In a 4-3 majority decision, the Supreme Court of Canada (the "SCC" or the "Court") has overturned the decision of a five-judge panel of the Ontario Court of Appeal from 2014 in three securities class actions against CIBC, IMAX and Celestica (the "Trilogy")1, and expressly restored the Ontario Court of Appeal's 2012 unanimous decision (per Goudge J.A.) in Sharma v. Timminco Limited ("Timminco") dealing with the limitation period under section 138.8 of the Securities Act (Ontario) (the "OSA").2
In Timminco the Court of Appeal found, in 2012, that the three-year limitation period applicable to secondary market securities class actions brought under Part XXIII.1 of the OSA continues to run until a plaintiff obtains leave to commence the action and issues a Statement of Claim asserting the statutory cause of action. The OSA, at section 138.8, requires a proposed plaintiff to obtain leave to commence the statutory cause of action by demonstration the action is brought in good faith and has a "reasonable possibility of success." In a 2014 decision, a five-member Court of Appeal panel reconsidered the issue in the Trilogy and decided that subsection 28(1) of the Class Proceedings Act, 1992 (Ontario) (the "CPA") suspends the running of the limitation period when the proposed plaintiff merely issues a Statement of Claim that mentions an intention to seek leave under section 138.8 of the OSA, therefore allowing the limitation period to be suspended prior to the court granting leave.
The SCC, by a majority of four judges to three3, restored the Court of Appeal's original determination, finding, consistent with the Court of Appeal in Timminco and contrary to the reasoning of the Court of Appeal in the Trilogy, that subsection 28(1) of the CPA does not suspend the running of a limitation period until leave has been obtained and a Statement of Claim subsequently issued asserting the statutory cause of action. The minority decision agreed with the reasoning of the Court of Appeal in the Trilogy that subsection 28(1) of the CPA could suspend the running of the limitation period under section 138.14 of the OSA before leave to commence the action was granted under section 138.8.
The limitation period in section 138.14 of the Securities Act
The SCC majority decision on the three-year limitation period under the OSA and its endorsement of the Timminco decision will likely have limited impact on secondary market securities class actions commenced after 2014, because the OSA was amended in 2014 to provide that the running of the three-year limitation period is suspended upon the filing by a proposed plaintiff of a notice of motion for leave to commence an action under section 138.8 of the OSA.
The limitation period is a key issue in the disposition of the three class actions subject to the appeals and for other cases subject to the pre-2014 OSA amendments. The Court's decision is based upon (i) the interaction of the applicable provisions of the OSA and the CPA, and (ii) the clear legislative intent that leave motions under Part XXIII.1 to be brought "as early as possible" in the litigation process.
Justice Côté found that there was "no ambiguity" in subsection 28(1) of the CPA which suspends "any limitation period applicable to a cause of action asserted in a class proceeding". Similarly, she observed that subsection 138.8(1) was "clear" that "no action may be commenced under s. 138.3 without leave of the court". Consequently, she concluded that "Unless leave is granted, a statutory action may not be commenced under Part XXIII.1 OSA, and it is not until the action commences that a limitation period can be suspended under s. 28 CPA".
The majority concluded that the Court of Appeal's framework in the Trilogy "not only contradicts the ordinary and grammatical meaning of the words used but also displaces the balance struck by the legislature in Part XXIII.1." The majority acknowledged that the requirement for leave to be sought expeditiously balances the plaintiff's statutory right of action against the competing public concern of protecting a putative defendant's long-term shareholders "who are unfairly affected by the volatility of share prices that result from spurious claims" and who might be forced into "an unjust settlement when the leave application is pending - potentially during many years - and thus negatively affect the corporate defendant's share value."
Granting orders nunc pro tunc
Having determined that the Timminco reasoning was the correct interpretation of the limitation period, the majority of the Court proceeded to determine whether the nunc pro tunc doctrine (literally, "now for then") could apply to the cases at bar to provide relief to the plaintiffs from the expiry of the applicable limitation periods. Nunc pro tunc was in issue for different reasons as among the Trilogy plaintiffs. In IMAX, the limitation period expired following hearing of the leave application but prior to leave being granted. In CIBC, the limitation period expired before the leave hearing had been concluded. In Celestica, the limitation period expired before the leave motion had been served.
