Greater clarity provided on the standard for leave under Part XXIII.1, but defendants will continue to face common law misrepresentation claims alongside statutory claims
On December 4, the Supreme Court released its decision on three
related securities class action appeals: Green et al. v. CIBC
et al., Silver et al. v. IMAX Corp et al. and Trustees of
the Millwright Regional Council of Ontario Pension Trust Fund et
al. v. Celestica Inc. et al.1 The Court was
sharply divided over the issues of whether section 28 of the
Ontario Class Proceedings Act operated to suspend the limitation
period in section 138.14 of the Ontario Securities Act; and if not
(as four of the seven judges ruled), whether the court has inherent
jurisdiction to override the Securities Act limitation period by
back-dating the granting of leave to commence a statutory claim.
While the Supreme Court's resolution of these issues should
have limited significance for the future operation of the statutory
secondary market misrepresentation regime in light of recent
legislative amendments, there are three other points addressed in
the decision—on which the court was unanimous—that will
have continuing significance for secondary market misrepresentation
securities class actions.
What You Need To Know
The standard for leave under Part XXIII.1 is
confirmed. Part XXIII.1 of the Ontario Securities
Act provides a statutory framework for claims brought by
investor plaintiffs against a securities issuer, alleging that the
issuer has made misrepresentations in its public disclosure
documents or failed to make timely disclosure of material changes.
The statutory framework was designed to facilitate statutory claims
being certified as class actions by eliminating the requirement
that individual class members prove they relied on alleged
misrepresentations. However, in order to protect against abusive
litigation, before commencing a claim under the statutory
framework, plaintiffs must first obtain the permission of the court
by establishing that the proposed claim has a "reasonable
possibility of success" at trial. In Theratechnologies
inc. v. 121851 Canada inc., the Supreme Court held that for an
action to have a "reasonable possibility of success,"
there must be a reasonable or realistic chance that it will
succeed, and plaintiffs must offer both a plausible analysis of
applicable legislation and some credible evidence in support of the
The Supreme Court has now confirmed its interpretation of the
leave standard in Theratechnologies, and held that the
proper standard is higher than the one articulated by the lower
courts in Green. This higher standard should impose a
heavier burden on plaintiffs seeking leave to commence a statutory
secondary market misrepresentation claim.
Common law and statutory claims may proceed
together. The plaintiffs in each case had asserted
both statutory and common law misrepresentation claims, and the
parallel claims were certified as class actions by the courts
below. It was argued in the Supreme Court that common law secondary
market misrepresentation claims ought not to be certified, whether
or not leave is granted to proceed with a parallel statutory claim,
since class action procedure is not the "preferable
procedure" for resolution of such claims (as required by
section 5(1)(d) of the Class Proceedings Act). The Court
rejected this argument, relying on a provision in the
Securities Act which states that the statutory right of
action was not intended to derogate from other rights, and holding
that the question for the preferability analysis under section
5(1)(d) is what procedure is preferable to advance a claim, not
what cause of action (statutory or common law) is preferable.
Fraud on the market still cannot be used to prove
reliance. Before the Court of Appeal, plaintiffs had
advanced the argument that, in the context of their common law
claims, inferred reliance on misrepresentations in public
disclosure ought to be certified based on the "fraud on the
market" economic theory. This theory is applied in U.S.
securities misrepresentation claims, and permits plaintiffs to
argue that reliance is presumed where the shares of the issuer are
traded on a well-developed and efficient market. The "fraud on
the market" theory has not been adopted in Canada and the
Court of Appeal confirmed this in its decision. The Supreme Court
upheld the Court of Appeal's decision on this point. This means
that issues of reliance and damages in common law misrepresentation
claims continue to be unlikely to be certified in a class
proceeding, undermining the utility of common law claims for class
1. Torys LLP is counsel to CIBC in the Green et al.
v. CIBC et al. case.
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.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan 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.
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).