Canada: Securities Class Action Trilogy Heard By The Supreme Court

On February 9, 2015, the Supreme Court heard appeals in a trilogy of Ontario securities class action cases: Green v. CIBC, Silver v. IMAX and Celestica v. Millwright Regional Council of Ontario Pension Trust Fund. These long-awaited appeals will have a significant impact on the application of limitation periods under both the Securities Act, R.S.O. 1990, c. S.5, s. 138.3 (the "Securities Act") and the Class Proceedings Act, 199, S.O., 1192, c. 6.

In each case, plaintiffs have commenced class actions pursuant to PART XXIII.1 of the Securities Act for alleged misrepresentations in respect of trades in securities being made in the secondary market. The Securities Act requires a plaintiff to obtain leave before pursuing his or her statutory claim, and provides for a limitation period of three years from the time of the alleged misrepresentation. At the heart of the appeals is whether the limitation period requires the plaintiff to simply commence the claim within three years, or whether it requires the plaintiff to commence the claim and obtain leave in order to avoid the claim becoming statute barred. In all three cases, a class action had been commenced and a motion for leave had been brought, but not decided, within the three-year statutory limited period.

The debate over these provisions began with the release of the Ontario Court of Appeal's decision in Sharma v. Timminco, 2012 ONCA 107 leave to appeal to S.C.C. refused, [2012] S.C.C.A. No. 157 ("Timminco"). In a decision that took the securities class action bar by surprise, the Court in Timminco held that the statutory claim is statute-barred if leave to commence the action has not been obtained within the three-year limitation period. Several class actions were statute-barred as a result of this decision. Prior to Timminco, most plaintiffs had been operating under the assumption that s. 28 of the CPA, which has the ability to suspend a limitation period in favour of a class member if "a cause of action is asserted in a class proceeding", insulated plaintiffs from the limitation period under the Securities Act. The provision is designed to protect plaintiffs from a limitation period when at least one plaintiff has commenced an action within a limitation period.

In February 2014, with the release of Green v. CIBC, a special five-member panel of the Court of Appeal made the unprecedented move of overturning its own decision in Timminco. The Court of Appeal decided that it had wrongly interpreted s. 28 of the CPA. It was critical of the Court's analysis in Timminco which held that because the cause of action could not be enforced without leave being obtained, the statutory claim could not be considered to have been "asserted" until leave was obtained. The Court held that this reasoning was inconsistent with the purpose of s. 28 of the CPA and s. 138.3 of the Securities Act. It held that the purpose of these sections – to facilitate access to justice and deter corporate misconduct – would be thwarted if plaintiffs cannot use class actions as a vehicle for advancing statutory causes of action for misrepresentation. Moreover, if s. 28 of the CPA and s. 138.3 Securities Act cannot work together, class members would have to commence individual claims in order to ensure that their class action is brought within the three-year limitation period. This would run contrary to the intention of s. 28 of CPA.

In its decision, the Court of Appeal also addressed the reality that timing is not always within the control of counsel. Due to logistics, procedural steps and court availability, three years is usually not enough time for plaintiffs' counsel to commence a claim, bring a motion for leave and obtain leave. This is particularly illustrated in the case of Silver v. Imax in which a claim had been commenced, a leave motion had been served and argued but the decision itself was not released prior to the expiration of the limitation period.

Given the Court of Appeal's reversal in CIBC v. Green, the Supreme Court's decision in this area will provide much needed certainty with respect to securities class actions and the impact of the limitation provision in the Securities Act.

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