Canada: New Cooperative Capital Markets Rules Affect Civil Liability For Misrepresentation, Insider Trading

The federal government and the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island and Saskatchewan (Participating Provinces) have signed a memorandum of agreement to formalize the terms and conditions of the new proposed cooperative capital markets regulatory system (Cooperative System), which will be administered by a single Capital Markets Regulatory Authority (Authority). For more information on this, please see our September 2014 Blakes Bulletin: Cooperative Capital Markets Regulatory System Agreement and Draft Legislation Released.

Given the scope of the new proposed federal and provincial legislation, Blakes is publishing a series of bulletins regarding various aspects of the proposed Cooperative System. This bulletin focuses on how the Cooperative System will affect the civil liability of public issuers and their officers and directors in connection with public disclosures and insider trading. A consultation draft of the Provincial Capital Markets Act (PCMA) was released in September for public comment. The consultation period will end on December 8, 2014. If enacted in its present form, the PCMA will replace the statutory civil liability provisions currently set out in the Securities Acts of the Participating Provinces and will result in a series of procedural and substantive changes to the existing provincial regimes.


Parts 12 and 13 of the draft PCMA pertain to civil liability. Among other things, these parts set out provisions designed to harmonize the civil liability regimes of the various Participating Provinces, which create statutory causes of action for misrepresentations affecting the price of securities on primary and secondary markets and for insider trading, tipping and recommending. However, a number of the changes go beyond the mere elimination of variances in the Securities Acts of the Participating Provinces and, if enacted, will introduce new provisions and concepts that do not derive from any existing legislation.

A commentary to the PCMA and its companion federal legislation, the Capital Markets Stability Act (CMSA), sets out the legislative intent behind some of the proposed changes. However, the commentary is not comprehensive and numerous changes are not explained. For example, the definition of "misrepresentation" which, in the existing Securities Acts of the Participating Provinces, refers to "an untrue statement of material fact" is changed in the draft PCMA to "a false or misleading statement of a material fact" without commentary.

The changes that may have the most significant impact on the litigation of civil securities claims in Participating Provinces, including securities class actions, relate to an expansion of the private right of action for insider trading, a shift in the onus placed on certain defendants to primary market misrepresentation claims, and changes to the limitation periods applicable to the statutory causes of action in some provinces.


An important change is the expansion of existing civil remedies for insider trading. Proposed section 129 of the PCMA allows investors to pursue private rights of action for insider trading, tipping and recommending in contravention of proposed section 66. The prohibition on "recommending" in proposed section 66 addresses a scenario in which a person in a special relationship with an issuer is aware of a material change or a material fact that has not been generally disclosed and encourages another person to trade in a security of the issuer or to enter into a transaction involving a related financial instrument (without necessarily disclosing the material change or fact to the person who makes the trade or engages in the transaction). The Ontario Securities Act, unlike the Securities Acts of the other Participating Provinces, does not presently contain an express prohibition on recommending.

Proposed section 129 provides a civil cause of action against a person who contravenes the insider trading prohibitions to all persons who purchased or traded in a security during the period between the time the contravention occurred and the time when the material fact or material change at issue was generally disclosed to the market. Notably, the right of action is available regardless of whether the plaintiff sold the securities to or purchased the securities from the contravening defendant (or from a person who received material information or a recommendation from the contravening defendant). Damages are calculated as the lesser of the loss suffered by the plaintiff and three times the profit gained or loss avoided by all persons as a result of the contravention.

This direct right of action for investors who did not sell to or purchase from a contravener (or a person who received material information or a recommendation from a contravener) resembles section 136 of the British Columbia Securities Act. This remedy is not currently available under the Securities Acts of Ontario, Saskatchewan, New Brunswick or Prince Edward Island. These Securities Acts provide a statutory cause of action for damages resulting from insider trading and related misconduct, but the cause of action is only available to direct sellers and purchasers of the specific securities bought or sold as a result of the misconduct and to the issuer itself.

If enacted, section 129 may increase the likelihood that class actions will be initiated against those alleged to have engaged in insider trading, tipping and recommending, especially when the damages at issue are significant.


Another important change is that the draft PCMA reverses the onus for demonstrating a due diligence defence in respect of primary market claims. For example, existing subsection 130(5) of the Ontario Securities Act provides that a defendant, other than the issuer or selling security holder, is not liable for a misrepresentation in a prospectus unless he or she either (i) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or (ii) believed there had been a misrepresentation. Proposed subsection 119(4) of the PCMA makes it clear that it is the defendant who has the burden of proving that "after conducting a reasonable investigation [he or she] had no reasonable grounds to believe and did not believe that there was a misrepresentation."

The commentary to the PCMA and CMSA indicates that this and other changes to the defendant's onus result from attempts to harmonize primary and secondary market provisions but there is no question that they will make it more difficult to establish a "reasonable investigation" defence to a primary market misrepresentation claim.


The limitation period applicable to secondary market claims in the draft legislation closely resembles the recently enacted changes to section 138.14 of the Ontario Securities Act and section 161.9 of the New Brunswick Securities Act. This limitation period is not subject to discoverability—in other words it runs irrespective of whether a plaintiff is aware of the facts giving rise to the cause of action or not—and expires on the earlier of three years from the date the misrepresentation at issue was made and six months from the date a press release is issued disclosing that leave has been granted to pursue the action. However, the limitation period is suspended as of the date on which a notice of application or motion for leave is filed with the court, and resumes running until the motion for leave is finally determined.

If enacted, this limitation period will constitute a significant departure from the existing limitation periods governing secondary market claims in the Saskatchewan Securities Act, which expires on the earlier of one year from the date of discovery and six years from the date the transaction giving rise to the cause of action took place.

With respect to the limitation period affecting primary market claims, the PCMA is consistent with existing limitation periods in the Ontario, British Columbia and Prince Edward Island Securities Acts which provide that when rescission is not sought, the limitation period will expire on the earlier of 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action and three years after the transaction or alleged contravention at issue. However, this limitation period would cut existing limitation periods applicable to primary market liability claims in New Brunswick and Saskatchewan in half.


It is certainly possible that the PCMA will be revised following the public consultation process. Further, as the entire Cooperative System is designed to operate on a platform model, details of procedural and substantive rules may be expanded and refined through regulations which remain to be released for comment. While the provisions that ultimately come into force could be quite different from those envisaged in the draft legislation, what is clear at this stage is that the Participating Provinces envisage a significant overhaul of the civil litigation regimes in addition to changes to other aspects of their existing Securities Acts.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
13 Dec 2017, Seminar, Toronto, Canada

Class actions across Canada continue to grow in volume and complexity, triggering significant policy and financial implications for businesses in Canada. With the Law Commission of Ontario’s recent announcement that it is reactivating its comprehensive review of class actions in Ontario, we may see important law reform on the horizon to evolve with the changing landscape.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions