Canada: Alberta Court Denies Class Proceedings Against Investment Advisor, Supervisor And Dealer Institution

The Court of Queen's Bench of Alberta illustrated the individualized view Alberta courts take towards the relationship between investors and investment advisors, supervisors and dealer institutions, in its recent decision of Fisher v. Richardson GMP Limited (Fisher).

In Fisher, Madam Justice G.A. Campbell denied certification of a class proceeding for two primary reasons: first, for failure to establish an identifiable class; and second, for failing to raise sufficiently predominant common issues.

SUMMARY OF FACTS

The plaintiffs in Fisher represented a class of individual investors (Proposed Class) who allegedly suffered losses resulting from financial investment decisions made based on unsuitable and negligent investment advice and improperly managed investment portfolios. The defendants included not only the allegedly negligent investment advisor (Advisor), but also the branch manager (Manager) and dealer institution (Dealer) for failing to properly supervise the Advisor and his handling of the Proposed Class members’ investment portfolios. Specifically, with respect to the supervisory defendants, the plaintiffs alleged that the Dealer, through the Manager, did not meet its own internal standards for supervision nor industry supervision standards. Thus, the Plaintiffs alleged the Manager and Dealer breached a duty of care owed to the Proposed Class by failing to notice warning signs present in investor portfolios overseen by the Advisor.

Ultimately, Justice Campbell agreed with the Defendants that the claim did not meet the requirements to go ahead as a class proceeding. In coming to her decision, Justice Campbell discussed the criteria a plaintiff must establish for the court to certify a class proceeding pursuant to section 5(1) of the Class Proceedings Act. While the pleadings sufficiently disclosed a cause of action, Justice Campbell held that the “low threshold” of demonstrating an identifiable class of two or more persons was not met nor did the claims raise a sufficiently predominant common issue.

DIVERSITY OF THE PROPOSED CLASS

The Proposed Class was a highly diverse group of individuals with different factual circumstances and backgrounds. The Proposed Class consisted of 1,041 households, comprised of 1,552 individuals, who had cumulatively invested in at least 1,922 different securities over the relevant period of over four years.

The Proposed Class members’ investment profiles were also highly varied. For instance, many but not all had investment objectives classified as “100% Short Term Capital Gain” and tolerances selected as “100% High Risk”. Justice Campbell reasoned that facts relating to risk tolerances, objectives and time horizons would depend on personal circumstances and the composition of each personal investment portfolio. Therefore, the nature, scope and extent of the duty each Defendant owed to members of the Proposed Class was considered personal to each client. This made the identification of the class complicated and problematic.

Justice Campbell held that this diversity could not be reconciled in a unifying class definition that would give rise to a common duty and standard of care. The individual nature of client profiles and investment decisions was emphasized; the mere fact that the Proposed Class identified a group of individuals who had suffered similar investment losses was not enough.

LACK OF A PREDOMINANT COMMON ISSUE

Individual issues were held to predominate over common issues. Several common issues broadly existed among the Proposed Class. For example, it was agreed that in issue would be whether the Defendants owed a duty of care to the Proposed Class. However, it was held that a conclusion on common issues such as this would not have materially advanced the action. More substantive individual issues, such as the nature, scope and extent of the standard of care, and whether it was breached, overwhelmed the common issues and militated against the certification of class proceedings.

As mentioned, the evidence demonstrated that the individual circumstances of the Proposed Class varied widely. Not only were investment decisions diverse, individual Proposed Class members had varying levels of closeness in dealing with the defendant Advisor. Justice Campbell held that these varied individual circumstances would require a fact-intensive, individual inquiry to determine the outcome of substantive issues. This kind of inquiry would also have been necessary to determine the standard of care for supervision. This finding further supported the conclusion that the claim was not suited to proceed as a class action.

The lack of predominant common issues further led to the conclusion that a class proceeding was not the preferable procedure for resolution. In the circumstances, it was held that individual actions, test cases or multi-party proceedings would be better alternatives to a class action proceeding.

CONCLUSION

Ultimately, the application failed as it did not arise from a single, uniform transaction, scheme or representation. Rather, the individual investors allegedly suffered losses because of a variety of investments made in different securities based on individual relationships with the defendant Advisor. While the parties could agree upon broad issues, the substantive individual issues relating to the nature, scope and extent of the applicable standard of care were more material to the advancement of the action.

It stands to reason that future class action applications based on negligent investment advice or supervision will be subject to a significant hurdle in establishing commonality among class members. Fisher provides a helpful tool to investment dealers seeking to reject such applications by setting the precedent that each investor requires its own fact-driven analysis.

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