternative procedures for dealing with the claims asserted; (f) the extent to which certification furthers the objectives underlying the C.P.A.; and (g) the rights of the plaintiff(s) and defendant(s): Chadha v. Bayer Inc. (2001), 54 O.R. (3d) 520 (Div. Ct.) at para. 16, aff'd (2003), 63 O.R. (3d) 22 (C.A.), leave to appeal to S.C.C. ref'd, [2003] S.C.C.A. No. 106.

174 A class action is unquestionably the preferable procedure for the claim under s. 130(1) of the Securities Act. The remedy is tailor-made for a class action: see Allen v. Aspen Group Resources Corp., above, at paras. 138-144; John J. Chapman, "Class Proceedings for Prospectus Misrepresentations" (1994), 73 Can. Bar Rev. 492. Allen v. Aspen was a claim under s. 131(1) of the Securities Act in connection with an offering memorandum in a take-over bid, but the principles are the same.

175 I can think of no more preferable procedure for the claims against the underwriters for unjust enrichment or against the Gammon Defendants for conspiracy. In both cases, a class action would promote the goals of access to justice, judicial economy and behavior modification. No alternatives were suggested.

176 The Gammon defendants submit that a class action under section 138.1 of the Securities Act would be the preferable procedure for the claim for negligent misrepresentation in the secondary market.

177 As discussed earlier, that section provides a statutory cause of action for misrepresentation against a "responsible issuer," its directors and against officers who authorized, permitted or acquiesced in the release of a document containing a misrepresentation. The Gammon Defendants say that s. 138.1 is the preferable procedure because the "deemed reliance" provision overcomes the intractable problem of proving reliance in a class action alleging common law misrepresentation. The say that the procedure is fair to both parties since it contains a reasonable threshold for leave that simply requires the plaintiff to show that the action has been brought in good faith and that there is a reasonable possibility that the action will be resolved in the plaintiff's favour. Moreover, while there are certain liability caps available to the defendants in the s. 138.1 action, there are certain benefits to plaintiffs. The availability of a fair efficient and manageable remedy under that Page 46

Part, which has definite advantages over a common law action (albeit subject to some limitations), give some reassurance that access to justice and behavior modification can be achieved, notwithstanding that the common law claims have not been certified.

178 As I have found that the secondary market claim is not appropriate for certification, I do not propose to consider the preferability issue in relation to that claim.

(e) Representative Plaintiff

179 In order to certify this action as a class proceeding, there must be a representative plaintiff who would fairly and adequately represent the interests of the class, who does not have a conflict on the common issues with other members of the class, and who has produced a workable litigation plan.

180 Mr. McKenna acquired Gammon securities during the Class Period. He sold 900 shares in March of 2008 but continues to hold 100 shares. He claims that he can fairly and adequately represent the class, that he has no conflict with the Class and that he is represented by experienced counsel who have produced a workable litigation plan on his behalf. The defendants say that Mr. McKenna is hopelessly inadequate as a representative plaintiff for a variety of reasons, many of which are not applicable as a result of my conclusion that the secondary market and negligent misrepresentation claims will not be certified.

181 I have addressed the complaint that Mr. McKenna's claim is time-barred, which was one of the reasons the defendants said he was an unsuitable plaintiff.

182 The defendants say that Mr. McKenna is an inappropriate representative for the institutional shareholder of Gammon, who have the most at stake, little interest in pursuing claims and "different perspectives or objectives." The causes of action asserted by Mr. McKenna and the institutional investors are identical and they have no conflict on the common issues. It is not uncommon for members of a class to have different perspectives on the claim and for some members to be unenthusiastic about the claim. If the institutional investors have no interest in the claim, or see it as detrimental to their interests, they can opt out of the action. If they do not wish to opt out, but consider that their interests are not adequately represented by Mr. McKenna, they may move for the appointment of a separate representative. To the extent they see the claim as unfounded and ill-conceived, they can support Gammon's defence.

183 The defendants say that there is also a conflict between Mr. McKenna and investors who no longer hold Gammon securities and those (including the institutional investors) who will continue to hold them until the time of trial. They suggests that the effect of this is that current shareholders would effectively be suing themselves and that any judgment Gammon is required to pay to former and current shareholders will dilute the value of the shares held by the continuing shareholders. It seems to me that this concern arises in any s. 130 claim where the class will include former as well as current shareholders. It is not a reason to refuse to certify the claim. While there may be different Page 47

theories of damages applicable to shareholders who have retained their shares, as opposed to those who have sold them, this does not mean that there will be an inevitable conflict of interest. I respectfully agree with the approach taken by Cumming J. in Kerr v. Danier Leather Inc., [2001] O.J. No. 4000, 14 C.P.C. 292 (S.C.J.) at para. 67, that the issue can be dealt with by the creation of a subclass, with a separate representative plaintiff, should that prove necessary.

184 For the reasons set out above with respect to non-residents, it is my view that there should be a representative on behalf of non-resident Class Members. The plaintiff may make an application to propose a representative of this group and to propose a sub-class or classes if necessary.

IV. Conclusion

185 In the result, this action will be certified as a class proceeding with respect to the cause of action against all defendants under s. 130 of the Securities Act and the additional claim for unjust enrichment against the Underwriters. The motion for certification of the conspiracy claim is adjourned pending the delivery of particulars of the special damages alleged to have been sustained by the representative plaintiff.

186 The Class definition in relation to the claim under s. 130 of the Securities Act and the claim for unjust enrichment will be limited to those who acquired their shares through the Underwriters in Canada.

187 Counsel shall prepare an order incorporating my conclusions and in compliance with s. 8 of the C.P.A. If additional issues arise, they can be addressed in a case conference. The parties may make written submissions as to costs, to be filed within 30 days, in accordance with a schedule to be agreed upon between counsel.

G.R. STRATHY J. cp/e/qlrxg/qljxr/qlced/qlaxw/qljyw/qlhcs Page 1

Indexed as: Hollick v. Toronto (City)

John Hollick, appellant; v. City of Toronto, respondent, and Friends of the Earth, West Coast Environmental Law Association, Canadian Association of Physicians for the Environment, the Environmental Commissioner of Ontario and Law Foundation of Ontario, interveners.

[2001] 3 S.C.R. 158

[2001] S.C.J. No. 67

2001 SCC 68

File No.: 27699.

Supreme Court of Canada

2001: June 13 / 2001: October 18.

Present: McLachlin C.J. and Gonthier, Iacobucci, Major, Bastarache, Binnie and Arbour JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO (38 paras.)

Practice -- Class actions -- Certification -- Plaintiff complaining of noise and physical pollution from landfill owned and operated by city -- Plaintiff bringing action against city as representative of some 30,000 other residents who live in vicinity of landfill -- Whether plaintiff meets certification requirements set out in provincial class action legislation -- Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1).

The appellant complains of noise and physical pollution from a landfill owned and operated by the respondent city. He sought certification, under Ontario's Class Proceedings Act, 1992, to represent some 30,000 people who live in the vicinity of the landfill. The motions judge found that the Page 2

appellant had satisfied each of the five certification requirements set out in s. 5 of the Act and ordered that the appellant be allowed to pursue his action as representative of the stated class. The Divisional Court overturned the certification order on the grounds that the appellant had not stated an identifiable class [page159] and had not satisfied the commonality requirement. The Court of Appeal dismissed the appellant's appeal, agreeing with the Divisional Court that commonality had not been established.

Held: The appeal should be dismissed.

The Class Proceedings Act, 1992 should be construed generously to give full effect to its benefits. The Act was adopted to ensure that the courts had a procedural tool sufficiently refined to allow them to deal efficiently, and on a principled rather than ad hoc basis, with the increasingly complicated cases of the modern era.

In this case there is an identifiable class within the meaning of s. 5(1)(b). The appellant has defined the class by reference to objective criteria, and whether a given person is a member of the class can be determined without reference to the merits of the action. With respect to whether "the claims ... of the class members raise common issues", as required by s. 5(1)(c), the underlying question is whether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysis. Thus an issue will be common only where its resolution is necessary to the resolution of each class member's claim. Further, an issue will not be "common" in the requisite sense unless the issue is a substantial ingredient of each of the class members' claims. Here, if each of the class members has a claim against the respondent, some aspect of the issue of liability is common within the meaning of s. 5(1)(c). The issue is whether there is a rational connection between the class as defined and the asserted common issues. While the putative representative must show that the class is defined sufficiently narrowly, he or she need not show that everyone in the class shares the same interest in the resolution of the asserted common issue. The appellant has met his evidentiary burden. It is sufficiently clear that many individuals besides the appellant were concerned about noise and physical emissions from the landfill. Moreover, while some areas within the geographical area specified by the class definition appear to have been the source of a disproportionate number of complaints, complaints were registered from many different areas within the specified boundaries.

A class proceeding would not be the preferable procedure for the resolution of the common issues, however, as required by s. 5(1)(d). In the absence of legislative guidance, the preferability inquiry should be conducted through the lens of the three principal advantages of class actions: judicial economy, access [page160] to justice, and behaviour modification. The question of preferability must take into account the importance of the common issues in relation to the claims as a whole. The preferability requirement was intended to capture the question of whether a class proceeding would be preferable in the sense of preferable to other procedures such as joinder, test cases and consolidation. The preferability analysis requires the court to look to all reasonably available means of resolving the class members' claims, and not just at the possibility of individual actions. The Page 3

appellant has not shown that a class action is the preferable means of resolving the claims raised here. With respect to judicial economy, any common issue here is negligible in relation to the individual issues. While each of the class members must, in order to recover, establish that the landfill emitted physical or noise pollution, it is likely that some areas were affected more seriously than others, and that some areas were affected at one time while other areas were affected at other times. Once the common issue is seen in the context of the entire claim, it becomes difficult to say that the resolution of the common issue will significantly advance the action. Nor would allowing a class action here serve the interests of access to justice. The fact that no claims have been made against the Small Claims Trust Fund may suggest that the class members claims are either so small as to be non-existent or so large as to provide sufficient incentive for individual action. In either case access to justice is not a serious concern. The argument that behaviour modification is a significant concern in this case should be rejected for similar reasons.

Cases Cited

Referred to: Rylands v. Fletcher (1868), L.R. 3 H.L. 330; Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172; Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534, 2001 SCC 46; Caputo v. Imperial Tobacco Ltd. (1997), 34 O.R. (3d) 314; Webb v. K-Mart Canada Ltd. (1999), 45 O.R. (3d) 389; Mouhteros v. DeVry Canada Inc. (1998), 41 O.R. (3d) 63; Taub v. Manufacturers Life Insurance Co. (1998), 40 O.R. (3d) 379; Abdool v. Anaheim Management Ltd. (1995), 21 O.R. (2d) 453; Rumley v. British Columbia, [2001] 3 S.C.R. 184, 2001 SCC 69.

Statutes and Regulations Cited

Class Proceedings Act, R.S.B.C. 1996, c. 50, s. 4(2). Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 2(1), (2), 5(1), (4), (5), 6.

[page161]

Code of Civil Procedure, R.S.Q., c. C-25, Book IX. Environmental Bill of Rights,1993, S.O. 1993, c. 28, ss. 61(1), 74(1). Environmental Protection Act, R.S.O. 1990, c. E.19, ss. 14(1), 99, 172(1), 186(1). Family Law Act, R.S.O. 1990, c. F.3. Federal Rules of Civil Procedure, Rule 23(b)(3). Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 12.01.

Authors Cited

Branch, Ward K. Class Actions in Canada. Vancouver: Western Legal Publications, 1996 (loose-leaf updated December 1998, release 4). Cochrane, Michael G. Class Actions: A Guide to the Class Proceedings Act, 1992. Aurora, Ont.: Page 4

Canada Law Book, 1993. Eizenga, Michael A., Michael J. Peerless and Charles M. Wright. Class Actions Law and Practice. Toronto: Butterworths, 1999 (loose-leaf updated June 2001, issue 4). Friedenthal, Jack H., Mary K. Kane and Arthur R. Miller. Civil Procedure, 2nd ed. St. Paul, Minn.: West Publishing Co., 1993. Ontario. Attorney General's Advisory Committee on Class Action Reform. Report of the Attorney General's Advisory Committee on Class Action Reform. Toronto: The Committee, 1990. Ontario. Law Reform Commission. Report on Class Actions. Toronto: Ministry of the Attorney General, 1982.

APPEAL from a judgment of the Ontario Court of Appeal (1999), 46 O.R. (3d) 257, 181 D.L.R. (4th) 426 (sub nom. Hollick v. Metropolitan Toronto (Municipality)), 127 O.A.C. 369, 32 C.E.L.R. (N.S.) 1, 41 C.P.C. (4th) 93, 7 M.P.L.R. (3d) 244, [1999] O.J. No. 4747 (QL), dismissing an appeal from a decision of the Divisional Court (1998), 42 O.R. (3d) 473, 168 D.L.R. (4th) 760, 116 O.A.C. 108, 28 C.E.L.R. (N.S.) 198, 31 C.P.C. (4th) 64, [1998] O.J. No. 5267 (QL), allowing an appeal from a decision of the Ontario Court (General Division) (1998), 27 C.E.L.R. (N.S.) 48, 18 C.P.C. (4th) 394, [1998] O.J. No. 1288 (QL), granting a motion to have an action certified as a class proceeding. Appeal dismissed.

Michael McGowan, Kirk M. Baert, Pierre Sylvestre and Gabrielle Pop-Lazic, for the appellant.

[page162]

Graham Rempe and Kalli Y. Chapman, for the respondent. Robert V. Wright and Elizabeth Christie, for the interveners Friends of the Earth, West Coast Environmental Law Association and Canadian Association of Physicians for the Environment. Doug Thomson and David McRobert, for the intervener the Environmental Commissioner of Ontario. Written submissions only by Mark M. Orkin, Q.C., for the intervener the Law Foundation of Ontario.

Solicitors for the appellant: McGowan & Associates, Toronto. Solicitor for the respondent: H. W. O. Doyle, Toronto. Solicitors for the interveners Friends of the Earth, West Coast Environmental Law Association and Canadian Association of Physicians for the Environment: Sierra Legal Defence Fund, Toronto. Solicitors for the intervener the Environmental Commissioner of Ontario: McCarthy Tétrault and David McRobert, Toronto. Solicitor for the intervener the Law Foundation of Ontario: Mark M. Orkin, Toronto. Page 5

The judgment of the Court was delivered by

1 McLACHLIN C.J.:-- The question raised by this appeal is whether the appellant has satisfied the certification requirements of Ontario's Class Proceedings Act, 1992, S.O. 1992, c. 6, and whether the appellant should accordingly be allowed to pursue his action against the City of Toronto as the representative of some 30,000 other residents who live in the vicinity of a landfill owned and operated by the City. For the following reasons, I conclude that the appellant has not satisfied the certification requirements, and consequently that he may pursue this action only on his own behalf, and not on behalf of the stated class.

I. Facts

2 The appellant Hollick complains of noise and physical pollution from the Keele Valley landfill, which is owned and operated by the respondent City of Toronto. The appellant sought certification, under Ontario's Class Proceedings Act, 1992, to represent some 30,000 people who live in the vicinity of the landfill, in particular:

A. All persons who have owned or occupied property in the Regional Municipality of York, in the geographic [page163] area bounded by Rutherford Road on the south, Jane Street on the west, King-Vaughan Road on the north and Yonge Street on the east, at any time on or after February 3, 1991, or where such a person is deceased, the personal representative of the estate of the deceased person; and B. All living parents, grandparents, children, grandchildren, siblings, and spouses (within the meaning of s. 61 of the Family Law Act) of persons who were owners and/or occupiers ... .

The merits of the dispute between the appellant and the respondent are not at issue on this appeal. The only question is whether the appellant should be allowed to pursue his action as representative of the stated class.

3 Until 1983, the Keele Valley site was a gravel pit owned privately. It operated under a Certificate of Approval issued by the Ministry of the Environment in 1980. After the respondent purchased the site in 1983, the Ministry of the Environment issued a new Certificate of Approval. The 1983 Certificate covers an area of 375.9 hectares, of which 99.2 hectares are actual disposal area. The remainder of the land constitutes a buffer zone. The Certificate restricts Keele Valley to the receipt of non-hazardous municipal or commercial waste, and it sets out various other requirements relating to the processing and storage of waste at the site. It also provides for a Small Claims Trust Fund of $100,000, administered by the Ministry of the Environment, to cover individual claims of up to $5,000 arising out of "off-site impact". Page 6

4 The Ministry of the Environment monitors the Keele Valley site by employing two full-time inspectors at the site and by reviewing detailed reports that the respondent is required to file with the Ministry. In addition, the City of Vaughan has established the Keele Valley Liaison Committee, which is meant to provide a forum for community concerns related to the site. Until 1998, the appellant participated regularly at meetings of the Liaison Committee. Finally, the respondent maintains a telephone complaint system for members of the community.

[page164]

5 The appellant's claim is that the Keele Valley landfill has unlawfully been emitting, onto his own lands and onto the lands of other class members:

(a) large quantities of methane, hydrogen sulphide, vinyl chloride and other toxic gases, obnoxious odours, fumes, smoke and airborne, bird-borne or air-blown sediment, particulates, dirt and litter (collectively referred to as "Physical Pollution"); and (b) loud noises and strong vibrations (collectively referred to as "Noise Pollution");

The appellant filed a motion for certification on November 28, 1997. In support of his motion, the appellant pointed out that, in 1996, some 139 complaints were registered with the respondent's telephone complaint system. (Before this Court, the appellant submitted that "at least 500" complaints were made "to various governmental authorities between 1991 and 1996" (factum, at para. 7).) The appellant also noted that, in 1996, the respondent was fined by the Ministry of Environment in relation to the composting of grass clippings at a facility located just north of the Keele Valley landfill. In the appellant's view, the class members form a well-defined group with a common interest vis-à-vis the respondent, and the suit would be best prosecuted as a class action. The appellant seeks, on behalf of the class, injunctive relief, $500 million in compensatory damages and $100 million in punitive damages.

6 The respondent disputes the legitimacy of the appellant's complaints and disagrees that the suit should be permitted to proceed as a class action. The respondent claims that it has monitored air emissions from the Keele Valley site and the data confirm that "none of the air levels exceed Ministry of the Environment trigger levels". It notes that there are other possible sources for the pollution of which the appellant complains, including an active quarry, a private transfer station for waste, a plastics factory, and an asphalt plant. In addition, some farms in the area have private compost operations. The respondent also argues that the number of registered complaints -- it says that 150 people complained over the six-year period covered in the [page165] motion record -- is not high given the size of the class. Finally, it notes that, to date, no claims have been made against the Small Claims Trust Fund.

II. Judgments Page 7

7 The motions judge, Jenkins J., found that the appellant had satisfied each of the five certification requirements set out in s. 5(1) of the Class Proceedings Act, 1992: (1998), 27 C.E.L.R. (N.S.) 48. He found that the appellant's statement of claim disclosed causes of action under s. 99 of the Environmental Protection Act, R.S.O. 1990, c. E.19, and under the rule in Rylands v. Fletcher (1868), L.R. 3 H.L. 330; that the appellant had defined an identifiable class of two or more persons; that the issues of liability and punitive damages were common to the class; and that a class action would be the preferable procedure for resolving the complaints of the class. Finally, he found that the appellant would be an adequate representative for the class and that the appellant had set out a workable litigation plan. Though Jenkins J. struck out the appellant's claim for injunctive relief on the ground that damages would be a sufficient remedy and rejected his claims under the Family Law Act, R.S.O. 1990, c. F.3, on the grounds that the facts pleaded "cannot ... establish a basis for a claim for loss of care, guidance, and companionship" (p. 62). Jenkins J. concluded that the appellant had satisfied the certification requirements of s. 5(1). Accordingly he ordered that the appellant be allowed to pursue his action as representative of the stated class.

8 The Ontario Divisional Court, per O'Leary J., overturned the certification order on the grounds that the appellant had not stated an identifiable class and had not satisfied the commonality requirement: (1998), 42 O.R. (3d) 473. O'Leary J. interpreted the identifiable class requirement to require that "there be a class that can all pursue the same cause of action" against the defendant. He noted that "[t]o pursue such cause of action the members of the class must have suffered the interference with use and enjoyment of property complained of in the [page166] statement of claim" (p. 479). O'Leary J. concluded that the appellant had not stated an identifiable class (at pp. 479-80):

[T]he evidence does not make it likely that th[e] 30,000 [class members] suffered such interference. It cannot be assumed that the complaints made to Toronto make it likely that the landfill was the cause of the odour or thing complained about... . [E]ven if one were to assume that the Keele Valley landfill site was the source of all the complaints, 150 people making complaints over a seven-year period does not make it likely that some 30,000 persons had their enjoyment of their property interfered with.

For the same reasons, he concluded that the appellant had not satisfied the commonality requirement, writing that "[b]ecause the class that was certified ... bears no resemblance to any group that was on the evidence likely injured by the landfill operation, there are no apparent common issues relating to the members of the class" (p. 480). O'Leary J. set aside the certification order without prejudice to the plaintiff's right to bring a fresh application on further evidence.

9 The Court of Appeal for Ontario, per Carthy J.A., dismissed Hollick's appeal ((1999), 46 O.R. (3d) 257), agreeing with the Divisional Court that commonality had not been established. Citing Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172 (Ont. Ct. (Gen. Div.)), Carthy J.A. noted that the definition of a class should not depend on the merits of the litigation. However, he saw no bar to a court's looking beyond the pleadings to determine whether the certification Page 8

criteria had been satisfied. "If it were otherwise", he noted, "any statement of claim alleging the existence of an identifiable group of people would foreclose further consideration by the court" (p. 264). Carthy J.A. acknowledged that a court should not test the existence of a class by demanding evidence that each member of the purported class have, individually, a claim on the merits. The court should, however, demand "evidence to give some credence to the allegation that ... 'there is an identifiable class ...'" (p. 264) (emphasis deleted).

[page167]

10 Carthy J.A. did not find it necessary to resolve the issue of whether the appellant had stated an identifiable class, because in his view the appellant had not satisfied the commonality requirement. In Carthy J.A.'s view, proof of nuisance was essential to each of the appellant's claims. Because a nuisance claim requires the plaintiff to make an individualized showing of harm, there was no commonality between the class members. Carthy J.A. wrote (at pp. 266-67):

This group of 30,000 people is not comparable to patients with implants, the occupants of a wrecked train or those who have been drinking polluted water. They are individuals whose lives have each been affected, or not affected, in a different manner and degree and each may or may not be able to hold the respondent liable for a nuisance... .

No common issue other than liability was suggested and I cannot devise one that would advance the litigation.

Carthy J.A. dismissed the appeal, affirming the Divisional Court's order except insofar as it would have allowed the appellant to bring a fresh application on further evidence.

III. Legislation

11 Class Proceedings Act, 1992, S.O. 1992, c. 6

5. -- (1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class,

[page168]

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

6. The court shall not refuse to certify a proceeding as a class proceeding solely on any of the following grounds:

1. The relief claimed includes a claim for damages that would require individual assessment after determination of the common issues. 2. The relief claimed relates to separate contracts involving different class members. 3. Different remedies are sought for different class members. 4. The number of class members or the identity of each class member is not known. 5. The class includes a subclass whose members have claims or defences that raise common issues not shared by all class members.

IV. Issues

12 Should the appellant be permitted to prosecute this action on behalf of the class described in his statement of claim?

V. Analysis

13 Ontario's Class Proceedings Act, 1992, like similar legislation adopted in British Columbia and Quebec, allows a member of a class to prosecute a suit on behalf of the class: see Ontario Class Proceedings Act, 1992, s. 2(1); see also Quebec Code of Civil Procedure, R.S.Q., c. C-25, Book IX; Page 10

British Columbia Class Proceedings Act, R.S.B.C. 1996, c. 50. In order to commence such a proceeding, the person who seeks to represent the class must make a motion for an order certifying the action as a class proceeding and recognizing him or her as the representative of the class: see Class Proceedings Act, 1992, s. 2(2). Section 5 of the Act sets out five criteria by which a motions judge is to assess whether [page169] the class should be certified. If these criteria are satisfied, the motions judge is required to certify the class.

14 The legislative history of the Class Proceedings Act, 1992, makes clear that the Act should be construed generously. Before Ontario enacted the Class Proceedings Act, 1992, class actions were prosecuted in Ontario under the authority of Rule 12.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. That rule provided that

[w]here there are numerous persons having the same interest, one or more of them may bring or defend a proceeding on behalf or for the benefit of all, or may be authorized by the court to do so.

While that rule allowed courts to deal with relatively simple class actions, it became clear in the latter part of the 20th century that Rule 12.01 was not well-suited to the kinds of complicated cases that were beginning to come before the courts. These cases reflected "[t]he rise of mass production, the diversification of corporate ownership, the advent of the mega-corporation, and the recognition of environmental wrongs": Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534, 2001 SCC 46, at para. 26. They often involved vast numbers of interested parties and complex, intertwined legal issues -- some common to the class, some not. While it would have been possible for courts to accommodate moderately complicated class actions by reliance on their own inherent power over procedure, this would have required courts to devise ad hoc solutions to procedural complexities on a case-by-case basis: see Western Canadian Shopping Centres, at para. 51. The Class Proceedings Act, 1992, was adopted to ensure that the courts had a procedural tool sufficiently refined to allow them to deal efficiently, and on a principled rather than ad hoc basis, with the increasingly complicated cases of the modern era.

15 The Act reflects an increasing recognition of the important advantages that the class action offers as a procedural tool. As I discussed at some length in Western Canadian Shopping Centres (at paras. [page170] 27-29), class actions provide three important advantages over a multiplicity of individual suits. First, by aggregating similar individual actions, class actions serve judicial economy by avoiding unnecessary duplication in fact-finding and legal analysis. Second, by distributing fixed litigation costs amongst a large number of class members, class actions improve access to justice by making economical the prosecution of claims that any one class member would find too costly to prosecute on his or her own. Third, class actions serve efficiency and justice by ensuring that actual and potential wrongdoers modify their behaviour to take full account of the harm they are causing, or might cause, to the public. In proposing that Ontario adopt class action legislation, the Ontario Law Reform Commission identified each of these advantages: see Ontario Law Reform Commission, Report on Class Actions (1982), vol. I, at pp. 117-45; see also Ministry Page 11

of the Attorney General, Report of the Attorney General's Advisory Committee on Class Action Reform (February 1990), at pp. 16-18. In my view, it is essential therefore that courts not take an overly restrictive approach to the legislation, but rather interpret the Act in a way that gives full effect to the benefits foreseen by the drafters.

16 It is particularly important to keep this principle in mind at the certification stage. In its 1982 report, the Ontario Law Reform Commission proposed that new class action legislation include a "preliminary merits test" as part of the certification requirements. The proposed test would have required the putative class representative to show that "there is a reasonable possibility that material questions of fact and law common to the class will be resolved at trial in favour of the class": Report on Class Actions, supra, vol. III, at p. 862. Notwithstanding the recommendation of the Ontario Law Reform Commission, Ontario decided not to adopt a preliminary merits test. Instead it adopted a test that merely requires that the statement of claim "disclos[e] a cause of action": see Class Proceedings Act, 1992, s. 5(1)(a). Thus the certification stage is decidedly [page171] not meant to be a test of the merits of the action: see Class Proceedings Act, 1992, s. 5(5) ("An order certifying a class proceeding is not a determination of the merits of the proceeding"); see also Caputo v. Imperial Tobacco Ltd. (1997), 34 O.R. (3d) 314 (Gen. Div.), at p. 320 ("any inquiry into the merits of the action will not be relevant on a motion for certification"). Rather the certification stage focuses on the form of the action. The question at the certification stage is not whether the claim is likely to succeed, but whether the suit is appropriately prosecuted as a class action: see generally Report of the Attorney General's Advisory Committee on Class Action Reform, at pp. 30-33.

17 With these principles in mind, I turn now to the case at bar. The issue is whether the appellant has satisfied the certification requirements set out in s. 5 of the Act. The respondent does not dispute that the appellant's statement of claim discloses a cause of action. The first question, therefore, is whether there is an identifiable class. In my view, there is. The appellant has defined the class by reference to objective criteria; a person is a member of the class if he or she owned or occupied property inside a specified area within a specified period of time. Whether a given person is a member of the class can be determined without reference to the merits of the action. While the appellant has not named every member of the class, it is clear that the class is bounded (that is, not unlimited). There is, therefore, an identifiable class within the meaning of s. 5(1)(b): see J. H. Friedenthal, M. K. Kane and A. R. Miller, Civil Procedure (2nd ed. 1993), at pp. 726-27; Bywater, supra, at pp. 175-76; Western Canadian Shopping Centres, supra, at para. 38.

18 A more difficult question is whether "the claims ... of the class members raise common issues", as required by s. 5(1)(c) of the Class Proceedings Act, 1992. As I wrote in Western Canadian Shopping Centres, the underlying question is "whether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysis". Thus an issue will be common "only where its resolution is necessary to the resolution of each class member's claim" (para. 39). Further, [page172] an issue will not be "common" in the requisite sense unless the issue is a "substantial ... ingredient" of each of the class members' claims. Page 12

19 In this case there is no doubt that, if each of the class members has a claim against the respondent, some aspect of the issue of liability is common within the meaning of s. 5(1)(c). For any putative class member to prevail individually, he or she would have to show, among other things, that the respondent emitted pollutants into the air. At least this aspect of the liability issue (and perhaps other aspects as well) would be common to all those who have claims against the respondent. The difficult question, however, is whether each of the putative class members does indeed have a claim -- or at least what might be termed a "colourable claim" -- against the respondent. To put it another way, the issue is whether there is a rational connection between the class as defined and the asserted common issues: see Western Canadian Shopping Centres, at para. 38 ("the criteria [defining the class] should bear a rational relationship to the common issues asserted by all class members"). In asserting that there is such a relationship, the appellant points to the numerous complaints against the Keele Valley landfill filed with the Ministry of Environment. In the appellant's view, the large number of complaints shows that many others in the putative class, if not all of them, are similarly situated vis-à-vis the respondent. For its part the respondent asserts that "150 people making complaints over a seven-year period does not make it likely that some 30,000 persons had their enjoyment of their property interfered with" (Divisional Court's judgment, at pp. 479-80). The respondent also quotes the Ontario Court of Appeal's judgment (at p. 264), which declined to find commonality on the grounds that

[i]n circumstances such as are described in the statement of claim one would expect to see evidence of the existence of a body of persons seeking recourse for their [page173] complaints, such as, a history of "town meetings", demands, claims against the no fault fund, [and] applications to amend the certificate of approval ... .

20 The respondent is of course correct to state that implicit in the "identifiable class" requirement is the requirement that there be some rational relationship between the class and common issues. Little has been said about this requirement because, in the usual case, the relationship is clear from the facts. In a single-incident mass tort case (for example, an airplane crash), the scope of the appropriate class is not usually in dispute. The same is true in product liability actions (where the class is usually composed of those who purchased the product), or securities fraud actions (where the class is usually composed of those who owned the stock). In a case such as this, however, the appropriate scope of the class is not so obvious. It falls to the putative representative to show that the class is defined sufficiently narrowly.

21 The requirement is not an onerous one. The representative need not show that everyone in the class shares the same interest in the resolution of the asserted common issue. There must be some showing, however, that the class is not unnecessarily broad -- that is, that the class could not be defined more narrowly without arbitrarily excluding some people who share the same interest in the resolution of the common issue. Where the class could be defined more narrowly, the court should either disallow certification or allow certification on condition that the definition of the class be amended: see W. K. Branch, Class Actions in Canada (1996), at para. 4.205; Webb v. K-Mart Page 13

Canada Ltd. (1999), 45 O.R. (3d) 389 (S.C.J.) (claim for compensation for wrongful dismissal; class definition overbroad because included those who could be proven to have been terminated for just cause); Mouhteros v. DeVry Canada Inc. (1998), 41 O.R. (3d) 63 (Gen. Div.) (claim against school for misrepresentations about marketability of students after graduation; class [page174] definition overinclusive because included students who had found work after graduation).

22 The question arises, then, to what extent the class representative should be allowed or required to introduce evidence in support of a certification motion. The recommendations of the Ontario Law Reform Commission's 1982 report on this point should perhaps be given limited weight because, as discussed above, those recommendations were made in the context of a proposal that the certification stage include a preliminary merits test: see Report on Class Actions, supra, vol. II, at pp. 422-26 (recommending that both the representative plaintiff and the defendant be required, at the certification stage, to file one or more affidavits setting out all the facts upon which they intend to rely, and that the parties be permitted to examine the deponents of any such affidavits). The 1990 report of the Attorney General's Advisory Committee is perhaps a better guide. That report suggests that "[u]pon a motion for certification ... , the representative plaintiff shall and the defendant may serve and file one or more affidavits setting forth the material facts upon which each intends to rely" (emphasis added): see Report of the Attorney General's Advisory Committee on Class Action Reform, supra, at p. 33. In my view the Advisory Committee's report appropriately requires the class representative to come forward with sufficient evidence to support certification, and appropriately allows the opposing party an opportunity to respond with evidence of its own.

23 This appears to be the existing practice of Ontario courts. In Caputo, supra, the representative brought a class action against cigarette manufacturers claiming that they had knowingly misled the public about the risks associated with smoking. In support of the certification motion, the class representative filed only a solicitor's affidavit based on information and belief. The court held that the evidence adduced by the class representative was insufficient to support certification, and that the defendant manufacturers should be allowed to examine the individual class members in order to obtain the information required to allow the court [page175] to decide the certification motion. The "primary concern", the court wrote, is "[t]he adequacy of the record", which "will vary in the circumstances of each case" (p. 319).

24 In Taub v. Manufacturers Life Insurance Co. (1998), 40 O.R. (3d) 379 (Gen. Div.), the representative sought to bring a class action on behalf of the residents in her apartment building, alleging that mould in the building was exposing the residents to health risks. The representative provided no evidence, however, suggesting that the mould had been found anywhere but in her own apartment. The court wrote (at pp. 380-81) that "the CPA requires the representative plaintiff to provide a certain minimum evidentia[ry] basis for a certification order" (emphasis added). While the Class Proceedings Act, 1992 does not require a preliminary merits showing, "the judge must be satisfied of certain basi[c] facts required by s. 5 of the CPA as the basis for a certification order" (p. 381). Page 14

25 I agree that the representative of the asserted class must show some basis in fact to support the certification order. As the court in Taub held, that is not to say that there must be affidavits from members of the class or that there should be any assessment of the merits of the claims of other class members. However, the Report of the Attorney General's Advisory Committee on Class Action Reform clearly contemplates that the class representative will have to establish an evidentiary basis for certification: see Report, at p. 31 ("evidence on the motion for certification should be confined to the [certification] criteria"). The Act, too, obviously contemplates the same thing: see s. 5(4) ("[t]he court may adjourn the motion for certification to permit the parties to amend their materials or pleadings or to permit further evidence"). In my view, the class representative must show some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action. That latter requirement is of course governed by the rule that a pleading should not be struck for failure to disclose [page176] a cause of action unless it is "plain and obvious" that no claim exists: see Branch, supra, at para. 4.60.

26 In my view the appellant has met his evidentiary burden here. Together with his motion for certification, the appellant submitted some 115 pages of complaint records, which he obtained from the Ontario Ministry of Environment and Energy and the Toronto Metropolitan Works Department. The records of the Ministry of Environment and Energy document almost 300 complaints between July 1985 and March 1994, approximately 200 complaints in 1995, and approximately 150 complaints in 1996. The Metropolitan Works Department records document almost 300 complaints between July 1983 and the end of 1993. As some people may have registered their complaints with both the Ministry of Environment and Energy and the Metropolitan Works Department, it is difficult to determine exactly how many separate complaints were brought in any year. It is sufficiently clear, however, that many individuals besides the appellant were concerned about noise and physical emissions from the landfill. I note, further, that while some areas within the geographical area specified by the class definition appear to have been the source of a disproportionate number of complaints, complaints were registered from many different areas within the specified boundaries. I conclude, therefore, that the appellant has shown a sufficient basis in fact to satisfy the commonality requirement.

27 I cannot conclude, however, that "a class proceeding would be the preferable procedure for the resolution of the common issues", as required by s. 5(1)(d). The parties agree that, in the absence of legislative guidance, the preferability inquiry should be conducted through the lens of the three principal advantages of class actions -- judicial economy, access to justice, and behaviour modification: see also Abdool v. Anaheim Management Ltd. (1995), 21 O.R. (2d) 453 (Div. Ct.); compare British Columbia Class Proceedings Act, s. 4(2) (listing factors that court must consider in [page177] assessing preferability). Beyond that, however, the appellant and respondent part ways. In oral argument before this Court, the appellant contended that the court must look to the common issues alone, and ask whether the common issues, taken in isolation, would be better resolved in a class action rather than in individual proceedings. In response, the respondent argued that the common issues must be viewed contextually, in light of all the issues -- common and individual -- Page 15

raised by the case. The respondent also argued that the inquiry should take into account the availability of alternative avenues of redress.

28 The report of the Attorney General's Advisory Committee makes clear that "preferable" was meant to be construed broadly. The term was meant to capture two ideas: first the question of "whether or not the class proceeding [would be] a fair, efficient and manageable method of advancing the claim", and second, the question of whether a class proceeding would be preferable "in the sense of preferable to other procedures such as joinder, test cases, consolidation and so on": Report of the Attorney General's Advisory Committee on Class Action Reform, supra, at p. 32. In my view, it would be impossible to determine whether the class action is preferable in the sense of being a "fair, efficient and manageable method of advancing the claim" without looking at the common issues in their context.

