The plaintiff in a failed class action against discount broker Questrade Inc. over the payment of trailer commissions must pay a large portion of the firm’s legal costs, an Ontario court has ruled.
Questrade was one of 12 firms targeted in a proposed class action filed in 2020 on behalf of mutual fund investors. The case alleged that trailers paid by funds to discount brokers — partly for advice that these firms aren’t permitted to provide under the limitations of their registration — were unlawful.
In 2022, after a hearing on whether the case could be certified as a class action was adjourned, the case against Questrade was severed from the original action. The firm had acted differently than the others by rebating commissions directly to clients.
In January 2023, the motion for certification against the other firms was rejected after the motion judge ruled that, before the Canadian Securities Administrators (CSA) banned the payment of trailers to discount brokers in mid-2022, nothing in securities law prohibited dealers from receiving commissions. He concluded there was no basis for a class action.
That decision was appealed to the Divisional Court, which denied the appeal, and then to the Court of Appeal, which declined to hear the case.
Now, the cases are being discontinued.
According to the Superior Court of Justice, while Questrade didn’t object to the case against it being discontinued, an issue over costs remained.
The firm sought almost $150,000 in costs (on a partial indemnity basis) for work preparing to defend the certification motion. The plaintiff argued the request wasn’t reasonable and said costs should be less than $40,000 — a figure calculated by tallying up its own costs and dividing the total among the 12 firms sued.
The court rejected that approach and sided with the defence, calling the plaintiff’s position illogical.
“A proposed representative plaintiff who prepares a 2,000+ [page] motion record against 12 different investment dealers making what he characterizes as a common claim against each must [expect] each one of his targets to respond in full,” the court said in its decision.
“It is not a shared exercise among unrelated defendants; each of them has to take into account the entire record presented by the plaintiff,” it added.
The court also said there was no reason to think Questrade’s costs were inflated.
“It had to respond to a lengthy motion record of more than 2,000 pages, conduct cross-examinations of the plaintiff and two expert witnesses, prepare written submissions, and prepare oral submissions for the subsequently aborted certification hearing,” it said.
Nevertheless, the court reduced the costs sought by the firm by 25%, citing concerns about access to justice and the risk of discouraging valid class actions with large costs awards.
“Costs should not be at such a high level that future class proceedings are effectively chilled,” it said.
After the 25% reduction, the court ordered $110,000 in costs against the plaintiff, saying the amount “reflects an acknowledgment that the defendant was put to significant costs but the merits of the plaintiff’s motion remain undetermined as certification was never adjudicated.”
While the proposed class actions against discount brokers for accepting trailers were rejected by the courts, class actions against the fund managers involved in these arrangements have been certified and in some cases, settled.