On February 24, 2012, the Superior Court rendered
Québec's first decision on the application of the new
provisions of the Securities Act (the
"Act") regarding secondary market
(PDF available in French only)). The decision authorized the
plaintiff to bring an action for damages pursuant to section 225.4
of the Act by means of a class action.
In this case, the petitioner accused the respondent,
Theratechnologies, of having failed to disclose what it considered
to be a material change in its activities, operations or capital,
namely the fact that the FDA had raised questions about the side
effects of Theratechnologies' leading drug, tesamorelin, in the
course of the approval process.
Theratechnologies petitioned the Court of Appeal for leave to
appeal this decision on the grounds that the Superior Court,
despite having acknowledged that the authorization mechanism
provided for in the Act differs from that governing class actions,
failed to apply it correctly. Indeed, section 225.4 of the Act
provides that an authorization mechanism must be applied before an
action may be brought under the secondary market liability regime
set out in sections 224.2 et seq. of the Act. In order to obtain
such a court authorization, the plaintiff must demonstrate that
"[TRANSLATION] the action is in good faith and there is a
reasonable possibility that it will be resolved in favour of the
The Court of Appeal first acknowledged that there is a right to
appeal with leave under articles 29 and 511 of the Québec
Code of Civil Procedure (the
"C.C.P.") against a judgment rendered
under section 225.4 of the Act, and therefore granted such a leave
in this case.
Since a judgment authorizing the institution of a class action
is without appeal (art. 1010 par. 2 C.C.P.), the judgment
authorizing both an action under section 225.4 of the Act and a
class action may therefore be appealed with leave, but only in
respect of the action under section 225.4 of the Act.
The court thus recognized that such an authorization has the
effect of ordering that "[TRANSLATION] an irremediable thing
be done that the final judgment cannot remedy," seeing as,
first, "[TRANSLATION] one of the admitted goals is to shield
vulnerable markets from the undue pressures of the high costs of
strike suits" and, second, by granting such an authorization
to institute an action for secondary market liability, the trial
judgment triggered the application of specific measures regarding
the burden of proof and quantification of damages.
Appeal on the Merits
In the appeal on the merits, the court specified that criteria
must govern the analysis of whether there is a "[TRANSLATION]
reasonable possibility of succeeding on appeal" under section
225.4 of the Act. More specifically, it emphasized the following
The criterion set forth in section 225.4 of the Act
"[TRANSLATION] is more stringent than that of colour of right
[...] under article 1003 (b) C.C.P." that applies to
authorizations to institute a class action;
This more stringent criterion results from the lawmakers'
intent to implement a "[TRANSLATION] reliable filtering
The goal of this filtering mechanism is to "[TRANSLATION]
protect reporting issuers against strike suits, those opportunistic
actions that are brought solely for the purpose of obtaining a
quick settlement based on conjecture rather than on a right that is
grounded in real and tangible evidence"; and
While the plaintiff's burden of proof is greater than the
simple burden of demonstration currently required in class actions,
judges apprised of a motion for authorization must not conduct an
in-depth analysis of the evidence presented, but must limit
themselves to "[TRANSLATION] a summary appreciation of the
right of action invoked";
In the end, the Court of Appeal claimed it was satisfied that
the criteria of section 225.4 of the Act had been met and refused,
at this preliminary stage, to rule on the issue of whether or not
the questions raised by the FDA regarding the side effects of
tesamorelin constitute a material change in the activities,
operations or capital of Theratechnologies. The court therefore
referred this question to the trial judge.
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