In April 2015, the Supreme Court of Canada released its decision
in Theratechnologies Inc. v 121851 Canada Inc., 2015 SCC
18, in which it emphasized the need for a robust screening
mechanism to prevent unmeritorious secondary market
misrepresentation class actions from proceeding. We predicted then
(see Theratechnologies Inc. v. 121851 Canada Inc.: The
Supreme Court Gives the Leave Test Teeth) that the Supreme
Court had intended to "give teeth" to the applicable
test, to discourage unmeritorious securities class actions. This
appears to be the case.
The recent decision in Coffin v Atlantic Power Corp.,
2015 ONSC 3686, is the first decision to consider the certification
bar set by the Supreme Court in its April 2015
Theratechnologies case. Atlantic Power indeed
confirms that courts are willing to set a higher hurdle for
Plaintiffs before green-lighting these types of class actions.
Effectively, the Plaintiffs in Atlantic Power alleged
that Atlantic Power had made misrepresentations about its ability
to sustain its dividend payments. Justice Belobaba of the Ontario
Superior Court determined that in light of
Theratechnologies, he had to decide the following issue:
"... after considering all of the evidence presented by the
parties, does any part of the plaintiffs' case have a
reasonable or realistic chance of success at trial? Or is the
plaintiffs' case so weak or has it been so successfully
rebutted by the defendants that it has no reasonable possibility of
The evidentiary record was robust, primarily because Atlantic
Power decided to aggressively rely on internal corporate records to
show that it had not made any misrepresentation, and thus that the
Plaintiffs' case could not succeed.
From the Defendant's evidence, the judge drew four important
the dividends were not
the dividends were very much
connected to and dependent upon cash flow;
the company had enough cash on hand
to continue to pay the $1.15 dividend for another one to three
years even without any further acquisitions; and
that dividend payments in general are
not formulaic calculations but business judgment calls.
Justice Belobaba also relied heavily on the internal corporate
records produced by Atlantic Power to construct a narrative of
internal decision making and knowledge. That narrative was
apparently not weakened in any material way by the Plaintiffs in
the lead-up to the application. In fact, the judge felt comfortable
enough with the Defendant's version of events that he seems not
only to have found that the Plaintiffs' case had no reasonable
prospect of success, but also to have conclusively found that there
were in fact no misrepresentations made and no evidence that
management had made any false statements about the future of the
The judge denied leave for a secondary market class action to
proceed. Had leave been granted, the Plaintiffs would have been
allowed certain favourable evidentiary exemptions, such as the need
to prove individual reliance by every member of the class on the
alleged misrepresentations, a requirement for an action in
misrepresentation at common law. This meant that the Plaintiffs,
having failed to get leave for the more favourable statutory
action, were left trying to certify a class action for common law
misrepresentation, which would require proof of individual reliance
on the alleged misrepresentations. While the judge noted that such
common law misrepresentation class actions had on occasion been
allowed in the past by Ontario courts (despite the obvious
difficulty of proving reliance for each class member), His Honour
found that such class actions were no longer allowed in Ontario as
a result of more recent jurisprudence. Further, and more
importantly for these Plaintiffs, because the factual foundation
for the proposed common law class action would be the same as in
the proposed statutory secondary market class action, it too would
be destined to fail, and was therefore not appropriate for
certification as a class proceeding.
It is likely that the Plaintiffs will appeal this decision, but
at least for now Atlantic Power stands as an example of
the fact that the new leave test for secondary market class actions
as enunciated by the Supreme Court in Theratechnologies
has real teeth. Assuming that the defendant in such a proposed
class action is in fact blameless, or has grounds to convince the
court that the proposed proceeding is frivolous, defence counsel
now have a great deal of running room to put forward a robust and
aggressive defence. In fact, there seems to be great incentive now
to do so as such a defence may not only prevent a statutory
secondary market action, but any class proceeding based on
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).