The Supreme Court of Canada (SCC) has ruled that a proposed investor class action can go ahead against fund dealer Desjardins Financial Services Firm Inc. and fund manager Desjardins Global Asset Management Inc., alleging that the dealer’s reps and investors weren’t adequately informed of investment risks.

In a split decision, the majority of the court ruled that a proposed class action brought by a Desjardins client, Ronald Asselin, could proceed. Asselin alleges that he was sold investments without proper disclosure of risks, and that the firm’s reps weren’t properly educated about the risks by the firm. He also alleges that the fund manager used risky investment strategies — trading in asset-backed commercial paper — that resulted in no returns for investors.

The allegations haven’t been proven.

A Superior Court judge said the case couldn’t proceed as a class action, but that decision was overturned on appeal by the Court of Appeal of Quebec.

The firms then appealed to the SCC, which largely sided with the appeal court, allowing the case to go ahead.

The SCC ruled that the case could go ahead as the claim wasn’t “frivolous,” but it didn’t rule on the merits of the case.

It did strike down a claim for punitive damages.

“The threshold for authorizing a class action in Quebec is a low one,” the SCC majority said in its decision. “[At the] authorization stage of the class action: the judge’s role is to filter out frivolous claims, and nothing more.”

It also found that Asselin is asserting a possibly viable claim that the dealer failed to properly inform its reps and clients about investment risks.

“A class action based on a brokerage firm’s liability for the conduct of its representatives is therefore possible if the issue is whether the information provided by the firm to its representatives and to the group’s members was insufficient, with the result that a general duty to inform was breached,” the majority said.

“To conclude otherwise would deprive the class action of part of its role of helping people who, for economic and other reasons, face barriers in asserting their rights. The Court of Appeal was accordingly justified in intervening,” it concluded.

The majority also said that Desjardins Global Asset Management could be held responsible for how it designed and managed the investments, but that it couldn’t face punitive damages.

In a minority dissenting opinion, three of the justices said that the case should not go ahead against the dealer, but that it could go ahead against the fund manager for compensatory damages (but not punitive damages).

“The liability of financial advisors for a breach of the duty to inform and the duty to provide advice is not well suited to a class action because of the highly individual nature of the relationship between a client and an advisor in the context of a contract for investment services,” the dissent noted.