When Applying To Certify A Class Action, Don’t Forget Causation And Damages

The Court of Appeal of Alberta recently re-affirmed the need for carefully drafted pleadings and a thorough application record at a certification application, particularly where class-wide causation and class-wide damages are sought to be certified as common issues. In Andriuk v Merrill Lynch Canada Inc, 2014 ABCA 177, affirming Andriuk v Merrill Lynch Canada Inc, 2013 ABQB 422, the Court confirmed the denial of a certification application where the applicants failed to meet nearly every requirement for certification set out in the Class Proceedings Act. However, of most importance were the Court's comments on the necessity of proving at the certification stage a workable methodology for later proving causation and calculating class-wide damages.

Here, the plaintiffs alleged that Merrill Lynch had caused losses to the proposed class by buying too large a position in a single, thinly-traded junior stock. The plaintiffs' theory of loss was that Merril Lynch could not offload any position in the stock without negatively impacting all holders of the stock. The plaintiffs asserted class-wide loss. They alleged in particular that Merrill Lynch's strategy artificially and negatively reduced the value of the share price for all shareholders. They alleged that everyone who held the shares suffered a loss in value during the class period.

As the Chambers Judge noted, this caused some difficulty. Any shareholder who suffered a loss and crystallized it would need to show which part of the loss was attributable to Merrill Lynch's actions, as opposed to other market forces. Similarly, any investors who sold the shares at a profit during the period would have to establish that, but for Merrill Lynch's actions, the profit would have been greater. The Chambers Judge noted that there would be challenges in proving causation. Further, the plaintiffs did not show that any methodology existed to prove either the reduction in share value or that any such reduction was caused by the alleged breaches of Merrill Lynch. The plaintiffs had no expert evidence on the issue, and only relied on an admission in cross-examination from a defence witness in response to a hypothetical question, in which the witness admitted that Merrill Lynch selling off shares could conceivably negatively impact the share price.

The Chambers Judge noted that while the plaintiffs' failure to adduce evidence of a methodology for establishing causation and class-wide damages was not fatal to...