) ) KEITH LOCKING Appellant (Plaintiff) – v. –, 2013 ONSC 331

CITATION : Locking v. Armtec Infrastructure, 2013 ONSC 331 DIVISIONAL COURT FILE NO.: 545/12 DATE: 20130115 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT MOLLOY, SWINTON and HARVISON YOUNG JJ. BETWEEN: ) ) KEITH LOCKING Appellant (Plaintiff) – and – ARMTEC INFRASTRUCTURE INC., SCOTIA CAPITAL INC., TD SECURITIES INC., BMO NESBITT BURNS INC., CHARLES M. PHILLIPS, JAMES R. NEWELL, ROBERT J. WRIGHT, RON V. ADAMS, DON W. CAMERON, BRIAN W. JAMIESON, JOHN E. RICHARDSON and MICHAEL S. SKEA Respondents (Defendants) ) ) ) ) ) ) ) ) ) )))))))) Earl Cherniak, for the Appellant Paul J.

Pape and David Steinberg, for the Responding Parties Bruce Simmonds, Robert Grant and Gordon Moore (Plaintiffs in Superior Court File No. CV-11-16465) ) ) ) HEARD at Toronto: January 4, 2013 MOLLOY J.: REASONS FOR DECISION Introduction [ 1 ] The central issue underlying this appeal is which, as between two competing law firms and two sets of class action plaintiffs, should have carriage of a class action against Armtec Infrastructure Inc. (“Armtec”). Two class actions were commenced against Armtec alleging misrepresentations in the offering of common shares in March 2011.

The first in time was a notice of action issued on June 16, 2011, by the law firm Sutts, Strosberg with three representative plaintiffs, Bruce Simmonds, Robert Grant, and Gordon Moore (“the Simmonds Action”); the second was commenced by statement of claim on July 7, 2011 with one representative plaintiff, Keith Locking, represented by the law firm Siskind Cromarty (“the Locking Action”). [ 2 ] It is common ground between the parties that only one action can proceed. A motion was brought by the plaintiff(

s) in each action seeking carriage of the class proceeding. On January 20, 2012, Thomas J. granted carriage of the proceeding to the plaintiffs in the Simmonds Action (represented by Sutts, Strosberg) and stayed the Locking Action. [ 3 ] Keith Locking now appeals from the decision of Thomas J., pursuant to leave granted by Grace J. on September 18, 2012. Leave was granted on the following two issues: (

a) Did the motion judge err in his analysis of the theories and attributes (meaning the class period, class members and causes of action) of the Locking and Simmonds Actions?

(

b) If so, did the motion judge err in his disposition of the carriage motion? [ 4 ] In his reasons for granting leave to appeal, Grace J. expressed a concern that there appeared to be conflicting case law as to the test to be applied in class action carriage decisions, and in particular as to whether the test established in 2006 in Setterington v.

Merck Frosst Canada Ltd. [1] has since been modified or superseded. [ 5 ] Grace J. also granted leave on the basis that there was reason to doubt the correctness of the motion judge’s analysis of the theories and attributes of the two actions, and in particular, as to whether the analysis was internally inconsistent because breadth of the proceeding was determined to be an advantage in some situations (such as naming of defendants and length of the class period), but a disadvantage in other situations (such as the inclusion of “early sellers” and causes of action founded on waiver of tort and unjust enrichment). [ 6 ] The first issue (the test to be applied in carriage motions) is a question of law and the motion judge is required to be correct. [2] On that issue, we are of the view that the motion judge identified and applied the correct legal test.

The second aspect of this appeal (the motion judge’s analysis and conclusions in deciding which party should have carriage) involves an exercise of discretion by the motion judge, to which considerable deference is owed. [3] We see no basis for interfering with his decision in that regard. Our reasons for reaching these conclusions are set out below.

The Test [ 7 ] The motion judge set out the test for determining carriage motions in class actions at paragraphs 16 to 20 of his Reasons as follows: [16] The court’s primary concern on a class action carriage motion is to determine which of the competing actions is more, or most, likely to advance the interests of the class. The task, in other words is to find a solution that is in the best interests of the putative class members, promotes the objectives of the Class Proceedings Act , 1992 , S.O. 1992, c. 6 (“ CPA ”) and is fair to the defendants ( Timminco , at para. 14 ; Setterington , at para. 13 ; Ricardo v.

