Silver v. IMAX Corporation et al., 2011 ONSC 1035
and Dobbie v. Arctic Glacier Income Fund et al, 2011 ONSC
25
On February 14, 2011, the Ontario Superior Court dismissed a motion by the defendants
seeking leave to appeal both the certification and leave decisions of Justice van
Rensburg in Silver v. IMAX Corporation et al. (the
"IMAX Decision") which, until recently, had been the
first and only case to have been both certified and granted leave
to commence an action under the provisions of the Ontario
Securities Act (the "OSA") enacted just over five
years ago which provide for a statutory cause of action for
secondary market investors. The motion was of interest as, if
successful, it would have allowed the Divisional Court to address
the leave and certification issues in this case.
On March 3, 2011, Justice Tausendfreund of the Ontario Superior
Court of Justice in Dobbie v. Arctic Glacier Income Fund et
al. (the "Arctic Glacier Income Fund Decision")
granted both certification and leave to commence an action under
the secondary market provisions in what is now the second case to
have done so.
Background in the IMAX Decision
The class action commenced against IMAX Corporation
("IMAX") and certain of its officers and directors
(collectively the "IMAX defendants"), concerns
allegations about the company's revenue and revenue-recognition
practices. The plaintiffs, shareholders of IMAX, sued with respect
to a decline in the price of their shares that they argue was
caused by alleged misrepresentations in IMAX's 2005 Form 10-K,
in its 2005 Annual Report and in press releases issued in February
and March of 2006. The plaintiffs allege that certain of the IMAX
defendants misrepresented the 2005 financial results as having been
prepared in accordance with GAAP and, that they knowingly
overstated revenues which led to the artificial inflation of the
trading price of IMAX securities.
The causes of action asserted included common law claims of
negligence, negligent misrepresentation, "reckless"
misrepresentation and conspiracy, as well as a statutory cause of
action for misrepresentations in the secondary market under the
OSA.
On December 14, 2009 Justice van Rensburg of the Ontario Superior
Court of Justice handed down two related decisions which were the
subject of IMAX's recently refused motion for leave to appeal.
The first was the "Leave Decision" granting the
plaintiffs leave to proceed with their class action against IMAX
and certain individual respondents under section 138.3 of the OSA.
The second was the "Certification Decision" which
certified the action as a class proceeding, including both the
common law and statutory claims. Notably, the class, as certified,
is a global class consisting of all persons who acquired securities
of IMAX during the defined class period who continued to hold those
securities at the close of trading on the last day of the class
period.
The Leave Decision
In the Leave Decision Justice van Rensburg granted leave under
ss. 138.8(1) to commence an action under ss. 138.3. The provision
requires that in order for a plaintiff to be able to commence an
action for misrepresentation in the secondary market, two criteria
must be met, namely (i) the action must be brought in good faith
and (ii) there must be a reasonable possibility that the action
will be resolved at trial in favour of the plaintiff.
Justice van Rensburg held that the good faith requirement under ss.
138.8(1) requires plaintiffs to establish that they brought the
action with the honest belief that they have an arguable claim for
"reasons that are consistent with the statutory cause of
action and not for an oblique or collateral purpose." With
respect to the second part of the test, Her Honour was of the view
that the threshold for a "reasonable possibility" is
"something more than a de minimis possibility or
chance that the plaintiff will succeed at trial". Her Honour
concluded that the Court must consider the entire evidentiary
record on the motion, including the defences in determining if
there is a reasonable possibility of success at trial.
The Certification Decision
In the Certification Decision, Justice van Rensburg considered
issues including, among others, the common law claims of
misrepresentation together with issues surrounding the duty of care
and reliance, conspiracy, and whether or not a "global
class" definition was certifiable.
On the common law misrepresentation claims the plaintiffs alleged
that the entire proposed class of plaintiffs relied on the
representations in the company's financial statements by virtue
of the act of purchasing the IMAX securities alone and that proving
individual reliance by each investor was, therefore, not required.
