On March 19, 2013, Justice van Rensburg of the Ontario Superior Court of Justice released her decision in Silver v. Imax ("Imax"), granting the defendants' motion to amend the previously certified class to exclude those class members who held shares purchased on the NASDAQ. The decision in Imax should provide some assurance to public issuers and their directors and officers, who are regularly defendants in parallel securities class actions in Canada and the United States, that global settlements are not necessary and that settlements reached in the U.S. will likely be respected in Canada and bind class members provided that the settlement is fair to absent class members and is not in disregard of the jurisdiction of the Canadian court.
IMAX, a Canadian public company whose shares are dual-listed on the TSX and the NASDAQ, is a defendant in overlapping class proceedings in Ontario and the United States. In Ontario, the plaintiffs assert both common law causes of action and secondary market liability under Part XXIII.1 of Ontario's Securities Act (the "Securities Act") against Imax and a number of its directors and officers alleging misrepresentations and omissions in respect of the financial reporting and recognition of revenue for Imax's theatre systems (the "Ontario Action"). In December 2009, Justice van Rensburg certified a global class which included all persons who acquired IMAX shares on the NASDAQ and the TSX and held such shares during the relevant class period.
Similar proceedings were commenced in the U.S. alleging misrepresentations and omissions regarding revenue recognition in violation of federal securities laws (the "U.S. Action"). As a result of the U.S. Supreme Court's decision in Morrison v. National Australian Bank Ltd., 130 S. Ct. 2869 (2010), the plaintiff in the U.S. action was precluded from including purchasers of shares on foreign exchanges in the class. Accordingly, the U.S. class included only those persons and entities that purchased or acquired IMAX shares on the NASDAQ. As a result, the overlapping class members in the Ontario Action were those NASDAQ traders who acquired and held their IMAX shares during the class period.
The parties in the U.S. Action reached a U.S. $12 million settlement (the "U.S. Settlement") which had been approved by the U.S. Court, subject to an order amending the class definition in the Ontario Action (the "U.S. Fairness Decision"). Accordingly, the defendants in the Ontario Action brought a motion seeking an order amending the class definition to exclude from the certified class all persons who would be bound by the U.S. Settlement. If amended, the resulting class in the Ontario Action would be much smaller, comprised of approximately 15% of the global class originally certified.
Justice van Rensburg held that the first step in determining whether to amend the class involved a determination of whether the Ontario Court should recognize the U.S. Fairness Decision. In making this determination, Justice van Rensburg applied the following factors as outlined by the Court of Appeal for Ontario in Currie v. McDonald's Restaurants of Canada Ltd., (2005), 74 O.R. (3d) 321 (C.A.) for determining whether to recognize a decision of a foreign court approving a class action settlement so as to preclude an action for the same relief in Ontario: (i) the U.S. Court's "real and substantial connection" to the claims of overlapping class members, (ii) whether the absent class members were accorded procedural fairness, including adequate notice, and (iii) whether the interests of the absent class members were adequately represented.
Justice van Rensburg held that there was no question that there was a real and substantial connection between the cause of action of the overlapping class members and the U.S. Court in that the U.S. Court clearly has a connection to the claims of persons who acquired their shares on the NASDAQ.
Justice van Rensburg also determined that the absent class members were accorded procedural fairness. In particular, she noted that the notices of the proposed U.S. Settlement (which Ontario class counsel had input into) made specific reference to the Ontario Action, including the options available to overlapping class members, and that electing to remain bound by the U.S. Settlement would bar class members' ongoing participation in the Ontario Action. Justice van Rensburg concluded that the same factors as would have been considered in Canada were considered by the U.S. Court in its determination that the U.S. Settlement was fair, reasonable and adequate.
In considering whether the interests of the class members sought to be bound by the U.S. Settlement were adequately represented, Justice van Rensburg considered the "race to the bottom" concerns that improvident settlements may result from bargaining between defendants and plaintiff's counsel who are motivated by self-interest in their fees and that a "reverse auction" may occur where a defendant in parallel class actions will pick the most ineffectual class lawyers to negotiate a settlement with, to the detriment of the class members. Justice van Rensburg rejected these concerns in the circumstances of this case, noting that the U.S. Settlement occurred after 6 years of litigation, extensive documentary discovery and several rounds of negotiation. Justice van Rensburg also rejected the plaintiffs' contention that it was the duty of U.S. class counsel to bring the potential for an enhanced recovery under Ontario law to the attention of the U.S. Court and to justify the U.S. Settlement under Ontario law.
Accordingly, Justice van Rensburg concluded that the U.S. Fairness Decision should be recognized in Ontario. Justice van Rensburg rejected the plaintiffs' argument that the motion was, in substance, a motion to approve a settlement of the Ontario Action which should have been brought under s.29(2) of the Class Proceedings Act, 1992 (the "CPA") and noted that the adequacy of the U.S. Settlement was not something for the Court to assess as part of the question of whether to recognize the U.S. Fairness Decision.
Next, Justice van Rensburg proceeded to consider whether the Ontario Action remained the preferable procedure under s.5(1)(d) of the CPA for resolving the claims of overlapping class members who had not opted out of the U.S. Settlement.
Justice van Rensburg ultimately concluded that the Ontario Action was no longer the "preferable procedure" for the determination of the claims of class members whose claims were covered by, and who had not opted out of the U.S. Settlement. Justice van Rensburg found that there was no real question that the Court's recognition of the U.S. Settlement and the amendment of the class would serve the objectives of behaviour modification and judicial economy. Rather, the real issues were whether the amendment would further "access to justice" for the overlapping class members and for the members of the class who would remain if the NASDAQ purchasers were "carved out", and whether the order sought would respect the integrity of Ontario's class actions regime.
In considering the "access to justice" concerns, Justice van Rensburg considered the advantages and disadvantages to litigating the claims in Ontario as opposed to the U.S., and concluded that there was no compelling reason to conclude that the Ontario legal regime would be more favourable. Justice van Rensburg held that participation in the U.S. Settlement would meet the objective of providing access to justice for the overlapping class members. The Court also considered access to justice for the remaining TSX class members, including the economic viability of the claims, and noted that the same offer, proportionally, was made available to Ontario class counsel for resolution of the TSX class members' claims. Justice van Rensburg specifically noted that there is always a risk for class counsel that the costs, time and effort invested in a class proceeding may not be recovered at the end of the day. The Court rejected the plaintiffs' contention that the relief sought would challenge the judicial integrity of the Ontario Court or alter the typical approach to the resolution of cross-border class actions, noting that the existing framework for cross-border class actions allows for parallel proceedings and does not require global settlements.
Justice van Rensburg concluded that additional factors supported the exercise of the Court's discretion to amend the class, including: (i) the fact the U.S. Court has a strong jurisdictional connection with the matters at issue and, in particular, the fact that it would consistent with the reasonable expectations of overlapping class members that their rights could be determined by the U.S. Court; (ii) the procedure followed by the U.S. Court was robust and resulted in a settlement that "was assessed as fair by a judge who had case managed the action for several years and was unquestionably familiar with the issues in the proceeding"; and (iii) the U.S. Court gave due attention to the existence of the Ontario Action.
Accordingly, the defendants' motion was granted and the class definition was amended to exclude from the certified class all NASDAQ purchasers who did not deliver an opt-out notice in the U.S. Action.
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