Marketing timing class action loses bid to have fund companies pay legal costs

The plaintiffs in the case initially lost their bid to certify a class action (Fischer v. IG Investment Management Ltd., 2010 ONSC 296 (CanLII), but this initial decision was reversed on appeal (Fischer v. IG Investment Management Ltd., [2010] O.J. No. 2036 (S.C.J.), and has since been upheld all the way to the Supreme Court of Canada (SCC). (See Top court dismisses fund companies’ appeal, investmentexecutive.com, Dec. 13, 2013.)

The plaintiffs in the case are alleging that the firms breached their fiduciary duties, or a duty of care to investors, when they permitted market timing to occur in mutual funds they manage. The original suit named five companies but three of them have since settled. The allegations have not been proven.

Now that the certification motion has gone in their favour, investors are seeking costs from the fund companies.

When the investors lost their initial certification motion, the five fund companies then named in the suit sought $1.25 million in costs from the investors; which the court declined to order, saying that it was not appropriate to order costs in cases where novel issues have to be decided.

“I agreed with the plaintiffs’ argument that the certification motion raised novel issues about the preferable procedure criterion and that in these circumstances each side should bear their own costs,” wrote Judge Paul Perell in the initial case.

With the initial decision on certification reversed, and the plaintiffs claiming costs, Perell reiterated his thoughts about costs, “I repeat what I said about novelty as a reason not to award costs in my initial costs decision.”

With the investors claiming costs, the two fund companies argued that no costs should be awarded as the issue to be decided was a novel one, and the plaintiffs took the opposite position.

“In the ever present ironies of class actions, CI Mutual Funds and AIC now adopt the argument that they opposed the first time around this costs merry-go-round and the plaintiffs now disavow the novelty principle as they reach for the brass ring of a costs award,” Perell explained.

Perell said that the argument that the certification motion raised novel issues is a strong one from the fund companies’ point of view, “given the novelty of the preferable procedure point that both the Court of Appeal and the Supreme Court of Canada thought important enough to grant leave, it was reasonable for CI Mutual Funds and AIC to resist certification and to have a reasonable expectation that costs would not be awarded against them because of the novelty of the point they were advancing.”

“And, apart from the defendants selfish motivations to avoid certification, the preferable procedure point was significant from a public policy point of view,” Perell explained; pointing out that the plaintiffs in the case have already received some restitution from the fund companies through settlements negotiated by the Ontario Securities Commission (OSC).

“The initial certification motion case raised the policy issue of whether through the Class Proceedings Act and tort law, courts could or should share with the Ontario Securities Commission a public law jurisdiction over the regulation of the marketplace of investment instruments when there were allegations of market timing,” Perell wrote.

Given the “novelty of the facts and the uncertainty of the law”, the Perell explained that it was reasonable for both the plaintiffs and the defendants to want “their day in court to debate the preferable procedure criterion.”

As a result, the court ordered that each side should bear their own costs.