Citation: Scott et al v. TD Waterhouse Investor Services

Date:

20010917

2001 BCSC 1299

Docket:

S002736

Registry: Vancouver

IN THE SUPREME COURT OF BRITISH COLUMBIA

BETWEEN:

MARK S.C. SCOTT AND CHRIS A. BALLINGALL

PLAINTIFFS

AND:

TD WATERHOUSE INVESTOR SERVICES
(CANADA) INC. AND TD SECURITIES INC.

DEFENDANTS


Brought pursuant to the Class Proceedings Act, R.S.B.C. 1996, c.50

 

REASONS FOR JUDGMENT
OF THE
HONOURABLE MADAM JUSTICE MARTINSON

 

Counsel for the Plaintiffs

W.K. Branch and J. Groia

Counsel for the Defendants

D.G. Cowper, Q.C. and
A.D. Borrell

Date and Place of Hearing/Trial:

May 22, 23, 24 & 25, 2001

Vancouver, B.C.

INTRODUCTION

[1] Does the way the defendants, TD Waterhouse and its predecessor TD Securities, set the foreign exchange rate on their clients' securities transactions amount to a scheme to obtain millions of dollars of undisclosed profit, as suggested by the plaintiffs in this action? Or, as the defendants argue, is the method employed a transparent and universally used industry procedure that allows them to manage the risk created by the need for conversion and to cover the costs of doing so?

[2] The answer is at the core of this application by the plaintiffs to have their claims against the defendants for breach of contract, negligence and unjust enrichment certified as a class proceeding.

Overview

[3] The plaintiffs, Mark Scott and Chris Ballingall, say that the defendants, TD Waterhouse Investor Services (Canada) Inc. ("TD Waterhouse") and TD Securities Inc. ("TD Securities") made an undisclosed profit when setting the foreign exchange rate on four trades made by them through the Jakarta stock exchange in December 1999. They say the defendants not only profited at their expense, but profited and continue to profit at the expense of a class of clients of which they are a part. The proposed class is:

All clients of the defendants resident in British Columbia who conducted securities trades through the defendants from May 16, 1994 that included a foreign exchange transaction.

[4] The evidence showed that the proposed class covers between 19,533 and 29,331 individual accounts and between 119,110 and 178,665 individual transactions.

[5] Mr. Scott and Ms. Ballingall were not comforted by the fact that TD Waterhouse now claims to have discovered that it made substantial errors on three of the four trades in issue, and offered to settle the claims for $35,000. It did not make these concessions until after the court action seeking certification was started. The plaintiffs rejected the settlement proposal and continued to pursue the class proceedings certification application.

[6] It is not in dispute that the proposed class members entered into a broker/client agreement with the defendants whereby the defendants would process securities trades for the class members for a stated commission. The defendants are discount brokers who do not provide trading advice. Nor is it in dispute that the account documentation relating to the proposed class members does not say how the foreign exchange rate should be set. Rather, the only reference to the rate is the provision that the rate will be set as at the date of trading, unless otherwise agreed.

[7] It is also agreed that the defendants unilaterally set the foreign exchange rate and advise the client of the rate used in the next account statement. For all Canada-US trades the defendants set the rates themselves. However, with respect to Canada/US - Other trades, like the plaintiffs' trades, the defendants do not set their own rates, but instead use rates set by their affiliate. The vast majority of trades made by the proposed class are Canada-US trades. The defendants agree that in setting the rates, a point spread is added to the interbank spot market bid - ask spread.

Summary of the Certification Arguments

[8] Deciding whether a proceeding should be certified under the Class Proceedings Act, R.S.B.C. 1996, c. 50, (the "Act") as a class proceeding involves a five-step analysis. If the requirements of each step are met, the court must certify the proceeding as a class proceeding: s. 4 of the Act.

Step One - Cause of Action Disclosed

The court must examine the pleadings (the written statement of claim and defence) in the action commenced by the plaintiffs (the originating proceeding) to see if a cause of action is disclosed.

Step Two - Identifiable Class

The court must determine whether the plaintiffs in the originating proceeding form part of an identifiable class of two or more persons. This determination is made by comparing the plaintiffs and their claims with the proposed class and their potential claims.

Step Three - Common Issues

The court must examine the claims of the class members to see if they raise common issues. To do so the court will examine the issues raised in the pleadings in the originating proceeding to the issues raised by the class as a whole.

Step Four - Preferable Procedure

The court must decide whether a class proceeding is the preferable proceeding to resolve the common issues, taking into account a number of factors.

Step Five - Representative Plaintiff

The Court must determine whether there is a representative plaintiff with a workable case management plan for the class proceeding.

[9] The plaintiffs in this case say the pleadings do disclose causes of action, there is an identifiable class because of the broker/client relationship, and there are common issues created as a result of a standard form contract. They say that a class proceeding is the only viable procedure because the claims of individual class members are in the range of $40 to $500 and would not be worth pursuing on an individual basis. Yet the rate set can be more than the commission charged and the total profit could be in the millions of dollars. Class members would not know about the problem in the absence of notice to the class members required in a class proceeding. A goal of class proceedings legislation is behaviour modification. The defendants' behaviour is in need of modification because they take the view that they can set whatever rates they want with impunity.

[10] The defendants say that the pleadings do not disclose all of the causes of action alleged at the certification hearing. There is not an identifiable class, but rather two classes, one relating to exotic trades, like the plaintiffs, and another relating to North American trades, that constitute the vast majority of the proposed class. They argue that there are no common issues because of the individual nature of the inquiries that must be undertaken with respect to any proposed legal claim.

[11] They also argue that a class proceeding is not the preferable procedure. Rather, class proceeding would become a "monster of complexity" and not meet the class proceedings' goals of efficiency and access to the courts. That is because of the individual nature and complexity of the inquiries needed and the very large size of the proposed class. In a cost benefit analysis, the cost of a class proceeding would far outweigh any benefits, particularly in view of the small amount of money involved in the case of individual class members. In addition, the plaintiffs are the only people in Canada who have complained about the setting of the rates, so there are not multiple claims to be managed.

Decision

[12] I have concluded that the plaintiffs' originating proceeding must be certified as a class proceeding. I will give my reasons for reaching that conclusion under these headings:

A. The Originating Proceeding - The Issues

B. The Method Used to Set the Foreign Exchange Rate

C. The Certification Process

Step One - Cause of Action Disclosed

Step Two - Identifiable Class

Step Three - Common Issues

Step Four - Preferable Procedure

Step Five - Representative Plaintiff

[13] When considering the steps in the certification process, I will review the legal principles that apply, discuss the arguments raised by the defendants in further detail, and then explain why I have decided that each requirement has been met.

A. THE ORIGINATING PROCEEDING - THE ISSUES

Plaintiffs' Position

[14] Mr. Scott and Ms. Ballingall carried out a series of securities transactions with the defendant TD Waterhouse in December 1999. The transactions involved the sale of shares of an Indonesian company, T.T. Medco, on the Jakarta Stock Exchange, and the conversion of Indonesian Rupiah to US dollars.

