KIM ORR CLASS ACTION MONITOR—December 19, 2012

2012, Issue 23

IN THIS ISSUE

NEW CASES Class action commenced against Poseidon Concepts Corp. Class action commenced against accounting firm for alleged

negligence in auditing Chinese reverse takeover corporation

(Excalibur Special Opportunities LP v. Schwartz Levitzky

Feldman LLP) CASE UPDATES Schmidt c. Depuy International Ltd. Parker v. Pfizer Canada Inc. Perrenoud v. eHealth Ontario McSheffrey v. Ontario Treat America Ltd. v. Leonidas Tanner c. Nissan Canada inc.

IN THE NEWS No costs awarded in Frank v. Farlie, Turner & Co.

on motion to strike a claim for punitive damages Supreme Court of Canada dismisses the defendants'

application for leave to appeal in the Canadian

Solar class action New company formed to assist class members to

receive compensation from class action settlements Ontario Court of Appeal dismisses appeal from

summary judgment in Tim Hortons franchise class

action Settlement approved in Option Consommateurs c.

The Brick Warehouse LP class action Settlement approved in Sherebrin v. Building

Products of Canada Corp. class action SPECIAL FOCUS Sino-Forest Corp. (Re): Releases and opt-out

rights against “third party” class action defend-

ants under the CCAA and the Class Proceedings

Act Class Action Practitioners by

NEW CASES

Class action commenced against Poseidon Concepts Corp. Overview: On November 27, 2012, a proposed class action was commenced against Poseidon Concepts Corp. (“Poseidon”) and certain of

its officers and directors. Poseidon is a publicly traded Canadian energy equipment and services company that provides a fluid

handling system to the oil and natural gas industry in North America. The launch of the proposed class action follows Poseidon's disappointing third quarter results released on November 14, 2012,

which sparked a 62% drop in share value the following day, eliminating $667 million of shareholders' equity. The claim alleges,

among other things, that the defendants made materially false and misleading statements regarding Poseidon's financial posi-

tion, financial performance, and cash flows, overstated the company's incomes and reported inflated assets. The proposed class action is brought on behalf of all persons (other than certain excluded persons associated with the de-

fendants) who acquired securities of Poseidon on or prior to November 14, 2012, whether through a prospectus or on the

secondary market. Poseidon released a statement on November 29, 2012 indicating that it intends to “vigorously defend” the lawsuit. The action seeks damages of $200 million. Details: Lawyer for the plaintiff: Siskinds LLP Court: Ontario Superior Court of Justice Comments: The day after the class action was filed, on November 28, 2012, Poseidon's stock suffered another 23% drop, eliminating

another $99 million in shareholder equity. As of December 13, 2012, the stock price was at $3.31 per share, down from $13.35

on November 14, 2012. This action is also one of the first secondary market misrepresentation actions filed in Ontario since the Supreme Court denied

leave to appeal the Ontario Court of Appeal decision in Sharma v. Timminco Ltd., 2012 CarswellOnt 1904 on August 2, 2012.

Kim Orr Barristers P.C. acted as counsel to the plaintiffs in Sharma. The Court of Appeal held that, based on s.138.14 of the

Ontario Securities Act, R.S.O. 1990, c. s.5, leave must be granted within three years of the misrepresentation for the claim to be

asserted. As the law now stands, in commencing this proposed class proceeding, class counsel must either obtain a tolling

agreement from the defendants or pursue a vigorous timetable for leave and certification, such that the three-year limitation

period is met. Absent a tolling agreement and any legislative amendment, this case, along with other securities class actions

filed in recent months and in the future, will test the logistics of coping with a three-year limitation period in a case managed

system to ensure that shareholders' rights are not extinguished as a result of the s.138.14 requirement. Related Articles: See Issue 2012-12 - Special Focus - “Green v. Canadian Imperial Bank of Commerce: Applying the three-year limitation

period for secondary market misrepresentation claims” TOP

•••

Class action commenced against accounting firm for alleged negligence in auditing Chinese reverse takeover

corporation (Excalibur Special Opportunities LP v. Schwartz Levitzky Feldman LLP) Overview: On October 31, 2012, Toronto-based investment fund, Excalibur Special Opportunities LP, launched a proposed class action

against Schwartz Levitzky Feldman LLP, a Canadian firm of chartered accountants. The action arises from the reverse takeover

and private placement financing of a Chinese commercial hog company in the U.S. that later revealed in S.E.C. filings that its

commercial hog business consisted primarily of cash sales handled by farm employees using their own accounts, and that the

company exercised “very little, if any control over the activities of these employees”. Prior to that disclosure, made on December 23, 2010 in an Annual Report Form, Expedite 4, Inc. (later renamed Southern China

Livestock Inc. after a reverse takeover with Southern China Livestock International, Inc.) had raised USD $7,594,965 through

a private placement financing scheme whereby investors purchased investment units (“Units”) comprising of two common

shares of the company and one warrant to purchase one common share of the company at a set price. The minimum purchase

amount per investor was two thousand units for a price of $20,000. Each of the investors received a Private Placement Mem-

orandum, which included an Auditor's Report, and which represented that the proceeds of the financing would be used pre-

dominantly to purchase hog farms. The Private Placement Memorandum also indicated that the company would file a registration form with the SEC within 45

days of the final closing of the financing, and to use best efforts to have the registration statement declared effective by the SEC

within 180 days, to register the shares and warrants so that they could be publicly and freely traded. It was later revealed that the

company only received $2.3 million of the proceeds from the financing, while $3.2 million was paid out to accounts controlled

by a former CFO and director of the company. It is unknown how the money from the financing was actually used by the

company, although the 2010 Auditors Report suggests that it may have been used to pay related party loans. Moreover, the

company's shares and warrants were never registered by the SEC for trading, and are now considered worthless. The defendant was the auditor for Southern China Livestock International, Inc. at the time of the reverse takeover and the

concurrent private placement financing, and remained the auditor of Southern China Livestock Inc. The statement of claim

alleges that the defendant was negligent in the preparation of the Auditor's Report included in the Private Placement Memo-

randum, and breached its duty to investors by providing a clean audit opinion in respect of Southern China Livestock Inc.,

which was not a fair presentation of the company's financial position at the time. The plaintiff, Excalibur Special Opportunities LP, which had purchased a total of $900,000 in Units, brought the action on

behalf of all persons or entities (other than certain excluded persons associated with the defendant) who purchased Units of

Expedite 4, Inc. between March 29, 2010 and December 23, 2010 and who continued to hold any of the shares or warrants

comprising the units as of December 23, 2010. The proposed class action seeks damages in Canadian currency equal to the USD $7,594,965 lost in the financing scheme. Details: Plaintiff: Excalibur Special Opportunities LP Lawyers for the plaintiff: Margaret Waddell and Jeffrey Larry (Paliare Roland Rosenberg Rothstein LLP) Defendant: Schwartz Levitzky Feldman LLP Court: Ontario Superior Court of Justice Court file number: CN-12-466694-00CP Comments: This case draws a number of parallels to the ongoing Sino-Forest class action, currently under a CCAA imposed stay (2012

CarswellOnt 4117). Kim Orr Barristers P.C. acts as counsel to a number of funds who have expressed concern about investor

protection in the context of settlements in the Sino-Forest litigation. Like Sino-Forest, the subject company in this case was

operationally based in China, and created by way of a reverse take-over which bypassed the regulatory checks and requirements

in place to protect investors. Both cases illustrate the significant role played by accounting firms, particularly in conducting

audits of foreign based companies created by way of reverse takeover transactions. This case is also interesting because the proposed representative plaintiff, Excalibur Special Opportunities LP, is an investment

fund with a significant share of the alleged damages. In the Sino-Forest carriage decision (2012 CarswellOnt 485), Justice

Perell contemplated whether large institutional investors need class proceedings legislation in order to access justice, and found

that the investment funds put forward as proposed representative plaintiffs by Kim Orr Barristers P.C. in the carriage motion

would be “prime candidates to opt out of the class proceeding” [para. 280]. The apparent increased activity of large institutional

investors such as investments funds in class proceedings may signal a shift in the marketplace, as institutional investors appear

more willing to take an active role in litigation affecting their losses. However, whether these funds decide to pursue litigation

through a class proceeding or an individual or group action will, in part, depend on how open class action judges are to these

institutional investors serving as representative plaintiffs, a position traditionally occupied in Canada by individual investors. TOP

CASE UPDATES

Schmidt c. Depuy International Ltd. 2012 QCCA 2132 (Que. C.A.)

Decision: Appeal of order staying action - appeal denied

Date of Decision: December 3, 2012

Judge: Morin, Dalphond and Kasirer, JJ.C.A.

Court: Quebec Court of Appeal

Lawyers: Lawyers for the appellant: Owen Fraquero and Frederico Tyrawskyj (Merchant Law

Group)

Lawyers for the respondent: Gordon Kugler and Robert Kugler (Kugler, Kandestin)

Lawyers for the defendant: Gregory Brian Bordan (Norton Rose Canada)

Background: In Quebec, when there are competing motions for authorization of a class action, the courts have long considered the first

motion for authorization to be filed to have precedence (the “first-to-file rule”). This rule was enunciated by the Quebec Court

of Appeal in the Hotte c. Servier Canada inc., 1999 CarswellQue 3180 (Que. C.A.) decision. The Schmidt action involved a motion for authorization of a class action with respect to the manufacture and distribution of

artificial hip implants. The plaintiff was represented by Merchant Law Group. The Schmidt action targeted various manufac-

turers, including Depuy, Stryker and Zimmer implants. The motion was filed in Montreal on November 26, 2010. Schmidt, a

resident of Saskatchewan, received a Depuy hip implant at a Montreal hospital in 2006. The action was brought on behalf of all

persons in Canada having received hip implants manufactured by the Depuy, Stryker or Zimmer companies. Similar class

actions were commenced by Merchant Law Group in Alberta and Nova Scotia. Subsequently, the plaintiff sought to amend the

class definition to include only Quebec residents who received a hip implant. In December 2010, Merchant Law Group filed two new motions for authorization of class proceedings, one naming the Zimmer

group of companies as defendants (the Wainberg action), and one naming the Stryker group of companies as defendants (the

Dunlop action). In January 2011, Merchant Law Group brought a motion for permission to amend the Schmidt motion for authorization to add

a Quebec resident as a plaintiff (Mr. Brousseau) and to remove the Zimmer and Stryker defendants. In the meantime, on December 21, 2010, a motion for authorization of a class action was filed by Mr. Dick, a Quebec resident,

naming the Depuy group of companies as defendants (the Dick action). The law firm Kluger Kandestin is counsel to the

plaintiff in the Dick action. In February 2011, the defendants brought a motion seeking to have one of the actions stayed. In March 2011, the Court ordered

the Schmidt proceedings stayed until a final decision was rendered on the motion for authorization in the Dick action. The

authorization motion in Dick was allowed in June 2011. The motion judge stated that the first-to-file rule should not be blindly applied, because it would give rise to a risk of ambulance

chasing and forum shopping, which would be contrary to the proper administration of justice and against the interests of class

members. The motion judge proposed a flexible application of the first-to-file rule, which would depend on the context of each

action. The motion judge found that Merchant Law Group prepared its materials in haste, without sufficient research and without

seriously investigating the cause of action. The Court also stated that the Quebec action was likely to remain dormant while

Merchant Law Group pursued the other actions it had commenced in other jurisdictions. The motion judge found that Merchant

Law Group was simply attempting to protect its turf and block the entry of other law firms in order to reap all of the benefits of

the class action for itself. In contrast, the Dick action had all of the requisite qualities for an adequate representation of the Quebec class members. The

motion material was well structured and clearly set out the theory of the case and the conclusions sought. The counsel in Dick

would do what was necessary to advance the case. The motion judge stayed the Schmidt action without considering the motion to amend. Schmidt sought and was granted leave to

appeal. Update: The appeal was dismissed. The Court of Appeal considered the history of the first-to-file rule and determined that a more

flexible approach should be adopted, in order to protect the best interests of the class members. The Court noted that no provision in the Quebec Civil Code addresses the situation of concurrent class proceedings or of a

motion to stay one proceeding to permit the authorization of another. The first-to-file rule is therefore purely a common law

rule. The Court in Servier was faced with three similar class actions having been commenced at approximately the same time. The

Court stated that it was impossible to know for certain at the early stages how the authorization decision would be made and

what the content of the class proceeding would be. The test was not to select the ideal representative plaintiff but rather that the

proposed representative plaintiff adequately represent the class members. The Court favored an approach whereby the first

motion filed would proceed to the authorization stage, and that subsequent actions would be stayed in the interim. These actions

would not be dismissed, and any limitation period would be suspended for all class members. The Court's decision turned on

the inherent jurisdiction of the Court to control its process. The Court decided that the first-to-file rule was a preferable solution

compared to the selection of one case over another, which would lead to the parties making a costly debate to determine which

case is the best, with no well-defined criteria.

In Schmidt, the Court of Appeal stated that the first-to-file rule can give rise to abuse, and that the Court must retain the dis-

cretion to stay a case, which discretion is to be exercised in the best interests of the class. However, the Court declined to adopt

the criteria for carriage defined in the Ontario case of VitaPharm Canada Ltd. v. F. Hoffmann-LaRoche Ltd., 2000 CarswellOnt

4681 (Ont. S.C.J.) and largely adopted in other Canadian jurisdictions. Instead, the Court articulated factors to be considered

when determining whether the first case to be filed should be stayed to permit a subsequent case to proceed to the authorization

stage:

• in principle, the first case to be filed is presumed to be the one that will proceed first;

• subsequent cases are to be stayed in the meantime and will only be heard in the order filed, if the first case is not

authorized to proceed;

• the precedence enjoyed by the first case filed may be put into question by the lawyers for the plaintiffs in subse-

quent actions; and

• the party who contests the precedence has the burden to establish that the first action is not brought in the best

interests of the putative class members, but rather is an abuse of the first-to-file rule. Whether the action is an abuse of the first-to-file rule is not to be a question of which action is better or which proposed rep-

resentative plaintiff or plaintiff law firm is superior. It is not a battle between law firms seeking fees or between plaintiffs

seeking publicity. In order to interfere with the first-to-file rule, the first action filed must suffer from a serious defect, such as

the lawyers for the plaintiff not taking steps to advance the action, filing similar class actions in other jurisdictions, and evi-

dence that they are only seeking to protect their territory and are not acting in the best interests of the Quebec class members. If

it is demonstrated that the first action filed is of acceptable quality and that the lawyers are willing to advance the action without

delay, then the first-to-file rule will apply. This will avoid a costly carriage procedure as can be the outcome in the rest of

Canada. In the present case, the motion judge found that the Schmidt action was poorly drafted, that the Merchant Law Group had filed

class actions in other jurisdictions and that they did not take steps to advance the Quebec action in a timely way. In the cir-

cumstances, the motion judge could reasonably find that there were risks that the action would be abandoned, and that the

Quebec action was commenced only with a view to protecting the Quebec territory as quickly as possible. The Court stated that the Motion Judge's consideration of the adequacy of the representative plaintiff may have been premature,

as this inquiry should normally be undertaken at the authorization stage. However, the fact that the proposed representative

plaintiff was a resident of Saskatchewan, and would not have the legal capacity to represent the Quebec class members, was a

serious defect in the proposed action that, taken together with the actions of Merchant Law Group, would justify a stay. None of the actions were dismissed. The stay of the Schmidt action was affirmed. Related Cases: Schmidt c. Depuy International Ltd., 2011 CarswellQue 3326 (Que. S.C.), leave to appeal granted,2011 CarswellQue 5698

(Que. C.A.) Hotte c. Servier Canada inc., 1999 CarswellQue 3180 (Que. C.A.) TOP

•••

Parker v. Pfizer Canada Inc. 2012 CarswellOnt 14967 (Ont. S.C.J.)

Decision: Motion to extend time to seek leave to appeal - motion granted; motion for leave to

appeal certification decision and costs award - motion denied

Date of Decision: November 23, 2012

Judge: Swinton J.

Court: Ontario Superior Court of Justice

Lawyers: Lawyers for the plaintiff/responding party: Bryan C. McPhadden, I. Erez and

Douglas Lennox

Lawyers for the defendant/moving party: William McNamara and Ilana Schrager

Background: The plaintiff brought a claim against the defendant pharmaceutical company with respect to the adverse consequences of

CHAMPIX, a drug manufactured by the defendant. CHAMPIX, also known as varenicline, which is sold as a treatment for

nicotine addiction. The plaintiff alleges that he and other class members experienced neuropsychiatric adverse events such as suicidal and homi-

cidal ideation as a result of ingesting the drug. On June 21, 2012 Justice Perell certified the plaintiff's action as a mul-

ti-jurisdictional class proceeding. (See Issue 2012-12 - Case Update - “Parker v. Pfizer Canada Inc., 2012 CarswellOnt 7940”).