The defendants asserted that the plaintiffs' failure to plead
individual and direct reliance was fatal to the claim of
misrepresentation, as previously held by other Canadian courts.
Justice van Rensburg determined that, for the purpose of the
certification motion alone, it was arguable that a duty of care may
have been owed in the circumstances. Her Honour held that there was
a conceivable claim based on the plaintiffs' pleading of the
"efficient market theory" to establish reliance.
In respect of the plaintiffs' other common law claims, Justice
van Rensburg found that the plaintiffs' conspiracy and reckless
(fraudulent) misrepresentation claims had been properly plead but
that the negligence simpliciter claim was identical to the
negligent misrepresentation claim and therefore improper.
On the issue of whether or not a "global class"
definition was certifiable, the IMAX defendants argued that such a
class would be over inclusive inasmuch as it would include
individuals or entities which did not known about or rely on the
misrepresentation and that such a class would create a conflict of
laws issue requiring an Ontario court to take jurisdiction over
class members residing outside the province. The IMAX defendants
also contended that the principles of order and fairness weighed
against certification of a global class, particularly in light of a
similar class proceeding that had been commenced in the United
States. In certifying the global class, Justice van Rensburg found
that the issues raised by the pleading had a "real and
substantial" connection to Ontario and determined that the
fact that a similar proceeding had been commenced in the United
States was inconsequential to the Ontario action. Her Honour also
held that any concern over conflict of laws issues was premature
unless and until the defendants asserted reliance on laws of other
jurisdiction in their statement of defence.
Leave to Appeal Refused
The test for leave to appeal is found under Rule 62.02(4)(a) or
(b) of the Ontario Rules of Civil Procedure which states
that leave may be granted where there is a conflicting decision by
another judge or court in Ontario or elsewhere on the matter
involved in the appeal, or where there appears to the judge hearing
the motion, good reason to doubt the correctness of the order in
question and the proposed appeal involves matters of such
importance that, in his or her opinion, leave to appeal should be
granted.
In dismissing the motion for leave to appeal, Justice Corbett
accepted the IMAX defendants' arguments that where a decision
is open to serious debate the threshold test for doubting the
correctness of an order is met and that this includes cases where a
decision appears to be a "significant extension of the
law", where the reasoning is "novel", or where there
is a "lack of clarity in the law." However, His Honour
noted that although he accepted these arguments generally, they did
not encompass the whole of the exercise of discretion on an
application for leave to appeal and that this analysis applies to
the decision or the order from which leave is sought, and not to
the specific aspects of the reasons for that decision, which is not
the subject of the appeal. Justice Corbett found that there was no
reason to doubt the correctness of the decisions of Justice van
Rensburg and that even if there were concerns about aspects of the
reasons of the Certification or Leave Decisions, such concerns were
not sufficient to allow leave to appeal.
Leave to appeal the "Certification Decision"
On the motion for leave to appeal, the IMAX defendants argued
that Justice van Rensburg erred in refusing to strike the common
law claims of misrepresentation because, they said, the defendants
owed no duty of care to the plaintiffs and because the plaintiffs
failed to plead actual reliance by each class member, which they
argued, is necessary to establish causation between the statements
and the plaintiffs' alleged losses. The IMAX defendants also
argued that the conspiracy claims should have been struck because
the pleadings were improper.
Justice Corbett stated, "the relationship between common law
and statutory claims of misrepresentation is important, and merits
appellate consideration. However, the decision of van Rensburg J.
does no more than permit the plaintiffs to proceed to trial. The
Court of Appeal will be able to give full consideration to these
issues if and when the case is appealed after a trial
judgment."
