In recent years, Canadian market participants have watched with
interest as developments changed the American securities litigation
landscape. The US Supreme Court's decision in Morrison limited the reach of US securities
class actions. The fallout from Justice Rakoff's rejection of
the SEC's settlement with Citigroup (which rejection was
subsequentlyoverturned) may have chilled the SEC's
appetite for settling matters without admissions – right at a
time when the Ontario Securities Commission had endorsed its own
no-contest settlement regime.
A recent development is generating controversy: in May 2014, the
Delaware Supreme Court held that fee shifting provisions in a
corporation's bylaws may be valid and enforceable under
Delaware law. These bylaws essentially require shareholders who
commence unsuccessful litigation against the corporation to pay the
corporation's legal costs.
In a recent New York Times article, Gretchen Morgenson expressed concern
about the potential "chilling effect" of fee shifting
rules in corporate bylaws. Ms. Morgenson concludes:
Shareholders are already at a severe
disadvantage when trying to hold corporate executives and directors
accountable. Limiting their options even further is a giant step in
the wrong direction.
From our perspective as Canadian lawyers, it is hard to
understand the concern.
Cost shifting is a staple of the legal system in Britain (as Ms.
Morgenson notes) and in most areas of Canada, including Ontario. It
plays an important role in deterring unmeritorious litigation
– particularly in shareholder litigation.
When Ontario implemented a statutory right of action for
misrepresentations affecting the price of securities trading on the
secondary market, the Legislature included a specific provision to ensure that the regular
"loser pays" costs rules would apply in securities class
actions. This was based on the recommendations of a variety of
parties, including the Canadian Securities Administrators – an organization whose
mission includes investor protection. (It is notable, however, that
the consultation draft of the Provincial Capital Markets Act, which was recently published for comment
by the Governments of Canada, Ontario, British Columbia,
Saskatchewan and New Brunswick, does not contain a provision
explicitly preserving the regular loser-pays costs rules in class
actions under the similar right of action proposed in that draft
Shareholders who would otherwise be deterred from suing an
issuer have a variety of options, including seeking an indemnity
for costs from class counsel or by way of a third party funding
agreement. In Ontario, the Class Proceedings Fund can also
indemnify plaintiffs for adverse cost awards in certain proceedings
that fall within its mandate and are accepted for funding.
Loser-pays cost rules can provide the court with an important
tool to strike a fair balance between access to justice for class
action plaintiffs and some degree of protection for businesses and
other market participants, including long-term investors, against
frivolous and potentially deviating litigation.
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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