On December 4, the Supreme Court released its decision on three related securities class action appeals: Green et al. v. CIBC et al., Silver et al. v. IMAX Corp et al. and Trustees of the Millwright Regional Council of Ontario Pension Trust Fund et al. v. Celestica Inc. et al. 1 The Court was sharply divided over the issues of whether section 28 of the Ontario Class Proceedings Act operated to suspend the limitation period in section 138.14 of the Ontario Securities Act; and if not (as four of the seven judges ruled), whether the court has inherent jurisdiction to override the Securities Act limitation period by back-dating the granting of leave to commence a statutory claim. While the Supreme Court’s resolution of these issues should have limited significance for the future operation of the statutory secondary market misrepresentation regime in light of recent legislative amendments, there are three other points addressed in the decision—on which the court was unanimous—that will have continuing significance for secondary market misrepresentation securities class actions.
What You Need To Know
- The standard for leave under Part XXIII.1 is confirmed. Part XXIII.1 of the Ontario Securities Act provides a statutory framework for claims brought by investor plaintiffs against a securities issuer, alleging that the issuer has made misrepresentations in its public disclosure documents or failed to make timely disclosure of material changes. The statutory framework was designed to facilitate statutory claims being certified as class actions by eliminating the requirement that individual class members prove they relied on alleged misrepresentations. However, in order to protect against abusive litigation, before commencing a claim under the statutory framework, plaintiffs must first obtain the permission of the court by establishing that the proposed claim has a "reasonable possibility of success" at trial. In Theratechnologies inc. v. 121851 Canada inc., the Supreme Court held that for an action to have a "reasonable possibility of success," there must be a reasonable or realistic chance that it will succeed, and plaintiffs must offer both a plausible analysis of applicable legislation and some credible evidence in support of the claim.
- The Supreme Court has now confirmed its interpretation of the leave standard in Theratechnologies, and held that the proper standard is higher than the one articulated by the lower courts in Green. This higher standard should impose a heavier burden on plaintiffs seeking leave to commence a statutory secondary market misrepresentation claim.
- Common law and statutory claims may proceed together. The plaintiffs in each case had asserted both statutory and common law misrepresentation claims, and the parallel claims were certified as class actions by the courts below. It was argued in the Supreme Court that common law secondary market misrepresentation claims ought not to be certified, whether or not leave is granted to proceed with a parallel statutory claim, since class action procedure is not the "preferable procedure" for resolution of such claims (as required by section 5(1)(d) of the Class Proceedings Act). The Court rejected this argument, relying on a provision in the Securities Act which states that the statutory right of action was not intended to derogate from other rights, and holding that the question for the preferability analysis under section 5(1)(d) is what procedure is preferable to advance a claim, not what cause of action (statutory or common law) is preferable.
- Fraud on the market still cannot be used to prove reliance. Before the Court of Appeal, plaintiffs had advanced the argument that, in the context of their common law claims, inferred reliance on misrepresentations in public disclosure ought to be certified based on the “fraud on the market” economic theory. This theory is applied in U.S. securities misrepresentation claims, and permits plaintiffs to argue that reliance is presumed where the shares of the issuer are traded on a well-developed and efficient market. The “fraud on the market” theory has not been adopted in Canada and the Court of Appeal confirmed this in its decision. The Supreme Court upheld the Court of Appeal’s decision on this point. This means that issues of reliance and damages in common law misrepresentation claims continue to be unlikely to be certified in a class proceeding, undermining the utility of common law claims for class action plaintiffs.
1 Torys LLP is counsel to CIBC in the Green et al. v. CIBC et al. case.
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