Narrowing Section 31(1): The Effects of the Supreme Court of Canada Decision in Kerr V. Danier on the Ontario Costs Regime

• Author: Robert Carson
• Pages: 268-293

268

NARROWING SECTION 31(1): THE

EFFECTS OF THE SUPREME COURT

OF CANADA DECISION IN

KE RR V.

DANIER

ON THE ONTARIO COSTS

REGIME

Robert Carson*

A. INTRODUCTION

The Supreme Court of Canada’s decision in Kerr v. Danier Leather Inc.1

will stand as an important development in the law of class proceedings

in Ontario. First, the decision provided necessary clarification on the

scope of an issuer’s continuous disclosure obligations under the Ontario

Securities Act2 after a prospectus has been filed. Second, it was the first

decision in which the Supreme Court of Canada considered the law of

costs in class proceedings. This paper is concerned exclusively with the

latter and, specifically, the manner in which the Supreme Court changed

the law of costs in class proceedings.

The potential for adverse costs awards has been one of the most

controversial aspects of Ontario’s class proceedings regime. Section 31(1)

of the Class Proceedings Act, 19923 grants a court the same discretion to

award costs in class proceedings as in ordinary actions.4 Section 31(1)

also permits a court to consider whether the class proceeding was a test

case, raised a novel point of law, or involved a matter of public interest.

Ontario’s class proceedings legislation does not provide any defini-

tions for the terms “test case,” “novel point of law,” or “matter of public

interest.” As a result, the definition of these terms has been left up to the

* Robert Carson graduated from Osgoode Hall Law School in June 2008. This

paper was written for a course on class actions at Osgoode Hall Law School in

November 2007.

1 Kerr v. Danier Leather Inc., [2007] 3 S.C.R. 331 [Kerr].

2 Securities Act, R.S.O. 1990, c. S.5.

3 Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 31(1).

4 Ibid.

VOL UME 5, No 2, august 2009 269

courts, which has led to some confusion in the application of section

31(1). Consequently, the Supreme Court’s consideration of these factors

in Kerr is especially significant as it clarifies the scope and application of

section 31(1).

The judicial history of this case is as follows. The plaintiff class

consisted of investors who had purchased shares of Danier Leather Inc.

through an initial public offering. The primary issue was whether the

defendants were liable for prospectus misrepresentation under section

130(1) of the Securities Act.5 After a forty-four-day trial, Lederman J.

found the defendants liable for statutory misrepresentation.6 He further

awarded the plaintiffs partial indemnity costs7 and awarded the class

counsel a premium of $1,000,000 for the challenges of the litigation and

the risk undertaken8.

However, after a five-day hearing, the Court of Appeal reversed the

trial judgment9 and awarded $100,000 in costs of the five-day appeal to

the successful defendants,10 holding that the case did not raise a novel

point of law or involve a matter of public interest.11 In effect, the Court of

Appeal held that there was no more reason in this class proceeding for the

successful defendants to bear their own defence costs than in any other

commercial litigation.12

On 12 October 2007, the Supreme Court of Canada released the

unanimous decision, written by Binnie J., dismissing the appeal.13 The

appellants had argued that the Court of Appeal had erred as a matter of

law in awarding costs against the representative plaintiff because of its

5 Kerr, above note 1 at para. 4.

6 Kerr v. Danier Leather Inc., [2004] O.J. No. 1916 (S.C.J.).

7 These costs were to be dealt with by reference to an assessment officer under r.

58 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. (Kerr v. Danier Leather

Inc., [2005] O.J. No. 2696 at para. 42 (S.C.J.)).

8 Kerr v. Danier Leather Inc., [2005] O.J. No. 1972 at para. 61 (S.C.J.). It must

also be noted that, more recently, in Walker v. Ritchie, [2006] 2 S.C.R. 428, the

Supreme Court of Canada prohibited the practice of awarding risk premiums in

Ontario.

9 Kerr v. Danier Leather Inc., [2005] O.J. No. 5388 at para. 175 (C.A.).

10 The Court of Appeal upheld the costs of the certification motion as it consti-

tuted an important chapter in the proceedings. However, the Court of Appeal

determined that the defendants were entitled to costs of the trial, although they

did not set them. (Kerr v. Danier Leather Inc., [2006] O.J. No. 3770 at para. 8

(C.A.).)

11 Ibid. at para. 5.

12 Kerr, above note 1 at para. 60.

13 Ibid. at para. 72.