The certification of a class action in British Columbia requires meeting a variety of legal requirements. One of these is the requirement that the representative plaintiff be a "resident of British Columbia."
But what happens when the proposed representative plaintiff is not a natural person, such as a corporation?
In MM Fund v. Excelsior Mining Corp., 2024 BCCA 163, the BC Court of Appeal considered for the first time whether and how that residency requirement should be applied to an entity (rather than a natural person) in class proceedings. The Court found that the "management and control" test, which has been applied in analogous areas of law, was applicable. They went on to apply that test to find that the plaintiff did not have standing to bring their claim as a class action.
Background
MM Fund (the "Plaintiff"), is a trust fund established under Ontario law. It has registered offices in Toronto and is regulated by the Ontario Securities Commission. It sells units of its fund (via registered broker dealers) in Ontario, BC, Alberta, Saskatchewan, Manitoba and the Northwest Territories. It is a registrant with the BC securities commission.
The defendant Excelsior is a BC mining company with registered offices in Vancouver. The defendant Twyerould was its president and CEO, and the defendant Morabito was its chairman. Both were directors at the relevant times.
The Plaintiff alleged that the defendants made misrepresentations in a prospectus, in violation of the BC Securities Act. It filed an action and applied to have it certified as a class action under the Class Proceedings Act (the "CPA"). It sought to be the representative plaintiff, with the action being brought on behalf of all persons and entities who purchased the securities offered in the prospectus.
The defendants responded by applying for an order striking the certification application on the basis that the Plaintiff was not resident in British Columbia, as required by s. 2(1) of the CPA.
The certification judge agreed. She found that there was no evidence that the Plaintiff maintained a place of business or had operations in British Columbia. She struck the certification application, and ordered the Plaintiff to amend its pleadings to reflect that it is bringing an individual action, not a class action. The Plaintiff appealed.
Court of Appeal
The issue before the Court of Appeal was a novel question of statutory interpretation. The Court of Appeal had not previously interpreted the residency requirement under the CPA for a natural person, much less a legal one.
The term "resident" is not defined in the CPA, so the Court looked to the common law to fill its understanding of the term. The Court of Appeal observed under the common law courts had adopted the concept of the central management and control test for determining the residency of a trust or a company. That test seeks to analogize the residence of a company to that of an individual, and ask "where it really keeps house", "where its real business is carried on" and "where its central management and control actually abides".
The Court also considered the Plaintiff's argument that the trial judge had erred by taking an unduly narrow view of residency and ignoring the real and substantial connections between it and British Columbia, including the fact that it was a reporting issuer under the Securities Act, that it registered to carry on business in the province, and that it attorned to the jurisdiction of the British Columbia courts.
The Court was careful to note the distinction between "residence" under the common law and the concepts of "jurisdiction", "presence", "real and substantial connection" and "carrying on business", which are used by the British Columbia courts in assessing whether they have territorial competence over a matter. The Court was clear that the residency requirement under the CPA was different.
The Court found that there was nothing in the context or purpose of the CPA that would cause the court to deviate from the common law test for residency of a corporation. Contrary to the argument of the Plaintiff, the Court of Appeal found that the residency requirement in the CPA was not a mere hold over or technicality: "limitations on standing may be necessary for many reasons. These include helping to ensure the effective operation of the court system as a whole and prevent it from becoming overburdened".
Applying the central management and control test, the Court of Appeal found that the judge made no reviewable error of law in concluding that the Plaintiff was not a resident of British Columbia under the CPA. It found the judge made no error in finding that the Plaintiff's management and control were not in British Columbia. The fact that the plaintiff trust was a reporting issuer in the province, that it could sell its fund to residents of British Columbia, or that it attorned to the jurisdiction of the British Columbia courts was insufficient to satisfy the test for residency.
Takeaways
Excelsior provides a clear statement from British Columbia's highest court that the text of the CPA and any threshold requirements for bringing a class proceeding are not mere technicalities; they are legal criteria that must be met in each case before the procedural and substantive advantages of a class action can be accessed by persons, natural and legal.
The Court's confirmation that the test for residency under the CPA for non-natural persons will be unlikely to have wide application. While corporations may and do bring proposed class actions, more often than not the proposed representative plaintiff is an individual. A different set of legal criteria is used to determine whether an individual is a "resident" in a province.
Excelsior also draws a line between the law of jurisdiction and the residency requirement under the CPA. The residency requirement was not a question of the court's jurisdiction. It is a threshold requirement of standing. This is welcome doctrinal clarity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.