Skip to main content

The Supreme Court of Canada is seen in Ottawa, Monday October 17, 2011.Adrian Wyld/The Canadian Press

The Supreme Court of Canada has unanimously turned down an appeal from a pair of mutual fund managers facing a class action from angry investors who allege the fund managers are to blame for hundreds of millions in losses due to a practice known as "market timing."

The key question in the case was whether a class action should be allowed to go ahead even though the defendants had already settled allegations with the Ontario Securities Commission and paid back more than $200-million. It was a case with potentially wide ramifications in the expanding world of securities class actions in Canada, since most are filed in the shadow of investigations by regulators.

The mutual fund managers, AIC Ltd. and CI Mutual Funds Inc., argued that the class action in this case was a duplication. But lawyers acting for investors in the funds argued that the losses due to market timing -- a practice that allegedly allowed certain market players to profit at the expense of everyday unitholders -- were much higher than the compensation on offer.

In its ruling Thursday, the top court upheld previous decisions by the Ontario Court of Appeal and the Ontario Divisional Court that had reversed an original decision by Ontario Superior Court Justice Paul Perell.

Ontario's class action legislation allows judges to deny "certification" or the green-light needed for a class action lawsuit to proceed to trial, if they decide that another "preferable procedure" exists, such as a regulatory hearing or some other process by which a company facing allegations is prepared to offer compensation to plaintiffs. Justice Perell ruled that the OSC settlement fit this bill.

But the appeal courts, and now the Supreme Court, have sided with the investors, who argued not only that they were actually owed up to $800-million in compensation, but that the OSC settlement was drawn up behind closed doors in a process that excluded them. The allegations in their lawsuit have not been proven. The decision now clears the way for a possible trial.

The case dates back to a 2003 OSC probe of five large mutual fund managers, which resulted in a series of settlements in 2004-2005 that saw $205.6-million handed to investors. But in 2009, lawyers acting for investors launched a class action demanding more compensation. All but two of the defendants have since settled with the plaintiffs.

The Supreme Court's ruling Thursday lays out a series of questions that judges should answer when determining whether a class action should be considered a "preferable procedure," including considering the issue of "access to justice."

"The regulatory nature of, and the limited participation rights for investors in the OSC proceedings, coupled with the absence of information about how the OSC staff assessed investor compensation support the conclusion that significant procedural access to justice concerns remain which the proposed class action can address," the court's decision reads.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe