Docket: CACV2255 Royal Crown Gold Reserve Inc., Douglas Stewart Scott v. Claude Taillefer, 2012 SKCA 105

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 105 Date: 2012-11-08 Between: Docket: CACV2255 Royal Crown Gold Reserve Inc., Douglas Stewart Scott and Claude Taillefer Proposed Appellants - and – Melvin Schneider Proposed Respondent - and – McMillan LLP, Michael Friedman and John and Jane Doe Proposed Respondents Before: Klebuc C.J.S. (in Chambers) Counsel: Bradley D. Jamieson for Royal Crown Gold Reserve Inc., Douglas Stewart Scott and Claude Taillefer (via telephone) Scott Spencer for the Respondent, Melvin Schneider James Ehmann, Q.C. and Keith Kilback for the Respondent, McMillan LLP Application:

From: 2012 SKQB 111 Heard: June 13, 2012 Disposition: Dismissed Written Reasons: November 8, 2012 By: The Honourable Chief Justice Klebuc Klebuc C.J.S. I. Introduction and Conclusion [ 1 ] The proposed appellants, Royal Crown Gold Reserve Inc., Douglas Stewart Scott and Claude Taillefer (collectively “Royal Group”) are defendants in this multi-jurisdictional class action commenced by the proposed respondent, Melvin Schneider. The learned Chambers judge certified the action as against all defendants . See his Fiat dated March 15, 2012 [2012 SKQB 111 , 392 Sask. R. 199 ]. [ 2 ] Royal Group seeks leave of this Court to appeal from the decision of the Chambers judge on the following grounds:

(1) The Chambers judge erred in certifying causes of action in deceit, negligent misrepresentation, negligence and breach of contract.

(2) The Chambers judge erred in law by finding that the plaintiff's claim was not barred by the provisions of The Securities Act , 1988 , S.S. 1988-89, c. S-42.2.

(3) The Chambers judge erred in leaving the sub-classes to be determined at a case-management conference.

(4) The Chambers judge erred by finding the class members raised common issues and by allowing the action to be certified. [ 3 ] Royal Group limited their submissions to those orally presented by way of a telephone call. [ 4 ] I dismiss their application for the reasons set forth below. II. Background [ 5 ] The material facts and proceedings undertaken prior to the date of the within application are fully set out in the Chambers judge's fiat.

Thus, only a brief overview of the facts is required. [ 6 ] The within action arises out of the purchase by the plaintiff and other investors of interests, called “cells” or “units,” in a gold exploration prospect owned and promoted by Royal Crown Gold Reserve Inc. (”Royal Crown”). Its sole shareholder and director is Mr. Douglas Scott. Mr.

Taillefer is alleged to have promoted the sale of cells in the Royal Crown gold exploration prospect to potential investors. [ 7 ] In his statement of claim, the plaintiff alleged he and other investors purchased cells based on representations by Royal Group that funds they invested with Royal Crown were deductible from their earned income for income tax purposes and, furthermore, the mining venture had significant economic potential. [ 8 ] The Canada Revenue Agency disallowed the deduction from the plaintiff’s taxable income of the purchase price for the cells he purchased.

Moreover, the gold property in question failed to meet the plaintiff’s expectations. These events resulted in the plaintiff and other investors suffering significant financial losses and the plaintiff launching the within action for damages with the intent of having it certified as a class action.

In his statement of claim he alleged his losses and consequential damages are attributable to deceit, negligent misrepresentation, statutory misrepresentation, negligence and breach of contract by Royal Group and the other defendants. [ 9 ] The Chambers judge held the torts of deceit, negligence and negligent misrepresentation were established by the facts pled and certified the action as a class action on the bases that these causes of action constituted common issues for the class defined by the plaintiff.

With respect to claims founded on a statutory misrepresentation, he left the determination of the class or subclasses for further consideration at a later case management conference. [ 10 ] Royal Group had argued before the Chambers judge that a cause of action based on a “statutory misrepresentation” was not available because the cells the plaintiff purchased from it were not securities within the meaning of The Securities Act, 1988 and if they were, the plaintiff’s claims would be statute barred by s. 147 of The Securities Act, 1988 . The Chambers judge rejected their submission on two grounds.

