In providing a statutory right of action in respect of
misrepresentations contained in secondary market disclosure, the
Ontario Securities Act (OSA) distinguishes between those
misrepresentations contained in "core documents" and
misrepresentations contained in non-core documents. In the latter
case, a person or company will only be liable where the plaintiff
proves knowledge of the misrepresentation, willful blindness to the
misrepresentation, or gross misconduct. The recent
decision of the Ontario Superior Court in Abdula v. Canadian Solar Inc.
addressed the question whether "core documents" are
limited to documents that are required to be filed with the Ontario
Securities Commission ("OSC") or whether they also
include similar types of documents filed with the SEC. The court
also further clarified how the test for leave will be applied in
circumstances where only the plaintiff has filed evidence.
Canadian Solar was incorporated pursuant to the CBCA and its
executed offices are located in Toronto. Its shares trade only on
the NASDAQ. It is not a "reporting issuer" pursuant
to the OSA, however, in a widely reported earlier
decision the Court determined that it is a
"responsible issuer" under the OSA and thus falls within
the ambit of section 138.3. In his claim, plaintiff alleged
that there were misrepresentations in Canadian Solar's
financial statements for Q1, Q2, Q3 and Q4 2009, in Canadian
Solar's 2008 annual report, and in a prospectus supplement.
Core vs. Non-Core Documents
Canadian Solar argued that all of the documents at issue were
"non-core" documents, because all of the documents
included in the definition of "core document", such as
prospectuses, take-over bid circulars, annual financial statements,
etc., have a technical meaning under the OSA and are limited to
documents that must be filed with the OSC.
Justice Taylor rejected this argument, finding that the
legislature did not intend to distinguish between documents that
must be filed with the OSC and equivalent documents that are filed
with other securities regulators, including the SEC. Rather, the
distinction between "core" and "non-core"
documents relates to whether they are formal documents, such as
prospectuses, AIFs, annual financial statements and MD&As, or
informal documents, such as press releases, voluntary disclosures,
and annual and quarterly reports (excluding the MD&A and
financial statements contained therein, which are "core
documents"). As such, Justice Taylor held that there was a
reasonable possibility that the plaintiff would be successful at
trial in showing that the misrepresentations at issue were
contained in "core documents."
Evidentiary Burden on the Test for Leave
Justice Taylor also addressed the question whether the
plaintiff had a reasonable possibility of establishing that there
were misrepresentations in the documents. Canadian Solar conceded
that there was a reasonable possibility that the plaintiff would
establish at trial that there was a misrepresentation in relation
to its Q4 2009 financial statements. Of note, however, is how the
Court applied the leave test for those documents in respect of
which plaintiff's expert opined that he could not determine if
the financial statements were materially misleading (Canadian Solar
did not lead any expert evidence.)
Following the case of Millwright Regional Council of Ontario
Pension Trust Fund v. Celestica Inc., which we have previously
here, Taylor J. held that there is no obligation on the
defendant to file any material in opposition to the motion for
leave. The onus is on the plaintiff to produce satisfactory
evidence, without the ability to obtain production or discovery
from the defendant. If the plaintiff if unable to do so, leave
should be denied. Since the plaintiff had not led any affirmative
evidence with respect to the Q1, Q2 and Q3 2009 financial
statements that would show a "reasonable possibility of
success" at trial, Justice Taylor held that leave must be
denied regarding these documents.
Similarly, with respect to the alleged misrepresentation
contained in Canadian Solar's annual report, Taylor J. found
that because there was no affirmative evidence from plaintiff's
expert that the statement at issue was materially deficient, there
was not a reasonable possibility that the plaintiff would succeed
at trial in proving a misrepresentation.
Justice Taylor's analysis therefore confirms that the test
for leave is a genuine screening mechanism that requires the court
to assess and weigh the evidence in respect of each alleged
misrepresentation and determine whether the plaintiff indeed has a
reasonable possibility of success. It is not merely a "bump in
the road" on the way to certification. Indeed, even where the
defendant files no evidence, leave may be denied where the
plaintiff's record is deficient.
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.
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Under the Income Tax Act, the Employment Insurance 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 or GST.
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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