Air Transat A T Inc. (2002), 21 C.P.C. (5th) 297 , at para. 31 (“ Ricardo ”) ; and Vitapharm Canada Ltd. v. F. Hoffman-Laroche Ltd. (2000), 4 C.P.C. (5th) 169 , at para. 48 (“ Vitapharm ”) ). [17] The court has broad discretion under ss. 12 and 13 of the CPA to make any order it considers appropriate. The court has the discretion to award carriage and to stay any related proceeding, on such terms as it considers appropriate ( Setterington , at para. 10 ; Vitapharm , at para. 25; CPA , ss. 12 , 13 ; and Courts of Justice Act , R.S.O. 1990, c.

C-43 , ss. 106 , 138 (“ CJA ”)). [18] In determining which counsel group should have carriage of the action, the court should engage in a qualitative as opposed to a quantitative analysis. Specifically, the court should consider, among other factors, the following:

a) the nature and scope of the causes of action advanced;

b) the presence of any co nflicts of interest;

c) counsel factors including:

i) the theories advanced by counsel; ii) the status of each class action, including preparation; iii) the resources, experience and competence of counsel; and iv) the prior success of counsel in class actions, particularly, similar class actions.

d) the number, size, and extent of involvement of the proposed representative plaintiffs; and

e) the relative priority of commencing the class actions. ( Vitapharm , at para. 49) [19] It is inappropriate for me in this carriage motion to, “parse the action finely or overly analyse it for the purposes of comparison but rather to scrutinize each for any glaring deficiencies” ( Setterington , at para. 19 ). Further, this is not a time for me to attempt to determine the ultimate success of a claim unless one is “frivolous or fanciful” ( Gorecki v. Canada (A.G.) (2004), 47 C.P.C. (5th) 151 (Ont.

S.C.) ). [20] Ultimately, the court must engage in a balancing of the factors set out above to determine which action best melds the cohesive with the comprehensive and thereby best promotes and protects the identified class. Drawing upon the analytical framework of Perell J. in Timminco I have created the chart below to assist in comparing the competing actions. [ 8 ] In our opinion, the motion judge correctly identified the applicable test and the relevant factors to be taken into account on motions of this nature.

Indeed, this is precisely the test proposed by both counsel at the time of the argument on the motion, and these were the factors both counsel agreed should be taken into account by the motion judge. [ 9 ] On the appeal before us, counsel for the appellant agreed that the over-arching general principles to be applied on a carriage motion are the best interests of the class members and promoting the objectives of the class proceedings legislation (as identified by the motion judge at para. 16).

He also agreed that the factors listed by the motion judge in para. 18 of the Reasons were appropriate factors to take into account. However, he emphasized that the correct test, as established in Setterington , includes a prohibition against “parsing” the action too finely. He argued that Setterington prevents the motion judge from entering into any analysis of the merits of the action, other than with respect to “glaring deficiencies” or claims that are “frivolous or fanciful.” He argued that the motion judge erred in the

analytical approach he took because, although citing Setterington , he went beyond considering glaring deficiencies and whether the claims were frivolous or fictitious (which is allowed by Setterington ), and proceeded to parse the actions finely and analyze them for the purposes of comparison (which he said was prohibited by Setterington ). [ 10 ] Firstly, the essence of that argument is not the correct identification of the test, but rather how the test was applied by the motion judge in this particular case. [ 11 ] Secondly, we do not agree that appellant’s counsel is correct in his analysis of the approach mandated by Setterington.

To develop this point, it is necessary to deal in some depth with the decision of Winkler J. (as he then was) in Setterington . That litigation involved various class actions in Ontario involving problems alleged to be associated with a painkiller known as Vioxx. Six Ontario actions had been joined into one (“the Setterington Action”) and it was proceeding with an amalgamated counsel team. Counsel in that action had entered into agreements with a group of 19 Canadian law firms across the country, including eight Ontario firms, to represent and pursue the claims of class members.

In addition to the amalgamated Setterington Action, there was a class proceeding (“the Walsh Action”) which was commenced in Ontario at about the same time, but counsel of record was a law firm based in Saskatchewan and there was no evidence that the lawyers were entitled to practise in Ontario.

