Gibbs v. HSBC Global Asset Management (Canada) Limited

2022 BCSC 1291 Gibbs v. HSBC Global Asset Management (Canada) Limited

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Gibbs v. HSBC Global Asset Management (Canada) Limited, 2022 BCSC 1291 Date: 20220802 Docket: S207242 Registry: Vancouver Between: Linnea Gibbs Plaintiff And HSBC Global Asset Management (Canada) Limited and HSBC Investment Funds (Canada) Inc. Defendants Brought under the Class Proceedings Act, R.S.B.C. 1996, c. 50 Before: The Honourable Justice Funt Ruling on Certification of a Class Proceeding Counsel for the Plaintiff: J. Archibald P. Bates Counsel for the Defendants: R. McGowan M. Maniago Place and Dates of Hearing: Vancouver, B.C. June 28-30, 2021 Place and Date of Judgment: Vancouver, B.C. August 2, 2022 Table of Contents 1. Introduction.. 3 2. Other actions.. 3 3. stare decisis.. 4 4. certification principles.. 5 5. key background facts.. 10 6. principles of pleadings.. 17 7. FRAUD pleadings.. 18 8. pROPOSED COMMON ISSUEs.. 20 9. CAUSES OF ACTION - S. 4(1)(a) of the CPA.. 21 a) Generally. 21 b) Breach of trust and fiduciary duty. 23 c) Breach of securities prospectus disclosure requirements. 24 d) Unjust enrichment 24 10. IDENTIFIABLE CLASS - s. 4(1)(b) of the CPA.. 25 11. COMMON ISSUES - s. 4(1)(c) of the CPA.. 27 12. Preferable procedure - SS. 4(1)(d) and 2 of the CPA.. 30 13. representative plaintiff - s. 4(1)(e) of the CPA.. 30 14. notice.. 31 15. conclusion.. 31 1. Introduction [1] The plaintiff has applied to have

the action certified as a class proceeding under the Class Proceedings Act, R.S.B.C. 1996, c. 50 [CPA] with many ancillary orders common to a successful certification application. [2] In brief, the plaintiff says that she invested in a mutual fund managed by the defendants which they represented to be actively managed. She says that, in truth, the defendants implemented and used an undisclosed strategy designed to closely track the mutual fund's benchmark index. [3] The investment management fees associated with an actively-managed fund are much higher than the fees associated with a fund, commonly called an "index fund" (or similar investment vehicle), designed to track the subject benchmark index. [4] The plaintiff says that she has suffered damages and loss as a result of the defendants' undisclosed strategy. [5] The plaintiff says that there are many other similarly situated investors to her. Accordingly, she asks that the action be certified as a class proceeding under the CPA. [6] For the reasons that follow, the Court will require further information before it will certify this action as a class proceeding under the CPA.

2. Other actions [7] Chief Justice Hinkson has assigned to me four unrelated cases, but with similar pleadings to those in the action before me. The other three actions relate to mutual funds managed by managers unrelated to the defendants in the case at bar. [8] On February 1, 2021, I certified one of these other three actions as a class proceeding: McCorquodale v. RBC Global Asset Management Inc., 2021 BCSC 144 (under appeal). [9] On June 27, 2022, I released my reasons with respect to a trial of common issues involving another of the other three actions. The parties had consented to the certification of the action as a class proceeding: Turpin v. TD Asset Management Inc., 2022 BCSC 1083. [10] In the fourth action, Pope v. Canadian Imperial Bank of Commerce et al, Vancouver Registry Action No. S207820, I have heard argument on certification. The question of certification is under reserve. [11] I wish to emphasize that although the pleadings on the four actions are similar, the evidence that may be brought (or was brought in Turpin) at trial (whether or not certified as a class proceeding) may be very different. In other words, the facts (once found) may be altogether different from one case to another, which in turn may lead to very different outcomes. 3. stare decisis [12] In R. v. Sullivan, 2022 SCC 19, the Supreme Court of Canada recently affirmed the importance of stare

decisis. Justice Kasirer, writing for the Court, stated: [75] [ ] the rule of law principles supporting stare decisis mean that prior decisions should be followed unless the Spruce Mills [Re Hansard Spruce Mills, [1954] 4 D.L.R. 590 (B.C.S.C.)] criteria are met. Correctly stated and applied, the Spruce Mills criteria strike the appropriate balance between the competing demands of certainty, correctness and the even-handed development of the law. Trial courts should only depart from binding decisions issued by a court of coordinate jurisdiction in three narrow circumstances: 1. The rationale of an earlier decision has been undermined by subsequent appellate decisions; 2. The earlier decision was reached per incuriam ("through carelessness" or "by inadvertence"); or 3. The earlier decision was not fully considered, e.g. taken in exigent circumstances. [13] As noted, my ruling in McCorquodale is under appeal. Accordingly, McCorquodale cannot be said to have been undermined on appeal. I am also unaware of any appellate decision which undermines McCorquodale or Turpin (which is a very recent decision). [14] As Justice Kasirer observes, certainty is a foundational component of stare decisis. In these reasons, I have taken certain parts of my reasons in McCorquodale and Turpin and have used them in these reasons. I do not wish to possibly create uncertainty by using different language

to describe the same principle, concept, or other matter. [15] I have also usually quoted the relevant parts in whole rather than just making a pinpoint reference in order that the reader may have, so to speak, everything in one place. 4. certification principles [16] In Watson v. Bank of America Corporation, 2014 BCSC 532, rev'd on other grounds, 2015 BCCA 362, Chief Justice Bauman, prior to his elevation to Chief Justice to our Court of Appeal, then sitting as the applications judge, summarized the general principles governing certification: [58] The certification stage of a class proceeding is not meant to test the merits of the claim, or to determine if it is likely to succeed. Instead, this stage is concerned with the form of the action and whether it can properly proceed as a class proceeding: Hollick v. Toronto (City), 2001 SCC 68 at para. 16; [Pro-Sys Consultants Ltd. v. Microsoft, 2013 SCC 57] at para. 99. [59] To this end, s. 4(1) of the CPA contains the five requirements for certification: 4(1) The court must certify a proceeding as a class proceeding on an application under section 2 or 3 if all of the following requirements are met: (a) the pleadings disclose a cause of action; (b) there is an identifiable class of 2 or more persons; (c) the claims of the class members raise common issues, whether or not those common issues predominate over issues affecting only

individual members; (d) a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues; (e) there is a representative plaintiff who (i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues, an interest that is in conflict with the interests of other class members. These criteria are similar to the requirements for certification in other Canadian provinces. Notably, if these requirements are met, the Court must certify the action; there is no residual discretion. The plaintiff bears the evidentiary burden for each requirement, but that burden should not be overstated. [60] Subsection (a) requires that the pleadings disclose a cause of action. This requirement is assessed on the same standard as on a motion to strike pleadings under Rule 9-5(1)(a). Accordingly, the plaintiff satisfies this requirement unless it is plain and obvious that the claim cannot succeed: Hollick at para. 25; Microsoft at para.

