In the recent decision of Green v Canadian Imperial Bank of Commerce, a five judge panel of the Ontario Court of Appeal overruled its prior decision and held that the limitation period under Part XXIII.1 of the Securities Act is suspended once the representative plaintiff pleads (1) a cause of action based on s.138.3 of the Securities Act, (2) the facts that found that claim, and (3) the intention to seek leave to commence an action under the Securities Act.
This case considered a trio of appeals in which representative plaintiffs in class proceedings claimed damages under the secondary market liability regime in Part XXIII.1 of the Ontario Securities Act. In each proceeding, the statement of claim was issued within the three-year limitation period set out in s.138.14 of the Securities Act, but leave to commence the statutory action was not obtained within the three-year period.
The lower court in all three cases held that the claims were statute barred as they did not obtain leave to commence the statutory action within the three-year time limit. In each case, s.28 of the Ontario Class Proceedings Act ("CPA"), which permits the suspension of limitation periods applicable to a cause of action "asserted" in a class proceeding, did not prevent the expiration of the limitation period. Each judge dealt with the expiration of the limitation period differently. The three appeals were heard together to allow the Court of Appeal to decide whether to reconsider its decision in Sharma v Timminco ("Timminco").
In its prior ruling in Timminco, the Court of Appeal held that s.28 of the CPA does not suspend the running of the limitation period in favour of any member of the class unless leave to commence the statutory claim has first been obtained from the court; merely pleading the intention to seek leave was held by the Court of Appeal to be insufficient to suspend the limitation period. The effect of Timminco was that representative plaintiffs were required to move for, and obtain, leave of the court within the three-year limitation provided in s.138.14 of the Securities Act.
Timminco is Set Aside
The Court of Appeal reconsidered its prior holding in Timminco in light of the purposes and intent of the relevant sections of the CPA and the Securities Act and determined it was not correct and should be overturned.
The Court of Appeal observed that s.28 of the CPA was enacted to "enhance access to justice for those with uneconomic individual claims". Similarly, the Court of Appeal noted that the purpose of s.381.3 of the Securities Act is to enhance access to justice for investors and deter corporate misconduct and negligence. The Court of Appeal held that Timminco undermined these goals by diminishing the viability of the class action procedure. Timminco, in effect, forced class members to commence their own actions with leave to ensure their claims were timely, and undercut the ability of representative plaintiffs to bring a class action in a timely manner as the process for obtaining leave is lengthy and uncertain.
The Court of Appeal also held that the dictionary meaning of the word "assert", as it appears in s.28 of the CPA, includes "making a claim" or "invoking a legal right". By pleading the intent to seek leave to commence the statutory action, the plaintiffs were "making the claim" or "invoking the legal right" and so were entitled to the suspension of the limitation period in s.28 of the CPA.
Accordingly, the Court of Appeal concluded that the limitation period set out in Part XXIII.1 of the Securities Act is suspended when a representative plaintiff pleads, along with the facts necessary to found the claim, their intent to seek leave to commence an action under that Part.
Other Issues Raised
In setting aside Timminco, the Court of Appeal reviewed circumstances in which it may overrule its previous decisions. The Court of Appeal identified a number of factors suggesting it was appropriate in the circumstances to set aside Timminco, including the legislative reactions to the judgment – which strongly suggested the Securities Act would be updated to reverse the holding in Timminco – and the fact that Timminco was only recently decided.
The Court of Appeal also agreed with one of the lower court judges that the "reasonableness" test for granting leave under s.138.8 of the Securities Act is a "relatively low threshold" and a "preliminary low-level merits based leave test". Lastly, the Court of Appeal noted that, in the context of a common law negligent misrepresentation claim, issues of reliance should not be certified and the trial judge may order individual trials to determine the issues of reliance in accordance with s.25 of the CPA.
The Court of Appeal's decision in Green v CIBC is troubling for securities class action defendants, as it may extend the time in which they are liable for claims made under s.138.1 of the Securities Act. The certainty and finality for defendants created by Timminco – under which plaintiffs had to obtain leave to commence the statutory action before the limitation period was suspended – has been undone.
It is unknown whether the parties will seek leave to appeal to the Supreme Court of Canada.
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.