The Supreme Court of Canada has confirmed that the test for
leave to pursue a statutory claim for secondary market
misrepresentation is "more than a speed bump." For defendants,
this means there may be an opportunity to "do battle [at] the outset" and mount an
aggressive opposition to a motion for leave. This likely involves
filing substantive responding evidence. But how does a defendant
decide whether this is the right strategy? Whether to file evidence
in response to a leave motion is a difficult strategic decision
often faced by defendants in securities class actions.
Early Trend – Minimal Evidence Filed by Defendants
Based on the early jurisprudence, the test for leave was thought
to be a relatively low threshold. Courts treated the statutory
requirement that the plaintiff establish a "reasonable
possibility that the action will be resolved at trial in [its]
favour" as a bar that could be easily surpassed. This meant
that defendants would often not file any substantive evidence in
response to a leave motion, focusing their arguments instead on
whether the plaintiff had met its evidentiary burden and on
technical issues such as whether the class was properly
Defendants would choose to remain silent on the substantive
allegations because, by filing responding evidence, the plaintiffs
would be able to cross-examine the defendants' witnesses and
would have corresponding rights to documentary production. This
could end up helping the plaintiff by furthering its fact gathering
investigation at an early stage – a risky proposition when
the plaintiff faces only a low bar to success on the leave
Recent Decisions – Evidence To Defeat Leave Motions
In several recent decisions, however, leave motions have been
defeated, largely based on the evidence filed by the defendants in
response to the motion. Most recently, in Atlantic Power, Justice Belobaba
reviewed the significant amount of evidence filed by the defendants
(which included more than 14,000 electronic records and 10 boxes of
affidavits, expert reports, cross examination transcripts and
corporate documents) and concluded that the defendants had
disproven the plaintiff's allegations and therefore there was
no reasonable possibility of success at trial.
Strategic Considerations for Defendants
There is no doubt that a leave motion can be defeated
with evidence. But deciding whether or not to wage this war is
still not an easy decision. The evaluation is made even more
complicated because it is happening so early in the litigation.
Determining whether it may be possible to successfully convince the
court that the plaintiff has failed to establish a reasonable
possibility of success at trial will likely require a significant
amount of fact gathering, analysis and expert consultation. The
available evidence will have to be carefully analyzed and tested
before determining whether it is worth the risk of filing anything
How can defence counsel meet this strategic challenge and
confront the evidentiary question head on? Here are some
Assemble the available evidence about
the critical facts that go to the heart of the plaintiff's
allegations as soon as possible.
Assess whether the factual foundation
of the plaintiff's claim can be demonstrably proven to be false
based on contemporaneous documents. The less questions of witness
credibility are in play, the greater the likelihood a motions judge
will be able to find no reasonable chance of success based on a
"paper record" without the plaintiff having had the
benefit of discovery.
Assess how much the plaintiff's
claim depends on the opinion of an expert and the quality of that
opinion. In particular, focus on the factual underpinnings on which
plaintiff's expert opinion is based. In Kinross, for example, based on
evidence filed by the defendants, the court found that the
plaintiffs' primary expert: (1) relied on irrelevant data; (2)
ignored relevant data that did not support his opinion; and (3)
mischaracterized or misunderstood the import of existing data. When
a plaintiff's claim is dependent on an expert opinion that is
refuted from a factual standpoint, this enables the court to
conclude that the plaintiff has not met its burden, on the
evidence, of establishing that the claim has a reasonable
possibility of success.
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.
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