On August 20, 2012 Justice Perell awarded the plaintiff costs of $300,000 for the certification motion (2012 CarswellOnt

10267). The defendant sought leave to appeal the certification decision and the costs award. Update: Justice Swinton granted the appellant's motion to extend the time to bring the motion for leave to appeal as the appel-

lant/defendant had a continuing intention to appeal and the delay in bringing the leave motion was adequately explained.

Further, Justice Swinton found that the delay caused no prejudice to the plaintiff and the appeal was not without merit, and

therefore leave should be granted. However, Justice Swinton denied the Appellant's motion for leave to appeal. The appellants argued that Martin v. Astrazeneca Pharmaceuticals PLC, 2012 CarswellOnt 6210, is a conflicting decision to

Justice Perell's certification decision in Parker v. Pfizer Canada Inc., 2012 CarswellOnt 7940. In Martin, Justice Horkins

refused to certify a class proceeding regarding an anti-psychotic drug, Seroquel. However, Justice Swinton was not convinced

by this argument, finding that Justice Perell and Justice Horkins applied the same legal principles concerning certification.

Therefore, the decision was not conflicting within the meaning of Rule 62.02(4) of the Rules of Civil Procedure. The appellant also argued that the motion judge erred in his treatment of the common issues and his finding on preferable

procedure. The appellant argued that the common issues are unsupported by a basis in fact and lack commonality; the evidence

of the plaintiff's expert was inadmissible; and a class proceeding is not a preferable procedure given the myriad individual

issues. The Court rejected the Appellant's arguments and found that the motion judge did not err in law or in principle so as to warrant

the intervention of an appellate Court. On the common issues argument, Justice Swinton found that the motion judge used

appropriate language in certifying the common issues. Further, the symptoms described by the plaintiff, such as depression and

suicidal ideation, can be verified with medical and other evidence. With respect to the evidence of the plaintiff's expert, Justice Swinton found that the motion judge did not err in admitting the

expert's evidence on the limited topic of the adequacy of the warning in some of the product monographs. Further, as the expert

was a practicing psychiatrist, the motion judge did not err in admitting the expert's observations of patients who had experi-

enced adverse events after taking the drug. Justice Swinton concluded by emphasizing that the threshold for establishing some basis in fact is low and in this case there was

some basis in fact for the Motion Judge's conclusion that common issues existed. On the issue of preferable procedure, Justice Swinton deferred to the expertise of the motion judge. In addition, the Court

pointed out that the appellant failed to establish any error of principle by the motion judge in coming to this decision. Lastly, the appellant argued that a $300,000 costs award to the plaintiff by the motion judge was excessive, as the plaintiff was

only successful in having four common issues certified. Justice Swinton did not find any error in principle in the Motion Judge's

decision and held that just because other judges have exercised their discretion in a different way does not mean the costs award

was clearly wrong. Related Cases: Martin v. Astrazeneca Pharmaceuticals PLC, 2012 CarswellOnt 6210 (Ont. S.C.J.) Parker v. Pfizer Canada Inc., 2012 CarswellOnt 7940 (Ont. S.C.J.) TOP

••• Perrenoud v. eHealth Ontario 2012 CarswellOnt 14757 (Ont. S.C.J.)

Decision: Motion for certification and motion to amend statement of claim - motions granted with

qualifications

Date of Decision: November 26, 2012

Judge: Perell J.

Court: Ontario Superior Court of Justice

Lawyers: Lawyers for the plaintiffs: Jacqueline L. King and John De Vellis

Lawyers for the defendants: Joseph D'Angelo and Christopher Thompson

Background: The defendants are the province of Ontario, and eHealth, a non-profit corporation that is an agent of Ontario, and exists for the

purpose of connecting the medical community to a secure network of electronic medical records. The plaintiffs are employees

of eHealth Ontario. When the plaintiffs accepted their employment offers with eHealth, in addition to base salary, their compensation included

participation in a performance incentive plan (PIP). Under the PIP, employees were eligible for salary based bonuses (Per-

formance Awards) and pay increases (Merit Increases). In May 2011, eHealth employees, including the plaintiffs, were notified of their bonuses and pay increases. Shortly thereafter,

critical media coverage of the bonuses and pay increases began. In an interview, the Minister of Health stated that she was

“disappointed” that eHealth was paying bonuses. On May 20, eHealth issued a press release stating that it would be reversing

the bonuses and pay increases. As a result, the plaintiffs did not receive their bonuses or pay increases, and they commenced a

proposed class action. In March of 2012, eHealth again rated employees under the PIP and again did not pay bonuses or give

pay increases. The plaintiffs brought a motion to amend their statement of claim to include claims related to the 2011/2012 fiscal year. They

also brought a motion for certification. Including the proposed amendment to the statement of claim, the plaintiffs advanced

four claims:

• (1) breach of contract for eHealth's alleged failure to pay the Performance Awards for the fiscal year 2010/2011;

• (2) breach of contract for eHealth's alleged failure to pay the Performance Awards for 2011/2012;

• (3) breach of contract for eHealth's failure to pay the Merit Increase for 2010/2011; and

• (4) the Minister's inducing breach of contract for the 2010/2011 fiscal year. The plaintiffs pleaded that eHealth breached its contract by refusing to pay Performance Awards that had already been awarded.

With respect to the Merit Increases, the plaintiffs submitted that eHealth did not give reasonable notice of the retraction of the

Merit Increases. Further, the plaintiffs submitted that eHealth breached its duty to act in good faith in regards to the employees'

contracts of employment. They also alleged that the Minister owed the employees a duty of good faith. The plaintiffs claimed ancillary declaratory relief with respect to the allocation of Performance Allowances to the class

members' pension plans and punitive damages in the amount of $1 million. Update: The class action was certified. eHealth argued that there was no cause of action because the terms of the PIP in the employment contract were ambiguous. The

plaintiffs' counterargument was a multifaceted argument interpreting the whole employment relationship between the parties.

Justice Perrell held that the plaintiffs showed a reasonable cause of action for the 2010/2011 awards. It was not plain and ob-

vious that the textual interpretation argument set out by the defendants necessarily would prevail. He held that it was not plain

and obvious that a Court would reject the plaintiffs' counterargument. Justice Perrell held that with respect to the 2011/2012

awards, the plaintiffs' argument was slightly weaker, but it was not plain and obvious that it would fail. With respect to the Merit increases, the defendants argued that the plaintiffs had not pleaded a reasonable cause of action

because the plaintiffs did not plead - nor could they plead - that they provided any consideration for the Merit Increase such as

to create a legally binding contract for the Merit Increase. However, Justice Perrell held that the defendants had not shown that

it was plain and obvious that the plaintiffs' claim regarding the Merit Increases was untenable. Justice Perrell did not certify the plaintiffs' claim for inducing breach of contract. He concluded that there was nothing illegal

about the Minister of Health telling her agent, eHealth, that she was disappointed with its decision to pay bonuses. Justice Perrell accepted the proposed class definition, and rejected the defendants' arguments that the claim was overly inclu-

sive as merely technical. Justice Perrell amended the phrasing of the proposed common issues. He agreed with the defendants' objections that the lan-

guage of the proposed common issues was objectionable because the questions presupposed or assumed liability, and the

language presumed that the defendants' legal position could not be defended. Justice Perrell held that a class proceeding is the preferable procedure, and rejected the defendants' argument that there was no

workable Litigation Plan, describing the argument as “very weak”. With respect to the criterion of a workable Litigation Plan and representative plaintiff, Justice Perrell approved the repre-

sentative plaintiffs, but amended the Litigation Plan to require an individual assessment of damages. TOP

••• McSheffrey v. Ontario 2012 CarswellOnt 15215 (Ont. S.C.J.)

Decision: Motions for approval of settlements and class counsel fees - motions allowed

Date of Decision: December 3, 2012

Judge: Horkins J.

