Horizons ETFS Management (Canada) Inc. v. Graham Wright

(Ontario) (Civil) (By Leave)


Civil procedure - Class actions, Certification - Civil procedure — Class actions — Certification — Negligence — Securities — Whether the categories of liability for negligence causing pure economic loss should be expanded to include an investment fund creator designing a new fund — Whether the manager of a passively managed investment fund has a duty to step in and take positive action to prevent investors from suffering pure economic losses — Whether ETF investors may advance a claim created by provincial securities legislation for alleged misrepresentations contained in a prospectus filed in connection with a continuous distribution ETF.


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The applicant Horizons (respondent on the application for leave to cross appeal) created and managed an exchange traded fund known as the Horizons BetaPro S&P VIX Short Term Futures Daily Inverse ETF. The respondent Mr. Wright (applicant on the application for leave to cross appeal) was one of the investors who purchased units of this ETF. On February 5, 2018, the ETF suffered dramatic losses in the aftermarket due to a rise in market volatility. In May 2018, Mr. Wright commenced a proposed class action against Horizons pursuant to the Class Proceedings Act, 1992 (S.O. 1992, c. 6), seeking general damages, calculated based on the capital losses experienced by the ETF, on behalf of himself and other unitholders.

The Ontario Superior Court dismissed the motion for certification of the action as a class proceeding, as well as the action itself. It considered that the action did not disclose a reasonable cause of action. In its view, it was plain and obvious both that Mr. Wright and the putative class members did not have a common law negligence claim against Horizons, and that they did not have a cause of action under s. 130 of the Ontario Securities Act (R.S.O. 1990, c. S.5). The Court of Appeal allowed the appeal in part. If found that there was a reasonable prospect of demonstrating that the claim fell within a recognized duty of care under the category of negligent performance of a service, and allowed Mr. Wright to amend the statement of claim such that it would contain the material facts necessary to establish that there was a cause of action under s. 130. The matter was remitted to the certification judge to determine whether the remaining criteria for certification were met.