Court of Appeal Confirms Application of Statutory Limitation Period Applicable to Securities Class Actions

In Kaynes v. BP PLC,¹ the Ontario Court of Appeal considered the interaction between the three-year limitation period for secondary market claims under the Securities Act (the Act) and the court's discretion under that regime to treat multiple misrepresentations as a single misrepresentation. The Court confirmed that each misrepresentation upon which a plaintiff bases his or her claim must have been made within three years of the commencement of the action. The discretion conferred by the Act cannot be used to expand the three-year limitation period for claims based on stale misrepresentations.

What You Need To Know

• The Court confirmed that the discretion provided by s. 138.3(6) of the Act to treat multiple representations as a single misrepresentation is not intended to and does not have the effect of modifying the three-year limitation period found in s. 138.14 of the Act. Section 138.3(6) was designed to protect issuers from multiple rights of action or multiple liability for essentially the same misrepresentation repeated on a number of occasions – not to allow plaintiffs to sue on stale misrepresentations.
• The Court stated that an interpretation of the Act that considers only the "twin goals of investor protection and the deterrence of corporate misconduct" is too narrow. The policy objectives of the Act are more nuanced, and seek to strike a balance between various market participants, which includes (i) consideration of the interests of defendants and (ii) protection of subsequent shareholders from claims based on alleged misrepresentations made to previous shareholders.
• This is an important decision for issuers and other potential defendants to securities class actions. It confirms that plaintiffs will not be permitted to pursue claims based on misrepresentations that are more than three years old, notwithstanding the discretion conferred by s. 138.3(6) of the Act.

Background Information

The plaintiff in this class proceeding sued on 14 alleged misrepresentations, 11 of which were made more than three years before the action was commenced. The defendant brought a motion to strike the claim on the basis that it was statute barred, in light of the three-year limitation period found in s. 138.14 of the Act. The plaintiff argued that the claims based on the 11 misrepresentations should not be struck because, pursuant to s. 138.3(6) of the Act, it is within the discretion of the judge to treat them as a single misrepresentation.

The motion judge rejected the plaintiff's argument and ruled that the claims based on the 11 misrepresentations were statute barred. He also found that the statutory discretion to treat multiple misrepresentations as a single misrepresentation did not impact the limitation period analysis. The plaintiff appealed the decision.

The Court of Appeal upheld the motion judge's decision and dismissed the appeal for the reasons described above.

The Court of Appeal's decision reflects an appropriately nuanced approach to the impact of the purposes of the Act—which include investor protection and efficient capital markets and confidence in capital markets—on the interpretation of the secondary market liability regime. In that regime, a balance must be struck between plaintiff shareholders seeking damages and the issuer's current shareholders, which will bear the cost of any damages awarded or amounts agreed to be paid by way of settlement.

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¹ 2018 ONCA 337