Court: Ontario Superior Court of Justice

Lawyers: Lawyers for the plaintiffs in McSheffrey v. Ontario, Court File No. 02-CV-236588

CP: Susan Ursel and Andrea Wobick

Lawyers for the plaintiffs in Leclair v. Ontario, Court File No. 06-CV-324475PD3: Stephen J. Moreau

Lawyers for the defendant in both actions: Dennis Brown Q.C. and Judie Im

Background: The plaintiffs, Sue McSheffrey (“McSheffrey”) and Diane Leclair (“Leclair”) commenced class actions in 2002 and 2006

respectively, against the defendant Her Majesty the Queen in Right of Ontario (“Ontario”). The actions concern alleged defi-

ciencies in class members' pension benefits arising out of Ontario's decision to change the delivery of home care programs and

placement coordination services. In 1997, Ontario transferred class members from their municipal and private employers to 43

newly created Community Care Access Centres (“CCACs”). Class members in both actions were initially enrolled in the

Ontario Municipal Employees Retirement System (“OMERS”) and Victoria Order of Nurses (“VON”) pension plan, but after

1997, they were no longer allowed to be enrolled in either plan. Ontario divested class members from their previous plans and

enrolled them in the Health Care of Ontario Pension Plan (“HOOPP”). Both actions were case managed together and involved the same issue: whether class members experienced a change in their

pension plans after their enrolment in HOOPP. The McSheffrey and Leclair actions were certified without opposition in 2005

and 2007 respectively. Two causes of action were certified, negligent misrepresentation and breach of contractual undertaking. McSheffrey brought her action on behalf of all former employees of municipal and other home-care service providers who

subsequently became employees of CCAC and who were members of the Ontario Public Service Employees Union

(“OPSEU”) or the Association of Allied Health Professionals (“AAHP”) at the time of such change in their employment.

Leclair brought her action on behalf of all former employees of municipal and other home-care service providers who subse-

quently became employees of CCAC and who were members of the Ontario Nurses Association (“ONA”) at the time of such

change. The plaintiffs alleged that Ontario falsely represented that class members' pensions would not be negatively impacted from the

transfer of benefits to HOOPP and that any shortfall would be covered by Ontario. The plaintiffs alleged that the amount

available to be transferred out of the OMERS and VON plans was not sufficient to purchase the same number of years of

credited service in HOOPP. The plaintiffs allege that the government wrongfully refused to cover the shortfall between the

pension plans. In 2009, the parties attended a mediation session before the Honorable George W. Adams Q.C. Further negotiations led to a

proposed settlement in December 2011 for both actions. The settlement provided for Ontario to make a $6,500,000 payment to all class members in both actions to be distributed

equally and with no reversion to Ontario. NPT RicePoint was appointed as claims administrator and an appeal process was

established to allow class members to dispute the administrator's decisions. Ontario would pay Class Counsel's fee in the

amount of $575,000 in the McSheffrey action and Class Counsel's fee of $175,000 in the Leclair action. $250,000 would be

paid for administration expenses with reversion to Ontario of any unused monies. Class Counsel estimated the class to consist of 2,500 persons, who would each receive approximately $2,700 under the set-

tlement, which in McSheffrey's individual case would represent 50% of her projected shortfall under HOOPP compared to her

OMERS pension with normal retirement age of 65. Update: On December 3, 2012, Justice Horkins approved the settlement and Class Counsel fees in both actions. The Court held that the settlement and Class Counsel fees were fair and reasonable. Justice Horkins held that Class Counsel had

sufficient evidentiary basis to evaluate liability and damages, having had the benefit of extensive documentary discoveries prior

to the mediation. Justice Horkins noted that Class Counsel was assisted by two actuarial experts. The actions involved risks including that liability could not be established, particularly the claims related to negligent mis-

representation. Proving damages presented a further risk, since actuarial opinions highlighted that class members may not have

suffered any loss. Class Counsel submitted that the cost of ascertaining damages for the classes in these circumstances would

have cost in the range of $375,000 to $1,000,000. With respect to the approval of Class Counsel fees, Class Counsel in the McSheffrey action spent 1,400 hours since certifica-

tion. Justice Horkins held that the requested fee of $575,000 was very reasonable in the circumstances. The Court noted that

Class Counsel in the Leclair action requested a fee of $175,000 for 600 hours docketed since certification, which represented

70-80% of the total fees that counsel would bill to the client. The Court approved the requested fees. TOP

••• Treat America Ltd. v. Leonidas 2012 CarswellOnt 14784 (Ont. C.A.)

Decision: Appeal of order enforcing a Letter of Request for International Judicial Assistance -

appeal denied, conditions added to order

Date of Decision: November 27, 2012

Judge: Feldman J.A.

Court: Ontario Court of Appeal

Lawyers: Lawyer for the appellant/respondent: Jay L. Naster

Lawyer for the respondent/applicant: Darryl T. Mann

Lawyers for the intervener the Commissioner of Competition: James D. Sutton and

Belinda Peres

Background: The appellant is Robert Leonidas, the former President and CEO of Nestlé Canada Inc. He is a target of a criminal investigation

by the Commissioner of Competition regarding a price fixing conspiracy involving chocolate candy. The respondent is a group of plaintiffs in a Multidistrict Litigation (MDL) in the U.S., which arose as a result of information

uncovered by the Commissioner's investigation. An MDL is a procedure whereby a single Court is appointed to manage pretrial

proceedings and discovery in cases from the federal courts of multiple jurisdictions, where the cases raise common issues of

fact. The MDL is located in Pennsylvania and is under case management by Judge Conner as In Re: Chocolate Confectionary

Antitrust Litigation, MDL Docket No. 1935, Civil Action No. 1:08-MDL-1935. The appellant is not a party to the MDL. The respondent sought a compelled examination of Mr. Leonidas to obtain information regarding the merits of the MDL claim.

The MDL judge issued a Letter of Request for International Judicial Assistance (“LOR”) seeking an order from the Ontario

Superior Court of Justice compelling Mr. Leonidas to appear for a deposition and provide oral testimony. Mr. Leonidas objected to the compelled testimony. He took the position that the testimony would amount to pre-certification

discovery, and that pre-certification discovery of a non-party in a class action would not be permitted in Ontario. Moreover, Mr.

Leonidas submitted that because the Commissioner is conducting a criminal investigation of Mr. Leonidas, it is prohibited from

conducting a compelled examination of him. Mr. Leonidas's concern is that the Commissioner could obtain information from

his deposition that it would not otherwise obtain, in its capacity as an intervener in the MDL, or because one of the parties to the

MDL is cooperating with the Commissioner in exchange for immunity. Further, under a protective order issued in the MDL,

transcripts of Canadian depositions are not to be shown to witnesses in other Canadian depositions, and the Commissioner is to

be provided with notice before any Canadian deposition is used in the MDL. Mr. Leonidas expressed concern about how this

could prejudice his interests in any Canadian criminal proceedings. Justice Campbell of the Ontario Superior Court of Justice granted an order enforcing the LOR. The order contained a number of

conditions designed to protect Mr. Leonidas's interests. For example, Justice Campbell did accept an undertaking from counsel

for the Commissioner to provide notice to Mr. Leonidas of any move to seek access to the transcript of the deposition, and he

added as a condition to the LOR that the requesting Court allow for notice to be given to vary the MDL protective order, and

that the appellant would be entitled to make submissions without attorning to the jurisdiction of the MDL Court. Mr. Leonidas appealed from the order, and argued that: (1) the application judge erred by concluding that the enforcement of

the LOR would not breach the appellant's Charter rights, and in that way be contrary to Canadian public policy and sovereignty

concerns; and, (2) the application judge erred by: (a) concluding that enforcement of the LOR would not be unduly burdensome

for the appellant; and (b) trying to minimize prejudice to the appellant by adding a condition to the LOR that would allow or

effectively force him to make submissions in the MDL Court in order to oppose the release of his deposition. Update:

The Court of Appeal for Ontario dismissed the appeal and upheld the order. In the reasons for decision, Justice Feldman found

that Justice Campbell applied the correct six part test for the enforcement of a LOR, as set out in Friction Division Products Inc.

v. E.I. du Pont de Nemours & Co., 1986 CarswellOnt 439. The Court held that Justice Campbell did not err in considering whether enforcement of the LOR would breach the appellant's

Charter rights, and the enforcement was not contrary to Canadian public policy and sovereignty. Sufficient protection is pro-

vided by Canadian and Ontario evidentiary law, along with s. 13 of the Charter, which would prohibit the use of potentially

incriminating evidence given by the appellant in the MDL in his criminal case. Justice Feldman held that there was no risk that another party to the MDL would provide the Commissioner with the deposition,

because disclosure was prohibited by protective orders. The Court added three further protective conditions in relation to the Commissioner's potential for access to the depositions.

First, the Commissioner gave an undertaking not to seek or receive information regarding the contents of the deposition. Se-

cond, the Commissioner gave an undertaking not to seek a Court order to access the appellant's testimony unless one of the

following occurs: (a) the appellant is not charged, but instead becomes a witness for the prosecution; or (b) the appellant is

charged and may testify in a subsequent proceeding against him. Finally, if the Commissioner wishes to obtain an order under

condition two above, the order must be sought and obtained from the Ontario Superior Court, on notice to the appellant. Related Cases: Treat Canada Ltd. v. Leonidas, 2011 CarswellOnt 15468 (Ont. S.C.J. [Commercial List]) Treat Canada Ltd. v. Leonidas, 2012 CarswellOnt 594 (Ont. S.C.J. [Commercial List]) TOP

••• Tanner c. Nissan Canada inc. 2012 CarswellQue 12654 (Que. S.C.)

