Tuesday Feb 4, 2014

On February 3, 2014, the Ontario Court of Appeal released its decision in three shareholder class proceedings claiming damages under Part XXIII.1 of the Securities Act(1) for misrepresentations alleged to have been made in respect of shares trading in the secondary market.

In Green v. CIBC(2) , a specially convened five-judge panel unanimously set aside its prior interpretation in Timminco(3) of section 28 of the Class Proceedings Act(4) and held instead that the three year limitations period for section 138 claims will be suspended once a plaintiff pleads a cause of action based on section 138.3 of the Securities Act and pleads the intent to seek leave. The court was concerned its previous ruling would make it unfeasible for investors to bring s. 138.3 claims as class proceedings, effectively leaving those wronged by corporate misrepresentations without an avenue of recourse. The effect of the Court’s decision was that all three class actions can proceed and none are time-barred.

Reasoning for Overturning the Timminco Decision The court acknowledged that the effect of its prior decision rendered the class proceeding unviable as a mechanism to bring s. 138.3 claims. It required that before leave was granted, each class member would have to start their own individual action and obtain leave individually to ensure that their personal claims were timely. This unnecessary obstacle was counterproductive to achieving the twin goals of section 138.3 of facilitating and enhancing access to justice for investors and deterring corporate misconduct and negligence. The court in arriving at its decision also recognized that oftentimes because of procedural steps initiated by the defendant or due to court availability, plaintiffs do not have control of whether they can meet the limitations period. For example, in one of the cases up for appeal (Silver v. Imax), the leave motion had been argued and was under reserve when the limitations period expired.

The Court was also influenced by the legislative reaction to the Timminco decision. The Ontario government in response to public concern about Timminco, has proposed updating the Securities Act to suspend the limitations period while leave is being sought. With Timminco being a relatively recent decision, the Court felt “there would be less confusion in correcting the error now rather than letting it take root”.

Certification of Common Law Misrepresentation Claims The Court held that because multiple plaintiffs would not be able to prove reliance as a common issue in a claim for negligent misrepresentation in either the primary or secondary markets, reliance issues should not be certified. The Court also reaffirmed that there is no authority to use the “fraud on the market theory” to supplant the inquiry into individual reliance, and that the theory has been rejected in Ontario.

However the five-judge panel held that issues other than reliance that are common to the negligent misrepresentation claims can be certified alongside the statutory claim. The trial judge may order individual trials to determine the issues of reliance and damages in accordance with s. 25 of the CPA. This approach is consistent with the Supreme Court’s views(5).

Impact of the Decision

The decision is an important step forward in upholding the aims of the Securities Act provision and enabling everyday investors to hold public companies accountable for misleading disclosures. It ensures that plaintiffs are no longer at the mercy of a leave process that can oftentimes be out of their control. The decision will help alleviate the “surprise and concern in the securities bar and community, that the Timminco decision interprets the legislation in an unintended way and limits the access to justice that the new remedy was intended to provide.” The suspension of the limitations period should not prolong the class action process however, because as noted by the Court, any issues regarding plaintiffs bringing motions for leave in a timely fashion can be resolved by the parties under the supervision of capable class action judges.

By Hadi Davarinia, MLS, JD Candidate (2015)

1- R.S.O. 1990, .c S.5, s. 138.3.

2- 2014 ONCA 90.

3- Sharma v. Timminco, 2012 ONCA 107.

4- S.O. 1992, c. 6.

5- Sharbern Holding Inc v Vancouver Airport Centre Ltd, 2011 SCC 23 at para 122 (CanLii).