29 The Act itself, of course, requires only that a class action be the preferable procedure for "the resolution of the common issues" (emphasis added), and not that a class action be the preferable procedure for the resolution of the class members' claims. I would not place undue weight, however, on the fact that the Act uses the phrase "resolution of the common issues" rather than "resolution of class members' claims". As one commentator writes:

The [American] class action [rule] requires that the class action be the superior method to resolve the "controversy." The B.C. and Ontario Acts require that the class proceeding be the preferable procedure for the resolution of the "common issues" (as opposed to the entire controversy). [This] distinctio[n] can be seen as creating a lower [page178] threshold for certification in Ontario and B.C. than in the U.S. However, it is still important in B.C. and Ontario to assess the litigation as a whole, including the individual hearing stage, in order to determine whether the class action is the preferable means of resolving the common issues. In the abstract, common issues are always best resolved in a common proceeding. However, it is important to adopt a practical cost-benefit approach to this procedural issue, and to consider the impact of a class proceeding on class members, the defendants, and the court.

See Branch, supra, at para. 4.690. I would endorse that approach.

30 The question of preferability, then, must take into account the importance of the common issues in relation to the claims as a whole. It is true, of course, that the Act contemplates that class actions will be allowable even where there are substantial individual issues: see s. 5. It is also true that the drafters rejected a requirement, such as is contained in the American federal class action rule, that the common issues "predominate" over the individual issues: see Federal Rules of Civil Procedure, Rule 23(b)(3) (stating that class action maintainable only if "questions of law or fact common to the members of the class predominate over any questions affecting only individual members"); see also British Columbia Class Proceedings Act, s. 4(2)(a) (stating that, in determining Page 16

whether a class action is the preferable procedures, the court must consider "whether questions of fact or law common to the members of the class predominate over any questions affecting only individual members"). I cannot conclude, however, that the drafters intended the preferability analysis to take place in a vacuum. There must be a consideration of the common issues in context. As the Chair of the Attorney General's Advisory Committee put it, the preferability requirement asks that the class representative "demonstrate that, given all of the circumstances of the particular claim, [a class action] would be preferable to other methods of resolving these claims and, in particular, that it would be preferable to the use of individual proceedings" (emphasis added): M. G. Cochrane, Class Actions: A Guide to [page179] the Class Proceedings Act, 1992 (1993), at p. 27.

31 I think it clear, too, that the court cannot ignore the availability of avenues of redress apart from individual actions. As noted above, the preferability requirement was intended to capture the question of whether a class proceeding would be preferable "in the sense of preferable to other procedures such as joinder, test cases, consolidation and so on": see Report of the Attorney General's Advisory Committee on Class Action Reform, supra, at p. 32; see also Cochrane, supra, at p. 27; M. A. Eizenga, M. J. Peerless and C. M. Wright, Class Actions Law and Practice (loose-leaf), at para. 3.62 ("[a]s part of the determination with respect to preferability, it is appropriate for the court to review alternative means of adjudicating the dispute which is before it"). In my view, the preferability analysis requires the court to look to all reasonably available means of resolving the class members' claims, and not just at the possibility of individual actions.

32 I am not persuaded that the class action would be the preferable means of resolving the class members' claims. Turning first to the issue of judicial economy, I note that any common issue here is negligible in relation to the individual issues. While each of the class members must, in order to recover, establish that the Keele Valley landfill emitted physical or noise pollution, there is no reason to think that any pollution was distributed evenly across the geographical area or time period specified in the class definition. On the contrary, it is likely that some areas were affected more seriously than others, and that some areas were affected at one time while other areas were affected at other times. As the Divisional Court noted, "[e]ven if one considers only the 150 persons who made complaints -- those complaints relate to different dates and different locations spread out over seven years and 16 square miles" (p. 480). Some class members are close to the site, some are further away. Some class members are close to other possible sources of pollution. Once the common issue is seen in the [page180] context of the entire claim, it becomes difficult to say that the resolution of the common issue will significantly advance the action.

33 Nor would allowing a class action here serve the interests of access to justice. The appellant posits that class members' claims may be so small that it would not be worthwhile for them to pursue relief individually. In many cases this is indeed a real danger. As noted above, one important benefit of class actions is that they divide fixed litigation costs over the entire class, making it economically feasible to prosecute claims that might otherwise not be brought at all. I am not fully convinced, however, that this is the situation here. The central problem with the appellant's argument is that, if it is in fact true that the claims are so small as to engage access to justice Page 17

concerns, it would seem that the Small Claims Trust Fund would provide an ideal avenue of redress. Indeed, since the Small Claims Trust Fund establishes a no-fault scheme, it is likely to provide redress far more quickly than would the judicial system. If, on the other hand, the Small Claims Trust Fund is not sufficiently large to handle the class members' claims, one must question whether the access to justice concern is engaged at all. If class members have substantial claims, it is likely that they will find it worthwhile to bring individual actions. The fact that no claims have been made against the Small Claims Trust Fund may suggest that the class members claims are either so small as to be non-existent or so large as to provide sufficient incentive for individual action. In either case access to justice is not a serious concern. Of course, the existence of a compensatory scheme under which class members can pursue relief is not in itself grounds for denying a class action -- even if the compensatory scheme promises to provide redress more quickly: see Rumley v. British Columbia, [2001] 3 S.C.R. 184, 2001 SCC 69, at para. 38. The existence of such a scheme, however, provides one consideration that must be taken into account when [page181] assessing the seriousness of access-to-justice concerns.

34 For similar reasons I would reject the argument that behaviour modification is a significant concern in this case. Behavioural modification may be relevant to determining whether a class action should proceed. As noted in Western Canadian Shopping Centres, supra, at para. 29, "[w]ithout class actions, those who cause widespread but individually minimal harm might not take into account the full costs of their conduct, because for any one plaintiff the expense of bringing suit would far exceed the likely recovery". This concern is certainly no less pressing in the context of environmental litigation. Indeed, Ontario has enacted legislation that reflects a recognition that environmental harm is a cost that must be given due weight in both public and private decision-making: see Environmental Bill of Rights, 1993, S.O. 1993, c. 28, and Environmental Protection Act. I am not persuaded, however, that allowing a class action here would serve that end. If individual class members have substantial claims against the respondent, we should expect that they will be willing to prosecute those claims individually; on the other hand if their claims are small, they will be able to obtain compensation through the Small Claims Trust Fund. In either case, the respondent will be forced to internalize the costs of its conduct.

35 I would note, further, that Ontario's environmental legislation provides other avenues by which the complainant here could ensure that the respondent takes full account of the costs of its actions. While the existence of such legislation certainly does not foreclose the possibility of environmental class actions, it does go some way toward addressing legitimate concerns about behaviour modification: see Environmental Bill of Rights, 1993, ss. 61(1) (stating that "[a]ny two persons resident in Ontario who believe that an existing policy, Act, regulation or instrument of Ontario should be [page182] amended, repealed or revoked in order to protect the environment may apply to the Environmental Commissioner for a review of the policy, Act, regulation or instrument by the appropriate minister") and 74(1) (stating that "[a]ny two persons resident in Ontario who believe that a prescribed Act, regulation or instrument has been contravened may apply to the Environmental Commissioner for an investigation of the alleged contravention by the appropriate minister"); Environmental Protection Act, s. 14(1) (stating that "[d]espite any other provision of this Page 18

Act or the regulations, no person shall discharge a contaminant or cause or permit the discharge of a contaminant into the natural environment that causes or is likely to cause an adverse effect"); s. 172(1) (stating that "[w]here a person complains that a contaminant is causing or has caused injury or damage to livestock or to crops, trees or other vegetation which may result in economic loss to such person, the person may, within fourteen days after the injury or damage becomes apparent, request the Minister to conduct an investigation"); and s. 186(1) (stating that "[e]very person who contravenes this Act or the regulations is guilty of an offence").

36 I conclude that the action does not meet the requirements set out in s. 5(1) of Ontario's Class Proceedings Act, 1992. Even on the generous approach advocated above, the appellant has not shown that a class action is the preferable means of resolving the claims raised here.

37 I should make one note on the scope of the holding in this case. The appellant took pains to characterize this case as raising the issue of whether Ontario's Class Proceedings Act, 1992 permits environmental class actions. I would not frame the issue so broadly. While the appellant has not met the certification requirements here, it does not follow that those requirements could never be met in an environmental tort case. The question of whether an action should be permitted to be prosecuted as a class action is necessarily one that turns on the [page183] facts of the case. In this case there were serious questions about preferability. Other environmental tort cases may not raise the same questions. Those cases should be decided on their facts.

38 The appeal is dismissed. There will be no costs to either party. cp/e/qllls Page 1

Case Name: Fulawka v. Bank of Nova Scotia

Between Cindy Fulawka, Plaintiff (Respondent), and The Bank of Nova Scotia, Defendant (Appellant)

[2012] O.J. No. 2885

2012 ONCA 443

293 O.A.C. 204

216 A.C.W.S. (3d) 291

100 C.C.E.L. (3d) 119

[2012] CLLC para. 210-039

21 C.P.C. (7th) 1

111 O.R. (3d) 346

352 D.L.R. (4th) 1

2012 CarswellOnt 7951

Docket: C54467

Ontario Court of Appeal Toronto, Ontario

W.K. Winkler C.J.O., S.E. Lang and D. Watt JJ.A.

Heard: December 1 and 2, 2011. Judgment: June 26, 2012.

(173 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Page 2

Common interests and issues -- Appeal by Scotiabank from Divisional Court decision affirming certification of class proceeding allowed to limited extent -- Plaintiff alleged policies and practices for paying overtime breached employment contracts and duties informed by principles of Canada Labour Code -- Judge's focus on systemic nature of allegations necessarily informed analysis of commonality of issues -- With exception of availability of aggregate assessment of damages, proposed issues raised requisite degree of commonality -- Common issue regarding aggregate assessment struck -- Class action was preferable procedure, as proceeding under Code was more likely to thwart access to justice -- Canada Labour Code, s. 174 -- Class Proceedings Act, ss. 5(1)(c), 5(1)(d), 24(1), 24(1)(b), 24(1) (c), 25, 25(3).

Employment law -- Contract of employment -- Express terms -- Remuneration -- Overtime pay -- Scheduling and hours of work -- Overtime -- Appeal by Scotiabank from Divisional Court decision affirming certification of class proceeding allowed to limited extent -- Plaintiff alleged policies and practices for paying overtime breached employment contracts and duties informed by principles of Canada Labour Code -- Judge's focus on systemic nature of allegations necessarily informed analysis of commonality of issues -- With exception of availability of aggregate assessment of damages, proposed issues raised requisite degree of commonality -- Common issue regarding aggregate assessment struck -- Class action was preferable procedure, as proceeding under Code was more likely to thwart access to justice -- Canada Labour Code, s. 174 -- Class Proceedings Act, ss. 5(1)(c), 5(1)(d), 24(1), 24(1)(b), 24(1) (c), 25, 25(3).

Employment law -- Employment standards legislation -- Hours of work and overtime -- Remuneration -- Overtime pay -- Appeal by Scotiabank from Divisional Court decision affirming certification of class proceeding allowed to limited extent -- Plaintiff alleged policies and practices for paying overtime breached employment contracts and duties informed by principles of Canada Labour Code -- Judge's focus on systemic nature of allegations necessarily informed analysis of commonality of issues -- With exception of availability of aggregate assessment of damages, proposed issues raised requisite degree of commonality -- Common issue regarding aggregate assessment struck -- Class action was preferable procedure, as proceeding under Code was more likely to thwart access to justice -- Canada Labour Code, s. 174 -- Class Proceedings Act, ss. 5(1)(c), 5(1)(d), 24(1), 24(1)(b), 24(1)(c), 25, 25(3).

Appeal by the defendant, Bank of Nova Scotia (Scotiabank), from a decision affirming an order certifying a class proceeding commenced by the plaintiff, Fulawka. The underlying action was one of several commenced by employees of federally-regulated companies advancing claims for unpaid overtime work under the Canada Labour Code. The plaintiff alleged that Scotiabank's policies and practices for compensating overtime work performed by members of the putative class constituted a breach of class members' contracts of employment, and a breach of Scotiabank's obligation to act in good faith. On behalf of a putative class of 5,000 members, the plaintiff sought general and special damages totaling $350 million, plus declaratory and injunctive relief. The plaintiff's claims were based on breach of contract, unjust enrichment, breach of the duty of good faith, negligence and Page 3

breach of the Code. The Divisional Court affirmed an order certifying the action. A similar proceeding was commenced by Fresco against CIBC. In Fresco, a split decision by the Divisional Court upheld an order refusing certification. The Scotiabank and Fresco actions were substantially similar. Both actions were predicated on the claim that the overtime policies adopted by the employers imposed more restrictive conditions for receiving overtime compensation than as set forth in the Code. In particular, the plaintiffs alleged that the requirement of prior approval for overtime work was used to avoid the requirement to pay overtime under s. 174 of the Code for excess hours an employee was required or permitted to work. In addition, the plaintiffs alleged that the banks failed to implement proper systems for recording overtime. In the predicate action, the judge found that the criteria for certification were met. In contrast to the Fresco decision, the judge found a sufficient evidentiary foundation for the claim that Scotiabank's failure to pay overtime was attributable to systemic conditions rather than to the purely individual circumstances of class members. A direct cause of action could not be based on breaches of the Code, but the Code informed the nature of the contractual duties owed to employees. The judge found that a class action was the preferable procedure for resolving employee claims. Scotiabank appealed from the order affirming the motion judge's decision on the basis that there was no material difference between the predicate case and the decision affirming refusal of certification in Fresco.

HELD: Appeal allowed to limited extent. Although Scotiabank was correct that consistency was required in addressing both certification motions, both actions were suitable for certification. The motion judge correctly applied the test for determining whether the pleadings disclosed a cause of action and was entitled to reject Scotiabank's position that the action was a collection of individual claims for unpaid overtime. The focus on the systemic nature of the allegations necessarily informed the analysis of the common issues. There was no reviewable error in finding that the proposed common issues would advance the claims of individual employees, as the need for individual assessments did not undermine the utility of a class proceeding. With the exception of the issue related to aggregate assessment of damages under s. 24(1) of the Class Proceedings Act, the proposed common issues raised the requisite degree of commonality. The courts below erred in law in interpreting the requirements of s. 24(1) governing the availability of an aggregate assessment of damages, as a basis for an aggregate assessment was not reasonably possible without proof of individual claims. The related common issue was accordingly struck. Similarly, two common issues were struck as superfluous given the existence of duties adequately described in other common issues. There was no reviewable error in the analysis supporting the conclusion that a class proceeding was the preferable procedure for resolving the common issues. Given the nature of the liability and damages issues raised, the jurisdiction and remedial authority of inspectors and referees under the Code would thwart rather than fulfill the central class proceedings goal of promoting access to justice.

Statutes, Regulations and Rules Cited:

Canada Labour Code, R.S.C. 1985, c. L-2, s. 168(1), s. 169(1), s. 174, s. 251.1, s. 251.11(1), s. 251.12(2), s. 251.12(4), s. 251.15(3), s. 252(4), s. 261, s. 264(a) Page 4

Canada Labour Standards Regulations, C.R.C., c. 986, s. 24(2)

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 1, s. 5(1), s. 5(1)(a), s. 5(1)(c), s. 5(1)(d), s. 24, s. 24(1), s. 24(1)(a), s. 24(1)(b), s. 24(1)(c), s. 24(2), s. 25, s. 25(1), s. 25(1) (b), s. 25(1)(c), s. 25(2), s. 25(3), s. 25(3)(b)

Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194, Rule 21, Rule 21.01(1), Rule 21.01(1)(a), Rule 21.01(1)(b), Rule 21.01(3), Rule 21.01(3)(a)

Appeal From:

On appeal from the order of the Divisional Court (Justices A. Donald K. MacKenzie, Anne M. Molloy, and Alison L. Harvison Young), dated June 3, 2011, with reasons reported at 2011 ONSC 530, 337 D.L.R. (4th) 319, affirming the order of Justice George R. Strathy of the Superior Court of Justice, dated February 19, 2010, with reasons reported at 2010 ONSC 1148, 101 O.R. (3d) 93.

Counsel:

Martin Sclisizzi, Morton G. Mitchnick, Markus F. Kremer and Heather K. Pessione, for the appellant.

Louis Sokolov, Steven Barrett, David F. O'Connor and J. Adam Dewar, for the respondent.

Table of Contents

A. INTRODUCTION

(1) Overview of Three Overtime Class Action Appeals Heard by this Court (2) Overview of this Appeal

B. FACTS

(1) Overview of the Proposed Class Proceeding (2) Scotiabank's Overtime Policies During the Class Period (3) Scotiabank's System for Recording Hours of Work During the Class Period (4) Relevant Code Provisions Page 5

(a) Code Provisions Requiring Payment of Overtime Wages (b) Record-Keeping Requirements under the Code (c) Procedure Established by the Code for Enforcing Employees' Rights

C. THE MOTION JUDGE'S REASONS

(1) First Issue on the Certification Motion: Do the Pleadings Disclose a Cause of Action?

(a) Breach of Contract and Unjust Enrichment (b) Breach of a Duty of Good Faith (c) Negligence Claim (d) Breach of the Code Provisions

(2) Second Issue on the Certification Motion: Do the Claims Raise Common Issues? (3) Other Issues on the Motion: Preferable Procedure and the Litigation Plan

D. REASONS OF THE DIVISIONAL COURT E. ISSUES ON APPEAL F. ANALYSIS

(1) The Appropriateness of the Common Issues Related to Liability

(a) Common Issues 1 and 2 - Breach of Contract Issues (b) Common Issues 4, 5 and 6 - the "Systemic Defect" Issues (c) Common Issues 7 and 8 - Misclassification and Unjust Enrichment

(2) The Common Issue Concerning an Aggregate Assessment under s. 24(1) of the CPA

(a) General Principles for Interpreting s. 24(1) of the CPA (b) Applying the General Principles to this Case Page 6

(3) No Error in the Preferable Procedure Analysis

(a) Whether a Class Action Would be a Fair, Efficient and Manageable Method of Advancing the Class Members' Claims (b) Whether a Class Action is Preferable to Other Reasonably Available Means for Resolving the Class Members' Claims

(i) The scope and nature of the alternative forum's jurisdiction and remedial powers (ii) The accessibility of the alternative proceeding

G. CONCLUSION AND DISPOSITION

APPENDIX

Judgment

The judgment of the Court was delivered by

W.K. WINKLER C.J.O.:--

A. INTRODUCTION

1 This is one of several proposed class proceedings commenced by employees of federally-regulated companies advancing claims for unpaid overtime work. The defendant employers in these proceedings are governed by the provisions of the Canada Labour Code, R.S.C. 1985, c. L-2 ("Code"). The Code requires employers to pay, at minimum, 1.5 times an employee's normal hourly rate for overtime hours that an employee is "required or permitted" to work. The motions to certify these actions as class proceedings have met with different fates.

(1) Overview of Three Overtime Class Action Appeals Heard by this Court

2 The present proceeding was started by the representative plaintiff, Cindy Fulawka ("plaintiff" or "respondent"), an employee of the defendant, The Bank of Nova Scotia ("Scotiabank" or "appellant"). In her amended statement of claim, the plaintiff pleads that Scotiabank's policies and practices for compensating overtime work performed by members of the putative class constitute both a breach of class members' contracts of employment and a breach of Scotiabank's obligation to act in good faith. On behalf of class members, she seeks general and special damages totalling $350 million, as well as declaratory and injunctive relief. The motion judge certified the action as a class proceeding. His decision was upheld by a unanimous Divisional Court. Page 7

3 In a similar proceeding commenced by Dara Fresco, an employee of Canadian Imperial Bank of Commerce ("CIBC"), the motion judge refused to certify the action as a class proceeding: see Fresco v. Canadian Imperial Bank of Commerce (2009), 84 C.C.E.L. (3d) 161 (Ont. S.C.). The Divisional Court, in a split decision, upheld the order refusing to certify the proceeding: see 2010 ONSC 4724, 103 O.R. (3d) 659.

4 In a third action started by Michael McCracken, an employee of Canadian National Railway ("CNR"), against his employer for allegedly avoiding its obligations to pay overtime compensation, the motion judge certified the action as a class proceeding: see McCracken v. Canadian National Railway Co., 2010 ONSC 4520, 3 C.P.C. (7th) 81.

5 Members of the same two law firms argued these three certification motions on behalf of the different representative plaintiffs.1

6 This court granted leave to appeal from the decisions of the Divisional Court in the present case (Fulawka) and in Fresco. In McCracken, there is an appeal and cross-appeal as of right to this court from the motion judge's order dismissing the plaintiff's claim in part under rules 21.01(1) and (3) of the Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194. Based on a consent order of this court, the appeals and cross-appeals as of right in McCracken were combined with appeals filed in Divisional Court from the motion judge's certification order in the same matter.

7 Scotiabank's appeal in Fulawka was heard consecutively with the plaintiff's appeal in Fresco. The McCracken appeal was heard by this court on February 28 and 29, 2012. The reasons in Fulawka are being released concurrently with those in Fresco, 2012 ONCA 444, and McCracken, 2012 ONCA 445.

8 The claim for unpaid overtime in McCracken rests on a theory of liability that CNR misclassified employees as managers and, by doing so, unlawfully avoided its obligation to pay them overtime. In contrast, in the class actions against Scotiabank and CIBC, the crux of the representative plaintiffs' claims is that the overtime policies adopted by their respective employers imposed more restrictive conditions for receiving overtime compensation than those set forth in the Code.

9 More particularly, in Fulawka and Fresco, the plaintiffs allege that the overtime policies of the defendant banks conflict with private law duties owed by the banks to the employees who comprise the proposed classes. The overtime policies required class members to obtain prior approval from a manager in order to be compensated for overtime work that they were required or permitted to perform. Such a pre-approval requirement, the plaintiffs assert, is contrary to the dictates of s. 174 of the Code, which, they submit, informs the private law duties owed to the class members. Section 174 of the Code stipulates that:

174. When an employee is required or permitted to work in excess of the standard hours of work, the employee shall ... be paid for the overtime at a rate of wages Page 8

not less than one and one-half times his regular rate of wages. [Emphasis added.]

10 The plaintiffs allege that Scotiabank and CIBC used the pre-approval requirement in their overtime polices to avoid their obligation under the Code to pay for overtime work that was "required or permitted" by the employer. In addition, the plaintiffs allege that Scotiabank and CIBC failed to implement proper record-keeping systems for recording the overtime hours worked by class members.

11 The motion judges in the Scotiabank and CIBC actions reached conflicting conclusions about whether the criteria for certification in s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA") were satisfied. Subsection 5(1) imposes five criteria for certifying a class proceeding, which may be summarized as follows:

(a) the pleadings disclose a cause of action; (b) there is an identifiable class; (c) the claims raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there are appropriate representative plaintiffs who could produce a workable litigation plan.

12 The motion to certify the Fresco action against CIBC as a class proceeding was heard first. The motion judge concluded that the central claim advanced by the representative plaintiff is that the pre-approval requirement in CIBC's overtime policy is illegal. She concluded that the policy is not illegal and, in any event, that a determination of its legality would not significantly advance the class members' claims for unpaid overtime. According to the motion judge, the proposed common issues could not be resolved without examining the employees' claims for unpaid overtime on an individual basis, thereby defeating the very purpose of a class action. In her view, there is no evidentiary foundation demonstrating a systemic policy or practice of unpaid overtime at CIBC. Rather, the evidence shows only a variety of individual circumstances giving rise to claims for unpaid overtime that need to be resolved individually.

13 A majority of the Divisional Court upheld the motion judge's refusal to certify the action as a class proceeding, with Sachs J. giving detailed dissenting reasons in favour of certifying the action.

14 In contrast, the motion judge in Fulawka held that the criteria for certification were met. He was satisfied that there is an evidentiary basis to support the claim that Scotiabank's failure to pay overtime is attributable to systemic conditions rather than to the purely individual circumstances of class members. The systemic wrongs include Scotiabank's imposition of the pre-approval requirement for obtaining overtime pay and its failure to establish a class-wide procedure to record overtime, which impeded the class members' ability to obtain compensation for their overtime work. The motion judge also concluded that a class action is the preferable procedure for resolving the class members' claims. This decision was upheld by a unanimous Divisional Court. Page 9

(2) Overview of this Appeal

15 The two overarching issues raised by Scotiabank in its appeal of the Divisional Court's decision are: (1) whether the proposed common issues are suitable for certification; and (2) whether the class action is the preferable procedure for resolving the common issues.

16 The common issues certified by the motion judge in this action are very similar to the common issues that the motion judge refused to certify in Fresco: see the appendix to these reasons and to the reasons in Fresco, which set out the proposed common issues.

17 The courts below attributed the contrasting results in the two cases to the different evidence advanced by the plaintiffs in support of their respective certification motions. Before this court, Scotiabank asserts that there is no material difference in the pleadings or the evidence advanced by the plaintiffs in this case and in Fresco. The real difference, Scotiabank argues, is in the way the motion judges approached the critical question of whether the plaintiffs' proposed common issues are essentially individual claims for unpaid overtime, or if the common issues raise systemic issues that are preferably resolved through the mechanism of a class proceeding.

18 I agree with Scotiabank's position that both certification motions should either succeed or fail together. However, in my view, both actions are appropriate for certification. With the exception of the issue relating to an aggregate assessment of monetary relief under s. 24(1) of the CPA, I would answer the critical question about the nature of the common issues in the same way as did the motion judge in the present case. The proposed common issues raise the requisite degree of commonality for purposes of certification. I also agree that a class proceeding is the preferable procedure for resolving these issues. While I do not agree that an aggregate assessment under s. 24(1) is possible, my reasons in this regard do not affect the soundness of the certification order.

19 For the reasons that follow, I would allow in part the appeal by Scotiabank as it concerns the proposed common issue relating to the availability of an aggregate assessment of damages, but would otherwise dismiss the appeal from the Divisional Court's order affirming the certification order.

B. FACTS

(1) Overview of the Proposed Class Proceeding

20 The proposed representative plaintiff, Cindy Fulawka, started this action on behalf of the more than 5,000 current and former full-time, front-line sales staff who held specified positions in any of Scotiabank's Canadian retail branches from January 1, 2000 to the present. Class members include all full-time employees who held one or more of the following four job titles: personal banking officer, senior personal banking officer, financial advisor and account manager small business. These employees perform similar, and often identical, work. Page 10

21 The plaintiff alleges that there are three defective features in Scotiabank's overtime compensation system:

(1) Scotiabank's overtime policy imposes more restrictive conditions for receiving overtime payment than the minimum standards of the Code; (2) Scotiabank's record-keeping systems do not create an accurate record of the hours actually worked by class members; and (3) Scotiabank failed to put in place a system for monitoring and preventing employees from working overtime hours that Scotiabank did not intend to compensate.

According to the plaintiff, these defective features give rise to causes of action in contract, unjust enrichment and tort.

(2) Scotiabank's Overtime Policies During the Class Period

22 Scotiabank had a written policy on overtime throughout the class period. The policy in effect from the beginning of the class period in 2000 to October 1, 2008 ("the Initial Policy") stated that it was "based on Canada Labour Code guidelines". Under the Initial Policy, employees were eligible for overtime pay at a rate of 1.5 times the regular hourly rate if they worked more than eight hours in a day, or in excess of "the standard 37.5 hour work week", whichever of the two was greater. The Initial Policy made it mandatory for overtime hours to be authorized "in advance" by a branch manager or department head. The Initial Policy also gave employees the option of requesting time off in lieu of overtime pay at a rate of 1.5 times the overtime hours worked. Such a request could be granted, "on an exception basis" (emphasis in original).

23 Scotiabank changed its overtime policy in October 2008 ("the Revised Policy"), almost a year after the commencement of the class action in December 2007. The Revised Policy creates an exception to the pre-approval requirement:

If you are eligible for overtime pay, then your manager/department head must authorize overtime hours worked in advance. In cases where it is not possible to obtain your manager's consent in advance and it is critical for you to work overtime, notify your manager of the overtime worked at the next earliest opportunity, such as the next business day. Additional hours that are requested, permitted or approved by your manager/department head will be compensated. [Emphasis added.]

24 The Revised Policy defines "overtime hours" as "requested, permitted or approved hours worked by an employee eligible for overtime compensation" in excess of eight hours per day or in excess of the standard 37.5 hour work week, whichever of the two is greater.

25 Like the Initial Policy, the Revised Policy provides for time off in lieu of overtime pay, but it Page 11

introduced a requirement that lieu time "is to be taken within 90 days of the overtime hours worked," failing which overtime pay is to be paid to the employee in place of time off in lieu.

26 The Revised Policy also extended overtime eligibility to employees holding jobs that Scotiabank had classified as "Level 6" - a management-level classification of employees who were previously ineligible for overtime. Two of the job categories in the proposed class - financial advisor and account manager small business - were classified as Level 6. Level 6 also includes job categories that are not included in the proposed class.

27 The Revised Policy implemented a simple procedure whereby Level 6 employees could claim retroactive compensation for overtime hours worked from November 1, 2005 to October 1, 2008. Under this procedure, which was administered by the bank's human resources department, Scotiabank paid out approximately $5 million in retroactive overtime pay to Level 6 employees, including approximately $3 million to 455 employees who held the positions of financial advisor and account manager small business.

(3) Scotiabank's System for Recording Hours of Work During the Class Period

28 The official record-keeping system at Scotiabank for recording employees' hours of work has changed several times during the class period. Until January 2006, hours of full-time employees were recorded on monthly staff plans that managers prepared in advance to reflect the hours that staff were expected to work in the coming month. Employees were to review and initial the staff plan each month to ensure its accuracy and to add any pre-approved overtime hours that they had worked. Time sheets reflecting the actual hours worked were kept for part-time staff, but not for full-time staff.

29 In January 2006, Scotiabank adopted an electronic system to record employees' vacations and other absences called "Absence E-Trac". However, this system was not used to track or facilitate the payment of overtime hours.

30 In January 2009, Absence E-Trac was enhanced so that employees could record overtime hours. Employees could also indicate whether they preferred to be paid overtime hours or to receive time in lieu. Managers would confirm the hours claimed by employees and this information was then sent to payroll.

31 Scotiabank tendered affidavit evidence on the motion to the effect that, while record-keeping procedures are centrally established for all branches, the actual recording and monitoring of hours of work is conducted at the branch-level by individual managers. Consequently, record-keeping systems vary from branch to branch. According to this evidence, overtime hours are often recorded using internal charts, handwritten logs, or employee calendars. Scotiabank also relied on affidavit evidence showing that compensation for overtime in the form of lieu time is often tracked informally by employees and their managers. Page 12

(4) Relevant Code Provisions

32 The Code governs hours of work for individuals in the federal sector, including bank employees. Part III of the Code contains certain requirements for paying overtime wages to employees. Regulations enacted pursuant to the Code require employers to keep a record of employees' hours of work. In addition, Part III of the Code creates a procedure for enforcing employees' prescribed rights, including the right to receive overtime payment.

(a) Code Provisions Requiring Payment of Overtime Wages

33 The combined effect of ss. 169(1) and 174 of the Code is that an employer must pay an employee overtime wages at the rate of 1.5 times the regular rate of wages when the employee works more than eight hours in a day or more than 40 hours in a week. Section 169(1) states:

169. (1) Except as otherwise provided ...

(a) the standard hours of work of an employee shall not exceed eight hours in a day and forty hours in a week; and

(b) no employer shall cause or permit an employee to work longer hours than eight hours in any day or forty hours in any week.

Section 174 provides as follows:

174. When an employee is required or permitted to work in excess of the standard hours of work, the employee shall, subject to any regulations made pursuant to section 175, be paid for the overtime at a rate of wages not less than one and one-half times his regular rate of wages.

34 The Code does not expressly permit an employer to provide time in lieu as an alternative to paying overtime wages. Section 168(1) of the Code states:

168. (1) This Part and all regulations made under this Part apply notwithstanding any other law or any custom, contract or arrangement, but nothing in this Part shall be construed as affecting any rights or benefits of an employee under any law, custom, contract or arrangement that are more favourable to the employee than his rights or benefits under this Part.

It is arguable whether time in lieu would qualify as "rights or benefits" under s. 168(1), but nothing turned on this issue on the certification motion or on appeal.

(b) Record-Keeping Requirements under the Code Page 13

35 Sections 252(2) and 264(a) of the Code and the accompanying regulations under the Code require employers to accurately record all hours worked by employees and to keep these records for at least three years after the work is performed. The specific record-keeping requirements are established by s. 24(2) of the Canada Labour Standards Regulations, C.R.C., c. 986, which provides, inter alia, that the employer shall keep a record in respect of each employee of "the hours worked each day", as well as "the actual earnings, indicating the amounts paid each pay day, with a recording of amounts paid for overtime, vacation pay, general holiday pay, bereavement leave pay, termination pay and severance pay."

36 The Code creates a detailed procedure for enforcing employees' rights under Part III of the statute. The Labour Program of Human Resources and Social Development Canada ("HRSDC") is responsible for monitoring compliance with Part III of the Code by, for example, investigating and adjudicating employee wage complaints. Inspectors appointed by the federal Minister of Labour possess broad powers of investigation and enforcement, including the power to order payment of unpaid overtime: see s. 251.1 of the Code.

37 The Code creates an appeal process from inspectors' decisions through which an aggrieved person may request a hearing before a referee: see s. 251.11(1). The referee has the power to summon witnesses, receive evidence under oath, award costs, and make decisions that may be enforced as orders of the Federal Court: see ss. 251.12(2), (4) and 251.15(3).

C. THE MOTION JUDGE'S REASONS

38 The motion judge heard the plaintiff's motion to certify the class proceeding together with a motion by Scotiabank seeking an order under rules 21.01(1)(a) or 21.01(1)(b) of the Rules of Civil Procedure to dismiss, strike or stay portions of the statement of claim, or alternatively, an order under rule 21.01(3)(a) to dismiss or stay the action on the ground that the court has no jurisdiction over its subject matter.2 Scotiabank's central position on the Rule 21 motion was that the plaintiff's claims are impermissibly based on alleged breaches of the Code and that the court has no jurisdiction to enforce the Code.

39 The motion judge observed, at paras. 2 and 3, that there were "two particularly contentious issues" before him: (1) whether the plaintiff asserted impermissible causes of action based on alleged breaches of the Code; and (2) whether the claims asserted on behalf of the class members raise common issues.

40 In this court, Scotiabank is not appealing from the motion judge's ruling on the jurisdiction issue or from his ruling that the plaintiff met the requirement in s. 5(1)(a) of the CPA that the pleadings disclose a cause of action. Nonetheless, it is helpful to describe how the motion judge resolved these issues in order to better understand the grounds of appeal that Scotiabank does raise concerning the common issues and preferable procedure criteria in ss. 5(1)(c) and 5(1)(d) of the Page 14

CPA.

41 In my view, the motion judge correctly applied the test for determining whether the pleadings disclose a cause of action. He rejected Scotiabank's position that the action is essentially a collection of individual claims for unpaid overtime. Instead, the motion judge focused on the systemic nature of the allegations advanced by the plaintiff. This approach informed his analysis of the common issues and led to his conclusion that the certified common issues are appropriate ones for certification purposes. I discuss his reasons at some length because, for the most part, I endorse his analytical approach to the cause of action issue and the common issues question.

(1) First Issue on the Certification Motion: Do the Pleadings Disclose a Cause of Action?

42 The first contentious issue on the certification motion involved Scotiabank's submission that the plaintiff's proposed causes of action do not meet the threshold for certification under s. 5(1)(a) of the CPA. As the motion judge recognized, at para. 70, the test for winnowing out causes of action under s. 5(1)(a) is identical to the test on a motion under rules 21.01(1)(a) and (b) to strike a pleading as disclosing no cause of action - whether it is "plain and obvious" that the claim cannot succeed at trial: see Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959.

43 The motion judge, at paras. 72-103, reviewed the five causes of action advanced by the plaintiff in her amended pleadings: (1) breach of contract; (2) unjust enrichment; (3) breach of a duty of good faith; (4) negligence; and (5) breach of the Code.

(a) Breach of Contract and Unjust Enrichment

44 The plaintiff pleaded that it was an express or implied term of class members' employment contracts that they would be paid for overtime at a rate of 1.5 times their usual hourly wage. On the motion, Scotiabank did not dispute that, in this respect, the plaintiff's claim for breach of contract was properly pleaded. Scotiabank also conceded that the claim for unjust enrichment was properly pleaded.

45 Given Scotiabank's concessions, there was no real dispute that the s. 5(1)(a) criterion for certification was satisfied. However, Scotiabank argued that the claims pleaded do not raise common issues, as will be discussed below at paras. 58-65.

46 Moreover, in the courts below, Scotiabank disputed the plaintiff's assertion that the Code provisions constitute implied terms of the class members' employment contracts: see para. 73 of the motion judge's reasons. The motion judge also dealt with this point of contention in discussing the common issues.

(b) Breach of a Duty of Good Faith

47 The plaintiff pleads a breach of Scotiabank's duty of good faith toward the class members. Page 15

Scotiabank submitted to the motion judge that it is plain and obvious that such a pleading cannot succeed at trial because a free-standing cause of action for breach of the duty of good faith does not exist at law, citing Transamerica Life Canada Inc. v. ING Canada Inc. (2003), 68 O.R. (3d) 457 (C.A.).