[15] When TD Waterhouse advised them of the foreign exchange conversion rates used on the trades in their next account statement, Mr. Scott noticed that the rates charged by TD Waterhouse were higher than the Reuter's rate for the time period in question. The Reuter's rate tracks currency exchanges between financial institutions for a given currency.

[16] Mr. Scott, an experienced investment banker, made further inquiries and claims to have discovered a scheme whereby TD Waterhouse and TD Securities both made substantial undisclosed profits on the foreign exchange component of all of their trades. This profit at times was more than the commission charged.

[17] Mr. Scott and Ms. Ballingall therefore started this court proceeding, claiming damages for breach of contract, negligence and unjust enrichment. They say that while the standard form contract between them and the defendants does not specifically say how the foreign exchange rates should be set, the contract creates a broker/client, agent/principal relationship: Reed v. McDermid St. Lawrence Ltd. (1990), 52 B.C.L.R. (2d) 265 (C.A.); Varcoe v. Sterling (1992), 7 O.R. (3d) 204 (Gen. Div.), appeal and cross-appeal dismissed, 10 O.R. (3d) 574n (C.A.), leave to appeal to S.C.C. refused with costs on a solicitor-client basis [1992] 3 S.C.R. viii.

[18] Once the relationship of principal and agent exists, a complex set of duties attach to the agent. Underlying these duties is the requirement that the agent must not let its own personal interest conflict with the obligations it owes to its principal: G.H.L. Fridman, The Law of Agency, 7th ed. (Toronto: Butterworths, 1996) at 174. These duties apply to all three claims. The regulatory environment governing brokers and the custom and practice of the industry assist in determining the nature of the duties owed.

[19] The plaintiffs say that as their broker and agent the defendants are not entitled to make a profit over and above the commission earned, either themselves, or through an affiliate, unless the defendants prove two things. First, they must prove that there has been full and meaningful disclosure not only of the exchange rate used, but of the method used to set the rate, and the nature and extent of any profit. Second, the defendants must prove that the plaintiffs consented to the profit. See R. v. Kelly [1992] 2 S.C.R. 170; Reed v. McDermid St. Lawrence Ltd, above; R. v. Toy (1994), 70 O.A.C. 127; R.H. Deacon & Co. Ltd. v. Varga [1972] 1 O.R. 233 (C.A.), aff'd [1975] 1 S.C.R.; Scherer v. Zacks [1952] 4 D.L.R. 503 (Ont. H.C.); Johnson v. Birkett (1910), 21 O.L.R. 319 (H.C.J.); Anangel v. IHI [1990] 1 Lloyd's L.R. 167 (Q.B.(Com-Ct.)).

[20] Even if the defendants acted as principals, not agents, as the defendants suggest, they did not disclose that fact. Therefore, they were acting as undisclosed principals and meaningful disclosure and informed consent are still required before they are entitled to profit.

[21] The plaintiffs say that if the defendants are entitled to a profit, then, and only then, does the question of the reasonableness of the rates arise.

[22] Mr. Scott and Ms. Ballingall say there was a profit and that there was no meaningful disclosure and no informed consent. They say that they tried to obtain information about the setting of the rates before they started court proceedings but received no meaningful response. They were not told that spreads were being added. They were not told of the involvement of an affiliate. The rates used were not reasonable and not the best rates available. The defendants conduct their necessary foreign currency trading exclusively through their affiliate TD Bank. Yet, the defendants do not conduct any surveys to ensure that TD Bank's rates are competitive. Nor do they negotiate for rates with TD Bank on behalf of the client unless directed to do so by the client.

Defendants' Position

[23] The defendants take an entirely different view of the matter. They say that when setting foreign exchange rates they met and continue to meet all their legal obligations in a transparent way.

[24] The defendants argue that there is a valid reason why the written account documentation does not stipulate a formula or method by which the rate is established. The reason is that they follow the universal practice of purchasing and selling currencies on stated conversion rates, rather than by reference to some other "market" rate with a charge or commission in favour of the converter added on.

[25] The defendants say that any disclosure requirements they may have are met because the rate is disclosed to the client in the account statement. As noted above, they agree that they, or their affiliate, do add a point spread to both the bid and ask price on the interbank spot market rate (explained below under the heading "The Method Used To Set Foreign Exchange Rates"). The reason they do so is that there is a monetary risk to them created because there is a difference between the trade and settlement dates. The spread permits them to manage that risk and cover the cost of doing so.

[26] They explain the risk involved this way. The account agreements say that foreign currency conversion will take place at the trade date unless otherwise agreed. When selling a foreign security the proceeds of the sale are denominated in a foreign currency, and when purchasing a security, the purchase price must be delivered in a foreign currency. Yet TD Waterhouse must make the debits or credits relating to such trades in the currency of the account.

[27] In either case there is a currency risk between the date when the trade takes place and the date when the trade actually settles. The settlement period for trades can as much as thirty business days. This can leave a client exposed to fluctuations in the relative value of the currencies between the trade date and the settlement date when the currency must either be delivered or received. Currencies can move quite significantly in periods of minutes or hours and can move dramatically over days or weeks.

[28] The requirement that currency be converted on the trade date unless otherwise agreed establishes a default rule that permits both TD Waterhouse and its clients to determine with certainty, as of the trade date, what the conversion rate will be and what the net funds to be credited to or deducted from the account are. This, they argue, eliminates the risk to the client that the currency will move against the client in the intervening time period between trade date and settlement date.

[29] The spread that is added is therefore not profit, though it provides the opportunity for profit. In any case, the plaintiffs' trades that were over $60,000 US did not result in any revenue to the defendants.

[30] The defendants submit that their contract with the plaintiffs allowed them to act as principal or agent. They chose to act as principal. As principal, their only obligation is to set reasonable rates. There is no duty of selflessness. The rates they used were reasonable.

[31] The defendants suggest that in assessing reasonableness the court must consider that the Rupiah is an exotic, highly volatile currency. These trades, like the others the plaintiffs engaged in, are rare. The defendants presented extensive evidence explaining how the nature of the currency and the volatility of the market affects the rates that are set. They also presented extensive evidence which they say shows that the nature of the wholesale foreign exchange market must be examined as it cannot be compared with retail rates like those provided by Reuters or similar services.

[32] TD Waterhouse and TD Securities argue that even if the defendants are required to make the kind of disclosure claimed, disclosure cannot be separated from knowledge. There can be no liability if the plaintiffs knew or ought to have known of the opportunity to profit: Orangeville Raceway Ltd. v. Wood Gundy Inc. (1995), 6 B.C.L.R. (3d) 391, (C.A.); Hippisley v. Knee Brothers [1905] 1 K.B. 1.

[33] The defendants point out that Mr. Scott is an experienced investment banker. He traded securities using the defendants' services many times before the trades in issue took place, was advised then of the rates used, and had access to quote services. He knew that there was the opportunity for profit. The officious bystander would see that inevitably there was an opportunity to profit and cover the risk. Mr. Scott, and through him Ms. Ballingall, therefore knew or ought to have known the process used by the defendants to set the rates.