In considering the relative merits of the two counsel teams, Winkler J. ruled that there was a clear advantage to the Setterington Action. [ 12 ] There were three main differences between the two proceedings: (1) the Walsh Action included the federal government as a defendant, whereas the Setterington Action did not; (2) the Setterington Action included a subrogated claim on behalf of OHIP, whereas the Walsh Action did not; and (3) the Setterington Action included a claim for third party payors, whereas the Walsh Action did not. [ 13 ] With respect to the OHIP subrogated claim, Winkler J. ruled that there was no conflict in including this claim (as had been argued by counsel in the Walsh Action), but rather that the failure to include it made the Walsh Action defective. [4] [ 14 ] Likewise, with respect to the inclusion of the third party payors, Winkler J. held that this “enures to the benefit of the Setterington action because of efficiency this brings to the proceeding.” [5] [ 15 ] At this point, all factors pointed to the Setterington Action as being the one that best met the interests of the class members.

However, the Walsh Action included the federal government as a defendant, and the Setterington Action did not.

It was within the context of the analysis of this point that Winkler J. made the comments about not “parsing” the action and looking only at “glaring deficiencies” relied upon by the appellants before us. [ 16 ] First, Winkler J. noted that the analysis of this issue must be “qualitative rather than quantitative.” The mere fact that one action had more defendants than the other was not a sufficient basis for preferring that action over the other. [6] [ 17 ] Next, he considered the explanation provided by the Setterington counsel for their decision not to include the federal government at that stage: they believed there was “insufficient information to posit a sustainable claim”. [7] He noted that this was an appropriate strategy at that time (pre-certification) in order to make the claims more amenable to certification. [ 18 ] It was at this point that Winkler J. described the nature of the analysis of these competing theories in the language relied upon by the appellant here.

He stated, at para. 19: In this case, the Setterington plaintiffs provided a sufficient explanation for their decision not to include the Federal Government as a defendant at this stage of the proceeding. The purpose of a carriage motion is not to parse the action finely or overly analyse it for purposes of comparison but rather to scrutinize each for any glaring deficiencies. Here there are different theories underlying the causes of action in the two competing Statements of Claim and each plaintiff group urge that their approach is to be preferred.

However, on a carriage motion it is inappropriate for the Court to embark upon an analysis as to which claim is most likely to succeed unless one is “fanciful or frivolous”, to adopt the words of Rady J. in Gorecki . Contrary to the submissions of the Walsh plaintiffs, I see none of these defects in the Setterington action. [ 19 ] Clearly, it is inappropriate at the carriage motion stage to get into the likelihood of success on the substantive merits with respect to any given cause of action, or as against any given defendant.

That level of scrutiny is not even appropriate at the certification stage. [ 20 ] Where there is a “glaring deficiency” in one action over the other, determining which action should take precedence will be an easier task than where there isn’t such a defect. However, where the only difference between two proceedings is the inclusion of a claim in one proceeding that is not in the other, there must be some critical analysis of the claim and of why it is not included in one of the proceedings. If the claim is “frivolous” or does not disclose a cause of action, this will be an easy task.

However, that is often not the case. If the analysis goes no further than to consider whether the claim advanced is “frivolous,” then the advantage will always be to the action that includes the most claims. That would result in the process becoming a quantitative, rather than qualitative, one, and is not desirable.

Depending on the circumstances, some additional analysis may therefore be required. [ 21 ] Thus, in Setterington , Winkler J. did not rule that because the claim against the federal government was not frivolous, the inclusion of it in the Walsh Action was necessarily an advantage to that action over the other. Rather, he determined that there were valid strategy reasons for not including a claim against the federal government.

He then went on to find that the inclusion of the OHIP claim and the third party payor subclass in the Setterington Action were beneficial to the class members and gave an advantage to that action.

He then considered all of those factors, along with the clear preference for counsel in the Setterington Action, and concluded that it would be more advantageous to the class for the Setterington Action to proceed and that this would not work any unfairness to the defendants. [ 22 ] Determining which action should take carriage is a process that involves weighing the relative strengths and weaknesses of one action over another.

