The Supreme Court of Canada decision in Theratechnologies Inc. v 121851 Canada
Inc., 2015 SCC 18, considers the leave requirement that a
plaintiff shareholder must meet in order to advance a statutory
cause of action for damages against a reporting issuer for breaches
of the continuous disclosure obligations in the secondary
market. The case was decided under the Quebec Securities
Act, but has implications across Canada, including in Ontario,
where a similar legislative regime exists. Important policy
considerations drove the result.
In 2009, the defendant Theratechnologies Inc.
("Thera") filed an new drug application with the Food
& Drug Administration ("FDA"). In accordance
with its regular procedures, the FDA convened a meeting of an
expert Advisory Committee to evaluate the safety and efficacy of
the new drug. In 2010, the FDA published the information it
had compiled about the drug, which included questions the FDA had
put to the Advisory Committee. As a result of those questions,
Dow Jones issued a press release and article which expressed
concerns about the risks associated with the drug, but which the
court found did not disclose that Thera's clinical trial
results had concluded that those risks were minor, transitory, and
After Dow Jones press release, the value of Thera shares
dropped. The plaintiff sold its shares and suffered a
loss. A few days later, Thera issued a press release advising
that the Advisory Committee had unanimously recommended that the
FDA approve the new drug. The share price recovered. A few
months later, the FDA approved the drug.
The plaintiff sought leave under section 225.4 of the Quebec
Securities Act, for approval to commence a class action
for damages, arguing that the information on the potential side
effects of the drug amounted to a material change in Thera's
business, operations, or capital, triggering timely disclosure
obligations under section 23 of the Securities Act.
Section 224.5 of the Securities Act requires that: (1) an
action must be brought in good faith; and (2) there must be a
reasonable possibility that it will be resolved in favour of the
plaintiff. These provisions essentially mirror those in the
sections 75 and 13.8 of the Ontario Securities Act.
There was no issue that the plaintiff was acting in good faith.
The court considered the policy objectives behind the second
requirement – to strike a balance between unmeritorious
strike suits that waste time and expense and to ensure that
investors have a meaningful remedy when issuers breach disclosure
obligations – and determined that the court must undertake a
reasoned consideration of the evidence to ensure that the action
has some merit. This threshold requires that there be a
reasonable or realistic chance that the action will succeed.
This requires the plaintiff to offer both a plausible analysis of
the legislation and some credible evidence in support of the
claim. In other words, there is some preliminary merits
assessment, but there is not to be a mini-trial.
In this case, the court concluded that there was no reasonable
chance that the plaintiff could succeed. Thera regularly
updated its shareholders about developments in its FDA application
and clinical trials, but was not, "required to reassure its
investors at every stage of the FDA approval process". It
held that a reasonable investor who had read Thera's news
releases would have known of the potential risks and that the
clinical trials had found that they were not clinically
significant. Thera met its statutory duty of
disclosure. The court warned of the, "risks of excessive
disclosure, which could, 'simply bury the shareholders in an
avalanche of trivial information – a result that is hardly
conducive to informed decision making'".
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.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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