48 The motion judge regarded the duty of good faith as part of Scotiabank's contractual duties based on the Supreme Court of Canada's decision in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701. The motion judge explained, at para. 78, that the "duty of good faith and fair dealing in the employment relationship is a feature of the contractual relationship and not an independent cause of action. It ... arises from the recognition of the vulnerability of the employee and the importance of work in personal fulfilment and financial security". He concluded that, when viewed in this manner, the plaintiff's claim discloses a cause of action.

49 The motion judge found that it is at least arguable that Scotiabank breached the duty of good faith owed to class members in the following ways: (i) by putting the onus on them to obtain pre-approval for receiving overtime compensation; (ii) by creating a working environment that dissuaded employees from claiming overtime; and (iii) by failing to implement a record-keeping system that records all hours worked. His reasons in this regard, at paras. 78-81, bear repeating because they properly reflect the systemic nature of the causes of action asserted by the plaintiff:

The employees in this case are in a position of particular vulnerability, as they do not have the protection of a union and they are not members of management. They are responsible for the sale of Scotiabank's products and they are no doubt encouraged to maximize sales. The nature of their work, which requires that they respond to the unpredictable demands of customers, makes the necessity to work overtime a real possibility. The understandable need for managers to control overtime costs and the pre-approval requirement in the policy create institutional impediments to claims for overtime pay. It seems to me that there is, at the very least, an argument that the duty of good faith and fair dealing requires the employer to pay for overtime work necessarily required or permitted by the employer, whether or not the overtime has been approved in advance.

Putting the onus on the employee to obtain pre-approval for overtime does not adequately reflect the realities of the work place. It puts emphasis on protecting the interests of the employer as opposed to protection of the employee, to whom the duty of good faith is owed. The duty of good faith could include taking active measures to ensure that employees are not required or permitted to work overtime in order to perform the usual duties of their employment.

The duty of good faith could also require that the employer take measures to Page 16

ensure that overtime work of Class Members is properly recorded and properly compensated. Scotiabank's Vice President, Ms. Russell, suggested that it would be demeaning to require employees to punch a time clock or to keep track of their hours. If Ms. Fulawka's assertions are correct, it would be more demeaning for Class Members to work overtime without compensation. Moreover, in this age when most bank employees log into a computer at the beginning of the work day and log out at the end, it is hard to imagine that Scotiabank could not devise a time-tracking system that would be effective and automatic and that would allow managers, and their superiors, to track, regulate and fairly compensate overtime.

These components of the duty of good faith do not derive from the Code, but their content is informed by the Code. I am satisfied that the claim for breach of the duty of good faith, viewed as a part of Scotiabank's contractual duties, discloses a cause of action.

50 After the motion to certify the unpaid overtime class action against CIBC was dismissed in the parallel Fresco action, the plaintiff in this action submitted a draft amended pleading that added a claim in negligence. In the amended pleading, the plaintiff alleges that Scotiabank owed a duty of care to class members to ensure they were properly compensated, at the appropriate rates, for all hours worked. Further, she asserts that Scotiabank breached this duty in various ways, including by imposing an unlawful overtime policy, by creating a work environment in which class members were required to work overtime to complete their duties but were dissuaded from reporting overtime and claiming compensation, and by failing to take reasonable steps to monitor and record hours of work.

51 The motion judge accepted that the negligence claim as pleaded meets the plain and obvious test. He further accepted, at para. 83, that the duties owed by Scotiabank in negligence "can be informed by the provisions of the Code".

(d) Breach of the Code Provisions

52 The pleadings further assert that various elements of Scotiabank's overtime policies and record-keeping practices violate the Code. This aspect of the claim was the focus of Scotiabank's attack under s. 5(1)(a) of the CPA and its motion under rules 21.01(1)(a) and (b) and 21.01(3)(a) of the Rules of Civil Procedure. Scotiabank asserted that it was plain and obvious that the plaintiff's claims based on breaches of the Code disclose no reasonable cause of action. Scotiabank also argued that the court has no jurisdiction to enforce the Code and thus these elements of the claim should be struck under rule 21.01(3)(a). Page 17

53 The motion judge agreed with Scotiabank's position to the extent that he concluded, at paras. 88 and 103, that the plaintiff cannot rely on a cause of action based directly on breaches of the Code. He observed, at para. 93, that the Code "establishes an entitlement to overtime pay and establishes a sophisticated regime for the enforcement of this right both through penal prosecutions and through an administrative recovery process." Moreover, he observed, at paras. 96-97, that a review of the Code does not reveal a legislative intention to confer a civil cause of action, and, further, that the Code provides a comprehensive mechanism for enforcing the rights it confers on employees. The motion judge struck those portions of the plaintiff's pleadings that he viewed as asserting a direct cause of action based on the Code. For example, he struck references in the pleadings to "compliance" with or "violations" of the Code and to "statutory" overtime or "statutory" obligations.

54 However, the motion judge noted, at para. 103, that his decision to strike these portions of the pleadings "was made easier by the fact that the plaintiff disclaims any intention to assert such a cause of action." In the motion judge's view, the plaintiff was not trying to enforce the provisions of the Code. He explained that, although the plaintiff had not specifically pleaded that the Code is implied by fact into the class members' contracts of employment, her counsel made this assertion in her factum responding to the motion to strike (at para. 101). This assertion was premised on the statement in Scotiabank's Initial Overtime Policy that it is "based on" the Code.

55 The motion judge thus refused to strike the portions of the pleadings asserting that the Code requirements and those of the related regulations are implied terms of the class members' contracts. For example, the plaintiff's amended statement of claim states, at para. 22:

The requirements of the Code and its regulations are implied terms in the contracts of class members. In particular, these implied terms include the requirements to pay for hours of overtime worked, including but not limited to time and one-half for hours in excess of 8 hours per day or 40 hours per week, and to keep accurate records of hours of work.

56 The motion judge concluded, at para. 103, that the Code provisions "may well inform the contractual duties, including the duty of good faith and fair dealing that Scotiabank owes to its employees."

57 Having held that the majority of the plaintiff's pleaded causes of action satisfy the plain and obvious test from Hunt v. Carey, the motion judge next considered if the claims raise common issues.

(2) Second Issue on the Certification Motion: Do the Claims Raise Common Issues?

58 The second, and indeed, the central contentious issue on the certification motion concerned the criterion in s. 5(1)(c) of the CPA: the claims of the class must raise common issues. Section 1 of Page 18

the CPA defines common issues as issues that are: (a) common but not necessarily identical issues of fact, or (b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts.

59 The motion judge agreed with the defendant that it is possible to frame the plaintiff's case as one that will require an examination of the circumstances of each class member to prove the following elements: the class member worked overtime hours; the number of overtime hours worked; which of those hours were "authorized" under the terms of the overtime policy or "required or permitted" under the Code; and whether the employee was compensated for those hours. However, relying on Rumley v. British Columbia, 2001 SCC 69, [2001] 3 S.C.R. 184, the motion judge observed, at para. 122:

The plaintiff is entitled to advance her case in a way that makes it amenable to determination on a Class-wide basis. This approach to the plaintiff's case would be to frame it, as Ms. Fulawka has, based on a contract common to the Class and systemic breaches of duties owed to Class Members.

60 The motion judge found, at para. 123, that there is a factual basis, albeit a disputed one, for the plaintiff's assertions that:

* she and other class members regularly worked overtime to complete their ordinary duties; * overtime work was encouraged by Scotiabank, as reflected by Ms. Fulawka's performance appraisals; * Scotiabank's system put the onus on the employee to obtain prior authorization; * for a large part of the class period, Scotiabank's overtime policy expressly prohibited approval of overtime work after the fact; * Ms. Fulawka and other class members' evidence was that, due to the nature of their work, it was very difficult for class members to predict when overtime would be required; and * when there was a pressing need to work overtime, there was frequently no opportunity to seek pre-approval.

61 The motion judge was also satisfied, as he noted at para. 128, that there is a factual basis for a common issue concerning Scotiabank's record-keeping system:

* there is evidence that, for most of the class period, Scotiabank did not have an adequate system for recording regular time and overtime worked by class members; * while employees were supposed to check and correct their hours after the fact, Scotiabank's policy prevented them from recording and claiming for hours that had not been pre-approved; Page 19

* Scotiabank had no consistent corporate policy or system applicable to all branches for tracking overtime; and * Scotiabank had no system of tracking time in lieu or of ensuring that it was "cashed out".

He concluded that the evidentiary record provides a factual basis for asking whether Scotiabank owed duties to the class to properly record all hours worked, whether pre-approved or not, and whether those duties were breached.

62 He found, at para. 129, that these common issues do not depend on individual findings with respect to each employee. In addition, he determined that resolving these common issues will significantly advance the action because, "if they are answered in the affirmative the absence of pre-approval in any particular case may be irrelevant and the inability of an employee to prove the quantum of overtime hours worked may not be fatal to the claim."

63 The motion judge went on to say, at para. 130, that if the common issues trial judge were to find that Scotiabank failed to implement a proper record-keeping system, and that this failure impeded the ability of class members to prove their damages, "an aggregate assessment of damages using statistical means may well be the only way to fairly compensate Class Members."

64 The motion judge ultimately certified ten of the twelve proposed common issues listed in the appendix to these reasons. He refused to certify proposed common issue 3, asking if any parts of Scotiabank's overtime policies are unlawful, void, or unenforceable for contravening the Code. In doing so, he relied on the same reasons he provided for striking the portions of the pleadings that alleged free-standing violations of the Code.

65 The motion judge also refused to certify common issue 12, about the appropriate means for determining any individual issues that the class members' claims may be found to raise. In his view, this was essentially a procedural question and not an appropriate common issue.

66 The plaintiff is not appealing from the motion judge's refusal to certify these two common issues to this court.

(3) Other Issues on the Motion: Preferable Procedure and the Litigation Plan

67 Scotiabank argued that resolving the individual issues of the more than 5,000 class members by way of individual trials after the common issues trial would not promote judicial economy, and thus a class proceeding is not the preferable procedure for resolving the class members' claims for unpaid overtime. Scotiabank pointed to other available procedures, such as its Revised Policy, or the investigative and adjudicative regime available under the Code, or the Small Claims Court, as more cost-effective procedures for dealing with the class members' claims.

68 The motion judge, at paras. 159-64, gave five reasons for rejecting Scotiabank's submissions Page 20

on preferable procedure:

(i) individual trials might not be necessary and an aggregate assessment of damages might be appropriate; (ii) even if individual assessments of entitlement and damages are required, a common issues trial judge assisted by the parties and their experts should be able to fashion a claims process that is not unduly complex; (iii) employees may be reluctant to raise concerns about overtime payment with their employer under the Code or Scotiabank's internal procedures due to fear of reprisals, whereas a class proceeding can offer a degree of anonymity and protection through the court's supervision of the claims process; (iv) there are weaknesses and limitations in the Code procedures, including the fact that HRSDC inspectors do not have jurisdiction to investigate alleged violations of an employer's own overtime policy; and (v) none of the alternative procedures would provide an efficient means of resolving the common issues that the motion judge identified.

69 Finally, while Scotiabank conceded that Ms. Fulawka and her counsel are capable of representing the class, Scotiabank argued that the litigation plan is "wholly deficient". The motion judge dismissed this criticism, noting, at para. 167, that the litigation plan is "not cast in stone". He concluded that, in any event, the litigation plan meets the requirements set out in Bellaire v. Independent Order of Foresters (2004), 19 C.C.L.I. (4th) 35 (Ont. S.C.), as well as in Poulin v. Ford Motor Co. of Canada (2006), 35 C.P.C. (6th) 264 (Ont. S.C.).

D. REASONS OF THE DIVISIONAL COURT

70 In reasons by Harvison Young J., the Divisional Court unanimously upheld the certification order and the motion judge's decision to dismiss Scotiabank's Rule 21 motion in part. The court quashed the plaintiff's cross-appeal from the motion judge's order striking portions of the statement of claim for improperly asserting a cause of action based on the Code. The court quashed the cross-appeal on the basis that it was an appeal from a final order, which lies to the Court of Appeal as of right: see paras. 7-9. The plaintiff has not appealed from this aspect of the motion judge's order in this court.

71 Harvison Young J. concisely summarized the court's reasons for dismissing Scotiabank's appeal, at paras. 14-16:

The motion judge applied the correct test to all the causes of action asserted in breach of contract, breach of a duty of good faith, unjust enrichment and negligence by asking in relation to all of them whether it was "plain and obvious" that they could not succeed. The motion judge correctly applied the test to the claims asserted, emphasizing the need to apply the test in a generous and Page 21

purposive manner in order to give effect to the important goals of class actions, as well as the need for courts to be circumspect about striking claims in the absence of a full evidentiary record. Striking those parts of the claim that sought to directly enforce the Code, he concluded that it was "plain and obvious" that these claims could not succeed. In my view, the motion judge's conclusions were appropriately anchored in an evidentiary record, keeping in mind that the ultimate question of weight of such evidence is appropriately left to the trial judge.

The motion judge was also correct in certifying the common issues with respect to which Scotiabank appeals. In doing so, and as will be discussed further, the motion judge applied the proper legal tests, concluding that the determination of the common issues advanced would advance the claim of every Class Member. Contrary to Scotiabank's submissions, the motion judge did have an evidentiary basis, albeit on a contested basis, for his conclusions. Scotiabank's submissions relative to common issues, in essence, seek to reframe the claims from the systemic issues asserted by the plaintiff as claims which are individual in nature and, accordingly, lacking in commonality. The motion judge was correct in declining to accept Scotiabank's attempts to recast Ms. Fulawka's claims, and in holding that they must be assessed in the systemic terms advanced. The motion judge was correct in certifying the issues relating to breach of contract, systemic defects in overtime policies and practices, misclassification, unjust enrichment, remedies and damages.

Third, the motion judge was correct in finding that a class proceeding is the preferable procedure for resolving the Class Members' claims pursuant to s. 5(1)(e) of the CPA.

72 The court agreed with the motion judge's analysis of the common issues, including the question of the potential availability of an aggregate assessment of damages under s. 24(1) of the CPA. The court also agreed with his analysis of the preferable procedure issue. Rather than summarize the reasons of the Divisional Court at this juncture, I will refer to them in my subsequent analysis to the extent that they reinforce some of the points I wish to make.

73 I pause, however, to note that Harvison Young J. emphasized, at para. 21, that the court in Fulawka did not have before it the evidentiary record of Fresco. She said that it "is neither possible nor appropriate for this court to attempt to assess the merits of the present appeal in relation to the record before the court in Fresco." Understandably, the court was reluctant to take sides with either the majority or the dissenting opinions of the Divisional Court in Fresco and instead distinguished that case. In my companion reasons in Fresco, I will explain why these cases are not distinguishable Page 22

for certification purposes.

E. ISSUES ON APPEAL

74 A preliminary matter is the standard of review that applies to the decisions of the courts below. The appellant submits that the correctness standard applies because the courts committed errors of law in the course of analyzing the common issue and preferable procedure criteria for certification.

75 Specifically, the appellant asserts that the courts below committed the following three errors:

(1) The courts below erred in certifying the proposed common issues when the proposed issues would not significantly advance the claims of any of the individual claimants. The resolution of the common issues would not establish a single element necessary for any of the class members to succeed in their claims for unpaid overtime. (2) The courts below erred in misinterpreting s. 24 of the CPA by holding that it could be used to determine aggregate damages in the present case. (3) The courts below erred in concluding that the preferable procedure criterion is met when the Code establishes an effective procedure for resolving overtime complaints.

76 The respondent, on the other hand, points to the case law establishing that the decision of a judge on a certification motion is entitled to substantial deference on appeal and should only be interfered with if the motion judge erred in principle, or made a palpable and overriding error of fact or of mixed fact and law: see Cloud v. Canada (A.G.) (2004), 73 O.R. (3d) 401 (C.A.), at para. 39, leave to appeal refused, [2005] S.C.C.A. No. 50; Pearson v. Inco Ltd. (2006), 78 O.R. (3d) 641 (C.A.), at para. 43, leave to appeal refused, [2006] S.C.C.A. No. 1; Cassano v. Toronto-Dominion Bank, 2007 ONCA 781, 87 O.R. (3d) 401 (C.A.), at para. 23, leave to appeal refused, [2008] S.C.C.A. No. 15; and Markson v. MBNA Canada Bank, 2007 ONCA 334, 85 O.R. (3d) 321, at para. 33, leave to appeal refused, [2007] S.C.C.A. No. 346.

F. ANALYSIS

77 The Divisional Court properly set out the principles governing the standard of review, at paras. 17-18, which is consistent with the jurisprudence cited by the respondent. For the reasons that follow, I agree with the Divisional Court's conclusion that the motion judge did not err in principle or commit any palpable and overriding error in his analysis of the appropriateness of the common issues, other than the common issue concerning the availability of an aggregate assessment of damages. In my view, the courts below erred in law in their interpretation of the requirements in s. 24(1) of the CPA governing the availability of an aggregate assessment of damages. Finally, I agree with the Divisional Court that the motion judge did not commit any reviewable error in concluding that the preferable procedure criterion is met. Page 23

(1) The Appropriateness of the Common Issues Related to Liability

78 As the Supreme Court of Canada established in Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 25, the certification judge must be satisfied that there is "some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action." In his reasons in this case, the motion judge, at para. 109, referred to this passage from Hollick and added:

It should be kept in mind, however, that in certifying a common issue the court is not concluding that it will be answered in a manner favourable to one party or the other. The requirement that there must be an evidentiary basis for the existence of a common issue is a far cry from proof of the issue on the balance of probabilities.

79 I agree with the motion judge's comment. To the same effect, see also the majority of the Divisional Court in Fresco, at para. 72, and Grant v. Canada (Attorney General) (2009), 81 C.P.C. (6th) 68 (Ont. S.C.), at para. 21. While the evidentiary basis for establishing the existence of a common issue is not as high as proof on a balance of probabilities, there must nonetheless be some evidentiary basis indicating that a common issue exists beyond a bare assertion in the pleadings. To be clear, this is simply the Hollick standard of "some basis in fact".

80 What then is an appropriate common issue for certification purposes? As noted above, s. 1 of the CPA defines common issues as issues that are: (a) common but not necessarily identical issues of fact, or (b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts. Section 5(1)(c) includes as a condition for certification that the claims or defence of the class members raise common issues.

81 There are a number of legal principles concerning the common issues requirement in s. 5(1)(c) that can be discerned from the case law. Strathy J. provided a helpful summary of these principles in Singer v. Schering-Plough Canada Inc., 2010 ONSC 42, 87 C.P.C. (6th) 276. Aside from the requirement just described that there must be a basis in the evidence to establish the existence of the common issues, the legal principles concerning the common issues requirement as described by Strathy J. in Singer, at para. 140, are as follows:

The underlying foundation of a common issue is whether its resolution will avoid duplication of fact-finding or legal analysis: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] S.C.R. 534 at para. 39.

An issue can be a common issue even if it makes up a very limited aspect of the liability question and even though many individual issues remain to be decided after its resolution: Cloud, at para. 53. Page 24

There must be a rational relationship between the class identified by the plaintiff and the proposed common issues: Cloud, at para. 48.

The proposed common issue must be a substantial ingredient of each class member's claim and its resolution must be necessary to the resolution of that claim: Hollick, at para. 18.

A common issue need not dispose of the litigation; it is sufficient if it is an issue of fact or law common to all claims and its resolution will advance the litigation for (or against) the class: Harrington v. Dow Corning Corp., [1996] B.C.J. No. 734, 48 C.P.C. (3d) 28 (S.C.), aff'd 2000 BCCA 605, [2000] B.C.J. No. 2237, leave to appeal to S.C.C. ref'd [2001] S.C.C.A. No. 21.

With regard to the common issues, "success for one member must mean success for all. All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent." That is, the answer to a question raised by a common issue for the plaintiff must be capable of extrapolation, in the same manner, to each member of the class: Dutton, at para. 40, Ernewein v. General Motors of Canada Ltd., 2005 BCCA 540, 46 B.C.L.R. (4th) 234, at para. 32; Merck Frosst Canada Ltd. v. Wuttunee, 2009 SKCA 43, [2009] S.J. No. 179 (C.A.), at paras. 145-46 and 160.

A common issue cannot be dependent upon individual findings of fact that have to be made with respect to each individual claimant: Williams v. Mutual Life Assurance Co. of Canada (2000), 51 O.R. (3d) 54, at para. 39, aff'd (2001), 17 C.P.C. (5th) 103 (Div. Ct.), aff'd [2003] O.J. No. 1160 and [2003] O.J. No. 1161 (C.A.); Fehringer v. Sun Media Corp. (2002), 27 C.P.C. (5th) 155 (S.C.J.), aff'd (2003), 39 C.P.C. (5th) 151 (Div. Ct.).

Where questions relating to causation or damages are proposed as common issues, the plaintiff must demonstrate (with supporting evidence) that there is a workable methodology for determining such issues on a class-wide basis: Chadha v. Bayer Inc., 2003 CanLII 35843 (C.A.), at para. 52, leave to appeal dismissed [2003] S.C.C.A. No. 106, and Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2008 BCSC 575, at para. 139.

Common issues should not be framed in overly broad terms: "It would not serve Page 25

the ends of either fairness or efficiency to certify an action on the basis of issues that are common only when stated in the most general terms. Inevitably such an action would ultimately break down into individual proceedings. That the suit had initially been certified as a class action could only make the proceeding less fair and less efficient": Rumley v. British Columbia, 2001 SCC 69, [2001] 3 S.C.R. 184, at para. 29.

82 As Strathy J. commented in Singer, at para. 140, these legal principles are "by no means exhaustive". I would also add that it is up to the motion judge to decide what legal principles are the contentious ones in any particular case and to focus the analysis accordingly. The motion judge will then consider the pertinent legal principles with reference to the evidence adduced on the motion to decide if there is some basis in the evidence to establish the existence of the common issues.

83 On this appeal, Scotiabank does not argue that there is no basis in fact for the common issues. The plaintiff filed affidavit evidence that is capable of supporting each of the factual assertions referred to by the motion judge, as set out above at paras. 60-61. These factual assertions form the building blocks of the common issues.

84 Rather than attacking the factual basis for the common issues, Scotiabank asserts that the motion judge erred in certifying common issues that are not substantial ingredients of the class members' claims. According to Scotiabank, resolving the proposed common issues would not significantly advance the litigation. I would not accept these submissions for the following reasons.

(a) Common Issues 1 and 2 - Breach of Contract Issues

85 On the certification motion, the appellant argued that resolving the first common issue concerning the relevant terms of the class members' employment contracts would not significantly advance the litigation because Scotiabank admitted that the overtime policy is an express term of the contracts and further admitted that Level 6 employees are entitled to overtime pay. However, the courts below noted that, unlike CIBC in Fresco, Scotiabank did not accept that the statutory duties under the Code are incorporated as terms of the class members' employment contracts. And, unlike CIBC, Scotiabank did not concede that if an employee was required or permitted to work overtime, whether or not pre-approval was obtained, and the employee was not compensated, this would constitute a breach of the employment contract: see the motion judge's reasons, at para. 136; the Divisional Court's reasons, at para. 94; and the motion judge's reasons in Fresco, at para. 58.

86 In oral argument on this appeal, counsel for Scotiabank conceded that the terms of the Code are incorporated by reference as terms of class members' employment contracts.3 Counsel acknowledged that Scotiabank's overtime policies must be read, applied and administered in a manner that is consistent with the Code. Counsel further conceded that if an employee were permitted to work overtime without pre-approval, Scotiabank would be liable to pay overtime. Counsel's concessions on this appeal (Scotiabank was represented by different counsel in the courts below) are consistent with Scotiabank's position that this case is indistinguishable from Fresco. Page 26

87 A strategic concession of this sort is a hollow one, especially where it is made by a defendant for the first time on a second appeal from a certification order. With this concession, Scotiabank seeks to have this court overturn the certification order. Yet, in the absence of a certification order, any admission fails to bind the defendant vis-à-vis the proposed class in any meaningful way. As stated in Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172 (Ont. Ct. (Gen. Div)), at para. 14:

Without a certification order from this court no public statement by the defendant, and no admission in its defence to the nominal plaintiff, binds the defendant in respect of the members of the proposed class. A class proceeding by its very nature requires a certification order for the proposed class members to become parties to the proceeding. If the proposed class members are not parties to the proceedings, the admission of liability, as it relates to them, is no more than a bare promise.

88 In Fresco, at para. 59, Lax J. held that Bywater is distinguishable because it involved an admission of liability by the defendant, whereas the defendant bank was merely making a concession about the terms of class members' employment contracts. I disagree with this distinction. The same concern arises in both cases: the admission of what would otherwise be a proper common issue should not be allowed to defeat a finding of commonality. This is because, in the absence of a certification order, the admission has no binding effect as between the defendant and the members of the class. As the motion judge in this case observed, at para. 139: "A defendant cannot finesse a motion for certification by admitting what would otherwise be a proper common issue." Likewise, Scotiabank cannot ask this court to overturn a certification order on the basis that it has admitted a proper common issue.

89 In my view, the first common issue is a substantial ingredient of the claim that Scotiabank has breached its contracts of employment with members of the class. Determining the relevant express and implied terms of the employment contract of class members - particularly the terms concerning Scotiabank's obligations for compensating and recording overtime hours - is a necessary and substantial ingredient of the class members' claims.

90 Common issue 2 asks whether Scotiabank breached any of the express or implied terms of the class members' employment contracts. If the common issues trial judge determines that Scotiabank applied the pre-approval requirement in a way that was contrary to the express or implied terms of the class members' employment contracts, then this would support the claim that Scotiabank systemically breached the class members' contracts and would significantly advance the class members' claims for declaratory and monetary relief, as will be further explained in discussing common issues 4, 5 and 6.

(b) Common Issues 4, 5 and 6 - the "Systemic Defect" Issues

91 Next, the appellant argues that the so-called "systemic defect" common issues 4, 5 and 6 are Page 27

not necessary or substantial ingredients of the class members' claims. Common issue 4 asks whether Scotiabank had a duty to accurately record hours worked and whether it breached such duty. Common issue 5 concerns whether Scotiabank had a duty to prevent class members from working hours for which it did not intend to compensate them. Common issues 6(a) and 6(b) ask whether Scotiabank had a duty to implement a system to ensure the duties in common issues 4 and 5 were satisfied, while common issue 6(c) asks whether, as a result of breaching its duty to implement such a system, Scotiabank consequently required or permitted all uncompensated hours worked by the class members.

92 According to the appellant, resolving these issues would not advance the litigation because, even if they were resolved in favour of the plaintiff, none of the elements of the class members' claims for unpaid overtime would be established.

93 While I see common issues 6(a) and 6(b) as superfluous, I reject the appellant's argument that resolving common issues 4 and 5 would not advance the litigation.

94 The appellant is essentially urging this court to conclude that the plaintiff has raised artificial common issues. According to the appellant, what lies beneath this artifice of systemic common issues are hopelessly individualized claims for overtime by potentially thousands of Scotiabank employees, who worked in hundreds of different bank branches across the country. These branches had different systems for recording overtime hours worked and different practices for compensating such hours. The courts below are said to have failed to ask whether resolving any of the so-called systemic issues would significantly advance the individual class members' claims for unpaid overtime, which Scotiabank sees as lying at the heart of this litigation.

95 I reject the appellant's objections concerning the allegedly individualized nature of the class members' claims for two reasons.

96 First, the potential need for individual assessments does not undermine the utility of a class proceeding. If common issues 4 and 5 were resolved in favour of the class, this would present a very different factual matrix for considering the evidence concerning individual claims than the factual matrix that would exist at individual trials conducted in the absence of a common issues determination. The appellant's argument ignores this reality.

97 For example, as was explained by the motion judge, at para. 143, and the Divisional Court, at paras. 108-10, if common issue 4 were resolved in favour of the plaintiff class, this could support an argument by the class members that Scotiabank should not be allowed to rely on its own breach of its record-keeping duty in a manner that prevents the class members from proving damages. I deal with this point further at paras. 130-32.

98 Similarly, a favourable answer to common issue 5 - concerning Scotiabank's duty to prevent class members from working hours for which the bank did not intend to compensate them - could assist individual class members in establishing Scotiabank's liability in their respective cases. As the Page 28

motion judge observed, at para. 144: "If it is found that Scotiabank had an active duty to prevent unpaid overtime, and that it breached this duty, then proof by the employee that the work was 'required' or 'permitted' (to use the language of the Code) will likely result in recovery of overtime."

99 Second, and more fundamentally, the appellant improperly attributes a very narrow theory of liability to the pleadings. The appellant insists that its liability to class members depends on proof by individual class members that they were not compensated for overtime hours that they were required or permitted to perform, as well as proof of how many such hours individual class members worked during the class period. The appellant thereby misconceives the plaintiff's claim as pursuing only monetary forms of relief. The appellant ignores that resolving common issues 4 and 5 would be determinative of various claims for declaratory and injunctive relief, including the plaintiff's request for an order directing Scotiabank to: "specifically perform its contracts of employment with the class members" and to "accurately record all hours worked by class members and pay class members for all hours worked". The motion judge's reasons at paras. 121-31, referred to above at paras. 59-63, explain why the plaintiff's action is not simply a collection of individual claims for unpaid overtime.

100 I have a further comment concerning the systemic defect common issues.

101 As indicated above, I do not see any purpose that would be served by answering common issues 6(a) and 6(b). In Fresco, the Divisional Court was unanimous in concluding that these common issues are not distinct from the underlying duties asserted in common issues 4 and 5: see the majority of the Divisional Court, at para. 116, and Sachs J., at para. 240. I agree with the Divisional Court in Fresco on this point. I will say more about common issue 6(c) in discussing the availability of an aggregate assessment under s. 24(1) at paras. 131-32.

102 In conclusion, while I do not see the distinct importance of common issues 6(a) and 6(b), I find that resolving common issues 4 and 5 in favour of the class members would advance their claims for monetary and non-monetary relief.

103 The appellant contends that the most that could be determined in relation to common issue 7 (whether Scotiabank breached its contracts of employment or was unjustly enriched by misclassifying certain class members as Level 6), and common issue 8 (whether Scotiabank was unjustly enriched by failing to pay class members for all of their hours worked), is the scope of Scotiabank's obligations to pay overtime.

104 According to the appellant, the critical question of whether Scotiabank actually breached its obligations cannot be answered on a class-wide basis. The motion judge gave the following reasons for certifying the misclassification issue, at para. 145:

Scotiabank admitted that it had misclassified Level 6 employees as management, Page 29

thereby rendering them ineligible for overtime. As Lax J. noted in Fresco at para. 54, misclassification cases are appropriate for certification due to commonality of employment functions and common treatment by the employer. While Scotiabank established a procedure in 2008 to address the misclassification, its application was limited to claims post-November 2005. Moreover, I accept Ms. Fulawka's submission that some eligible claimants may have failed to assert a claim for a variety of reasons. The issue should be certified so that a determination can be made that is binding on Scotiabank and Class Members. [Emphasis added.]

105 I agree with the motion judge on this issue. The proposed class includes certain individuals who, by virtue of their employment classification, were treated as ineligible for overtime compensation. While Scotiabank has since reclassified them as non-managerial employees, certifying the misclassification issue permits a determination that binds Scotiabank and the proposed class. I will say more about the appropriateness of certifying a proposed common issue of misclassification in my reasons in McCracken.

106 The proposed common issue concerning whether Scotiabank was unjustly enriched by failing to appropriately compensate class members for all hours worked raises issues of fact and law that relate to all members of the class. As pointed out by the courts below, there is ample authority establishing that unjust enrichment can constitute a common issue: see Smith v. National Money Mart Co. (2007), 37 C.P.C. (6th) 171 (Ont. S.C.), leave to appeal refused (2007), 30 E.T.R. (3d) 163 (Div. Ct.); McCutcheon v. The Cash Store Inc. (2006), 80 O.R. (3d) 644 (S.C.).

107 Thus, I would dismiss the appellant's ground of appeal concerning the correctness of the motion judge's decision to certify the common issues related to liability, subject only to the limited exception that I would allow the appeal from the Divisional Court's order upholding the motion judge's order certifying common issues 6(a) and 6(b).

(2) The Common Issue Concerning an Aggregate Assessment under s. 24(1) of the CPA

108 The appellant raises a separate ground of appeal involving the correctness of the decision to certify common issue 10(a) concerning an aggregate assessment of damages.4 The proposed common issue reads as follows:

10. If the answer to any of common issues is "yes", is Scotiabank potentially liable on a class-wide basis? If "yes":

a. Can damages be assessed on an aggregate basis? If "yes":

i. Can aggregate damages be assessed in whole or part on the Page 30

basis of statistical evidence, including statistical evidence based on random sampling? ii. What is the quantum of aggregate damages owed to Class Members? iii. What is the appropriate method or procedure for distributing the aggregate damages award to Class Members?

109 The appellant argues that the courts below erred in holding that an aggregate assessment under s. 24(1) of the CPA may be available in this case. According to the appellant, there is no "reasonable likelihood" that class members' damages can properly be assessed in the aggregate, or that liability can be established without inquiries of individual class members regarding the amount, if any, of overtime work they were required or permitted to perform.

110 Section 24(1) of the CPA authorizes a common issues trial judge to assess damages on an aggregate basis:

24. (1) The court may determine the aggregate or a part of a defendant's liability to class members and give judgment accordingly where, (a) monetary relief is claimed on behalf of some or all class members; (b) no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant's monetary liability; and (c) the aggregate or a part of the defendant's liability to some or all class members can reasonably be determined without proof by individual class members.

111 As the motion judge recognized, at para. 148, it is appropriate to certify a common issue of entitlement to aggregate damages if the plaintiff establishes that "there is a reasonable likelihood that the preconditions in section 24(1) of the CPA would be satisfied and an aggregate assessment made if the plaintiffs are otherwise successful at a trial for common issues": see Markson, at para. 44, quoting with approval Cullity J. in Vezina v. Loblaw Cos. (2005), 17 C.P.C. (6th) 307 (Ont. S.C.), at para. 25. The motion judge held, at para. 149, that the plaintiff met this burden because there is a factual basis for the claimed systemic breaches of Scotiabank's duties that "could support an aggregate assessment".

112 The motion judge relied on Markson, at para. 42, for the proposition that aggregate assessments "provide a means of avoiding the potentially unconscionable result of a wrong eluding an effective remedy". And he accepted the plaintiff's expert evidence "that there are methods available, including statistical and sampling methods, that could assist the court [at a common issues trial] in determining the amount of an aggregate assessment and an appropriate method of distribution" (at para. 151).

113 The Divisional Court agreed with the motion judge's conclusion that there is a reasonable Page 31

likelihood that s. 24(1) would be satisfied. Regarding the condition in s. 24(1)(b), Harvison Young J. observed, at para. 128, that the systemic nature of the plaintiff's claim is such that potential class-wide liability will exist on a showing that Scotiabank exposed all class members to a direct risk of harm and that at least some of them suffered harm as a result. Regarding the condition in s. 24(1)(c), Harvison Young J. accepted that the expert evidence shows there are statistical and sampling methods available to determine an aggregate assessment and an appropriate method of distribution (at para. 129). In her view, the appellant had not demonstrated any palpable and overriding error in the motion judge's factual finding on this point (at para.132).

114 I agree with the appellant that the courts below erred in law in concluding there is a reasonable likelihood that all of the preconditions in s. 24(1) can be met in this case. In particular, the courts below erred in interpreting the requirement in s. 24(1)(c).

(a) General Principles for Interpreting s. 24(1) of the CPA

115 When discussing the availability of an aggregate assessment of damages under s. 24(1) of the CPA, it is important to be precise about what is meant by the term "aggregate" in the class action context. Used loosely, the term simply refers to the collective adjudication of claims that are common to multiple individuals. The use of the term in this manner must be distinguished from the use of the term in the context of s. 24(1).

116 In Anderson v. Wilson (1999), 44 O.R. (3d) 673, leave to appeal refused, [1999] S.C.C.A. No. 476, this court discussed the appropriateness of certifying a class action involving claims for mental distress in a case where class members were notified by public health authorities that they may have been infected with Hepatitis B at clinics operated by the defendant. Carthy J.A., writing for the court, made the following comment, at pp. 679-80:

There are many persons with the same complaint, each of which would typically represent a modest claim that would not itself justify an independent action. In addition, the nature of the overall claim lends itself to aggregate treatment because individual reactions to the notices would likely be similar in each case - fear of a serious infection and anxiety during the waiting period for a test result. If evidence from patients to support such reactions to the notices is necessary, it would probably suffice to hear from a few typical claimants. The balance of the evidence as to liability would relate to the conduct of the clinics, the reaction of the Public Health Authorities and foreseeability issues. [Emphasis added.]

117 In Healey v. Lakeridge Health Corp., 2011 ONCA 55, 103 O.R. (3d) 401, the appellants suggested that Carthy J.A.'s use of the term "aggregate" in the above passage supports the proposition that an aggregate assessment of damages is available under s. 24(1) where damages are sought on behalf of class members for psychological injury. On behalf of a five-judge panel of this court, Sharpe J.A. explained, at para. 74, that this passage from Anderson does not speak to the availability of aggregate damages under s. 24(1). Rather, Carthy J.A. was merely referring to the Page 32

appropriateness of a class proceeding for advancing individual claims on an "aggregate" basis. He was not addressing whether damages for mental distress could be dealt with by resort to s. 24(1).