Decision: Motion for authorization of class proceeding - motion denied

Date of Decision: November 27, 2012

Judge: Myrand J.C.S.

Court: Superior Court of Quebec

Lawyers: Lawyers for the plaintiff, Dave Tanner: Jeff Orenstein and Andrea Grass (Consumer

Law Group Inc.)

Lawyers for the defendant, Nissan Canada inc.: Robert E. Charbonneau, Julia

Charlotte Pomeroy and Stephane Pitre (Borden Ladner Gervais)

Background: In March 2008 the plaintiff sought to authorize a class action with respect to odometers in Nissan and Infinity vehicles. The

plaintiff alleged that the odometers in the subject vehicles were calibrated such that they incorrectly measured the distance

travelled by 2-3%. The proposed class included anyone in Canada except British Columbia who owned or leased a Nissan or

Infinity vehicle since 2004. The claim was amended in February 2012 to eliminate the temporal restriction on the class defi-

nition. The claim was amended at the hearing of the motion to restrict the class to Quebec residents. In August 2012, the Court allowed Nissan to file additional material regarding the procedural history of similar actions in the

United States where certification was refused. The plaintiff claimed that the variation in the odometer reading violated the quality guaranteed by the Civil Code of Québec,

S.Q. 1991, c. 64 and the Consumer Protection Act, R.S.Q., c. P-40.1. He alleged that Nissan falsely represented the scope of the

vehicle's warranty including the allocation of kilometers in leasing contracts. The plaintiff claimed a violation of s. 27 of the

Weights and Measures Act, R.S.C. 1985, c. W-6, which makes it an offence to tamper with a vehicle's odometer. The plaintiff purchased a Nissan Altima 2005 2.5L Special, in October of 2004. He continued to drive the vehicle which had

accumulated more than 280,000 kilometers. The vehicle was covered by a base warranty of three years or 60,000 kilometers as

well as a Powertrain warranty of five years or 100,000 kilometers. The plaintiff relied on tests he performed on his vehicle with a GPS machine, and stated that the speed and distance indicated on

the GPS did not accord with those registered by the vehicle's odometer. He also stated that the highway signs indicating dis-

tance did not accord with the distance registered on the vehicle's odometer. The plaintiff looked at web sites where he learned

that class actions had been commenced in the United States and in British Columbia. At the authorization hearing, the plaintiff relied on the cases filed in the U.S. and in British Columbia, the tests he performed on

his vehicle and a summary of a report entered in a U.S. proceeding by an expert hired by the plaintiffs in the U.S. The expert

evaluated eleven Altima vehicles and concluded that there was a variance of 2-3.75% between the odometer reading and the

distance travelled. Update: The motion was dismissed. The action did not disclose a prima facie cause of action. The allegations were insufficient and based on opinion and specula-

tion. The use of a GPS device to verify the distance travelled is not a scientific measure and the plaintiff's observations were

imprecise. They did not specify the atmospheric conditions, the state of the tires, the size of the tires or the number of times or

the location that the tests were undertaken, or their results. The plaintiff did not specify the distance travelled during these tests.

The verification of the distance travelled based on the highway signs was also not reliable or sufficient to establish that the

odometer was defective. The plaintiff did not enlist the help or the corroboration of another person and only verified the dis-

tances while he was at the wheel. He has not demonstrated prima facie that his odometer was defective. The plaintiff's claim was based on technical theories as to why the odometer was over-registering the distance which were lifted

from the U.S. cases. None of the U.S. cases was certified as a class action. The British Columbia action was inactive since 2008

and the class counsel's website indicated that it had been resolved. The plaintiff attempted to distinguish the U.S. cases on the basis that in the U.S. there was a requirement that the odometers

were altered intentionally, whereas in Quebec the law did not require the plaintiff to show intent. While s. 27 of the Weights and

Measures Act and s. 237 of the Consumer Protection Act prohibited the alteration of an odometer, the applicable regulations

make it clear that the legislation does not require a standard of perfection. The Regulation respecting safety standards for road

vehicles, R.R.Q., c. C-24.2, r. 32, (Highway Safety Code) allows a margin of error of less than 10% for speedometers and

odometers [s. 73]. These margins depend on a number of factors that limit the ability of the odometer system to perfectly measure distance, in-

cluding the circumference, size and thickness of the tires, the speed of the vehicle, and the exterior temperature. The U.S. expert

conceded that odometers are not perfect, given these variables.

Section 237 of the Consumer Protection Act is aimed at the alteration of odometers and not their design or manufacture, and the

goal is to prevent a person from tampering with the odometer to conceal the vehicle's mileage. It is designed to prevent fraud.

The U.S. expert's measurements are well within the permissible 10% margin of error. In any event, the U.S. expert did not conduct any studies on the plaintiff's car or any of the vehicles targeted by the class action.

The U.S. Court soundly rejected the expert's evidence, finding that there was no basis for his findings and no evidence that the

defendant designed the odometers with any intent to deceive. The representation in the owner's manual that “the odometer records the total distance the vehicle has been driven” was merely

an explanation of a measuring tool and could not be interpreted as constituting a representation as to the existence or duration of

a guarantee. It was merely an identification of a feature in the vehicle's instrument panel. The failure to divulge a permissible

margin of error is not a misrepresentation. The plaintiff failed to demonstrate any damages. He could not remember having paid for any repairs to the vehicle after the

warranty expired. He continued to drive the vehicle with 280,000 kilometers registered. The plaintiff had no cause of action and

therefore there was no connection to the legal and factual issues of the class members. Without having a personal cause of

action, it was impossible for the plaintiff to act as a representative plaintiff. It was impossible for the Court to determine the size of the class as it was not temporally limited. Only seven Quebec class

members registered on the class counsel's web site, and only two complained that their odometers were over-registering. TOP

IN THE NEWS

No costs awarded in Frank v. Farlie, Turner & Co. on motion to strike a claim for punitive damages On November 26, 2012, Justice Perell ordered no costs against the plaintiffs in Frank v. Farlie, Turner & Co. for a motion

brought by the defendants to strike a portion of the plaintiffs' claim. The defendants successfully struck the plaintiffs' claim for

punitive damages and subsequently sought costs on a partial indemnity basis in the amount of $43,643.20 (inclusive of dis-

bursements and HST). The plaintiffs are suing certain officers and directors of the defendant company for breach of Part

XXIII.1 of Ontario's Securities Act, which creates a statutory cause of action against companies making misrepresentations in

their public disclosures. At the motion to strike, Justice Perell decided in favor of the defendants. As the plaintiffs do not plead any causes of action at

common law, Justice Perell found the legislative history of Part XXIII.1 of the Securities Act prohibits the plaintiffs from

seeking punitive damages. Justice Perell held that to do so would allow the plaintiffs to circumvent the damages cap in Part

XXIII.1 of the Securities Act. Justice Perell found the motion to strike raised a novel point of law and declined to award costs against the plaintiffs. The Court

emphasized that to warrant an order of no costs, the “legally significant novelty of a legal issue is found in the circumstances

that the existing case law is inadequate to resolve the issue and there would be no proper reason for the party advancing the

issue to expect to fail” [para. 9]. Justice Perell noted that it was reasonable for the plaintiffs to resist the defendant's motion

because although the defendants had a strong argument that ultimately succeeded, the argument was not so strong that the

plaintiffs ought to have conceded the novel point of law. TOP

••• Supreme Court of Canada dismisses the defendants' application for leave to appeal in the Canadian Solar

class action On November 29, 2012, the Supreme Court of Canada declined to hear an appeal regarding a jurisdiction issue in the securities

law context in the Canadian Solar class action. The plaintiff, Tajdin Abdula, commenced the proposed class action in August 2010 alleging that Canadian Solar Inc. (“Cana-

dian Solar”) and two of its executives made misrepresentations in documents and conference calls in 2009 and 2010. The

plaintiff advanced claims for negligent misrepresentation, leave to assert the statutory cause of action for misrepresentations in

secondary market disclosure documents pursuant to Part XXIII.1 of the Securities Act, and oppression. Canadian Solar is a federal corporation with its registered office in Toronto, Ontario and its principal executive office in

Kitchener, Ontario. However, Canadian Solar conducts the majority of its business in China and its shares trade only on the

NASDAQ Exchange. In 2011, the defendants moved to dismiss the claims for negligent misrepresentation and leave to assert statutory misrepre-

sentation cause of action on the basis that the Court lacked jurisdiction. The motion judge dismissed the defendants' motion.

