In May of 2009, Sharma initiated a proposed class action alleging that misrepresentations were made that adversely affected the value of shares of Timminco Limited in the secondary market. Under the Ontario Securities Act, leave of the Court was required to assert such a claim, which needed to be commenced within three years of the date the alleged misrepresentation was made. The statement of claim indicated an intention to seek leave, but by the end of February 2011, the plaintiff had not yet brought a motion to do so.
Facing expiration of the Securities Act limitation period, the plaintiffs brought a motion for a declaration that section 28(1) of the Class Proceedings Act, which suspends limitation periods while a class proceeding is ongoing, suspended the limitation period in the Securities Act. The plaintiffs' motion was granted at first instance, and the defendants appealed.
The Ontario Court of Appeal held that pleading an intention to seek leave to assert a claim was not enough to trigger the application of the Class Proceedings Act so as to suspend the limitation period in the Ontario Securities Act.
The Court commented that the Class Proceedings Act applies only to class actions and would not be available for plaintiffs suing in their individual capacity. As such, accepting the plaintiffs' interpretation of the Class Proceedings Act would confer a benefit on class members in a class proceeding unavailable to individual litigants, which could not have been the intention of the legislature when drafting the Class Proceedings Act.
The Court also considered the public policy objectives of the Ontario Securities Act and remarked that "[s]ection 138.14 was clearly designed to ensure that secondary market claims be proceeded with dispatch. That requires the necessary leave motion to be brought expeditiously."
Finally, the Court clarified that s 28(1) of the Class Proceedings Act could apply to claims pursuant to section 138.3 of the Ontario Securities Act, but only where leave to commence the action has first been granted.
The Court of Appeal in Sharma v. Timminco confirmed that plaintiffs pursuing claims for statutory misrepresentation on the secondary market must complete the leave motion, obtain leave, and issue a claim within three years of the alleged misrepresentation. This decision recognizes the legislative intent of the Securities Act, which was to protect public companies and their shareholders from unmeritorious claims and undue delay in advancing secondary market class actions. Plaintiffs who lag in pursuing their claims take the risk that their claims will be statute barred.
This is the first Canadian decision to address this issue directly and represents a rare procedural blow to class action plaintiffs. However, as an application for leave to appeal this ruling to the Supreme Court of Canada was filed on April 16, 2012, the Court of Appeal decision may not be the final word on this topic.
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