The Court of Appeal for Ontario's recent decision Bayens
v. Kinross Gold Corporation clarifies the standard for
obtaining leave to advance statutory claims for secondary market
misrepresentation and affirms that parallel common law negligent
misrepresentation claims in such cases will not be certified as a
matter of course.
In Bayens, the plaintiffs brought a proposed
C$6-billion class action on behalf of purchasers of shares of the
defendant issuer. The plaintiffs alleged statutory
misrepresentations under Part XXIII.1 of the Ontario Securities
Act (OSA) and common law misrepresentations related to the
disclosure of certain goodwill write-downs. The Court of Appeal
heard the plaintiffs' appeal of the dismissal of their motion
for leave to proceed with statutory claims and certification of the
action as a class proceeding.
LEAVE STANDARD FOR STATUTORY CLAIMS
The judge at first instance concluded that the proper standard
for granting leave to proceed with a statutory claim under the OSA
is a "low-threshold evidentiary merits-based test"
whereby the court must be satisfied on the evidence that there is a
"reasonable possibility" that the action will be resolved
at trial in favour of the plaintiff. Applying this test to the
evidence, the motion judge denied leave, concluding that there was
no possibility that the plaintiffs' statutory action could
succeed at trial.
The Court of Appeal upheld this decision, confirming that the
"reasonable possibility of success" standard for leave is
the correct standard and that it is a "relatively low
threshold, merits-based test." The court clarified that while
the leave standard is the same standard applied when deciding
whether to certify a class action or whether to strike a pleading,
the evidentiary bases in the these scenarios are different. On a
certification motion or a motion to strike pleadings, no evidence
is filed and the facts pleaded are assumed to be true. On a leave
motion, however, evidence is adduced and the "determination
whether a plaintiff's statutory action will have a reasonable
possibility of success at trial requires some critical evaluation
of the merits of the action, based on all the evidence proffered by
CERTIFICATION OF COMMON LAW CLAIMS
The motion judge held that if leave is granted under the
OSA, a court should certify a class action for both the statutory
and the common law negligent misrepresentation claims. If leave is
not granted, then the class action should not be certified for the
common law claims. Having denied leave, the motion judge therefore
denied certification of the common law claims.
The Court of Appeal upheld the result but for different
reasons. It held that it does not automatically follow from the
denial of leave for the statutory claims that there will be no
basis in fact for determining that a class action is not the
preferable procedure for the common law claims. Nonetheless, the
Court of Appeal concluded that a class action was not the
preferable procedure for prosecution of the common law claims. The
Court of Appeal held that proof of reliance, causation and damages
posed particular difficulties, that the determination that the
statutory misrepresentation claims have no reasonable prospect of
success was a relevant consideration and that other actions in
which common law claims were certified alongside statutory claims
were not of assistance in determining the appropriate outcome in
the particular circumstances of the case.
While the Court of Appeal performed a separate
preferability analysis, it noted that standalone common law
negligent misrepresentation claims in securities cases are not
generally suitable for certification because they give rise to
individual issues of causation and reliance that would be
unmanageable. In this case, numerous individual trials would be
required to establish reliance, causation and damages, rendering
access to justice more illusory than real and undercutting the goal
of judicial economy.
The Bayens decision provides important
clarification of the leave standard for statutory secondary market
misrepresentation claims and serves as yet another example of how
plaintiffs should not be permitted to use parallel common law
claims to avoid the protections for defendants provided by the
statutory regimes. These issues are scheduled to be considered by
the Supreme Court of Canada in Green v. CIBC in early
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