Canada: Leave Or Be Dismissed: Ontario Court Of Appeal Restores Order To Securities Class Actions

Last Updated: February 27 2012
Article by Derek J. Bell and Robert Staley

On February 16, 2012, the Ontario Court of Appeal released its decision in Sharma v. Timminco,1 affirming the statutory requirement to seek leave to commence a secondary market securities class action within three years from the date of the alleged misrepresentation, failing which, the claim will be dismissed.

The Court of Appeal's decision was the right one, for a number of reasons. Importantly, it restores the careful balance struck by the legislature in creating a secondary market civil liability regime. Part XXIII.1 of the Ontario Securities Act created a new cause of action to sue companies and their directors, among other things, for misrepresentations. The legislature conferred a number of benefits to plaintiffs in that regime, most notably, that they would not be required to prove "reliance": the fact of the misrepresentation was sufficient.

But at the same time, the legislature was acutely aware that, left unchecked, this new secondary market civil liability could be used not to cure wrongs, but rather to create them, most notably through a strike suit. A strike suit is one that is not advanced to correct a wrong or to advance legal rights, but rather, to effectively shake down a company by virtue of the size and magnitude of the claim.

Two checks were created to avoid that evil. First, a plaintiff seeking to advance the civil liability for secondary market misrepresentation must seek leave of the Court before asserting the cause of action. This gives the court a gatekeeper role to weed out inappropriate cases. Second, a plaintiff must assert the cause of action within three years of the alleged misrepresentation, regardless of when the facts emerged showing the statement to be untrue. It is an absolute, hard stop limitation period.

What the Court's decision in Timminco does is put those two requirements together in the manner the legislature expressly intended. The plaintiff must seek and obtain leave to commence the action before the three years have expired. Any later and the plaintiff is out of time. This was the right decision based on the wording of the statute, its purpose, and even on policy grounds.


In Timminco, the plaintiff commenced a class action against Timminco and its directors alleging, among other things, secondary market misrepresentation under the Part XXIII.1 of the Securities Act. The statement of claim alleged that the defendants issued or authorized public statements containing material misrepresentations affecting the price of Timminco's shares. The misrepresentations were alleged to have commenced on March 17, 2008, and continued until November 11, 2008.

Under the Securities Act, actions for secondary market misrepresentation may not be commenced without leave of the court (s. 138.8) and must be commenced within three years of the date of the alleged misrepresentation (s. 138.14). Significantly, the statement of claim in Timminco expressly pleaded nothing more than an intention to seek leave to assert its secondary market claim.

In February of 2011, the plaintiff had not yet sought leave, and as a result, was facing down the impending three-year limitation period. The plaintiff moved for an order declaring that the limitation period was suspended pursuant to the provisions of the Class Proceedings Act (CPA). Under s. 28 of the CPA, any limitation period applicable to a cause of action is suspended in favour of a class member on the date the class proceeding is commenced.

The issue for the courts was whether the plaintiff's secondary market cause of action had been "asserted" for the purposes of the CPA, suspending the limitation period, when the plaintiff had not been granted leave to commence such an action under the Securities Act.

At first instance, the motion judge granted the order requested by the plaintiff and declared that the limitation period in s. 138.14 of the Securities Act was suspended pursuant to s. 28 of the CPA. In so doing, the motion judge held that the plaintiff was not required to seek leave under Part XXIII.1 of the Securities Act to toll the limitation period, but rather, that it only had to "mention" the action in its statement of claim. The defendants appealed.

The Court of Appeal Decision

The Court of Appeal rejected the lower court's interpretation and confirmed that claims for secondary market misrepresentation are governed by the leave requirement and three-year limitation period outlined in the Securities Act regardless of s. 28 of the CPA.