63. For this analysis, the Court must assume that all the pleaded facts are true unless they are patently unreasonable or incapable of proof. Further, a claim must not be struck merely because it is novel or complex: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 980. [61] Subsections 4(1)(b)-(e) of the CPA require the plaintiff to show "some basis in fact" for each requirement: Hollick at para.

25. The plaintiff must show that there is some basis in fact which establishes each of the four requirements, but does not need to establish some basis in fact for the claim itself. Again, the Court is concerned with the appropriateness of a class proceeding, not the strength of the claim. Further, courts are ill-equipped to resolve conflicts in the evidence at certification: Microsoft at paras. 100-102. [62] There is limited utility in attempting to define the "some basis in fact" standard in the abstract; each case must be decided on its own facts. The standard does not require proof on a balance of probabilities, but it requires more than a symbolic scrutiny of the sufficiency of the evidence. Ultimately, the Court must be satisfied "that the conditions for certification have been met to a degree that allow the matter to proceed on a class basis without foundering at the merits stage by reason of the requirements of s. 4(1) of the CPA not having been met": Microsoft at paras. 103-104. [63] Thus for subsection (b), the plaintiff must provide some basis in fact for the existence of an identifiable class of two or more persons. The class must be clearly defined at the outset of the litigation as doing so identifies the individuals entitled to notice under the CPA, entitled to relief if the case succeeds, and bound by judgment unless they opt-out: Western Canadian Shopping

Centres Inc. v. Dutton, 2001 SCC 46 at para. 38 [Dutton]; Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58 at para. 57. [64] To meet this requirement, the plaintiff must define the class with reference to objective criteria. Similarly, while the definition should be rationally related to the alleged common issues, the membership of the class must not hinge on the outcome of the litigation. Further, the class must not be defined too broadly or too narrowly in relation to the common issues. Ultimately, it is not necessary for the plaintiff to identify every class member, but it must be possible to determine whether or not a specific individual is a member of the class: Sun-Rype at paras. 52-62; Dutton at para. 38; Hollick at paras. 20-21. [65] Subsection (c) requires the plaintiff to provide some basis in fact that at least some of the issues raised by the claims are common issues, whether or not they predominate over individual issues. Section 1 of the CPA defines "common issues" as "(a) common but not necessarily identical issues of fact, or (b) common but not necessarily identical issues of law that arise from common but not necessarily identical facts". [66] In Dutton, the Court held that the underlying question when analyzing commonality is "whether allowing the suit to proceed as a [class proceeding] will avoid duplication of fact-finding or legal

analysis" (at para. 39). In Microsoft, the Court summarized the other holdings of Dutton regarding commonality (Microsoft at para. 108, citing Dutton at paras. 39-40): (1) The commonality question should be approached purposively. (2) An issue will be "common" only where its resolution is necessary to the resolution of each class member's claim. (3) It is not essential that the class members be identically situated vis-à-vis the opposing party. (4) It is not necessary that common issues predominate over non-common issues. However, the class members' claims must share a substantial common ingredient to justify a class action. The court will examine the significance of the common issues in relation to individual issues. (5) Success for one class member must mean success for all. All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent. [67] The Court recently clarified the final point and held that "success for one member of the class does not necessarily have to lead to success for all the members. However, success for one member must not result in failure for another" (Vivendi Canada Inc. v. Dell'Aniello, 2014 SCC 1 at para. 45). Further, questions may be common even if the answers to those questions vary from class member to class member (Vivendi at paras. 45-46). In any event, concerns about unproven

material differences are not determinative at certification. If they actually emerge during the proceeding, Courts can deal with them when the time comes, through decertification if necessary: Microsoft at para. 112; Dutton at para. 54. [68] Under subsection (d), the plaintiff must show some basis in fact that a class proceeding is the preferable proceeding for the fair and efficient resolution of the common issues. In British Columbia, in contrast to some other provinces, there is legislative guidance that informs the preferability inquiry. Section 4(2) of the CPA provides: 4(2) In determining whether a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues, the court must consider all relevant matters including the following: (a) whether questions of fact or law common to the members of the class predominate over any questions affecting only individual members; (b) whether a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions; (c) whether the class proceeding would involve claims that are or have been the subject of any other proceedings; (d) whether other means of resolving the claims are less practical or less efficient; (e) whether the administration of the class proceeding would create greater difficulties than those likely to be

experienced if relief were sought by other means. Section 4(2) does not provide an exhaustive list of factors relevant to preferability. In addition to the five enumerated factors, preferability must be examined with reference to the three principal advantages of the class action regime: judicial economy, access to justice, and behaviour modification. However, the plaintiff does not need to prove that the class action will actually achieve those goals: Hollick at para. 27; Microsoft at para. 137; AIC Limited v. Fischer, 2013 SCC 69 at para. 22. [69] The term "preferable" must be construed broadly within the CPA. It encompasses two related issues: the issue of whether or not the class proceeding would be a fair, efficient and manageable procedure for resolving the claims, and the issue of whether the class proceeding would be preferable to all other reasonably available means of resolving the class members' claims: Hollick at paras. 28 and 31. [70] Moreover, in determining whether a class action would be the preferable procedure for "the fair and efficient resolution of the common issues" as required by the CPA, the court must consider the common issues in the context of the action as a whole and their importance in relation to the claims as a whole. To a certain extent, this is captured by s. 4(2)(a) of the CPA: Hollick at paras. 29-30; AIC Limited at para. 21. [71] Finally,

under subsection (e), the plaintiff must show some basis in fact that she is an appropriate representative plaintiff with reference to the three specified requirements of the CPA. First, the plaintiff must fairly and accurately represent the interests of the class. The Court considered the nature of this requirement in Dutton (at para 41): [41] ... In assessing whether the proposed representative is adequate, the court may look to the motivation of the representative, the competence of the representative's counsel, and the capacity of the representative to bear any costs that may be incurred by the representative in particular (as opposed to by counsel or by the class members generally). The proposed representative need not be "typical" of the class, nor the "best" possible representative. The court should be satisfied, however, that the proposed representative will vigorously and capably prosecute the interests of the class [citations omitted]. [72] Further, the most important attributes of a representative plaintiff are a common interest with class members and the ability and desire to vigorously prosecute the claims (Campbell v. Flexwatt Corp. (1997), 44 B.C.L.R. (3d) 343 (C.A.). at para. 75, citing Endean v. The Canadian Red Cross Society (1997), 148 D.L.R. (4th) 158 (B.C.S.C.). [73] Second, the plaintiff must have a litigation plan with a workable method of advancing the

proceeding and of notifying the class members. The purpose of this requirement was described in Fakhri v. Alfalfa's Canada Inc., 2003 BCSC 1717 at para. 77: [77] The purpose of the plan for proceeding at the certification stage is to aid the court by providing a framework within which the case may proceed and to demonstrate that the representative plaintiff and class counsel have a clear grasp of the complexities involved in the case which are apparent at the time of certification and a plan to address them. The court does not scrutinize the plan at the certification hearing to ensure that it will be capable of carrying the case through to trial and resolution of the common issues without amendment. It is anticipated that plans will require amendments as the case proceeds and the nature of the individual issues are demonstrated by the class members [citations omitted]. [74] Moreover, the plan must support the idea that a class action is the preferable procedure for the resolution of the claim. The amount of detail in the plan must correspond to the circumstances and the complexity of each specific case, but the plan must at least be individualized and not a mere outline of the steps that would occur in any case. The plan must also deal with individual issues that will be left over after the common issues are resolved: Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009

