The Court of Appeal for Ontario's recent decision in Green v. Canadian Imperial Bank of Commerce 1 ("Green") is significant in two respects.
First, the Court clarified the limitation period applicable to securities class actions under the secondary market liability provisions of the Ontario Securities Act 2 (the "Act").
Second, the Court also determined that common law negligent misrepresentation claims could not be certified as class actions on the basis of "fraud on the market" or "efficient market" economic theories. In other words, the question of individual reliance cannot be supplanted by the notion of inferred group reliance except in very limited circumstances.
Court of Appeal Overrules its Earlier Decision in Sharma v. Timminco
In Sharma v. Timminco 3 ("Timminco"), the Court of Appeal held that a plaintiff in a secondary market misrepresentation claim must obtain leave from the Court to proceed with such a claim w Basithin the three-year limitation period established in the Act and that it was not sufficient to simply issue a statement of claim alleging that the defendants were liable under the secondary market provisions of the Act. The Court held that section 28 of the Class Proceedings Act 4 ("CPA"), which suspends the limitation period for claims which are the subject of a class action, did not operate to suspend the limitation period for secondary market liability claims because leave of the Court is required to proceed with such claims. Thus, a plaintiff had not obtained leave to proceed with the claim within three years of the date the document containing the misrepresentation was released, the claim was time-barred.
In Green, the Court of Appeal determined that its earlier decision in Timminco was incorrect and had the following unintended consequences:
- it deprived class members of an important benefit of the class action regime; that is, the suspension of the limitation period under section 28 of the CPA; and
- it undercut the ability of investors to initiate class actions in compliance with the limitation period.
The Court of Appeal overruled Timminco and held that when a representative plaintiff brings a secondary market misrepresentation class action and pleads the statutory cause of action, the facts on which the claim is based, and the intention to seek leave, the limitation period is suspended. Therefore, a plaintiff has three years from the date a misrepresentation is made to commence a secondary market misrepresentation claim (as opposed to three years to both commence a claim and obtain leave to pursue it).
Reliance in Common Law Negligent Misrepresentation Claims
In addition, the Court of Appeal considered whether common law negligent misrepresentation claims could be certified on the basis of "fraud on the market" or "efficient market" economic theories. Under these theories, it is unnecessary for investors to demonstrate that they relied on the specific alleged misrepresentation in purchasing securities. The question of reliance is significant as securities class actions in Canada which asserted common law negligent misrepresentation claims, typically faltered on the basis that an investor's reliance was an individual issue unsuitable for determination in a class proceeding. Certain class action judges in Canada, while rejecting the "fraud on the market" theory to supplant an analysis of individual reliance were nonetheless certifying common law negligent misrepresentation claims, even where an investor's reliance would otherwise be an individual issue.
In Green, the Court upheld the motion judge's decision declining to certify common law negligent misrepresentation claims on the grounds that reliance was an individual issue. While the Court held that in certain limited circumstances inferred reliance could provide a basis for a negligent misrepresentation claim, and certain issues related to the negligent misrepresentation claim could be certified as common issues, it rejected the inferred reliance argument in the context of the common law negligent misrepresentation claim in Green.
In Green, the Court of Appeal adopted a purposive approach to class action procedure and focused, in large part, on the objective of providing access to justice for plaintiffs. The Court held that the three-year limitation period for securities class actions will be suspended when a representative plaintiff pleads: the statutory cause of action, the underlying facts, and the intent to seek leave.
However, while the Court made it easier for plaintiffs to proceed with statutory secondary market securities claims, it also imposed a significant limit on common law negligent misrepresentation claims. This distinction is important. The statutory regime imposes limits on damages for responsible issuers, directors, officers, and experts, such as auditors and lawyers, except in the case of fraud. Plaintiffs sought to avoid these damages caps by pursuing common law claims. However, the Court's decision in Green limits the ability of plaintiffs to pursue such claims.
1. Green v Canadian Imperial Bank of Commerce, 2014 ONCA 90 [Green].
2. Securities Act, RSO 1990, c s.5, Part XXIII.1.
3. Sharma v Timminco, 2012 ONCA 107, leave to appeal to SCC refused,  SCCA no 157 [Timminco].
4. Class Proceedings Act, 1992, SO 1992, c 6 [CPA].
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