[34] On the question of affiliate liability, the defendants submit that there is no basis in law for finding the defendants liable for any profits made by their affiliates. This will be discussed below under the heading "Cause of Action Disclosed."

B. THE METHOD USED TO SET FOREIGN EXCHANGE RATES

[35] The defendants presented extensive evidence regarding the process they say they use to set the rates. This is a summary of the process used now, and does not purport to contain all the complexities of that process.

[36] In setting foreign exchange rates on transactions involving foreign currency, TD Waterhouse uses the services and assistance of a group now called DirecTrade. DirecTrade is the division of TD Bank that facilitates the TD Bank Financial Group's foreign exchange dealings. It produces a bulletin each day that lists the current exchange rates that are used for the retail foreign currency conversions carried out by most entities in the TD Bank Financial Group, including its retail banks. It sets rates, called bulletin rates, for trades below a certain US dollar value (in this case $60,000 US).

[37] A brief overview of the wholesale foreign exchange market is helpful in understanding the process used to set the rates. The evidence presented by the defendants shows that the wholesale foreign exchange market is, with some exceptions, not a formally established market. It is a largely self-regulated, over-the-counter market. The business is transacted either directly between principals such as large international banks, who transact with each other directly, or through an electronic broking system or voice-broking system. The market in any currency exists only to the extent that there are willing buyers and sellers who have agreed on a price for exchanging currencies.

[38] The wholesale foreign exchange market for a currency depends on the presence of large international banks that function as primary market-makers. A market-maker is a professional trader employed by a bank, who continuously quotes two-way dealing prices to other market-makers. A two-way dealing price is the bid price and the offer (ask) price at which a market-maker will quote and transact with an enquiring bank. There is always a spread between the bid and ask prices. The spread is the difference between the rate at which someone will buy currency X in units of currency Y and the rate they will sell currency X in units of currency Y.

[39] When a two-way dealing price is quoted to an enquiring bank, the market-maker is willing to either purchase units of the quoted currency at the bid price, or sell units of the quoted currency at the ask price, without first knowing the side of the market the enquiring bank wishes to transact. A common amount that is traded in the spot foreign exchange market between primary market-makers would be for the currency equivalent of $10 million US. Banks normally cumulate their transactions in individual currencies until they have a sufficient amount to trade.

[40] When entering into a transaction, a "value date" is established which is the day that both parties agree to pay/receive the currencies contracted in the transaction. For some currencies, where the interbank participants are on similar time-zones, like Canada and the United States, the "spot" market is quoted for settlement the next business day. It can be different for other currencies.

[41] DirecTrade, when producing the bulletin for TD Bank, reviews each morning the interbank currency markets for each currency for which it sets bulletin rates to determine the spot market bid and ask prices for that currency. Once the spot market prices have been determined, DirecTrade establishes a "settle rate" and a "customer rate" by adding a spread on both the spot market bid and ask. The settle rate is the rate at which DirecTrade provides currency to TD Waterhouse and the customer rate is the suggested retail conversion rate for transactions with retail customers. The spread that is added varies from currency to currency.

[42] Exchange rates in the interbank market are not static but change throughout the day. As a result, the bulletin rates set by the DirecTrade bulletin may be reset during the day in response to market volatility, particularly on those currencies where there is a large volume and smaller spreads. Extremely volatile days can see rates reset frequently.

[43] There are a number of different ways rates can be set by or through TD Waterhouse. The method used depends on the size of the security transaction and the type of foreign currency that is involved. There are many different combinations and permutations. However, there are four broad categories:

1. Canada-US trades below the bulletin rate;

2. Canada-US trades above the bulletin rate;

3. Canada/US - Other trades below the bulletin rate;

4. Canada/US - Other trades above the bulletin rate.

[44] The vast majority of all trades are Canada-US trades and the vast majority of all trades happen within the bulletin rate.

[45] On all currency conversions other than the Canada-US dollar conversions, TD Waterhouse adopts the DirecTrade bulletin customer rate for its own bulletin rates for trades under $60,000 US. It has DirecTrade book a rate for trades over $60,000 US. However with respect to all its Canada-US dollar conversions, TD Waterhouse sets its own rates.

[46] For Canada-US trades under $60,000 US TD Waterhouse adds 90 basis points to the spot market spread. For trades from $60,000 US to $100,000 US, it adds 30 points and DirecTrade adds 25 points. For trades over $100,000 US, TD Waterhouse adds 30 points and DirecTrade adds 10 points.

[47] It is possible to negotiate a different exchange rate, (except with respect to internet trades, which are only possible on Canada-US trades). If there is no negotiation, the default rule is the bulletin rate. Clients are not routinely told of the possibility of negotiating the rates.

[48] With respect to trades below the bulletin rate, the default rule is the bulletin rate. The evidence indicated that in a large number of trades there is no negotiation. If there is, the defendants only occasionally reduce the bulletin rates.

[49] With respect to Canada-US trades over the bulletin rate, the default rule is the normal mark up. With respect to Canada/US - Other trades over $60,000 US, the default rule is to take the DirecTrade rate. The evidence indicated that this almost always happens.

[50] It is possible to bulk (combine) trades to reach the $60,000 US limit. In some RRSP accounts the rate on one account may be washed against the rate on another trade. Washing rates is the process of applying the same conversion rate to a buy and a sell transaction happening on the same day so that either no spread is incurred or spread is incurred only on the net difference between the buy and sell transactions.

C. THE CERTIFICATION PROCESS

STEP ONE - CAUSE OF ACTION DISCLOSED

Legal Principles

[51] The test under s. 4(1)(a) of the Act is to determine whether a cause of action exists. It is similar to the test applied in an application to dismiss a claim on the grounds that it fails to disclose a cause of action, found in Rule 19(24) of the Supreme Court Rules (the "Rules"). That is, it must be plain and obvious that there is no such cause of action.

[52] The only difference between the two tests is that the onus to show a cause of action falls upon the party bringing the class action, rather than on the party challenging the proceeding. The court will presume the facts alleged in the pleadings are true, and will determine whether it is plain and obvious that no claim exists. This is not a preliminary merits test. The threshold to prove the existence of a cause of action is very low. The court should err on the side of protecting people who have a right of access to the courts: Elms v. Laurentian Bank of Canada 2001 BCCA 429.

Defendants' Position

[53] The defendants say that many of the arguments raised at the certification hearing are not pleaded in the statement of claim.

[54] For example, the plaintiffs argued at the certification hearing that the defendants acted as agents in all transactions and that in all transactions the defendants have a duty not to profit. The defendants say this was not pleaded. Similarly, the plaintiffs argued at the certification hearing that if the defendants are acting as principal, they are undisclosed principals and there is therefore the same duty not to profit. The defendants say this was not pleaded.

[55] The defendants also argue that there is no legal basis upon which a principal can be required not to make a profit, and the only possible claim is that the rates are not reasonable. Therefore, even amended pleadings would not disclose a cause of action that meets the Rule 19(24) test.