BCCA 503 at para. 79 [Infineon]; Pardhan v. Bank of Montreal, 2012 ONSC 2229 at paras. 334-337. [75] Third, the plaintiff must not have a conflict of interest with other class members on the common issues. In some cases opt-out provisions may be relied on, or subclasses may be created, to alleviate any conflicts of interest (for example, Kotai v. Queen of the North (Ship), 2007 BCSC 1056), while in other cases the interests of the plaintiff and the class or subclass might be irreconcilable (for example, MacDougall v. Ontario Northland Transportation Commission, [2006] O.J. No. 5164 (S.C.), aff'd [2007] O.J. No. 573 (Div. Ct.)). [17] In Vaugeois v. Budget Rent-A-Car of B.C. Ltd., 2015 BCSC 802, aff'd 2017 BCCA 111, I quoted the same foregoing language and then added: [5] I have quoted extensively the Chief Justice's reasons, as I have from the reasons of other judges in these reasons, for two reasons. First, I could not state matters better. Second, to the extent I tried to state in my own words the same matters this could cause uncertainty. One of the hallmarks of our envied common law system is certainty, reflected in principles such as stare decisis and judicial comity: Cassell & Co. Ltd. v. Broome, [1972] A.C. 1027 (H.L.) at 1054, and Re Hansard Spruce Mills Ltd. (1954), 4 D.L.R. 590 at para.

3. Certainty facilitates access to justice by enabling most matters to be resolved without the need for a litigant to enter the courthouse to determine how the law may apply to his or her particular situation. As Lord Hailsham of St. Marylebone L.C. in Cassell stated: " some degree of certainty is at least as valuable a part of justice as perfection." [18] Since Watson, Vaugeois, and McCorquodale, there have been further cases that address particular certification issues in particular circumstances. That said, Chief Justice Bauman's useful summary remains sound. [19] In these reasons, I will use Chief Justice Bauman's summary with the applicable refinements and guidance arising from jurisprudence in this Province and other Canadian jurisdictions. [20] The four foregoing paragraphs are from McCorquodale with my one addition of the reference to McCorquodale in paragraph 18 above. 5. key background facts [21] In preparing a summary of the key background facts, I have copied liberally from the pleadings and written submissions in order to present many of the uncontroversial facts or facts as pleaded by the plaintiff. [22] With the serious allegations arising from the plaintiff's claims, I wish to emphasize that the plaintiff's pleadings of fact are only assumed to be true for the purposes of the current application. Unless a pleaded fact is admitted to be true by the opposing

party, whether a pleaded fact is true is determined at trial based on the evidence presented by the parties. [23] The plaintiff pleads that she is a resident of Vancouver, British Columbia and that she held units during the Class Period in the HSBC Equity Fund ("Equity Fund"). She defines the Class Period as meaning "from January 1, 2005 to the conclusion of the trial of the common issues in this proceeding ". [24] The plaintiff states that she has brought the action on behalf of all persons wherever they reside (other than limited categories of excluded persons--primarily those associated with either defendant and their respective past and present employees) who hold or held units of the Equity Fund or a World Selection Fund during the Class Period. [25] The plaintiff defines a "World Selection Fund" as follows: "World Selection Fund" means any mutual fund trust of which either HSBC GAM or HSBC IF was Manager-Trustee (including all series of units of that trust) that holds or held one or more units of the Equity Fund at any time during the Class Period including, but not limited to, the following: (i) HSBC World Selection Diversified Conservative Fund; (ii) HSBC World Selection Diversified Moderate Conservative Fund; (iii) HSBC World Selection Diversified Balanced Fund; (iv) HSBC World Selection Diversified Growth Fund; and (v) HSBC World Selection Diversified Aggressive

Growth Fund. (Collectively, the "World Selection Funds") [26] The defendant, HSBC Global Asset Management (Canada) Limited ("HSBC GAM") is incorporated under the Canada Business Corporation Act, R.S.C. 1985, c. C-44 [CBCA], with its head office in Vancouver, British Columbia. It carries on business in British Columbia where it is ordinarily resident pursuant to s. 7 of the Court Jurisdiction and Proceedings Transfer Act, S.B.C. 2003, c. 28 [CJPTA]. HSBC GAM is a wholly-owned subsidiary of HSBC Bank Canada. HSBC GAM has been the Manager-Trustee of the each of the World Selection Funds since December 14, 2010. [27] The defendant, HSBC Investment Funds (Canada) Inc. ("HSBC IF"), is incorporated under the CBCA, with its head office in Vancouver, British Columbia. It carries on business in British Columbia where it is ordinarily resident pursuant to s. 7 of the CJPTA. It is a wholly-owned subsidiary of HSBC Bank Canada. HSBC IF was the Manager-Trustee of each of the World Selection Funds from December 17, 2001 to December 14, 2010. [28] Each defendant was, at the material times, an "investment fund manager" as defined in the Securities Act, R.S.B.C. 1996, c. 418 [BCSA]. [29] In the notice of civil claim, the plaintiff's definition of "Closet Indexing Strategy" is of particular importance. It reads: "Closet Indexing Strategy" means an investment strategy designed to closely track the performance of the Equity Fund's declared benchmark, the S&P/TSX Composite Index (to in or around July 2015) and the S&P/TSX Capped Composite Index (from in or around July 2015 to present); [30] By way of overview, the plaintiff pleads: 2. During the Class Period, the Defendants were the Manager-Trustee of the Equity Fund and the World Selection Funds.

3. The Defendants represented to Class Members that they actively managed the Equity Fund and they charged the Funds substantial fees for this purportedly active management.

4. In truth, the Defendants, in managing the Equity Fund, employed an investment strategy that was designed to closely track the performance of the Equity Fund's benchmark index. This Closet Indexing Strategy was not true active management, the aim of which is to outperform the benchmark. Because of the Closet Indexing Strategy, the Equity Fund was very unlikely to ever outperform its benchmark after the Defendants' management fees were taken into account.

5. The Closet Indexing Strategy, including its associated risks, was not disclosed to investors during the Class Period.

6. As a result of the Closet Indexing Strategy, the Equity Funds performance (before management fees) closely tracked the Equity Fund's benchmark and did not outperform its benchmark after accounting for the Defendants' fees for "active management".

7. Class members suffered significant loss as a result of the Defendants' investment strategy and unreasonable fees. [31] The plaintiff further pleads that the misconduct of the defendants to be as follows: 28. Mutual funds are generally classified as either actively managed funds or passive (index) funds. Actively managed funds are operated with the objective of producing excess risk-adjusted returns that outperform a particular market benchmark (providing higher returns and/or lower risk than the benchmark) by carefully choosing stocks that fit the fund's investment style and that the fund manager reasonably expects to collectively outperform the fund's benchmark. Index funds, by contrast, are designed to closely track the performance of a specific benchmark, allowing investors to invest money knowing that they will get performance roughly equal to the performance of that benchmark.

