The recent decision in Bradley v. Eastern Platinum Ltd.1 saw the Superior Court of Justice reaffirm the position that the test for statutory leave to bring a secondary market securities class action "is not a low bar."2 Justice Rady, citing the decisions of the Supreme Court of Canada in CIBC v. Green3, and Theratechnologies4, refused to grant leave as the claim brought by the plaintiff had no reasonable chance of success at trial. A plaintiff must put forth "both a plausible analysis of the applicable legislative provisions, and credible evidence in support of the claim"5; this proved to be an impossibility for the plaintiff, given the evidence led by the defendant.
Where the facts are contentious, as was the case here, the amount and quality of material submitted by the parties will be determinative of whether the motion will fail or succeed. It seems that such situations provide a real opportunity for a defendant to stop a class action before it begins, given that the burden on the plaintiff is substantial.
The proposed class action was brought by Mr. Bradley, a pastry chef from British Columbia and the holder of 2000 shares in Eastern Platinum Ltd. ("Eastplats"). Eastplats, a Vancouver based platinum mining company, at the time operated only one mine: Crocodile River Mine ("CRM"). The mine was located in South Africa and the shares of Eastplats were listed on the Toronto Stock Exchange ("TSX"), the Johannesburg Stock Exchange and the London Stock Exchange's AIM exchange.
In April 2011, Eastplats issued a news release indicating that production for Q1 of that year had been lower than forecasted. The reasons given for the poor Q1 performance were:
"The traditional slow start in January combined with the introduction of revised support methods [emphasis added] resulted in a significant decrease in production for the quarter."
At the close of the next trading day following the release of this information, Eastplats' stock price fell sharply on the TSX from $1.30 to $1.10. The plaintiff sought leave to commence an action under the secondary market provisions in Part XXIII.1 of the Ontario Securities Act ("OSA").6 Mr. Bradley alleged that Eastplats failed to disclose: (i) a complete or partial shutdown of operations due to a labour dispute, and (ii) the installation of cement grout packs to shore up CRM's ceiling. The plaintiff claimed that together, these two issues caused the decrease in production and that both were material changes that should have been disclosed. As such, Eastplats' share price was artificially inflated, thereby causing damage to shareholders who invested during the class period.
As noted, the facts were contentious, and much was made of the particular support structures used to shore up CRM. The plaintiff contended that Eastplats installed cement grout packs ahead of a planned schedule, which caused the redistribution of manpower and a significant decrease in productivity. The defendants however, claimed that while a new support structure was installed, it was not a cement grout pack system and had no significant impact on productivity.
The test to obtain leave under Part XXIII.1 of the OSA is twofold: the plaintiff must show that the action is brought in good faith and that the action has a reasonable prospect of success. The plaintiff contended he met these requirements by leading sufficient evidence to meet what he described as "the low reasonable possibility of success at trial standard"7 and that the application was brought in good faith.
Justice Rady began her analysis by noting that the purpose of the leave provisions under the OSA is to weed out wholly unmeritorious claims or those brought by coercive design. Such claims are brought in the hope that a defendant will be bullied into a quick settlement, rather than engage in protracted and expensive litigation.
The Court then noted that, while not required to do so, the defendants filed voluminous evidence to refute the plaintiff's claims. Following the decisions in Green 8and Theratechnologies9 the Court stated that a "robust, meaningful examination and critical evaluation of the evidence,"10 was required in assessing whether leave should be granted, and that the test is "not a low bar as the applicant [had] asserted."11
Upon examination, Justice Rady found that the body of contradictory evidence simply overwhelmed the plaintiff's position. In light of this, the Court could not find the plaintiff's claim to have a plausible prospect for success at trial and so dismissed the application.
The Superior Court noted that applications brought under these provisions are now commonly brought with voluminous amounts of evidence, produced by either or both the plaintiff and defendant. A defendant may be well advised to meet an application with compelling evidence, especially in instances where the facts are disputed. Such preparation will now see a defendant in a real position of succeeding in ending a class action early. Similarly, the interpretation of Green and Theratechnologies, has resulted in the leave provisions under the OSA becoming a real burden for a plaintiff to discharge. A plaintiff should truly examine the foundations of their claim before moving under these provisions; real scrutiny at an early stage may save much time and money. In some ways, these leave applications seem to be approaching the summary judgment test, which is an interesting but perhaps not unwelcome development.
1 2016 ONSC 1903
2 Ibid per Justice Rady at para 51
3 2015 CarswellOnt 18336
4 Theratechnologies inc. v. 121851 Canada inc., 2015 CarswellQue 2765
5 Ibid at para 39.
6 R.S.O. 1990, c. S.5.
7 Supra note 1, at para 5
8 Supra note 3
9 Supra note 4
10 Supra note 1 at para 51
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