[56] Finally, the defendants say that there is no cause of action that meets the Rule 19(24) test on the question of affiliate liability. That is, there is no legal basis upon which TD Bank or any other affiliate could be found liable for any profit that TD Bank (or its predecessor) may make.

Conclusion

[57] It is not plain and obvious that in the particular circumstances of this case the court could not find a duty not to profit. A generous reading of the Amended Statement of Claim could result in the conclusion that it does allege that the defendants or their affiliates are not entitled to profit when they act as agent or undisclosed principal. However, these allegations should be pleaded more clearly.

[58] With respect to affiliate liability, the plaintiffs allege that it is a term of the standard form contract that an affiliate of the defendants is not entitled to make a profit. In any case they, in the alternative, advance a claim of sub-agency. It is not plain and obvious that there is no such cause of action. However, the pleadings should be amended to specifically plead sub-agency.

[59] The plaintiffs have until October 17, 2001 to amend the pleadings accordingly and the defendants have until October 31, 2001 to file an Amended Reply.

STEP TWO - IDENTIFIABLE CLASS

Legal Principles

[60] It will be recalled that there must be an identifiable class of two or more persons: s. 4(1)(b) Act. The court must determine whether the plaintiffs form part of an identifiable class. It does so by comparing the plaintiffs and their originating claims with the proposed class and their potential claims.

Defendants' Position - Identifiable Class

[61] The defendants argue that there is not an identifiable class. Instead, there are two classes.

[62] The first class includes the plaintiffs and their trades, trades that the defendants call exotic trades. The currency is volatile and thinly traded, and these types of transactions comprise only a very small percentage of the trades carried out by the defendants. The trades relate to the idiosyncratic experiences of a sophisticated market participant in circumstances where TD Waterhouse and DirecTrade made an unusual and substantial error in calculating the foreign exchange rate. The second class includes the Canada-US trades. These trades constitute the vast majority of the trades carried out by the defendants.

[63] The defendants point to other differences between the two classes. They set the foreign exchange rates for Canada-US trades, but do not set the rates for exotic trades. The defendants point to the extensive evidence they presented to show that the way clients participate in the process is different.

[64] The defendants argue that the plaintiffs treat every currency conversion over the past six years as raising issues identical to those at issue involving their Indonesian securities. In doing so they do not acknowledge that as to the 99% of the currency conversions at issue involving Canada-US conversions, each client could have arranged for the conversion before the trade (a fact that the plaintiffs dispute). The defendants say that with respect to each Canada-US currency conversion the client can elect to have a US account (as did the plaintiffs) rather than converting the currency through the defendants. Even for RRSP accounts, which must be denominated in Canadian currency, in most cases a client could carry out a wash trade and thus avoid any currency conversion for US holdings.

[65] The defendants say the result is that in over 99% of the transactions by dollar volume, the conversion is not imposed arbitrarily on the clients. Rather, it flows from the client's election not to carry out the transaction in a US dollar account or to otherwise arrange for the deposit of US currency to meet his or her obligations. Therefore, they argue, the conversion is required not only by reasons of a securities transaction, but also the client's voluntary choice to use the defendants' conversion rates rather than to carry out the conversion on their own.

[66] The defendants further say that the facts demonstrate that the rates offered by them with respect to Canada-US conversions are, in contrast to highly volatile and thinly traded currencies, extremely close to the rates available from any other commercial or financial enterprise offering to purchase or sell US dollars. For this reason, clients will only rarely choose to carry out their own conversions. However, the fact that this difference exists supports that argument that there is not one class, but rather two classes of clients in issue.

[67] The defendants suggest that this "yawning gulf" that separates currencies such as the Indonesian Rupiah and the US dollar is demonstrated on the facts of this case. The volatility of approximately 30% within just one of the days on which a transaction was carried out in Indonesian Rupiah by the plaintiffs was greater than the volatility experienced by the Canadian dollar over many years. In such circumstances the rates offered by any financial institution will be less favourable to a customer because of the absence of an established market, the thinly traded market in the currency, and the volatility hour-to-hour as well as day-to-day.

[68] The defendants point to other differences between the plaintiffs and the proposed class. Ontario law likely applies to the plaintiffs' claims because the written account documentation provides that the applicable law is that of the province through which the application is submitted, in their case Ontario. In contrast, British Columbia law will apply to the bulk of the class. Given the differences between the statutory regimes under the British Columbia and Ontario Securities Acts, a determination of the obligations of fair dealing and disclosure in relation to Mr. Scott and Ms. Ballingall does not apply to the bulk of the class.

[69] Finally, the defendants say that the contractual documents that apply to persons who open their accounts outside Canada may also include a form of Introducing Brokers Agreement. That was the case with Mr. Scott. That document says that the "usual or customary terms of business and the practices, rules and regulations of the TD Member and of the market or exchange on which the transaction is effected will apply." This, they say, introduces a significant variation between the assessment of the contractual obligations which prevail between the plaintiffs and the defendants, and that same assessment in relation to the balance of the class, with respect to a matter that goes to the heart of the determinations to be made.

Conclusion - Identifiable Class

[70] In this case there is an identifiable class of two or more persons.

[71] It is true that there are some differences between the plaintiffs' and their claims and the proposed class and their potential claims, as suggested by the defendants. However, there are factors that identify them as a class: they all entered into a basic standard form agreement ("basic agreement") that created a broker/client relationship; the agreement does not say how foreign currency exchange rates are to be set; the exchange rate is unilaterally set by TD Waterhouse and TD Securities, or their affiliates; in setting the exchange rate spreads are added to the spot market spread that can lead to a profit; they are all notified of the rate used in writing in the account statement for the trade; there is no other formal means of disclosure of how the rate is set, whether there is a profit or what that profit is; and the dealings between the defendants and each class member raise questions with respect to unauthorized profits and unreasonable rates.

[72] It may be that the impact of the Introducing Brokers Agreement upon the obligations created by the basic agreement will have to be determined separately. As well, there are some similarities and some differences in the securities laws of Ontario and British Columbia. The provisions in those laws that are different may have to be analysed separately. Other differences may require separate analysis.

[73] It does not, however, follow that because there are differences, there cannot be an identifiable class. The issues that are different can be dealt with as the litigation proceeds, either by way of a sub-class or on an individual basis.

STEP THREE - COMMON ISSUES

Legal Principles

[74] The claims of class members must raise common issues, whether or not those common issues predominate over issues affecting only individual members: s. 4(1) of the Act. "Common issues" means common but not necessarily identical issues of fact, or common but not necessarily identical issues of law that arise from common but not necessarily identical facts: s. 1 of the Act.

[75] It will be recalled that in determining whether there are common issues, the court will examine the issues raised in the pleadings in the originating proceeding to those raised by the class as a whole. The British Columbia Court of Appeal has recently discussed the law as it applies to common issues in Harrington v. Dow Corning Corp. (2000), 82 B.C.L.R. (3d) 1, and Elms v. Laurentian Bank of Canada, noted above.

