[1]        This is an appeal from the decision of Perell J. dated October 24, 2017, in which he declined to certify the plaintiff’s negligent misrepresentation claim.  The only issue on the appeal is whether the certification judge erred by concluding that a class proceeding is not the preferable procedure under s.5(1)(d) of the Class Proceedings Act[1](“CPA) for advancing the plaintiff’s claim against the defendants Cormack Securities Inc. and Dundee Securities Inc. (“the underwriters”).

[2]        The proposed class in this case is composed of investors who, in a secondary public offering, acquired shares in Hycroft directly from the underwriters. On consent of Hycroft and two of its executives (“the Hycroft defendants”), the certification judge certified a statutory misrepresentation claim against them comprised of the same class that the plaintiff seeks to have certified against the underwriters.

[3]        The plaintiff’s claim against the Hycroft defendants arises from its statutorily mandated certificate in its prospectus that it constituted full, true and plain disclosure of all material facts.  The plaintiff alleges that the prospectus contained misrepresentations contrary to s.130 of the Ontario Securities Act[2] and equivalent Securities Acts in other provinces (“the statutory claim).  Under s.130, there is deemed reliance by the investors on a misrepresentation by the issuer.

[4]        The plaintiff’s claim against the underwriters is that it was a misrepresentation for the underwriters to state in its statutorily mandated certificate that disclosure in the prospectus was true, to the best of their knowledge, information and belief.  There is no statutory secondary market remedy against underwriters.  Underwriters are, however, exposed to tort claims in the secondary market but, unlike the claim against Hycroft, the element of reliance must be proved.  

[5]        The certification judge found that a class proceeding is not the preferable procedure for resolving the class members’ negligent misrepresentation claim against the underwriters, either standing alone or in combination with the statutory claim, because there is little to be gained by subjecting the individual issues (reliance, causation and damages) to the procedure of a class action and the statutory claim against the Hycroft defendants is not congruent with and would make unmanageable the negligent misrepresentation claim against the underwriters. 

[6]        For the reasons that follow, I would allow the appeal.

[7]        Hycroft engaged the underwriters to underwrite and sell an offering of securities by prospectus in May 2013.  Fourteen million shares were offered, at the price of $10.75 USD per share.  Excluding U.S. purchasers (as the proposed class definition does), 247 Canadians and seven parties from outside of Canada and the U.S. purchased 7.2 million shares from the offering as follows:

[8]        The plaintiff purchased 20,000 shares of Hycroft for $215,000 USD.  On average each investor bought $307,745.12 USD worth of shares.

[9]        As required by s. 59(1) of the Ontario Securities Act, the underwriters signed a certificate that was appended to the prospectus for Hycroft’s offering.  The certificate included the following statement:

[10]      Except for the words “To the best of our knowledge, information, and belief”, the underwriters’ certificate is identical to Hycroft’s certificate in regard to which the certification judge certified the statutory claim.  The class sought to be certified against the underwriters for negligent misrepresentation is the same as the class certified in the statutory claim. 

 [11]     Incorporated by reference to Hycroft’s prospectus was its 2012 annual report, the 2013 interim report, representations about Hycroft’s gold production and its ability to finance its gold mine.  The plaintiff alleges that the representations about the gold mine’s production violated Hycroft’s disclosure obligations because the prospectus omitted to disclose that during late 2012, the company was having persistent operational problems which had not been rectified and had an adverse effect on Hycroft’s ability to produce gold.  The plaintiff alleges that the production projections were unreasonable because of the persistent operational problems.  The plaintiff submits that before signing the underwriter’s prescribed certificate for the public offering, by the exercise of due diligence, the underwriters ought to have discovered the material facts not disclosed by Hycroft.  Thus the plaintiff’s claim is that it was a misrepresentation for the underwriters to state that disclosure in the prospectus was true, to the best of their knowledge, information and belief. 

[12]      The certification judge certified the common issues against the Hycroft defendants that are set out in Appendix 1 hereto.  The common issues that are proposed against the underwriters which were not found to be inappropriate by the certification judge are set out in Appendix 2 hereto.

[13]      The common issues that are proposed against the underwriters (Appendix 2) can be divided into two parts:

[14]      The certification judge found that a class proceeding is not the preferable procedure for the common law claim of negligent misrepresentation against the underwriters either standing alone or in combination with the statutory claim against the Hycroft defendants.  He found that the individual issues that would have to be determined (reliance, causation and damages) would very substantially diminish the productivity of the common issues trial and introduce significant concerns about manageability.  He held that the individual issues in this case are not amenable to summary determinations using the tools of ss.12 and 25 of the Class Proceedings Act and that there was little to be gained by subjecting the individual claims to the procedure of a class action.  

[15]      The certification judge further found that the common issues of the statutory claim against the Hycroft defendants are not congruent with the common issues of the claim for negligent misrepresentation and are unlikely to produce synergies and efficiencies.  He concluded that the findings made in the statutory action against the Hycroft defendants will only moderately assist the prosecution of the negligent misrepresentation claim.  Finally, he found that individual claims appear to be economically viable to litigate. 

[16]      The plaintiff was also seeking before the certification judge to have a claim of negligence simpliciter certified against the underwriters which the certification judge found was also incongruent with the misrepresentation claim, adding to what he found was a prospect of unmanageability and negligible synergies.  The plaintiff is not appealing the certification judge’s decision not to certify in regard to the negligence claim.