The motion judge found that Canadian Solar has a “real and substantial connection to Ontario” and that Canadian Solar was a

“responsible issuer” within the meaning of s. 138.1 of the Ontario Securities Act (Abdula v. Canadian Solar Inc., 2011

CarswellOnt 9195 (Ont. S.C.J.) additional reasons 2011 CarswellOnt 14790 (Ont. S.C.J.)). The defendants appealed the con-

clusion that Canadian Solar was a “responsible issuer”. The Ontario Court of Appeal dismissed the appeal and held that the definition of “responsible issuer” is not limited to reporting

issuers in Ontario, who have continuous disclosure obligations in Ontario. The Court found that the definition of “responsible

issuer” specifically envisaged extra-territorial application with its reference to issuers with a “real and substantial connection”

to Ontario. (See Issue 2012-06 - Case Update - “Abdula v. Canadian Solar” and Issue 2012-07 - Special Focus - “Foreign listed

issuers may be subject to the Ontario Securities Act: Abdula v. Canadian Solar Inc.”). On November 29, 2012, the Supreme Court of Canada dismissed the defendants' application for leave to appeal the Court of

Appeal's decision, with costs (Abdula v. Canadian Solar Inc., 2012 CarswellOnt 14887 (S.C.C.)). TOP

••• New company formed to assist class members to receive compensation from class action settlements A new company named The Optio Group has been formed to help class members access compensation from medical or

pharmaceutical class actions. The Optio Group is composed of a group of health care professionals with medical and legal

expertise. According to its website, The Optio Group helps claimants by reviewing medical and pharmacy records and selecting the

relevant records required to successfully receive compensation pursuant to a class action settlement. The Optio Group is cur-

rently working with class members eligible to receive compensation from the Vioxx settlement. The drug Vioxx is used to treat

osteoarthritis, acute pain conditions and dysmenorrhea and was withdrawn from the market after its association with increased

cardiovascular problems was revealed. A national class action settlement was achieved in January 2012 (see Issue 2012-01 - In

the News - “Settlement Reached in Vioxx case”). In an article published by the Calgary Herald on December 4, 2012, Chris Rokosh, the president of the Company, noted that

some class action settlements see only 20 percent of eligible claimants receive compensation. The company hopes to increase

that percentage in the future by supporting claimants with the process. According to Rokosh, The Optio Group is the first and

only company of its kind in Canada. Although the company is based in Calgary, it will be offering its services throughout

Canada. This is a new addition to the class action landscape. Previously, class action claimants generally represented themselves or

hired legal counsel to pursue claims. In many cases, class counsel take individual retainers from claimants in order to pursue

claims. Depending on the complexity of the claim, having to pay lawyers' fees to obtain a settlement can be costly for individual

claimants. In some cases, the involvement of third parties, including lawyers, in individual claims has led to abuses (see Issue

2012-10 - Case Update - “Fontaine v. Canada (Attorney-General) 2012 CarswellBC 1648”). It will be interesting to see

whether there will be sufficient demand for this type of business to succeed, and whether its presence will increase access to

justice for class members. TOP

••• Ontario Court of Appeal dismisses appeal from summary judgment in Tim Hortons franchise class action On December 6, 2012, the Ontario Court of Appeal heard and released its decision dismissing the paintiffs' appeal from a

motion for summary judgment in favor of the defendants in the Tim Hortons franchise class action (Fairview Donut Inc. v. TDL

Group Corp., 2012 CarswellOnt 15496, 2012 ONCA 867). The plaintiffs were franchisees of the defendants and commenced a proposed class action alleging that they were required to

purchase donuts and ingredients for soups and sandwiches at unreasonably high prices, causing their profits to suffer. The

plaintiffs sought damages for several claims, including breach of contract, misrepresentation, unjust enrichment, violations of

the Competition Act, and breach of the duty of good faith. The plaintiffs brought a motion to certify the proceeding as class action and the defendants brought a motion for summary

judgment dismissing the plaintiffs' claims. The motion judge granted the defendants' motion for summary judgment and dis-

missed the action. The motion judge held that certification of the action would be appropriate for a number of issues, but that

none of the proposed claims could possibly succeed. (See Issue 2012-04 - Case Update - “Fairview Donut Inc. and Brule Foods

Ltd. v. The TDL Group Corp. and Tim Hortons Inc.”). The plaintiffs appealed the summary judgment decision related to claims

for breach of contract and breach of the duty of good faith. The Court of Appeal dismissed the appeal with costs. On the breach of contract issue, the Court of Appeal agreed with the

Motion Judge's analysis, and in particular, that the provision of franchise agreements at issue did not require that every new

method or new product introduced by the defendants must be profitable in its own right. On the breach of duty of good faith

issue, the Court of Appeal agreed with the Motion Judge's analysis, and in particular, that the conversion from in-store baking to

central baking was a rational business decision for valid economic and strategic reasons, made with both the defendants' and the

franchisees' interests in mind. The Court of Appeal concluded that the case was appropriate for resolution on a summary

judgment basis. The Court of Appeal awarded costs of $125,000 to the defendants. TOP

••• Settlement approved in Option Consommateurs c. The Brick Warehouse LP class action On November 27, 2012, the CBC reported that the Superior Court of Quebec has approved a settlement in Option

Consommateurs c. Brick Warehouse, 2011 CarswellQue 1343 (Que. S.C.).

The action was commenced on November 5, 2009 against The Brick Warehouse LP (“The Brick”) by Option Consommateurs

and Henri Joyal on behalf of all persons who purchased a good or service from The Brick in Quebec and subscribed to a “Buy

now; pay later” financing program and paid annual fees. The plaintiffs alleged that The Brick falsely represented its financing

program as not requiring payment at the time of purchase, whereas in fact, purchasers who took advantage of this financing

program were obliged to pay a $35 annual membership fee. On February 11, 2011, Justice Louis Crête granted the plaintiffs'

motion for authorization allowing the action to go forward as a class action. Under the terms of the approved settlement, The Brick will make a total payment of $2 million to purchasers who financed their

purchases before May 1, 2010. The settlement divides the class into two groups: (1) members who had their purchase financed

before May 1, 2009; and, (2) members who had their purchase financed between May 1, 2009 and April 30, 2010. Class

members in the first group will be automatically refunded all annual fees charged during the years 2009, 2010, 2011, and 2012.

Class members in the second group will benefit from a $200,000 payment which will be distributed starting in January 2013 to

persons who complete a claim form. The individual amount of compensation will depend on the number of eligible claim forms

submitted. November 20, 2012 was the last day to opt out of the settlement. Option Consommateurs has been appointed claims manager and may receive compensation in the amount of $25,000 out of the

$200,000 payment assigned to the second group of class members. TOP

••• Settlement approved in Sherebrin v. Building Products of Canada Corp. class action On December 6, 2012, Justice Leitch released a decision approving a North America-wide settlement in Sherebrin v. Building

Products of Canada Corp., 2012 ONSC 6888. The settlement was previously approved in Quebec and a settlement approval

hearing was scheduled in the United States for December 12, 2012. The action was certified for settlement purposes on March

28, 2012 and a form of notice advising of the settlement approval hearing was also approved on that date. The action was commenced in 2011 on behalf of all Canadians who purchased organic roofing shingles (the “Shingles”)

manufactured by Building Products of Canada Corp. (“BP”). The plaintiffs alleged that the Shingles were defective. The action

alleged breaches of Canadian consumer protection legislation, negligence, and breach of warranty in connection with the

Shingles. The settlement was reached early in the litigation, prior to formal discovery. The plaintiffs carried out their own investigation

which was aided by early documentary productions by the defendant and the commencement of informal discovery. Class

Counsel recommended approval of the settlement, which they submitted has functioned well since its implementation in

February 2012. Class Counsel submitted that the plaintiffs had a good and arguable case, but that there were risks in further

litigation, particularly in proving causation. The settlement enhances and augments the current warranty issued by BP, ensures adherence to all warranty terms and ensures

the appropriate administration of warranty complaints. The settlement includes an “augmentation rule” which states that if 5%

or more of a claimant's roof slope is damaged, eligible claimants will be entitled to settlement benefits based on the total

number of squares on the slope. Compensation will be based on the prorated amount of the current or actual costs of labour and

materials at the time a claim is made, rather than the original cost of labour and materials. The minimum non-proration amount,

during which a claimant will be eligible for 100% of the original cost of labour and materials, has been increased to five years.