On the issue of the global class, the IMAX defendants argued that
the claim should not have been certified to include the plaintiffs
in other jurisdictions. Commenting that the IMAX defendants'
submissions on this point were significantly undermined by their
approach to the class proceedings brought against them in the U.S.
where they took the position that Ontario was the proper
jurisdiction for all claims respecting the impugned statements,
Justice Corbett held that, "it would be wrong, of course, to
compel foreign investors to be bound by Canadian proceedings if
they prefer to have their claims adjudicated elsewhere. But
similarly, it would be wrong to preclude them from participating in
Canadian proceedings if they wish their claims to be pursued in
Ontario." His Honour went on to state that "as a matter
common sense, there is integration of the Canadian and American
capital markets, and there are legitimate bases for enforcement to
be possible in both Canada and the U.S.A., both by regulatory
action and by civil claims. The manner in which this integration
takes place will vary from case to case. Certainly integration does
not imply a prohibition on overlapping class proceedings in
different jurisdictions."
Leave to appeal the "Leave Decision"
In the motion for leave to appeal, the IMAX defendants argued
that Justice van Rensburg had set too low a threshold for leave and
for establishing good faith by the plaintiffs under ss. 138.8(1)
and that the legislature had intended a more substantial
"gatekeeper" role for the courts that required more
rigorous scrutiny of the sufficiency of each aspect of the claim.
The IMAX defendants also argued that Justice van Rensburg had erred
by reversing the onus respecting statutory defences, by refusing to
consider whether there was evidence (i) to satisfy statutory
criteria to establish recovery beyond the statutory damages cap, or
(ii) to establish liability for "non-core documents",
and, by misinterpreting and misapplying the expert reliance
evidence.
Justice Corbett, however, was of the opinion that on the facts, as
found by Justice van Rensburg, "this was not a close call that
turned on the precise test used to grant leave." On the issue
of the "good faith" requirement His Honour held that to
go down the route argued by the IMAX defendants would restrict the
class of plaintiffs to those that were sophisticated in the law and
that plaintiffs are entitled to rely upon their expert counsel to
frame their claims. His Honour also found that with respect to the
"reverse onus" issue on affirmative statutory defences,
there was no reason to doubt the correctness of Justice van
Rensburg's decision stating that "whether the standard of
proof is that required on a motion for summary judgment to defeat a
claim, or whether it is something less, to negative the
"reasonable possibility of success" is a question of
importance that is "debatable"." With respect to
IMAX's arguments regarding the statutory damages cap and
liability for "non-core documents" Justice Corbett held
that it was neither important nor desirable to grant leave to
appeal in respect of these issues on an interlocutory basis when on
the facts available there was the possibility of establishing the
requisite elements.
His Honour stated that, in his view, there was no reason to push
the interesting questions raised by the IMAX defendants to the
appellate level where there is no good reason to doubt the
correctness of the decision and also noted that although Justice
van Rensburg's decision is the first word on the test for leave
under ss. 138.8(1) of the OSA, it is not the last. His Honour's
prediction in this regard rang true merely two weeks later when
Justice Tausendfreund of the Ontario Superior Court of Justice
granted the plaintiffs both certification and leave to commence an
action under ss. 138.3 in the Arctic Glacier Income Fund
Decision.
The Arctic Glacier Income Fund Decision
On March 3, 2011, Justice Tausendfreund granted the plaintiffs leave to proceed (the "Leave Decision") with their class action against Arctic Glacier Income Fund and certain individual defendants (collectively, the "Arctic Glacier defendants") under ss. 138.8 of the OSA and certified the action, including both statutory and common law claims, as a class proceeding (the "Certification Decision").
Facts
The plaintiffs are residents of Ontario who purchased units of
the defendant, Arctic Glacier Income Fund ("Income Fund")
over the Toronto Stock Exchange during the defined "Class
Period" of March 13, 2002 to September 16, 2006 and who held
some or all of those units on September 17, 2008. The Income Fund
is an unincorporated mutual fund trust and is a reporting issuer in
ten provinces, including Ontario, the purpose of which is to market
Arctic Glacier Inc. ("Arctic") as an Income Fund for
public trading on the Toronto Stock Exchange. The other defendants
include certain Officers, Directors and/or Trustees of Arctic
and/or the Income Fund (the "Individual Defendants") and
Arctic itself, a producer, marketer and distributor of packaged ice
to consumers in both Canada and the United States.
