In a decision released on July 30, 2015, the Ontario Superior
Court of Justice has clarified that plaintiffs seeking to advance
claims under section 131(1) of the Securities Act
(Ontario) alleging misrepresentation in a take-over bid circular
cannot proceed against both the offeror and its directors, but
rather, are required to make an election. Notwithstanding the broad
mandate for public protection created under the Securities
Act, the Court clearly affirmed that the rights of action
provided pursuant to section 131(1) are mutually exclusive.
Plaintiffs are precluded from advancing such statutory rights of
action concurrently against both an offeror and its directors, and,
by necessary implication, from pursuing vicarious liability
Rooney v ArcelorMittal SA, a putative class action, was
commenced in Ontario following a successful joint take-over bid for
Baffinland Iron Mines Corporation led by the corporate defendants
and their directors, a number of whom were named personally as
defendants in the proceeding. On the motion before Justice Rady,
the defendants sought to strike the plaintiffs' amended
statement of claim on several grounds, including on the basis that,
pursuant to section 131(1) of the Securities Act, the
plaintiffs were precluded from proceeding against both the joint
offerors and their corresponding directors.
Section 131(1) of the Securities Act sets out a
statutory cause of action for security holders, entitling security
holders to claim rescission or damages in circumstances where
take-over bid circulars are found to contain
The plaintiffs argued that, as remedial legislation intended to
foster investor protection, the Securities Act must be
given a broad and liberal interpretation. On that basis, they
suggested that any requirement for election in the legislation was
intended to apply solely to the remedy (i.e., either for
rescission or damages) and was not intended to require security
holders to elect as between whom to pursue a cause of action
against. In support of their argument, the plaintiffs also
unsuccessfully sought to draw parallels between the provisions for
prospectus liability and take-over bid liability.
After carefully reviewing the legislative history of section
131(1) and its judicial treatment post-enactment, the Court
disagreed and found that, despite the fact the legislation was not
as clearly expressed as it could be, an election as between the
offeror and its directors was required. The Court arrived at
this conclusion based on several factors, including the plain
language of the provision, which expressly speaks to an
election. Justice Rady also concluded that the plaintiffs'
claims in vicarious liability against the directors would similarly
be barred if they sought to pursue claims against the offeror,
given that, to hold otherwise, would render the election
requirement irrelevant and unnecessary.
As a final matter, the Court also concluded that section 131(1)
excluded claims arising from secondary market
transactions. Justice Rady ultimately concluded that since
shareholders operating in the secondary market could never elect to
exercise a right of rescission pursuant to section 131(1), the
language of the provision must have been intended to exclude
secondary market transactions.
It remains to be seen whether the plaintiffs will appeal.
However, the decision, which narrows the scope of permitted claims
pursuant to section 131(1), is likely welcome news for public
issuers and their directors in Ontario, who have been, in light of
statutory deemed reliance provisions, particularly vulnerable to
claims arising from circular misrepresentations.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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