Claimants may elect to receive a cash settlement and claims denied in whole or in part after June 9, 2009 are eligible for

re-evaluation. The settlement includes a right of appeal from a warranty decision and an alternative dispute resolution mech-

anism, the cost of which will be borne by BP. There are no monetary limits on the warranty claims that may be made and no

expiration date on the settlement benefits.

BP will provide Class Counsel with an annual report stating the resolution of claims and benefits paid out. Class Counsel has

the right to annually audit the processing and disposition of claims by BP and to examine all books and records relating to the

settlement of claims. The settlement provides for payment by BP of Class Counsel's fees in the amount of $2,400,000, however, this issue was not

addressed as part of the motion. TOP

SPECIAL FOCUS

Sino-Forest Corp. (Re): Releases and opt-out rights against “third party” class action defendants under the

CCAA and the Class Proceedings Act In a number of recent class actions the main corporate defendant has filed for protection under the Companies' Creditors Ar-

rangement Act, R.S.C. 1985, c. C-36 (“CCAA”), which has affected the class proceedings. This has occurred in Sino-Forest

Corp., Re (2012 ONSC 7041 (Ont. S.C.J. [Commercial List]); 2012 ONSC 7050 (Ont. S.C.J. [Commercial List])); in Timminco

Ltd., Re (2012 CarswellOnt 1059 (Ont. S.C.J. [Commercial List]) (Kim Orr Barristers P.C. acts as class counsel), and in Al-

len-Vanguard Corp., Re (2011 CarswellOnt 8984 (Ont. S.C.J. [Commercial List])); in a product liability class action in

Muscletech Research & Development Inc., Re (2007 CarswellOnt 1029 (Ont. S.C.J. [Commercial List])); and in a copyright

infringement class action in Robertson v. ProQuest Information & Learning Co. (2011 CarswellOnt 1770 (Ont. S.C.J.

[Commercial List])). A restructuring under the CCAA can remove the ability of claimants to commence or continue actions against insolvent com-

panies by staying, and ultimately barring or releasing, such claims. Often releases are also provided to subsidiaries and officers

of the insolvent company in a plan for reorganization. The purpose of the CCAA is to allow companies to restructure and avoid

bankruptcy; releases of the company, its employees, and its subsidiaries are often appropriate to fulfill this purpose. Proposed releases of “third-party” (non-party) defendants in CCAA proceedings pose difficult issues. The Commercial Court

has sanctioned plans in the CCAA that contain terms releasing such third party defendants on the grounds that such releases are

integral to the restructuring of the insolvent company. On December 10, 2012, Justice Morawetz sanctioned a Plan of Compromise and Reorganization under the CCAA in Si-

no-Forest Corp., Re that did not release third parties directly but included a “framework” for the release of claims asserted

against third party defendants in an uncertified class action. A group of putative class members, represented by Kim Orr Barristers P.C., intervened at the Sanction Hearing to contend that

the “framework” in the CCAA Plan would operate to usurp their fundamental right under the Class Proceedings Act, 1992, S.O.

1992, c. 6 (“CPA”) to opt out of the class proceeding and pursue individual actions. This group argued that the “framework”

should not be sanctioned since the third party releases were not integral, or even related, to the restructuring of the company.

The argument was rejected. Releases in the CCAA The release of third parties (parties other than the insolvent applicant) is not legislated in the CCAA, except with respect to

directors. Section 5.1 of the CCAA provides for the release of directors, except with respect to: (1) contractual rights of cred-

itors; (2) allegations of misrepresentations made by directors to creditors; or (3) wrongful or oppressive conduct by directors.

The trend of granting releases to third parties in CCAA proceedings began in Canadian Airlines Corp., Re when directors and

other third parties were released through a plan sanction hearing (2000 CarswellAlta 662 (Alta. Q.B.), leave to appeal ref'd,

2000 CarswellAlta 919 (Alta. C.A. [In Chambers]), 2001 CarswellAlta 889 (S.C.C.)). Third party releases contained in CCAA restructuring plans have been sanctioned in other cases, particularly when they are not

effectively contested at the sanction hearing (Muscletech Research & Development Inc., Re, 2007 CarswellOnt 1029 (Ont.

S.C.J. [Commercial List]); Canwest Global Communications Corp., Re, 2010 CarswellOnt 5510 (Ont. S.C.J. [Commercial

List]); Angiotech Pharmaceuticals Inc., Re, 2011 CarswellBC 841 (B.C. S.C. [In Chambers]); Allen-Vanguard Corp., Re, 2011

CarswellOnt 8984 (Ont. S.C.J. [Commercial List])). The ability to provide third party releases in the absence of guidance in the CCAA has been questioned by some courts

(Steinberg Inc. c. Michaud, 1993 CarswellQue 2055 (Que. C.A.); Pacific Coastal Airlines Ltd. v. Air Canada, 2001

CarswellBC 2943 (B.C. S.C.)). In ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., the Court of Appeal for Ontario confirmed that the

CCAA courts have the power to provide third party releases in unusual circumstances (2008 CarswellOnt 4811 (Ont. C.A.),

leave to appeal ref'd, 2008 CarswellOnt 5433 (S.C.C.)) (“Metcalfe”). The CCAA plan and restructuring process in Metcalfe was found to be necessary in light of a crisis in the asset-backed com-

mercial paper (“ABCP”) market that was triggered by a loss of confidence amongst investors due to news of widespread de-

faults on U.S. sub-prime mortgages. The Plan provided for a comprehensive series of releases of third parties of “virtually all participants in the Canadian ABCP

market” - Canadian banks, Dealers, Noteholders, Asset Providers, Issuer Trustees, Liquidity Providers, and other market par-

ticipants. The releases were opposed by ABCP Noteholders. In determining whether to grant the third party releases, the application judge in Metcalfe, Justice Campbell, noted that: (a) the

parties released are necessary and essential to the restructuring of the debtor; (b) the released claims are rationally related to the

purpose of the Plan and necessary for it; (c) the Plan cannot succeed without the releases; (d) the released parties are contrib-

uting in a tangible and realistic way to the Plan; (e) the Plan will benefit other creditors generally; (f) voting creditors who have

approved the Plan did so with knowledge of the nature and effect of the releases; and, (g) the releases are fair and reasonable

and not overly broad or offensive to public policy. The Court of Appeal confirmed that these findings were all supported on the

record (2008 CarswellOnt 4811 at paras. 113-114 (Ont. C.A.)). The Court of Appeal granted leave to appeal to the Noteholders, but then dismissed the appeal. The appellate Court found that

it was appropriate to examine the effects of the plan generally and the purpose of saving the ABCP market. The Supreme Court

of Canada refused leave to appeal the decision (2008 CarswellOnt 5433 (S.C.C.)). In the 2011 case, Allen-Vanguard Corp., Re, Justice Campbell granted a motion by former directors and officers of an insolvent

company who sought to enforce a Sanction Order, and a motion by underwriters to stay a class action against them based on

releases in the sanctioned plan (2011 CarswellOnt 8984 (Ont. S.C.J. [Commercial List])). Justice Campbell found that the claims against the directors had been clearly released in the Sanction Order, apart from the

exceptions mandated in the CCAA and that the class action plaintiffs who were seeking to proceed with the claims had not

objected to the releases when the Sanction Order was approved. The underwriters relied on provisions that released certain claims against third parties who might claim contribution and in-

demnity against the restructured company. Justice Campbell found that the underwriters were covered by this release, except

for fraud claims, which were not released.

