Underwriters should not be considered "experts" under
the statutory secondary market liability regime. In LBP
Holdings v. Allied Nevada Gold Corp., Justice Belobaba of the
Ontario Superior Court of Justice denied a motion to add the
underwriters of a secondary public offering (the
"Offering") as defendants to a proposed
securities class-action proceeding, concluding the claim was not
The plaintiff alleged that the prospectus (the
"Prospectus") that qualified the
Offering of Allied Nevada's securities contained
misrepresentations. Shortly after the plaintiff filed the initial
notice and statement of claim naming Allied Nevada and two of its
former executives as defendants under the proceeding, Allied Nevada
filed for protection under U.S. bankruptcy law, prompting the
plaintiff to identify other possible defendants.
Part XXIII.1 of the Securities Act (Ontario) (OSA)
defines "expert" as "a person or company whose
profession gives authority to a statement made in a professional
capacity by the person or company, including, without limitation,
an accountant, actuary, appraiser, auditor, engineer, financial
analyst, geologist or lawyer, but not including a designated credit
rating organization." Experts may have liability for secondary
market liability where: (i) the misrepresentation is also contained
in a report, statement or opinion made by the expert; (ii) the
document includes, summarizes or quotes from the report, statement
or opinion of the expert; and (iii) if the document was released by
a person or company other than the expert, the expert consented in
writing to the use of the report, statement or opinion in the
Although the OSA does not explicitly include underwriters in the
enumerated list of "experts," the plaintiff sought to
characterize the underwriters as "experts" for the
purpose of exposing them to potential secondary market liability
for Allied Nevada's alleged misrepresentations.
Underwriters Are Not Experts For the Purposes of Attracting
The plaintiff submitted that because the definition of
"expert" lists examples "without limitation,"
the legislation does not preclude underwriters from being
"experts." Justice Belobaba recognized that underwriters
have "professional expertise in the capital markets," but
he rejected the plaintiff 's argument that such expertise
exposes them to liability as "experts" for the following
The terms "underwriter" and
"expert" are defined separately and differently in the
OSA. The definition of "underwriter" focuses primarily on
the underwriter's role in the distribution of securities, a
role that is limited to the primary market. In contrast, the
definition of "expert" speaks to membership in a
self-regulating or selflicensing profession that can give authority
to a statement made in a professional capacity. While underwriters
have "professional expertise" in the capital markets,
Justice Belobaba ruled that, given the nature of their function,
they do not satisfy the particular requirements of the definition
of "expert" in Part XXIII.1.
Invoking the doctrine of implied
exclusion, Justice Belobaba held that the legislature
"obviously and expressly" exposed underwriters to primary
market liability for misrepresentations in a prospectus, but
intentionally excluded them from the list of potential defendants
for secondary market liability set out in Part XXIII.1.
Even if underwriters could be
considered "experts" for the purposes of Part XXIII.1,
the underwriters could only be liable if the alleged
misrepresentation was also stated in a "report, statement or
opinion made by the expert." The only statement made by the
underwriters in this case was the underwriters' certificate
contained in the Prospectus, which assures investors that to the
"best of our knowledge" the "prospectus constitutes
full, true and plain disclosure of all material facts relating to
the securities offered by this prospectus." The
underwriters' certificate did not itself repeat any alleged
misrepresentation made in the Prospectus. In other words, the
statutory liability of an expert only applies where a
misrepresentation is found in both the expert's
"report, statement or opinion" and in the
Limitations For Secondary Market Liability Are Meaningful
The Court's decision - which also included a finding that
the claim against the underwriters for primary market liability was
untenable because the 180-day statutory limitation period had
expired - serves to reinforce the restrictions on potential sources
of recovery for plaintiffs in securities class actions while
establishing boundaries for the statutory liability of
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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In Ontario Securities Commission v. Tiffin, the Ontario Court of Justice clarified the limits of the definition of "securities" under s.1(1) of the Securities Act, as it relates to promissory notes. The defendant in the case was charged with trading in securities without being registered and while prohibited, and without filing a prospectus.
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