A recent Ontario Superior Court decision highlights the individual inquiries that often exist in proposed class actions involving investors and investment decisions. In Boal v. International Capital Management Inc.[1] — a case alleging breach of fiduciary duty against an investment advisor for acting in a conflict of interest — Justice Akbarali denied certification on the basis that the existence of a fiduciary duty, its content and its breach could not be determined in common across the proposed class.
Background and procedural history
The plaintiff alleged that the defendants, including an investment advisor, owed and breached fiduciary duties by failing to disclose the benefits they would derive from the transactions that they recommended to investors. There was no contest that certain defendants had breached the Mutual Fund Dealers Association of Canada (the MFDA) rules to which they were subject: some defendants had settled with the MFDA. The plaintiff sought disgorgement of the benefits that the defendants received from the transactions.
As previously reported, this certification motion has a long history. Initially, Justice Perell denied certification.[2] He found that the breach of fiduciary duty claim was bound to fail and that the existence of an ad hoc fiduciary duty would depend on the circumstances of each advisor-client relationship.
A majority of the Divisional Court upheld that decision.[3] In dissent, Justice Sachs found that it was not plain and obvious that — as pleaded — the breach of fiduciary duty claim was doomed to fail.
The Ontario Court of Appeal allowed the appeal, substantially for the reasons of Justice Sachs, and held that the plaintiff had satisfied the Class Proceedings Act, 1992’s section 5(1)(a) cause of action criterion.[4] Accordingly, the Court of Appeal remitted the matter to the Superior Court for a fresh determination of the common issues and preferable procedure criteria.
The fresh determination on commonality
Justice Akbarali then denied certification on the basis that the plaintiff failed to meet the section 5(1)(c) common issues criterion. Justice Akbarali found that an assessment of whether an ad hoc fiduciary duty existed in relation to a particular class member would require individual inquiries because the evidence showed significant variability among the class members, including in relation to
- understanding the potential conflict of interest: Investors had different understandings of the defendants’ interests (e.g., the defendants’ ownership interest in the notes). Some investors were aware of the potential conflict of interest when they chose to invest.
- experience: Some class members were sophisticated investors; others were less knowledgeable.
- trust and confidence: There was no uniform degree of trust and confidence placed in the defendants.
- reliance: Each investor made his or her own investment decisions and relied to varying degrees on the recommendations and advice from the defendants.
Accordingly, Justice Akbarali concluded that the existence of a class-wide fiduciary duty, its content and its breach could not be determined in common across the class. Individual inquiries would be needed regarding each investor’s circumstances, the nature of the investor’s relationship with the defendants and the information the investor received before the transaction.
Takeaways
The Court’s analysis of the proposed common issues is a good example of a certification court fulfilling its gatekeeping function by analyzing the types of individual inquiries that will often arise in cases involving investors and investment decisions. Based on the evidence in this case, Justice Akbarali concluded that the variability in sophistication, trust, reliance and understanding of conflicts of interest among class members prevented certification under section 5(1)(c) of the Class Proceedings Act, 1992.
[1] Boal v. International Capital Management Inc. et al., 2024 ONSC 5803.
[2] Boal v. International Capital Management Inc., 2021 ONSC 651.
[3] Boal v. International Capital Management Inc., 2022 ONSC 1280.
[4] Boal v. International Capital Management Inc., 2023 ONCA 840.