29. Actively managed funds change their portfolio positions on a regular basis in order to hold securities that, in the fund manager's view, are likely to outperform their respective benchmarks. The managers of such funds charge higher fees than index funds because of the higher expenses associated with research to select stocks, and the expenses associated with increased trading activity. Investors purchase actively managed mutual funds in hopes that those mutual funds will outperform the benchmark by a margin that offsets the higher fees.

30. In managing the Equity Fund throughout the Class Period, the Defendants implemented and used the Closet Indexing Strategy. As a result of the Closet Indexing Strategy, the Equity Fund's performance throughout the Class Period has closely tracked its benchmark (before the Defendants' management fees) and has not outperformed its benchmark once management fees are taken into account as depicted in the following charts; [Charts omitted.] 31. The Defendants' Closet Indexing Strategy was not true active management because the Equity Fund did not have a reasonable prospect of outperforming its benchmark index once the Defendants' management fees were taken into account. The Defendants knew or ought to have known this. As such, the fees that the Defendants charged to the Funds for active management of the Equity Fund were unreasonable, unjustified, and improper.

32. The Defendants knew or ought to have known that the Closet Indexing Strategy would cause loss to Class Members, including those who were unitholders of the World Selection Funds.

33. Form 81-101F1 requires, inter alia, that a Simplified Prospectus set out the following material information: (a) "the fundamental investment objectives of the mutual fund, including information that describes the fundamental nature of the mutual fund, or the fundamental features of the mutual fund"; (b) "the principal investment strategies that the mutual fund intends to use in achieving its investment objectives": and (c) "the process by which the mutual fund's portfolio adviser selects securities for the fund's portfolio, including any investment approach, philosophy, practices or techniques used by the portfolio adviser or any particular style of portfolio management that the portfolio adviser intends to follow." 34. Form 81-101F1 further requires, inter alia, that a Simplified Prospectus set out specific information concerning any material risks associated with an investment in the mutual fund. The Simplified Prospectus must: [p]rovide disclosure in the context of the mutual fund's fundamental investment objectives and investment strategies, outlining the risks associated with any particular aspect of those fundamental investment objectives and investment strategies.

35. During the Class Period, the Defendants, in violation of NI 81-101 and Form 81-101 Fl, made representations about the investment strategies applicable to the Equity Fund in Simplified Prospectuses as follows: Investment strategies The Fund invests in a diversified portfolio of publicly traded common shares, preferred shares, rights, special warrants, income trust units and convertible securities. The Fund's investment advisor splits the Canadian marketplace into broad market sectors and attempts to add value through sector selection depending on business cycle considerations; however, security-specific analysis will ultimately determine the portfolio allocation to specific sectors. The selection criteria for stocks within each segment focuses on companies with the ability to generate returns on investment exceeding their cost of capital. This analysis is combined with an evaluation of the management team's ability to efficiently redeploy capital into the business and/or distribute excess capital to shareholders. A portion of the Fund's holdings may be in the form of cash or cash equivalents. The Fund may invest up to 30% of its assets in foreign securities. While the Fund intends to invest primarily in Canadian assets, the Fund may invest in foreign securities where the Fund's investment advisor believes that they might add value to the Fund.

36. During the Class Period, the Defendants, in violation of NI 81-101 and Form 81-101F1, disclosed the following about the risks associated with investing in the Equity Fund: What are the risks of investing in the Fund? The following are the principal risks associated with investing in the HSBC Equity Fund: · Large redemption risk · Market risk · Multiple series unit risk · Securities lending, repurchase and reverse repurchase transaction risk · Security risk · Tax loss restriction event risk 37. The Simplified Prospectuses disseminated by the Defendants in respect of the Funds failed to disclose the Closet Indexing Strategy which the Defendants used for the Equity Fund and the risks associated with that strategy, including the substantial risk that the Equity Fund would not outperform its benchmark after accounting for the management fees to the Defendants.

38. The object, effect, and common import of the above representations in the Simplified Prospectuses, in conjunction with the Defendants' omission of the material facts in respect of the Closet Indexing Strategy and its associated risks, created the impression, and lead investors including the Plaintiff and other Class Members to reasonably expect, that the Defendants actively managed the Equity Fund with the goal of achieving performance that exceeded the performance of the Equity Fund's benchmark (collectively, the "Active Management Representation").

39. As a result of the Closet Indexing Strategy, the Active Management Representation was at all material times false and misleading because the objective of the Closet Indexing Strategy - to closely track the performance of the Equity Fund's benchmark - was at all material times inconsistent with true active management, which has the goal of exceeding the benchmark. Because of the Defendants' Closet Indexing Strategy, the Equity Fund had no reasonable prospect of outperforming, or otherwise had a substantial risk of not outperforming, its benchmark once the Defendants' fees for managing the Equity Fund were taken into account. The Defendants knew or ought to have known that this was the case.

40. The Defendants' implementation and use of the Closet Indexing Strategy meant that the Defendants managed the Equity Fund in a manner that was materially different than or contrary to the Equity Fund's stated investment strategies. The Closet Indexing Strategy, which is not a true active investment strategy, did not justify the Defendants' receipt of the Excess Management Fees out of the Funds' assets.

41. The Closet Indexing Strategy involved the Defendants trading in and out stocks in order to keep the Equity Fund's overall portfolio highly correlated with the benchmark, which trading activity also served to conceal that the Closet Indexing Strategy is effectively a "passive" strategy because a fund could closely track the performance of an index by passively holding the constituent securities that make up the index. At all material times, the Defendants' trading activity was significantly greater than the trading activity that occurred in passive index funds that tracked the same underlying benchmark as the Equity Fund.

42. As a result of the more frequent trading associated with Closet Indexing Strategy, Excess Trading Costs were paid out of the Funds' assets, reducing the value of Class Members' units. The Defendants' trading activity associated with the Closet Indexing Strategy also unnecessarily triggered capital gains that were passed on to investors including the Class Members.

43. Had the Defendants' Closet Indexing Strategy, and the risks associated with their investment strategy, been disclosed as required by applicable Canadian securities laws and regulations governing mutual funds, a reasonable investor would have invested in an index mutual fund or an ETF [Exchanged Traded Fund] tracking the Equity Fund's declared benchmark, the S&P/TSX Composite Index (prior to in or around July 2015) or the S&P/TSX Capped Composite Index (since July 2015), because the management fees of those funds (in the range of 0.05%-0.25% for the ETF during the Class Period), and the associated trading costs, were at all material times a small fraction of the management fees charged by the Defendants to manage the Equity Fund (for e.g., 1.97% for the Equity Fund's Investor Series units). [32] The defendants deny the plaintiff's claims. A portion of the defendants' response to civil claim reads: 7. [HSBC GAM] is the current manager and is the primary investment advisor for HSBC Mutual Funds, including the [Equity Fund] and the [World Selection Funds]. 8. [HSBC IF] is the current principal distributor of the HSBC Mutual Funds.