[76] A common issue of fact or law need not be one that determines liability, but rather one that moves the litigation forward in a legally material way. An issue, in this context, means a point in question - a point affirmed by the plaintiff and denied by the defendant. If the point of fact or law is necessary to the successful prosecution of the cause of action (the claim) or to its defence, then its resolution will inevitably move the litigation forward.

[77] The answer to the question must be capable of extrapolation to the class or sub-class. The role of the court at this stage is not to weigh the ultimate merits of the proposed common issues, but to determine whether there are triable issues.

[78] The question of whether a common issue exists should not be confused with the question of the significance of that common issue to the cause of action as a whole, a matter to be considered in the preferable procedure analysis.

[79] Finally, a common issues trial cannot be avoided because the defendants admit certain facts or issues. Class members do not become parties to the litigation until after certification. Therefore, a public statement admitting issues at a certification hearing or in the originating proceeding cannot be a legal admission. It is a bare promise to admit: Bywater v. Toronto Transit Commission (1998), 27 C.P.C. (4th) 172, (Ont. Gen. Div.).

The Proposed Common Issues

[80] The plaintiffs say that there are issues raised in the pleadings in the originating proceeding that are common to the class. There is a standard form contract with a gap as to how rates are to be fixed. That contract applies to all class members. The court must fill in the gaps. They say the purpose of the law suit is to establish for all class members what restrictions exist, within the context of the contractual relationship between the parties, the regulatory environment, the industry practice and the other circumstances set out in the statement of claim. They propose a series of issues relating to determining the express and implied terms of the contract, the nature of the regulatory duties and the actual industry practice that they say are common to all class members. They include a consideration of affiliate liability.

[81] The plaintiffs propose a number of common factual issues. Among them is an examination of the method used by the defendants to set rates. Another is the related issue of the meaning of the word profit.

Defendants' Position - Common Issues

[82] The defendants say there is no common issue that can be devised with respect to any of the causes of action because any legal analysis will lead to a determination of either reasonableness of the rates charged or knowledge of the class member as to the rate. Both of these determinations are necessarily trade specific, individual inquiries. The answer to any question posed cannot therefore bind the class as a whole, as the law requires.

[83] The defendants say that the proposed common issue relating to the methods used to set the rates is not material to and does not advance the causes of actions alleged. The answer does not assist in determining whether any of the alleged obligations were breached. There is nothing about knowing how rates are set generally that will tell the court whether any obligations of disclosure were breached or whether any specific rate was reasonable or otherwise in breach of whatever obligations may be found. It is not the setting of the rate that is said to be wrong, but rather the quantum of the rates, relative to reasonable rates, the best rates available or rates which do not yield a profit.

[84] With respect to the cause of action in contract, the defendants say that there is no standard contract. Rather, the contractual rights and obligations can only be determined by considering not only the written documentation, but also the oral dealings between the defendants and each class member and the past conduct of each class member. Generally the duties that a broker owes to a client depend on the particular dealings between the broker and the client.

[85] They say that even if the contractual rights and obligations could be determined on a common basis, the question of whether or not there has been a breach must be determined individually. No matter what the defendants' legal obligations are, there must be either a determination of the reasonableness of the rates or the knowledge of the class members.

[86] If the defendants acted as principal, as they say they did, the question will be the reasonableness of the rates. This is necessarily an individual inquiry. The extensive affidavit evidence presented at the certification hearing shows that this will be an extremely complex and time-consuming determination.

[87] If the plaintiffs are correct and the defendants acted either as an agent or an undisclosed principal, disclosure of any profit will be an issue. The law is clear that the class members would have to prove not only lack of disclosure, but lack of knowledge. As noted above in the defendants' arguments with respect to the plaintiffs' originating claim, they say that there can be no liability if the class member knew or ought to have known that the defendants' could profit. The extensive evidence presented at the certification hearing shows that there are numerous ways in which knowledge can be acquired. The question of knowledge is necessarily an individual inquiry and its determination will be complex and time-consuming.

[88] Even if the defendants are liable, the question of damages requires individual assessment.

[89] The defendants say that the same general analysis applies to the negligence claims. They agree that the common law imposes certain duties on brokers that, at a minimum, require the broker to carry out instructions and to be honest. There are regulatory duties as well. However, the real question is not whether there is a duty, but what the duty requires in the circumstances. This necessitates individual examination. The duties owed depend upon the dealings between the defendants and the individual class members. The court cannot, for example, try the duty of honesty alone. There is also no duty of care separate from knowledge.

[90] The defendants also repeat their argument made under the heading "Identifiable Class" that any duties owed are not common between the plaintiffs and other class members. That is because Ontario rules apply to the plaintiffs and British Columbia rules apply to the rest of the class.

[91] The defendants argue that the cause of action alleging unjust enrichment will also be a transaction specific inquiry.

[92] The defendants therefore say that this is not a quintessential class action. Rather, it is like the numerous misrepresentation cases where certification has been denied because the initial analysis requires a consideration of individual factors and proof is generally dependant on a multitude of circumstances specific to the individual class members.

Conclusion - Common Issues

[93] To successfully prosecute a cause of action in a civil law case, the plaintiff is generally required to prove the elements of the causes of action alleged on a balance of probabilities. In this case this is true for the claims of the class members for breach of contract, the negligence claims and the claims for unjust enrichment.

Contract

[94] In a claim for breach of contract the plaintiff must prove that there was a contract with express or implied terms creating the legal obligations at issue, that there was a breach of those contractual obligations and that damage to the plaintiff resulted.

Contractual Obligations

[95] The defendants do not dispute the fact that they acted as broker for each class member to process the class member's securities transactions for a fee. They do not deny that there was a basic agreement as described above in the "Identifiable Class" analysis. What the defendants do say is that the contractual obligations of their many thousands of clients are not common, but rather must be determined on a client-by-client basis.

[96] Even if that is so, the first step in determining their contractual obligations to each class member is to determine what rights and obligations flow from the basic agreement. Only then will it be necessary to determine whether those rights and obligations are modified in some way in individual instances.

[97] In their statement of defence the defendants themselves raise issues as to the interpretation of the basic agreement that apply to the class. They say a debtor/creditor relationship is created. They say that it is a term of the contract that the defendants can choose to act as principal or agent.

[98] They also plead that it is a term of the contract that they have the authority to do everything necessary for and incidental to carrying out their express authority according to the usual or customary way in which such authority is exercised. This, they say, includes the authority to convert the currency of the account to the currency required to settle the purchase of securities, or to convert currency received on settlement on the sale of securities to the currency of the account as may be. They also argue that the contract requires the client to check the rate set out in their account statement and report any problems with it, within 30 days.

[99] Therefore, the following common issues relating to contractual obligations arise:

[100] The answers to these common issues bind all class members and advance the litigation in a legally material way.

Breach

[101] Common issues also arise in the breach of contract analysis.

[102] In order to decide whether the defendants have profited, there must be an initial determination of how they generally set their rates. The court has the defendants' version of how they set their rates and why. However, the methods used and rational for them are not yet tested by the disclosure process, nor have they been tested against other evidence.