The trading value of the Income Fund's units was based
entirely on the financial and business results of Arctic because,
at the time it was created, the Income Fund's sole assets were
all the shares of Arctic. Between 2002 and 2008, the Income Fund
stated in public disclosures that the packaged ice industry was
very competitive and represented that the Income Fund and its
subsidiaries were good corporate citizens operating lawfully in a
very competitive market. However, in March 2008, the Income Fund
announced that it had become aware that the United States
Department of Justice ("the DOJ") was conducting an
anti-trust investigation on the packaged ice industry and that it
was cooperating fully with the DOJ in this regard. In September
2008, the Income Fund suspended its income trust distributions. In
2009, Arctic Glacier International Inc. ("Arctic
International"), a wholly-owned subsidiary of Arctic and the
principal operating subsidiary of the Income Fund and Arctic in the
United States, pleaded guilty to a charge of participating, during
the proposed Class Period, in a criminal, anti-competitive
conspiracy in the United States.
The plaintiffs alleged that as a result of the Arctic Glacier
defendants' published misrepresentations relating to the sale
of publicly traded securities in both the primary and secondary
market, those securities experienced a substantial market value
decline. The plaintiffs commenced a proposed class action and
brought a motion seeking both leave to pursue the alleged secondary
market misrepresentations and certification of the proposed class
action. The Arctic Glacier defendants brought a motion challenging
several of the causes of action alleged and remedies sought by the
plaintiffs and requested an order that they be struck from the
pleadings. The only material filed in the proposed action was the
Statement of Claim.
The Arctic Glacier Defendants' Motion to Strike
The Arctic Glacier defendants moved under Rules 21.01(1) and
25.11 of the Ontario Rules of Civil Procedure to strike
certain parts of the plaintiffs' statement of claim including
(i) the common pleading against the Income Fund; (ii) the pleading
of an underlying anti-trust conspiracy; (iii) the pleading under s.
130 of the OSA; (iv) the pleading of negligence; and (v) the
pleading of negligent misrepresentation.
Justice Tausendfreund noted that on a motion to strike he must
afford the claims a generous interpretation, and dismissed all of
the Arctic Glacier defendants' requests to strike except for
the motion to strike the common law pleadings against the Income
Fund, which His Honour granted.
The Common Law Pleading Against the Income Fund
His Honour struck the common law pleadings, including
negligence, negligent misrepresentation and breach of trust,
against the Income Fund because as an unincorporated, open-ended
mutual trust fund, the Income Fund lacked a legal personality and
could therefore not be named as a defendant to a common law cause
of action and, because the proper parties in an action against a
trust are the trustees. His Honour noted, however, that the
pleadings against the Income Trust with respect to the statutory
cause of action under s. 130 of the OSA would stand because that
right of action is available against an "issuer" and the
OSA definition of "issuer" included "person"
which is defined to include "a trust." His Honour also
upheld the pleading of an underlying anti-trust conspiracy because
His Honour found that conspiracy was not pleaded as a cause of
action but rather used as a "moniker" to describe an
alleged course of conduct and so, contrary to the defendant's
arguments, it was unnecessary that all the requisite elements of
the tort of conspiracy be plead.
The Pleading under s. 130 of the OSA
With respect to the s. 130 claims, the defendants asserted what
they claimed were two fatal deficiencies in the pleading, namely
(i) that neither proposed representative could advance the s. 130
claim as a personal cause of action because neither had purchased
their units in the primary market, and (ii) that the pleading must
be limited to persons who purchased in Ontario and, reliance on the
fund prospectuses should be within three years of the issuance of
the Notice of Action as contemplated by the limitation period set
out in ss. 138.14(b)(ii) of the OSA.
His Honour held that since each of the proposed representative
plaintiffs had asserted at least one cause of action against each
of the defendants they could also assert causes of action that were
not their personal causes of action but which were asserted by them
on behalf of class members.
