Surprise ruling makes class-action lawsuits against public
The Supreme Court of Canada recently issued a surprise ruling
that makes it somewhat more difficult for plaintiffs to bring
class-action securities lawsuits against public companies,
according to the Financial Post. The court dismissed a lawsuit
against a Montreal-based pharmaceutical company and analysts say
the decision will have implications for
commercial litigation across Canada, including in Alberta. The
case sets important guidelines for launching securities
class-action lawsuits, an area of law that is still very much in
development in much of Canada.
The Montreal-based pharmaceutical company was being sued by
investors who argued that the company should have revealed
questions that were posed to it by the U.S. Food and Drug
Administration about an HIV drug's potential side effects.
After those questions became public, the company's stocks fell,
but eventually recovered when the FDA ultimately approved the drug,
according to the Globe and Mail.
The Supreme Court of Canada dismissed the class-action lawsuit.
Investors claimed that the FDA's questions were a
"material change" and therefore should have been
disclosed to the public by the company. However, previous court
decisions had already established that a material change is a
change affecting the business, operations, or capital of the entity
issuing the shares. The FDA's questions were simply a step in
the drug's approval process, according to the court, and did
not represent any material change in the business' actual
The case is significant because it raises the standard for
bringing class-action lawsuits against public companies. Plaintiffs
in such lawsuits must first prove to a judge that their case has a
reasonable chance of succeeding before the judge will allow it to
proceed. Commercial defence lawyers have long complained that this
screening process had become too easy to pass and was encouraging
potentially frivolous lawsuits.
The ruling affects class-action lawsuits related to
"secondary market misrepresentation," meaning cases in
which a company has been accused of misleading investors. Alberta,
along with Quebec and other Canadian jurisdictions, has recently
passed amendments to its securities legislation to permit such
lawsuits. Although class-action lawsuits of this kind are common in
the United States, they are still relatively new in Canada and the
recent Supreme Court decision will provide guidance for how such
lawsuits can be brought forward in the future.
Sound legal advice is one of the most important considerations
for ensuring a business runs smoothly and efficiently. As the above
case shows, a commercial dispute has the potential to lead to
costly consequences for a business. In order to protect a
commercial operation from being exposed to unwanted surprises, an
experienced commercial litigation law firm should always be
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.
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.
The OSC has issued a press release advising stakeholders that Ontario securities law may apply to any use of distributed ledger technologies, such as blockchain, as part of financial products or service offerings.
The use of electronic signatures is becoming increasingly commonplace in commercial transactions, as individuals and businesses capitalize on the administrative efficiency afforded by today’s digital world.
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).