Those who have been following the progress of the securities class action saga of Silver v. IMAX will be interested to note that another decision in the long-running case has been released. On March 19, Justice van Rensburg of the Ontario Superior Court held that members of a class certified in Ontario can be bound by a settlement in a related U.S. class action and therefore excluded from participating in the Ontario class proceeding. This decision is a welcome one for companies defending overlapping class actions in two different jurisdictions as it provides a means of settling in one jurisdiction and nonetheless achieving a final resolution of all claims of class members, including those comprising part of a certified class in another jurisdiction.
The class actions in this case were commenced in 2006. The Ontario class plaintiffs brought a proceeding under Part XXIII.1 of the Securities Act (Ontario), alleging that the defendants made misrepresentations in IMAX's financial reports. In 2009, the class plaintiffs obtained leave to proceed with their claims (as is required under Part XXIII.1 of the Securities Act) and the action was certified as a class proceeding for a class of investors that included persons who purchased their shares on both the TSX and the NASDAQ. In the U.S. class proceeding, which only affected NASDAQ purchasers, a settlement agreement was conditionally approved in 2012, pending an order from the Ontario court amending its class to exclude persons who purchased IMAX securities on the NASDAQ. The defendants therefore brought a motion before Justice van Rensburg to amend the Ontario class to exclude persons who were part of the class in the parallel U.S. proceeding. Justice van Rensburg granted the order, sending a message to class counsel as to the practical realities of and the risks inherent in a cross-border class action. The decision further provides the prospect of potential relief to defendants involved in cross-border class actions where settlements are being negotiated separately.
While Her Honour rejected Ontario class counsel's assertion that the order being sought was in substance a motion to approve a settlement of an Ontario class proceeding, she equally rejected defence counsel's assertion that once satisfied that the U.S. Court had jurisdiction, the Ontario Court should in the interests of comity, automatically grant the order requested.
Instead, in determining whether to recognize the conditional U.S. settlement, Justice van Rensburg applied the test for recognition of a foreign judgment approving a class action settlement, previously set out by the Ontario Court of Appeal in Currie v. McDonald's Restaurants of Canada Ltd. Specifically, Her Honour found that there was a real and substantial connection between the U.S. claims and the NASDAQ purchaser claims in the Ontario class, that these class plaintiffs had been accorded procedural fairness in the U.S. proceeding, and that these plaintiffs were adequately represented in the U.S. proceeding. These findings were based in part on the fact that Ontario class counsel had some participation in settlement discussions in which U.S. lead counsel had also participated, and that notice of the U.S. settlement was issued in Canadian newspapers.
Having determined that it was appropriate to recognize the U.S. settlement order, Justice van Rensburg turned to whether she ought to amend the Ontario class to give effect to the recognized U.S. judgment. Under the Class Proceedings Act, one of the considerations for certification of a class proceeding is whether a class action is the preferable procedure for the resolution of the proposed common issues.
Justice van Rensburg accepted Ontario class counsel's proposition that if the U.S. settlement was demonstrated to be improvident when compared with the prospect of litigating the claims of the overlapping class members in Ontario, it may be the "preferable procedure" to refuse the order amending the Ontario class and to continue to include the overlapping class members' claims in the Ontario Action.
It was in this context that Her Honour considered Ontario class counsel's arguments that the U.S. settlement was inadequate having regard to (a) the alleged advantages of litigating the claims under Ontario law; (b) the discovery evidence which supported the plaintiffs' claims; and (c) Ontario class counsel's estimate of the maximum value of the members' claims. In granting the order to narrow the Ontario class, Justice van Rensburg determined that the evidence did not establish that the U.S. settlement was improvident when compared to what is available through litigation in Ontario and that the preferable procedure was to remove the NASDAQ purchasers from the Ontario proceeding. Her Honour found that the settlement in the U.S. furthered the objectives of class proceedings and in particular, that keeping the U.S. purchasers in the Ontario class proceeding would not promote access to justice.
Ontario class counsel argued that narrowing the class would put a large burden on TSX purchasers who would have to share litigation costs with a smaller number of plaintiffs. However, Justice van Rensburg noted that the Canadian purchasers had been offered a proportional settlement to what was offered to the NASDAQ purchasers. In addition, Justice van Rensburg noted that class counsel always assume a risk that their costs will not be recovered in a class proceeding; this risk is all the more apparent, and real, in a cross-border class action.
Ontario class counsel also argued that granting the order would set a dangerous precedent as it would encourage "reverse auctions" and a "race to the bottom" in subsequent class actions. This argument was based on the argument that defendants in cross-border class proceedings should have incentives to settle both actions, rather than to bargain with class counsel "to sell out the claims for the lowest amount possible in order to earn counsel fees." Essentially, class counsel was arguing that parallel class proceedings would have to be settled globally or not at all. In rejecting this argument, Justice van Rensburg noted that the existing framework for class actions is that parallel proceedings may occur in two separate courts and a decision can be made in one court that may affect the rights and interests of persons with claims in the second court. Justice van Rensburg concluded: "It is not the function of this court to seek to jealously guard its own jurisdiction over a class proceeding that has been certified here. Such an approach is inconsistent with the principles of comity." Justice van Rensburg also held that it is "not the function of the court to favour or protect the interests of class counsel within this jurisdiction, knowing that they have invested time and resources into the litigation, and that their compensation will depend on the size of the judgment or settlement they are able to achieve."
This decision is a welcome one for defendants engaged in parallel class proceedings, as it provides a framework for Ontario courts to recognize foreign settlements as binding on members of the Ontario class. Any other decision would have conferred on Ontario class counsel an ability to effectively veto, by failing or refusing to settle on the same terms, a settlement that had already been found by the U.S. court to be fair and reasonable.