On February 16, 2012, the Ontario Court of Appeal released a
decision that comes as good news to issuers. In the case of
Sharma v. Timminco Limited,1 the Court provided
clear guidance on the conduct of secondary market securities class
actions pursuant to section 138.3 of Part XXIII.1 of the
Ontario Securities Act (the "OSA"). In overturning the
Superior Court's decision, the Court of Appeal held that a
secondary market securities class action could not proceed because
the plaintiff failed to obtain leave of the court to commence the
action before the three-year limitation period had expired. When
the plaintiff moved to suspend the limitation period, the order was
denied on the basis that leave had not been granted and the action
The plaintiff shareholders in Sharma v. Timminco
commenced a proposed class action against the defendant company for
over $500 million, alleging that it made misrepresentations in
public statements that adversely affected the value of its shares
in the secondary market. The alleged misrepresentations took place
over a period of roughly eight months, commencing in March of 2008.
The plaintiff class issued a statement of claim in May of 2009,
which alleged common law causes of action against the defendant
company for negligence and negligent misrepresentation. The
statement of claim did not claim a secondary market statutory cause
of action under Part XXIII.1 of the OSA, but it stated that the
plaintiff intended to seek an order to obtain leave of the court to
assert such an action.
The plaintiff did not seek leave to commence an action under
section 138.3 of the OSA in a timely manner. By the end of February
of 2011, when faced with the expiration of the three-year
limitation period, the plaintiff moved to obtain an order from the
Ontario Superior Court of Justice under section 28 of the Class
Proceedings Act (the "CPA") to suspend the
three-year limitation period. Section 28 of the CPA permits the
suspension of limitation periods for class proceedings.
Ontario Superior Court of Justice
The Superior Court, granting the relief sought, held that the
plaintiff's stated intention to seek leave of the court in its
claim at a later date was sufficient to permit it to suspend the
limitation period pursuant to section 28 of the CPA and stated that
the litigation pursuant to the OSA does not actually have to be
commenced for an action to be "asserted" under this
provision. As such, the Superior Court permitted the suspension on
the basis that a cause of action under section 138.3 of the OSA was
mentioned in a class proceeding that had already been
Court of Appeal
The Court of Appeal overturned the order of the Superior Court
to suspend the limitation period and held that it was not
sufficient for the plaintiff to merely express an intention to
commence an action in order to engage the suspension provision of
the CPA. The Court reasoned that section 28 of the CPA must be read
in its "grammatical and ordinary sense", which means
leave of the court must be obtained in order for a cause of action
under section 138.3 of the OSA to be "asserted". The
meaning of the term "assert", the Court noted, goes
beyond merely mentioning an intention to commence a proceeding.
Rather, the Court relied on the dictionary definition of the term,
which means to "make or enforce a claim" or "to
invoke or enforce" a legal right. As such, the Court stated
that a cause of action under s.138.3 of the OSA cannot be said to
be "enforced" without leave having been granted and the
mere mention of an intention to seek leave was insufficient.
The purpose of the limitation period imposed by Part XXIII.1 of
the OSA is to ensure that secondary market claims proceed
"with dispatch" and leave should therefore be sought
expeditiously. The potential for an indefinite suspension of the
limitation period, with no guarantee that an action will ultimately
be brought, is inconsistent with this purpose.
Therefore, the suspension of the limitation period imposed by
Part XXIII.1 of the OSA will only be allowed if leave has been
granted to commence a statutory cause of action before the
three-year limitation period expires.
We understand that leave to appeal to the Supreme Court of
Canada has been sought.
1 2012 ONCA 107
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