9. From the beginning of the Relevant Period until December 14, 2010, [HSBC IF] acted as the Manager-Trustee of the [Equity Fund] and the [World Selection Funds]. Since December 14, 2010, [HSBC GAM] has acted as the Manager-Trustee of the [Equity Fund] and the [World Selection Funds].

10. In response to the entirety of the Notice of Civil Claim: (a) Each year from 2005 until present (the "Relevant Period"), [HSBC GAM] (and [HSBC IF] prior to December 2010) published a Simplified Prospectus for each Fund and therein described the fundamental investment objectives of each fund, the principal investment strategies for each fund and the processes by which the securities were selected for the fund portfolio from time to time; (b) [HSBC GAM] used sound business judgment to incur costs and expense in the research to evaluate investment options, select securities and other investment holdings and rebalance positions within the Funds while seeking to fulfil the fundamental investment objectives, the principal investment strategies and the processes by which the securities were selected for the Fund both in accordance with the investment principles as published in the Simplified Prospectus and as required of a prudent fund manager; and (c) In performing investment research, evaluation and fund management, the Defendants properly and reasonably incurred expenses associated with research to select investments, evaluate those and other available investments, to manage the Funds and to fulfil the obligations expected of their position, all of which costs were properly earned and charged to the specific funds in accordance with the disclosures of the individual Fund's

management expense ratio ("MER") and the trading expense ratio (the "TER"). [33] The defendants take issue with the plaintiff's pleadings. As a particular example, with respect to the plaintiff's definition of "Closet Indexing Strategy", the defendants plead: "Closet Indexing Strategy" is a fallacious definition that has been crafted to merge and conflate concepts of investment strategy with actual Fund holdings that changed from time to time and Fund performance relative to a benchmark, all made to obfuscate the true nature of the allegations in the Notice of Civil Claim, thus rendering the entirety of the Notice of Civil Claim, frivolous and vexing. In particular and in response: (i) there was nothing actionable about the actual Fund holdings or changes to Fund holdings at any time, and (ii) there was nothing actionable about the Fund performance at any time, either as alleged or at all. 6. principles of pleadings [34] In Mercantile Office Systems Private Limited v. Worldwide Warranty Life Services Inc., 2021 BCCA 362, Justice Voith, writing for our Court of Appeal, summarized the importance of pleadings: [21] Pleadings are foundational. They guide the litigation process. This is true in relation to the discovery of documents, examinations for discovery, many interlocutory applications and the trial itself. [22] Pleadings also give effect to the underlying policy objectives

of the Rules, which are to ensure the litigation process is fair and to promote justice between the parties: Wong v. Wong, 2006 BCCA 540 at paras. 22-23. They enable the parties and the court "to ascertain with precision the matters on which parties differ and the points on which they agree; and thus to arrive at certain clear issues on which both parties desire a judicial decision": 1076586 Alberta Ltd. v. Stoneset Equities Ltd., 2015 BCCA 182 at para. 55, citing D.B. Casson & I.H. Dennis, eds, Odgers' Principles of Pleading and Practice in Civil Actions in the High Court of Justice, 21st ed (London: Stevens & Sons, 1975) at 75-76. [23] For the court, pleadings serve the ultimate function of defining the issues of fact and law that will be determined by the court. In order for the court to fairly decide the issues before them, the pleadings must state the material facts succinctly: Sahyoun v. Ho, 2013 BCSC 1143 at paras. 15-22; Shoolestani v. Ichikawa, 2018 BCCA 155 at para. 30; Weaver v. Corcoran, 2017 BCCA 160 at para.

63. They must be organized in such a way that the court can understand what issues the court will be called upon to decide: Frederick M. Irvine, ed., McLachlin & Taylor, British Columbia Practice, 3rd ed, vol 1 (Markham, Ont.: LexisNexis Canada Inc., 2006) (loose‑leaf updated 2021) at 3-6; Simon v. Canada (Attorney General), 2015 BCSC 924 at paras. 17-18, aff'd 2016 BCCA 52. [35] In Mercantile, Justice Voith further described that which constitutes a material fact: [45] What constitutes a material fact is well understood. Material facts are the elements essential to formulate a claim or a defence. In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, Justice Binnie said: [54] A cause of action has traditionally been defined as comprising every fact which it would be necessary for the plaintiff to prove, if disputed, in order to support his or her right to the judgment of the court . Establishing each such fact (sometimes referred to as material facts) constitutes a precondition to success. [46] This Court adopted a similar definition of material facts in Young v. Borzoni et al, 2007 BCCA 16 at para. 20: [20] "Material fact" is defined in Delaney & Friends Cartoon Productions Ltd. v. Radical Entertainment Inc., 2005 BCSC 371 at paragraph 9 as, "one that is essential in order to formulate a complete cause of action. If a material fact is omitted, a cause of action is not

effectively pleaded." [47] In Jones v. Donaghey, 2011 BCCA 6 at para. 18, the Court said: [18] Thus, a material fact is the ultimate fact, sometimes called "ultimate issue", to the proof of which evidence is directed. It is the last in a series or progression of facts. It is the fact put "in issue" by the pleadings. Facts that tend to prove the fact in issue, or to prove another fact that tends to prove the fact in issue, are evidentiary or "relevant" facts. [48] Most recently, in Muldoe v. Derzak, 2021 BCCA 199 at para. 31, this Court said: [31] A material fact is one that is essential to formulate a cause of action. If supporting material facts are omitted, a cause of action is not effectively pleaded [36] In Saadati v. Moorhead, 2017 SCC 28, at para. 9, Justice Brown, writing for the Supreme Court of Canada, stated that "cases should not be decided on grounds not raised This rule is an instance of natural justice: each party is entitled to know and respond to the case it must answer".

7. FRAUD pleadings [37] In Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, Justice Karakatsanis, writing for the Supreme Court of Canada, stated: [21] From this jurisprudential history, I summarize the following four elements of the tort of civil fraud: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff's actions resulted in a loss. [38] I read the plaintiff's notice of civil claim as satisfying the four elements of the tort of civil fraud. [39] First, the plaintiff pleads that the defendants made a false representation. The plaintiff pleads that the defendants "represented" that they "actively managed the Equity Fund" and then say that the defendants used a "Closet Indexing Strategy" "which was not disclosed to investors". [40] Second, the plaintiff pleads that the defendants had the requisite knowledge. The plaintiff pleads that the defendants represented that they actively managed the Equity Fund while, "in truth", the defendants used a Closet Indexing Strategy. [41] A common meaning given to the word, strategy, is "a plan designed to achieve a particular long-term aim": Concise Oxford English Dictionary, 12th ed. (Oxford, England: Oxford

University Press, 2011). A strategy requires a plan and one only may have a plan with knowledge. [42] Further, the plaintiff also pleads that the fees the defendants charged for active management "were unreasonably unjustified, and improper". The plaintiff says that the defendants "trad[ed] in and out of stocks in order to keep the Equity Fund's overall portfolio highly corelated with the benchmark, which trading activity also served to conceal that the Closet Indexing Strategy is effectively a passive strategy ": notice of civil claim, para. 41. (Emphasis added.) [43] Accordingly, the second element of the tort of civil fraud, some level of knowledge of the falsehood of the representation, is pleaded. [44] Third, the plaintiff pleads that the fees and trading activity expenses she was charged were higher than those of an index fund: notice of civil claim, para.

