Canada: New Guidance On The Test For Leave To Bring A Secondary Market Misrepresentation Action

On October 21, 2011, the Supreme Court of British Columbia released the reasons of Justice Harris in Round v. MacDonald, Dettwiler and Associates Ltd., 2011 BCSC 1416. Round is the first decision from British Columbia to apply the leave test under Part 16.1 of the province's Securities Act (BCSA), which creates a civil liability regime for secondary market disclosure.

Justice Harris concluded that the petitioner had failed to meet the requirements for leave. In so doing, he offered guidance on the proper standard to be applied to a leave application, supplementing the prior jurisprudence from Ontario.

The Leave Requirement

Under section 140.8 of the BCSA, an action cannot be commenced under Part 16.1 without leave of the court. The court may only grant leave where it is satisfied both that the action is brought in good faith and that there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

The enactment of Part 16.1 followed a trend in which comparable provisions were added to the securities legislation of other Canadian jurisdictions. For example, Part 23.1 of the Ontario Securities Act (OSA) creates a similar secondary market liability regime, including a virtually identical leave requirement under section 138.8.

The Prior Jurisprudence on Ontario's Leave Requirement

In Ainslie v. CV Technologies Inc. (2008), 93 OR (3d) 200, an early Ontario Superior Court of Justice decision that considered but did not apply section 138.8, Justice Lax provided support for the view that the leave requirement should constitute a relatively high bar for plaintiffs to overcome. Justice Lax emphasized that section 138.8 was intended to be a "gatekeeper mechanism", and that it was not enacted to benefit plaintiffs. Instead, it was designed to protect defendants from coercive litigation and to reduce their exposure to costly proceedings.

However, there are only two Ontario decisions that have actually applied section 138.8, and both granted leave. In doing so, the Ontario courts have indicated that the leave requirement will not constitute an overly onerous obstacle.

In Silver v. IMAX Corporation, 2009 CanLII 72342, Justice van Rensburg rejected the defendants' argument that the good faith test called for a "high onus" and that the reasonable possibility of success test imposed a "substantial burden". She called on courts to recognize that motions for leave are conducted at the early stages of an action, without discovery, and that there may therefore be limitations on the ability of the parties to fully address the merits. She also cautioned that an overly onerous threshold will undermine the deterrent force of Part 23.1 of the OSA and may lengthen, complicate and increase the costs of the leave procedure.

Justice van Rensburg concluded that the leave requirement is "designed to prevent an abuse of the court's process through the commencement of actions that have no real foundation, actions that are based on speculation or suspicion rather than evidence."

Subsequently, Justice Corbett dismissed a motion for leave to appeal Justice van Rensburg's decision to the Ontario Divisional Court. Though the defendants challenged Justice van Resnburg's articulation of the test for leave under section 138.8, Justice Corbett found that the test would have been met regardless of its precise formulation. Justice Corbett therefore declined to weigh in on the exact nature of the burden set by the leave requirement, stating:

van Rensburg J.'s decision is the first word on the test for leave under s.138.8(1) of the OSA. Doubtless it is not the last. But that is no reason to push these interesting questions up to the appellate level where there is no good reason to doubt the correctness of the decision.

In Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25, Justice Tausendfreund largely agreed with Justice van Rensburg's interpretation of section 138.8. With regard to the reasonable possibility of success requirement, Justice Tausendfreund concluded that the applicable standard is more than a mere possibility of success, but is a lower threshold than a probability.

A motion for leave to appeal Justice Tausendfreund's decision is currently pending.

The Decision

In Round, the petitioner claimed that MacDonald, Dettwiler and Associates Ltd. (MDA), and certain named officers and directors, had misrepresented material facts about a proposed sale of one of MDA's key business divisions. In particular, she claimed that the respondents had failed to make timely disclosure as to the likelihood of the sale receiving the Minister's approval under the Investment Canada Act. The petitioner was a former employee of MDA, and obtained her shares in the company from MDA's treasury as part of its Employee Share Purchase Plan.

Justice Harris dismissed the petitioner's application for leave to bring a Part 16.1 action, citing two primary bases for his conclusion that there was no prospect of her proposed action succeeding at trial. First, Justice Harris found that Part 16.1 of the BCSA does not apply retroactively, and that its provisions had not yet come into force at the time of the events in issue.

Second, because the petitioner had acquired her shares from MDA's treasury, and not on the secondary market, Justice Harris found that she had no cause of action under Part 16.1. Justice Harris also briefly reviewed the merits of the proposed action, and found no evidence of a violation of MDA's continuous disclosure obligations.

Given these decisive conclusions, there was no need for a detailed consideration of the burden imposed by the leave requirement. Nevertheless, Justice Harris provided some guidance on the proper application of section 140.8 of the BCSA.

Significantly, Justice Harris rejected the petitioner's argument that the leave requirement was only intended to weed out frivolous, scandalous and vexatious lawsuits that are certain to fail. In reviewing the language of section 140.8, Justice Harris set out the following propositions:

1. A leave application requires a review of evidence.

2. The analysis must involve a weighing and balancing of the evidence of each side, not simply the plaintiff's material.

3. The court must analyze the evidence to make an assessment on the merits and to decide whether the reasonable possibility test is satisfied.

4. The test on a leave application differs from the certification test (which does not involve a merits assessment) and the summary judgment test (which only requires a triable issue). While section 140.8 does not require a plaintiff to demonstrate that it is more likely than not that he or she will succeed at trial, it is intended to do more than just screen out clearly frivolous, scandalous or vexatious actions.

It should be noted that Round only involved an application for leave to bring an action under Part 16.1 of the BCSA. It was not brought jointly with a certification motion, as has been the practice in Ontario proceedings. Accordingly, Justice Harris did not deal with any causes of action being advanced by the plaintiff that did not require leave.


Justice Harris' comments are largely in obiter and as in IMAX and Arctic Glacier, he concluded that a reasonable possibility is something less than a probability.

Nonetheless, it is arguable that Round adopted a somewhat stricter approach to the leave requirement than IMAX or Arctic Glacier. Justice Harris soundly rejected the argument that section 140.8 is only intended to bar clearly frivolous, scandalous or vexatious actions. His emphasis on the importance of a robust merits review is also notable. However, just as Justice Corbett found that the IMAX case was well above the leave threshold, Justice Harris found that Round was well below the threshold. As a result, the jurisprudence continues to await appellate commentary or a case that is closer to the margins.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.