Broadening The Scope: The BCCA Clarifies Scope Of Secondary Market Misrepresentation Claims

Overview

Can those who disposed of their shares in a company prior to suspicions of a fraudulent scheme, or purchased their shares through a non-Canadian exchange, still be included within the class in a secondary market misrepresentation class action? In Tietz v. BLOK Technologies Inc.,¹ the British Columbia Court of Appeal confirmed that early sellers and those who purchased their shares on a non-Canada exchange should be included in the class based on a proper interpretation of section 140.3 of the British Columbia Securities Act.²

In Blok Technologies, the Court emphasized that secondary market misrepresentation under section 140.3 of the Securities Act focuses on issuer disclosure rather than where or when investors traded, bringing British Columbia into closer alignment with Ontario's approach to who may pursue secondary market claims.

Background

The plaintiffs alleged that ten publicly listed companies issued private placements and reported that the placements were fully subscribed. The plaintiffs further alleged that while the placements were fully subscribed, the companies did not disclose that the subscribers received "substantial kickbacks" on their investments in the form of payments from sham consulting contracts. The plaintiffs claimed that, as uninvolved investors who purchased shares after these placements, they suffered losses when the share price fell due to the scheme. The plaintiffs advanced this claim on a common law basis and also advanced a statutory claim for secondary market misrepresentation, pursuant to section 140.3 of the Securities Act.

The chambers judge certified the class action, but imposed two restrictions on the certification: she excluded from the class those investors who sold their shares before November 26, 2018 (the date that the British Columbia Securities Commission announced its investigation); and, she created two subclasses based on whether the shares were purchased on Canadian or non-Canadian exchanges, concluding that only the Canadian exchange purchasers could pursue the statutory secondary market misrepresentation claim. The analysis of the chambers judge was based heavily on Pearson v. Boliden Ltd.,³ a class action involving a mining company's inadequate disclosure which led to a depreciation in share price. In that case, the Court held that shareholders who had disposed of their shares prior to the drop in share price were not entitled to be part of the class.

The plaintiffs appealed the restrictions imposed on the class by the chambers judge.

Court of Appeal Affirms Broad Class Definition

The Court of Appeal allowed the appeal regarding the early sellers, finding that the chambers judge misapprehended the law in excluding them from the class. The Court of Appeal also allowed the appeal regarding the division of the plaintiff class into two subclasses based on the place of exchange, holding that the chambers judge erred in concluding that the statutory cause of action was limited to shares purchased through a Canadian exchange. The relevant provisions of the Securities Act apply to reporting issuers subject to the Securities Act, not to trading venues. Accordingly, the statutory cause of action under section 140.3 of the Securities Act is not confined to investors who acquire shares in British Columbia companies through Canadian exchanges, and the creation of two subclasses was therefore unjustified.

The Court of Appeal further held that the chambers judge misapplied Pearson by treating it as establishing a general rule that early sellers must be excluded from class proceedings, and by concluding that early sellers could not possibly prove compensable loss. Instead, the Court of Appeal clarified that Pearson stands for the principle that a party who has suffered no loss from a misrepresentation cannot properly pursue a claim. The Court of Appeal further held that section 140.3 establishes a secondary market misrepresentation claim directed at the disclosure obligations of issuers when releasing information, not at the distribution of securities through specific exchanges.

Unlike the primary market regime considered in Pearson, section 140.3 is not linked to a particular market or exchange, but rather, the release of a "document," defined in section 140.1 to include any written communication reasonably expected to affect the market price or value of a security. It is not tied to prospectus requirements or the initial sale of shares. Consistent with this structure, Ontario courts have also recognized that under its own legislation, the statutory cause of action for secondary market misrepresentation is not limited by the location of the exchange through which a shareholder acquired their shares.

Key Takeaways

This case provides important clarification on the scope of secondary market misrepresentation claims and the proper approach to class certification in a securities class action.

First, the decision confirms that section 140.3 of the Securities Act is a market wide disclosure provision. The Court of Appeal held that liability does not depend on the exchange where shares were traded or on whether investors sold early, meaning early sellers and non-Canadian exchange purchasers should not be excluded from taking part in class proceedings.

Second, the case reinforces that primary market decisions like Pearson cannot be used to narrow secondary market claims. The Court of Appeal found that the chambers judge improperly imported limitations from a different statutory context, leading to unjustified subclassing and exclusions that the Court of Appeal ultimately set aside.

Footnotes

1 Tietz v. BLOK Technologies Inc., 2026 BCCA 45 ("Blok Technologies").

2 Securities Act, R.S.B.C. 1996, c. 418.

3 Pearson v. Boliden Ltd., 2002 BCCA 624 ("Pearson").

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