43. She also pleads that the fees charged by the defendants for active management of the Equity Fund were "unreasonable, unjustified, and improper" because the defendants used a "Closet Indexing Strategy": notice of civil claim, para.

31. She acted by paying fees for active management. Accordingly, the third element of civil fraud is pleaded. [45] Finally, the plaintiff pleads that the use of a Closet Indexing Strategy did not "justify" the defendants' fees which she paid: notice of civil claim, at para.

40. As part of the relief sought she seeks an order disallowing the payment of excess management fees and excess trading costs as expenses and requiring the defendants to repay such fees and costs: notice of civil claim, para. 44(h). Accordingly, the fourth element of the tort of civil fraud, a loss, is satisfied. 8. pROPOSED COMMON ISSUEs [46] The proposed common issues make specific reference to s. 9.6 of the relevant Declaration of Trust ("DOT"). Section 9.6 reads: Duty of Care In exercising its powers and discharging its duties the Manager-Trustee shall act honestly and in good faith with a view to the best interests of the Fund and shall exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, in which case the Manager-Trustee shall not be responsible or liable for any depreciation in the value of investments of a Fund. [47] The plaintiff's proposed common issues read: The Closet Indexing Strategy 1. In managing the Equity Fund, did HSBC GAM or HSBC IF use the Closet Indexing Strategy? Legal Obligations of the Manager-Trustee 2. Did the Defendant, as Manager-Trustee of the Funds, breach its standard and duty of care as set out in section 9.6 of the DOT (and the equivalent provisions of other HSBC Trust Instruments applicable at material times)? If so, when and how? Prospectus Misrepresentation 3. Did any of the Simplified Prospectuses disseminated by HSBC GAM or HSBC IF during the Class Period contain a misrepresentation within the meaning of the BCSA (and, as applicable, the Other Canadian Securities Legislation)? Unjust Enrichment 4. If the answer to (1) is yes, was HSBC GAM or HSBC IF enriched by using the Closet Indexing Strategy?

5. If the answer to (4) is yes, did some of or all the class members suffer a corresponding deprivation?

6. If the answers to (4 and 5) are yes, was there a juristic reason for the enrichment of HSBC GAM or HSBC IF? Remedies 7. If HSBC GAM or HSBC IF is found liable for breach of trust, breach of fiduciary duty, prospectus misrepresentation, or unjust enrichment, can remedies be determined on a class-wide basis? If so, how?

8. If the answer to (1) is yes, does the Court have the power to grant any remedy in respect of Excess Management Fees and Excess Trading Costs? If so, what remedy, if any, should be granted? Interest 9. If either HSBC GAM or HSBC IF is found liable, should it be ordered to pay an equitable rate of interest or pre-judgment and post-judgment interest pursuant to the COIA [Court Order Interest Act, R.S.B.C. 1996, c. 79]? If so, on what basis and in what amount? Administration and Distribution 10. If either HSBC GAM or HSBC IF is found liable, should it pay some of or all the costs of administering and distributing the recovery? If so, in what amount? [48] The plaintiff's signal Proposed Common Issue ("PCI") is her first one: 1. In managing the Equity Fund, did HSBC GAM or HSBC IF use the Closet Indexing Strategy? [49] If the answer is "yes", the plaintiff's other PCIs are more likely to be answered in the plaintiff's favour. If the answer is "no", PCIs 2, 3, 7, 9, and 10 will still need to be addressed.

9. CAUSES OF ACTION - S. 4(1)(a) of the CPA a) Generally [50] The plaintiff says that she has pleaded the following causes of action: a) breach of trust and fiduciary duty (PCI 2); b) breach of securities prospectus disclosure requirements (PCI 3); and c) unjust enrichment (PCIs 4-6). [51] As noted, s. 4(1)(a) of the CPA requires only that the pleadings disclose the cause of action. Unlike under ss. 4(1)(b)-(e), "some basis in fact" is not required. [52] The defendants submit (in part): 2. Here, the plaintiff has attempted to found a cause of action on coincidence of outcome. This cannot and should not be permitted. With the bias of hindsight, the plaintiff has come up with the allegation that the defendants engaged in "closet indexing" with respect to the management of a specific mutual fund.

3. However, there cannot be a cause of action in respect of a fund whose performance appears similar to its benchmark index. The plaintiff has submitted a confusing pleading that obscures the real basis for their claims, and for an obvious reason: the causes of action pleaded cannot be connected to the coincidental performance of a fund versus its benchmark. The plaintiff's focus on "closet indexing" - an allegation cobbled together in retrospect - does nothing to advance a real cause of action. This court should recognize this and exercise its gate-keeping function to deny certification.

7. The foundational problem with the plaintiff's pleading is that: There is no cause of action in respect of a fund whose performance appears similar to its benchmark index. A statistical analysis of performance does not assist in founding liability or damages and underscores the fundamental problem with the plaintiff's pleading and approach to this case. What is the cause of action and alleged source of liability? If it is in misrepresentation or breach of an alleged trust obligation or fiduciary duty, it is not the performance of the fund that is relevant to liability, but the actions and conduct of the defendants. Any misrepresentation and alleged breach regarding the intentions underlying the activeness (or alleged lack thereof) of management cannot, and will not, be proven through a statistical analysis of the performance of the fund itself. [53] As noted at paragraph 33 above, the defendants view "Closet Indexing Strategy" as a fallacious definition. [54] With respect, I do not find the "Closet Indexing Strategy" to be fallacious or unclear. [55] The definition of Closet Indexing Strategy in Turpin is similar but not identical to the definition at bar. Both definitions use the word "design". [56] In Turpin, with respect to the meaning of the word design I said (in part): [59] "Design" requires an intent or plan to achieve a result. A particular result does not determine

that there was a design. A particular result may occur, for example, by accident, by chance, or by design. [60] The Oxford English Dictionary (2nd ed. 1989) defines "design" as follows: I. A mental plan 1. a. A plan or scheme conceived in the mind and intended for subsequent execution; the preliminary conception of an idea that is to be carried into effect by action; a project. b. 'A scheme formed to the detriment of another' (J.); a plan or purpose of attack upon or on. c. phr. by (†out of, on, upon) design: on purpose, purposely, intentionally. [61] I accept that a particular result may be consistent with and possibly provide evidence of a design. That said, "design" still requires a plan or an intent to achieve the result. [57] In the plaintiff's notice of civil claim she also pleads: In managing the Equity Fund throughout the Class Period, the Defendants implemented and used the Closet Indexing Strategy. [Emphasis added.] [58] The use of the word "implemented" accords with the meaning of design as requiring an intent or plan to achieve a result. [59] With respect, the plaintiff is not "attempt[ing] to found a cause of action in coincidence of outcome". The plaintiff is saying clearly that the defendants throughout implemented and used a strategy (which was not disclosed) designed to track the Equity Fund's benchmark. It is not a matter of coincidence or accident. b) Breach