The Arctic Glacier defendants submitted arguments with respect to
territorial restrictions and limitations periods arguing that the
class must be limited to those persons who purchased securities in
Ontario because each province has different legislation. To decide
the issue, Justice Tausendfreund examined two divergent lines of
authority in Ontario on this issue. The first was Coulson v. Citygroup, where Justice
Perell of the Ontario Superior Court of Justice agreed with the
defendants that the class should be limited to purchasers who
acquired common shares pursuant to the prospectus as a result of
distribution in Ontario where the plaintiffs had proposed a
national class yet pleaded only s. 130 of the OSA. The second was
McKenna v. Gammon Gold Inc., in which Justice Strathy
of the Ontario Superior Court of Justice followed the IMAX
Certification Decision finding it unnecessary at the certification
stage to make a determination of the law applicable to the claims
of non-resident class members of the class who purchased their
securities from underwriters in other provinces.
In the immediate case, Justice Tausendfreund stated that he
preferred the "more permissive and less technical
approach" taken by Justice Strathy in McKenna v. Gammon
Gold Inc. and permitted the national class on the condition
that the plaintiffs amend their statement of claim to plead the
relevant provisions of the securities acts for those other
provinces which the plaintiffs proposed to include in the class
proceeding. His Honour also required the plaintiffs to amend their
statement of claim in respect of the limitation period, noting that
the plaintiffs' cause of action under s. 130 of the OSA was
limited to the two fund prospectuses issued after September 25,
2005.
The Pleading of Negligence Simpliciter
With respect to the plaintiffs' pleading of negligence
simpliciter based on the Income Fund representations to
the primary market during the class period through the fund
prospectuses, the Arctic Glacier defendants asserted that there was
no common law duty of care owed by public issuers and their
officers, directors and/or trustees through the publication of
their prospectuses and, as such, the plaintiffs' duty of care
analysis was flawed for three separate reasons: (i) there is no
such duty of care owed by the Income Fund at common law as it has
been replaced by s. 130 of the OSA; (ii) the duty of care owed by
the directors and trustees is to the Income Fund and not to the
unit holders; and (iii) in any event, the claim of negligence is
subsumed by the pleading of negligent misrepresentation and is
therefore duplicative.
Justice Tausendfreund stated that, in his view, s. 130 of the OSA
does not create a duty but rather provides a remedy; that the
statutory duty is found in s. 56 of the OSA which provides that
"a prospectus shall provide full, true, and plain disclosure
of all material facts relating to the securities issued or proposed
to be distributed and shall comply with the requirements of Ontario
securities law"; and, that rather than replacing the common
law duty of care, s. 56 of the OSA informs that duty. On the Arctic
Glacier defendants' second point, His Honour found that at this
stage of the proposed class proceeding it was not "plain and
obvious" that the pleading of negligence against the directors
of the company and trustees of the Fund would fail. And, finally,
on the defendants' third point, His Honour found that the claim
of negligence simpliciter advanced by the plaintiffs
focused specifically on the theory that the prospectuses would not
have been issued, or would have been issued showing a reduced
offering price for the units, but for the negligence of the
defendants, and that it therefore relied on a materially different
theory than the negligent misrepresentation allegation and so the
former was not subsumed by the latter.
The Pleading of Negligent Misrepresentation
On the issue of negligent misrepresentation, for the purposes of
the motion to strike, Justice Tausendfreund held that the positions
advanced by the defendants (including the argument that imposing a
duty of care at common law could create requirements above and
beyond those codified in the OSA) and any residual policy concerns
should be left for trial and not resolved at such an
"embryonic stage of the action."
The Leave Decision
The Leave Decision focused on whether the plaintiffs should be
granted leave to proceed with their statutory misrepresentation
claim. Section 138.8 of the OSA requires that the Court grant leave
to bring a statutory claim pursuant to Part XXIII.1 where it is
satisfied that (i) the plaintiffs have brought the claim in good
faith; and (ii) there is a reasonable possibility that the
plaintiffs will be successful at trial. Justice Tausendfreund
adopted the comments of Justice van Rensburg in the IMAX Leave
Decision wherein Her Honour stated, ".the leave test
prescribed by the legislature should be interpreted so as to permit
access to the courts by shareholders with legitimate
claims."