118 The Report of the Attorney General's Advisory Committee on Class Action Reform, (Toronto: Ministry of the Attorney General of Ontario, 1990) (Chair: Michael G. Cochrane) ("A.G.'s Report") explains when it may be appropriate to assess a defendant's liability on an aggregate basis. The Report states, at p. 43:

[W]here monetary relief is sought by the class and liability is not in issue (e.g. liability is admitted) special methods of establishing the quantum may be appropriate. It may be impractical, for example, to require thousands of class members to individually prove their claims as they would in an ordinary proceeding. In such a case the court should be permitted to determine the total aggregate of the defendant's liability if to do so can be reasonably achieved.

119 Section 24(1) establishes three preconditions that must be met for a court to determine the aggregate amount of monetary relief for which a defendant is liable.

120 First, s. 24(1)(a) requires that monetary relief is claimed on behalf of some or all class members. This condition is easily understood and applied. I would simply point out that s. 24(1) may be available when there is a claim on behalf of some or all class members for either damages or restitutionary relief in the form of a monetary payment.

121 Second, s. 24(1)(b) provides that "no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant's monetary liability". As the passage cited above from the A.G.'s Report indicates, condition (b) may be satisfied in two situations:

i) where the defendant concedes liability to some or all members of the class; or ii) where the resolution of the common issues is capable of determining the defendant's liability to some or all members of the class.

122 Rosenberg J.A. in Markson, at para. 48, commented as follows about the second situation in which s. 24(1)(b) may be satisfied:

In my view, condition (b) is satisfied where potential liability can be established on a class-wide basis, but entitlement to monetary relief may depend on individual assessments. Or, in the words of s. 24(1)(b), where the only questions of fact or law that remain to be determined concern assessment of monetary relief.

123 Markson stands for the proposition that an aggregate assessment of monetary relief may be Page 33

appropriate where the defendant's liability to at least some members of the class will be established through the resolution of the certified common issues, assuming those issues are decided in favour of the class. This is what is meant by the statement in Markson that s. 24(1)(b) is satisfied where "potential liability can be established on a class-wide basis". The expression - "potential liability" - simply reflects an assumption that the common issues will be resolved in favour of the class. This presumption is appropriate at the certification stage, where the merits of the action are not in issue.

124 There is a crucial distinction between the test for certifying common issues under s. 5(1)(c) and the question of whether an aggregate assessment of monetary relief may be certified as a common issue. As referred to above, at para. 81, and as amply developed in class proceedings jurisprudence, the proposed common issues do not have to be determinative of the defendant's liability to members of the class for an action to be certified. In contrast, the language of s. 24(1)(b) reveals that in order to be an appropriate case for an aggregate assessment, the resolution of the common issues must be capable of establishing the defendant's monetary liability to at least some members of the class. It is not enough that the resolution of the common issues could lead to injunctive or declaratory relief in favour of the class.

125 Thus, in cases where the defendant does not concede liability for a wrong that gives rise to monetary relief, the question of whether s. 24(1)(b) could be satisfied requires parsing out the elements of the cause of action that must be proven to establish the defendant's monetary liability to some or all members of the class. If it is possible for these elements to be established through the resolution of the common issues, then the requirements of s. 24(1)(b) are capable of being met.

126 Finally, s. 24(1)(c) states that the aggregate of the defendant's liability "can reasonably be determined without proof by individual class members." This provision is directed at those situations where the monetary liability to some or all of the class is ascertainable on a global basis, and is not contingent on proof from individual class members as to the quantum of monetary relief owed to them. In other words, it is a figure arrived at through an aggregate assessment of global damages, as opposed to through an aggregation of individual claims requiring proof from individual class members. I would describe the latter calculation as a "bottom-up" approach whereas the statute envisages that the assessment under s. 24(1) be "top down".

127 Markson and Cassano are examples of cases where both conditions (b) and (c) of s. 24(1) were satisfied. Condition (b) was satisfied because the resolution of the common issues could potentially establish the defendant's liability for a wrong giving rise to monetary relief to at least some members of the class. Condition (c) was satisfied because it was possible to reasonably assess the quantum of monetary liability without proof by individual class members. In both cases, the information needed for assessing the quantum of monetary relief was available in the form of documentary evidence from the respective defendants' own transactional records.

(b) Applying the General Principles to this Case Page 34

128 There is obviously no dispute that monetary relief is claimed on behalf of the class members, as required by s. 24(1)(a). The representative plaintiff is claiming both damages and restitutionary relief by way of monetary payment through an order for disgorgement.

129 The next question is whether s. 24(1)(b) is capable of being satisfied. This issue turns on whether the resolution of the common issues has the potential to determine Scotiabank's liability for monetary relief to some or all of the class members.

130 Resolving common issues 4 and 5 in favour of the class would significantly contribute to establishing Scotiabank's liability for breach of contract, including the alleged breach of a duty of good faith, and liability based on the claims of negligence and unjust enrichment. However, the resolution of these issues, as framed in common issues 4 and 5, would not be determinative of Scotiabank's liability for damages or restitutionary relief to some or all members of the class. This is because common issues 4 and 5, as presently worded, do not raise the question whether the class members were actually required or permitted to perform overtime work for which they were not compensated. Unless class members were required or permitted to perform overtime work, the defendant would not have had a duty to compensate them for such work.

131 Nonetheless, this outstanding element is at least capable of being resolved commonly, as suggested by common issue 6(c). In common issue 6(c), the respondent proposed the question whether - to the extent that Scotiabank breached its alleged duty to implement and maintain a system to ensure that common issues 4 and 5 were met - Scotiabank thereby required or permitted all uncompensated hours by class members. As noted, I am of the view that common issues 6(a) and 6(b) add nothing of substance to common issues 4 and 5. However, by combining common issue 6(c) with common issues 4 and 5, the final component for establishing potential liability to all class members is in place. The revised version of this common issue would read:

If the answer to common issues 4 (b) or 5 (b) is "yes", and to the extent found necessary by the common issues trial judge, did the defendant thereby require or permit all uncompensated hours of the class members?

132 There is a basis in fact for common issue 6(c) in the evidence adduced on the motion from the representative plaintiff and other class members, which provides some support for the plaintiff's allegations that: class members were regularly required to work overtime in order to complete the ordinary duties of their employment; Scotiabank encouraged class members to work overtime; Scotiabank's "system", such as it was, put the onus on employees to obtain prior authorization, and for much of the class period, did not explicitly allow for approval after the fact; and, due to the nature of their work, it was very difficult for class members to obtain pre-approval of overtime work: see the motion judge's reasons, at para. 123. If a trial judge were to find that the evidence adduced at the common issues trial substantiated these allegations, then he or she might find that there is an evidentiary basis supporting a conclusion that all uncompensated overtime hours were required or permitted by Scotiabank. Page 35

133 I recognize that in this case not all class members may have actually worked overtime or have worked overtime that went uncompensated. This does not mean that s. 24(1)(b) is not capable of being satisfied. The statute clearly distinguishes between liability for monetary relief and entitlement by individual class members to share in an award of monetary relief. The distinction drawn in s. 24 of the CPA between the need to prove liability on the part of the defendant for monetary relief and the question of entitlement on the part of individual class members to receive a portion of this relief was explained in Markson, at para. 48:

Section 24(3) provides, in part, that, "In deciding whether to make an order under subsection (2), the court shall consider whether it would be impractical or inefficient to identify the class members entitled to share in the award". The subsection therefore contemplates that an aggregate award will be appropriate notwithstanding that identifying the individual class members entitled to damages and determining the amount cannot be done except on a case-by-case basis, which may be impractical or inefficient.

134 Moreover, s. 24(2) contemplates distributing a share of an aggregate award on an average or proportional basis to some or all individual class members. In other words, an aggregate assessment of damages may be made even if it is impractical or inefficient to determine the quantum of relief to which individual class members are entitled. Accordingly, the prospect that it may be difficult or even impossible for individual class members to prove the amount of unpaid overtime that they were required or permitted to perform during the class period does not negate a conclusion that s. 24(1)(b) is capable of being satisfied.

135 However, what cannot be overcome in this case is condition (c) in s. 24(1), which requires that "the aggregate or a part of the defendant's liability to some or all class members can reasonably be determined without proof by individual class members." The respondent's position is that statistical evidence can be used to avoid requiring proof by individual class members on the issue of damages.

136 Professor Richard Drogin, an expert in statistics, gave evidence on behalf of the plaintiff at the certification motion. He opined that it would be possible to conduct a random sampling of the class members to establish a basis for an aggregate assessment of damages. His proposed procedure would involve receiving out-of-court sworn testimony from a random sampling of individual class members, whose evidence would be considered as representative testimony for the class as a whole. Professor Drogin's proposal for arriving at an aggregate assessment of damages posits that the court would decide liability for unpaid overtime to each person in the random sample based on the evidence obtained from the out-of-court examinations. He opined that, because the court's findings with regard to unpaid overtime worked would be for a random sample, these results could be reliably projected to the class as a whole.

137 The plaintiff's proposed procedure for arriving at a global damages figure is antithetical to Page 36

the requirement in s. 24(1)(c) that the aggregate amount of the defendant's liability "can reasonably be determined without proof by individual class members." In order to give effect to Professor Drogin's proposal, the language used by the legislature would have to be "can reasonably be determined without proof by all of the individual class members". But the qualifying words - "all of the" - are not present in the provision. While Professor Drogin's proposed method is based on proof from a limited subsection of the class, it still impermissibly requires proof from individual class members in order to arrive at an aggregate damages figure.

138 The foregoing is not to be taken as a general prohibition on statistical evidence in assessing damages. Statistical evidence, including that drawn from findings made at individual hearings, may well be appropriately used in certain contexts, such as where the court is providing directions for hearings to be conducted under s. 25 of the CPA. This point will be further discussed below, at paras. 143-44.

139 To summarize, an aggregate assessment of monetary relief may only be certified as a common issue where resolving the other certifiable common issues could be determinative of monetary liability and where the quantum of damages could "reasonably" be calculated without proof by individual class members. The latter condition is not satisfied here.

140 Before leaving this point, I note that I am mindful of the concerns expressed in Markson, at para. 42, and by the motion judge, at para. 130, that in some cases, a wrong could go without a remedy because of the prior conduct of the defendant.

141 As discussed above, the facts in Markson are materially different than those here and therefore gave rise to different considerations. In Markson, the records for determining the aggregate amount of relief owed by the defendant existed, but the difficulty and expense of actually calculating the amount was at issue. The proposed statistical sampling in Markson was based on recourse to t he defendant's own undisputed records. There was no prejudice to the defendant in the use of its own records as the evidentiary basis for a statistical analysis of the aggregate amount of monetary relief. In contrast, in this case, the records of the amount of unpaid overtime work that class members were required or permitted to perform are allegedly either incomplete or non-existent. Indeed, the propriety of how Scotiabank kept records of hours worked is included as a common issue.

142 I recognize that a liberal and purposive approach should be taken in interpreting the CPA. However, in my view, it is simply not open to the court to attempt to fashion a remedy that would run afoul of an essential element of the statutory language. I reach this conclusion regardless of how the common issues trial judge ultimately resolves the common issue of the propriety of Scotiabank's record-keeping practices.

143 Moreover, I do not find it necessary to stretch the wording of s. 24(1)(c), since other provisions of the CPA provide ample authority for the common issues trial judge to develop procedures for resolving individual claims in a way that will provide an effective remedy. By way Page 37

of example, s. 25(1) of the CPA provides the court with the power to direct hearings to determine individual issues. Section 25(2) empowers the court to give any necessary directions relating to the procedures to be followed in conducting these hearings. In giving such directions, s. 25(3) instructs the court to choose "the least expensive and most expeditious method of determining the issues that is consistent with justice to class members and the parties". Section 25(3) further provides that the court may:

(a) dispense with any procedural step that it considers unnecessary; and (b) authorize any special procedural steps, including steps relating to discovery, and any special rules, including rules relating to admission of evidence and means of proof, that it considers appropriate.

144 In my view, s. 25(3)(b) affords wide latitude to authorize the rules of proof at such further hearings. The presiding judge would have the option of considering if statistical information derived from random sampling, or other methods, would be of assistance in calculating the quantum of individual class members' entitlement to monetary relief.

145 Concluding on this point, I am satisfied that the courts below erred in principle in interpreting s. 24(1) of the CPA. I would strike common issue 10(a) concerning the possibility of conducting an aggregate assessment of damages.

(3) No Error in the Preferable Procedure Analysis

146 The appellant submitted in its factum that the administrative proceedings established by Part III of the Code to investigate and adjudicate claims for overtime pay ("Part III proceedings") are not only the preferable means of resolving class members' claims, but the exclusive means of doing so. In oral argument, counsel did not press the exclusive jurisdiction point. He instead asked the court to find that Part III proceedings constitute the preferable procedure for resolving the class members' claims. However, somewhat equivocally in my view, counsel in oral argument continued to rely on the British Columbia Court of Appeal's decision in Macaraeg v. E Care Contact Centers Ltd., 2008 BCCA 182, 77 B.C.L.R. (4th) 205, at para. 82, leave to appeal refused, [2008] S.C.C.A. No. 293. Specifically, he relied on Macaraeg for the proposition that "it would be wrong for the court to assume a jurisdiction parallel to that of specialty labour tribunals" to deal with the class members' claims. Counsel also argued that allowing the class action to proceed would frustrate the comprehensive legislative scheme for resolving claims for unpaid overtime, which would be contrary to the authority of St. Anne Nackawic Pulp & Paper Co. Ltd. v. Canadian Paper Workers Union, Local 219, [1986] 1 S.C.R. 704.

147 The appellant has not challenged the motion judge's ruling on the Rule 21 motion that the court has subject matter jurisdiction over the class members' claims. Thus, in my view, it would not be appropriate for this court to decide the exclusive jurisdiction issue when dealing with the question of preferable procedure under s. 5(1)(d) of the CPA. Page 38

148 Having said that, I note that it would be very difficult, if not impossible, for counsel to reconcile the exclusive jurisdiction argument advanced in his factum with his concession in oral argument that the terms of the Code are incorporated into the class members' contracts of employment. If the terms of the class members' contracts of employment create an entitlement to receive compensation for overtime work that is required or permitted by the employer, then the court has jurisdiction to enforce that contractual obligation. The terms of the Code make this clear. Section 261 states:

261. No civil remedy of an employee against his employer for arrears of wages is suspended or affected by this Part.

149 Of course, it remains for the trial judge to determine if the terms of the Code are implied into the contracts, and, if necessary, to determine whether the terms are implied as a matter of fact or a matter of law: see Haldane v. Shelbar Enterprises Ltd. (1999), 46 O.R. (3d) 206 (C.A.), at paras. 14-15.

150 I will now turn to why the appellant's preferable procedure argument fails. The Supreme Court of Canada in Hollick, at para. 28, established that there are two elements of the preferable procedure analysis: (i) determining whether the class action would be a fair, efficient and manageable method of advancing the claims, and; (ii) determining whether a class proceeding would be preferable to other reasonably available means of resolving the class members' claims.

(a) Whether a Class Action Would be a Fair, Efficient and Manageable Method of Advancing the Class Members' Claims

151 The appellant contends that the numerous individual claims for unpaid overtime would "inevitably overwhelm" a class proceeding. The appellant points to Webb v. K-Mart Canada Ltd. (1999), 45 O.R. (3d) 389 (S.C.) and Webb v. 3584747 Canada Inc. (2005), 40 C.C.E.L. (3d) 74 (Ont. S.C.) as telling a cautionary tale against using the class proceeding mechanism in the employment law context.

152 In Webb v. K-Mart, the court certified a class action for wrongful dismissal against K-Mart Canada Ltd. The class consists of over 3,000 former K-Mart employees from across Canada who were dismissed following K-Mart's merger with the Hudson's Bay Company. The court approved a litigation plan that provided for the determination of individual issues related to reasonable notice and mitigation through summary hearings before retired judges who were members of a private arbitration firm.

153 The arbitration process proved to be more costly than expected and the expense of individual arbitrations typically exceeded the amount awarded. Six years after certification, only 24 of the 1,000 cases that were intended to proceed to a hearing had actually been heard. Class counsel applied to the court to amend the hearing system and counsel for K-Mart brought a cross-motion to decertify the class proceeding. The court dismissed the motion to decertify and granted the motion Page 39

to vary the hearing process by providing for the appointment of different referees who charged less for their services.

154 The appellant submits that the claims process for determining whether overtime compensation is owed to individual class members and, if so, the amount owed to each, would not be any more manageable or efficient than was the individual hearing process for determining reasonable notice in Webb.

155 It is well-established that the "fairness, efficiency and manageability of a class proceeding are all affected where the substance and complexity of the individual issues overwhelm the common issues": see Ward Branch, Class Actions in Canada, looseleaf (Aurora, Ont.: Canada Law Book, 2007), at para. 4.920, citing Carom v. Bre-X Minerals Ltd. (1998), 20 C.P.C. (4th) 163, and supplementary reasons (1998), 20 C.P.C. (4th) 187 (Ont. Ct. (Gen. Div.); Pearson v. Inco Ltd. (2002), 27 C.P.C. (5th) 171 (Ont. S.C.), aff'd (2004), 183 O.A.C. 168 (Div. Ct.), appeal to Ont. C.A. allowed, (2005), 78 O.R. (3d) 641. However, I find that two of the motion judge's five reasons, at paras. 159-60, for dismissing the appellant's arguments on preferability are responsive to the "fair, efficient and manageable" issue:

(1) it is not a foregone conclusion that individual trials will be required; and (2) even if individual assessments of entitlement and damages are needed, "there is every reason to believe that a common issues trial judge, assisted by the parties and their qualified experts," will be able to design and successfully implement an efficient process.

156 I agree with the motion judge's first observation that it is not a foregone conclusion that individual trials will be required notwithstanding my view that an aggregate assessment of damages under s. 24(1) is not available. I also share the motion judge's confidence that - if the ultimate finding is that compensation should be paid to class members - there is every reason to believe that a common issues trial judge, assisted by the parties and their experts, will be able to design and successfully implement a satisfactory compensation system.

157 The reason for this confidence, as explained in Cassano, at para. 60, is that the CPA "is a powerful procedural mechanism that permits the court to take a variety of approaches in resolving the claims of class members." As further explained in Cassano, at para. 64:

[W]hat is called for in addressing the preferable procedure requirement is to look not just at the common issues trial, but at the other procedural options for conducting the class action litigation pursuant to the CPA. In this regard, I note that s. 25 of the CPA confers broad jurisdiction on the common issues trial judge to fashion procedures to be followed where, among other things, damages cannot be assessed in the aggregate. This section deals specifically with individual participation in a class proceeding following a favourable determination on the common issues. Page 40

158 I referred above to s. 25 of the CPA. Where individual class members are required to participate in order to decide individual issues, s. 25(1) of the CPA authorizes the court to appoint "one or more persons to conduct a reference" (s. 25(1)(b)) and "with the consent of the parties, direct that the issues be determined in any other manner" (s. 25(1)(c)). The effect of these provisions is that the court may direct that individual claims to unpaid overtime be determined through procedures other than individual trials.

159 As the motion judge recounted in his reasons, at paras. 31-33, Scotiabank itself implemented a summary procedure for retroactively compensating some 600 overtime claims by employees who had been classified as Level 6 and who had been treated as ineligible for overtime prior to October 1, 2008. Scotiabank structured a claims process such that the affected employees could complete a form indicating the amount of additional hours they had worked without being compensated through time off or other special work arrangements from November 1, 2005 to October 1, 2008. Employees were encouraged, but not required, to provide supporting documents or records if possible. If no supporting records were available, employees were required to include "supporting commentary" for their request.

160 Each employee's request was reviewed by a superior for reasonableness based on his/her knowledge of the employee's working hours, the work environment, and any consideration the employee may have previously received for the time worked. If a manager disagreed with an employee's request for overtime compensation, then an "Employee Relations team within HR Shared Services" would review the request.

161 Although it is not a perfect template, this procedure demonstrates that individual claims for unpaid overtime can be dealt with efficiently. A process whereby employees submit claims that are reviewed by a manager or supervisor, with any dispute resolution being conducted by a third party, is not wholly different from summary procedures using statements of evidence and adjudication.

162 I caution that this procedural example is not intended to fetter the discretion of the common issues trial judge in any way. He or she would determine both whether individual assessments were necessary and, if so, the manner in which those assessments should be conducted.

(b) Whether a Class Action is Preferable to Other Reasonably Available Means for Resolving the Class Members' Claims

163 The appellant further submits that resolving the class members' claims through Part III proceedings would more efficiently fulfill the goals of the CPA: judicial economy, access to justice and behaviour modification. According to the appellant, the availability of Part III proceedings "fully answers" the access to justice question. Moreover, the appellant argues that Part III proceedings provide access to justice in a way that is less formal than a class proceeding and that does not burden the resources of the judiciary, thereby meeting the judicial economy objective. In addition, the appellant contends that the goal of behaviour modification has been achieved considering that Scotiabank has already revised its overtime policy and record-keeping procedures. Page 41

164 The recent decision in Fischer v. IG Investment Management Ltd., 2012 ONCA 47, 109 O.R. (3d) 498, at paras. 44-45, explains how the second element of the preferability analysis is to be conducted:

The second element of the preferability inquiry described in Hollick requires a comparative analysis as to whether a class action would be preferable to other reasonably available means of resolving the class members' claims. The preferability inquiry must necessarily take into account the central characteristics of the proposed alternative proceeding as a means of resolving the claims. This exercise includes, but is not limited to, considering the following characteristics of the alternative proceeding: the impartiality and independence of the forum; the scope and nature of the alternative forum's jurisdiction and remedial powers; the procedural safeguards that apply in the alternative proceeding, including the right to participate either in person or through counsel and the transparency of the decision-making process; and the accessibility of the alternative proceeding, including such factors as the costs associated with accessing the process and the convenience of doing so.

These characteristics must be considered in relation to the type of liability and damages issues raised by the class members' claims against the defendants in the putative class action and the manner in which they are addressed, if at all, in the alternative proceeding. The court must then compare these characteristics to those of a class proceeding through the lens of the goals of the CPA: judicial economy, access to justice and behaviour modification. [Footnotes omitted.]

As noted in Fischer, at para. 46, not all of these characteristics will necessarily be relevant in a given case.

165 Relevant to the comparative analysis required in this case are the following two characteristics of Part III proceedings: (i) the scope and nature of the alternative forum's jurisdiction and remedial powers; and (ii) the accessibility of the alternative proceeding. Comparing these characteristics of Part III proceedings with those of a class proceeding supports the conclusion of the courts below that the class proceeding is the preferable procedure for resolving the class members' claims. I note that I agree in substance with the preferability analysis of Lax J. in Fresco, at paras. 95-98, some of which the motion judge relied on in this case. While Lax J. did not have the benefit of Fischer, the crux of her approach is consistent with a focus on the two identified factors from Fischer.

(i) The scope and nature of the alternative forum's jurisdiction and remedial powers

166 The appellant's arguments for preferring Part III proceedings over a class proceeding once again fundamentally misstate the nature of the claims asserted on behalf of the class members. Page 42

These claims are framed in breach of contract, breach of a duty of good faith, negligence and unjust enrichment - causes of action over which the administrative actors under the Code have no jurisdiction: see Lax J.'s decision in Fresco, at para. 98. Inspectors and referees appointed under the Code have no jurisdiction to investigate a claim that an employer's company-wide overtime policy breaches the terms of its employees' employment contracts. Nor do they have jurisdiction to determine if an employer has been unjustly enriched by a failure to comply with its duties to pay overtime on a company-wide basis. Moreover, the pleadings seek declaratory and injunctive forms of relief and punitive damages that inspectors and referees lack jurisdiction to grant.

167 Given the type of liability and damages issues raised by the class members' claims, the limitations on the jurisdiction and remedial authority of inspectors and referees under the Code would thwart rather than fulfill the central CPA goal of promoting access to justice.

(ii) The accessibility of the alternative proceeding

168 The courts below accepted that class members may be reluctant to bring forward individual claims for uncompensated overtime using Part III proceedings due to fear of affecting their employment status and advancement: see the motion judge's reasons, at paras. 161-62, and the Divisional Court's reasons, at paras. 135 and 137. The motion judge in Fresco, at paras. 97-98, referenced a report by Professor Harry Arthurs, Fairness at Work: Federal Labour Standards for the 21st Century (Ottawa: Human Resources and Skills Development Canada, 2006) ("Arthurs Report"), as did both courts below in this case by reference to the Fresco decision. The Arthurs Report, at pp. 191-92, reveals that only a very small fraction of federally-regulated employees (0.36 percent) advance complaints against their employers through Part III proceedings and some 92 percent of such complaints are against former employers.

169 In addition to fear of employer reprisals, there are also costs associated with using Part III proceedings that may deter class members from bringing complaints under the Code for relatively small amounts of unpaid overtime. The Arthurs Report notes, at p. 222:

However, employees may have to incur out-of-pocket expenses to pursue their rights. They may have to take time off work to attend a hearing, travel to or communicate with a Labour Program office, or hire a lawyer or other advocate to represent them in certain types of proceedings. Given the relatively small amounts usually claimed in Part III proceedings, such expenditures may seriously erode the amount recovered, to the point where employees are in effect deterred from seeking remedies at all.

170 The statistics regarding the infrequent use of Part III proceedings by current employees and the costs associated with this use support the conclusion that the goal of access to justice would be better advanced by a class proceeding. The class proceeding relieves individual class members of the need to incur out-of-pocket expenses and the need to hire a lawyer or other advocate to represent them. Class actions also offer judicial oversight, which would deter any potential employer Page 43

retaliation against employees taking part in the litigation.

171 Thus, in my view, the courts below committed no error in concluding that the preferable procedure requirement is met.

G. CONCLUSION AND DISPOSITION

172 For these reasons, I would allow the appeal from the Divisional Court's order upholding the motion judge's certification order to the limited extent that I would strike proposed common issue 10(a) on the basis that an aggregate assessment of damages is not available in this case. I would also strike common issues 6(a) and 6(b) on the basis that these alleged duties add nothing of substance to the duty alleged in common issues 4 and 5. In all other respects, I would dismiss the appeal from the Divisional Court's order.

173 The party demanding costs may file brief written submissions on costs within 10 days of the release of these reasons. Any responding submissions shall be filed within 10 days thereafter.

W.K. WINKLER C.J.O. S.E. LANG J.A.:-- I agree. D. WATT J.A.:-- I agree.

*****

APPENDIX

Plaintiff's Revised List of Proposed Common Issues

Group A: Breach of Contract

1. What are the relevant terms (express, implied or otherwise) of the Class Members' contracts of employment with Scotiabank respecting:

a. regular and overtime hours of work? b. recording of the hours worked by Class Members? c. paid breaks? d. compensation for hours worked by Class Members?

2. Did Scotiabank breach any of the foregoing contractual terms? If so, how?

Group B: Systemic Defects Page 44

3. a. Are any parts of Scotiabank's overtime policy (current or past) unlawful, void or unenforceable for contravening the Canada Labour Code?*

b. If the answer to 3(a) is "yes", which provisions are unlawful, void or unenforceable?*

4. a. Did Scotiabank have a duty (in contract or otherwise) to monitor and accurately record all hours worked by Class Members and ensure that Class Members were appropriately compensated for same?

b. If the answer to 4(a) is "yes", did the Bank breach that duty?

5. a. Did Scotiabank have a duty (in contract or otherwise) to prevent Class Members from working hours for which the Bank did not wish or intend to compensate?

b. If the answer to 5(a) is "yes," did the Defendant breach that duty?

6. a. Did Scotiabank have a duty (in contract or otherwise) to implement and maintain an effective and reasonable system, procedure and practices which ensured that the duties set out in common issues 4 and 5 above, were satisfied for all class members?**

b. If the answer to 6(a) is "yes" did Scotiabank breach that duty?** c. If the answer to 6 (b) is "yes", and to the extent found necessary by the common issues trial judge, did the Defendant thereby require or permit all uncompensated hours of the Class Members?***

Group C: Misclassification

7. Did Scotiabank breach its contracts of employment with the Class (or some of the Class Members) or was it unjustly enriched, by denying eligibility for overtime compensation to some class members whom Scotiabank classified as "level 06" or above? Page 45

Group D: Unjust Enrichment

8. a. Was Scotiabank enriched by failing to pay Class Members appropriately for all their hours worked?

b. If the answer to 8(a) is "yes", did the Class suffer a corresponding deprivation?

Group F: Remedy & Damages

9. If the answer to any of the foregoing common issues is "yes", what remedies are Class Members entitled to? 10. If the answer to any of the common issues is "yes", is Scotiabank potentially liable on a class-wide basis? If "yes":

a. Can damages be assessed on an aggregate basis? If "yes":

i. Can aggregate damages be assessed in whole or part on the basis of statistical evidence, including statistical evidence based on random sampling? ii. What is the quantum of aggregate damages owed to Class Members? iii. What is the appropriate method or procedure for distributing the aggregate damages award to Class Members?**

11. Is the Class entitled to an award of aggravated, exemplary or punitive damages based upon the Bank's conduct? If "yes":

a. Can the damages award be determined on an aggregate basis? b. What is the appropriate method or procedure for distributing any aggregate aggravated, exemplary or punitive damages to Class Members? Page 46

12. To the extent that the claims of Class Members raise non-common or individual issues, what are the appropriate, most efficient and cost effective procedures for determining same?*

* Not certified per the motion judge's order.

** Not certified in accordance with these reasons.

*** Certified with modification in accordance with these reasons. cp/ln/e/qlmdl/qlgpr/qlana/qlhcs/qlgpr/qlhcs/qlhcs/qlced

1 Members of a different law firm recently brought a certification motion in an overtime class action in the banking sector in Brown v. Canadian Imperial Bank of Commerce, 2012 ONSC 2377, [2012] O.J. No. 1853. In that case, the representative plaintiffs alleged that their employer wrongly classified the putative class members as ineligible for overtime. The motion judge refused to certify the proceeding as a class action.

2 Scotiabank also moved to strike certain affidavit evidence filed by the plaintiff. The motion judge dismissed this motion and the Divisional Court upheld this order. Scotiabank is not appealing from this aspect of the Divisional Court's order.

3 Counsel for the respondent rose to advise the panel that this was the first time in the proceedings that Scotiabank had conceded that the Code provisions are incorporated into the contract. Counsel for the appellant responded that he had not been counsel in the courts below. Counsel for Scotiabank went on to acknowledge that the Initial Policy (which admittedly forms part of the employment contract of class members) states that it is based on the Code. He further acknowledged that, to the extent there is any inconsistency between the terms of the policy and the requirements of the Code, the terms of the policy would be void. Counsel went on to make it clear that he was not conceding preferable procedure.

4 The appellant's submissions on the damages issues focused on the suitability of the proposed common issue of the availability of an aggregate assessment of damages arising from the claims for unpaid overtime as raised by common issue 10(a). Page 47 Page 1

Indexed as: McCarthy v. Canadian Red Cross Society

PROCEEDING UNDER The Class Proceedings Act, 1992 Between Michael McCarthy, Christine McCarthy and Derek Marchand, plaintiffs, and The Canadian Red Cross Society and The Attorney General of Canada, defendants

[2001] O.J. No. 2474

[2001] O.T.C. 470

8 C.P.C. (5th) 349

106 A.C.W.S. (3d) 193

Court File No. 98-CV-143334

Ontario Superior Court of Justice

Winkler J.

Heard: January 29-30, 2001. Judgment: June 21, 2001.

(29 paras.)

Practice -- Settlements -- Court approval, class actions -- Approval of counsel fees.

Motion for approval of a class action settlement. A class action was commenced against the Canadian Red Cross Society and the government on behalf of victims who had contracted Hepatitis C from the Canadian blood supply and who were excluded from an earlier government settlement. A partial settlement was proposed between the victims and other parties, the Plan Participants, which included pharmaceutical companies, insurance companies, hospitals and individual physicians. The judge dismissed the parties' motion to approve the settlement because no compensation was payable to those with derivative claims, such as relatives of infected persons. Page 2

The judge also found that there was insufficient evidence to enable him to determine whether the release sought by the Plan Participants was fair. Leave was granted to file further and better material addressing the deficiencies. The parties provided supplementary materials, and renewed their motion for approval of the settlement.

HELD: Motion allowed. Under the new proposal, the derivative claimants would receive payments in accordance with their relationship to the infected claimant. Spouses and minor children of a claimant or the parents of a minor infected child would receive $300, while all other close relatives, including siblings, would receive $100. The total amount payable in respect of any one infected class member would be capped at $800. The proposed distribution of the settlement fund was fair, reasonable and in the best interests of the class as a whole. There was a finite settlement fund available, as the Society was the subject of a proceeding under the Creditors Companies Arrangement Act. Litigation would be protracted and complex. Timely payment was in the interests of class members. The potential inequality between derivative claims was insignificant in light of the cap. The parties also provided additional evidence to establish that the release sought by the Plan Participants was a fair and reasonable compromise for the class. The proceeding was certified as a class proceeding, having satisfied the requirements for certification. A lump sum fee for counsel was approved.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 5(1), 29(2), 32(2).

Companies Creditors Arrangements Act, R.S.C. 1985, c. C-36.

Counsel:

David Harvey, Lori Stoltz and Susan Vella, for the plaintiffs. P.R. Boeckle, for The Canadian Red Cross Society. W. Knights, for The Attorney General of Canada. Laurie Redden, for The Public Guardian and Trustee. Linda Waxman, for The Children's Lawyer. Malcolm Ruby, M.M. Fox and Mary Thomson, for various Plan Participants. William Dermody, Friend of the Court.

WINKLER J.:--

Nature of the Motion

1 The plaintiffs are the proposed representative plaintiffs in this intended class proceeding. On Page 3

January 29, 2001 they brought a motion for approval of the partial settlement reached with the Canadian Red Cross Society ("CRCS") and certain other individuals and entities that are not currently parties to the action. These non-parties are identified collectively as the Plan Participants, a defined term in an on-going proceeding involving the CRCS under the Companies' Creditors Arrangements Act, R.S.C. 1985, c. C-36 ("CCAA"). The CRCS and the Plan Participants were consenting to the certification of this action for the purpose of effecting the partial settlement, if the settlement was approved by the Court as required under s. 29(2) of the Class Proceedings Act, S.O. 1992, c. 6. As part of the motion for approval of the settlement, the plaintiffs also sought ancillary relief in the form of an order barring the non-settling defendant from initiating or continuing any action against the settling parties for contribution or indemnity in respect of the claims asserted by the plaintiffs or the class members. In addition there was a companion motion seeking approval of the fees and disbursements of the class counsel.

2 In reasons released February 20, 2001, I refused to approve the proposed settlement advanced by the plaintiffs on two grounds:

(a) that the settlement was unfair to the derivative claimants intended to be included in the class; and (b) the absence of evidence to support the granting of the release that would enure to the benefit of the Plan Participants.

The motion was dismissed with leave to file further and better material that would address these deficiencies. The parties have now provided the Court with supplementary materials and renew their motion for the relief set out above.

Background

3 The background facts were set out in my earlier reasons and I reiterate them here for clarity. This action is one of several that have arisen as a result of the contamination of the Canadian blood supply with infectious viruses during the 1970s and 1980s. The particular viral infection at issue in this action is Hepatitis C, a disease which attacks and debilitates the liver over a period of time. Although a small percentage of those infected with Hepatitis C may actually clear the disease within a six month period, most infected individuals will remain so for the duration of their lives. The progression of the disease varies from person to person. In some people, the virus is latent even though it is present in the bloodstream. However, the debilitating effects of Hepatitis C are progressive in nature in some infected persons. In those most severely affected, the manifestation of the disease begins with mild fatigue and progresses over time to decompensation of the liver or hepatocellular cancer, both of which are terminal. Presently, there is no known cure for Hepatitis C.

4 The CRCS had control of the Canadian blood supply for a period spanning over 50 years and concluding in 1998. During the latter part of that term, the CRCS management of the blood supply was funded by the federal, provincial and territorial governments. The governments created an overseer committee to formulate policy directives relating to the blood supply. Those directives Page 4

were implemented by the CRCS. The contamination of the blood supply occurred primarily during the 1970s and 1980s. The plaintiffs allege that the contamination of the blood supply and the subsequent infection of the class members partly resulted from the policies in force during that time.

5 In 1997, Mr. Justice Horace Krever released the report of the Commission of Inquiry on the Blood System in Canada. ("Krever Report"). The report detailed the problems that led to the contamination of the Canadian blood system and recommended the institution of a no-fault compensation plan for all victims of tainted blood. The recommendation was not adopted by the governments. According to the Affidavit of Michael McCarthy, currently Vice-President of the Canadian Hemophilia Society and a proposed representative plaintiff in this action, the failure of the governments to adopt the recommendation for a compensation plan resulted in the victims advancing legal and political strategies in an attempt to obtain redress for the injuries that they had suffered.

6 Mr. McCarthy deposes that this action was commenced on March 10, 1998 as a result of rumours that the federal, provincial and territorial governments were considering settling a class proceeding commenced on behalf of those persons who had contracted Hepatitis C from the blood supply between January 1, 1986 and July 1, 1990 without offering compensation to any other victims. On March 28, 1998, the governments did in fact make such an announcement which culminated in the pan-Canadian settlement approved by this Court and reported as Parsons v. The Canadian Red Cross Society (1999), 40 C.P.C. (4th) 151 (Ont. Sup. Ct.).