of trust and fiduciary duty [60] Paragraphs 2 to 7 and paragraphs 28 to 32 of the notice of civil claim serve to plead breach of trust and fiduciary duty as a cause of action. [61] The plaintiff is not required to show "some basis in fact" to support the pleaded facts. It is not "plain and obvious" that the claim cannot succeed. c) Breach of securities prospectus disclosure requirements [62] Paragraphs 33 to 39 of the notice of civil claim serve to plead prospectus misrepresentation. [63] The defendants say that the material facts are not pleaded at all or are buried. The defendants say that: 19. Put simply, as drafted, the effect of the pleaded definitions and compound definitions (i.e., the defined terms which are defined in relation to other defined terms) is that the plaintiff asserts that the defendants should be held liable if the HSBC Equity Fund's performance over the class period is similar to (or "closely tracks") the HSBC Equity Fund's declared benchmark index, regardless of whether the HSBC Equity Fund's performance may have coincidentally been similar to the declared index's performance. This performance-based focus is manifested when the plaintiff merges and conflates (a) fund performance with (b) the defendants' conduct, within the definition of "Closet Indexing Strategy". Similar problems arise with the definitions of "Excess Management Fees" and "Excess Trading

Costs". In the absence of properly delineated material facts in support of her claim regarding wrongful conduct in clear and plain language, drafted with certainty and precision, the entire claim is ultimately linked to fund performance. [Footnotes omitted.] [64] With respect, the plaintiff is not pleading that the Equity Fund's performance gives rise to the cause of action of prospectus misrepresentation. The plaintiff is not basing her claim on results arising by coincidence or accident. Again, the definition of Closet Indexing Strategy is clear. The plaintiff says the defendants implemented and used "an investment strategy designed to closely track the performance of the Equity Fund's declared benchmark". [65] In brief, the plaintiff pleads that the Closet Indexing Strategy the defendants used was not disclosed, as required under securities law as it ought to have been. d) Unjust enrichment [66] The plaintiff pleads that there were excess management fees and excessive trading costs related to the defendants' use of a Closet Indexing Strategy. [67] I further note, the PCI addressing unjust enrichment is predicated on a finding of the defendants using a Closet Indexing Strategy. [68] It is not plain and obvious that there was a "juristic reason" for the "excess" fees. [69] I find that unjust enrichment has been pleaded and it is not "plain and obvious" that the claim will not succeed.

10. IDENTIFIABLE CLASS - s. 4(1)(b) of the CPA [70] For the purposes of the trial of common issues "Class Period" is defined to be "the period from January 1, 2005 to the date on which the certification order in this proceeding is issued" (a slight refinement from the definition in the notice of civil claim). The definition of Class Members follows the definition in the notice of civil claim. [71] At paragraphs 63 and 64 of his reasons in Watson, Chief Justice Bauman summarizes the requirements under s. 4(1)(b) of the CPA. [72] In McCorquodale and Turpin, I certified a class proceeding where the action involved a large number of investors in mutual funds. [73] As I stated in McCorquodale, it can be readily determined whether a person held units in the subject fund(s). In McCorquodale, I also stated: [87] A further requirement of the "identifiable class" requirement is that there is some "rational relationship between the class and common issues". The plaintiff must show that the class is not unnecessarily broad, although they need not show that everyone in the class shares the same interest in the resolution of the asserted common issue: Hollick v. Toronto (City), 2001 SCC 68 at paras. 20-21. I find that there is the requisite rational relationship. [74] Similarly, I find that there is the requisite rational relationship here. [75] The defendants submit: 48. The claims of class

members (including the proposed representative plaintiff, as detailed below) pursuant to the statutory cause of action for securities misrepresentation prior to July 22, 2017 are statute barred (pursuant to the three year limitation period), and common law claims prior to July 22, 2018 are likewise statute barred (pursuant to the statutory two year limitation period), such that class members (and their claims) ought to be excluded from the class or the class may be defined by reference to the limitation period.

49. Unlike in Pioneer [Corp. v. Godfrey, 2019 SCC 42] (a case of an alleged (secret) price-fixing conspiracy), in Stenzler [v. TD Asset Management Inc., 2020 ONSC 111, at para. 31] (a case where a limitations defence was not pleaded by the defendant, and, on the facts of that case, discoverability was a "live issue"), and in Gilani [v. BMO Investments Inc., 2021 ONSC 3589, at para. 279] (where the principle of fraudulent concealment was alleged), no material facts that might arguably relate to discoverability (pursuant to which the limitation period might arguably be extended) have been pleaded by the plaintiff, let alone any basis in fact for a longer class period asserted. Importantly, in the context of extensive public disclosures about historical HSBC Equity Fund performance, unlike a secret price-fixing conspiracy or cases where discoverability are "live" issues, discoverability principles are not applicable. The statutory cause of action under the Securities Act is related to a fixed event unrelated to the injured party's knowledge or the basis of the cause of action. As a result, discoverability cannot apply to the misrepresentation cause of action asserted here as a matter of law, as the legislation provides for an absolute limitation period that is unconnected to knowledge. The plaintiff's submissions entirely side-step this issue. On the basis of the facts and

pleading before the court, there is no basis to certify an overly broad class and to leave the limitations issue to be determined later in the proceedings. [76] With respect, in my view, discoverability may be a "live" issue. Assuming the defendants implemented and used a "Closet Indexing Strategy", it is not apparent to the Court as to the ability of an investor to discover the defendants' use of a Closet Indexing Strategy based on "extensive public disclosure about historical [Equity Fund] performance". As noted, the notice of civil claim engages serious allegations. [77] In McCorquodale, I also stated: [99] From a practical perspective, if it is found at the certification stage that certain class members' claims for statutory prospectus misrepresentation are out of time, those same class members may still have a valid cause of action for breach of trust, breach of contract, breach of fiduciary duty, or unjust enrichment. Therefore, those class members are not properly excluded solely because their statutory claims may be outside the limitation period. [100] Justice Savage (then sitting in this Court) in Haghdust v. British Columbia Lottery Corp., 2013 BCSC 16 noted: [81] The fact that the claims of some class members may be defeated by a valid defence and others may prevail does not mean the class is inappropriate; a class may be comprised of members who ultimately succeed in their claim and members who ultimately fail, providing that all share the same interest in the common issues: O.P.S.E.U. v. Ontario (2005), 13 C.P.C. (6th) 178 (Ont. S.C.J.) at para. 62. [78] In sum, I reject the defendants' argument that some unitholders should be excluded from the Class based on a statutory limitation period.

