4 July 2019By Uri Snir
In a recent decision of the Court of Queen’s Bench of Alberta, the Court denied certification of a proposed class action by a group of investors who suffered losses allegedly caused by their financial advisor. The Court held that the plaintiffs were unable to establish an identifiable class, and that a class action was not the preferable procedure for litigating the claims.
Background: The proposed class action included claims in negligence, breach of fiduciary duty, breach of contract, and vicarious liability against an investment advisor (Adam Woodward) and his firm (Richardson GMP Limited (“RGMP”)), and a branch manager employed by RGMP.
Four individuals sought an order certifying the action as a class proceeding. The proposed class was defined as all persons who were clients of RGMP, whose investment accounts were under the management and direction of Woodward (or his investment advisory team, WAM) during some or all of the period from July 30, 2012 up to and including May 20, 2016. The proposed class consisted of over 1,500 individuals.
The plaintiffs argued that Woodward perpetrated a scheme in which he used a one-size-fits-all approach to making investment recommendations, which disregarded the individual circumstances of each of his clients.
The defendants opposed the certification, arguing there was a lack of commonality among the proposed class. The defendants also argued that the action raised a number of individual, non-common issues that would require a complex fact-finding process for each member of the proposed class. According to the defendants, a class action would result in an inefficient and unmanageable proceeding.
The Court’s Decision: Under section 5(1) of the Class Proceedings Act, SA 2003, c C-16.5 (the “CPA”), a plaintiff is required to show the following to obtain certification of a class action:
The Court held that the proposed class did not have the required commonality to form a proper identifiable class of two or more persons, as the proposed class was a highly variable group of individuals with different factual circumstances. The plaintiffs had not provided a basis in fact to support their allegation that the members of the proposed class were all subjected to an identical scheme by the defendants.
The Court held:
The diversity of the clients’ personal situations, their relationships with Woodward and the WAM Advisors, and the varying circumstances in which the investment advice is alleged to have occurred is such that each separate circumstance may give rise to a different duty and standard of care. These elements require individual analysis to establish the negligence and breach of contract pleaded and the extent, if any, of losses sustained as a result of that negligence and breach of contract.
The Court also held that a class proceeding was not the preferable procedure. Under Section 5(2) of the CPA, the Court must consider the following factors in making this determination:
(a) whether questions of fact or law common to the prospective class members predominate over any questions affecting only individual prospective class members;
(b) whether a significant number of the prospective class members have a valid interest in individually controlling the prosecution of separate actions;
(c) whether the class proceeding would involve claims that are or have been the subject of any other proceedings;
(d) whether other means of resolving the claims are less practical or less efficient;
(e) whether the administration of the class proceeding would create greater difficulties than those likely to be experienced if relief were sought by other means.
The Court held that the individual issues were overwhelming, as numerous individual complex trials would be required to determine the questions of liability and damages. As such, the resolution of the common issues would only have a negligible effect in advancing the action.
The Court was also unable to conclude that certification would give effect to the goals of access to justice and judicial economy.
The Takeaway: The decision suggests that class actions may not be a viable option in investor loss cases that involve a potentially large number of investors, because even where there is a clear pattern in the advice provided, a court may nevertheless need to determine liability and damages on an individual basis. Quaere whether a preferred approach to such cases may be to commence one action on behalf of multiple plaintiffs, advancing their individual claims in a single proceeding that is not a proposed class action, while at the same time putting in place a process to deal efficiently with the common issues, or whether it is practically speaking impossible to do so on behalf of such a large number of individuals.