Although Justice Campbell upheld the third party releases that were already sanctioned in Allen-Vanguard Corp., Re, he

viewed third party releases in the CCAA as exceptions to the rule that such releases should not be sanctioned unless they are

“integral” or “necessary” to the restructuring. Sino-Forest Corp. (Re) Sino-Forest Corporation stock collapsed in June 2011 following allegations that the company had been vastly overstating its

assets and revenues while engaging in extensive related-party transactions. The company, its directors and officers, under-

writers, auditors and experts were served in securities class actions commenced in Ontario, Quebec, Saskatchewan and New

York. On March 30, 2012 Sino-Forest applied for and was granted CCAA protection, and the Ontario action, which has not yet been

class certified, was stayed. (See Issue 2012-05 - In the News - “Sino-Forest Corporation files for CCAA protection resulting in

stay of class action”). After a proposed sale of assets failed, the company announced its intent to proceed with a restructuring transaction, and filed a

Plan of Compromise and Reorganization in August 2012. Class Counsel in the still-uncertified Ontario class action participated in the CCAA proceedings, a self-styled “Ad Hoc Com-

mittee of Purchasers of the Applicant's Securities”. Class Counsel proposed to seek a representation order in the CCAA with

opt-out rights for class members, but did not proceed with such a motion. On December 3, 2012 the Sino-Forest Plan of Compromise and Reorganization (“Plan”) was amended to include provisions

implementing a “framework” for settlements and releases of all claims against the company's main auditor, Ernst & Young LLP

(“E&Y”), and other defendants. The Plan was approved on the same day as the amendment, December 3, 2012. Other de-

fendants in the Ontario Class Action, eleven (11) underwriters and its other auditors, BDO Limited (collectively, the “Named

Third Party Defendants”), were included by name shortly thereafter. The “framework” in the amended Plan provides that E&Y may be fully released from claims in exchange for unspecified

payments into a settlement trust, as negotiated by class counsel, and envisions a release on similar conditions for the other third

party defendant. The Plan amendment, an amendment for settlement with E&Y, was proposed on the same day that the Ontario

Securities Commission released allegations that E&Y had engaged in improper auditing practices with respect to Sino-Forest in

violation of the Securities Act, R.S.O. 1990, c. S-5 as amended. At the Sanction Hearing on December 7, 2012, the Plan was supported or unopposed by all parties, with the exception of three

institutional investors (the “Funds”) that opposed release provisions of the Plan as putative class members in the Ontario Class

Action. Kim Orr Barristers P.C. acts as counsel to the Funds. The terms of the proposed E&Y settlement provided for approval and implementation in the company's CCAA proceedings, and

the settlement is conditional upon full and final releases and bar orders to extinguish all claims against E&Y, “without opt-outs”

by any class members. The settlement also cryptically referred to an “opt out threshold agreeable to E&Y” in the Ontario Class

Action. In Ontario, putative class members have the right upon certification of the class to opt-out from the class proceeding, pre-

sumably to pursue individual actions. The right to opt-out is fundamental in Ontario class actions and is intended to preserve the

entitlement of those who wish to exercise their legal rights independent of a class action. The right to opt-out is a procedural

protection afforded to safeguard the legal rights of un-named class members (Currie v. McDonald's Restaurants of Canada

Ltd., 2005 CarswellOnt 544 at para. 28 (Ont. C.A.)). The Funds expressed concern that their fundamental right to opt-out of the class proceeding and pursue their own litigation was

being negated by the Plan and the E&Y Settlement, which did not provide opt-out rights. While part of the E&Y settlement

provided for class certification and settlement approval by the Ontario Court, the Funds considered that the accompanying opt

out rights were illusory as a result of the releases and bar orders to be obtained through the CCAA process. Justice Morawetz nevertheless granted the Sanction Order approving the Plan, including the framework for third party releases

(Sino-Forest Corp., Re, 2012 ONSC 7041 (Ont. S.C.J. [Commercial List]); 2012 ONSC 7050 (Ont. S.C.J. [Commercial List])).

He found that the Funds' concerns were premature, and could be raised at future motions to approve any releases. He noted that

the E&Y settlement did not form part of the Plan Sanction Order and that no determination was being made as to the fairness of

the E&Y settlement, continuing discovery rights or opt-out rights. On December 13, 2012 the settling parties obtained an assignment for Justice Morawetz to hear the motion to approve the E&Y

settlement and ancillary matters not only in the CCAA, but also under the CPA. This was unusual in that class action certifi-

cation and settlement approvals typically take place before the case management judge managing the class proceeding. In this

case, Justice Perell was managing the Ontario Class Action. The E&Y settlement approval hearing is scheduled for February 4, 2013. A motion is scheduled to be heard by Justice

Morawetz on December 20, 2012 to address the form and method of distribution of notice to putative class members regarding

the settlement approval hearing. On January 7, 2013, a hearing is scheduled before the Ontario Securities Commission to determine whether E&Y will be

reprimanded and penalized for violating the Securities Act following the OSC's allegations that E&Y engaged in improper

auditing practices related to SFC. Conclusion This case is placing in stark relief the issue of whether CCAA rules can be used (or abused, depending on one's point of view) to

obtain non-merits dismissals, or dubious compromises, of investors' claims against solvent professional “gatekeeper” de-

fendants in securities cases involving fraudulent issuers that become insolvent, like Sino-Forest. In this case, E&Y was a gatekeeper playing a principal role, along with the other auditor and the underwriters, in advising

public investors whether its client met basic financial reporting standards. When the fraud (securities reporting violations) was

revealed, causing huge public investor losses, class actions alleging Ontario statutory securities violations were commenced,

including the auditors and underwriters as defendants. Siskinds LLP and Koskie Minsky LLP, leading plaintiffs' counsel in

securities class cases, gained carriage of the litigation. In normal cases, class counsel would proceed to obtain certification of

class claims and leave to proceed, and class members would be given the opportunity to exclude themselves from the class (opt

out) to pursue their claims individually - based on investors' assessment of the abilities of class counsel and on whether it was

economically feasible for dissident investors to prosecute their claims individually. Opt out litigation is occasionally a factor in

resolving securities class actions in the U.S., but it is virtually unknown so far in Canada, which has had much more limited

experience with securities class proceedings. Although the amount of the class settlement announced for E&Y in Sino-Forest - $117 million - is the largest proposed secu-

rities settlement in Canadian history, it may not appear so ample in the context of total investor market cap losses reportedly in

excess of $6 billion and of the perception that E&Y bore major culpability. The latter perception was emphasized when the

Ontario Securities Commission announced hearings into E&Y's audit failures at Sino-Forest on the same day the proposed class

settlement was announced. However, E&Y's apparent insistence that its class settlement must be immune from normal class

member opt out rights, and class counsel's willingness to support that provision, apparently sufficiently incensed some large

Canadian institutional investors as to inspire resistance to the settlement, led by Kim Orr Barristers P.C., which already had

institutional investor clients in Sino-Forest dating from its unsuccessful effort to gain carriage of the class action. E&Y and

class counsel courted further resistance by obtaining removal of the normal class proceedings judge from the case in favor of

the CCAA Court, and by initially seeking to obtain final approval of the settlement at a hearing on January 4, 2013, with notice

provided during only the preceding month - on a rush basis during a holiday period when class member attention would be

minimized.

As of this writing (in late December 2012), it is unclear whether E&Y and class counsel will succeed in depriving absent class

members of normal opt out rights that would challenge the sufficiency of the settlement. If the case were purely a class pro-

ceeding, class members' opt out rights would be guaranteed at the time of class certification (which often accompanies a set-

tlement, but may also occur on its own earlier in a case). In a case in which the company involved enters CCAA proceedings, it

would of course be common for CCAA bar orders to be entered as part of the final orders in the case, precluding (releasing)

claims, including securities claims by investors, against the company and to some extent against its officers and directors,

without opt out rights. The question is whether the CCAA procedure can be extended so as to bar or release investors' claims on a non-opt-out basis as

part of a settlement negotiated between class counsel and a “third party defendant” (i.e., not the CCAA applicant or its officers

or directors). In such a situation, of course, the claims of the investors against the third party defendant would not normally be

within the jurisdiction of the CCAA Court. It appears that such an enforced settlement with broad releases of third party de-

fendants and with prohibitions on opt-out rights has been ordered, on clear facts, only once before: in the ABCP litigation, on

the articulated basis that omnibus releases of claims by participants in the ABCP market were required in order to preserve the

viability of the market itself -in which those participants themselves operated. No such rationale for enforcing non-opt out releases of auditors or underwriters in the Sino-Forest situation has been presented.

E&Y and class counsel have not contended that any market would collapse if the releases were not permitted. Other cases have

indicated that third party releases could be justified only if they were “necessary” and “integral” for the applicant's CCAA

reorganization plan to succeed - again, not factors that appear to be present in Sino-Forest. If E&Y is able to invoke CCAA principles to obtain approval of a class action settlement without giving normal opt out rights to

class members, one may expect to see a new framework emerge in class cases. When serious misrepresentations cause large

investor losses, deep pocket “third party” defendants will find it advantageous to precipitate CCAA filings by the company

involved, and then to persuade class counsel to enter non-opt-out settlements that are effectively immune from the legal and

financial safeguard deriving from the fact that inadequate class settlements can be rejected by class members seeking to litigate

to obtain better recoveries. Such a result would recalibrate the relationship between securities litigation plaintiffs and de-

fendants and deprive the system of the important balancing role played by the existence of investors' opt out rights. TOP END OF DOCUMENT