11. COMMON ISSUES - s. 4(1)(c) of the CPA [79] At paras. 65-67 of Watson, Chief Justice Bauman summarizes the common issue(s) requirement found in s. 4(1)(c) of the CPA. I would also add the further guidance from Pioneer Corp. v. Godfrey, 2019 SCC 42: [109] When thinking about whether a proposed common question would "advance the litigation", it is the perspective of the litigation, not the plaintiff, that matters. A common issues trial has the potential to either determine liability or terminate the litigation (W. K. Winkler et al., The Law of Class Actions in Canada (2014), at p. 108). Either scenario "advances" the litigation toward resolution. Here, if it cannot be shown that loss was suffered by any purchasers at the indirect purchaser level, then none of the indirect purchasers have a cause of action and the action with respect to all the indirect purchasers would fail. I endorse, in this regard, this statement of the Ontario Superior Court in Shah [v. LG Chem Ltd., 2015 ONSC 6148] (at para. 69) : Thus, for the purposes of certification, the methodology about the existence of loss need only be shown to be a plausible one that the passing-on reached the indirect purchaser level of the distribution channel and that there might be individual issues about whether any particular class member experienced illegal price-fixing. If the plaintiff's expert's methodology failed in

proof at trial, then the class members' claim would fail across the indirect class members' class because each and every one of them would have failed to prove a constituent element of their cause of action; i.e., that the price-fixing penetrated their place or "level" of the distribution channel, and the Defendants would secure a discharge of liability against all the class members. Conversely, if the methodology proved sound to show that overcharges reached the indirect purchaser place in the distribution channel, then there might have to be individual issues trials to determine each class member's entitlement. [80] In the case at bar, a key issue is whether the defendants implemented and used a Closet Indexing Strategy in managing the Equity Fund. [81] I find that from the perspective of the litigation, the determination of the PCIs would advance the litigation toward resolution. However, some basis in fact that, in particular, the defendants used a Closet Indexing Strategy must be established. [82] In Sharp v. Royal Mutual Funds Inc., 2021 BCCA 307, leave to appeal ref'd (SCC), Justice Voith, writing for our Court of Appeal, stated: [26] In addressing various certification requirements in s. 4(1), the chambers judge confirmed that the requirement under s. 4(1)(a)--that the pleadings disclose a cause of action--"is assessed by means of the same test that would apply to a

motion to strike." She further confirmed that with respect to ss. 4(1)(b)-(e), the plaintiff is required to show "some basis in fact" to establish that these certification requirements have been met. She explained that the "some basis in fact" standard "does not involve any detailed weighing of evidence, but rather should confine itself to whether there is some basis in the evidence to support the certification requirements". [27] The "some basis in fact" standard played a meaningful role in the judge's analysis of certain issues, and it is useful to understand the parameters of this standard. The leading authorities establish that although the standard does not entail an assessment of the merits of the action, there must also be more than superficial scrutiny of the sufficiency of the evidence. It is clear that "some basis in fact" must be demonstrated by the plaintiff on an evidentiary basis. Such evidence need not be conclusive or satisfy the civil standard of a balance of probabilities, and the particular level of evidence that will be sufficient is highly fact‑specific. Where a basis in fact is intended to be established through an expert methodology, the methodology must be "sufficiently credible or plausible" to raise some "realistic prospect of establishing" the relevant factor. See Hollick v. Toronto (City), 2001 SCC 68 at para. 25; Pro‑Sys Consultants Ltd. v.

Microsoft Corporation, 2013 SCC 57 at paras. 102-05, 118; Sun‑Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58 at para. 61-73; AIC Limited v. Fischer, 2013 SCC 69 at paras. 40-43; Finkel v. Coast Capital Savings Credit Union, 2017 BCCA 361 at paras. 19-20. [83] In Krishnan v. Jamieson Laboratories Inc., 2021 BCSC 1396, Justice Branch stated: [115] The evidence matters in establishing the common issues. The plaintiff must adduce some basis in fact that: (a) the common issue actually exists; and (b) the proposed issue can be answered in common across the class: Simpson v. Facebook, 2021 ONSC 968 at para. 43; Mancinelli v. Royal Bank of Canada, 2020 ONSC 1646 at para. 120; Bhangu [v. Honda Canada Inc., 2021 BCSC 794] at para. 97-99; Charlton v. Abbott Laboratories Ltd., 2015 BCCA 26, at para. 85. [84] As I read Sharp and Krishnan not only commonality among the proposed Class Members must be shown, but also that there is some basis in fact to support the assertion that a common issue actually exists. Justice Gascon's thorough analysis of the issue in Jensen v. Samsung Electronics Co. Ltd., 2021 FC 1185, paras. 193-216, further supports my reading of the law. [85] I find that there is the requisite commonality among the proposed Class Members. If throughout the Class Period a Closet Indexing Strategy was used without its use disclosed, the Class Members would have

been paying for active management while receiving a strategy designed to closely track the Benchmark. [86] The members of the Class would have the commonality of having been charged for investment management services they were told they would receive, but did not. [87] With respect to some basis in fact to support the existence of the Closet Indexing Strategy, the plaintiff's materials contain Professor M. Simutin's August 26, 2020 affidavit. [88] Professor Simutin is an Associate Professor of Finance at the Rotman School of Management at the University of Toronto. In Turpin, he was qualified to give opinion evidence with respect to the classification and performance of investment funds, including associated metrics and related features, aspects, and related calculations. [89] In his August 26, 2020 affidavit, Professor Simutin provides a general description of investment management, including active management, passive (index) management, and funds that may be identified as closet indexes. [90] In his August 26, 2020 affidavit, Professor Simutin makes only one passing reference to the Equity Fund. He does not look at the Equity Fund using metrics such as R-squared, tracking error, or active share to at least identify the Equity Fund as a possible closet indexer. In the Turpin and McCorquodale, he had conducted such analyses as part of his affidavit in those respective cases in

support of the respective certification application. [91] With the recent clarification of the law on the need to show some basis in fact to support the assertion that a common issue actually exists, I will allow the plaintiff to submit a further affidavit by Professor Simutin or other evidence to show some basis in fact that a common issue actually exists: CPA, s. 5(6). [92] Upon receiving the further information, I ask the parties to contact Supreme Court Scheduling to arrange a 9 a.m., 55-minute hearing before me in order that the next steps can be discussed with, if necessary, a further hearing date scheduled. [93] I hope that the plaintiff will be able to obtain the evidence within the next 90 days of these reasons.

12. Preferable procedure - SS. 4(1)(d) and 2 of the CPA [94] In McCorquodale, I found that a class action would be the preferable procedure. In Turpin, as noted, the parties consented to certification. [95] In Turpin, there was approximately 30 days of evidence and five days of legal argument. No difficulties or issues arose that would have shown with hindsight that a trial on the Common Issues was not the preferable procedure. As noted, the Turpin pleadings are similar to the pleadings at bar. [96] In sum, subject to the plaintiff meeting my request for further evidence to support some basis in fact as to the Common Issues and being satisfied of such, in my view, a trial on the Common Issues is the preferable procedure. 13. representative plaintiff - s. 4(1)(e) of the CPA [97] I find that the plaintiff satisfies the requirements of s. 4(1)(e) of the CPA. That said, the Class is a large one with members in various jurisdictions and who may have owned units in other years than the plaintiff and, if necessary, further class representatives may be added as Mr. Bates suggested. 14. notice [98] Mr. McGowan asked that notice aspects not be considered at this time. He wished to make submissions for the Court to consider with respect to notice requirements if certification were to be ordered. I will accede to this request. 15. conclusion [99] The action will not be certified as a class proceeding at this time. [100] Upon receipt of evidence supporting some basis in fact to show that a common issue actually exists and after considering any further submissions on this particular aspect, the Court will be in the position to make a final determination as to certification. "Funt J."