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CIVIL PROCEDURE - Parties - Class or representative actions

Wednesday, August 23, 2017 @ 8:27 AM  

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Appeal by the defendant law firm, Cassels Brock and Blackwell LLP (Cassels), from the finding of liability in a class action against it and General Motors of Canada Limited (GMCL) for breach of contractual and fiduciary duties. Cassels also appealed from the trial judge's quantification of damages. Cross-appeal by the respondent, Trillium Motor World Ltd. (Trillium) from the quantum of damages. Following the 2008 global financial crisis, GMCL executed a plan to reduce its dealership network to satisfy government demands in order to secure government funding and avoid creditor protection and insolvency. In 2009, GMCL delivered notices of non-renewal and wind-down agreements (WDAs) to 240 dealers with six days to accept or reject the offers. 181 class members, including the respondent, accepted the offers and signed WDAs. The class members retained Cassels to protect their interests in the restructuring of the dealer network. The respondent, on behalf of the other dealers who signed the WDAs, brought a class action against GMCL and Cassels. Against GMCL they claimed that GMCL had breached both common law and statutory duties to class members in the manner in which it executed the WDSs. GMCL counterclaimed, relying on the releases in the WDAs. Against Cassels, the respondent claimed that the firm breached its contractual duties and fiduciary duties to the dealers by failing to disclose that they also represented the federal government in connection with government financing of GMCL, among other things. The judge dismissed the action against GMCL and GMCL's counterclaim. He allowed the action against Cassels. With respect to Cassels, the judge found that the respondent established that it breached contractual and fiduciary duties owed to the class members by accepting the retainer despite having already agreed to act for the federal government in relation to any GMCL creditor protection proceedings and that Cassels continued to act for both parties while aware of the conflict and without disclosing it to either party. He also found that Cassels was negligent and breached the terms of its retainer with class members by acting for both the dealers who executed WDAs and those who did not, despite the two groups having divergent and adverse interests. He further found that Cassels was negligent in adopting a wait-and-see approach that resulted in class members being offered compensation representing a fraction of the value of their dealerships and losing the opportunity to negotiate increased wind-down payments. He awarded aggregate damages of $45 million for lost opportunity.

HELD: Appeal from finding of liability dismissed. Appeal from quantification of damages allowed. Cross-appeal dismissed. The judge did not err in his interpretation of the scope of the dealers' retainer of Cassels. The scope of the retainer was ambiguous, but it was not strictly limited to representation in a possible Companies' Creditors Arrangement Act (CCAA) proceeding. While the judge did not define the precise scope of the retainer, it was not necessary for him to do so given the common issues. The retainer was not contingent on a prospective CCAA filing. The respondents and Cassels were in a fiduciary relationship and Cassels had a specific obligation to represent the interests of the dealers in the restructuring and CCAA proceedings. Due to its representation of the federal government, Cassels breached its obligations to the respondents. The respondents were not told of Cassels' representation of the federal government and they were not told that Cassels' willingness and ability to represent their interests was qualified. The trial judge made no error in his causation and loss of chance analysis. But for Cassels' divided loyalty, Cassels likely would have provided advice to the respondents about the WDAs and proposed the option of collective negotiation. Cassels' divided loyalty due to the federal government conflict caused it to soft pedal its representation of the respondents' interests and prevented it from fully committing to their cause. Had the respondents been properly represented by Cassels, they would have instructed Cassels to negotiate with GMCL regarding the WDAs. The certification decision expressly contemplated that trial judge could award aggregate damages. However, the issue of damages was to be returned to the trial judge for further consideration taking into account the proper starting value for the loss of chance, the opt-outs from the class, and the number of class members that were Participation Form Dealers.

Trillium Motor World Ltd. v. General Motors of Canada Ltd., [2017] O.J. No. 3478, Ontario Court of Appeal, E.A. Cronk, K.M. van Rensburg and G.I. Pardu JJ.A., July 4, 2017. Digest No. TLD-August212017007