The Court of Appeal focused on the ordinary meaning of the word "assert" as it is used in s. 28 of the CPA. That section provides that "any limitation period applicable to cause of action asserted in a class proceeding is suspended...on the commencement of the class proceeding." The Court found that the word "assert" means more than a mere mention, but rather, means to "invoke or enforce" a legal right.2

In order to commence an action for secondary market misrepresentation, the Court of Appeal noted that the legislature provided a clear leave requirement in the Securities Act before the legal right to assert such a claim could be enforced or invoked.3

Applying a grammatical and ordinary interpretation of s. 28 of the CPA to s. 138.3 of the Securities Act, the Court ruled that the limitation period could not be suspended by the CPA absent leave being granted under the Securities Act.

In so doing, the Court acknowledged that the lower court ruling provided class members with an unintended benefit that was not available to individual plaintiffs. The Court found it cannot have been the purpose of s. 28 of the CPA to put the class in a better position than if a class member had commenced an individual action.4

Secondly, the Court noted that the provisions in Part XXIII.1 of the Securities Act are intended to ensure that secondary market claims proceed expeditiously and with dispatch. To suspend the limitation period with no guarantee that the action or leave motion would proceed expeditiously would have been inconsistent with the scheme set up to govern secondary market claims.5

Finally, the Court clarified that its finding did not make s. 28 of the CPA entirely inoperable as it concerns secondary market claims. Rather, it simply means that leave must be obtained before the secondary market action can commence within the meaning of the CPA. Only then can s. 28 apply to suspend the limitation period in the Securities Act.6


The reasoning of the Court of Appeal was not particularly revolutionary: it applied well-accepted principles of statutory interpretation to give effect to the clearly stated legislative intent. There are no other appellate decisions that conflict with this, making it unlikely this case will attract the attention of the Supreme Court of Canada should the plaintiffs seek leave to appeal.

But while the case is not revolutionary in methodology, it is nonetheless important direction from Ontario's highest court regarding how secondary market class actions are to be conducted: leave must be obtained relatively quickly and in all events prior to the expiry of three years from the date of the alleged misrepresentation.

The case also has a number of ancillary benefits.

First, it sounds the death knell for a potentially mischievous development in this practice area, whereby plaintiffs had been seeking to couple the leave application with the application for certification.7 Because the merits of the lawsuit are somewhat at issue in a leave application, plaintiffs who coupled that application with certification could in the right case add colour to the certification motion with evidence on the merits they viewed as being helpful, which would not normally be considered by a judge on certification. Given the speed with which leave applications must now be brought, it is difficult to see how that coupling could occur again in the future.

Second, the decision will likely affect, if not effectively reverse, an earlier decision of the motions judge in Timminco which required defendants to deliver a statement of defence prior to certification, even before leave had been granted to commence the claim.8 That can no longer be the law. While it is still conceivable that a judge could require a defence prior to certification, it cannot be required prior to leave being granted.

Third, the decision will likely avoid mischief caused by delay and otherwise, through preliminary motions from the plaintiff in circumstances where it had not yet been established that the court would grant leave to commence the proceeding. In Timminco, the plaintiffs spent months battling with other class counsel on a carriage motion, then additional months in a motion to compel the production of insurance policies, and still more time on a motion to clean up their claim with particulars. All of this was done before the Court had even granted leave to commence the proceeding, and it is difficult to see how that could ever happen again.

It should be noted that while this decision gives important guidance for secondary market claims commenced under Part XXIII.1 of the Ontario Securities Act, it has no application to purely common law claims of misrepresentation. Of course, in those common law claims all of the usual rules apply, including the requirement for the plaintiff to show reliance


1. 2012 ONCA 107 [Timminco].

2. Ibid., at para. 17.

3. Ibid., at para. 18.

4. Ibid., at para. 25.

5. Ibid., at para. 26.

6. Ibid., at para. 27.

7. See Imax v. Silver, [2009] O.J. No. 5573 (Sup. Ct.).

8. See Bennett Jones Class Action Update from July 21, 2011, " Recent Decision Requires Defendants to Plead in Class Action Prior to Certification".

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.

Derek J. Bell
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions