B.C. Supreme Court refuses certification of proposed securities class action because individual issues predominate
In 0116064 B.C. Ltd. v. Alio Gold Inc., 2021 BCSC 540, the B.C. Supreme Court refused to certify a proposed securities misrepresentation class action for several reasons, including because of the predominance of individual issues.
Individual issues arise often in proposed class actions alleging common law misrepresentation because of the need to prove that each class member relied on the alleged misrepresentation. Some recent cases have nevertheless certified a few common issues related to misrepresentation (e.g., common issues asking whether the alleged misrepresentation was false). Critically, the plaintiff in this case did not advance a misrepresentation claim under the Securities Act, which deems investors to have relied on certain misrepresentations when entering certain transactions.
Alio Gold is an instructive example of when certification is inappropriate in a common law misrepresentation case because of the predominance of individual issues related to reliance and causation. It is a particularly helpful example in BC, because in BC (unlike Ontario) the predominance of individual issues is not a barrier to certification. Nevertheless, BC courts can refuse certification on the basis that a class action is not the “preferable procedure” if individual issues overwhelm any common issues.
The plaintiff owned shares of Rye Patch Gold Corp. The defendant, Alio Gold Inc., bought all of Rye Patch’s shares under a plan of arrangement approved by Rye Patch’s shareholders. Alio acquired Rye Patch’s shares and Rye Patch shareholders received Alio shares. The plaintiff alleged that Alio had misrepresented its assets—and thus increased its share price—in a series of documents published before the arrangement was approved. The plaintiff alleged that it would have received more Alio shares but for the alleged misrepresentations.
The court concluded that the action could not be certified because there was no reasonable cause of action. Only Rye Patch—not its shareholders—could sue for the alleged misrepresentation. And the plaintiff’s insider trading claim was filed after the limitation period expired. The court applied the rule in Foss v. Harbottle: individual shareholders have no claims for wrongs done to the corporation; an action must be brought by the corporation itself or by way of a derivative action.
Even though the court could have dismissed the case on that basis alone, the court went on to consider, in significant detail, whether a class action would have been the preferable procedure. The court concluded that a class action was not preferable for several reasons, including the following:
- Individual issues would predominate: The alleged misrepresentations were made in three different documents on three different dates and did not resemble each other. The court concluded that certification “would result in the Defendant needing to ask each class member which document(s) they read, and which statement(s) they relied upon in deciding to vote in favour of the plan of arrangement” (para. 63). That process does not support judicial economy and made certification unsuitable.
- There was no methodology for causation: The plaintiff’s expert merely assumed that if the Rye Patch shareholders had known of the alleged misrepresentations, they would still have voted in favour of the plan of arrangement, but on much more favourable terms. The plaintiff did not offer a methodology to determine whether Alio Gold or Rye Patch would have agreed to the arrangement agreement or whether Alio’s shareholders would have approved it. Therefore, there was no evidence of a workable methodology to determine damages (on the plaintiff’s theory, the increased compensation it would have received).