March 29th, 2017
Excalibur Special Opportunities LP v Schwartz Levitsky Feldman,1 is a recent example of a global class proceeding being certified in Ontario. The majority of the Ontario Court of Appeal certified this action for auditor’s negligence despite 98% of the proposed class members being non-residents of Ontario. Ultimately, the jurisdictional analysis turned on how the proposed claim was characterized with the majority of the Court of Appeal holding that it is for the plaintiff to plead their claim as they see fit and to fail or succeed on that basis.2 The fact that all but one of the class members could be contacted directly was also important.
Excalibur Special Opportunities LP (“Excalibur”) was one of 57 investors (50 of which were American and only two of which were Canadian) that lost money in an expressly high-risk investment in an American corporation, Southern China Livestock International Inc. (“Southern China”). Excalibur was one of the largest investors having invested almost one million USD after reviewing a Private Placement Memorandum that included an audit report prepared by the defendant, a Montreal and Toronto based accounting firm.3 Approximately one year later, “Southern China Livestock went dark, and its shares and warrants [were] now worthless.”4
Excalibur’s motion to certify the global class action was dismissed at first instance and this decision was upheld by the Divisional Court. While preferable procedure and deference were also issues, we focus here on the question of whether there was a real and substantial connection between Ontario and the subject matter of the dispute.
The motion judge held that the class definition criterion was not satisfied because the proposed claim lacked a real and substantial connection to Ontario. Although Excalibur and the defendant auditor were both based in Ontario, all of the remaining proposed class members were non-residents of Ontario, Southern China was based in the United States, and the transactions were governed by American law.5
The majority of the Divisional Court deferred to and affirmed the motion judge’s decision. However, in dissent, Sachs J held the motion judge “erred in failing to find a real and substantial connection between Ontario and the proposed action.”6
The Importance of the Characterization of the Claim
Justice MacFarland, writing for the majority of the Court of Appeal, essentially agreed with Sachs J and held that the motion judge erred in failing to assume jurisdiction over the global class due ultimately to his mischaracterization of the nature of the claim.
What was disputed was the import of the expectations of non-resident class members to have their rights determined in Ontario. The majority held that whether it is reasonable for non-resident class members to expect that their rights would be determined by a foreign court is not an independent factor to be considered when determining whether to take jurisdiction in a global class action.7
The test to determine whether to take jurisdiction begins with examining the presence of jurisdiction simpliciter. Jurisdiction simpliciter was present as the defendant was resident in Ontario, carried on business in Ontario and the audit report was prepared in Ontario.8 This was accepted by all.
The majority of the Court of Appeal found that considerations of order and fairness were not seriously challenged in this case. Procedural interests could be protected as the identity of all but one class member was known and they could be notified directly about the claim and their ability to opt-out.9 It was found to be an error in law that taking jurisdiction had to be exercised with restraint on the basis of Currie in this case.10
The claim is for negligence with respect to an audit report that was prepared in Ontario. Once properly characterized, the real and substantial connection to Ontario is clear. Focusing on the fact that the private placement took place in the United States led to the jurisdictional error. This is an action in auditor’s negligence brought by an Ontario resident against an auditor who performed the work in its Ontario office, which defendant had no assets in the United States.11
In dissent, Justice Blair held that the motion judge accepted that the Ontario court could assume jurisdiction but nevertheless concluded that it should not assume jurisdiction over the non-resident class members as there was insufficient connection between Ontario and the subject of the dispute.12
Viewed in this manner, Blair JA saw no error in the motion judge’s consideration of the reasonable expectations of the non-resident class members or in focusing on a broader characterization of the subject matter of the proposed class proceeding, i.e. the private placement transaction in the United States.13 Both of these were appropriate given the focus of the motion judge on whether jurisdiction should be assumed and the built-in approach of jurisdictional restraint in our system.14 Justice Blair further noted that just because the class members could be notified did not assist as the motion judge did not rely on Currie with respect to procedural protections but rather with respect to jurisdictional restraint.15
As it stands, this class action brought by a resident of Ontario against an Ontario based defendant over work done within the province but relied upon by others in foreign jurisdictions has been certified as a global class action in Ontario.16
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1Excalibur Special Opportunities LP v Schwartz Levitsky Feldman, 2016 ONCA 916 [Excalibur].
2Ibid at para 38.
3Ibid at paras 2-9.
4Ibid at para 11.
5Ibid at para 14.
6Ibid at para 18.
7Ibid at paras 25, 30-31.
8Ibid at paras 34-35, 77.
9Ibid at para 41.
10Ibid at para 33; Currie v McDonald’s Restaurants of Canada Ltd. 2005 CanLII 3360 (ONCA).
11Excalibur, supra note 1 at paras 36, 38-40, 42, 46.
12Ibid at para 78.
13Ibid at paras 81, 82.
14Ibid at paras 85-89, 94-96.
15Ibid at paras 98-99.
16An application for leave to appeal to the Supreme Court of Canada was filed on February 6, 2017.