Justice Tausendfreund addressed the limitation period under s.
138.14 of the OSA as it applies to claims for secondary market
liability. His Honour noted that the class period proposed by the
plaintiffs was March 13, 2002 to September 18, 2008 but that Part
XXIII.1 of the OSA, under which the secondary market liability
provisions fall, did not come into force until December 31, 2005.
His Honour stated that it is common ground that a three-year
limitation period applies, but what was at issue was the
retrospective effect, if any, of Part XXIII.1 of the OSA. The
defendants asserted that Part XXIII.1 is not retroactive and
therefore the limitation period in s. 138.14 precluded the
plaintiffs from relying on any core documents prior to September
26, 2005.
Justice Tausenfruend found that Part XXIII.1 applied prospectively
in the face of a repeated misrepresentation and therefore,
beginning with the Income Fund Prospectus of March 13, 2002, the
plaintiffs could rely on the disclosure documents in support of
their position that those documents contained
misrepresentations.
Good Faith
Relying on the IMAX Leave Decision, Justice Tausendfreund stated
that the first test under s. 138.3 - whether the action is brought
in good faith - is not to be presumed but must be established by
the plaintiffs on a balance of probabilities.
Each of the plaintiffs in their affidavits stated that they had
commenced the action to "ensure that the defendants are held
accountable for their behaviour and to deter similar conduct by
others" and that they had "no ulterior motive, nor any
improper or collateral purpose in commencing the action." The
plaintiffs also noted that the proposed defendants, Gary D. Cooley
("Cooley") and Frank Larson ("Larson") had
pleaded guilty in the United States to conspiracy of a commercial
nature involving some of the Arctic Glacier defendants. The
plaintiffs relied on these guilty pleas as evidence of their belief
that they had a chance of success against Larson and Cooley in the
proposed class action.
Neither the Arctic Glacier defendants nor the proposed defendant
Larson challenged the plaintiffs' assertion that the action was
brought in good faith. However, one remaining proposed defendant,
Cooley, stated that there was no evidence that he knowingly
influenced the Income Fund with respect to the alleged
misrepresentations and accordingly there was no evidence from which
the plaintiffs could establish good faith with regards to the
claims advanced against him.
Noting that the good faith inquiry involves an analysis of the
objective evidence within the context of the legislative scheme,
Justice Tausendfreund again adopted the comments of Justice van
Rensburg in the IMAX Leave Decision which interpreted "good
faith" in the context of s. 138.8 to require the plaintiffs to
establish that they are bringing their action "in the honest
belief that they have an arguable claim, and for reasons that are
consistent with the purpose of the statutory cause of action and
not for an oblique or collateral purpose." In addition, the
Court in IMAX held that "good faith" involves "a
consideration of the subjective intentions of the plaintiffs in
bringing their action, which is to be determined by considering
objective evidence."
Finding that the objective evidence was sufficient to establish,
for the purposes of the good faith determination, that Cooley was
an officer of a responsible issuer and might be liable under s.
138.3, Justice Tausendfreund held that the plaintiffs had met the
first criteria of good faith.
Reasonable Possibility
With respect to the second branch of the leave test, Justice
Tausendfreund again saw no reason to depart from Justice van
Rensburg's analysis in the IMAX Leave Decision where Her Honour
held that "reasonable is used instead of "mere" to
denote that there must be something more than a de minimis
possibility or chance that the plaintiff will succeed at
trial." Justice Tausendfreund went on to comment that in his
view, in assessing the existence of a reasonable possibility of
success at trial, he must consider the relevant evidence, within
the context of the motion at hand. His Honour stated, "the
applicable standard is more than a mere possibility of success, but
is a lower threshold than a probability."