7 This action is brought on behalf of a class of persons described as:

All persons who became infected with the Hepatitis C virus as a result of receiving blood or blood derivatives or blood products collected or supplied by the CRCS prior to January 1, 1986 or after July 1, 1990 but before September 28, 1998 in all provinces or territories of Canada except British Columbia and Quebec; and

All persons who became infected with the Hepatitis C virus as a result of contact with a person described above; and

All persons with claims derivative of the claims described above.

The class excludes those persons with claims arising as a result of an infection occurring between January 1, 1986 and July 1, 1990 as they are included in the class proceeding that has now been settled in Parsons and the related actions. September 28, 1998 has been selected as a termination date for class membership as the CRCS surrendered control of the Canadian blood supply to the Canadian Blood Services and Hema-Quebec organizations after that date. Page 5

8 As stated, the CRCS is currently subject to a Court supervised CCAA proceeding. The proposed partial settlement and its funding is a product of that proceeding. Accordingly, the plaintiffs move for approval of the partial settlement, certification on consent and certain ancillary relief.

9 Section 29(2) of the Class Proceedings Act S.O. 1992, c. 6, mandates Court approval of settlements in class proceedings. Having reviewed the record and considered the submissions of class counsel and other interested parties, and the supplementary materials filed by the parties in response to my earlier ruling. I conclude that the concerns noted in my earlier reasons have been adequately addressed and that the motion ought to be granted. My reasons follow.

Settlement Approval

10 The partial settlement for which the plaintiffs sought approval on the earlier motion was described as follows at paragraph 19 of the plaintiffs' factum:

The Plan represents the settlement reached among the CRCS and certain other parties referred to as "Plan Participants", which include such entities as pharmaceutical companies, insurance companies, hospitals and individual physicians. The CRCS settlement is a national settlement that covers the class actions in British Columbia, Ontario and Quebec and will only become effective if courts in all three jurisdictions approve it. The settlement creates a fund of approximately $63 million for people infected directly or indirectly with Hepatitis C as a result of blood received in Canada before 1986 or after July 1, 1990 ...

11 As stated above, I rejected the settlement on two main grounds. The first was the manner in which the derivative claims were to be treated under the proposed settlement. The plaintiffs were proposing that the derivative claims would be extinguished under the settlement without any compensation being provided. I found this to be unacceptable.

12 The settlement now proposed to the Court contemplates that certain monies will be distributed equally among all infected class members, in three instalments. The payments will be made by instalment to insure that the fund is not depleted in the event that there are delayed claims from class members due to individual circumstances. In addition, the derivative claimants will receive payments in accordance with their relationship to the infected claimant. Spouses and minor children of a claimant or the parents of a minor infected child will receive $300.00, while all other close relatives, including siblings, will receive $100.00. However, the total amount payable in respect of all of the derivative claims relating to a single infected class member will be capped at $800.00. If the total potential derivative claims for any one infected class member exceed that amount, the derivative claimants will receive pro-rated amounts totalling $800.00. Further, if there are no derivative claims asserted in respect of an infected class member, that class member will be entitled to receive the $800.00 amount set aside for derivative claims. Page 6

13 The Children's Lawyer has expressed concerns regarding the manner in which the settlement proposes to deal with the derivative claims. The concerns relate to the unequal payments that will be made depending on the number of derivative claims asserted and the possibility that the manner in which the settlement is structured will discourage derivative class members from making claims. I am not persuaded that these concerns are sufficient to justify a rejection of the settlement.

14 Settlements in class proceedings do not have to meet a threshold of perfection. Rather, the test is whether or not the settlement is fair, reasonable and in the best interests of the class as a whole. Further, in determining this the Court looks to whether the settlement is within a zone or "range of reasonableness". In this case, there is a finite settlement fund available.

15 The proposed distribution of that settlement is "fair, reasonable and in the best interests of the class as a whole". Although there will likely be unequal amounts distributed under the settlement, the cap on derivative claims is set in such a manner that the potential inequality is insignificant in the context of the test to be applied on settlement approvals. Further, the capped amount is reasonable in consideration of the total compensation being offered under the settlement. Treating the infected class member and the derivative claimants associated with him or her as a unit for the purposes of compensation is an innovative method of distributing a limited fund to class members with differing bases for claims.

16 I turn now to the second ground upon which the earlier motion for settlement approval was rejected. The nature of the funding for the settlement was set out in detail in my earlier reasons. My concerns regarding the element of the settlement agreement relating to the Plan Participants were, in essence, threefold. The Court was not provided with:

(a) information concerning the involvement of each Plan Participant in the underlying events giving rise to the cause of action asserted; (b) an analysis of the potential liability of each Plan Participant; and (c) information regarding the contribution of each Plan Participant to the settlement fund.

17 The supplementary material filed addresses the foregoing concerns in a satisfactory manner. A chart has been provided setting out in summary form the contributions of each of the Plan Participants to the settlement fund together with an analysis of their involvement and potential liability. This chart is supported by affidavit evidence that in all respects satisfies me that the release the Plan Participants seek in return for their contribution is a fair and reasonable compromise for the class.

18 The deficiencies noted in the prior settlement proposal have now been remedied. In light of the principles enunciated in Dabbs v. Sun Life Assurance of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.), Parsons v. The Canadian Red Cross (1999), 40 C.P.C. (4th) 151 (Ont. S.C.J.) and Reichhold v. Boyer (2000), 43 C.P.C. (4th) 263 (Ont. S.C.J.), I find that the settlement is fair, reasonable and in the best interests of the class as whole. The settlement was reached after extensive arms length Page 7

negotiations. The primary defendant is the subject of a proceeding under the CCAA and there is no more money available from that source to fund the settlement. There is a significant risk involved for the class in establishing liability in the class period. Any litigation will be protacted and complex. It is in the interests of the class members to have a timely and prompt payment, given their circumstances as confirmed by the vive voce evidence of certain class members testifying in support of the motion for approval of the settlement. Accordingly, the settlement is approved.

19 I conclude this part of my reasons with the following observations. The Court is obligated to carefully scrutinize proposed settlements in a class proceeding. Nonetheless, where settlement proposals are advanced on uncontested motions, in my view, there is a positive obligation on all parties and their counsel to provide full and frank disclosure of all material information to the Court. This is a well developed principle of law in respect of ex parte motions for injunctive relief but the underlying concerns it addresses are equally applicable in the context of unopposed motions in class proceedings or on motions where there is the appearance of a risk of collusion among the parties.

20 As Sharpe J. states aptly in United States of America v. Friedland, [1996] O.J. No. 4399 (Gen. Div.) at para 26 "The Judge hearing an ex parte motion and the absent party are literally at the mercy of the party seeking injunctive relief. The ordinary checks and balances of the adversary system are not operative." Sharpe J. then adopts a statement from a British Columbia decision, [1996] B.C.J. No. 1885, that "there is no situation more fraught with potential injustice and abuse of the Court's powers than application for an ex parte injunction."

21 By comparison, a class proceeding by its very nature involves the issuance of orders or judgments that affect persons who are not before the Court. These absent class members are dependent on the Court to protect their interests. In order to do so, the Court must have all of the available information that has some bearing on the issues, whether favourable or unfavourable to the moving party. It is the obligation of counsel to provide that information in a manner that is consonant with the duty to make full and frank disclosure. Moreover, that information must be provided in a manner that is not misleading or even potentially misleading. In most class proceedings, voluminous records develop as a consequence of the complexity of the litigation. The Court is not equipped, nor should it be required, to engage in a forensic investigation into the material or to mine the record to inform itself. Counsel must direct the Court to all relevant information that would impact on the Court's determination. This is especially important where the motion is for the approval of settlement agreements, class counsel fees or consent certifications for the purpose of settlement.

Certification

22 The defendants and Plan Participants consent to certification contingent upon approval of the settlement. Nevertheless, the Court must be satisfied that the requirements for certification under s. 5(1) of the CPA have been met. There is a cause of action, an identifiable class, common issues for the class arising from the cause of action asserted and a class proceeding would be the preferable Page 8

procedure for dealing with the common issues. The representative plaintiffs do not appear to have any conflicts with the class members on the common issues and the plan of proceeding advanced is workable. In the result, the proceeding is certified as a class proceeding.

Fee Approval

23 Section 32(2) of the CPA mandates that the Court approve an agreement regarding the fees and disbursements between a solicitor and a representative plaintiff. This proceeding is brought along with companion proceedings in British Columbia and Quebec. The respective plaintiffs and counsel in each of these proceedings have agreed that the fees of class counsel will not exceed 10% of the settlement fund, such amount to be divided equally among the class counsel in all three proceedings.

24 Class counsel in this proceeding therefore seek approval of a lump sum fee of $2,100,000 plus disbursements for the services rendered on behalf of the representative plaintiffs and class members. In class proceedings, the reasonableness of a class counsel fee is to be determined in consideration of the risk undertaken and the result achieved. This Court has previously analysed the risks attendant to litigation involving the Canadian blood supply problems in Parsons v. The Canadian Red Cross (2000), 49 O.R. (3d) 281 (S.C.J.). If anything, the risk was more pronounced in this case due to the greater difficulty that would be experienced in proving liability. As for the result achieved, it was limited somewhat by the circumstances of the Canadian Red Cross and the ongoing CCAA proceeding but it appears that counsel have generated, through the settlement, the maximum recovery possible for the class.

25 A lump sum fee is an appropriate method of compensating class counsel, especially where experienced counsel with a particular expertise are involved with complex litigation directly related to their area of expertise. To limit the compensation available in such a situation to that calculable on a base fee and multiplier approach would unduly penalize efficiency. Here, the lead counsel, Mr. Harvey, has considerable expertise in blood litigation, and more to the point, experience with the factual background of this litigation that was gained from his involvement in other related matters. That permitted him to conduct this litigation in an efficient manner without the normal, and otherwise necessary, expenditures of time that a competent counsel not versed in the area and facts would require in order to be able to prosecute the proceeding effectively or at all.

26 The fee requested is supported by the representative plaintiff, Mr. McCarthy. Because the class counsel in each of the three class proceedings have agreed to an equal division of the fees even though there are not equal numbers of class members in each of the three actions, the amount sought in this action is approximately 8.5% of the recovery of the class members covered. The total fees sought will average approximately $865 per infected class member based on the numbers of those class members currently estimated to exist. This is reasonable when compared to the potential recovery that will be received by each infected class member.

27 In consideration of the foregoing, I find that the requested fee is reasonable and it is Page 9

accordingly approved.

Motion to Join the Plan Participants

28 In order to effect the implementation of the settlement, the Plan Participants intervene on a motion to be added as parties for the purposes of certification and settlement. The motion is granted.

29 Orders to go accordingly. I will remain seized in the event that there are any further matters to be spoken to.

WINKLER J. cp/d/ln/qlhcc/qlbdp Page 1

Dabbs v. Sun Life Assurance Company of Canada [Indexed as: Dabbs v. Sun Life Assurance Co. of Canada]

40 O.R. (3d) 429

[1998] O.J. No. 2811

Court File No. 96-CT-022862

Ontario Court (General Division)

Sharpe J.

July 3, 1998

Civil procedure -- Class proceedings -- Certification -- Approval of settlement -- Action against insurance company for damages arising from alleged misrepresentation that within specified number of years dividends would pay premiums -- Action satisfying test for certification as class proceeding -- Class Proceedings Act, 1992, S.O. 1992, c. 6.

Civil procedure -- Class proceedings -- Approval of settlement -- Standard for approval not perfection and involving element of compromise -- Action against insurance company for damages arising from alleged misrepresentation that within specified number of years dividends would pay premiums -- Defendant and representative plaintiff signing settlement agreement and seeking court approval -- Under settlement agreement, class members having right to receive certain defined benefits without proof of any misrepresentation or having choice of alternative claims resolution procedure that required them to provide evidence of misrepresentation -- Settlement approved -- Class Proceedings Act, 1992, S.O. 1992, c. 6.

The plaintiff brought a proposed class proceeding against the defendant insurance company. In the action, the plaintiff alleged that agents of the defendant misrepresented to purchasers of policies that within a specified number of years dividends would pay the premiums. Similar actions were commenced in British Columbia and Quebec. There were approximately 141,000 class members in Ontario and approximately 400,000 class members in Canada. All the actions were settled by written agreement dated June 16, 1997 subject to court approval in all three provinces. The settlement was approved in British Columbia and Quebec. The plaintiff and the defendant together moved for certification of the action as a class proceeding and for approval of the settlement. There were 14 objectors. Page 2

Under the settlement agreement, all class members could choose to receive certain defined benefits without proof of any misrepresentation or it could choose to receive certain defined benefits under an alternative claims resolution procedure that required the class member to provide evidence of the misrepresentation. Depending on the nature of their policies, the benefits available without proof of the misrepresentation (a "no proof" benefit) included annual dividend improvements and reduced cost of term insurance. Under the alternative claims resolution procedure, there were five categories of claims and the availability of benefits depended upon whether the class member provided written or oral evidence of the misrepresentation and upon whether the agent confirmed the misrepresentation, neither confirmed nor denied the misrepresentation, denied the misrepresentation, or provided evidence of a contradictory written statement that had been given to the class member at the time of sale of the policy.

Under the settlement agreement, a class member could immediately opt out and sue on their own behalf and there was an additional right to opt out under the alternative claims resolution procedure if the class member's proof was denied by an agent. In this circumstance, the class member also had the right to re-elect for a "no proof" benefit.

Held, the motion should be granted.

The action should be certified as a class proceeding since the statement of claim disclosed a cause of action, there was an identifiable class that would be represented by the representative plaintiff, there was a common issue, and a class proceeding was the preferable procedure for the resolution of the common issues. Further, the representative plaintiff had no conflict of interest to the class and had produced a proper plan for the resolution of this proceeding. The objection based on the absence of a subclass for class members with a complaint for having been improperly induced to replace an existing policy did not justify denying certification and any class members with such a complaint were protected by the provisions in the settlement agreement for opting out.

Considering the points in favour of and against approval of the settlement, it should be approved. The standard for approval is not perfection. While class action settlements must be seriously scrutinized, all settlements are the product of compromise and fairness is not a standard of perfection. Reasonableness allows for a range of possible resolutions. A less than perfect settlement may be in the best interests of those affected by it when compared to the alternative of the risks and costs of litigation. In this case, that the settlement was recommended by experienced class counsel and that it had been approved in British Columbia and Quebec were factors favouring its approval. The legal risk of failing to prove the misrepresentation claim was real, and there were practical and financial risks that favoured a settlement. The alternative claims resolution process, which was at the core of the settlement, provided a fair and efficient process. The plaintiff and the defendant satisfied the burden of showing that the proposed settlement was fair, reasonable, and in the best interests of those affected by it.

Cases referred to Page 3

London and South Western Rail Co. v. Blackmore (1870), L.R. 4 H.L. 610; Podmore v. Sun Life Assurance Co. of Canada, Que. S.C., Tannenbaum J., January 16, 1998; Romanchuck v. Sun Life Assurance Co. of Canada, B.C.S.C., Brenner J., November 28, 1997

Statutes referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5

MOTION for a certification of an action as a class proceeding and for approval of a settlement under the Class Proceedings Act, 1992, S.O. 1992, c. 6.

Michael A. Eizenga, Michael J. Peerless and Charles M. Wright, for plaintiff. H. Lorne Morphy and Patricia D.S. Jackson, for defendant. Michael S. Deverett, for three objectors. Gary R. Will and J. Douglas Barnett, for 11 objectors.

SHARPE J.: --

1. Nature of Proceedings

This action is a proposed class proceeding pursuant to the Class Proceedings Act, 1992, S.O. 1992, c. 6. The claim arises from the sale of so-called "vanishing premium" life insurance policies. The plaintiff alleges that in marketing these policies, the defendant Sun Life Assurance Company of Canada ("Sun Life") and its agents represented to purchasers that dividends to policy holders would pay the required premiums within a specified number of years. Sales illustrations projected a "premium offset date" after which no further premiums would be required. In fact, in the plaintiff's case and in a large number of similar cases, dividends have been lower than projected and policy holders have been or will be required to pay premiums for a longer period than the projected premium offset date. The defendant Sun Life has made it clear that it denies the allegations of misrepresentation.

Together with similar Quebec and British Columbia actions, this action was settled by written agreement, dated June 16, 1997. The settlement is subject to and conditional upon court approval in all three provinces. The settlement has been approved in Quebec and British Columbia. On this motion, the plaintiff and defendant seek certification of the action as a class proceeding and approval of the settlement.

Following my earlier ruling on the procedure to be followed on this motion, released February Page 4

24, 1998, further material was filed by the plaintiff and by certain of the objectors. The motion was then heard over three days in accordance with the terms set out in my procedural ruling. I am now in a position to rule on certification and the request for approval of the settlement.

2. Certification

The test for certification is set out in the following terms in the Class Proceedings Act, s. 5:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(a) the pleadings or the notice of action discloses a cause of action; (b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant; (c) the claims or defences of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who,

The defendant supports the motion for certification, but only on the condition that the settlement be approved at the same time. Subject to certain submissions relating to the subclass issue discussed below, the objectors focused their attention on the settlement and did not seriously contend that this was not a case for certification.

(a) Cause of action

I am satisfied that the statement of claim discloses a cause of action. The plaintiff asserts claims on his own behalf and on behalf of a proposed class for alleged breach of contract and negligent misrepresentation arising out of the manner in which whole life participating insurance policies with a premium offset option were sold. The allegations in the action primarily concern the use of sales illustrations, combined with oral and written representations made by the defendant and its agents with respect to the date upon which dividends would be sufficient to fully pay up the policies. While it is clear from the position it has taken on this motion that the defendant would deny these allegations if the action were to proceed, the plaintiff does plead a tenable cause of action. Page 5

(b) Identifiable class

The plaintiff proposes that the class be defined as follows:

. . . all owners of Class Policies purchased in Ontario, or who are resident in Ontario on April 30, 1997 and whose Class Policy(ies) were purchased outside Quebec or British Columbia.

"Class Policy" is defined as

. . . any participating whole life policy issued by Sun Life in Canada between January 1, 1980 and December 31, 1995 which is in force as of April 30, 1997 (a "Current Class Policy") or which has become a Lapsed Policy between January 1, 1990 and April 30, 1997 (a "Lapsed Class Policy"), except those policies in respect of which the owners have released Sun Life from claims related to premium offset or to the sale of the policies.

The proposed definition of the class does, I find, represent an identifiable class of two or more persons that would be represented by the representative plaintiff. It is common ground that there are approximately 141,000 members of the proposed class in Ontario and approximately 400,000 class members in Canada.

I also find that the statement of claim does raise a common issue, namely the following:

Did the use of illustrations and/or any representations, in writing or verbal, create an obligation on the part of Sun Life with respect to a specified offset date despite the terms of the policy itself and the terms of any illustration?

(d) Preferable procedure

I find that a class proceeding is the preferable procedure for the resolution of the common issue. As already noted, there are approximately 141,000 class members in Ontario and approximately 400,000 class members in Canada. The litigation of these claims on an individual basis would be costly and time consuming. Indeed, if these claims had to be litigated on an individual basis, few members of the class would be able to present their claims because of the costs, risks and delays involved. I have no doubt that a class proceeding is the most efficient manner to deal with these Page 6

claims from the perspective of both the litigants and the court, and that a class proceeding will result in increased access to justice.

(e) Representative plaintiff

Mr. Dabbs filed an affidavit on this motion and was cross-examined before me. Mr. Dabbs impressed me as being an honest and informed lay person with a genuine perception of having been misled by an agent as to the number of premiums he would have to pay. I am satisfied on the basis of all the evidence that he has made a sincere and genuine effort to represent the interests of the proposed class and that he has no conflict of interest with other members of the class. I find as well that the representative plaintiff has produced a proper plan for the resolution of this proceeding.

(f) Subclass

Mr. Deverett submitted that certification should be denied on the ground that the agreement failed to provide for a subclass for those who have claims for "twisting", a practice whereby a policy holder is improperly induced by an agent to replace an existing policy with a new policy of less value to the policy holder. In my view, there is no evidence that would indicate that there has been a significant problem with "twisting" among Sun Life policy holders. Class counsel did not ignore the issue. The statement of claim contains an allegation that would deal with twisting. However, Mr. Ritchie testified that from class counsel's interviews with over 200 policy holders, there emerged no evidence of a systemic problem. In my view, in the absence of any evidence or reasonably supported belief that twisting may be a wide-spread problem among class members, there is no basis for denying certification on the ground that there is no subclass for "twisting". The right to opt out provides adequate protection to any class member who wishes to pursue a claim for "twisting".

3. Terms of the Settlement

The settlement agreement is a document of some considerable complexity, but it will facilitate analysis to provide a simplified explanation of its main features.

(a) Right to opt out

Under the terms of the settlement, all class members retain the right to opt out of the settlement and sue on their own behalf for whatever claim they wish to assert. The right to opt out arises at two stages. A class member may opt out immediately and have nothing to do with the settlement. There is also a right to opt out that arises in one area of the alternative claim resolution process, discussed in greater detail below.

(b) Global benefits

The proposed settlement contains two types of benefits for class members. First are global benefits. These might be described as "no-proof" benefits. They are available to all class members Page 7

without inquiry as to the nature of the representations that were made to the class member at the time he or she purchased the policy. All members of the class are automatically entitled to an annual dividend improvement of 50 basis points (1/2 per cent) higher than would otherwise apply for a period of three years. For a special category of policies known as "enhanced policies", there is a further benefit of a 25 per cent reduction in the cost of term insurance for the enhanced term of such policy.

A member of the class may also elect the optional dividend benefit. This is also a "no-proof" benefit, available without inquiry as to the nature of the representations that were made to the class member at the time he or she purchased the policy. This benefit entitles the policy holder to an annual dividend interest rate that is 75 basis points (3/4 per cent) higher than would otherwise apply for the term of the policy. However, to obtain this benefit, the policy holder must waive the special maturity dividend. The special maturity dividend is not a right secured by any policy, but an enhancement the defendant has voluntarily provided to its policy holders. It represents an enhanced cash value or payment on death determined by the length of time the member has held the policy. To determine the relative values of the optional dividend benefit and the special maturity dividend the policy holder must give up, it is necessary to examine the policy holder's individual circumstances. The plaintiff and the defend ant submit that in most cases, the value of the optional dividend benefit will greatly exceed the value of the special maturity dividend. I will return to the question of the value of the optional dividend benefit below.

The second type of benefit is that available through the alternative claims resolution process ("ACRP"). The ACRP provides a mechanism whereby a policy holder presents evidence of the nature of the actual misrepresentation made at the time of sale of the policy. A class member who elects to submit an ACRP claim is, subject to an exception described below, not entitled to receive the "no-proof" benefits just described. The ACRP provides for submission of a claim on the basis of affidavit from the policy holder and certain documentary evidence.

The settlement agreement contemplates that a policy holder who submits an ACRP claim will be placed in one of five categories. These are described in greater detail and with more precision in the agreement, but for present purposes, the following simplified definitions will suffice:

Category 1: the member provides evidence showing that the defendant or its agent made a written representation that the policy would be fully paid-up after a specified number of premiums had been paid.

Category 2: the member provides affidavit evidence that the defendant's agent made an oral representation that the policy would be fully paid-up after a specified number of premiums had been paid and the agent confirms that such representation was made. Page 8

Category 3: the member provides affidavit evidence that the defendant's agent made an oral representation that the policy would be fully paid-up after a specified number of premiums had been paid but the agent neither confirms nor denies that such representation was made.

Category 4: the member provides affidavit evidence that the defendant's agent made an oral representation that the policy would be fully paid-up after a specified number of premiums had been paid but the agent provides an affidavit denying that such representation was made.

Category 5: the member provides affidavit evidence that the defendant's agent made an oral representation that the policy would be fully paid-up after a specified number of premiums had been paid and there is evidence that a written statement was provided at the time of sale which contradicts the member's version of the misrepresentation.

The rights and benefits attaching to these classifications is as follows. Categories 1 and 2 claimants are entitled to the same premium offset entitlement that was represented to them. Category 3 claimants are entitled to a premium offset date which is half-way from the premium offset date represented at the time of sale to the premium offset date shown as applicable on the first policy anniversary date after March 1, 1997. Categories 4 and 5 claimants are entitled to no relief. However, Category 4 claimants have two options available after their claims have been classified as falling into Category 4. First, they have the right to opt out of the settlement entirely, thereby preserving any common law action right they may have. Second, Category 4 claimants have the right to re-elect and take either of the "no-proof" benefits described above.

The settlement agreement provides for a summary and mechanical process whereby claims are to be assessed and classified. The ACRP does not allow for viva voce evidence, nor does it permit a right to cross-examine and or include any right to make oral representations. The defendant Sun Life is required to establish a claims administration facility which bears primary responsibility for determining the claims. The claims administration facility is, however, subject to audit by class counsel and rejected claims are subject to review by a review panel consisting of a lawyer designated by Sun Life and a designated member of settlement class counsel. In the event of disagreement between the members of the review panel, there is further review by the "designate", defined as a retired judge or comparable individual.

The agreement requires the parties to provide to the court for approval a list of statements which are to be considered to constitute clear and unqualified guarantees as contemplated for Categories 1 and 2 claims. To protect the integrity of the ACRP, the lists are filed with the court under seal, but I have reviewed them. I find that they represent a useful, fair and reasonable collection of the sort of statement that would meet the standard required under the agreement. Page 9

Sun Life is also required to provide a toll-free telephone information line on which class members may make inquiries and obtain policy status information. Class counsel are required to monitor that "hot line" to ensure that appropriate information is given to class members. I note as well that class members who opt for the ACRP are entitled to access to the Sun Life file. Counsel for Sun Life stated to the court that before having to decide whether to accept the global benefits, elect the optional dividend benefit or pursue a claim under the alternative resolution process, a class member would be able to obtain from Sun Life a print-out setting out information as to the class member's policy that would include the value of the special maturity benefit.

(d) Value of the optional dividend benefit

The value of the "optional dividend benefit" is of considerable significance. It is available to all policy holders on a "no-proof" basis and it provides the fall-back position available to those policy holders who swear that a misrepresentation was made but who are denied any relief under the ACRP when met with a sworn denial by the agent.

I asked for further evidence of the value of this benefit. The plaintiff answered this request with a further affidavit from an actuary who had been retained to provide an expert opinion on the overall worth of the settlement. It is apparent that the actuary's opinion is based upon background information with respect to policies, dividends and benefits provided by the defendant. While neither of the groups of objectors showed any concern about the value of the optional dividend benefit until I raised the point, both counsel submitted that there should be a more searching inquiry into the background information that had been provided to Mr. Huff. The defendant takes the position that this information is of a confidential nature and that if it were to be made a matter of public record, the defendant would suffer thereby. Upon Mr. Huff depositing with the registrar of the court copies of the material and information he had been provided by the defendant, I reserved my decision on the appropriate course to foll ow.

My ruling on this point is that the question I asked has been answered by Mr. Huff's evidence and that without looking at the material provided by the defendant to Mr. Huff, I have been provided sufficient information to permit me to assess the fairness of this settlement. I reach this conclusion for the following reasons. First, Mr. Huff impressed me as a reliable witness who took his role as an independent expert seriously. He did not exaggerate or use the witness stand as a platform to advocate the cause of the party that retained him. His evidence was measured and balanced. He indicated that by its very nature, virtually all of the information he needed to formulate his opinion had to come from the defendant. There is simply no independent source for the number and types of policies, the rights attached to those policies and the formulae for calculation of benefits. To the extent possible, he was able to verify that the information provided by the defendant was internally consistent and the necessary ac tuarial calculations were tested.

I was urged by the objectors represented by Mr. Deverett to question the reliability of data supplied by the defendant because of an adverse credibility finding made against a senior officer of Page 10

the defendant by another judge of this court in another action. In my view, it would be entirely inappropriate to accept such a submission. Each case falls to be decided on its own merits and on the evidence presented and the information at issue here is not the same as the evidence rejected in that other proceeding.

I am satisfied that an honest and significant effort has been made to respond to the question I asked. Mr. Huff and his associates devoted over 100 hours of professional time, 50 hours of para-professional time and 30 hours of clerical time, the greater part of which was related to the verification of offset dates. No further review is required. I would add that inherent in the approval of a settlement is the need to assess issues on a less than complete factual record. To require proof of all relevant facts to the standard required at trial would defeat the very notion of a settlement where the parties ask the court to approve an arrangement reached on a less than perfect record.

Mr. Huff's evidence is that over 90 per cent of policy holders would achieve offset reductions of between 30 per cent and 70 per cent through the optional dividend benefit. The weighted average reduction for policies he tested with meaningful offset reductions (i.e., excluding those where the current offset was the same as that indicated at the time of issue) was 56 per cent. It is apparent that these are averages and that to assess the situation of any individual policy holder, it would be necessary to consider the particulars of that individual's situation. Mr. Huff confirmed that the examples provided by Sun Life in the question and answer booklet provided to class members are accurate.

(e) Lapsed policies

The agreement also makes provision for lapsed policies. The holder of a lapsed policy who is able to provide evidence of insurability is entitled to a new policy similar to the lapsed policy with a 50 per cent reduction in the first annual premium. The holder of a lapsed policy may also apply under the ACRP. If the member's claim is classified as Category 1, 2 or 3, the policy may be reinstated without evidence of insurability upon payment of past due premiums, loans and interest.

4. Analysis of the Proposed Settlement

(a) The standard for approval

In my previous ruling I indicated that the standard to be met by the parties seeking approval of the settlement is whether in all the circumstances the settlement is fair, reasonable and in the best interests of those affected by it. A settlement of the kind under consideration here will affect a large number of individuals who are not before the court, and I am required to scrutinize the proposed settlement closely to ensure that it does not sell short the potential rights of those unrepresented parties. I agree with the thrust of Professor Watson's comments in "Is the Price Still Right? Class Proceedings in Ontario", a paper delivered at a CIAJ Conference in Toronto, October 1997, that class action settlements "must be seriously scrutinized by judges" and that they should be "viewed Page 11

with some suspicion". On the other hand, all settlements are the product of compromise and a process of give and take and settlements rarely give all parties exactly what they want. Fairness is not a standard of perfection.

Reasonableness allows for a range of possible resolutions. A less than perfect settlement may be in the best interests of those affected by it when compared to the alternative of the risks and costs of litigation.

I have had the benefit of three full days of cross-examination of deponents on affidavits filed in support of the settlement and submissions by counsel representing the parties and the objectors. I have received answers to certain questions I posed to the parties. After considerations of the points that have been made both in favour of and against approval of the settlement, for the reasons that follow, I have reached the conclusion that this settlement should be approved.

(b) Recommendation of class counsel

The fact that this settlement is strongly recommended by experienced class counsel is certainly a factor in its favour. The recommendation of class counsel is clearly not dispositive as it is obvious that class counsel have a significant financial interest in having the settlement approved. Still, the recommendation of counsel of high repute is significant. While class counsel have a financial interest at stake, their reputation for integrity and diligent effort on behalf of their clients is also on the line. Moreover, in the case at bar, the settlement was not the result of a solo effort. As there were proceedings brought in British Columbia and Quebec as well, there was a team of class counsel from three different provinces. Moreover, class counsel also sought and obtained the advice of counsel from the United States who have experience in "vanishing premium" litigation.

While the plaintiff presents an arguable case, there is no doubt that there is a risk that if the case went to trial, the common issue would be resolved against the class. Misrepresentation is often difficult to prove. Here, the standard sales illustration which forms the basis of most claims contains an explicit waiver which the members of the class would have to overcome. While the specific terms vary, typical language is: "This illustration assumes a continuation of the current scale of dividends and Special Maturity Dividends (SMD). Dividends may be higher or lower; they will be based on Sun Life's interest, expense, and mortality experience." The policies themselves typically contain language indicating that the premium is payable throughout the term of the policy: "Total Premiums payable by owner due [month, day and year] and yearly thereafter while life insured lives." It is certainly possible that the defendant might persuade a court that such language provided class members with a clear statement that the dividends might or might not be sufficient to fulfil the hoped-for result of the illustration. In addition to the legal and factual risks are certain practical concerns. The case would be factually, legally and procedurally complex. It would almost certainly take several years to get to trial and to then exhaust appeals. Page 12

(d) Fairness of the ACRP

The ACRP is at the core of this agreement. It plainly does not offer the procedural guarantees of a trial as there is no right to cross-examine, present oral evidence or to make oral submissions. On the other hand, there would be no point to the settlement if it did not provide for some form of summary resolution of claims. The provision of a cost-free process to claimants who would otherwise be forced to abandon their claims or bear the costs of litigation represents a significant benefit.

In my view, there can be little doubt that the ACRP offers a fair and reasonable resolution of claims falling in Categories 1 and 2 which afford the claimant precisely the offset date that was represented. I would also find it difficult to question the fairness of the result of a Category 3 claim where the claimant is given half-way relief on the basis of nothing more that the claimant's own sworn statement that an oral representation was made. Similarly, I see no reason to question the fairness of a Category 5 claim where there is evidence that a written statement was provided at the time of sale which contradicts the claimant's version of the misrepresentation. It is only fair that there be some control on the extent to which a class member can secure a benefit in the strength of his or her own affidavit. I note here that in answer to a question I posed, it was stated to the court that it was not intended that language of the explicit waiver in the standard sales illustration quoted above would be suffici ent to bring the claim within Category 5.

The contentious issue is the fairness of Category 4. Mr. Will focused his attention on this point and submitted that, in effect, the agent was given a veto over the rights of the policy holder. It was his submission that there should be some control or constraint on the extent to which agents could defeat a claim by simple denial. The right to confront and cross-examine the agent could be granted, or there could be a points system that would discount agent denials where the same agent denied more than one claim.

In my view, there are a number of factors which have to be considered here. First is the fact that the agent must make the denial on oath. This means that the agent who lies is subject to the threat of perjury. Second, it is not apparent that all agents will perceive it to be in their interest to favour the interests of Sun Life over their clients. Third are the very significant options that remain to a class member whose claim is denied by the agent. The class member has, at that point, the right to opt out and sue the defendant with full knowledge of the case he or she will have to meet. In that sense, the class member loses nothing because of the settlement but gains advance discovery of the case to be met. The class member also has the very significant right to abandon the ACRP and elect the "no-proof" benefits which, as noted, will frequently result in achieving half-way relief. In my view, when considered in light of the balance of the settlement, it cannot be said that the situation of the Category 4 claimants renders this settlement unfair.

It is my view, that considered as a whole, the ACRP does provide for an efficient and fair process.

(e) Approval in British Columbia and Quebec Page 13

Another factor which favours approval of the settlement is that the same agreement has been approved by the courts of British Columbia and Quebec. In the companion case in British Columbia, Romanchuck v. Sun Life Assurance Co. of Canada, November 28, 1997, Brenner J. found that:

. . . the settlement is reasonable, fair and adequate. A considerable degree of creativity has been demonstrated by the parties in putting in place, among other things, a form of alternative dispute resolution to allow a cost effective method of resolving the claims in this case . . .

In the Quebec case, Podmore v. Sun Life Assurance Co. of Canada, January 16, 1998, Tannenbaum J. of the Quebec Superior Court found that the agreement was "raisonnable, équitable, approprié et dans le meilleur intérÛt du groupe visé".

(f) Absence of statement of defence and discovery

This settlement was reached at a very early stage of the proceedings. No statement of defence was filed and there has been no discovery. The position of the defendant has not been put formally on the record and has been known to class counsel only through the settlement process. In my view, this is not a reason for refusing approval. It is clearly not the law that a settlement requiring court approval cannot be made at such an early stage of the proceedings. Moreover, I am satisfied that class counsel did adequately consider the position of the defendant. There is evidence before me that before recommending the settlement, class counsel interviewed hundreds of potential class members and a number of Sun Life agents. I am satisfied that a serious and diligent effort has been made to determine the facts. This is by no means the first "vanishing premium" case litigated in North America and class counsel took advice from others with experience in the area.

(g) Exclusion of other possible claims

I have already dealt with the matter of "twisting" in relation to certification. It is unnecessary to add anything here except that the settlement preserves the right of any class member to opt out and pursue any such claim.

Mr. Deverett also suggested that the failure of the Sun Life policies to perform as indicated in the standard sales illustration might be the fault of Sun Life itself as it has the unfettered right to determine the dividends that are to be paid. Again, I find that the evidence before me fails to show that there is any serious prospect that this is a potentially valid source for a claim by class members. Sun Life does business in a competitive market. The failure of life insurance policies of the kind at issue here to perform was not restricted to Sun Life. There was an industry-wide problem which has been linked to the collapse of the unusually high interest rates of the 1980s and which produced a number of actions in North America against a long list of insurance companies.

A related issue concerns the question of how Sun Life, a mutual insurance company, would pay Page 14

for the benefits to be conferred upon the policy holders. While that issue was not dealt with in the agreement itself, Mr. Ritchie testified that an understanding was reached during the negotiation of the settlement that future dividend scales would not be affected. That understanding was confirmed by a letter to Mr. Ritchie dated August 29, 1997 from counsel for Sun Life stating:

I confirm the information provided during the negotiation process.

Sun Life has specified that future dividend scales will be determined as if the settlement had never taken place. No attempt to recoup the costs of the settlement will be made in any manner affecting the existing participating policy holders (including Class Members).

That undertaking was confirmed by counsel for Sun Life before me at this hearing. In light of possible demutualization by Sun Life, a further letter from Sun Life's counsel to Mr. Ritchie dated May 1, 1998 repeats the above undertaking and states:

Given the possibility of demutualization, Sun Life has instructed us to advise that the statements made earlier are still true, with the (obvious) clarification that the costs of the agreement may have an impact on the value of the company, which value will be distributed to all eligible policyholders in the event that demutualization proceeds.