First, “it will be for the trial court to decide upon a full review of the evidence whether in fact the units” were securities as defined in s. 2 (ss) of The Securities Act, 1988 (at para. 48). Second, on the facts before him, it was not plain and obvious that the plaintiff’s statutory misrepresentation claim would be barred by s. 147. [ 11 ] The Chambers judge stated the certification order would be finalized at a future case management conference.

III. ANALYSIS [12] In Rothmans, Benson & Hedges Inc. v. Saskatchewan, 2002 SKCA 119, 227 Sask. R. 121, Cameron J. succinctly articulated thecriteria to be considered in leave to appeal applications. At para. 6 he said: [6] The power to grant leave has been taken to be a discretionary power exercisable upon a set of criteria which, on balance, must beshown by the applicant to weigh decisively in favour of leave being granted: Steier et al v. University Hospital Board et al, (SK CA), [1988] 4 W.W.R. 303 (Sask. C.A., per Tallis J.A., in Chambers).

The governing criteria may be reduced to two—each ofwhich features a subset of considerations—provided it be understood that they constitute conventional considerations rather than fixedrules, that they are case sensitive, and that their point by point reduction is not exhaustive.

Generally, leave is granted or withheld onconsideration of merit and importance, as follows: First: Is the proposed appeal of sufficient merit to warrant the attention of the Court of Appeal? - Is it prima facie frivolous or vexatious? - Is it prima facie destined to fail in any event, having regard to the nature of the issue and the scope of the right of appeal, for instance,or the nature of the adjudicative framework, such as that pertaining to the exercise of discretionary power? - Is it apt to unduly delay the proceedings or be overcome by them and rendered moot? - Is it apt to add unduly or disproportionately to the cost of the proceedings?

Second: Is the proposed appeal of sufficient importance to the proceedings before the court, or to the field of practice or the state of thelaw, or to the administration of justice generally, to warrant determination by the Court of Appeal? - does the decision bear heavily and potentially prejudicially upon the course or outcome of the particular proceedings? - does it raise a new or controversial or unusual issue of practice? - does it raise a new or uncertain or unsettled point of law? - does it transcend the particular in its implications? [Emphasis in original] [13] The determination of whether the proposed appeal is of sufficient merit requires a judge of this Court in Chambers to considerwhether the proposed grounds of appeal raise an argument or proposition worthy of consideration and not one that is destined to fail.

Inthis sense, the Chambers judge is not to definitively decide the merits of the proposed grounds advanced by the prospective appellant,but merely to determine whether they warrant consideration by a full panel of the Court.

Thus, any view I may express herein is onlyrelevant to the extent it relates to the governing criteria set out in Rothmans, Benson & Hedges. [14] That said, I turn to whether the substance of the aforementioned grounds of appeal are of sufficient merit to warrant considerationby this Court, and if so, whether they are of sufficient importance to the proceedings before the Court, the practice or state of the law, orthe administration of justice, so as to warrant determination at this time. [15] I start with the first ground:

(1) The Chambers judge erred in certifying causes of action in deceit, negligent misrepresentation, negligence and breach of contract. [16] Royal Group does not argue that the causes of action advanced by the plaintiff are not established by the facts pled.

Rather, theymaintain all of the plaintiff’s claims are securities issues which are governed exclusively by The Securities Act, 1988 and the plaintiffpled the aforementioned causes of action, for the purpose of avoiding the one-year limitation period prescribed by s. 147 of TheSecurities Act, 1988. [17] I reject the above-mentioned submission for several reasons. First, the purpose of The Securities Act, 1988, as stated in s. 3.1, is“to provide protection to investors and to foster fair, efficient capital markets and confidence in capital markets.”

