Certification Partially Granted In ETF Class Action, But Uncertainty Remains Over Availability Of Statutory Claims

• Published date: 12 July 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Fund Management/ REITs, Class Actions, Professional Negligence, Securities
• Law Firm: Torys LLP
• Author: Mr Andrew Gray, Lara Guest and Craig Gilchrist

The recent case of Wright v. Horizons ETFs Management Canada Inc.¹ is the third chapter in a series of decisions relating to whether a class action can be brought against Horizons (a manager of exchange-traded fund products) for negligence and misrepresentation under the Securities Act. The class action was initially denied certification, but this holding was overturned by the Ontario Court for Appeal and remitted back to the Superior Court. This time, the Ontario Superior Court of Justice certified a class action based on a claim of negligence against the fund manager. However, the Court refused to certify a statutory claim under the Securities Act in a decision highlighting a limit to the scope of the statutory scheme relating to continuous disclosure misrepresentation schemes and challenges present in pursuing claims related to exchange-traded funds (ETFs). Based on the operation of the market for ETF funds, investors may find themselves without any statutory remedy where the fund manager has made otherwise actionable misrepresentations about the fund and its units.

What you need to know

• The class action relates to the collapse of an ETF, the units of which lost over 80% of their value in one day.
• This decision was the plaintiff's second attempt at having this class action certified. In the first instance, certification was denied by the Superior Court, which concluded that the proposed claim did not disclose a reasonable cause of action. The motion judge's decision was reversed by the Ontario Court of Appeal which remitted the decision back to the motion judge to determine whether the other certification criteria had been met. Our bulletin on the Ontario Court of Appeal's decision can be found here.
• On reconsideration, the certification judge determined that the plaintiff's claim for pure economic loss in negligence, while novel, satisfied the criteria for certification. The certification judge concluded that it was not plain and obvious that the plaintiff's claim that the fund manager had negligently performed a service when structuring the fund could not succeed This decision was based, in part, on the Court of Appeal's decision.
• The certification judge declined to certify a claim undersection 130 of the Securities Act because it was impossible to determine whether the securities at issue, the units of the ETF, were sold on the primary or secondary market Therefore, there was no identifiable class for the statutory cause of action.
• The decision...