[103] If the court decides that the defendants are required to charge reasonable rates, or the best rates available, the court will have to make an initial determination as to whether the general methods used to set the rates are reasonable or to determine the best rates available. There is also a factual dispute as to what is meant by the term profit in the context of the setting of foreign exchange rates.

[104] If it is found that there are disclosure obligations, the court will have to determine who has the onus of proving that there was disclosure and informed consent. The court will also have to decide whether those obligations are met by the provision of the actual rate used for the client in the account statement.

[105] There is a dispute as to whether the plaintiffs have to prove knowledge that must be resolved. As the plaintiffs put it:

The defendants say that the legal focus for this case is on the knowledge of the plaintiffs: "Equity would never say you have to disclose that profit or disgorge it if the person knew about it". The plaintiffs say that the law is clear and to the contrary. The law clearly requires an obligation of disclosure by the agent and informed consent by the principal in relation to any conflict.

[106] All of these issues are common issues that bind the class, the resolution of which will move the litigation forward in a legally material way.

[107] Therefore, the following additional common issues arise.

  • Are the methods used to set the foreign exchange rates fair and reasonable?
  • When determining whether the defendants profited, how is profit defined?
  • If there are disclosure duties as alleged, who has the onus of proving that there was disclosure and informed consent?
  • Does providing the rate in the account statement meet the disclosure requirements?
  • What is the significance of knowledge to the analysis?

Negligence

[108] In a claim for negligence, the class members must prove that the defendants owed them a duty of care generally or by virtue of the regulatory obligations that apply to brokers. They must prove a breach of that duty and that damages result. The answers to the common questions posed in the contracts' analysis also apply to the claims in negligence.

Unjust Enrichment

[109] In an unjust enrichment claim, each class member must prove that there was an enrichment of the defendants, a corresponding deprivation and the absence of any juristic reason for the enrichment. The answers to the common questions posed in the contracts analysis apply to the claims of unjust enrichment as well.

Admissions

[110] The defendants have made certain admissions with respect to the way it sets rates and the duties it owes to its clients that would apply to all three causes of action. For the reasons stated above, those cannot be legal admissions dispensing with the need for proof of an issue that would otherwise be a common issue.

STEP FOUR - PREFERABLE PROCEDURE

Legal Principles

[111] The court must determine whether a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues: s. 4(1)(d) of the Act.

[112] In determining whether a class proceeding would be the preferable procedure the court must consider all relevant matters including the following: whether questions of fact or law common to the members of the class predominate over any questions affecting only individual members; whether a significant number of members of the class have a valid interest in individually controlling the prosecution of separate actions; whether the class proceeding would involve claims that are or have been the subject of any other proceedings; whether other means of resolving the claims are less practical or less efficient; and whether the administration of the class proceeding would create greater difficulties than those likely to be experienced if relief were sought by other means: s. 4(2) of the Act.

[113] The court must not refuse to certify a proceeding as a class proceeding merely because the relief claimed includes a claim for damages that would require individual assessment after determination of the common issues: s. 7 (a) of the Act.

[114] The policy goals of the Act are efficiency, access to the courts and modification of the behaviour of wrongdoers. A class proceeding must be fair to all the parties to the litigation. It is not enough that a common issue be capable of fair and efficient resolution by a class proceeding. A class proceeding must be the preferable procedure, having regard to all relevant criteria, including those found in s. 4(2) of the Act. The question of whether common issues predominate over individual issues is only one of the relevant factors. In determining the question of preferability a cost benefit analysis is required: Harrington v. Dow Corning Corp., noted above; Elms v. Oliver Drabak Carruthers and Chalcraft, noted above.

[115] There are a number of advantages to a class proceeding. The action is case managed by a single judge. The class is able to attract sophisticated lawyers through the aggregation of potential damages and the availability of contingency fee arrangements: s. 38. Class members are given the ability to apply to participate in the litigation if they wish to do so: s. 15. A formal notice program is created which will alert all interested persons to the status of the litigation: s. 19. In addition, the court is given a number of powers designed to protect the interests of the absent class members. Subsequent notices can be issued at any time: ss. 20-23.

[116] With respect to individual issues, a class proceeding allows the court to create simplified structures and procedures: s. 27. The court approves any settlement: s. 35. Class members are protected from adverse cost awards in relation to the common issues stage of the proceeding: s. 37. Whatever limitation period is found to be applicable to the claim is tolled for the entire class: s. 39. Through the operation of the statute any order or settlement will accrue to the benefit of the entire class without the necessity of resorting to principles of estoppel: s. 26.

[117] There are also dangers inherent in class proceedings. A class proceeding has the potential of becoming a "monster of complexity and cost" when individual issues overwhelm the common issues. This frustrates the goals of access to justice and efficiency: Tiemstra v. Insurance Corp. of British Columbia (1997), 38 B.C.L.R. (3d) 377 at 379 (C.A.). See also Collette v. Great Pacific Management Co. Ltd. et al. 2001 BCSC 237; Koo v. Canadian Airlines International Ltd. [2000] BCJ No. 239 (S.C.); and Bittner v. Louisiana-Pacific Corp. (1997), 43 B.C.L.R. (3d) 324 (S.C.).

[118] There are alternatives to a class proceeding aside from the pursuit of individual actions. One is a representative action, or test case. There are advantages to a representative action in terms of time and cost. However, the result of the representative action would not bind the defendants in the individual claims: Chace v. Crane Canada Inc. (1996), 26 B.C.L.R. (3d) 339 (S.C.). As a result each individual plaintiff would have to prove his or her own case in its entirely, including the calling of expert witnesses, unless the defendants agreed otherwise. Alternative dispute resolution methods, such as mediation or arbitration may also be available.

Defendants' Position - Preferable Procedure

[119] The defendants say that certification would not be a fair, efficient or manageable procedure. It would not promote the underlying goals of the Act.

[120] All questions of liability, causation and damages in relation to the proposed class members turn primarily on complex inquiries of an individual nature requiring a substantial number of individual trials. The individual issues overwhelm any alleged common issues to such an extent that the proceeding would be unduly complex, unmanageable and impossible to try fairly and efficiently.

[121] These concerns are particularly acute where the individual claims are likely to be quite small. The average trade value for approximately 97% of the transaction in issue is between $4000 and $6000. If the rate applied to a trade of $6000 incorporates a spread of 30, 90 or 150 points, the amount involved is $18, $54 and $90 respectively. The cost of the individual inquiries required to assess the claims in relation to each trade will, in most cases, substantially exceed the amount involved.

[122] The defendants therefore argue that questions of fact or law common to the members of the class definitely do not predominate over any issues affecting only individual members. Instead, the certification of these claims would be little more than case management of tens of thousands of fundamentally individual claims.

[123] The plaintiffs' claims are the only claims that have been filed in Canada. There have been no other complaints about currency conversion. It is not known whether this reflects a lack of a perceived problem or a restriction in the access to justice. What is known is that there is no flood of litigation that judicial efficiency might suggest requires management through the mechanism of one proceeding.

[124] Behaviour modification is a goal of class proceedings. However, the goal of behaviour modification is unlikely to be achieved where lengthy individual proceedings involving each class member, like the ones required in this case, have to be undertaken before there is a determination of liability on the part of the defendants.