Another point made in relation to the prospect of other potential claims is that the terms of the release to be given to Sun Life under the agreement are broad. Sun Life and its agents are to be released "from any liability or damages for representations, omissions or other conduct . . . that occurred during the purchase or sale of any Settled Class Policy, or in connection with the offering of Global Benefits, the Optional Dividend Benefit, or other benefits or resolutions pursuant to the Agreement". A release in these terms consequent upon a settlement is not unusual or unexpected, and in any event, is subject to being interpreted in accordance with recognized legal principles. It is well established that a release must be interpreted with reference to the context in which it was drafted and that a release will not be construed as applying to facts not known to the claimant at the time the release was drafted: London and South Western Rail Co. v. Blackmore (1870), L.R. 4 H.L. 610. These princi ples, together with the right of any policy holder who now believes he or she has a claim against Sun Life that is not embraced by the settlement to opt out, provide an adequate answer to this objection.

(h) Analysis of the proposed settlement -- Conclusion

I find that the plaintiff and the defendant have satisfied the burden of demonstrating that the proposed settlement is fair, reasonable and in the best interests of those affected by it. The global benefits afford significant relief to class members on a "no-proof" basis. The ACRP provides for a summary but fair disposition of claims advanced on the basis of representations that were made. Page 15

4. Conclusion

For these reasons, there shall be an order for the relief requested in paras. (a) to (i) of the notice of motion appointing Paul Dabbs as a representative plaintiff, certifying this action as class proceeding, approving the proposed settlement and for the further related orders requested.

In my February 24, 1998 ruling, I made reference to the issue of costs. Any party who wishes to claim costs shall serve and file a concise written brief within 20 days of the release of these reasons outlining the claim that is made and the basis for the claim. Reply submissions are to be made ten days thereafter. A date for a hearing of any such claims will be arranged. Failing any such submissions, there shall be no order as to costs of this motion.

I will remain seized of this matter for the purpose of any further approvals that are required, including the approval of the arbitration award relating to the fees and disbursements of class counsel.

Order accordingly. Page 1

Brimner et al. v. Via Rail Canada Inc. et al. [Indexed as: Brimner v. Via Rail Canada Inc.]

50 O.R. (3d) 114

[2000] O.J. No. 2747

Court File No. 99-GD-46301

Ontario Superior Court of Justice

Brockenshire J.

July 17, 2000

Civil procedure -- Class proceedings -- Certification -- Preferable procedure -- Train derailment -- Passengers and families of passengers proposed classes -- Claims for tort and breach of contract -- Claims for general, special, aggravated, exemplary and punitive damages -- Defendants proposing binding arbitration as alternative to court proceedings -- Defendants' proposal not definite alternative to court proceedings -- Class action preferable procedure -- Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5 (1).

On April 23, 1999, Via Rail train 74 was derailed near Thamesville, Ontario. The plaintiffs moved for certification of a class action in which the proposed classes were, first, every person who was a passenger on the train and, second, their family members. The proposed claims were in contract and in tort for general, special, aggravated, exemplary and punitive damages. The proposed common issues were liability, negligence, breach of contract of carriage and punitive damages. The main issue argued by the defendants in opposing certification was the issue of "preferable procedure". As an alternative to a class action, the defendants proposed a scheme involving a voluntary payment of $1,000 and, if the claimant wished more, then binding arbitration of the claims of the passenger and his or her family. The arbitration would consist of hearings as references under rule 54.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The arbitration awards were to be final without a right of appeal.

Held, the action should be certified as a class action.

On a motion for certification, in considering the issue of preferable procedure, the court may consider procedures that are other than court proceedings. In the immediate case, the most Page 2

fundamental problem with the proposed alternative to an action in the courts was that it did not resolve the common issues. Further, the proposed alternative was not definite and the details of the proposal were unclear and appeared complex and cumbersome in comparison to the process of obtaining jurisdiction over everyone that fitted the class descriptions who had not opted out. There were also potential problems about how the proposal would deal with conflicts of interest in dealing with the claims of the passengers and the claims of their family members, in locating all of the passengers, and in the timeliness of the process. A class proceeding was the preferable procedure to litigate all issues. Claims arising from a train derailment are a classic example of claims suitable for a class proceeding. The claim for punitive damages was best dealt with in the context of a class proceeding. If the defendants choose to attempt to settle, then a class proceeding is the preferable procedure to deal with the settlement offer, including evaluating its fairness and providing the means for its implementation.

Cases referred to

Bittner v. Louisiana-Pacific Corp. (1997), 43 B.C.L.R. (3d) 324 (S.C.); Chace v. Crane Canada Inc. (1997), 44 B.C.L.R. (3d) 264, 14 C.P.C. (4th) 197 (C.A.); Dabbs v. Sun Life Assurance Co. of Canada (1998), 40 O.R. (3d) 429, 22 C.P.C. (4th) 381, [1998] I.L.R. 1-3575 (Gen. Div.) [appeal quashed (1998), 41 O.R. (3d) 97, 165 D.L.R. (4th) 482, [1999] I.L.R. 1-3629, 27 C.P.C. (4th) 243 (C.A.), leave to appeal to S.C.C. refused (1998), 235 N.R. 390n]; Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.); Sutherland v. Canadian Red Cross Society (1994), 17 O.R. (3d) 645, 112 D.L.R. (4th) 504, 21 C.P.C. (3d) 137 (Gen. Div.) Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16 Canada Business Corporations Act, R.S.C. 1985, c. C-44 Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 3, 5, 24, 29(2) Employment Standards Act, R.S.O. 1990, c. E.14 Family Law Act, R.S.O. 1990, c. F.3, s. 61

Rules and regulations referred to

Essex Civil Case Management Rules, R.R.O. 1990, Reg. 189, Rule 10 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 49, 54.02(1)(a)

MOTION for certification of a class proceeding.

Harvey T. Strosberg, Q.C., Craig J. Allen and Christopher E. Beckett, for plaintiffs. John A. Campion and Beth G. Beattie, for defendant, Via Rail Canada Inc. Charles F. Scott and William W. McNamara, for defendant, Canadian National Railway Company. Page 3

[1] BROCKENSHIRE J.: -- This is a motion for certification of a class action. Via Rail train 74 was travelling from Windsor to Toronto on CNR tracks on April 23, 1999, when it derailed at or near Thamesville. There were 174 passengers on the train.

[2] The proposed classes in the class action are every person who was a passenger on train 74 (the "class") and their family members per s. 61 of the Family Law Act, R.S.O. 1990, c. F.3 (the "family class"). The proposed causes of action are in negligence against the CNR and in contract and negligence against Via. The proposed claims are for general and special damages, and for aggravated, exemplary and punitive damages. The common issues proposed are liability, negligence, breach of contract of carriage by Via and punitive damages. Individual damage claims, including claims for aggravated and exemplary damages, are proposed to be dealt with at individual references, under court supervision, after determination of the common issues.

[3] Of the 174 passengers on the train, I was advised that 97 have executed retainers in favour of plaintiffs' counsel. Additionally, there are two actions on behalf of individuals that are being voluntarily held in abeyance, pending developments in the class action.

[4] The one issue argued extensively by defence counsel opposing the certification was the issue of "preferable procedure". Mr. Campion for Via proposed, as an alternate to a class action, a process under which Via would pay each passenger $1,000, in exchange for a release or, if the passenger wanted more, then after the passenger provided particulars of his or her claim, including claims of family members, efforts would be made to settle with the passenger, and failing settlement the claim would be resolved by binding arbitration by one of three retired judges, with Via paying the costs of the process.

[5] While this process was described in detail in an affidavit of Beth Beattie sworn September 29, 1999, it has since been varied, by adding thereto promises to pay prejudgement interest and costs. It was further varied in the factum filed by Mr. Campion to provide that the damages hearings would be references under rule 54.02(1)(a) so that this court would have jurisdiction to review the decisions of the arbitrators. Interestingly, while that proposal is at para. 12(d) of the factum, para. 12(k) provides that all awards of compensatory, damages will be final with no right of appeal and all passengers will be required to sign a full and final release of Via and CNR. The proposed "proof of loss" form was not provided to the court. I assume it included an irrevocable submission to binding arbitration.

[6] In argument before me Mr. Campion urged that in the same way as judges in previous class action cases had come up with creative solutions to problems, the proposal of Via should be looked at creatively and, if there were problems with procedural details, they could be changed at the direction of the court. Page 4

[7] This alternate proposal was first raised in an argument before me regarding refusal to answer questions on an examination. In that brief appearance, little authority was provided to me except the British Columbia case of Bittner v. Louisiana-Pacific Corp. (1997), 43 B.C.L.R. (3d) 324 (S.C.), a decision of Kirkpatrick J., who indicated at p. 341 that it appeared preferable for the class members to pursue the claims procedure offered by the defendants rather than a class action. I remarked that the British Columbia statute may be different than Ontario's and ruled that, in my view, "procedure" in the Ontario Class Proceedings Act, 1992, S.O. 1992, c. 6, meant a court procedure so questions related to the alternate process need not be answered. That decision was appealed to the Divisional Court and that court, on being presented with a number of other authorities, concluded that "procedure" has a wider meaning than procedure by way of other action in the courts and then concluded that all such alternate methods put before the motion judge on a certification must be considered, it being for the motions judge to decide whether he has before him a definite alternative method of resolving the common issues and, if so, whether it is a preferable procedure to a class action.

[8] For this motion, even more authorities were assembled. I had before me two case books containing 56 tabs. I assume counsel have exhausted the subject at least in Canada. It appears that over and above cases in which certification was refused as individual actions appeared to be the preferable procedure, there are a number of cases in which other procedures laid down by other statutes have appeared to the motions judge to be preferable. These include proceedings before rent tribunals, the procedure under the Employment Standards Act, R.S.O. 1990, c. E.14 and procedures available under the Business Corporations Acts [Business Corporations Act, R.S.O. 1990, c. B.16 and Canada Business Corporations Act, R.S.C. 1985, c. C-44]. Counsel could only find two cases in which reference was made to an alternate procedure that was not an alternate court procedure or a procedure provided for by statute. One was the Bittner case and the other was Sutherland v. Cana dian Red Cross Society (1994), 17 O.R. (3d) 645, 112 D.L.R. (4th) 504 (Gen. Div.), a decision of Montgomery J. Here, Montgomery J. at pp. 652-53 O.R., p. 512 D.L.R. said:

These potential class members are not denied access to justice absent class status, as referenced in Bendall. Here a provincial compensation package exists subject to election by affected persons by March 15, 1994.

That reference was not to a government scheme to resolve issues, but rather to a government offer to pay compensation to those infected by H.I.V.

[9] Interestingly, the headnotes in both Bittner and Sutherland make no mention of any finding of an alternate preferable procedure outside of the judicial system. That is probably because a careful reading of both of the cases indicate, as the headnotes do, that the motions judges decided against certifying class actions for a variety of other reasons, before indicating that the prospective plaintiffs were not left wholly without chance of recompense, because there were other schemes for providing compensation. However, I am bound by the findings of the Divisional Court and, in accordance with its direction, I have to consider whether I have before me a definite alternative method of Page 5

resolving the common issues and, if so, whether it is a preferable procedure to a class action.

[10] In my view, the first and most fundamental problem with the defence proposal is that it does nothing about resolving the common issues. The common issues raised by the plaintiffs are liability, negligence, breach of contract and punitive damages. The first three of these are completely ignored by the defence, except for saying that payments to be made are being made without any admission whatsoever of liability. The suggestion on punitive damages was that the class action be stayed until the settlement process had run its course when presumably it could then be revived to deal with the punitive claim. If by that time Via had settled all or the majority of the damage claims, it would surely be argued as mitigating against a punitive claim.

[11] What was disturbing was the firm position put forth on behalf of Via that its proposal to make voluntary payments would be available only if the class action was not certified. Mr. Campion stated his firm instructions were that if a certification order [was] issued, then a full trial on liability would have to take place and the plaintiffs succeed, before any payments were made to anyone. His off-hand estimate of the length of such a trial was two months.

[12] Even if a broader view is taken, and the common issue for the individual passengers and their families are taken to be getting some payment, there are still questions as to whether this route is preferable to a class action.

[13] A further problem, specifically referred to by the Divisional Court, is that the Via proposal is not a definite alternative. I referred before to the offer of Mr. Campion, while before me, to alter or amend the proposal as may be required in order to obtain court approval for it. I have alluded to the problem of referring in one place to a reference and another place to a binding arbitration to finally determine damages.

[14] No clear way has been worked out to achieve what was espoused in argument before me -- a procedure going forward under the supervision of the court. Confidence was expressed that I could generally supervise the process under rule 10 of the Essex Civil Case Management Rules, R.R.O. 1990, Reg. 189. Under that rule, when an action is placed on the complex track, as this one has been, a case management judge is authorized to "monitor its progress and to make any orders and give any directions that are necessary." In this complex action, there are at the moment four plaintiffs. Although many innovative things have been done under rule 10 of the Essex rules, I am not aware of any authority to make orders or give directions binding upon persons that are not parties to the action without notice to them and giving them an opportunity to be heard.

[15] The suggestion that the binding arbitrations be constituted as references on the basis of consent by affected parties would have to start by the individuals going into such a hearing becoming parties to the action. Mr. Campion suggested that there might be some process of adding these individuals one by one as plaintiffs to the action. It seems to me that would be unspeakably complex and cumbersome in comparison to the simple and straightforward process of obtaining jurisdiction over everyone that fitted the class descriptions who had not opted out. Page 6

[16] Mr. Strosberg raised several objections relating to the definitiveness of this alternate. He noted there is no provision for court approval of the claims of infants. That, I suppose, could be handled by specific applications to the court. More seriously, he argues that the Via plan creates a potential conflict of interest between members of the class and members of the family class. The proposal as presented calls for dealing with the passengers, with the passengers purportedly to bring forth the claims of their family members, and with settlements, and presumably arbitrations or references, to be between Via and the passengers, with the family members' claims being presented by the passengers. No answer is given as to what happens if there is a disagreement between the family members or between the family members and the passenger.

[17] It occurs to me there is a further problem. Via has a list of all of the passengers, but for, I believe, 14 of them, it has no address or telephone number. Via's proposal is to somehow locate these people. It has no answer as to what happens if it cannot. Most of the passengers for whom it has addresses seem to come from Ontario, Michigan or perhaps elsewhere in the United States. The class action process does provide an answer -- a notification process is approved by the court and the court then has jurisdiction including jurisdiction to deal with persons who do not bring claims before the court.

[18] A further area in which the Via proposal lacks definiteness is a lack of timelines. The proposal clearly calls for sending notices of a proposal to pay $1,000 and to settle claims above that directly to all of the passengers, including the majority who have instructed counsel, leaving it to the passengers to decide whether to involve their lawyers, but does not spell out the time within which negotiations would take place before claims were moved on to the arbitration or reference stage. The clear intent is that Via representatives would deal individually with each of the claims. A suspicious person might wonder if this proposal is a modern emanation of the ancient tactic of divide and conquer.

[19] This proposal is still in a state of flux 15 months -- not 15 days -- after the derailment. The consolidated statement of claim was filed August 27, 1999. The proposed class members may well wonder what happened to the time limit under the Class Proceedings Act.

[20] After considering all of the foregoing I have to conclude that I do not have before me a definite alternative method of resolving the common issues.

[21] This is not to say that in all cases private attempts at resolution will be turned away in a class action setting. Our courts frequently adjourn or delay steps in actions because settlement is being discussed. It is indeed a policy of our courts to encourage the private resolution of disputes. It may well be that in some future case, a court sees a settlement system that is working or clearly will work so fairly, efficiently and expeditiously that it would appear preferable to hold back on certification or even refuse certification to allow the other process to continue. However, here the proposal is to stay the court proceeding for an indefinite period, with the onus being on plaintiffs' counsel to move to remove the stay if it appears the system is not working. In view of the problems Page 7

above referred to with the Via proposal, in my opinion, that would not be satisfactory or in the best interests of the proposed class members, the court system or society as a whole.

[22] According to the Divisional Court ruling herein, the above finding would be the end of the matter. However, I think it is desirable to touch upon the second part of the question -- whether the Via proposal is a preferable procedure to a class action.

[23] In this discussion I must start with the observation that a train wreck is the classic example used repeatedly in decided cases as the type of mass tort in which the issue of responsibility is best resolved in a class action. Here we have, in addition, a claim for punitive damages. The British Columbia Court of Appeal in Chace v. Crane Canada Inc. (1997), 14 C.P.C. (4th) 197, 44 B.C.L.R. (3d) 264, at p. 204 C.P.C., para. 24 said:

Punishment of a morally culpable defendant is the purpose of punitive damages. Deterrence of such conduct is the reason for the punishment. The amount of the award is to be measured by the degree of moral culpability, the amount of compensatory damages, and the profits earned from the wrongful acts: Huff v. Price (1990), 76 D.L.R. (4th) 138 (B.C. C.A.). This being so, a class proceeding seems particularly well-suited for the hearing of a claim for punitive damages.

I would add that the power under s. 24 of the Ontario Act to make an aggregate finding and then order that the award be shared on an average or proportional basis would seem to be ideally suited to handling claims for punitive damages in mass tort cases. It is true that here the defendants propose leaving the punitive damage claim to be dealt with later, with the present class action simply stayed until compensatory damages are dealt with. However, that delay would have the indirect effects of limiting access to justice by the class members in that the only thing for which contingent fees could be provided would be the punitive damage claim, as the defence hopes to settle everything else, and modification of behaviour, one of the underlying reasons for both the Class Proceedings Act and for punitive damages, would be undercut both by delay and by, presumably, a hoped-for reduction in the award because of the voluntary compensatory payments.

[24] The proposal is for the payment of compensatory damages only. It appeared in argument that a number of the passengers may have been persons intending to go on holiday in Toronto who instead found themselves involved in the horror of a train wreck and the consequent lengthy delays or complete spoiling of their plans. There have by now been a number of spoiled vacation decisions, in which aggravated or exemplary damages were a prominent feature. I take it the proposed references or arbitrations would exclude aggravated or exemplary damages. Plaintiffs' counsel points out, correctly, that these are individual, not common issues.

[25] The proposal on compensatory damages includes an offer to pay costs, but at the offer stage such costs would be subject to negotiation and at the arbitration stage would be subject to a Rule 49 type provision. This clearly implies costs analogous to court scales and a risk of no costs whatsoever if an award was less than the offer to settle by the plaintiff. Because this process would Page 8

be outside of the Class Proceedings Act, counsel for the passengers could not agree to contingent fees, which may well have the effect of limiting the availability of counsel to the passengers.

[26] If the matter went ahead as a class proceeding, then if it was necessary to litigate liability, it obviously would be better to do so once than over and over again in individual actions. If it were necessary, as Mr. Strosberg suggests, to have findings of fact relating to the crash itself, as a background to claims for aggravated or exemplary damages, or as a basis for liability for punitive damages, it obviously would be better to do this once rather than over and over.

[27] If Via is sincere in its desire to rapidly compensate all of its passengers and their family members in full, then I fail to understand why Via would not want to have the action certified so that it could make its offer to settle in the context of the class action, where it could be dealt with definitively. The jurisprudence on class actions here, in Quebec, British Columbia and in the United States, contains many examples of defendants willingly accepting, and even joining in seeking certification, so that the process of implementing the settlement could be simplified. Indeed our statute contains in s. 3 a process whereby a defendant in two or more proceedings can seek certification.

[28] The only procedural requirement for class action settlements is under s. 29(2) of the Act, which provides that:

29(2) A settlement of a class proceeding is not binding unless approved by the court.

What that involves was recently dealt with by Winkler J. in Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572, at paras. 67 and following, where, briefly, he and others have indicated that a "fairness hearing" is required to determine that the settlement is fair, reasonable and in the best interests of those affected by it. The practice has developed of giving notice of an intended settlement and hearing representations by objectors and intervenors before granting approval. In his discussion, Winkler J. adopts the admonition of Sharpe J. in Dabbs v. Sun Life Assurance Co. of Canada (1998), 40 O.R. (3d) 429, 22 C.P.C. (4th) 381 (Gen. Div.), that class action settlements "must be seriously scrutinized by judges" and that they should be "viewed with some suspicion". I have implicitly adopted those same admonitions in considering the proposal of Via made before me. I would have been aided in that task if notice of the proposal had been given to all of the class members and if I c ould have heard from any that objected to it. It is only in the context of a class action (except in cases of infants or others under disability) that the fairness of a proposed settlement is judicially considered. However, as Winkler J. said at para. 74 of Parsons, quoting Sharpe J. in Dabbs [at para. 440]:

. . . all settlements are the product of compromise and a process of give and take and settlements rarely give all parties exactly what they want. Fairness is not a standard of perfection.

I too adopt those words. They indicate to defendants that the test of fairness is not an onerous one, if Page 9

the defence proposal is, in fact, reasonable.

[29] CNR indicated in its factum that its belief is that a number of the passengers do not want to be involved in a class proceeding, and would prefer to deal directly with Via. If this is so, the best way to find out would be to send a notification of certification to them all. Those that do not want to be involved can opt out and if a sufficiently large number take that route, an application can always be made to the court to decertify the action.

[30] My conclusion is that if Via and CNR elect to litigate all issues, then the class proceeding is clearly the preferable procedure. If they elect to continue to attempt to settle, then, in my view, for all of the foregoing reasons, a class proceeding is the preferable procedure to deal with a settlement offer and to provide the mechanism for implementation of such an offer or alternately work out a variation to it. I find that the principle objection to this certification application fails.

[31] As indicated above, there is little if any concern raised by the defendants under the other headings of s. 5. Specifically, I find that the pleadings do disclose causes of action, that the "class", being all of the passengers (excluding Via employees), is an obviously identifiable class, and so is the "family class" of relatives within the meaning of s. 61 of the Family Law Act. The claims of the class members raise a classically common issue -- responsibility for a train crash and the questions of negligence, breach of contract and punitive damages arising therefrom. For all of the above reasons I have found a class proceeding would be the preferable procedure.

[32] There was some quibbling as to whether the proposed representative plaintiffs, Shelley Brimner and Robert Christmas, would fairly and adequately represent the interests of the class and whether Ray Hebert and Barbara Myers would fairly and adequately represent the interests of the family class. Both Brimner and Christmas were passengers. On any public conveyance, there is obviously a wide diversity in the passengers. There is nothing indicating that either of them would have any conflict with the claims of any of the others. The same applies to Ray Hebert and Barbara Myers, as representatives of the family class. Importantly, all four are willing to serve in that capacity and understand what is involved.

[33] There is a litigation plan that has been produced that sets out a workable method of advancing the proceeding. Some objection was taken to using an accountant to receive and certify as to persons who wish to opt out. I do not view this as something that would cause any great delay or expense. It would provide an independent count of those who did not wish to be involved, which would be particularly important if the argument of Mr. Clark for the CNR, that a lot of people would rather not be involved, turns out to be true. There was objection to the proposal of notification by way of publication of notices in the Windsor Star, the Detroit Free Press and the London Free Press, with Via suggesting that direct contact with all could be made thus avoiding the cost. If in fact that could be done, it would obviously be more certain than simply publishing notices. As indicated previously, I am not sure that in fact that can be done. It seems obvious that this should be explored amo ng counsel. It is a minor issue. Page 10

[34] For all of the foregoing reasons, an order shall go certifying this action as a class action.

[35] I was provided with a draft order by Mr. Strosberg. I would be prepared to approve that draft order provided para. 2 thereof was amended to add to the description of "class" the words "excluding Via employees" and with a provision that the court orders and declares that the members of the class and family class shall be notified in a manner to be later approved by the court, being substituted for para. 8, and with a provision that the court shall settle the method, form and content of notices, including advertising, if any, and the terms for publication of any advertising to be substituted for paras. 1 and 2 of the plaintiffs' litigation plan. These items, and the question of costs, can be addressed before me later at a time to be set by me after consultation with counsel and the trial co-ordinator.

Order accordingly. Page 1

Case Name: Zaniewicz v. Zungui Haixi Corp.

Between Jerzy Robert Zaniewicz and Edward C. Clarke, Plaintiffs, and Zungui Haixi Corporation, E&Y, Fengyi Cai, Jixu Cai, Yanda Cai, Michelle Gobin, Michael W. Manley, Patrick A. Ryan, Elliott Wahle, Margaret Cornish, CIBC World Markets Inc., Canaccord Genuity Corp. (f.k.A. Canaccord Financial Ltd)., GMP Securities LP and Mackie Research Capital Corporation (f.k.a. Research Capital Corporation) Defendants Proceeding under the Class Proceedings Act

[2013] O.J. No. 3894

2013 ONSC 5490

Court File No. 11-CV-436360-00CP

Ontario Superior Court of Justice

P.M. Perell J.

Heard: August 27, 2013. Judgment: August 27, 2013.

(105 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Certification -- Class counsel -- Fees -- Definition of class -- Members of class or sub-class -- Settlements -- Approval -- Motion by plaintiffs for certification of class action for settlement purposes, approval of settlements, approval of the plan of distribution and approval of counsel fees allowed in part -- Plaintiffs alleged defendant's prospectus and financial statements were misleading -- Certification of class action allowed and settlements approved -- Counsel fees approved -- Modified plan of distribution approved -- It was unfair to include investors who purchased shares after corrective press release in class definition but exclude them from distribution -- Such class members were to be included in distribution at 80 per cent discount -- Class Proceedings Act, s. 26(1).

Securities regulation -- Civil liability -- Misrepresentation in a prospectus -- Plaintiffs -- Purchase Page 2

during period of distribution -- Secondary market disclosure -- Motion by plaintiffs for certification of class action for settlement purposes, approval of settlements, approval of the plan of distribution and approval of counsel fees allowed in part -- Plaintiffs alleged defendant's prospectus and financial statements were misleading -- Certification of class action allowed and settlements approved -- Counsel fees approved -- Modified plan of distribution approved -- It was unfair to include investors who purchased shares after corrective press release in class definition but exclude them from distribution -- Such class members were to be included in distribution at 80 per cent discount -- Class Proceedings Act, s. 26(1).

Motion by plaintiffs for certification of class action for settlement purposes, approval of settlements, approval of the plan of distribution, approval of class counsel fees, and ancillary orders. The plaintiffs purchased common shares of the defendant corporation in the primary and secondary markets. The plaintiffs advanced common law tort claims and securities law claims. The plaintiffs alleged that the defendant's initial public offering prospectus was misleading as it contained material misrepresentations, that the financial statements contained in the prospectus and other financial statements later prepared and disseminated in the secondary securities market were neither accurate nor reliable. The proposed settlement funds totalled $10,850,000. The plaintiff's plan of distribution was structured to reflect the theory of damages that the corporation's share value was artificially inflated and that this artificial inflation was removed in two share price falls. The first share price fall occurred when a report was issued alleging fraud, and the second occurred when the defendant issued a press release announcing that its auditor had suspended its audit of the corporation's financial statements for the year. One month after the press release, the auditor resigned and withdrew its opinions that the corporation's financial statements were GAAP compliant. The class definition included all persons who acquired shares during the period to and including the date of the second event. No compensation was to be paid to class members who purchased shares in the secondary market after the press release. Class counsel received one written objection to the proposed plan of allocation from a class member who purchased shares on the day of the press release, proposing that such class members be included in the distribution at a discount of 80 per cent.

HELD: Motions allowed in part. Motions to certify action and approve settlements allowed and ancillary orders allowed. Modified plan of allocation allowed. Aside from the plan of distribution, the settlement agreements were fair, reasonable, and in the best interests of the class members. The settlements were approved independent of the plan of distribution. It was inappropriate and unfair to include investors who purchased their shares on the day of the press release as class members and exclude them from the plan of allocation. After including those purchasers as class members as part of the bargaining for the settlements, it was inappropriate for the plaintiffs to advocate a theory of the case that they were not eligible for any compensation at all. The plan of distribution was modified to include compensation for those class members at a discount of 80 per cent. Class counsel's request for fees represented 20.75 per cent of the recovery. Having regard to the risk undertaken by class counsel and the degree of success achieved, class counsel's request for approval Page 3

of its legal fees in the amount of $2,807,037 was approved.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 26, s. 26(1), s. 29(2)

Securities Act, R.S.O. 1990, c. S.5,

Counsel:

Charles M. Wright and Douglas M. Worndl, for the Plaintiffs.

Deborah Berlach, for the Defendant, Zungui Haizi Corporation.

Margaret L. Waddell, for the Defendant, Michelle Gobin.

Michael A. Eizenga, for the Defendant, Michael W. Manley.

James S.F. Wilson, for the Defendants, Patrick A. Ryan, Elliott Wahle, and Margaret Cornish.

Linda L. Fuerst, for the Defendant Ernst & Young LLP.

Kent Thomson and Derek Ricci, for the Defendants, CIBC World Markets Inc., Canaccord Genuity Corp. (f.k.A. Canaccord Financial Ltd.) and Mackie Research Capital Corporation (f.k.A. Research Capital Corporation and GMP Securities LP.

REASONS FOR DECISION

P.M. PERELL J.:--

A. INTRODUCTION AND OVERVIEW

1 This is a securities class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6 and the Ontario Securities Act, R.S.O. 1990, c. S.5. The Plaintiffs Jerzy Robert Zaniewicz and Edward C. Clarke advance common law tort claims and also statutory claims with respect to the sale of the shares of Zungui Haizi Corporation in the primary and secondary markets.

2 The Plaintiffs bring this motion for: (a) certification for settlement purposes as against the Defendants CIBC World Markets Inc., Canaccord Genuity Corp., GMP Securities LP, and Mackie Research Capital Corporation (the "Underwriting Syndicate"); (b) approval of three settlements; (c) Page 4

ancillary orders, including the appointment of an administrator; (d) approval of the notice program; and (e) approval of the plan of distribution (the "Plan of Allocation") for the settlement funds.

3 Class Counsel also bring a motion for approval of its counsel fees and disbursements. Class Counsel seeks $2,250,000.00, plus disbursements, interest on disbursements, and applicable taxes. The total request is for $2,807,037.56.

4 For the reasons that follow, I certify the action as against the Underwriting Syndicate for settlement purposes. I approve the three settlements and Class Counsel's request for counsel fees. I approve the requests for ancillary orders. However, I do not approve the proposed Plan of Allocation, and, rather, I have varied the plan and approved a modified Plan of Allocation.

5 As I will explain, in this case, the court has the jurisdiction to approve the settlement agreements and then establish a plan of distribution that is different than the plan of distribution proposed by the parties.

B. FACTUAL BACKGROUND TO THE CLASS ACTION

6 See Zaniewicz v. Zungui Haixi Corp., 2013 ONSC 2959, which sets out most of the factual background and the procedural history. See also: Zaniewicz v. Zungui Haixi Corp., Zaniewicz v. Zungui Haixi Corp., 2012 ONSC 4842, Zaniewicz v. Zungui Haixi Corp., 2012 ONSC 4904, and Zaniewicz v. Zungui Haixi Corp., 2012 ONSC 6061.

7 In December 2009, Zungui made an initial public offering ("IPO"), and it raised approximately $40 million in Ontario's capital markets.

8 Zungui and its directors and officers had a statutory obligation under the Ontario Securities Act to provide Zungui's investors with timely and accurate disclosure regarding the business of Zungui, including disclosure in Zungui's interim and annual financial statements.

9 In its interim and annual financial statements, Zungui and the Defendants Yanda, Fengyi, and Zungui Cai (the "Cai Brothers") assured investors that Zungui's financial statements presented fairly, in all material respects, the financial position of Zungui in accordance with GAAP. They represented that the Zungui's offering documents contained full true and plain disclosure of all material facts relating to the offering of securities.

10 The Plaintiffs are residents of Ontario. Each purchased common shares of Zungui in the primary market. Mr. Clarke also purchased common shares of Zungui in the secondary market.

11 On August 22, 2011, Zungui issued a press release announcing that its auditor, Ernst & Young LLP ("E&Y"), had suspended its audit of Zungui's financial statements for the year ended June 30, 2011. With that announcement, Zungui's shares immediately lost 77% of their value. Subsequently, Zungui's shares became the subject of various temporary and permanent cease trade orders, and they Page 5

are now worthless.

12 On September 22, 2011, Zungui's Chief Financial Officer and all independent members of the Board resigned, in part, because the special committee formed to investigate E&Y's concerns had been prevented from fulfilling its mandate.

13 On September 23, 2011, E&Y resigned as Zungui's auditor. E&Y withdrew its opinions that Zungui's financial statements were GAAP compliant.

14 On February 2, 2012, 2012 LNONOSC 162, the Ontario Securities Commission ("OSC") ruled that Yanda, Fengyi, and Zungui Cai had engaged in conduct contrary to the public interest, and on August 28, 2012, 2012 LNONOSC 619, the OSC ordered, among other things, that Yanda and Fengyi resign as directors or officers of Zungui and be permanently prohibited from acting as directors or officers of any issuer.

15 The OSC investigation revealed that when E&Y resigned, it advised that all of its audit opinions that formed part of the IPO Prospectus, as well as Zungui's June 2010 financial statements could no longer be relied upon.

16 On October 3, 2011, Mr. Zaniewicz, commenced the action by the issuance of a Notice of Action. On November 2, 2011, he filed his Statement of Claim. On February 7, 2012 and February 10, 2012, I made orders granting leave to amend the Statement of Claim to add Mr. Clarke as a plaintiff and to correct the description of two of the Underwriters incorrectly described in the style of cause.

17 On February 8, 2012, the Plaintiffs filed their Fresh as Amended Statement of Claim.

18 In the action, the Plaintiffs sue not only Zungui and the Cai Brothers, but others allegedly responsible for ensuring that Zungui's public disclosure to primary and secondary market investors was timely and accurate in accordance with securities law. The Plaintiffs allege various statutory claims under the Ontario Securities Act and also common law claims.

19 The Plaintiffs allege that Zungui's IPO Prospectus was misleading as it contained material misrepresentations. The Plaintiffs allege that the representations were materially false, and Zungui's financial statements contained in the prospectus, and other financial statements later prepared and disseminated in the secondary securities market, were neither accurate nor reliable in respect of reported revenues, net income, assets, and shareholders' equity. Moreover, the Plaintiffs allege that the financial statements did not fairly present, in all material respects, the financial condition, results of operations and cash flows of Zungui for the reporting periods presented.

20 Alan Mak, who is a chartered accountant, a member of the Institute of Chartered Accountants of Ontario, and a member of the Association of Certified Fraud Examiners opined that the audits conducted by Ernst & Young were not in accordance with GAAP and that Ernst & Young's Page 6

unqualified audit opinions should not have been given for the 2006 through 2010 reporting periods. E&Y does not admit that it was negligent.

21 In the class action, the Class Definition is as follows:

All persons or entities wherever they may reside or be domiciled, other than Excluded Persons and Opt-Out Parties, who acquired Eligible Shares.

Eligible Shares means the Shares acquired by a Class Member or Opt-Out Party during the Class Period.

Class Period means the period from and including August 11, 2009 to and including August 22, 2011.

Excluded Persons means each Defendant, the past or present subsidiaries or affiliates, officers, directors, partners, legal representatives, consultants, agents, successors and assigns of Zungui and any member of each Defendant's families, their heirs, successors or assigns, and includes any Southern Zungui Acquirers who acted as a consultant or provided other professional services to Zungui or its subsidiaries in connection with the IPO.

22 The Class is comprised of three (3) types of acquirers of Zungui common shares: (1) primary market purchasers; (2) secondary market purchasers; and (3) share exchange acquirors (i.e. anyone who was a shareholder of Zungui's subsidiary, Southern Trends International Holding Company (BVI), who entered into an agreement with Zungui, before its IPO, to exchange their Southern Trends shares for Zungui common shares on a basis of 1:5,000.

23 Paul Mulholland, a US based certified forensic accountant, was retained by the Plaintiffs, to among other things, calculate the damages of class members. Mr. Mulholland's estimate of damages was $23.76 million comprised of: (a) $10.1 million in damage to primary market purchasers; $12.9 million in damage to secondary market Purchasers; and $0.7 million in damage to share exchange acquirors. (The original Statement of Claim sought damages of $30 million.)

24 The Defendants, of course, do not admit liability or the amount of the Class Member's alleged losses.

C. CERTIFICATION FOR SETTLEMENT PURPOSES

25 I have already certified this action for settlement purposes as against Zungui, Michelle Gobin, Michael W. Manley, Patrick A. Ryan, Elliott Wahle, and Margaret Cornish (the "Zungui Page 7

Defendants") and against Ernst & Young LLP and the Cai Brothers.

26 I am satisfied that that action should now be certified for settlement purposes as against the Underwriting Syndicate, and an Order should issue accordingly.

D. SETTLEMENT APPROVAL

27 The Plaintiffs have concluded three settlements: (1) the Auditor Settlement; (2) the Zungui Settlement; and (3) Underwriter Settlement.

28 The Auditor Settlement is for $2 million. The Zungui Settlement is for $8 million, and the Underwriter Settlement is for $750,000.00.

29 The Zungui Defendants have agreed to contribute an additional $100,000.00 if the Plaintiffs: (a) settled their claims against the Underwriting Syndicate before the scheduled settlement approval hearings for the Auditor Settlement and the Zungui Settlement; and (b) obtained the Court's approval of a settlement with the Underwriting Syndicate. Thus, if all the settlements are approved, the settlement funds will total $10,850,000.00 plus interest before deductions for counsel fee and administrative expenses.