His Honour held that to demonstrate that they have a reasonable
possibility of success at trial, the plaintiffs must do so in
respect of each element of s. 138.3 and in respect of each
defendant. Ultimately, Justice Tausendfreund found that there was a
reasonable possibility of success at trial as against the Income
Fund, Arctic as an "influential person" (but not as a
"responsible issuer"), and the trustees as
"directors" and "influential persons". His
Honour also held that there was a reasonable possibility of success
at trial with respect to various of the Individual Defendants as
either officers or directors, influential persons, or both. His
Honour also found "at least" a reasonable possibility of
success at trial on the issue of whether the Income Fund knew or
acquiesced to the alleged anti-competitive conduct from
2002-2008.
The Certification Decision
Seeking certification, the plaintiffs asserted that their
pleadings disclosed at least four valid causes of action: a claim
under s. 130 of the OSA that provides for a remedy for purchasers
for misrepresentations in a prospectus; negligence
simpliciter, negligent misrepresentation, and breach of
trust. Justice Tausendfreund held that all four causes of action
were valid and that the claims raised common issues. His Honour
also held that there was an identifiable class of two or more
persons that would be represented by the representative plaintiffs,
that class action was the preferable procedure and finally, that
there was a representative plaintiff who had produced a workable
litigation plan, had no conflicts of interest with the other class
members on the common issues, and, would fairly and adequately
represent the interests of the class.
Identifiable Class
The proposed class definition was, "All persons and
entities, wherever they may reside or be domiciled, other than
Excluded Persons, who acquired Units of [the Income Fund] during
the period from March 13, 2002 to September 16, 2008." The
Arctic Glacier defendants argued that the proposed class was too
large and unworkable because it included all those who purchased
units during the Class Period and not just those who held the units
at the end of the Class Period in September 2008. These unit
holders, the Arctic Glacier defendants argued, were unaffected by
the alleged misrepresentations as they sold prior to the fall in
market price triggered by the DOJ investigation. Justice
Tausendfreund however, held that "although 'early
sellers' may eventually be found not to have suffered a loss as
a result of the alleged misrepresentations, it is arbitrary at this
stage to so conclude and this issue should be left for trial."
His Honour also noted that the lack of territorial limitations to
the proposed class was not a barrier to certification, relying on
the IMAX Certification Decision and Pysznyj v. Orsu Metals
Corp., 2010 ONSC 1151.
Common Issues
The plaintiffs asserted 15 common issues, all of which they
claimed would substantially advance the case of the class. The
plaintiffs characterized the misrepresentations throughout the
class period as a single ongoing misrepresentation and argued that
as a result, the effect of the misrepresentation on the unit prices
over time was an issue common to every Class Member. The Arctic
Glacier defendants conceded all but 5 of the common issues
challenging the issues of negligence (including whether a duty of
care was owed and if owed, whether it was breached), negligent
misrepresentation and punitive damages. Justice Tausendfreund held
that all 15 proposed common issues were, in fact, common to the
Class.
On the contentious issue of negligent misrepresentation, the Arctic
Glacier defendants asserted that reliance is inherently individual
and thus cannot be a common issue. The plaintiffs, however,
suggested that reliance could be inferred using the efficient
market theory which presumes that misrepresentations in the market
are reflected in the unit price and thus any purchaser could be
deemed or inferred to have relied on such statements through the
act of purchasing units.
Noting that although "it is generally accepted that a cause of
action in negligent misrepresentation requires proof of
reliance" and "for that reason, courts have concluded
that negligent misrepresentation claims are unsuitable for
certification" Justice Tausendfreund reviewed some of the
decisions in this area and stated that it appeared that "the
case law on this issue is in a "state of evolution". His
Honour stated, "I recognize that depending on the type and
number of alleged misrepresentations in a particular case, these
could in certain circumstances overwhelm the common issues and
would, as such, not be suitable to be resolved as a class
proceeding. I find that the alleged misrepresentations made in this
case in core documents are consistent and repetitive and can easily
be treated as one."
Conclusion
Justice Tausendfreund largely followed the IMAX Leave Decision on most of the contentious issues in respect of both the test for leave, and certification. It remains to be seen whether subsequent courts will diverge from the test for leave which arose from IMAX.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.