The Ontario Superior Court in Donohue v Baja Mining,
2016 ONSC 1569, recently approved a Settlement Agreement for a
certified class action which alleged misrepresentations with
regards to a copper, cobalt, zinc and manganese mine. In approving
the settlement, the Court accepted class counsel's submissions
that since the "liability cap" in the Securities
Act had not yet been judicially interpreted, this settlement
was fair and reasonable.
The Class Action
The plaintiffs alleged that the defendants made various
misrepresentations with regards to the mine, a primary asset of the
shareholders. The Court certified a class action under the
Securities Act and shortly thereafter settlement
The Settlement Agreement
The parties entered into a Settlement Agreement dated November
6, 2015. The approval of the Settlement Agreement would resolve the
action in its entirety.
Under the Settlement Agreement, the plaintiffs would be paid $11
million by the Baja Defendants (Baja Mining Corp., John Greenslade,
Rowland L. Wallenius, Michael Shaw, and Adam Wright) "without
any admission of wrongdoing or liability and without any concession
or admission of the truthfulness of any claim or allegation
asserted in this action."
Assessment of the Settlement Agreement
The Court accepted class counsel's submissions that since
all of the defendants denied that that there had been any
misrepresentations made, the issue of liability would have been a
significant one if the action proceeded.
Indeed, as class counsel explained, the "liability
cap" under part XXIII.1 of the Securities Act, which
would apply to limit the liability the defendants, has never been
interpreted by a court. Under the Securities Act, section
138.7 limits the damages payable by a defendant when the actual
damages assessed by the courts are greater than the liability caps
listed under the section 138.1 definition of "liability
limit." This results in a cap as to damages a defendant can be
ordered to pay in secondary market liability.
Class counsel also advised that based on its interpretation of
the liability cap provisions, it was likely that the total
liability would be capped at $12 million for the present case.
Moreover, even if liability could be extended, it would require an
innovative interpretation by the court and would likely result only
in an increase of damages to $15 million.
Taking into account the risks associated with proving both the
misrepresentations and class counsel's submissions regarding
the interpretation of the "liability cap" under the
Securities Act, the Court agreed with class counsel that
the settlement was "fair, reasonable and in the best interests
of the class members."
It is interesting to note that in this case, the Court accepted
the submissions of class counsel on the application and
interpretation of the liability limit under the Securities
Act where there had been no judicial guidance on this
provision in order to allow the Court to support approval of the
While the facts in this case may seem unique, this decision
reminds us that provisions awaiting judicial interpretation may be
ripe for settlement as a result of the uncertainty surrounding a
finding of liability. As always, settlement is a fact-driven
process, but this case can help parties convince a court to approve
settlement where the jurisprudence is uncertain.
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