In his April 27, 2016 judgment in LBP Holdings v Allied Nevada Gold Corp., Justice
Belobaba of the Ontario Superior Court of Justice refused to add
the defendant issuing company's underwriters as defendants to
primary and secondary market misrepresentation claims under the
Ontario Securities Act
("OSA") in a putative class
Justice Belobaba's decision confirmed the test for adding
parties as defendants to proposed class proceedings and clarifies
the scope of certain OSA actions with regards to
The Putative Class Proceeding
In May 2013, the defendant gold mining company effected a
cross-border $150 million (U.S.D.) public offering. The proposed
defendants were the underwriters on the offering. The plaintiff
commenced the putative class action when the share price dropped
following several alleged "corrective disclosures".
The defendant company subsequently filed for protection under
American bankruptcy law. The plaintiff then served a motion seeking
to add the underwriters as defendants to the proposed class action.
In the plaintiff's proposed amended claim, the causes of action
asserted against the underwriters are:
Statutory claims under Part XXIII (primary market
misrepresentation claim) and Part XXIII.1 (secondary market
misrepresentation claim) of the OSA; and
Claims in negligence simpliciter, negligent
misrepresentation, and unjust enrichment
Justice Belobaba noted that plaintiffs will generally be granted
leave to add new defendants unless the proposed defendant can
demonstrate either (1) non-compensable prejudice, or (2) that the
claims being advanced are untenable at law.
Noting that the underwriters' claim for indemnification of
legal costs was not "extinguished" in the bankruptcy
proceeding, and that they may still be able to seek compensation
under the defendant company's insurance policy, Justice
Belobaba found that non-compensable prejudice was not established
by the underwriters.
The test for determining whether the claims advanced are not
legally tenable, in order to oppose amending the pleadings under
Rule 26.01 of the Rules, is whether it is "plain and obvious"
that the claim discloses no reasonable cause of action
(i.e. the same test that applies under a motion to strike
under Rule 21 and on a certification motion under s. 5(1)(a) of the
Class Proceedings Act, 1992).
Justice Belobaba found that, since section 138(b) under Part
XXIII of the OSA requires shareholders to bring primary
market misrepresentation claims within 180 days of when they first
had knowledge of the facts giving rise to the claim, the primary
market claim against the underwriter was time-barred and thus
The secondary market misrepresentation claim under Part XXIII.1
of the OSA was also found to be untenable, as Justice
Belobaba held that underwriters are not "experts" for the
purposes of Part XXIII.1. A claim pursuant to Part XXIII.1 can only
be brought against the enumerated categories of defendants listed
in section 138.3(1). The plaintiff asserted that underwriters fit
within the definition of "expert" in that section.
Justice Belobaba held that the OSA made clear the
"experts" and "underwriters" are separate and
distinct categories under both part Part XXIII and Part XXIII.1.
Among other things, he noted that underwriters are not
"professionals" in an equivalent sense to the
non-exhaustive categories of experts included in the OSA
definition (which includes accountants, auditors, engineers and
lawyers), all of whom are "regulated or licensed or otherwise
held to certain defined standards of conduct and skill".
Regarding the remaining claims, Justice Belobaba found the
unjust enrichment claim to be legally untenable, as the
underwriting agreement – a valid contractual obligation
– formed a juristic reason for the underwriters' receipt
of fees from the issuer, and that absent a derivative action, the
plaintiff could not assert a claim in unjust enrichment for fees
paid to the underwriter by the issuing company. Justice Belobaba
granted leave to add the underwriters as defendants to the common
law claims for negligence and negligent misrepresentation, although
he assumed "that this is not a preferred alternative for the
The decision in LBP v. Allied provides a practical
application of the test for granting leave to add new defendants to
a putative class proceeding. It also confirmed that, with respect
to claims under the OSA, an underwriters' certificate
"can trigger statutory liability under Part XXIII but not
under Part XXIII.1", and that "s. 130 [of Part XXIII] of
the OSA provides a "complete code" for underwriter
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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.
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