In Di Filippo v. Bank of Nova Scotia, 2024 ONCA 3, released Jan. 17, the plaintiffs claimed the conspiracy took place over a period of years through use of illegal methods, thereby depriving the class of the actual value of their trades. The class period was defined from Jan. 1, 2004 to Dec. 31, 2016.
The amendments were to add a number of financial institutions as defendants and amend claims against established defendants. This was dismissed by the motion judge as he found that the proposed amendments had time-barred new claims and that one proposed defendants could not be listed as such because it did not arise out of the same transaction.
With parallel proceedings ongoing in the United States, the regulatory body the Commodity Futures Trading Commission (CFTC) made orders in 2019 and 2020 against existing defendants UBS and HSBC and four others including Bank of America, Merrill Lynch, JP Morgan and Morgan Stanley. The CFTC settled with Deutsche Bank pursuant to clauses of co-operating in claims against the defendants.
The CFTC findings related to a method of fraudulently manipulating the gold and silver trading markets known as “spoofing,” where a fake order for the metal would be placed and later withdrawn after another transaction went through at an inflated or deflated price influenced by the fake order.
It found that multiple spoofing transactions were carried out. UBS carried out the transactions from 2008 to 2013, HSBC from 2011 to 2014, Bank of America and Merrill Lynch from 2008 to 2014, Morgan Stanley from 2013 to 2014, and JP Morgan from 2008 to 2016. Large fines and restitutionary orders were included.
The motion judge advised counsel that the motion “raised deep judicial concerns that adding a new damages claim that focused not just on the multi-bank conspiracy but on the unrelated individual and intra-bank-only misconduct of some traders — ‘the non-conspiracy spoofing allegations’ –— ‘will make an already complicated conspiracy proceeding unwieldy and unmanageable’.” And that the plaintiffs should pursue the non-conspiracy trader misconduct claims in a separate proceeding.
For UBS and HSBC, he found that the proposed amendment adding a claim for non-collusive intra-bank spoofing was time barred as was the motion to add Bank of America and Merrill Lynch. He concluded that class counsel had “actual knowledge” since at least March 2018 that the two had been added to U.S. proceedings and were potentially involved in the impugned conspiracies.
“Although the motion judge’s reasons are very briefly stated, it is clear that he viewed non-collusive spoofing and collusive spoofing as giving rise to two different causes of action: spoofing and conspiracy to spoof. He also stated that new facts are alleged to support the non-collusive spoofing claim,” said Justice Kathryn Feldman.
Since the claims already included spoofing, the CFTC orders “merely provide confirmatory evidence” and that the damages claim for the losses caused by the spoofing transactions is “an additional remedy to the claim for damages for conspiracy to spoof, arising from the same facts, the same losses.”
She found that the motion judge erred by finding that the proposed amendments were statute barred because they allege new facts and a new cause of action.
“The additional facts in the proposed amendments constitute evidence of the facts already pleaded or further details of those facts. Further, the proposed amendments, which include claims for damages for non-conspiratorial spoofing, constitute ‘an alternative theory of liability or an additional remedy based on facts that have already been pleaded’. They do not plead a new claim under the Limitations Act.”
Adding Morgan Stanley as a defendant was also time barred according to the motion judge, again for having actual knowledge based on a March 2018 affidavit saying that Morgan Stanley was one of the banks being targeted in the “Swiss [WEKO] investigation of big-bank collusion in precious metals auction-pricing,” attaching a 2015 press release saying such. The motion judge agreed that class counsel “therefore ‘knew ‘the who and the what’ more than two and a half years (at the very least) before serving this motion.”
Justice Feldman found that the judge erred because “he treated facts which might trigger a duty to investigate as material facts sufficient to trigger the limitation period.”
She said that because the U.S. pleadings and WEKO press release “did not disclose the necessary material facts,” it was therefore an error of law “to find that the proposed amendments were statute barred on the basis that class counsel had actual knowledge of the claims against Bank of America, Merrill Lynch and Morgan Stanley more than two years before the motion to amend was brought.”
It was noted that actual knowledge does not materialize when a party can make a “plausible inference of liability.” Rather, it materializes when a party has “the material facts upon which a plausible inference of liability on the defendant’s part can be drawn.”
“While class counsel may have had reason to suspect that Bank of America, Merrill Lynch and Morgan Stanley were part of the conspiracy, that suspicion was not actual knowledge.”
Further, it was not the motion judge who decided that the plaintiffs had constructive knowledge that they had a claim under s. 5(1)(b) because he agreed with the submissions of the defendants that the plaintiffs had knowledge.
For JP Morgan, it was not deemed a proper party to the conspiracy actions by the motion judge because the evidence came from the CFTC order that found extensive spoofing by JP Morgan, but did not find it was done as part of an inter-bank conspiracy.
JP Morgan was not added because the CFTC order “did not find conspiratorial spoofing that would have connected JP Morgan to the conspiracy pleaded against the other banks.”
The appellate court found that the motion judge made a palpable and overriding error of fact “by finding that the CFTC order found that none of the spoofing by JP Morgan was conspiratorial spoofing.” The motion judge failed to consider a number of the findings, including manipulation contrary to statutory provisions, that spoofing was done by traders with the knowledge and consent of superiors and that this conduct benefitted JP Morgan financially while harming market and market participants.
The appeal was allowed. Justice David Paciocco agreed. However, Justice Grant Huscroft dissented in part.
“I agree that the amendments to the UBS, HSBC, and JP Morgan pleadings should be allowed. However, and with respect, I would dismiss the appeal in all other respects. The motion judge’s decision that the claims against Bank of America, Merrill Lynch, and Morgan Stanley are time barred is entitled to deference,” he said.
“The motion judge was managing these proceedings for an extended period of time and was well familiar with the facts. His reasons are short but they do not preclude appellate review. The motion judge’s finding that plaintiffs’ counsel had actual knowledge of ongoing investigations and parallel U.S. legal proceedings commenced earlier is amply supported in the record.”
He further did not accept that there was an extricable error subject to review for correctness.
“Whether a limitation period has expired prior to the commencement of an action is a question of mixed fact and law subject to review on a palpable and overriding error standard.”
He found the motion judge “did not err in concluding that the record and inferences he drew from it were sufficient to satisfy the actual knowledge of material facts standard.”
Counsel for the appellants were Louis Sokolov of Sotos LLP and Reidar Mogerman of Camp Fiorante Matthews Mogerman LLP.
Counsel for the JP Morgan entities were Michael Eizenga, Emrys Davis and Sakina Babwani of Bennett Jones LLP.
Counsel for Bank of America Corporation and Merrill Lynch Commodities Inc. were John Fabello, James Gotowiec and Colette Koopman of Torys LLP.
Counsel for Morgan Stanley Capital Group Inc. were Matthew Milne-Smith and Maura O’Sullivan of Davies Ward Phillips & Vineberg LLP.
Counsel for the UBS entities were Katherine Kay and Zev Smith of Stikeman Elliott LLP.
Counsel for HSBC entities were Mark Evans, Adam Goodman and Theresa Cesareo of Dentons (Canada) LLP.
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