Yesterday, the Supreme Court of Canada refused to hear an appeal
from an Ontario Court of Appeal decision permitting a secondary
market liability securities class action to proceed in Ontario
against a defendant whose shares are traded only in the United
As usual, the Supreme Court gave no reasons for its decision not
to hear the appeal. In the result, the reasons of the Ontario Court
of Appeal now stand as the final expression of the law in Ontario
with persuasive effect throughout the rest of Canada.
The case involves a proposed class action against Canadian Solar
Inc. and its officers and directors. The representative plaintiff
alleges that the company overstated its financial results in press
releases, financial statements and an annual report. Section 138.3
of the Securities Act (Ontario) permits investors to
recover damages from a "responsible issuer" for any
misrepresentation in a "document" without requiring the
investor to prove that he or she relied on the
Canadian Solar argued that it is not a "responsible
issuer" within the meaning of the Securities Act
because it has not filed a prospectus in Ontario, and its shares
don't trade on any stock exchange in Canada. Canadian Solar
therefore sought to have the claim under section 138.3 of the
Securities Act dismissed on the grounds that these
sections do not apply to a company whose shares do not trade in
The Ontario Court of Appeal rejected Canadian Solar's
arguments and allowed the claim to proceed. In so doing, the Court
held that the term "responsible issuer" in the
Securities Act is not restricted to issuers whose shares
are publicly traded in Canada, but specifically envisages issuers
whose shares are traded exclusively abroad, as long as that issuer
has a "real and substantial connection" to Ontario. It
also held that a "document" includes any public statement
by an issuer, even if it is not filed with Ontario securities
Since Canadian Solar carries on business in Ontario (although
most of its business activity occurs in China) it was held to have
a "real and substantial connection" with the province.
The Court concluded that the claim under the statutory cause of
action in the Securities Act could proceed.
On its face, this decision extends the reach of Ontario
securities law (and the risk of "no-reliance" liability
for misrepresentation in publicly-released documents) to all
publicly-traded companies that carry on business in Ontario,
regardless of where their shares are actually traded, or who is
their primary securities regulator. Coupled with last year's
decision in Silver v. Imax, in which the Ontario court
certified a global investor class, it substantially increases the
exposure of foreign issuers to class proceedings in Ontario.
This ruling is also consistent with a number of recent decisions
in which the Canadian courts have assumed jurisdiction over class
proceedings involving price fixing and other economic torts
committed by foreign defendants, where damage is alleged to have
been suffered in Canada. It appears therefore that Canadian courts
are growing increasingly comfortable with the idea of bringing
foreign defendants to judgment seat.
Fortunately, there do remain some procedural safeguards in the
Ontario securities regime. It is not yet the Wild West. These
safeguards include a requirement to obtain leave of the court
within three years in order to proceed with a statutory
secondary-market disclosure claim, and a cap on potential
Nevertheless, foreign issuers doing business in Ontario need to
be aware of the growing reach of Ontario securities law and to keep
this in mind when assessing their public disclosure to
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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