Where there are glaring deficiencies in one action, this will be a relatively straightforward process and there will be no need to “finely parse” or “closely analyze” one action as compared to the other. This is obviously a preferable situation. As was noted by Perell J. in Smith v. Sino-Forest Corp. , [8] it is often to the advantage of the defendants rather than the plaintiffs to have

carriage motions descend into a minute analysis of the competing theories of plaintiffs’ counsel or the merits of their claims. He stated as follows (at paras. 2-3): Practically speaking, carriage motions involve two steps. First, the rival law firms that are seeking carriage of a class action extoll their own merits as class counsel and the merits of their client as the representative plaintiff. During this step, the law firms explain their tactical and strategic plans for the class action, and, thus, a carriage motion has aspects of being a casting call or rehearsal for the certification motion.

Second, the rival law firms submit that with their talent and their litigation plan, their class action is the better way to serve the best interests of the class members, and, thus, the court should choose their action as the one to go forward.

No doubt to the delight of the defendants and the defendants’ lawyers, which have a watching brief, the second step also involves the rivals hardheartedly and toughly reviewing and criticizing each other’s work and pointing out flaws, disadvantages, and weaknesses in their rivals’ plans for suing the defendants. [ 23 ] On the other hand, when two actions are similar in their strengths, a more detailed analysis may be necessary. Thus, in Sharma v.

Timminco Ltd. , [9] Perell J. was faced with two competing class proceedings where there was little difference between most of the relevant factors, such that the nature and scope of the causes of actions advanced and the theories advanced by counsel for their approach to the case were the determinative factors. One action was more comprehensive than the other, but the other had the advantage of being more cohesive. While mindful of the test in Setterington , Perell J. was required to consider, to some extent, the comparative merits of these two approaches.

In doing so, he considered the cost and delay that would result from these different approaches. Ultimately, he determined that the approach taken by the Kim Orr firm was more advantageous to the class than the more comprehensive action envisioned by the Siskind firm. The following excerpt from part of that analysis is illustrative: Moving on to more substantive matters, my opinion is that Siskinds’ theory and the nature and scope of the causes of action it develops sets a higher and more challenging legal bar for the representative plaintiff and for the class to vault over.

In my opinion, Siskinds’ theory is more problematic than the Kim Orr theory with respect to such matters as class definition, commonality and preferable procedure. I, however, do not say Siskinds’ theory is wrong or not capable of success. Siskinds’ theory, with its substantially longer class period and broader class definition confronts challenges that do not confront the Kim Orr theory of the case.

There are challenges with the front end of the extension of the class period, but the challenges are perhaps more profound in the extension of the class period to include purchasers of shares after Timminco made public announcements to correct the alleged misrepresentations.

This extension of class membership differentiates class members between those who purchased their shares without any corrective information and those who purchased shares after Timminco had made public announcements withdrawing its mis-statements and this, in turn, creates difficult factual issues about the efficacy of the corrective announcement or announcements, which may further divide the class, and about the legal

interpretation of certain sections of

Part XXIII.1 of the Ontario Securities Act . Notwithstanding Siskinds’ arguments to the contrary, I do not see these extensions as being helpful to the case to be made for the class members who purchased shares before corrective announcements were made. [10] [ 24 ] The analysis undertaken in Smith (also a decision of Perell J.) includes similar considerations. Again, because the main differences between the actions were the nature of the claims advanced and the strategies for doing so, it was necessary to consider these issues in order to choose between the claims.

Thus, the considerations undertaken by the motion judge included the following: [309] More serious, in Northwest v. Sino-Forest, I find the employment and reliance on the tort action of fraudulent misrepresentation less desirable than the causes of action utilized to provide procedural and substantive justice to the class members in Smith v. Sino-Forest and Labourers v. Sino-Forest .

In my opinion, the fraudulent misrepresentation action adds needless complexity and costs. … [311] Turning to the pleading of fraudulent misrepresentation, when it is far easier to prove a claim in negligent misrepresentation or negligence, the claim for fraudulent misrepresentation seems a needless provocation that will just fuel the defendants’ fervour to defend and to not settle the class action.

Fraud is a very serious allegation because of the moral and not just legal turpitude of it, and the allegation of fraud also imperils insurance coverage that might be the source of a recovery for class members. … [325] I conclude that the fraudulent misrepresentation action is a substantial weakness in Northwest v. Sino-Forest. In fairness, I should add that I think that the unjust enrichment causes of action and oppression remedy claims in Labourers v.

Sino-Forest add little. [ 25 ] It is always preferable on a carriage motion to avoid any analysis of the merits of including or excluding a particular claim or defence and the strategy of counsel in doing so.

However, it is apparent from reviewing the authorities that some carriage motions are incapable of being resolved by merely considering whether claims have “glaring deficiencies” or can be said to be “frivolous.” Sometimes it is necessary for the motion judge to conduct a more detailed and nuanced analysis, because there is no other way to properly distinguish between the actions and choose the proceeding that is in the best interests of the class. That does not mean that in doing so that motion judge has departed from the test established in Setterington , or the principles underlying that decision.

We do not consider those cases that have undertaken such an analysis to have adopted a different test. Neither are we of the view that the motion judge in this case adopted a different test. Both the test he identified and the approach he took were fully consistent with Setterington. The Analysis and Conclusions of the Motion Judge [ 26 ] As noted above, the motion judge correctly identified the test and the relevant factors to be taken into account.

The appellant argues that the motion judge erred in his application of the test to the factors of the case, and in particular he erred in respect to the emphasis he placed on some points, as opposed to others. [ 27 ] The motion judge reviewed each of the relevant factors and considered whether each factor constituted either an advantage or

disadvantage for one action over the other. He also considered, in some situations where such evidence was proffered, the strategy of counsel for taking a particular approach. He did not merely chalk up the pluses and the minuses; he undertook a qualitative analysis of all of the factors. In some instances, he found the addition of a claim or defendant to be a positive feature; in other instances he did not.

At the end of reviewing those factors, he weighed everything in the balance and determined that the overall advantage was with the Simmonds Action, represented by Sutts, Strosberg. [ 28 ] This process by the motion judge in weighing and balancing the various factors was an exercise of discretion and is entitled to deference.

It is not for a reviewing court to pick apart that analysis, to ascribe different weights to the various factors, nor to substitute its discretion for that of the motion judge. [11] [ 29 ] The exercise of discretion by a motion judge in a class action carriage motion is similar to that undertaken by a motion judge dealing with whether a particular jurisdiction is the appropriate forum for a civil action. In Breeden v.

Black , [12] an Ontario motion judge considered whether Ontario was the appropriate forum for six libel actions brought by Lord Conrad Black, as opposed to Illinois or New York, as contended by the defendants. The Supreme Court of Canada held this to be an exercise of discretion that is entitled to deference, stating (at para. 37): In the end, some of the factors relevant to the forum non conveniens analysis favour the Illinois court, while others favour the Ontario court.

The forum non conveniens analysis does not require that all the factors point to a single forum or involve a simple numerical tallying up of the relevant factors. However, it does require that one forum ultimately emerge as clearly more appropriate. The party raising forum non conveniens has the burden of showing that his or her forum is clearly more appropriate. Also, the decision not to exercise jurisdiction and to stay an action based on forum non conveniens is a discretionary one.

As stated in Club Resorts , the discretion exercised by a motion judge in the forum non conveniens analysis “will be entitled to deference from higher courts, absent an error of law or a clear and serious error in the determination of relevant facts” (para. 112). In the absence of such an error, it is not the role of this Court to interfere with the motion judge’s exercise of his discretion. [ 30 ] We see no legal error or misdirection as to facts by the motion judge and no basis to interfere with the exercise of his discretion. Order [ 31 ] Accordingly, this appeal is dismissed.

The parties are agreed that there shall be no order as to costs. MOLLOY J. SWINTON J. HARVISON YOUNG J. Released: January 15, 2013 CITATION : Locking v. Armtec Infrastructure, 2013 ONSC 331 DIVISIONAL COURT FILE NO.: 545/12 DATE: 20130115 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT MOLLOY, SWINTON and HARVISON YOUNG JJ. BETWEEN:

KEITH LOCKING Appellant (Plaintiff) - and - ARMTEC INFRASTRUCTURE INC., SCOTIA CAPITAL INC., TD SECURITIES INC., BMO NESBITT BURNS INC., CHARLES M. PHILLIPS, JAMES R. NEWELL, ROBERT J. WRIGHT, RON V. ADAMS, DON W. CAMERON, BRIAN W. JAMIESON, JOHN E. RICHARDSON and MICHAEL S. SKEA Respondents (Defendants) REASONS FOR DECISION MOLLOY J Released: January 15, 2013