30 The settlement funds under the Auditor Settlement were received on May 17, 2013, and have been accruing interest since that date. The settlement funds under the Zungui Settlement were received on May 24, 2013, and have been accruing interest since February 22, 2013. The settlement funds under the Underwriter Settlement will be paid within fourteen days of execution of the Underwriter Agreement (i.e., by September 2, 2013).

31 The Settlement Amounts that have been received are currently invested at RBC in interest bearing accounts. Each settlement amount is held in a separate escrow account.

32 Class Counsel has been informed that, as of August 16, 2013, the escrow accounts contain: (1) Zungui Escrow Account, $7,984,781.20; and (2) Auditor Escrow Account, $1,995,373.52. These accounts reflect the payment of $48,931.32 for the publication of the First Notice (allocated, $39,145.07 from the Zungui Escrow Account and $9,786.25 from the Auditor Escrow Account) and the accrual of $23,926.27 in interest on the Zungui Settlement Amount and $5,159.68 in interest on the Auditor Settlement Amount.

33 Notice of the certification of the action as against the Zungui Defendants, Ernst & Young LLP, and the Cai Brothers has been given to the Class Members. There were no opt-outs. The notice also provided notice of the Auditor Settlement and the Zungui Settlement.

34 Notice of the proposed Underwriter Settlement has recently been given to the Class Members pursuant to a recent court order made at a case conference. Having already had a right to opt-out, class members do not have a right to opt-out with respect to the certification of the action as against Page 8

the Underwriting Syndicate. When there are partial or progressive certifications of a class action, provided that there was adequate notice, the right to opt-out is a procedural right that may only be exercised once: Eidoo v. Infineon Technologies AG, 2012 ONSC 7299 at paras. 29-32; Nutech Brands Inc. v. Air Canada, [2008] O.J. No. 1065 (SCJ).

35 Under the settlements, the Plaintiffs and the Class will provide releases to all of the Defendants. The Cai Brothers will be released as part of the Zungui Settlement. The settlements, if approved, would complete the class action.

36 The key terms of the settlement agreements are as follows:

* The settlement will be administered by an Administrator; * the Defendants will pay their respective settlement amounts for the benefit of the Class; * the settlement funds will be distributed, after payment of any administration expenses and Class Counsel fees, disbursements, and taxes as awarded by the Court; * the settlement funds will be distributed in accordance with a Plan of Allocation that is in a form satisfactory to the Defendants or as fixed by the Court; * if the settlement is approved by the court, the Notices of the Settlement will provide Class Members with information concerning their right to participate by filing a Claim Form; * the settlement funds will be distributed among all Class Members who timely submit valid Claim Forms to the Administrator; * there are no rights of reversion; * the Plan of Allocation provides for the possibility of a cy près distribution to the Small Investor Protection Association Canada in the event that less than $25,000.00 remains 180 days from the date on which the Administrator distributes the net settlement amount; and * the Plaintiffs and the Class Members will release the Defendants and certain identified associated entities.

37 Under the Plan of Notice, the Short Form Notice of Settlement will be published: (a) in the English language, in the business/legal section of the national weekend editions of the National Post and the Globe and Mail; (b) in the French language, in the business section of La Presse; and (c) in the French and English languages across Marketwire, a major business newswire in Canada.

38 Under the Plan of Notice, the Long Form Notice of Settlement will be: (a) posted in both the French and English languages on www.classaction.ca; (b) posted in both the French and English languages on the Administrator's website; and (c) mailed or emailed, along with the Claim Form and the Opt-Out Form, directly to persons that have contacted Class Counsel and have provided Page 9

their contact information.

39 Also in accordance with the Plan of Notice, the Long Form Notice of Settlement and the Claim Form will be sent by the Administrator: (a) directly to persons identified as Class Members by way of a computer-generated list provided by Zungui's litigation receiver to Class Counsel and the Administrator; and (b) to the brokerage firms in the Administrator's proprietary databases, requesting that these firms either send a copy of these materials to all individuals and entities identified as Class Members, or to send the names and addresses of all such individuals and entities to the Administrator, who will mail these materials to the individuals and entities so identified.

40 The estimated cost of implementing the Plan of Notice, excluding the First Notice that has already been published and paid for, will be approximately $140,000.00 (before tax). Of that amount, approximately $85,000.00 is attributable to the cost of effecting direct notice.

41 David Weir, the President of NPT RicePoint Class Action Services, the proposed Administrator, deposes that the broker outreach portion of the notice plan is likely to bring the settlement to the attention of the Class Members in a manner consistent with other notice programs in securities class actions.

42 Class Counsel believes that the Approval Notices, disseminated in accordance with the Plan of Notice, will come to the attention of a substantial portion of the Class.

43 Class Counsel recommends that the court approve the settlements. Class Counsel is of the view that the settlement terms and conditions are fair and reasonable, and represent a significant recovery for Class Members in a securities class action.

44 Based on the expert opinion of Paul Mulholland, CFA, Class Counsel believes that the combined settlement amounts represent close to 50% of the damages allegedly suffered by the Class Members as calculated by Mr. Muhlholland. I would calculate the class's gross recovery as 46% of the damages allegedly suffered and the class's net recovery after the payment of administrative expenses and legal fees, as claimed, as approximately 33%.

45 The Plaintiffs have instructed Class Counsel to seek approval of the settlements.

46 No objections to the quantum of the Settlements have been received to date. However, Class Counsel has received: (a) one objection to the release provisions in the Zungui Agreement insofar as they apply to the Cai Brothers; and (b) one written objection to the proposed Plan of Allocation, discussed below, concerning the proposed ineligibility for any payment to Class Members for shares purchased in the secondary market after the alleged corrective press release on August 22, 2011.

47 Section 29(2) of the Class Proceedings Act, 1992 provides that a settlement of a class proceeding is not binding unless approved by the court. To approve a settlement of a class Page 10

proceeding, the court must find that, in all the circumstances, the settlement is fair, reasonable, and in the best interests of the class: Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.) at para 57; Farkas v. Sunnybrook and Women's Health Sciences Centre, [2009] O.J. No. 3533 (S.C.J.), at para. 43; Kidd v. Canada Life Assurance Company, 2013 ONSC 1868.

48 In determining whether a settlement is reasonable and in the best interests of the class, the following factors may be considered: (a) the likelihood of recovery or likelihood of success; (b) the amount and nature of discovery, evidence or investigation; (c) the proposed settlement terms and conditions; (d) the recommendation and experience of counsel; (e) the future expense and likely duration of litigation; (f) the number of objectors and nature of objections; (g) the presence of good faith, arm's-length bargaining and the absence of collusion; (h) the information conveying to the court the dynamics of, and the positions taken by, the parties during the negotiations; and, (i) the nature of communications by counsel and the representative plaintiff with class members during the litigation. See: Fantl v. Transamerica Life Canada, supra at para 59; Corless v. KPMG LLP, [2008] O.J. No. 3092 (S.C.J.), at para. 38; Farkas v. Sunnybrook and Women's Health Sciences Centre, supra, at para. 45; Kidd v. Canada Life Assurance Company, 2013 ONSC 1868.

49 In my opinion -- independent of the matter of the Plan of Allocation (the plan of distribution) -- having regard to the various criteria set out above, the three settlement agreements taken together are fair, reasonable, and in the best interests of the Class Members.

50 Therefore, independent of the matter of the Plan of Allocation, which I will discuss next, I approve the three settlements.

E. DISTRIBUTION PLAN

1. The Court's Jurisdiction to Approve the Distribution Plan

51 In the case at bar, the court's authority to approve the plan of distribution, the Plan of Allocation, comes from the settlement agreements, where the plan of distribution is referred to as a Plan of Allocation.

52 The settlement agreements define the "Plan of Allocation" as follows:

Plan of Allocation means the distribution plan distributing the proposed settlement in a form satisfactory to the Settling Defendants or as fixed by the Court.

53 As I interpret the settlement agreements, and as confirmed by the Plaintiffs during argument, I can approve the settlements independent of approving the Plan of Allocation, which is what I have done. In other words, I have approved the settlements, which are now binding on the parties and on the Class Members, and I shall determine or fix the Plan of Allocation. Page 11

54 For reasons that I will set out below, I do not approve of the Plan of Allocation proposed by the parties, but I shall vary it, and I shall approve a different plan of distribution.

55 Had the settlement agreements in the case at bar not left it to the court to ultimately determine what is an appropriate plan of distribution, I would not have approved the settlements, because I do not think the proposed Plan of Allocation is fair and reasonable and in the best interests of the class. I also would not have approved Class Counsel's fees because the settlements would not have been approved.

2. The Test for Approving a Distribution Plan

56 In the situation where there is a judgment in a certified class action, the court's authority to determine or approve a plan of distribution comes from s. 26 of the Class Proceedings Act, 1992, which states:

Judgment distribution

26.(1) The court may direct any means of distribution of amounts awarded under section 24 or 25 that it considers appropriate.

Idem

(2) In giving directions under subsection (1), the court may order that,

(a) the defendant distribute directly to class members the amount of monetary relief to which each class member is entitled by any means authorized by the court, including abatement and credit; (b) the defendant pay into court or some other appropriate depository the total amount of the defendant's liability to the class until further order of the court; and (c) any person other than the defendant distribute directly to class members the amount of monetary relief to which each member is entitled by any means authorized by the court.

Idem

(3) In deciding whether to make an order under clause (2) (a), the court shall Page 12

consider whether distribution by the defendant is the most practical way of distributing the award for any reason, including the fact that the amount of monetary relief to which each class member is entitled can be determined from the records of the defendant.

Idem

(4) The court may order that all or a part of an award under section 24 that has not been distributed within a time set by the court be applied in any manner that may reasonably be expected to benefit class members, even though the order does not provide for monetary relief to individual class members, if the court is satisfied that a reasonable number of class members who would not otherwise receive monetary relief would benefit from the order.

Idem

(5) The court may make an order under subsection (4) whether or not all class members can be identified or all of their shares can be exactly determined.

Idem

(6) The court may make an order under subsection (4) even if the order would benefit,

(a) persons who are not class members; or (b) persons who may otherwise receive monetary relief as a result of the class proceeding.

Supervisory role of the court

(7) The court shall supervise the execution of judgments and the distribution of awards under section 24 or 25 and may stay the whole or any part of an execution or distribution for a reasonable period on such terms as it Page 13

considers appropriate.

Payment of awards

(8) The court may order that an award made under section 24 or 25 be paid,

(a) in a lump sum, forthwith or within a time set by the court; or (b) in instalments, on such terms as the court considers appropriate.

Costs of distribution

(9) The court may order that the costs of distribution of an award under section 24 or 25, including the costs of notice associated with the distribution and the fees payable to a person administering the distribution, be paid out of the proceeds of the judgment or may make such other order as it considers appropriate.

Return of unclaimed amounts

(10) Any part of an award for division among individual class members that remains unclaimed or otherwise undistributed after a time set by the court shall be returned to the party against whom the award was made, without further order of the court.

57 It may be noted that under s. 26(1) of the Class Proceedings Act, 1992, the court may direct any means of distribution of amounts awarded that it considers appropriate. I am not aware of any caselaw actually applying s. 26(1), although numerous cases have suggested that the court has ample discretion and ample scope for creativity in employing s. 26.

58 In the case at bar, as noted above, the court's authority to approve the plan of distribution comes from the settlement agreements, where the plan of distribution is referred to as a Plan of Allocation, and, as noted above, as I interpret the settlement agreements, I can determine or fix the Plan of Allocation as I think appropriate.

59 In determining what is appropriate, I intend to apply the same test or standard that the court applies when deciding whether to approve a settlement. Thus, a plan of distribution will be Page 14

appropriate if in all the circumstances, the plan of distribution is fair, reasonable, and in the best interests of the class.

3. The Proposed Plan of Allocation

60 For reasons that I will set out below, I do not approve of the Plan of Allocation proposed by the parties, but I shall vary it and approve a different plan of distribution.

61 Class Counsel, with Mr. Mulholland's assistance, developed the Plan of Allocation. This plan was structured to reflect Mr. Mulholland's opinion that Zungui suffered two share price falls that were statistically significant, net of external market factors. These events occurred on: (1) June 2, 2011, when Muddy Waters LLC issued a report about Sino-Forest Corporation in which a fraud was alleged; and (2) August 22, 2011, when Zungui issued the press release announcing the suspension of 2011 audit procedures by Ernst & Young LLP.

62 The Plaintiffs' damages theory is that the value of Zungui's common shares was at all times artificially inflated by misrepresentation and that the artificial inflation, equivalent to $1.52 per share, was removed from the share value by the close of TSX-V trading on August 22, 2011. The Plaintiff's theory is that the artificial inflation was removed: in part, on June 2, 2011, in an amount of $0.26; and in balance, on August 22, 2011, in an amount of $1.26.

63 The amount of each Class Member's compensation will depend upon: whether the Class Member is a Primary Market Purchaser and/or a Secondary Market Purchaser and/or Share Exchange Acquiror; the number and price of Zungui common shares purchased by the Class Member during the Class Period; whether and when the Class Member sold Zungui common shares purchased during the Class Period, and the price at which these common shares were sold; whether the Class Member continues to hold some or all of the Zungui common shares purchased during the Class Period; and the total number and value of all claims for compensation filed with the Administrator.

64 The Plan of Allocation provides that no compensation shall be paid for any shares disposed of before June 2, 2011, which is consistent with Mr. Mulholland's opinion that June 2, 2011 was the first time that Zungui's common shares were subject to a statistically significant event, net of external market factors.

65 The Plan of Allocation provides that no compensation shall be paid for any shares purchased after the time of the making of the alleged corrective disclosure on August 22, 2011. The main rationale for the disqualification of these shares is that they purchased when it was publicly known that audit issues existed. I note, however, that it was not until another month later that E&Y disavowed that Zungui's financial statements were GAAP compliant.

66 In any event, although a purchaser of Zungai shares on Aug 22, 2011 is a Class Member, under the proposed Plan of Allocation, he or she is not entitled to receive compensation. Page 15

67 These background circumstances bring me to the written objection to the Plan of Allocation delivered by Dr. Christopher Lane, which I set out below:

My name is Dr. Christopher Lane (psychologist) and I would like to register an objection to the terms of the proposed "Plan of Allocation," particularly under the heading "Secondary Market Purchasers," and under "VII" which states: "No Nominal Entitlement shall be recognized for any Eligible Shares purchased after the time of the making of the alleged corrective disclosure on August 22, 2011." This statement appears to eliminate the right of anyone who purchased shares of ZUN on August 22, 2011 to receive any compensation whatsoever and to thereby lose 100% of their investment. I happen to be one of those individuals who purchased shares on that fateful August 22, 2011 day, as did my brother, Brian Lane. Indeed, I bought a total of 117,000 shares of ZUN that day at a "book value" (according to my bank statements) of $47,735.83 (average cost per share of 40.8 cents). As one might expect, I am very upset by the wording of the proposed "Plan of Allocation" and would like to offer a suggestion of a fairer settlement, as the one proposed is, in my mind, overly punitive and leaves investors in my position with a feeling of defeat and lack of justice.

... While it is true that the announcement indicated that Ernst & Young suspended procedures until Zungui "clarifies and substantiates its position with respect to issues pertaining to the current and prior year" this does not clearly foreshadow the events that followed, which turned out to be devastating to the investors who held the stock and represented a "worst case scenario" with the stock never trading again after August 22, 2011. Clearly this was bad news and sent the stock tumbling from approximately 1.50 down to trading around 40 cents per share for most of the day on August 22, 2011 and ending the day around 34 cents per share. Of course, in hindsight it is easy to suggest that one shouldn't have bought stock in ZUN that day, but at that time there were also many who felt the negative reaction was entirely overblow and that clarification of the issues could logically prevail and substantiate the position of the company. In short, there was no way of knowing that the worst possible outcome would come to pass, with investors unable to trade their shares ever again.

I submit that eliminating shareholders who bought ZUN stock on August 22, 2011 from any form of compensation is overly harsh and punitive. It was clear that an important issue existed at that time but issues emerge with Venture Exchange listed stocks quite frequently but without these catastrophic consequences. And it is important to note that investors such as myself have suffered considerably due to this loss of capital. In my case, I lost all of my Page 16

RRSP, almost all of my cash trading account holdings and a good part of my TFSA. With children entering university I am hard-pressed to pay my part of the costs as well as funding home and business expenses. Indeed, these losses have had a significant negative effect on my quality of life and that of my family and have led to me working long hours to pay for our needs, thereby creating significant hardship.

Hence, I ask that the court consider changing the section dealing with ZUN purchasers of August 22, 2011 to include them in providing some compensation in the class action lawsuit. Of course, I believe that to be fair, the compensation for purchasers on August 22, 2011 should be much less than for those who purchased earlier at prices of $1.52 per share or higher. I would suggest that a discount of 80% of the amount often quoted in the "Plan of Allocation" ($1.52) would be appropriate, which would amount to payment of 30.4 cents per share for individuals who bought shares of ZUN on August 22, 2011. I ask that the court consider this proposal to be fair to all shareholders of ZUN without singling out any in a harsh or punitive manner. We all lost money in this investment and have suffered as a result and it's unfair to single out a subsection of individuals for exclusion of all compensation.

68 The Plan of Allocation contemplates that for some Class Member's entitlements, a notional amount of damage based on the application of the calculations in the Plan of Allocation before distribution proration, will be discounted to reflect the risks facing the claimants. Class Counsel considered that the question of whether a discount to a Nominal Entitlement ought to apply for a particular type of acquisition should be determined by considering the particular strengths and weaknesses of the common law and statutory claims are common to all groups

69 With a view to ensuring that any discount was arrived at in a manner that was objective and fair, a formal mediation session was held on April 29, 2013. Joel Wiesenfeld was the mediator. Mr. Wiesenfeld practiced law as a broker/dealer litigation and securities regulatory counsel for 31 years.

70 At the mediation, the claimant groups were represented by Class Members holding Eligible Shares as follows: (a) the Plaintiffs, who bought substantially all of their shares in Zungui's IPO, represented Primary Market Purchasers; (b) Nick Angellotti CA, IFA and President and Managing Director of Williams & Partners Forensic Accountants Inc., the representative of a partnership that purchased Zungui's shares in the secondary market, represented Secondary Market Purchasers; and (c) Avi Grewal, President and Chief Executive Officer of Cinaport Capital Inc., a private investment firm which acts as advisor for the Cinaport China Opportunity Fund, a fund with investments in private and public PRC based companies, represented Share Exchange Acquirors.

71 The representatives were represented by counsel; namely: Charles Wright and Nicholas Baker Page 17

of Siskinds LLP for the Plaintiffs; Kirk Baert of Koskie Minsky LLP for Mr. Angellotti; and John J. Longo of Aird & Berlis LLP for Mr. Grewal.

72 I pause here to note that nobody represented the interests of secondary market purchasers who, like Dr. Lane, purchased shares on August 22, 2011.

73 The negotiations were all conducted at arm's length and the position of each claimant group was advanced by their counsel. The full-day mediation session concluded with the Primary Market Purchasers and Secondary Market Purchasers reaching agreement that the proposed Plan of Allocation should provide for the Nominal Entitlements of primary market purchasers to be un discounted and the Nominal Entitlements of secondary market purchasers should be discounted by 8%.

74 The representatives were unable to agree on a discount to be applied to the claims of Share Exchange Acquirors at the mediation, and so the Plaintiffs proposed (and posted on Class Counsel's website) a draft Plan of Allocation with a discount of 60% for Share Exchange Acquiror claims. Subsequently, Class Counsel agreed, to amend the Share Exchange Acquiror Discount to 40 %.

75 Class Counsel submits that an 8% discount for secondary market purchasers is fair and reflects that: (a) the secondary market purchasers were required to obtain leave under Part XXIII.1 of the Ontario Securities Act before asserting the right of action for misrepresentation in Zungui's secondary market disclosure documents, and such leave would be contested; (b) Part XXIII.1 provides defendants with a number of defences to liability for secondary market misrepresentation, and in this case, the secondary market purchasers could expect to face the "reasonable investigation" defence, an expert reliance defence, and a due diligence; and (c) the secondary market purchasers may not be able to recover the full estimated damages they have suffered, due to liability limits.

76 Class Counsel submits that no discount for primary market purchasers is fair because it reflects that: (a) these purchasers did not need to obtain leave of the Court to assert their claim; (b) damages are not limited for primary market purchasers in the same way as they are limited for secondary market purchasers; (c) if a prospectus is found to have contained a misrepresentation, then the issuer is strictly liable, (d) certain defendants, such as the issuer's directors and officers, are generally liable, unless they demonstrate on a balance of probabilities that they exercised reasonable diligence prior to issuance of the prospectus; and (e) liability is joint and several and damages can be recovered from any defendant with the means to pay.

77 Class Counsel initially considered that a 60% discount for Share Exchange Acquirors was fair. However, the Significant Shareholder Group through their counsel at Aird and Berlis LLP, and certain members of the Significant Shareholder Group indicated that they had higher expectations than a settlement with the Underwriting Syndicate at $750,000.00, in part, based on the fact that the Underwriting Syndicate had earned fees of approximately $2.75 million for underwriting the IPO. Page 18

78 However, the Significant Shareholder Group were prepared to support the proposed settlement with the Underwriting Syndicate if two (2) conditions were met: (1) Class Counsel would limit their request for Class Counsel Fees to an agreed amount; and (2) the discount applicable to Share Exchange Acquirors under the proposed Plan of Allocation would be amended from 60% to 40%.

79 Class Counsel estimates that the impact on the combined settlement fund of the amendment to the discount applicable to Share Exchange Acquirors under the proposed Plan of Allocation will be at most $262,200.00 and more likely the impact will be less, because the maximum impact assumes no proration, which is unlikely to be the case.

80 Class Counsel communicated with each Class Member who participated in the mediation relating to the Plan of Allocation, and they have instructed that the proposed amended discount applicable to Share Exchange Acquirors is acceptable.

81 The Plan of Allocation provides for the possibility of a cy près distribution to the Small Investor Protection Association Canada in the event that less than $25,000.00 remains in the Allocation Pool 180 days from the date on which the Administrator distributes the Net Settlement Amount to Authorized Claimants.

82 Notwithstanding the objection to the Plan of Distribution, Class Counsel is of the view that the Plan of Allocation was carefully considered and promotes the interests of the class as a whole, and that it is fair and reasonable and ought to be approved.

83 At the argument of the fairness hearing, Class Counsel argued that should the court consider it appropriate to have purchasers like Dr. Lane participants in the Plan of Allocation, their claims should be discounted by 98.5%.

4. Discussion and Analysis of the Proposed Plan of Allocation

84 I do not regard the Proposed Plan of Allocation as appropriate, fair, reasonable, or in the best interests of the class.

85 In my opinion, Dr. Lane's objection to the Plan of Allocation and his suggestion as to how the plan should be revised has considerable merit.

86 Although perhaps unlikely to occur, it seems inappropriate and unfair to me that the proposed Plan of Allocation provides for a cy près distribution to a small investor association and does not provide any compensation for an investor like Dr. Lane, who is a member of the class. More to the point, in my opinion, it is inappropriate and unfair to include August 22, 2011 purchasers as Class Members and then exclude them from the Plan of Allocation.

87 Notwithstanding that it was the Defendants who urged that these purchasers be included as Class Members as part of the bargaining for the settlements, once Class Counsel and the Page 19

Representative Plaintiffs agreed to the joinder of these Class Members, it was unfair and inappropriate for Class Counsel and the Representative Plaintiffs to advocate a theory of the case that August 22, 2011 purchasers were not eligible for any compensation at all.

88 If Dr. Lane, his brother, and other August 22, 2011 purchasers had appreciated that the parties had included them in the class as a bargaining chip but had excluded them from the theory of the claim and would exclude them from the Plan of Allocation, these putative class members sensibly should have opted-out of the class action rather than add the unrequited value of their releases to the consideration or quid quo pro that the Defendants will be receiving for the settlement payments. As it stands, Dr. Lane and those similarly situated are bound by the settlement but receive nothing themselves for being a Class Member.

89 In my opinion, the appropriate Plan of Allocation is the one proposed by Dr. Lane.

90 Accordingly, I shall revise the Plan of Allocation in accord with Dr. Lane's suggestion, which I regard as fair and reasonable, and I approve the Plan of Allocation as revised.

F. ADMINISTRATION OF THE SETTLEMENT

91 Class Counsel proposes the appointment of NPT RicePoint Class Action Services as the Administrator. NPT has already served as the Notice Advisor in the Action. NPT has also been administering bilingual class action settlements for over 9 years. In Class Counsel's opinion, NPT has the experience and resources that make them capable of administering the Settlements.

92 NPT's administration proposal provides for a minimum administration fee of $35,000, and a maximum administration fee cap of $195,000.00, before taxes.

93 I approve the appointment of NPT RicePoint Class Action Services as the Administrator.

G. FEE APPROVAL

94 Turning to the matter of Class Counsel's fee request of $2,807,037.56.

95 The Retainer Agreements with the Plaintiffs provide that Class Counsel may seek a fee of up to 30% of the recovery. Class Counsel are seeking a recovery of 20.75% (a 3.3 multiplier).

96 As at August 12, 2013, Class Counsel had docketed time of $648,386.00, excluding applicable taxes, disbursements of $226,670.44, exclusive of applicable taxes.

97 Class Counsel is not seeking to recover, and will not return to request payment of the time and disbursements required to complete the administration of the settlement, which is estimated to be at least $50,000.00.

98 Class Counsel has agreed to pay, from Class Counsel's fee award the accounts of Aird & Page 20

Berlis LLP rendered to the Significant Shareholder Group in the amount of $105,796.50, taxes in the amount of $13,896.73 and disbursements in the amount of $1,101.36.

99 Class Counsel proposes to pay Wolf Popper LLP $105,689.00 (US$) in fees, and (US$) $1,466.73 in disbursements from the Class Counsel's fee award. Mr. Clarke, a representative plaintiff, initially contacted this U.S. law firm to investigate his potential claim. Ms. Patricia Avery, of Wolf Popper LLP, has been a member of the Class Counsel team prosecuting the Action, and Wolf Popper LLP undertook certain tasks that were within the competence of the firm, such as researching risk disclosure practices in North American securities offering documents for issuers with substantial operations in the People's Republic of China.

100 The disbursements included $40,465.42 in agent fees for investigations in the People's Republic of China, location of the Cai Brothers, translation of correspondence and pleadings, Hague Convention service on the Cai Brothers and the cost of paying for independent counsel to attend at the Plan of Allocation mediation.

101 The disbursements include $156,842.05 in expert fees and mediation fees for Mr. Mulholland, Mr. Mak, William H. Purcell, a U.S. investment banking expert, in relation to underwriting due diligence practices for companies with substantially all operations in the People's Republic of China, and Mr. Wisenfeld.

102 The fairness and reasonableness of the fee awarded in respect of class proceedings is to be determined in light of the risk undertaken by the lawyer in conducting the litigation and the degree of success or result achieved: Parsons v. Canadian Red Cross Society, [2000] O.J. No. 2374 (S.C.J.), at para. 13; Smith v. National Money Mart, [2010] O.J. No. 873 (S.C.J.), at paras. 19-20; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 (S.C.J.), at para 25.

103 Factors relevant in assessing the reasonableness of the fees of class counsel include: (a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (c) the degree of responsibility assumed by class counsel; (d) the monetary value of the matters in issue; (e) the importance of the matter to the class; (f) the degree of skill and competence demonstrated by class counsel; (g) the results achieved; (h) the ability of the class to pay; (i) the expectations of the class as to the amount of the fees; (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement: Smith v. National Money Mart, supra, at paras. 19-20; Fischer v. I.G. Investment Management Ltd., supra, at para 28.

104 Having regard to these various factors, I approve Class Counsel's request for approval of its legal fees.

H. CONCLUSION

105 Orders accordingly. Page 21

P.M. PERELL J. cp/e/qlcct/qlrdp/qlpr Page 1

Case Name: Serhan (Trustee of) v. Johnson & Johnson

PROCEEDING UNDER the Class Action Proceedings Act, 1992, S.O. 1992, c. 6 Between Ahmad Serhan, deceased by his trustee without a will, Zein Ahmad Serhan, and Beverley Gagnon, deceased, by her trustee without a will, Bruce Allen Gagnon, Plaintiffs, and Johnson & Johnson, Lifescan Canada Ltd. and Lifescan, Inc., Defendants

[2011] O.J. No. 27

2011 ONSC 128

79 C.C.L.T. (3d) 272

8 C.P.C. (7th) 73

2011 CarswellOnt 40

Court File No. CV-04-CV-278809CP00

Ontario Superior Court of Justice

C.J. Horkins J.

Heard: December 15, 2010. Judgment: January 7, 2011.

(101 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Class counsel -- Fees -- Settlements -- Approval -- Application for approval of settlement of class action and for approval of class counsel fees allowed -- Action pertained to defendants' blood glucose monitoring products for diabetics -- Method of compensating settlement class, through distribution of diabetic products and an educational program was most practical way of distributing benefits -- Fee of $1.5 million was approved because class counsel undertook significant risks in this case -- Class counsel Page 2

demonstrated significant skill and competence.

Application for approval of the settlement of a class action and for approval of class counsel fees. This proceeding, which was commenced in August 2001, was certified as a class action on July 6, 2004 and the cause of action was waiver of tort. Waiver of tort was a legal fiction that allowed a plaintiff to claim from a tortfeasor the benefit he earned which was beyond the damage suffered by the plaintiff. The defendant LifeScan Inc. was an American company based in California. It was a wholly owned subsidiary of the defendant Johnson & Johnson. LifeScan Canada Ltd. was a Canadian corporation based in British Columbia. LifeScan Inc. developed, manufactured and marketed blood glucose monitoring products for individuals with diabetes. One of its products was the SureStep System, which was the focus of this action. It was launched in Canada in February 1996. The class certified consisted of all users in various parts of Canada who acquired the original version of the System, which had two design errors. There was no evidence of any injury in Canada that arose from either design issue. By 1998 these problems were addressed. The settlement had a cash value of $2.75 million and a product value of $1.25 million for a total value of $4 million. Direct distribution to the settlement class was uneconomic given the modest damages and the inability to locate the settlement class members, determine if they suffered damages and, if so, establishing their loss. The settlement class was to be compensated on a cy-pres basis with diabetic products and an educational program. There were no objections to this settlement. The representative plaintiffs supported and recommended approval of the settlement. Class counsel requested a fixed fee of $1.5 million inclusive of disbursements and taxes.

HELD: Application allowed. The manner of compensating the settlement class was the most practical way of distributing the benefits. Direct distribution would be uneconomic, given the modest damages and the fact that there was no cost-effective way of locating the class members, determining if they suffered damages and, if so, establishing their loss. The proposed distribution was directly related to the issues in the lawsuit and it would directly benefit the many people who suffered from diabetes. The fee was approved because there were significant risks that were undertaken in this case. There was the risk that the action would not be certified or that the certification would be reversed on appeal. There was also the risk that the class would be unsuccessful at the trial of the common issues on liability and the quantum or recovery. Class counsel demonstrated significant skill and competence.

Statutes, Regulations and Rules Cited:

Class Action Proceedings Act, 1992, S.O. 1992, c. 6, s. 29(2)

Competition Act, R.S.C. 1985, c. C-34, s. 52(1)

Counsel:

Paul Pape and Kirk Baert, for the plaintiffs. Page 3

Caroline Zayid and Darryl Ferguson, for the defendants.

1 C.J. HORKINS J.:-- This is a motion for approval of the settlement of this class action and approval of class counsel fees. Notice of this approval hearing has been given to the class and no objections have been delivered.

2 Justice Cullity certified this proceeding as a class action on July 6, 2004, with the cause of action being waiver of tort: (Serhan v. Johnson and Johnson, [2004] O.J. No. 2904).

3 At the hearing of this motion, I approved the settlement and the class counsel fees with reasons to follow. These are my reasons.

BACKGROUND

4 The defendant LifeScan, Inc. is a U.S. corporation based in California, and is a wholly owned subsidiary of the defendant Johnson & Johnson. LifeScan Canada Ltd. is a Canadian corporation based in British Columbia. LifeScan, Inc. develops, manufactures, and markets blood glucose monitoring products for individuals with diabetes.

5 Diabetes is a chronic, often debilitating, and sometimes fatal disease in which the body either cannot produce insulin or cannot properly use the insulin it produces. This leads to high levels of glucose in the blood, which can damage organs, blood vessels and nerves.

6 People with diabetes who engage in effective self-monitoring of blood glucose levels have improved levels of glycated haemoglobin (A1C) which is a good measure of a person's average blood glucose level over the previous few months which leads to lower risk of a complication. For example, for every 1% drop in AlC levels, the risk of kidney, eye or nerve related complication is reduced by 40%. As a result, it is well recognized that self-monitoring of blood glucose to assess daily blood glucose control can help people with diabetes avoid serious complications.

7 LifeScan, Inc. developed, manufactured and marketed a blood glucose monitoring product called the SureStep System and this system is the focus of this action. The SureStep System was developed in the early 1990s and was launched in Canada in February 1996 (the "Original SureStep System").

8 The SureStep System consists of a self-monitoring device which allows individuals with diabetes to measure their own blood glucose levels. In order to obtain a blood glucose level reading, the individual pricks his or her finger using a lancet and applies a drop of blood to the membrane on a reagent test strip (the "Strip"). The Strip must then be inserted into the glucose meter and information concerning the user's blood glucose level is displayed on an LCD screen. Page 4

9 The class certified in this action consists of all individuals in Ontario and elsewhere in Canada, except British Columbia and Quebec, who acquired one of the Original SureStep systems (as further defined in Justice Cullity's certification order).

10 The Original SureStep System had two design errors, as described below.

The Software Error

11 The Original SureStep System included a glucose meter which was designed to provide a numerical indication of blood glucose levels at a range between 0 and 27.8 mmol/L (or 500 mg/dL). Above 27.8 mmol/L, the meter would not give a numeric reading. In those circumstances a "HI" reading would be expected. However, the software used in the meter of the Original SureStep System contained an error that resulted in the meters sometimes (rarely) giving an "ER1" reading rather than a "HI" reading when the user had a blood glucose level above 27.8 mmol/L (the "ER1 Problem").

"Low Flier" Issue with the Strips

12 A second issue with the Original SureStep System related to Strip insertion. In particular, it was found that when a SureStep user failed to completely insert a Strip into the blood glucose meter, the meter could potentially give a lower-than-accurate blood glucose reading (the "Low Flier Problem").

13 The ER1 Problem and the Low Flier Problem form the basis of the plaintiffs' claim against the defendants. It is important to note that the Low Flier Problem only occurred between 0.5% and 1.5% of the time, and the ER1 Problem only occurred approximately 0.13% of the time. Further, there is no evidence of any injury in Canada arising from either design issue.

Corrective Action Taken By Defendants

14 The software in the SureStep meters was modified and the ER1 Problem was corrected in July 1997 (the "Corrected Meters"). Thereafter, new meters were manufactured by LifeScan, Inc. and distributed in Canada by LifeScan Canada so that, as of October 7 1997, LifeScan Canada only sold Corrected Meters in the Canadian marketplace. In addition, a voluntary recall of affected meters was undertaken.

15 LifeScan also re-designed the strips to address the Low Flier Problem, so that by mid-1998, LifeScan Canada began to distribute new strips for sale in the Canadian marketplace, which were not subject to the Low Flier Problem.

The Action is Commenced

16 On August 9, 2001, the plaintiffs commenced this action, on behalf of all persons in Canada, except those in British Columbia and Quebec, claiming damages for negligence, negligent and Page 5

fraudulent misrepresentation, breach of section 52(1) of the Competition Act, R.S.C., 1985, c. C-34 and conspiracy relating to the manufacture, sale and distribution of the SureStep Meters and Strips.

17 The plaintiffs also claimed that the defendants held all the revenue generated from the sale of the SureStep Meters, Strips and associated paraphernalia in a constructive trust for their benefit and for that of the other Class members. The plaintiffs sought disgorgement of such revenues and punitive damages.

18 There is a serious question of whether "waiver of tort" is an independent cause of action, or merely a remedy available only after a plaintiff has established another cause of action. All Justice Cullity found in certifying this action was that it was not plain and obvious that waiver of tort was not a cause of action. And all that the Divisional Court found on appeal was that "whether waiver of tort is an independent cause of action should be resolved in the context of a factual background of a more fully developed record." The defendants unsuccessfully sought leave to appeal certification to the Supreme Court of Canada.

19 In accordance with the certification orders of Justice Cullity of July 6, 2004 and May 25, 2007, notice of certification of the action was given to the Class. The latter order provided for a written election to opt out. No opt-out elections were received.

20 The parties exchanged affidavits of documents. The material disclosed and produced by the defendants was extensive and in electronic format. The organization and analysis of the productions commenced in late November 2007, and continued through to the examinations of discovery of representatives of the defendants which took place in September and October 2008. The examinations for discovery of the plaintiffs' representatives took place on January 13, 2009. Justice Cullity scheduled the trial of the common issues for six weeks commencing May 3, 2010. It was in the face of a trial date that the parties commenced settlement discussions and eventually reached a resolution.

21 Companion actions were brought in British Columbia and Quebec for persons residing in those provinces. These actions, to the extent possible, have been held in abeyance pending resolution of this action. An approval of the settlement will now proceed before the courts in those provinces.