Section 1.1. of TheSecurities Act, R.S.O 1990, c. S.5 states its purposes are “(

a) to provide protection to investors from unfair, improper or fraudulentpractices; and (

b) to foster fair and efficient capital markets and confidence in capital markets.” The

interpretation advanced by RoyalGroup appears to be inconsistent with the purposive approach prescribed by The

Interpretation Act, 1995, S.S. 1995, c. I-11.2 and thecommon law presumption that legislation is not intended to abolish or interfere with the rights of a person. Justice Estey described thispresumption in Morguard Properties Ltd. et al v. City of Winnipeg, (SCC), [1983] 2 S.C.R. 493 at p. 509:

… [T]he courts require that, in order to adversely affect a citizen's right, whether as a taxpayer or otherwise, the Legislature must do soexpressly.… The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presumeoversight or inarticulate intentions when the rights of the citizen are involved. Also see Bhatnager v.

Canada (Minister of Employment and Immigration), (SCC), [1990] 2 S.C.R. 217 (at p. 228). [18] Second, whether The Securities Act, 1988 applies to the aforementioned causes of action requires a thorough examination ofrelevant facts and an assessment of the credibility of witnesses who testify at trial regarding the nature of the subject transactions.Furthermore, whether the s. 147 limitation period has run is not determinable on the limited evidence before the Court, assuming TheSecurities Act, 1988 applies. [19] In sum, the first ground of appeal cannot be fully addressed by the Court on the limited evidence before it and, therefore, is not ofsufficient merit or importance to warrant determination by this Court.

To hear the matter at this time would result in unnecessary delay. [20] I turn to the second ground:

(2) The Chambers judge erred in law by finding that the plaintiff's claim was not barred by the provisions of The Securities Act, 1988. [21] When considering this issue, it is important to keep in mind that Royal Group had submitted before the Chambers judge that thecells it sold to investors were not securities within the meaning of The Securities Act, 1988 and if they were, claims based on a statutorymisrepresentation are barred by s. 147 thereof.

Before this Court they argued that all claims originate from the offering memorandumissued by Royal Crown and therefore the s. 147 limitation period applies to all claims, be they based in tort or contract law. They alsoargue the claims are statute barred because the latest date the “limitation clock” would have started was January 13, 2009 and thestatement of claim was not issued until March 18, 2010. [22] The date the s. 147 limitation period would have commenced with respect to the claims based in tort and contract law is a disputedfactual issue, assuming The Securities Act, 1988 applies.

In these circumstances, it is necessary to reserve determination of the issue untila later stage for the reasons given by the Chambers judge. See Serhan Estate v. Johnson & Johnson (2006), (ON SCDC), 269 D.L.R. (4th) 279 (Ont. S.C.J.) where the court at paras. 142-43 set out the approach to be taken: [142] In Pausche v. British Columbia Hydro & Power Authority, 2000 BCSC 1556 , [2000] 11 W.W.R. 385 (B.C.S.C.), aff’d2002 BCCA 62 , [2002] B.C.J.

No. 196 (QL), 111 A.C.W.S. (3d) 1192 (C.A.), the British Columbia Supreme Court determinedthat the assessment of limitations is individual to the proposed class representative.

The court determined, and the Court of Appealconfirmed, that it is better to reserve determination of that issue until the individual issues are considered at trial. [143] One author states that although the expiry of a limitation period can result in dismissal of a proposed class claim, this is not thetendency of the courts: “The court may be reluctant to delve too deeply into this issue prior to or at the certification stage if there is anydoubt, preferring to leave the matter for trial.” [23] I conclude that the second ground of appeal cannot be fully addressed by the Court and, therefore, is not of sufficient merit orimportance to warrant determination by this Court.

To hear the matter at this time would result in unnecessary delay. [24] That said I turn to the third ground:

(3) The Chambers judge erred in leaving the sub-classes to be determined at a case-management conference. [25] The Chambers judge is the case management judge assigned to address all pre-trial issues and is seized with resolving alloutstanding issues related to the certification of a class action. To date, he certified the following class (at para. 82): (

a) All persons who subscribed for and purchased from Royal Crown Gold Reserve Inc., a portion or portions of placer miningcells in a location described as “the Kiakho Creek Placer Mining Properties, East Kootenay, British Columbia, Canada”; (

b) Persons include individuals, corporations, partnerships, trusts, and the personal representatives of deceased individuals andthose without mental capacity. At para 84 and 85 he said: [84] For the purpose of class definition, the claims against the Royal defendants of negligence, negligent misrepresentation and breachof contract all relate to the information contained in the offering memorandum, or information published on Royal’s website. At thisstage, the court is entitled to assume that the offering memorandum to which the subscription agreement, the promissory note, and theauthorization to operate were all attached was made available to each investor.