[17]      The decision of a certification judge as to preferable procedure is a decision involving the weighing and balancing of a number of factors.  As such these decisions are normally entitled to special deference and a reviewing court should only intervene where the judge has made a palpable and overriding error of fact or otherwise erred in principle.[3]

[18]      I am satisfied that the certification judge fell into legal error on matters central to a proper application of s.5 of the CPA and this displaces the deference usually paid to decisions on certification motions. 

 [19]     The claim against the underwriters is predicated on a finding that the Hycroft defendants made a misrepresentation in the prospectus.  The common issues relating to the misrepresentation in the prospectus (Part A of Appendix 1) have a 100% overlap with and are derivative of, the common issues that are already certified against the Hycroft defendants.   If the court finds that the Hycroft defendants made a misrepresentation in the prospectus, then there is a basis for the plaintiff’s claim against the underwriters.  If the common issues certified against the Hycroft defendants are resolved in its favour, then the plaintiff’s claims against the underwriters will fail. If the remaining common issues relating to the underwriters (Part B of Appendix 2) are resolved in favour of the plaintiff, the individual issues that would have to be determined are reliance, causation and damages.

[20]      The constituent elements of negligent misrepresentation as found by the certification judge are:

[21]      Three of these five elements are common issues.  Notwithstanding these findings, he concluded that a class action, even standing alone, was not the preferable procedure for the negligent misrepresentation claim because of the individual issues and unmanageability.  In this, he erred by failing to interpret the CPA in a broad and purposive manner in accordance with the objects of class actions, namely access to justice, judicial economy and behavior modification.[4]

[22]      Whether a class action against the underwriters would be a fair, efficient and manageable proceeding has to be considered in light of the fact that there is already a class action which is certified.  Because it is already going on, common sense indicates that for the same class members to be permitted to add a claim against the underwriters arising out of a common factual narrative and with so many common issues will alleviate expense and promote access to justice, judicial economy and behavior modification.  There is nothing unfair, inefficient or unmanageable about that.

[23]      The certification judge held that the individual issues were not amenable to summary determination using the tools of s.12 and 25 of the CPA.  He did not provide a basis for this conclusion.

[24]      In Fantl v. Transamerica Life Canada, the Divisional Court[5] and then the Court of Appeal[6] found that a claim for negligent misrepresentation joined with a class action for breach of five contracts of insurance was the preferable procedure for the resolution of the class members’ claims.  Sachs J. for the Divisional Court stated:

[25]      Justice Sachs found that the elements of reliance and damages that had to be established through individual trials may well become issues that can be resolved through fairly straightforward mechanisms.[7]

[26]      The Court of Appeal upheld the Divisional Court substantially for the reasons set out by the Divisional Court.  The Court of Appeal found that the individual issues of reliance and damages could be resolved under the alternative procedures available to the court under the CPA.   Strathy C.J.O. stated the following:

[27]      In Cassano v. Toronto Dominion Bank [9] it was held that the resolution of individual issues is an essential element of many class proceedings and is crucial if there is to be an advancement of the goal of access to justice. 

[28]      While there was no evidence before the certification judge in the case at bar of an aggregate assessment of damages, there is clearly that possibility.   If the individual approach to assessing damages is deemed to be appropriate, the assessment should still be straightforward and cost effective.

[29]      In the case at bar, the certification judge found that the individual issues trials would substantially diminish the productivity of the common issues trial and introduce significant concerns about manageability similar to the concerns that led the Court of Appeal in Musicians’ Pension Fund of Canada (Trustee of ) v. Kinross Gold Corp. (“Kinross”)[10]  to conclude that the common law action was not the preferable procedure. 

[30]      Kinross was distinguished by the court in Fantl[11] because:

[31]      As in Fantl, supra, the case at bar involves one uniform written representation by the underwriters that was included in a disclosure document required by legislation.  The common issues overlap with issues already certified against the Hycroft defendants.  There has been no judicial determination that the claim against the underwriters is doomed to failure. 

[32]      I find that the certification judge erred in concluding that this case was analogous to Kinross, supra, and in not finding as the court did in Fantl, supra, that the resolution of the common issues of duty of care, truth or falsity of the representation and negligence would significantly advance the claim of every class member.  The certification judge erred in his conclusion that a class action was not the preferable procedure for the negligent misrepresentation claim even standing alone because of the individual issues and unmanageability. 

[33]      When the certification judge concluded that combining the claims led to issues of unmanageability and negligible synergies and was therefore not the preferable procedure, he focused on comparing the more significant judicial economy gains that would have been attained if the plaintiff had been attempting to join the negligent misrepresentation claim as an additional claim against the Hycroft defendants  who have already been certified as class defendants to the s.130 statutory claim rather than on the relative advantages of a class action suit over individual claims against the underwriters.  In this, he made an error in principle. 

[34]      The certification judge found that the plaintiff’s own claim was in excess of $200,000(USD) and the average claim was over $300,000(USD).   He held that individual claims would appear to be economically viable to litigate in the Superior Court which he found was an alternative route for access to justice.  This presumed that the securities were worthless.  There was no evidence in this regard.  There was also no evidence that the entire value of the class member’s investment was lost.  [35]   The average claim does not mean that every class member has a claim as large as the average claim.  In Excalibur Special Opportunities LP v. Schwarz Levitsky Feldman LLP [12] the court found that the motion judge erred by not properly considering the barriers to access to justice for all the proposed class members, choosing to focus instead on those with the highest value claims.