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The Supreme Court confirms low threshold for class action authorization in Quebec

  • 06 November 2020 06 November 2020
  • Americas

In Quebec, it is enough to demonstrate the defensibility of a proposed legal syllogism and identify a single common issue for a class action to proceed. That is the conclusion stemming from the country’s highest court’s recent decision in Desjardins Financial Services Firm Inc. v. Asselin. The decision confirms the state of the law in Quebec with respect to class action authorization.

The Supreme Court of Canada upholds the state of the law set out in Infineon Technologies AG v. Option consommateurs, Vivendi Canada Inc. v. Dell'Aniello, and L'Oratoire Saint-Joseph du Mont-Royal v. J. which affirm the flexibleapproach to be taken at the authorization stage of a class action. The authorization threshold in Quebec is low, and the class action must be authorized as soon as the conditions set out in the Code of Civil Procedure are met. Then, the deciding judge only has a screening function to rule out frivolous and clearly unfounded claims.[1]

The facts in this case are as follows.

In 2011, Ronald Asselin sought authorization to institute a class action against Desjardins Financial Services Firm Inc. (the Firm) and Desjardins Global Asset Management Inc. (Management) after he was informed that, due to the financial crisis, the investments he had made would not produce any return over time.

Mr. Asselin blamed the Firm for encouraging him to make investments qualified as safe, even though they involved a risk that significantly impacted their potential for return of which the Firm, through its representatives, failed to warn him about. The Firm would thus have failed in its duty to inform and would be liable for damages suffered by members of the group who, like Mr. Asselin, held the investments that produced no return over time (the Group).

With respect to Management, Mr. Asselin alleged that it had failed in its obligations and duties of competence in the design and management of the said investments, in addition to having used inappropriate financial strategies.

At first instance, Superior Court refused to authorize the class action; it concluded that the conditions of appearance of right and existence of common issues, set out in the Code of Civil Procedure, were not met. In 2017, the Quebec Court of Appeal reversed this decision and authorized Mr. Asselin's class action. The Supreme Court confirmed the decision of the Quebec Court of Appeal by authorizing the class action by a six-to-three majority.

The majority derives mostly from the appeal against the Firm, and like the decisions of the lower courts, are based on two conditions: (i) “the facts alleged appear to justify the conclusions sought,” that is the appearance of law (art. 1003b) a.C.P.C.); and (ii) the members' appeals raise identical, similar or related questions of law or fact, or the existence of common issues (art. 1003a) f. C.P.C.).[2]

The appearance of right

The Court confirms that the members of the group are bound to the Firm by a service contract. It is in the context of this contractual relationship that Mr. Asselin alleges a double fault on the part of the Firm. The Firm did not sufficiently educate its representatives regarding the risks associated with the investments. In turn, the representatives allegedly failed to adequately inform Mr. Asselin and the other members of the Group, thereby causing them prejudice. Thus, the first fault, that of the Firm, would result in its “direct” liability, while the second fault, that of the representatives, would result in the Firm’s “indirect” liability as the mandator or employer of the representatives having systematically committed an identical fault.[3]

A breach of the duty to inform, therefore, is at issue, that is, the obligation to disclose facts to a person who can legitimately expect them to be disclosed to them to inform their behaviour. The distinction between the duty to inform and the duty to advise (the obligation to give an opinion to a person in the person's interest) was an important one in the Supreme Court's analysis.[4]

Since the duty to inform is less onerous and specific than the duty to advise, the Court concluded that the allegations in Mr. Asselin's motion (which must in any event be presumed to be true) regarding the Firm's failure in its duty to inform were supported by the evidence on file, which was deemed “more than sufficient.” To this matter, the Court noted that in Quebec, contrary to what is required in the rest of the country at the stage of authorization of a class action, the petitioner is not required to show that their claim is based on a "sufficient factual basis:" they need only demonstrate the defensible nature of the proposed legal syllogism.[5]

The existence of common issues

The distinction between the (alleged) breach of duty to inform and the (non-alleged) breach of duty to advise was also decisive in considering the requirement that there was an identical, similar or related issue that would advance the case. The Court indicated that the duty to inform was more likely to be general in scope and give rise to common issues than the duty to advise.[6] In this case, the alleged omission would be common to all members of the Group since the “essential and objective” investment information would never have been transmitted to the representatives, who would then not have been able to relay it to the investor-clients, regardless of the individual characteristics of the latter.[7]

The Court also stated that it was wrong to claim that a class action against a brokerage firm based on the advisor-client relationship for a breach of the duty to inform was impossible. As this claim was not supported by the case law, the Court concluded that “[t]o close the door to the proposed class action in such a categorical fashion would undermine the role of the class action as a procedural mechanism for fostering social justice in this setting.”[8]

Ultimately, therefore, it was determined that a widespread and systematic breach of the duty to inform client-investors raised common issues and that this condition was therefore met. In Quebec, contrary to what is required in other jurisdictions, the petitioner does not have to show that the common issues raised are predominant; it is sufficient to identify a single issue and that said issue advances the dispute in a significant way[9].

Recourse against Management

With respect to the class action against Management, the Supreme Court confirmed that the conditions set out in the Code of Civil Procedure had been met, stressing that the issue of the causal link between the alleged misconduct of Management and the prejudice to the members of the Group was a matter of substance.[10] The Court nevertheless modified the conclusions of the Quebec Court of Appeal's decision by specifying the object of the claim for punitive damages.[11]

With this decision, the Supreme Court of Canada has confirmed the state of the law with respect to class actions in Quebec, reaffirming that the conditions for the authorization of such actions have a lower threshold than elsewhere in the country.

In the exercise of their screening role, judges should be content to dismiss frivolous applications and avoid unjustified rigour or literalism in their consideration of the application at the authorisation stage. In this regard, the Quebec Court of Appeal used the expression “read between the lines” in its decision, which has been the subject of some criticism. However, the Supreme Court indicated that this was not a deviation from the rule of law, but rather an approach that was in keeping with the Court's teachings and that made it possible to disregard drafting flaws and see the motion as a whole to understand its true meaning.[12]

The class action brought by Mr. Asselin can therefore proceed. However, while the highest court in the country has concluded that the action had an appearance of right, the plaintiff must now demonstrate its existence, starting with the faults committed by the Firm and Management, the prejudice suffered by the members of the Group and the causal link between the two.

 


[1] Desjardins Financial Services Firm Inc. v. Asselin, 2020 SCC 30, paras. 25-27.

[2] This corresponds to the provisions of the former Code of Civil Procedure, since the class action was brought before the entry into force of the new Code of Civil Procedure. The corresponding provisions of the new Code of Civil Procedure are 575(2) C.C.P. and 575(1) C.C.P. respectively.

[3] Desjardins Financial Services Firm Inc. v. Asselin, 2020 SCC 30, para. 29.

[4] Id. at para. 61.

[5] Id. at para. 81. In paragraphs 67 to 82, the Court explains why the evidence adduced by Mr. Asselin is sufficient by looking in particular at the burden of proof when it comes to demonstrating an omission (as opposed to a positive fact) such as a breach of the duty to inform.

[6] Id. at para. 104

[7] Id. at paras. 90-105. In paragraphs 106-108, the Court addresses the variability of the scope of the duty to inform according to the needs and knowledge of the party entitled to receive the information, noting that this does not exclude that all individuals entitled to receive information may have been deprived of it as a result of a systematic omission, as in the present case.

[8] Id. paras. 114-127

[9] Id, paras. 83-85.

[10] Id. at para. 140.

[11] Id. at para. 157.

[12] Id. at paras. 15-17.

End

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