On June 23, 2014, the United States Supreme Court issued its
much-anticipated decision in Halliburton Co. v. Erica P. John
Fund ("Halliburton"), as issuers and
investors in the U.S. (and Canada) wanted to see if the landscape
for securities class actions in both countries would be
fundamentally changed. The U.S. Supreme Court made only an
uneventful change in U.S. law, and so our Courts are not likely to
see a sudden shift of class actions against cross-listed companies
to Canada. The U.S. Supreme court specifically held that defendants
in securities class actions could rebut the presumption of investor
reliance on public and material misrepresentations prior to class
certification, by mounting evidence that the alleged
misrepresentations did not, in fact, affect the issuer's share
U.S. public issuers (along with Canadian plaintiffs'
lawyers, as discussed below) had hoped that the pro-business
majority of Supreme Court would have gone even further by
abandoning the presumption of reliance and instead requiring
plaintiffs to prove actual reliance on the alleged
misrepresentations. The presumption of reliance was established in
Basic v. Levinson, 485 US 224 (1998)
("Basic"). In Basic, the U.S. Supreme
Court articulated a "fraud on the market" theory, a
presumption that share prices are a function of all material and
public information about the issuer. Since Basic,
plaintiffs in securities fraud and misrepresentation class actions
have used that presumption to establish reliance by all investors
on material misrepresentations. In other words, in U.S. securities
class actions, Basic meant that plaintiffs did not have to
prove reliance, easing the road to certification.
In Canada, provincial legislatures followed suit by ensconcing
the deemed reliance principle of Basic in legislation, to
allow investors to advance misrepresentation class actions without
requiring any investors to prove individual reliance.
Instead of abandoning Basic, Halliburton
provides defendants with an opportunity to demonstrate that the
alleged misrepresentation did not affect the share price. This
enables U.S. public issuers and their executives, as defendants, to
mount an evidentiary challenge prior to certification. It is
expected that in some instances this will make it more difficult
for investors to gain certification in securities class actions in
the United States.
Had Halliburton overturned Basic, it would
have had a more profound impact on cross-border issuers and class
counsel alike. First, since it would have made securities class
actions almost impossible to mount in the United States, the focus
of class counsel both in the U.S. and Canada would have shifted to
the advantages of suing cross-listed companies here. Indeed, many
predicted that the alliance between Canadian and U.S.
plaintiffs' counsel would have grown even stronger, as U.S.
plaintiffs' counsel would have worked with Canadian class
counsel to "pick" cases for certification in Canada.
Second, companies deciding where to register – Canada, U.S.,
or both – would have considered the new securities litigation
landscape in the United States, and concluded that the U.S. is more
In the end, Halliburton did not abandon Basic.
The impact of Halliburton on Canadian class action
practice will therefore likely be small. In the appropriate case,
defendants in Canada may try to mount a Halliburton-style
argument against common law certification (which will be difficult,
in any system), and in defending motions for leave to proceed under
the securities Acts, but there will be no dramatic movement of
cases away from the United States.
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Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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