The Ontario Court of Appeal in Di Filippo v Bank of Nova Scotia provides guidance on how to navigate limitations period issues when adding new defendants to an action based on information received from an icebreaker settlement.

Background

The appellate decision in Di Filippo v. Bank of Nova Scotia clarifies how limitation periods will impact class action proceedings when additional defendants are added after an “icebreaker settlement”. The case involves a class of investors suing various banks for “spoofing” to fix the global trading prices of gold and silver. “Spoofing” is the practice placing purchase orders which are then cancelled before fulfillment to manipulate a price.

 An “icebreaker settlement” occurs in class proceedings when one defendant settles for a discount in exchange for cooperation against other defendants. Icebreaker settlements are particularly useful to uncover conspiracies and discover claims against new defendants.

An icebreaker settlement was approved by Justice Belobaba at the trial level in Di Filippo with the defendant Deutsche Bank.¹ Deutsche revealed details of their spoofing activities with other co-conspirators.

The Plaintiffs used this information to attempt to add six other banks to the class action. Belobaba J. denied this attempt on grounds that the Plaintiffs already had “actual knowledge” of the claims against those banks through public regulatory investigations. Over two years had passed since the regulatory investigations, so the claims against the new defendants were barred by the Limitations Act.² 

Belobaba J. also denied the addition of new defendants since the Plaintiffs brought new claims of “non-collusive spoofing”. The case thus far had only contained allegations of “collusive spoofing”. Two years had passed since the beginning of the case so new claims could not be brought against new defendants.

Appellate Decision

Actual Knowledge

The Ontario Court of Appeal overturned Belobaba J.’s decision and allowed the addition of the defendant banks. They stated that “actual knowledge” of a claim exists when a party has “the material facts upon which a plausible inference of liability on the defendant’s part can be drawn”.³

The public investigations of the banks provided the plaintiff with suspicion but not the material facts underlying that suspicion. The plaintiff was only provided with material facts after the icebreaker settlement with Deutsche Bank and therefore still had time to add the new defendants.⁴

New Claims or Alternative Theory of Liability?

The Court of Appeal also ruled that the allegations of “non-collusive spoofing” were an alternative theory of liability rather than a new claim and therefore were not time-barred. The Court acknowledged the fine line between a new claim and an “alternative theory of liability”. The primary distinction is a new claim will rely on a different set of facts whereas an alternative theory of liability will rely on the same facts as the existing claim.5

In Di Filippo it is clear why non-collusive spoofing is an alternative theory of liability that relies on the same facts as the allegation of collusive spoofing. Non-collusive spoofing can be seen as a necessary ingredient in the greater allegation of collusive spoofing. For example, if someone is guilty of robbing a bank with a group (collusion), they are also implicitly guilty of robbing a bank (non-collusive).

Takeaways

Plaintiffs should expect Limitations Act-related obstacles when attempting to add defendants after an icebreaker settlement. The Court of Appeal provides useful guidance in Di Filippo on how to avoid those obstacles.

Plaintiffs should ensure that they receive disclosure of the material facts supporting a claim against a new defendant when entering into icebreaker settlements. Plaintiffs should avoid icebreaker settlements that merely “points fingers” without disclosing concrete evidence of another party’s involvement. Without that evidence, or “material facts”, limitations-period issues may render the settlement useless. 

Plaintiffs should also be wary of icebreaker settlements that promise to reveal the activities of co-conspirators who are engaging in a different kind of illicit activity. Claims brought based on a different set of facts will constitute a “new claim” and therefore can only be litigated in a new action. 

Icebreaker settlements remain useful tools to advance class actions. However, Plaintiffs must carefully consider whether Limitations Act-related issues will prevent realization of the value of their settlement. 

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1. Di Filippo and Caron v. Bank of Nova Scotia et al, 2019 ONSC 3282 at 19.
2. Supra 1 at 23.
3. Ibid at 38.
4. Ibid at 58.
5. Ibid at 41.