Bradley v Eastern Platinum Ltd.1 ("Bradley"), a proposed securities class action for alleged secondary market misrepresentation, was recently resolved in an unsuccessful application for leave under the Securities Act to bring the proceeding.2 The applicant alleged that Eastern Platinum Ltd., a platinum producer, did not disclose material changes, including a shutdown of the company's mine, that reduced production. The respondents, Eastern Platinum and three named individuals, produced evidence contradicting the allegation that such material changes took place. In her decision denying leave, Justice Rady noted it has become customary for such applications to have an evidentiary record that is "voluminous, comprehensive and daunting."3 Indeed, Bradley demonstrates the evidentiary hurdles that secondary market claims will face in the early stages of the litigation.
For leave, the Securities Act requires the court to be satisfied: a) the action is being brought in good faith; and b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff. Justice Rady reviewed the Supreme Court of Canada's recent discussion of these provisions in Green v CIBC.4 She held that leave under the legislation requires a "reasonable or realistic chance that the action will succeed" via both "a plausible analysis of the applicable legislative provisions and credible evidence in support of the claim."5 Justice Rady further stated that this "requires a robust, meaningful examination and critical evaluation of the evidence," including both fact evidence and expert evidence. She noted the leave requirement has obvious parallels to a summary judgment motion and disagreed that the test is a "low bar".6
Consistent with her view of the test, Justice Rady engaged in a thorough analysis of a sizable record. The applicant initially filed only three affidavits, including one from a mining expert. The responding record consisted of eight affidavits, which included affidavits from the company's former chief surveyor, its former principal rock engineer and three experts. Also before the court was the reply record and seven volumes of cross-examination transcripts, exhibits and answers to undertakings. Justice Rady's 34-page decision dealt primarily with the facts of the case.
Much of the discussion in Bradley revolved around the interpretation of an Eastern Platinum press release. While this release said nothing of an alleged work stoppage, it did mention a decrease in production. The respondents did not provide an affidavit from the individual quoted in the release, so he could not be examined. Justice Rady disagreed that this was of any significance given the other evidence available to her. Justice Rady concluded the applicant's interpretation of the release and other documents was unsupported given the totality of the evidence led by the respondents. She found no reasonable prospect of success at trial.
While Justice Rady's reasons indicate a careful consideration of the facts of the case, Bradley reflects a trend in secondary market class actions. Before initiating any proceedings, prospective plaintiffs will have to consider—in the context of a strict limitation period and impending certification motion—the costs and risks associated with attaining leave in what resembles a summary judgment motion with reduced options for discovery. The leave test is not a simple hurdle for a secondary market claim. Consequently, defendants have a clear incentive to continue fighting these actions at the leave stage with lengthy responding records and submissions.
Footnotes
1. 2016 ONSC 1903
2. s. 138.8, Securities Act RSO 1990, c S.5
3. Bradley at para 13
4. 2015 SCC 60
5. Bradley at para 50
6. Bradley at para 51
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