The SCC was unanimous that judges have inherent jurisdiction to grant orders nunc pro tunc in appropriate circumstances to provide relief from strict application of limitation periods when unfairness would result, but disagreed on the application of the doctrine. In her decision, Côté JJ. (with McLachlin C.J. and Rothstein JJ. concurring) determined that the doctrine should not be applied in the CIBC and Celestica cases, but should apply to allow the IMAX case to proceed in respect of certain defendants. Cromwell JJ. agreed with these three judges on affirming the Timminco principles and that the doctrine should not be applied in the Celestica case, but concluded that it should be applied in CIBC and in respect of all defendants in IMAX. The remaining judges, Karakatsanis JJ., Moldover JJ. and Gascon JJ., did not provide reasons on the doctrine of nunc pro tunc, but because they would have dismissed the appeals. The result is that the CIBC and IMAX class actions are allowed to proceed.
Despite the disagreement among the judges on the application of the doctrine of nunc pro tunc on the application to specific facts of the cases before them, three main principles appear to have been accepted by the majority of the Court when applying the doctrine in the context of secondary market securities class actions under Part XXIII.1 of the OSA:
- First, the motion for leave must have been served before the limitation period expired (this makes its application consistent with the amendments to the OSA);
- Second, the doctrine is not limited to being applied in circumstances where there has been a slip or oversight; and
- Third, the proposed plaintiff must have been proceeding with diligence.
Whether the CIBC plaintiff had acted with sufficient diligence was where the judges disagreed. Cromwell JJ. accepted the determination of the motions judge that "unlike the situation in Timminco Ltd., the plaintiffs have been diligently pursuing the motion for leave..." and determined that the motions judge was in the best position to make the assessment, and his assessment was entitled to deference. The facts in CIBC were not comparable to the circumstances in both Timminco and Celestica where the limitation period had expired prior to the filing of motions for leave. Accordingly, based on Cromwell JJ.'s application of the doctrine of nunc pro tunc the CIBC class action has been allowed to proceed.
The motions judge in Celestica had relied on both the special circumstances doctrine and his inherent authority to grant orders nunc pro tunc in order to relieve the plaintiff from the expiry of the limitation period in section 138.14 of the OSA. In essence, the special circumstances doctrine allows a court to "temper the potentially harsh and unfair effects of limitation periods by allowing a plaintiff to add a cause of action or a party to a statement of claim after the expiry of the relevant limitation period." The majority of the SCC concluded that the special circumstances doctrine could not be used to override the limitation period in section 138.14 of the OSA because no amendment is possible without first obtaining leave under s. 138.8. The minority decision did not address the special circumstances doctrine but stated that its silence should not be read as agreement with the majority decision.
The leave threshold
The SCC was unanimous in finding that the threshold for determining whether a proposed action has a "reasonable possibility of success" for purposes of granting leave under s. 138.8 of the OSA is the same as the threshold under section 225.4 of the Securities Act (Quebec), which was addressed by the Court in its decision earlier this year in Theratechnologies inc. v. 121851 Canada inc.4 In Theratechnologies, the Court said that the leave requirement was more than a "speed bump" and that judges should undertake "a reasoned consideration of the evidence to ensure that the action has some merit." The "reasonable possibility" threshold requires that there be a "reasonable or realistic chance that the action will succeed."
In her reasons, on a point endorsed by rest of the Court, Côté JJ. highlighted that the "wrong threshold" had been applied by the motions judge in Green v. CIBC. The motions judge's characterization of the threshold as "relatively low" was subsequently endorsed by the Court of Appeal in CIBC, which seemed to equate the leave requirement to the "no cause of action" pleading test and the requirement at certification that a proposed class action disclose a cause of action under subsection 5(1)(a) of the CPA. Accordingly, while the Court found that the plaintiff in CIBC had met the threshold in Theratechnologies for establishing a reasonable possibility of success, it was also clear that the applicable threshold is a more stringent test than the Court of Appeal set out in CIBC.
In the result, by a plurality of four judges to three, and for different reasons for each, the class actions against CIBC and IMAX were allowed to proceed and the appeals dismissed, whereas, also by a plurality of four judges to three, the Celestica appeal was allowed and the class action against it dismissed.
* The authors were counsel for the defendants in the Timminco matter and for the Insurance Bureau of Canada in the Trilogy discussed above.
1 Canadian Imperial Bank of Commerce v. Green, IMAX Corp. v. Silver and Celestica Inc. v. Trustees of the Millwright Regional Council of Ontario Pension Trust Fund, 2014 ONCA 90.
2 2012 ONCA 107.
3 McLachlin C.J. and Rothstein, Cromwell and Côté JJ. concurring.
4  2 S.C.R. 106.
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.