For Canada's public corporations and their executives, a
litigation threat long on the horizon has now arrived in force with
the Ontario Superior Court's recent decision in Silver v. IMAX.
Shareholder advocates have always lamented the fact that alleged
corporate misrepresentations in the secondary market have rarely
sparked a meaningful lawsuit: individual losses can be uneconomic
to pursue, and courts were reluctant to certify class actions
because plaintiffs could not meet the common law requirement that
every investor would need to have received, interpreted and relied
upon the same alleged corporate misstatement in the same way.
In late 2005, the Ontario government responded with Bill 198,
which created statutory causes of action to the Securities
Act for corporate misrepresentations and made them accessible
for shareholder classes by making companies (and their officers and
directors) potentially liable to every investor who had purchased
shares during the misrepresentation period, whether the investor
had relied upon it to purchase, or not. Every other province has
since passed similar legislation.
A rush of litigation was predicted, but few cases have actually
been started, perhaps due to the uncertainty created for investors
by the statutory requirement that any plaintiff shareholder must
pass a specified test to obtain leave from a judge before issuing
such a claim.
That uncertainty has now been addressed (at least until an
appeal is heard) by the Silver decision. The investor
plaintiffs issued a lawsuit against the defendant company and its
executives with common law allegations that certain press releases
and an annual report publicly misrepresented the financial results
of the company. The investors then asked a judge to grant them
leave to amend their claim to add the statutory misrepresentation
causes of action, and to certify the entire lawsuit, as amended, as
a class action. The judge granted those Orders.
Although the Silver decision is currently under appeal,
its significant features, if allowed to stand, favour —
and so may encourage — investors (and their lawyers) in
multiple respects. Significantly, the ruling not only set a low
(investor-friendly) standard for the leave test, but also
significantly weakened the common law reliance barrier that had
made the statutory amendments necessary.
As to the common law issues, the decision is of note to Canadian
The court allowed the investors to proceed with a legal
argument that the trial judge can assume that every investor's
share price was increased by the alleged misstatement, so that
every investor can recover damages without proving individual
The court agreed to certify the lawsuit as a class proceeding
on behalf of a global class of all IMAX investors during the
Further, the court interpreted the leave test in a manner very
favourable to shareholders:
Before the motion was heard, the plaintiff investors were
allowed wide access to the defendant's internal corporate
documents, to assist them in assembling their evidentiary record to
The court found that the plaintiffs needed to meet only a very
low evidentiary threshold of support for the proposed statutory
causes of action to be allowed to proceed.
Conversely, the court found that the legal and evidentiary
standard to be met by companies and their executives in arguing
that the statutory defences were so strong that leave should not be
granted, is very high.
The motions judge broke new ground in all of these aspects of
the decision, each of which is adverse to the interests of Canadian
public corporations and their executives.
The defendant company, officers and directors are challenging
the decision on appeal.
They argue that: (i) the court erred in its rulings on the
respective evidentiary and legal obligations of the investors and
corporate actors on the statutory leave motion; (ii) it is
essential under Canadian law that all investors must prove material
reliance at common law; and (iii) Ontario courts should not seek to
accommodate global classes of investors.
McCarthy Tétrault Notes
While further decisions are to come in this case, and in
upcoming cases under the Ontario Securities Act, Canadian
corporations should in the meantime consider reviewing their
corporate governance practices associated with public filings and
press releases, and their insurance coverage for their officers and
directors in that respect.
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.
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In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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