An Ontario appeal court has rejected a bid from a couple of fund companies to dismiss a class action suit against them, stemming from the market timing scandal.
On Friday, the Court of Appeal for Ontario rejected an appeal by a couple of the fund companies that are facing a class action suit claiming that they allowed market timing in some of their funds — IG Investment Management Ltd., CI Mutual Funds Inc., Franklin Templeton Investments Corp., AGF Funds Inc. and AIC Ltd. — to the detriment of long-term investors. CI and AIC appealed an order of the Divisional Court certifying the class action.
The primary issue in the appeal was whether a class action suit is the preferable procedure for the investors to try to recover damages from the fund companies, which have already paid $205.6 million to investors in the relevant mutual funds as part of a settlement with the Ontario Securities Commission.
The appeal court found that after considering the regulatory nature of the OSC’s jurisdiction and its remedial powers, as well as the lack of participatory rights afforded to affected investors by the OSC proceedings, it concludes that the OSC proceedings “would not fulfill the goal of providing class members with access to justice…” As a result, it dismisses the appeal.
The decision notes that the jurisdiction of the OSC is regulatory (i.e., protective and preventative), not compensatory. “Accordingly, the remedial powers available to the OSC under the section are insufficient to enable it to fully address the class members’ claims in the proposed class proceeding,” it says.
Also, OSC proceedings don’t give investors a chance to participate in its hearings. The court stresses that the lack of participation by the investors is not inappropriate or nefarious. “On the contrary, the point is that the OSC proceedings were not intended or designed to provide the investors with access to justice for purposes of adjudicating the claims advanced in the proposed class proceeding. In short, the investors were not, and were not intended to be, parties to the OSC process,” it says.
The court notes that the settlement agreements signed by the fund companies expressly contemplated that they could face civil law suits. “The OSC settlements simply resolved the proceedings taken by the OSC against the defendants. The settlements did not finally resolve the claims of the investors as against the defendants, nor did they purport to do so,” it says.
As a result, it dismisses the appeal from the Divisional Court’s order granting certification of the proposed class action, on the condition that the motion judge approves a revised litigation plan.