In Theratechnologies inc. v. 12185 Canada inc., the Supreme Court of Canada has ruled that requirements that plaintiffs demonstrate that their claims have been brought in good faith and have a reasonable chance of succeeding are no mere "speed bump" on the way to obtaining judicial authorization to bring an action against reporting issuers, directors and officers, or experts for damages resulting from the purchase or sale of securities in the secondary market.
Justice Abella, writing for a unanimous Supreme Court, allowed the defendant reporting issuer's appeal and concluded that the plaintiff investor was not authorized to proceed with an action for damages suffered as a result of the defendant's alleged failure to disclose material changes.
The decision directs courts in all Canadian provinces to more rigorously apply securities law requirements that oblige plaintiffs to obtain judicial authorization before proceeding with secondary market securities class actions. Plaintiffs, in the wake of Theratechnologies, must adduce sufficient evidence to demonstrate a reasonable chance of success, lest their claim be denied at the outset.
In 2010, Theratechnologies Inc. ("Thera"), a pharmaceutical research and development company based in Montreal and listed on the Toronto Stock Exchange, was awaiting FDA approval for an HIV drug then under development.
The FDA posed various questions about the proposed drug to an expert advisory committee. These questions were posted to a public FDA website and Thera elected not to make any related disclosure to investors. Subsequently, third party stock quotation companies issued press releases stating that use of Thera's drug could cause unwanted side effects. The market reacted negatively to these reports and the plaintiff, 121851 Canada Inc. ("121851"), sold its shares and suffered a loss.
121851 took the position that the FDA's questions represented a material change requiring disclosure pursuant to section 73 of Quebec's Securities Act. As is the case in every province, 121851 needed judicial authorization before bringing an action against Thera. The relevant test under section 225.4 of Quebec's Securities Act is two-fold and is mirrored in the securities legislation of all other provinces: a court must be satisfied that any given secondary market claim (1) is brought in good faith, and (2) has a reasonable possibility of being resolved in favour of the plaintiff.
Both the motion judge, at first instance, and Quebec Court of Appeal held that there was sufficient evidence to conclude that the plaintiff's claim had a reasonable chance of success. The Supreme Court, however, disagreed.
The Supreme Court's Approach and Decision
The issue before the Supreme Court was whether 121851's claim had a "reasonable possibility" of succeeding within the meaning of section 225.4 of Quebec's Securities Act. In a unanimous decision, the Supreme Court allowed Thera's appeal and held that an action should not be authorized.
The Supreme Court clarified that, in order to establish that it has a realistic chance of success, a claimant must offer "some credible evidence in support of its claim". A full analysis of the evidence is not required. Instead, a plaintiff must adduce "sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant's favour."
Applying these principles, the Supreme Court focussed on whether Thera failed to disclose a "material change" within the meaning of section 5.3 of Quebec's Securities Act. The court held that there was no evidence suggesting that Thera, by electing not to disclose the FDA's questions, had failed to make any required disclosure. Specifically, the information Thera elected not to disclose did not contain any new information about the drug or its side effects; in fact, there was no evidence to suggest that the FDA's questions departed in any way from its routine drug approval procedure. Because the evidence did not credibly suggest that there was a material change requiring disclosure under Quebec's securities laws, the Supreme Court held that there was no reasonable possibility of success and, accordingly, 121851's action was not authorized.
Outcome and Impact
The securities legislation in all Canadian provinces contain threshold requirements analogous to section 225.4 of Quebec's Securities Act: a claimant must establish that their action is brought in good faith and has a reasonable chance of succeeding. Accordingly, Theratechnologies will have a far-reaching impact and, given the Supreme Court's decision, will likely result in courts approaching provincial "reasonable chance for success" requirements with increased analytical rigour. The message to plaintiff's counsel is clear: evidence showing the fundamental merits of a claim must be adduced before a court will authorize an action for damages in secondary market securities disputes.
The Supreme Court provides general guidance only, however, as to what evidence will establish that a given claim has a reasonable chance of succeeding. Although the authorization stage for secondary market liability actions "should not be treated as a 'mini-trial'", plaintiff's counsel should view Theratechnologies as a call for increased evidentiary diligence. According to the court, "a case with a reasonable possibility of success requires the claimant to offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim."  Only time, and subsequent consideration and application by lower courts, will determine exactly how provincial authorization threshold requirements have been impacted by Theratechnologies.
 2015 SCC 18.
 CQLR, c V-1.1.
 Theratechnologies, supra note 1 at para 39.
 A material change is defined as "a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer, or a decision to implement such a change made by the directors or by senior management of the issuer who believe that confirmation of the decision by the directors is probable."
 Theratechnologies, supra note 1 at paras 48 and 51.
 British Columbia (Securities Act, RSBC 1996 c 418, s 140.8(2)); Alberta (Securities Act, RSA 2000 c S-4, s 211.08(2)); Saskatchewan (Securities Act, 1988, SS 1988-89 c S-42.2, s 136.4(1)); Manitoba(Securities Act, CCSM c S-50, s 191(2)); Ontario (Securities Act, RSO 1990 c S-5, s 138.8(1)); New Brunswick (Securities Act, SNB 2004 c S-5.5, s 161.41(1)); Nova Scotia (Securities Act, RSNS 1989 c 418, s 146H(1)); PEI (Securities Act, RSPEI 1988 c S-3, s 129(2)); Newfoundland and Labrador (Securities Act, RSNL 1990 c S-13, s 138.8(2)).
 Theratechnologies, supra note 1 at para 39.
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