[125] This case illustrates the dangers inherent in the class proceedings' process. These dangers include permitting parties to proceed with marginal or speculative claims, creating an intolerable burden on the courts and on private litigants, and permitting the commencement of unmanageable proceedings that are unlikely to provide effective relief to members of the proposed class.

[126] The law has always recognized that it cannot provide a remedy for every alleged wrong. Using a cost benefit analysis in this case, the adverse costs of a class proceeding would far outweigh any benefits.

[127] The defendants point out that individual plaintiffs lose control over their potential actions if a class proceeding is launched. Also, the scheme is an opt out, not an opt in scheme. They say that a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions because of the individual nature of the enquiries.

[128] The defendants argue that the administration of the class proceeding creates greater difficulties than those likely to be experienced if relief were sought by any other means. The size of the class is enormous. The court would be "tied up for years."

[129] They say that other means of resolving the claims are not less practical or less efficient. Rather, small claims procedures, a representative action or an internal arbitration, would be more practical and more efficient.

Conclusion - Preferable Procedure

[130] I conclude that a class proceeding is the preferable procedure.

[131] The common issues are at the heart of the litigation. The court must determine what rights and obligations arise as a result of the basic agreement. This case is distinguishable from those cases in which the court has found that proof of the case is generally dependent on a multitude of circumstances specific to the individual members. In those cases the individual inquiries were the inquiries that had to be made at the start to "get the litigation off the ground." That is not the case here.

[132] There will be individual inquiries needed once the common issues have been resolved. That does not, of itself, preclude certification. I conclude that certification will not create a monster of complexity. I do so for several reasons.

[133] First, in the circumstances of this case, the nature and extent of the individual issues cannot be determined until the common issues are decided. Only once the rights and obligations arising from the basic agreement are identified can the remaining issues be clearly defined.

[134] Second, sub-classes may be created as the litigation proceeds. That would reduce the need for individual inquiries.

[135] Third, the defendants argue that the individual participation of all class members is required to assess the nature of the legal obligations owed, determine whether there has been a breach, and determine what damages resulted. However, the actual evidence presented suggests that individual inquiries will be the exception, rather than the rule. It is also likely that questions of reasonableness of the rates will be based on expert evidence. That will reduce the number of witnesses called.

[136] Fourth, though the individual inquiries are complex in the sense that the class is large, the actual issues at stake are not unduly complicated.

[137] Fifth, the Act gives the court a great deal of flexibility to resolve individual issues in creative ways designed to ensure efficiency, while at the same time not derogating from or supplementing the substantive rights of the parties: Chadha v. Bayer Inc. (2001), 200 D.L.R. (4th) 309 at para. 66 (Ont. Sup. Ct., Div Ct.).

[138] In particular, s. 12 of the Act gives the court authority to make "any order it considers appropriate respecting the conduct of the class proceeding to ensure its fair and expeditious determination, and for that purpose to impose on one or more of the parties the terms it considers appropriate."

[139] Section 27 of the Act deals specifically with how individual issues should be determined. It gives the court authority to: determine those individual issues in further hearings presided over by the judge who determined the common issues or by another judge of the court; appoint one or more persons including, without limitation, one or more independent experts to conduct an inquiry into those individual issues under the Supreme Court Rules and report back to the courts; or, with the consent of the parties, direct that those individual issues be determined in any other manner.

[140] Section 27 also provides the court with authority to give any necessary directions relating to the procedures that must be followed in conducting those proceedings. In giving those directions, the court must choose the least expensive and most expeditious method of determining the individual issues that is consistent with justice to members of the class or subclass and the parties. In doing so the court may dispense with any procedural step that it considers unnecessary, and authorize any special procedural steps including steps relating to discovery, and admission of evidence and means of proof, that it considers appropriate.

[141] The Act also says that the Rules apply to class proceedings to the extent that those rules are not in conflict with the Act: s. 40. This gives the court additional powers to deal with individual issues. The object of the Rules is to secure the just, speedy and inexpensive determination of every proceeding on its merits: Rule 1(5). The Rules, for example, provide for evidence to be given at trial by affidavit: Rule 40(44). The Rules also provide for the delivery of expert reports so as to avoid the unnecessary attendance at court of expert witnesses: Rule 40A.

[142] There are other reasons that lead me to conclude that a class proceeding is the preferable proceeding. A prominent feature of this case is that the plaintiffs are the only people who have complained about the way rates are set. At this stage, neither access to justice nor judicial economy is at the forefront. Behaviour modification is the primary goal of this class proceeding. I must assume, for this purpose, that the allegations of wrongfully taking an undisclosed profit can be proven. It is in the public interest to ensure that the defendants are not permitted to fill in contractual gaps the way they see fit without judicial controls, and to be sure that they do not, and are not tempted to, take advantage of their position.

[143] A class member is unlikely to know about the conduct in issue because of the nature of that conduct. A class proceeding provides notice of the allegations to clients of the defendants. Individual class members can opt out once notified if they choose to do so.

[144] Similarly, the allegations are such that individual class members are unlikely to make their own claims. The dollar value of any loss is said to be from $50.00 to $400.00 to $500.00. Yet, because of the number of class members, the total loss could be millions of dollars: Chadha v. Bayer Inc., noted above.

[145] The practical reality is that absent certification, the issues may go unresolved because of the relatively insignificant quantum of any individual claim. That would be unfair and should be discouraged when the claims in the aggregate are substantial: Howard Estate v. British Columbia (1999), 66 B.C.L.R. (3d) 199 (S.C.).

[146] In addition, the legal arguments required and the factual basis underlying them are sophisticated. Experienced lawyers, as well as expert witnesses are needed. Individual class members would be unlikely to either want to, or be in a position to, retain these professionals. The class proceeding places the defendants and the class members on a more equal footing in that respect.

[147] A representative action would not assist, even if there were a number of small claims. There is no guarantee that the defendants would accept the results of the test case. In individual actions class members could be exposed to the payment of costs. That is generally not so in class proceedings. In addition, a series of individual claims could lead to inconsistent results on the common issues.

[148] While there appears to be internal arbitration procedures available, the defendants do not accept that there is any unfairness involved in their method of setting rates. In addition, I agree with the plaintiffs that it is not realistic to expect one client alone to challenge the scheme in the context of an arbitration proceeding. Legal costs would outweigh any potential gain. Any class member taking the claim to arbitration can be subject to an adverse cost award. That is not the case in a class proceeding. Because the size of any individual claim is likely to be relatively small, it is not likely that many class members would risk subjecting themselves to such a cost potential.

[149] Therefore, other means of resolving the claims are less practical and less efficient. The administration of the class proceeding would not create greater difficulties than those likely to be experienced if relief were sought by other means. In fact, the defendants do not propose a realistic and more preferable procedure. They are really arguing that, on a cost benefit analysis, these claims are not worth litigating. I disagree.