THE SETTLEMENT AGREEMENT

22 The settlement has a cash value of $2.75 million and a product value of $1.25 million, totalling $4 million, all of which will be a cy près distribution because direct compensation to the Settlement Class is not practical.

23 While the plaintiffs and Ontario Class Counsel believe that the Class has a good case on liability against the defendants, the amounts that are recoverable as a result of the certified cause of action, being waiver of tort, are considerably less than originally anticipated. As a result, the Class Page 6

compromised and together with the British Columbia and Quebec classes, and subject to court approval in the three jurisdictions, agreed to settle the claims on the following basis:

24 The $1,250,000 value of the product component equates to 5000 kits or packages of home glucose monitors, strips and lancets, as well as instructions to be distributed by the Canadian Diabetes Association (CDA). For the Compassionate Use Program, the CDA will receive $270,000 to create and execute a Public Awareness Program. An important aspect of the distribution or product through the Compassionate Use Program is that the products will be given to those diabetics who are not yet monitoring their condition adequately or at all and it includes an educational component so that all diabetics will learn how to monitor their condition. The purpose of the Public Awareness Program will be to raise awareness of the dangers of undiagnosed and untreated diabetes. The particulars of these two programs are summarized in the paragraphs below.

Cost of Self-Management

25 The average annual cost of devices and supplies required for effective self-monitoring is nearly $1,400 for Type 1 diabetes, and $600 for Type 2 diabetes. In addition, diabetics must incur costs for insulin and other medication, which are in some cases substantial.

26 While some individuals have certain costs covered by government health care programs or Page 7

private insurance plans, this coverage is not universally available. Furthermore, levels of coverage differ from province to province, or depending on the individual's circumstances (type of diabetes, social assistance, elderly, etc.).

27 For example, in Ontario, there is no general public insurance program which covers the costs of glucose monitoring supplies for all Ontarians. Individuals who are in receipt of social assistance have the cost of meters and strips covered. Certain senior citizens or low income individuals who qualify for the Trillium Drug program, or who are insulin dependent also qualify for public coverage. However, these latter programs involve significant deductibles (e.g. 4% of household income for the Trillium program) or may require that individuals are insulin dependent (which is only a small percentage of diabetics). By way of further example, in New Brunswick only social assistance recipients who are insulin dependent have public coverage for the costs of meters and strips.

28 As a result, many persons with diabetes must incur substantial out-of-pocket expenses which are not covered by public health care or private insurance. The average annual out of pocket expense for people living with diabetes is $2,400. However, depending on the individual circumstances, it is not uncommon for out of pocket expenses to reach $10,000 per year.

29 The costs associated with self-monitoring can be a significant barrier for many Canadians. For example, 57% of Canadians with diabetes say they do not comply with their prescribed therapy due to the cost of medication, devices and supplies.

30 Focusing specifically on medically recommended testing, only 32% of Canadians are receiving the recommended regular tests. Among Canadians in the highest household income group, 42% receive all recommended tests, whereas in the lowest income group, only 21% do.

31 As a result, many Canadians living with diabetes are unable to meet their own needs for self-monitoring of blood glucose level as a result of the cost of glucose meters and test strips. This situation may be improved if Canadians are made more aware of the health dangers of diabetes and meters and strips for self-monitoring are made available to those who have difficulty affording them.

The Compassionate Use Program

32 To assist those Canadians with diabetes who are unable to afford the out of pocket costs for self-monitoring, the CDA has agreed to establish a Compassionate Use Program. The Program will make available meters and strips provided by LifeScan Canada. Any Canadian with diabetes can apply to the Program and will be asked to demonstrate that they are unable to afford required meters and strips, which are not available to them through existing government programs.

33 The Compassionate Use Program will be launched by the CDA following approval of this settlement by the courts and promoted through a media release, CDA publications, the CDA Page 8

website, the CDA call centre, a national email distribution, including to all members of the CDA's diabetes education section membership (approximately 2,453) and the clinical and scientific section membership (471) and the use of distribution networks for physicians and pharmacists across Canada.

34 The communication materials and tools of the CDA are readily accessed and well used by diabetics in Canada. This year there have been approximately 1.3 million visitors to "diabetics.ca" (the CDA website). The National Contact Centre of the CDA has handled approximately 33,000 phone and email requests and the CDA has distributed approximately 2 million pieces of consumer health education literature across the country.

35 Applicants will be asked to submit an application form which will be available online at the CDA's website, or through the CDA call centre. CDA staff will review the applications in accordance with established eligibility criteria designed to complement available provincial coverage. CDA staff will contact applicants for clarification or follow up.

36 Although the CDA does not operate regional offices in Quebec, residents of Quebec could access application forms (in French or English) on-line and would be considered eligible under the Program.

37 Given that each individual will be receiving a medical device which is to be used as part of their comprehensive diabetes management plan, it is important that the individual have a good understanding of the device, its proper use, and how to interpret results received. In addition, patients frequently have ongoing issues and questions concerning proper use of their meter, and the interpretation of results, once they receive and begin to use them. They require a resource to contact to deal with their issues as they arise.

38 In order to accomplish this, all successful applicants will be referred to the call centre which is currently maintained by LifeScan to deal with customers. Call centre staff are knowledgeable about LifeScan products and trained to answer questions and counsel patients concerning the use of the products.

39 Once an applicant has been approved, that applicants' name and address only will be provided to Kelly Outsourcing and Consulting Group (Kelly OCG), which functions as LifeScan's call centre, on a fee for service basis.

40 A staff person from Kelly OCG will contact the successful applicant by phone to determine the individual's meter and strip requirements, including any special needs that may exist. Proper use of the meter will be explained along with education as to how to interpret test results. Individuals will be invited and encouraged to contact the customer service centre operated by Kelly OCG again by telephone if they require any further education or advice with respect to the proper use of their device. Page 9

41 Thereafter, a meter, lancets and 300 strips will be shipped to each individual. The meters and strips will be shipped directly from LifeScan's shipping centre (operated by Kelly OCG) once the counselling and education has been completed.

42 It is anticipated that meters and strips can be supplied to approximately 5,000 Canadians with diabetes.

43 CDA estimates the costs to be incurred by the CDA to administer this program to be approximately $127,400 and the costs of having the product delivered by Kelly OCG, along with the appropriate patient education, to be approximately $90,500. Therefore, the total estimated costs of administering the Program are $217,940 which may increase or decrease depending on the length of time the Compassionate Use Program operates or the extent of training and support required by recipients.

44 The CDA will report to Class Counsel twice a year. Following completion of the Compassionate Use Program the CDA will deliver a final report to Class Counsel and they in turn will provide a copy to the Courts.

Public Awareness Program

45 In order to reverse the impact of the diabetes epidemic in Canada, individuals living with diabetes or pre-diabetes must have their condition promptly diagnosed. In addition, once diagnosed, Canadians need to understand that good care and effective self-management will lead to better health and better quality of life.

46 To achieve these objectives, the CDA will launch the Public Awareness Program to make Canadians more aware of the seriousness of diabetes and the importance of diagnosis and treatment.

47 The CDA has developed creative concept material which emphasizes the deadly serious nature of diabetes and encourages individuals to take action. The audience will be directed to a special micro site which will provide more detailed health information about risks and symptoms and how to get access to proper self-management. The micro site will link to, or be incorporated into, the CDA website and will also link to the websites of partners and supporters of the Public Awareness Program.

48 The CDA requires funds to produce the Public Awareness Campaign material for television, radio and web display, and buy media access for those materials. The amount in this settlement that is allocated to this Public Awareness Program will serve as a catalyst to allow the CDA to raise funds and gather support for it from other partners.

49 At the conclusion of the Public Awareness Program, CDA will report to LifeScan and Class Counsel detailing the costs incurred to execute the Program, the coverage received and the impact as measured in terms of the number of Canadians who have accessed the micro site and patient Page 10

resources which will be available there.

50 Since the Public Awareness Program will not be tailored for Quebec, $185,000 cash will be provided to Diabète Québec for its use in a public awareness program specifically aimed at Quebec residents and $15,000 will be paid to the Fonds.

SETTLEMENT APPROVAL

Legal Framework

51 Section 29(2) of the Class Action Proceedings Act, 1992, S.O. 1992, C. 6 ("CPA") provides that a settlement of a class proceeding is not binding unless it has been approved by the court. The test for approving a settlement is whether, in all of the circumstances, the settlement is fair, reasonable and in the best interests of the class as a whole, taking into account the claims and defences in the litigation and any objections to the settlement.

52 When considering the approval of negotiated settlements, the court may consider, among other things: likelihood of recovery or likelihood of success; amount and nature of discovery, evidence or investigation; settlement terms and conditions; recommendation and experience of counsel; future expense and likely duration of litigation and risk; recommendation of neutral parties, if any; number of objectors and nature of objections; the presence of good faith, arm's length bargaining and the absence of collusion; the degree and nature of communications by counsel and the representative plaintiffs with class members during the litigation; and information conveying to the court the dynamics of and the positions taken by the parties during the negotiation: See Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.) at 440-44, aff'd (1998), 41 O.R. (3d) 97 (C.A.), leave to appeal to S.C.C. refused Oct. 22, 1998, [1998] S.C.C.A. No. 372; Parsons v. The Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.) at paras. 71-72.; Frohlinger v. Nortel Networks Corp., [2007] O.J. No. 148 (S.C.J.) at para. 8; Kelman v. Goodyear Tire and Rubber Co., [2005] O.J. No. 175 (S.C.J.) at paras. 12-13; Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd. (2005), 74 O.R. (3d) 758 (S.C.J.) at para. 117; Sutherland v. Boots Pharmaceutical plc, [2002] O.J. No. 1361 (S.C.J.) at para. 10.

53 The court is not required to have evidence sufficient to decide the merits of the issue. This "is not required because compromise is necessary to achieve any settlement. However, the court must possess adequate information to elevate its decision above mere conjecture. This is imperative in order that the court might be satisfied that the settlement delivers adequate relief for the class in exchange for the surrender of litigation rights against the defendants": see Ontario New Home Warranty Program v. Chevron Chemical Co. (1999), 46 O.R. (3d) 130 at 92.

54 A settlement does not have to be perfect. It need only fall "within a zone or range of reasonableness": Parsons v. Canadian Red Cross Society, at para. 69; Bilodeau v. Maple Leaf Foods Inc., [2009] O.J. No. 1006 (Sup. Ct.) at paras. 45-46; Dabbs v. Sun Life Assurance Co. of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.) at pp. 439-440; Frohlinger v. Nortel Networks Corp., Page 11

[2007] O.J. No. 148 (Sup. Ct.) at para. 8; Ontario New Home Warranty Program v. Chevron Chemical Co. (1999), 46 O.R. (3d) 130 (Sup. Ct.) at paras. 70 and 89.

55 The "zone of reasonableness" concept helps to guide the exercise of the court's supervisory jurisdiction over the approval of a settlement of class actions. It is not the court's responsibility to determine whether a better settlement might have been reached. Nor is it the responsibility of the court to send the parties back to the bargaining table to negotiate a settlement that is more favourable to the class. Where the parties are represented - as they are in this case - by highly reputable counsel with expertise in class action litigation, the court is entitled to assume, in the absence of evidence to the contrary, that it is being presented with the best reasonably achievable settlement and that class counsel is staking his or her reputation and experience on the recommendation.

56 As stated in Dabbs v. Sun Life Assurance Co. of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.) at p. 440, there is a strong initial presumption of fairness when a proposed class settlement, which was negotiated at arm's length by class counsel, is presented for Court approval:

[T]he recommendation of counsel of high repute is significant. While class counsel have a financial interest at stake, their reputation for integrity and diligent effort on behalf of their clients is also on the line.

Factors Supporting Approval

57 The settlement is a cy près distribution. The facts of this case support this type of settlement: the representative plaintiffs and other class members were able to use the SureStep Meters and Strips for their intended purposes, except possibly on a small number of occasions, there is no evidence of actual harm and many received replacement product.

58 Further, it is not practical to distribute the benefits in any other manner. A direct distribution to the Settlement Class would be uneconomic considering the modest damages and the fact that there is no cost effective way of locating the Settlement Class Members, determining if they suffered damage and, if so, establishing their loss. Thus, Class Counsel concluded that the Settlement Class should be compensated on a cy près basis with diabetic products and an educational program.

59 Given these unique points, I conclude that the proposed cy près distribution is appropriate. Furthermore, the cy près distribution is directly related to the issues in the lawsuit and will directly benefit many people who suffer from diabetes.

60 I accept that the settlement was the product of hard fought negotiations conducted by experienced counsel at arm's length. The settlement, which is quite creative, is grounded in a principled approach to the assessment of damages and reasonably reflective of the litigation risks, costs and delays that would result from taking the matter to trial. Page 12

61 The representative plaintiffs support and recommend approval of the settlement. As well, there are no objections to the settlement.

62 This is not a case in which counsel are "guessing" about the merits of the action or value of the claim. Ontario Class Counsel had significant information from the discovery process and a good understanding of liability and damages issues before embarking on the negotiation process.

63 Given the information available to Class Counsel, they were well situated to evaluate the risks, to negotiate and ultimately to agree, subject to court approval, to the resolution of the action for the benefit of all Settlement Class Members.

64 Class Counsel had an appropriate evidentiary basis to evaluate settlement. Also, there is sufficient evidence before the court to allow it to exercise an objective, impartial and independent assessment of the fairness of the proposed settlement agreement.

65 The likelihood of recovery or success in particular leads me to conclude that the settlement is fair, reasonable and in the best interests of the class. The following analysis explains why this factor is so critical to the court's approval of the settlement.

The Likelihood of Recovery or Success

66 The fact that this action was certified with waiver of tort being the cause of action, created significant risk and challenges for the class as detailed below.

67 The defendants maintained that the SureStep System exceeded any standard that could be reasonably expected for a home monitoring device, and indeed performed better than competitive products even when the alleged problems were taken into consideration. If they were able to prove this allegation at trial, a court might well conclude that the plaintiffs were not entitled to a remedy.

68 The evidence of the defendants on the motion for certification was that the Low Flier Defect occurred between 0.5% and 1.5% of the time and the Er1 Defect occurred about 0.13% of the time, and there was no evidence of any injury in Canada arising from either defect. While there was evidence to contradict these statistics, the actual damage to the Class, if any, was probably small. Indeed, Justice Cullity found that the Class did not suffer significant damages.

69 Most importantly, does waiver of tort exist as an independent cause of action or is it only a remedy applicable to another tort? This difficult question is at the heart of this case. While Ontario Class Counsel were confident that a court would find that it was an independent cause of action, there was a considerable risk that it would not.

70 The problem with waiver of tort lies in defining the applicable parameters. Ontario Class Counsel and the courts are in uncharted territory. Waiver of tort, as a cause of action, arose in the 16th century. In essence, it was a legal fiction which allowed a plaintiff to claim from a tortfeasor, Page 13

the benefit he had earned which was beyond the damage suffered by the plaintiff. These historic antecedents had nothing to do with an action in fraud and negligence against a manufacturer of consumer health products. Pursuant to the fiction, the plaintiff would not sue in tort, but rather in "assumpsit" (later "quasi contract") for money had and received; the defendant would be holding money on a "promise" for the plaintiff. These monies are variously described as "profit", "benefit" and "windfall" which the defendant obtained by his underlying tortious conduct.

71 Even if the Class was successful in establishing waiver of tort as a cause of action, for policy reasons it might not be found applicable to products liability cases. Thus, it was possible that a court might find that the cause of action existed but was inapplicable in these circumstances.

72 Class Counsel had no way of knowing how waiver of tort would be applied until all appeals were exhausted. It was a distinct possibility that a judgment from the common issues trial judge would be appealed through to the Supreme Court of Canada.

73 The plaintiffs had, in addition to damages, claimed disgorgement of all revenues generated from the sale of the SureStep Meters, Strips and Associated Paraphernalia.

74 In Serhan v. Johnson and Johnson, [2004] O.J. No. 2904 at para. 73, Justice Cullity certified waiver of tort as a cause of action and the following common issues:

(1) Are the defendants, or any of them, constructive trustees for all, or any, class members of all, or any part of, the proceeds of the sales of the SureStep Meter and Strips and any other income made by them in connection with the SureStep Meter, Strips and Associated Paraphernalia, including the lancets and controlled solutions? If so, in what amount and for whom are such proceeds held? (2) Are the defendants, or any of them, liable to account to all, or any, of the class members on a restitutionary basis for all, or any part of, the proceeds of the sales of the SureStep Meter and Strips and any other income made by them in connection with the SureStep Meter, Strips and associated paraphernalia, including the lancets and controlled solutions? If so, in what amount and for whose benefit is such accounting to be made?

75 Justice Cullity did not specify how the judge at the trial of the common issues was to make the determination of the amount to be disgorged. In particular, if the defendants were liable to disgorge, would the plaintiffs be entitled to gross revenue, or net revenue after deducting the cost of sales, or net profit after deducting the cost of sales and overhead, or a portion thereof.

76 In addition, the defendants had incurred costs for the product recall. By February 2002, they had delivered 21,321 corrected meters to some Settlement Class Members thereby replacing almost half of the 43,902 defective meters. This was a benefit to some of the Class. It was an open question whether the defendants would be entitled to credit in whole or in part for the costs of the Page 14

replacement meters. The Strips were never recalled or replaced.

77 Ontario Class Counsel were left to draw on the historic antecedents to estimate what a tortfeasor might be required to disgorge. For example, a horse worth $100 to the owner is stolen. He would sue in conversion and his damages would be $100. If the thief later resold the horse for $150, the owner's loss from the theft would not increase. An action in conversion would not reach the gain beyond the owner's loss. The courts sought a cause of action that would compel the thief to disgorge the $150 including the gain of $50.

78 The tortfeasor would be seen as a fictitious agent selling the horse for the benefit of the owner and holding the gain for the owner's benefit pursuant to "an assumpsit". The owner would sue in assumpsit (an implied promise to hold the receipts for the owner). He would not be suing in tort, thus the tort was "waived". The defendant would be compelled to disgorge the gain of $50. If there was no gain, there would be nothing to disgorge. Thus, if the tortfeasor spent $30 to sell the horse, his gain would be $20. If the tortfeasor recognized his wrong and spent $100 to replace the horse, that sum would be credited to the loss suffered by the owner. Even if the owner had not paid for the horse, he still had lost $100. Thus the tortfeasor ought not to be able to set that cost against the $20 gain. While this made contextual sense, there was no law available to guide Ontario Class Counsel on this particular point.

79 Thus, Ontario Class Counsel believed that the disgorgement claim might allow the defendants to set off all reasonable expenses incurred to earn the profits for without those expenses there would have been no gain. But the defendants would not be entitled to claim a set off for the cost of remedying their wrong doing.

80 The total gross revenue earned by the Canadian defendant during the class period from the sale of the allegedly defective SureStep Meters and Strips and the Associated Paraphernalia was $16,456,290. The total profit in Canada after deducting the costs of goods sold (i.e. what was paid for the product) and before overhead was deducted was $6,112,094. In addition, the American defendants earned a profit from the transfer pricing of these products of $1,838,926, after deducting the cost of goods sold but no overhead. Thus, the total profit earned after the cost of goods sold and before overhead was $7,951,020.

81 The defendants asserted that they are entitled to a credit in the amount of $5,157,287 for a proportionate share of their overhead in Canada. Since the pith of the claim is the disgorgement of gain, it is Ontario Class Counsel's view that a court might allow some deduction for overhead as the overhead was incurred, at least in part, to earn the gain. If so, a court could reasonably reduce the overhead for example by 25% to $3,867,965.

82 In addition, the defendants assert that they are entitled to credit for $3,633,037 as the cost of the product recall.

83 So, ultimately, at a trial of the common issues, the defendants would claim that they had lost Page 15

money and so there would be nothing to disgorge. Indeed, they calculate their loss at $1,337,143.

84 Ontario Class Counsel believe that realistically the amount to be disgorged could be calculated in one of three ways as follows:

1. $16,456,290 Revenue

2. $6,112,094 Gross profit after cost of goods sold

$3,867,965 Less overhead (post 25% reduction)

$1,838,917 Plus transfer price profit

$4,083,046 Total profit to be disgorged

3. $6,112,094 Gross profit after cost of goods sold

$5,157,287 Less overhead (no reduction)

$1,838,917 Plus transfer price profit

$2,793,724 Total profit to be disgorged

85 However, there was real risk that these alternative damage calculations would not succeed because of the following compelling points that the defendants raise. First is the fact that the representative plaintiffs and other class members were able to use the SureStep Meters and Strips for their intended purposes, except possibly on a small number of occasions. Secondly, there is no evidence that any Class member suffered actual harm from the use of SureStep Meters and Strips. In these circumstances, a court might conclude that it is unjust to allow the Class to receive any disgorgement of profits, which would in essence be a windfall without any juristic basis.

86 The claim also includes punitive damages. In the circumstances of this case, if the plaintiffs succeeded in proving that the defendants knowingly put defective medical devices on the market, a court might find that punitive damages are warranted; particularly, as the compensatory damages Page 16

are modest. On the other hand, the claim here is for disgorgement. There is doubt as to whether in such circumstances a court would order both disgorgement and punitive damages, as disgorgement may itself be seen as punitive. Lastly, the defendants deny that the products are defective and specifically deny that they knowingly sold any defective product. If the defendants' position succeeded at trial there would be no basis for an award of punitive damages.

APPROVAL OF CLASS COUNSEL FEES

87 Class Counsel requests a fixed fee of $1.5 million inclusive of disbursements, taxes and repayment of $24,659.50 owed for disbursements advanced by the Class Proceedings Fund (CPF).

88 It is proposed that the fixed fee will be distributed as follows:

(1) $24,659.50 to the CPF (2) $30,000 inclusive of fees, disbursements and taxes to Siskinds Desmeules, which is subject to approval of the Quebec Court; and (3) $1,445,340.50 inclusive of fees, disbursements and taxes to Ontario Class Counsel and British Columbia Class Counsel, subject to the approval of the British Columbia Court.

89 The court's task is to determine a fee that is "fair and reasonable" in all of the circumstances: Parsons v. Canadian Red Cross Society (2000), 49 O.R. (3d) 281 (Sup. Ct.) at paras. 13 and 56.

90 In Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 (Sup. Ct.) at para. 67, Cumming J. summarized some of the factors to be considered by the court when fixing class counsel's fees:

(a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (c) the degree of responsibility assumed by class counsel; (d) the monetary value of the matters in issue; (e) the importance of the matter to the class; (f) the degree of skill and competence demonstrated by class counsel; (g) the results achieved; (h) the ability of the class to pay; (i) the expectations of the class as to the amount of fees; and (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement.

91 With these factors in mind, the following review confirms the reasonableness of the proposed fixed fee. Page 17

92 Class Counsel included skilled lawyers who are experts in the field of class action litigation. Harvey Strosberg and Patricia Speight of Sutts, Strosberg LLP have been involved in the litigation from the outset, as has Kirk Baert with the support of other lawyers at his firm, Koskie Minsky LLP. Paul Pape joined the team prior to the argument of the motion for certification and he handled the negotiations that led to the proposed settlement of the action. This team invested considerable time to navigate through the unchartered waters of waiver of tort and achieve the settlement this court has approved.

93 The plaintiffs and Ontario Class Counsel agreed to a contingency fee of the greater of 25% of the total recovery or a base fee times a multiplier of three, plus taxes, plus disbursements, plus costs as set out in paragraph 4 of the Fee Agreement:

In addition to any fees and disbursements recovered as party and party costs paid to the SOLICITOR pursuant to the provisions of paragraph 3 above, in the event of Success in the Action the CLIENTS agree that the SOLICITOR shall be paid and shall receive the aggregate of the following:

(a) to the extent that any disbursements are not received and recovered as party and party costs, an amount equivalent to the cost of the unrecovered disbursements plus applicable taxes; and (b) the greater of:

(1) 25% of the settlement funds or monetary award, plus applicable taxes; or (2) the base fee, being the number of hours times the usual hourly rates, increased by a multiplier of 3.0, plus applicable taxes.

94 Class Counsel seek a fixed fee of $1.5 million, inclusive of disbursements, taxes and repayment of the amount owed for disbursements advanced by the CPF. This request results in a fee that is considerably less than the time docketed and demonstrates the reasonableness of the fixed fee.

95 There were significant risks undertaken in this case. There was the risk that the action would not be certified as a class proceeding or that the certification would be reversed on appeal. As well, there was the risk that the Class would be unsuccessful at the trial of the common issues on liability and/or quantum of recovery.

96 Ontario Class Counsel had complete responsibility for the prosecution of the action. They were successful in certifying the action. They engaged in adversarial negotiations and negotiated the settlement this court has approved. Page 18

97 The Class Counsel team demonstrated significant skill and competence. They did the necessary research and preparation so that they were able to negotiate a resolution of this action. They were successful in obtaining a creative and beneficial cy près distribution in circumstances where direct compensation to the Settlement Class is not practical.

98 Class Counsel do not believe that any individual actions were commenced. They believe that this was because the cost of prosecution of an individual action would have exceeded the claimant's losses. As a result, but for the commencement of this action, it is likely that there would be no recovery.

99 Lastly, the Ontario Class was advised in the notice of the approval hearing that the legal fees (all inclusive) requested for Class Counsel would be $1.5 million. There were no objections to the amount sought and the representative plaintiffs support Class Counsel's fee request.

100 For all of the above reasons, I approve the fee as requested.

CONCLUSION

101 I make the following orders:

1. The settlement is approved. 2. I approve and fix Class Counsel's fee at $1.5 million inclusive of disbursements, taxes and repayment to the CPF, allocated as follows:

(a) $24,659.50 to the CPF (b) $30,000 inclusive of fees, disbursements and taxes to Siskinds Desmeules, which is subject to approval of the Quebec Court; and (c) $1,445,340.50 inclusive of fees, disbursements and taxes to Ontario Class Counsel and British Columbia Class Counsel, subject to the approval of the British Columbia Court.

C.J. HORKINS J. cp/e/qllqs/qlvxw/qlana/qlgpr Page 1

Case Name: MacKinnon v. Ontario Municipal Employees Retirement Board

RE: Wyman MacKinnon, Plaintiff, and Ontario Municipal Employees Retirement Board, Borealis Capital Corporation, Borealis Real Estate Management Inc., Ian Collier, R. Michael Latimer and Michael Nobrega, Defendants

[2012] O.J. No. 4003

2012 ONSC 4450

99 C.C.P.B. 321

2012 CarswellOnt 10630

Court File No. 05-CL-006035

Ontario Superior Court of Justice Commercial List

G.B. Morawetz J.

Heard: June 28, 2012. Judgment: August 3, 2012.

(29 paras.)

Civil litigation -- Civil procedure -- Parties -- Class or representative actions -- Settlements -- Approval -- Motion to approve settlement in representative action allowed -- Plaintiff alleged transfer then resumption of management of real estate was improper and commercially unreasonable, leading to increased costs for pension plans -- Parties had benefit of lengthy mediation and fact-finding process -- Mediator found no wrongdoing, but concluded better disclosure and better care by defendants to avoid appearance of conflict of interest could have avoided litigation -- Plaintiff satisfied with subsequent governance changes at OMERS -- Settlement agreement recognized improved governance and mediator's report and agreed to dismissal of action with OMERS to reimburse plaintiff's costs -- No objections made.

Pensions and benefits law -- Private pension plans -- Administration of pensions -- Administration Page 2

costs -- Civil procedure -- Settlements -- Motion to approve settlement in representative action allowed -- Plaintiff alleged transfer then resumption of management of real estate was improper and commercially unreasonable, leading to increased costs for pension plans -- Parties had benefit of lengthy mediation and fact-finding process -- Mediator found no wrongdoing, but concluded better disclosure and better care by defendants to avoid appearance of conflict of interest could have avoided litigation -- Plaintiff satisfied with subsequent governance changes at OMERS -- Settlement agreement recognized improved governance and mediator's report and agreed to dismissal of action with OMERS to reimburse plaintiff's costs -- No objections made.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, S.O. 1992, c. 6,

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 10.01(3), Rule 12

Counsel:

Mark Zigler and Jonathan Bida, for the Plaintiff.

Peter Griffin and Eli Lederman, for the Defendants, Ontario Municipal Employees Retirement Board, Borealis Capital Corporation, and Borealis Real Estate Management Inc.

R. Bruce Smith and Christopher Bardsley, for the Defendants, Ian Collier, R. Michael Latimer and Michael Nobrega.

ENDORSEMENT

1 G.B. MORAWETZ J.:-- On June 28, 2012, the record was endorsed as follows:

The motion proceeded on an unopposed basis. I am satisfied that the requested relief is appropriate in the circumstances. The motion is granted and the order has been signed in the form submitted. Brief reasons will follow.

2 These are the reasons.

3 This was a motion to approve the settlement of a representative action under subrule 10.01 (3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

4 In 2005, this action was commenced against the defendants alleging breaches in the transactions whereby Ontario Municipal Employees Retirement System ("OMERS") transferred Page 3

management of its real estate assets to Borealis Real Estate Management Inc. ("Borealis") in 2002 and subsequently reassumed asset management in 2004. The plaintiff alleged that the transactions were improper and at commercially unreasonable levels leading to increased costs for the pension plan.

5 The plaintiff obtained a representation order to proceed on behalf of all persons who had a present, future, contingent or unascertained interest in the Ontario Municipal Employees Retirement System Fund or may be affected by this proceeding (collectively, the "representative persons").

6 The parties spent years litigating pleadings motions, which were appealed to the Court of Appeal. Following the release of the Court of Appeal's decision permitting certain claims to proceed, the parties engaged in a mediation and fact-finding process chaired by Mr. Stanley Beck, Q.C.

7 The defendants made extensive documentary production which had not previously been available to the plaintiff. These documents were reviewed by experts, counsel and Mr. Beck. In addition, Mr. Beck reviewed the governance practices of OMERS in the context of the disputed transactions.

8 Mr. Beck released a lengthy report and letter of recommendation to the court (his "Report and Recommendations"). Mr. Beck found no wrongdoing by any defendant and concluded that the disputed transactions were carried out on commercially reasonable terms. He did, however, conclude that the plan sponsors and stakeholders were not informed of the essential underlying facts, which raised serious questions giving rise to these proceedings. Mr. Beck further concluded that more detailed disclosure by OMERS fully explaining transactions and events at the time, which had not previously been supplied, may have avoided this litigation. He observed that OMERS' processes today will help to ensure better communication and its new strong governance practices will avoid these types of issues in future.

9 Mr. Beck indicated that, although there were not actual conflicts of interest in the transactions, and the defendants acted appropriately throughout, the OMERS Board ought to have taken greater care to have avoided the appearance of a conflict of interest.

10 Mr. Beck concluded that the outsourcing of real estate asset management from OMERS to Borealis in June 2002 was done on commercially reasonable terms based on industry models. However, by November 2003, OMERS concluded that the management of real estate assets was more expensive when outsourced to Borealis than it was projected to be if OMERS took back the management "in house".

11 Mr. Beck further concluded, that since the commencement of the litigation, there have been extensive governance changes at OMERS. The processes in place today will help to ensure better communication and governance, thereby avoiding perceived conflict of interest issues in the future. Page 4

12 The plaintiff is satisfied that these governance changes address his and other CUPE members' concerns. Since the events giving rise to this litigation, OMERS and CUPE Ontario have established improved working relationships and, further, they have confidence in, and fully support, the current leadership team at OMERS.

13 A settlement agreement was signed by the parties to resolve this litigation. It recognizes the improved governance structure at OMERS and Mr. Beck's fact-finding report. The key terms of the settlement provide that this action shall be dismissed in a manner that shall be binding on all represented persons and that OMERS will reimburse the plaintiff for his costs and professional fees in the action and the mediation. It is noted that this is to be the sole monetary payment made by any defendant. Further, the parties release each other in relation to the facts and allegations pleaded in this action and Mr. Beck's Report and Recommendations are a matter of public record.

14 The settlement agreement is recommended by Mr. Beck as being fair and in the best interests of all members and stakeholders of the OMERS pension plan and the parties accept the findings and conclusions expressed in the Report and Recommendations.

15 Extensive notice of the settlement approval hearing was provided in accordance with the court's order as follows:

(a) a joint press release was issued; (b) a newspaper notice was made in the Toronto Star on two occasions; (c) the notice was mailed, faxed and emailed to all the stakeholder groups representing employers and unions, who are in a position to keep the plan members informed; and (d) the notice, settlement agreement, press release and motion record were all published on class counsel's website.

16 The due date for objections was June 8, 2012 and no objections were made.

17 Rule 10.01 (3) provides that a judge may approve a settlement in a representative action where: (a) the representative plaintiff agrees to the settlement, (b) the settlement will be for the benefit of the represented persons and (c) requiring service on those represented persons would cause undue expense or delay.

18 It seems to me that the assessment of a settlement in a Rule 10 representative action is analogous to the analysis of settlement approval under the Class Proceedings Act, 1992, S.O. 1992, c.6.

19 In approving the settlement of a representative action in Ironworkers Ontario Pension Fund v. Research In Motion Ltd., (2007), 87 O.R. (3d) 721 at para. 20 (S.C.J.) [Ironworkers]. C. Campbell J. noted that Rule 10 has been described as the "simplified procedure" version of proceedings under the Class Proceedings Act, 1992, S.O. 1992, c.6 and that it is "designed to encourage an expeditious Page 5

means of resolving contentious issues without the cost and expense associated with a Rule 12 [Class Proceedings Act, 1992] order".

20 In Ironworkers, C. Campbell J. affirmed the approach and factors to consider in the approval of settlements in class proceedings. These factors include:

(i) likelihood of recovery or likelihood of success; (ii) amount and nature of discovery, evidence or investigation; (iii) settlement terms and conditions; (iv) recommendation and experience of counsel; (v) future expense and likely duration of the litigation; (vi) recommendation of neutral parties, if any; (vii) number of objectors and nature of objections; and (viii) the presence of arm's-length bargaining and the absence of collusion.

21 Counsel to the plaintiff submitted that the overriding principle is whether the settlement is fair, reasonable and in the best interests of the class as a whole, and not whether it meets the demands of a particular member. Further, a settlement must fall within the range of reasonableness in order to obtain court approval; it need not be "perfect" in every respect. There is a "strong initial presumption of fairness" when the settlement is negotiated at arm's length. See Martin v. Barrett, [2008] O.J. No. 2105 at paras. 20-21 (S.C.J.) and Serhan (Trustee of) v. Johnson & Johnson, 2011 ONSC 128 at paras. 55-56 [Serhan].

22 Counsel further submits that a focus on the interest of the representative persons as a whole is particularly appropriate in this action. This action relates to the administration of OMERS, rather than seeking payment to individual beneficiaries. As noted by the Court of Appeal, this action was brought "to ensure the due administration of the pension fund".

23 Counsel to the plaintiff takes the position that this action was commenced as there were serious concerns regarding transparency, governance and administration of OMERS in respect of the disputed transactions.

24 It is clear from the record that the parties in this action had the benefit of a lengthy mediation and fact finding process with Mr. Beck, an experienced law professor, corporate and securities lawyer and a former chair of the Ontario Securities Commission. Mr. Beck performed a thorough review of all of the evidence and expert reports. He concluded that there was no wrongdoing and no breach of duty by any of the defendants.

25 Further, the parties have had the benefit of extensive documentary disclosure and review by a neutral third party. The parties have a thorough understanding of the liability issues raised and the likely conclusions by a court. This was recognized in Serhan as an important factor to be taken into account in approving a settlement. Page 6

26 It is also clear that the transactions at issue in this action raised concerns about transparency and governance at OMERS. However, counsel to the plaintiff acknowledges that these concerns have been substantially addressed through the changes to OMERS' policies and practices that took place over the course of this litigation.

27 Mr. Beck's report found that these policies and procedures have been implemented.

28 Finally, the settlement provides for payment of Mr. MacKinnon's costs in pursuing this action and in implementing the settlement. This is consistent with the Court of Appeal's findings in this action that the plaintiff should be fully indemnified for his costs, which have been incurred on behalf of all the pension plan members. With respect to quantum, it is noted that OMERS has reviewed and approved these amounts which I consider to be fair and reasonable in the circumstances.

29 In the result, an order shall be issued approving the settlement agreement in its entirety and dismissing the action against all defendants.

G.B. MORAWETZ J. cp/e/qljel/qljxr/qlhcs

IAN SANSOM, ROBERT LUKAS, JOHN SHAW CANADA L.P., THE SHAW GROUP Court File No: CV-12-9949-00CL MCNAB and ED DORR, and INC., STONE & WEBSTER INC., STONE the proposed representatives of all terminated AND WEBSTER HOLDING ONE NS ULC, employees and retirees of Shaw Canada L.P. et al. under Rule 10 of the Rules of Civil Procedure Defendant Plaintiffs

ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

Proceeding commenced at Toronto

BOOK OF AUTHORITIES OF THE PLAINTIFFS (Motion for Certification and Approval of Settlement returnable October 9, 2013)

KOSKIE MINSKY LLP 20 Queen Street West, Suite 900 Toronto, ON M5H 3R3

Andrew J. Hatnay LSUC#: 31885W Tel: 416-595-2083 Fax: 416-204-2872

Jonathan Bida LSUC#: 54211D Tel: 416-595-2072 Fax: 416-204-2907 James P. Harnum LSUC# 60459F Tel: 416-542-6285 Fax: 416-204-2819

Lawyers for the Plaintiffs