In the 2019, a group of production companies (‘Voltage”) sought certification of a respondent class proceeding alleging copyright infringement of five of its films by a group of defendants (commonly known as a “reverse class action”). Voltage alleged that numerous parties, including the named proposed representative defendants had infringed its works by sharing and downloading bittorrent files relating to the works, online.
The Federal Court of Canada (“FC”) dismissed Voltage’s certification motion, and held that it did not meet the criteria to merit a certification proceeding pursuant to the Federal Courts Rules. The FC’s decision matter was appealed by the representative defendants on the matter of costs, and cross-appealed by Voltage as dismissal of its motion. The issues on appeal were 1) whether the FC had made a reviewable error in refusing to certify the class action because of its novelty, and 2) whether the FC erred in its decision to award costs and refusal to release the security for costs?
On September 8, 2021, the Federal Court of Appeal (“FCA”) held that the FC made reversible errors in denying Voltage’s certification motion, referring the matter back to the FC. In its decision, the FCA reviewed in detail the frailties of the FC’s analysis of each of the certification criteria under the Rules.
1. Whether the pleadings disclose a reasonable cause of action
The FCA found that whether the proceeding discloses a reasonable cause of action was not res judicata as a result of the Norwich proceeding that had made its way to the Supreme Court of Canada, since the issue was not opposed in that proceeding, the question was to be considered by the Court. The FCA held the FC erred in its application of the test under this criterion. Rather than taking the facts pled to be true, the FC had placed an undue burden on Voltage to prove that internet account subscribers were so-called “direct” infringers, and had delved into the merits of the “authorization” argument rather than considering whether Voltage should be precluded from advancing it. The FCA held that Voltage had shown it has a novel but arguable claim, and pled the necessary facts to support claims for direct and authorizing infringement. However, the FCA held Voltage had not successfully pled the facts needed to ground the knowledge requirement of its claim of secondary infringement.
2. There is an identifiable class of two or more persons
The FCA reaffirmed that the standard applicable to the remaining certification criteria is whether the party moving for certification has shown “some basis in fact” supporting an objective class definition that has a rational connection to the common issues and is not dependent on the outcome of the litigation.
The FCA found that the FC had erred by substituting the requirement that there be “some basis in fact” of a class of two or more people, with a requirement of evidence on a civil standard. As the standard is not intended to be onerous, and the identity and number of class members need not be known at the time of certification, “applying the correct test to the certification record before the [FC], the evidence was sufficient to show that the proceeding will not collapse for want of a ’class of two or more persons‘.”[1] However, the FCA noted that the paucity of evidence on the size of the class would create issues downstream in the analysis of the choice of procedure.
3. There are common Questions of Fact and Law
The FCA found that contrary to its guidance in prior class certification case law, the FC had focussed on how the outcomes of various questions may be different for various proposed class members, rather than whether the resolution of a question is common to the class. Class proceeding rules provide courts with the flexibility to resolve individual issues that may arise, including the ability to create subclasses based on similar fact scenarios, the ability for a court-supervised individual assessment process, or even decertification if appropriate.
4. A class proceeding is the preferable procedure for the just and efficient resolution of the common questions of law or fact
At this stage, the FCA found that the FC erred by merging its concerns with Voltage’s litigation plan into its consideration of the preferability test. In assessing the litigation plan, the FC concluded that joinder was the preferable procedure, a conclusion the FCA said could not be sustained. The FC also erroneously concluded that the ability to opt-out of the class proceeding was a further reason not to certify the proceeding. The FCA explained that the ability to opt-out is codified in the Rules and not a reason to refuse certification. The FCA continued, noting that without evidence as to how membership is determined and preserved, and its scale, it is impossible to determine whether a class proceeding would be preferred over other available options. Accordingly, the FCA could not review the evidence and conduct the preferability analysis in the motion judge’s stead.
5. There is a suitable representative respondent
The FCA noted again there was a paucity of analysis on these issues by the FC, which had wrongly determined that Voltage did not meet the representative class member criteria on the basis that Voltage failed to show that the representative defendant had an “incentive” to defend the class application because his cost exposure was capped at $5,000. The FCA opined that such reasoning would lead to the conclusion that no respondent class proceedings would ever have a suitable representative respondent in circumstances where the monetary consequence for each class member is low. As the questions to be considered at this stage were factually suffused and deserving of careful attention, this criterion was referred back to the Federal Court for re-hearing.
6. Use of the Notice and Notice regime
The FC concluded that Voltage’s proposed use of the notice and notice regime under the Copyright Act overburdened Internet Service Providers and appropriated Parliament’s intention to balance the rights of interested parties, for its own purpose. The FCA held that the FC had not conducted the statutory interpretation analysis required to determine the use to which Parliament intended the notice and notice regime to be put, holding that there was no evidence to support this conclusion. This criterion was remitted back to the FC for re-consideration.
Appeal of the costs award
The FCA held that the FC’s decision to award costs contrary to the presumption that a class proceeding is a no-cost regime without explaining why was legally and factually deficient, as the FCA could not understand why the decision was made, or whether an error was committed. The FCA therefore allowed the appeal of costs and set aside the order.
The FCA also held that the FC erred in ordering that the $75,000 set aside for security for costs “up to and including” the motion for certification, not be released following its decision not to certify the class action. Following the outcome of the motion, the funds should have been released. However, in light of Voltage’s success in the appeal and the certification motion being returned to the FC, the FCA stated that this error was of no consequence and the question of security would follow the FC’s decision on the returned motion.
[1] Salna v. Voltage Pictures, LLC, 2021 FCA 176 at para 98