[150] There is nothing beyond a mere assertion to suggest that any class member has a sufficient ability or interest in controlling the prosecution of separate actions. Based on the material before the court, there is no obvious reason why they would. There is also no evidence to suggest that the class proceedings involve claims that are, or have been, the subject of other proceedings.

[151] In coming to the conclusion that a class proceeding is the preferable procedure, I have kept in mind that the Act allows the court to amend the certification order, decertify the proceeding or make any other order it considers appropriate if it appears to the court that the requirements for certification are not satisfied: s. 10 of the Act.

STEP FIVE - REPRESENTATIVE PLAINTIFF

Legal Principles

[152] The final requirement for certification is that there must be a representative plaintiff who: (i) would fairly and adequately represent the interests of the class; (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues, an interest that is in conflict with the interests of the other class members: s. 4(1)(e) of the Act.

[153] The essential nature of the litigation process does not change because a proceeding is certified as a class proceeding and a case management judge is appointed. The parties to the law suit must conduct any necessary investigations and collect and present the evidence to the court. The judge plays no investigative role and no role in obtaining evidence. Though the case management judge must give directions of a procedural nature, it is the parties, not the court, who are responsible for carrying out the directions.

[154] A representative plaintiff must perform those roles on behalf of the class. The representative plaintiff must, therefore, be in a position to "vigorously prosecute the claims": Campbell v. Flexwatt (1997), 44 B.C.L.R. (3d) 343 (C.A.). To do so they must present a case management plan.

[155] In this case, the focus of the argument was on whether there is a workable case management plan. The Case Management Plan ("the Plan") proposed by the plaintiffs sets out a method to deal with discovery, case management hearings and interlocutory applications. It proposes that the common issues be dealt with by way of summary procedure applications provided for in Rule 18 and 18A of the Rules.

[156] The Plan says that if the defendants are wholly successful on the common issues, the case will be at an end and no individual issue determinations will be required. The Plan requires that a case conference before the case management judge be set at the conclusion of the common issues trial. The purpose of the case conference would be to determine the appropriate way of dealing with any individual issues that arise as a result of the decisions on the common issues. The Plan sets out in considerable detail the approach the plaintiffs' will recommend to the court at that hearing, using the flexible procedures provided for in the Act.

[157] The plaintiffs gave the court examples of a number of case management plans similar to the one they propose to use here, that have been approved by other judges of this court.

Defendants' Position - Case Management Plan

[158] The defendants say that a workable plan must define real issues anchored in the causes of action. The plan must be a real plan that can be properly assessed and not a matter of guess work.

[159] The defendants rely on the comments of Mr. Justice Winkler as to the importance of a comprehensive litigation plan in complex cases, in the Ontario case of Carom v. Bre-X Minerals Ltd. (1999), 44 O.R. (3d) 173 at 203, (Gen. Div.):

...

A practice has developed in class proceedings of accepting litigation plans in support of certification motions that are sparse and lacking in detail. While this may be appropriate in more straightforward cases, in complex litigation such as the instant case, a detailed plan which meets the requirements of the Act is of critical importance.

The interrelation between the different elements of the certification test under s. 5(1) has been noted previously in these reasons. The requirements set out for the representative plaintiff accordingly do not stand in isolation. The production of a workable litigation plan serves a twofold purpose: it assists the court in determining whether the class proceeding is indeed the preferable procedure; and, it allows the court to determine whether the litigation is manageable in the constituted form. The manageability must be assessed in its context of the entirety of the litigation, not just a common issue trial.

A workable plan must be comprehensive and provide sufficient detail which corresponds to the complexity of the litigation proposed for certification. In this case, the national scope, the nature of the defendants, the uncertainty of the class size and the number of causes of action alleged mark this as litigation of the most complex nature and kind. Accordingly, a comprehensive and detailed litigation plan is required.

...

 

[160] The defendants say that this plan does not measure up to that standard. It is not comprehensive and does not correspond to the complexity arising from claims requiring substantial individual inquiries in relation to tens of thousands of transactions.

[161] The defendants argue that the realities of the inquiries and associated cost necessary to determine these claims have been ignored by the proposed representatives. Rather than address these issues, the Plan ignores them in the hope that they might later be overcome or managed in some way. The court, they say, should be suspicious of concluding that a class proceeding is preferable in the absence of a plan that demonstrates how the claims of the class can be tried fairly and efficiently, from beginning to end, in the context of a class proceeding.

[162] The defendants also argue that this Plan does not say whether plaintiffs' counsel intends to act for individual class members at their individual trial to establish liability and quantum. This is essential information in assessing whether a class action is workable. Class members need to know whether they will need their own lawyers for their individual trials, and if so, what percentage of the award will remain, out of which they can reimburse that lawyer. If they will have to hire their own lawyer in any event, or if the percentage is excessive, they may wish to consider opting out of the litigation.

Conclusion - Representative Plaintiff

[163] In this case I am satisfied that Mr. Scott and Ms. Ballingall will vigorously prosecute the claims and that they intend to see the proceeding through to conclusion. Mr. Scott is a sophisticated litigant with significant experience in the investment field. Both he and Ms. Ballingall have demonstrated their interest in vigorously pursuing the certification in spite of the fact that the defendants were willing to settle their individual claims.

[164] Does the Case Management Plan meet the requirements of the Act? The Act does not require a representative plaintiff to prepare a plan covering, in detail, every step that has to be taken from the beginning of the class proceeding to the end. Rather, the plan must set out a workable method of advancing the proceeding on behalf of the class.

[165] When dealing with individual issues the method will depend on the circumstances of each case. No formula can be devised. In some cases the nature and extent of the individual inquiries required will be clear at the certification hearing and should be dealt with in the plan. In others, that will not be the case.

[166] This is one of those cases where the exact nature and extent of the individual issues cannot be determined until after the common issues trial has taken place. Therefore, the Plan cannot set out the procedure for determining the common issues in any further detail.

[167] The plaintiffs' Plan does set out a suitable method of advancing the proceeding on behalf of the class on the individual issues. I am satisfied that the individual issues that will arise can be dealt with in a way that meets the goals of a class proceeding by using the procedural flexibility provided for by the Act and Rules. The Plan can be revisited as the litigation proceeds. As noted in the preferable procedure analysis, the proceedings can be de-certified if it turns out that the requirements for certification are no longer met.

[168] I have been provided with no authority that says that the fee arrangement between the representative plaintiffs and their lawyers must be disclosed as suggested by the defendants.

SUMMARY OF DECISION

[169] This proceeding is certified as a class proceeding, subject to a determination as to the proper method of notice. The class includes:

All clients of the defendants resident in British Columbia who conducted securities trades through the defendants from May 16, 1994 that included a foreign exchange transaction.

[170] The common issues are:

[171] The Case Management Plan submitted by the plaintiffs is approved. The time limits set out in it are subject to the availability of the court.

"D.J. Martinson, J."
The Honourable Madam Justice D.J. Martinson

September 19, 2001 -- Corrigendum to the Reasons for Judgment issued by Madam Justice D.J. Martinson advising that the date on the top right hand corner of the first page should be changed from "20011017" to read "20010917".