Canada: Court Of Appeal Makes It Clear That Plaintiffs Must Obtain Leave For Secondary Market Class Action Within 3 Year Limitation Period

In Sharma v. Timminco Limited, a decision released on February 16, 2012, the Court of Appeal for Ontario determined that section 28 of the Class Proceedings Act, 1992 (CPA) which allows for the suspension of a limitation period applicable to a cause of action asserted in a class proceeding, is not triggered until after leave is granted under Part XXIII.1 of the Securities Act to commence a statutory cause of action for misrepresentation.


The plaintiff commenced a putative class action for damages in excess of $500 million on behalf of a class of persons who acquired Timminco securities between March 17, 2008 and November 11, 2008.  The Statement of Claim asserts claims for negligence and negligent misrepresentation and simply "mentions" that the plaintiff intends to deliver a notice of motion seeking an Order permitting the plaintiff to "assert" secondary market claims pursuant to section 138.3 of Part XXIII.1 of the Ontario Securities Act.  Pursuant to section 138.8 of the Securities Act, "no action may be commenced under section 138.3 without leave of the court". Section 138.14 of the Securities Act provides that an action under section 138.3 must be commenced within 3 years of the misrepresentation.

Facing the potential expiry of the 3 year limitation period and having not brought a leave motion to commence an action under section 138.8, on March 14, 2011, the representative plaintiff brought a motion for a declaration that the limitation period in section 138.14 was suspended by section 28(1) of the CPA upon issuance of the Statement of Claim.  Section 28(1) of the CPA provides for the suspension of limitation periods for an entire proposed class of plaintiffs.

On March 31, 2011, Justice Perell granted the plaintiff's motion and declared that the limitation period in section 138.14 of the Securities Act was suspended pursuant to section 28(1) of the CPA, effective as of the date of the issuance of the Statement of Claim on May 14, 2009.  In so finding, Justice Perell held that as long as "a statement of claim in a proposed class action merely mentions a proposed cause of action provided for under Part XXIII.1 of the Securities Act" (emphasis added) and an intention to bring a leave motion, section 28 of the CPA becomes operative and suspends the limitation period in section 138.14 of the Securities Act, regardless of whether leave of the court to commence the action has been obtained.  The Timminco Defendants, along with the other defendants, appealed Justice Perell's decision.

The Decision

The Court of Appeal for Ontario allowed the defendants' appeal and dismissed the plaintiff's motion for an order declaring that the limitation period in section 138.14 of the Securities Act is suspended.  The Court of Appeal found that section 28 of the CPA does not operate to suspend the limitation period applicable to the statutory cause of action for misrepresentation provided by section 138.3 of the Securities Act merely because the representative plaintiff has mentioned that he or she intends to bring a motion for leave to assert a secondary market claim under Part XXIII.1 of the Securities Act.  The Court of Appeal concluded that "the grammatical and ordinary meaning of the s. 28(1) suspension provision is that without leave being granted the cause of action cannot be said to be asserted in a class proceeding." In other words, the representative plaintiff must succeed on the leave motion under section 138.3 before section 28(1) of the CPA is engaged.

The Court of Appeal found that such an interpretation was consistent with both section 28(1) of the CPA and section 138.14 of the Securities Act.  The purpose of section 28(1) of the CPA is to protect class members from the operation of limitation periods without the need to pursue individual actions in order to avoid being out of time until it has been determined whether they can get access to justice through the class proceeding.  The Court of Appeal held that since the plaintiff's class proceeding gives class members no possibility of access to justice for their section 138.3 causes of action where leave has not been granted, the purpose of section 28(1) of the CPA does not require that the limitation period applicable to these causes of action be suspended.  In fact, the Court of Appeal found that a contrary interpretation would reflect a purpose that cannot have been intended by the legislature as it would suspend the applicable limitation period for the section 138.3 cause of action for class members but a similar suspension would not be available for an individual plaintiff suing in an individual capacity.  The Court of Appeal also found that its interpretation was consistent with the purpose of section 138.14 of the Securities Act which was designed to ensure that secondary market claims proceed with dispatch, requiring leave motions to be brought expeditiously.

Key Points

In summary, the Court of Appeal has made it clear to class action representative plaintiffs and their counsel that the leave order must be obtained within 3 years.  The key points from the Court of Appeal's decision are as follows:

  • The mere "mention" of the plaintiff's intention to seek leave to bring a claim under section 138.3 of the Securities Act in the Statement of Claim is not sufficient to engage section 28 of the CPA so as to suspend the limitation period in section 138.14 of the Securities Act;
  • Section 28 of the CPA requires that a cause of action be "asserted" in a class proceeding in order for the limitation period applicable to the cause of action to be suspended, and a cause of action has not been "asserted" under Part XXIII.1 of the Securities Act until after leave has been granted;
  • The representative plaintiff in this case has not been granted leave and therefore has not asserted a cause of action under Part XXIII.1 of the Securities Act.  Rather, the Statement of Claim merely "mentions" the representative plaintiff's intention to seek leave to assert such a cause of action and that in itself does not trigger any protections under the Securities Act or the CPA;
  • If the mere mention of the representative plaintiff's intention to seek leave were sufficient to trigger the suspension of the limitation period, a representative plaintiff could simply do nothing towards obtaining leave or advancing the shareholders' claim and thereby suspend the limitation period indefinitely;
  • An interpretation of section 28 of the CPA that would suspend the limitation period before leave has been granted would unfairly benefit representative plaintiffs and class members in a class proceeding but would not be available for a plaintiff suing in an individual capacity, since individuals do not have section 28 available to them.  Such an interpretation could not have been intended by the legislature;
  • Requiring leave to be obtained before the suspension of the limitation period under section 28 of the CPA is triggered is consistent with the legislature's intention that secondary market claims be proceeded "with dispatch" in fairness to public companies and their shareholders.


A Stikeman Elliott team led by Alan D'Silva, Dan Murdoch and Lesley Mercer (along with Pat O'Kelly, Mark Walli and Ingrid Minott) represented Timminco Limited and a number of directors in the appeal.

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.

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