Section 80.1 of The Securities Act, 1988 states that if aperson or a company uses an offering memorandum in connection with the distribution of securities, the person or company shall deliverthe offering memorandum to a prospective purchaser at the same time as, or before, the purchaser enters into an agreement to purchasethe securities. The Royal defendants challenge whether their information circular qualifies as an offering memorandum within themeaning of The Securities Act, 1988, but do not deny the information circular was intended to be presented to each investor.

The factthere are two memoranda, one in 2005 and one in 2007, is not significant because they are almost identical in wording with respect to thedescription of the investment. The claims against the Royal defendants of negligence, negligent misrepresentation, and breach of contractall relate to the information contained in the offering memoranda or information published by it on Royal's website.

The negligenceaction against McMillan is for the content of its legal opinion on tax deductibility, and does not depend on what sales agents may havetold investors. [85] The one cause of action that is affected by the present class definition is the one for statutory misrepresentation. As pointed out

earlier ( Pearson ) [2002 BCCA 624] the Securities Act of the province in which the securities are distributed is the applicable legislation for determining plaintiff's rights. The Manitoba Securities Act , CCSM, c. S.50, has different limitation periods than s. 147 of The Securities Act, 1988 , of Saskatchewan.

Section 141.4 of the Manitoba Act is the equivalent of s. 147 in the Saskatchewan Act and provides in s. 147(

b) for a 180-day limitation period as opposed to one year after the plaintiff first had knowledge of the facts giving rise to the cause of an action, and two years in place of six years after the date of the transaction that gave rise to the cause of action. The Ontario Securities Act , R.S.O. 1990, c. S.5, in s. 138 provides for 180 days and three years. I will require the appointment of a separate representative to represent the subclass of Manitoba investors, and possibly Ontario and British Columbia investors with respect to the statutory misrepresentation cause of action.

This topic can be reviewed at the case management conference to finalize the wording of the certification order. [ 26 ] The Chambers judge did not unconditionally certify a class or sub-classes based on claims of statutory misrepresentation. He left that matter to be dealt with at a subsequent case management conference which he would conduct.

Such conferences are essentially further hearings by the court during which outstanding issues, such as potential sub-classes and representatives for each subclass, are addressed and the final terms of a certification order are settled. [ 27 ] In my view, it would be premature for this Court to consider the third issue raised by Royal Group at this time. I am also satisfied that the ultimate outcome of an appeal on this ground would do little more than create an unnecessary delay. [ 28 ] I now turn to the fourth ground:

(4) The Chambers judge err by finding the class members raised common issues and by allowing the action to be certified. [ 29 ] Royal Group argued an essential element of the causes of action in deceit and negligent misrepresentation is reliance by the claimant on a specific deceit or misrepresentation. Therefore, these causes cannot constitute a common issue pursuant to The Class Actions Act , S.S. 2001, c. C-12.01. Although they focused on s. 6(1) (

c) of The Class Actions Act , the Royal Group essentially argued that the class action is not the preferable procedure since reliance is a significant individual issue. In my opinion, this ground of appeal is destined to fail whether it is based on s. 6(1)(

c) or s. 6(1)(d). Thus, leave to appeal on the aforementioned ground should not be granted. The clear wording of s. 6(1) and the case law confirm that while common issues are necessary for the resolution of each class member's claim and must be a substantial ingredient of a claim, individual issues will often remain after the resolution of common issues. See: Hollick v. Toronto (City), 2001 SCC 68 , [2001] 3 S.C.R. 158 at para. 18 . [ 30 ] In sum, this ground of appeal is of insufficient merit to warrant leave. IV.

CONCLUSION [ 31 ] I dismiss the application for leave by the Royal Group with costs, if any, to be costs in the cause. DATED at the City of Regina, in the Province of Saskatchewan, this 8 th day of November, A.D. 2012. ____ “Klebuc C.J.S.” ___________________ Klebuc C.J.S.