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Supreme Court clarifies balance between deterrence and protection in securities class actions
Posted in Class Actions

On December 4, 2015, the Supreme Court of Canada (the “SCC”) issued its decision in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60. In the highly anticipated decision, a deeply divided Court rendered their reasons for a trilogy of appeals that arose from securities class action cases against CIBC, IMAX Corporation, and Celestica Inc. In each case the plaintiff respondents sought damages under the common law tort of negligent misrepresentation as well as under the new statutory cause of action found at s. 138.8 of the Ontario Securities Act (the “OSA”) in respect of shares trading in the secondary market. In split decisions, the SCC dismissed the appeals of CIBC (4-3) and IMAX (4-3) and allowed the appeal of Celestica (4-3).

The CIBC decision clarifies two key issues in relation to commencing securities class actions that seek damages for alleged secondary market misrepresentations. The first issue relates to the appropriate limitation period for commencing such claims, as it was previously unclear whether the three-year period extended until the application for leave (or permission to advance the claim) was filed or until permission was granted. The second issue clarifies what standard is required for a court to grant a plaintiff leave to proceed with a claim for damages under the secondary market provisions found in the OSA.

Limitation Period: Clarifying the Confusion

The SCC found that Part XXIII.1 of the OSA was drafted as a comprehensive scheme and was therefore intended to work harmoniously with s. 28 of the Class Proceedings Act (the “CPA”). The purpose of s. 28 CPA is to suspend the limitation period in order to protect potential class members until the feasibility of the class action is determined. Accordingly, the SCC held that the Ontario legislature drafted the OSA to strike a delicate balance between efficiency and fairness for various market participants. To interpret the OSA otherwise, as the Ontario Court of Appeal had in their decision in the instant cases, would frustrate the legislative structures and their purposes at issue in these appeals.

Consequently, the SCC held that while the three-year limitation period is only suspended once the plaintiffs obtain leave to proceed under s. 138.8 OSA, the recent changes to the law indicate a need for judicial discretion and interpretation in determining the trio of cases. In July 2014 the Ontario legislature amended the OSA in order to clarify that the limitation period is suspended when a notice of motion seeking leave to proceed is filed in court, not when leave is granted. As these clarifying amendments were enacted while these three cases were before the courts, the SCC allowed claims to proceed against CIBC and IMAX through the court’s inherent jurisdiction to issue orders nunc pro tunc, a remedy which allows the court to “backdate” to a time prior to the expiry of the limitation period. This remedy was not available in Celestica, as leave had not been filed prior to the expiry of the limitation period and thus the limitation period would not have been suspended.

Given the legislative amendments to the OSA, future claims under Part XXIII.1 will not face the previously strict interpretation of the three-year deadline. As such, it is unlikely that this element of the SCC’s decision will have any major impact on future securities class action cases.

Leave Requirement: Reasonable and Realistic

Though divided on the issue of limitation periods, the SCC unanimously held the threshold that must be met by a plaintiff applying for leave under s. 138.8 OSA requires only a reasonable or realistic chance that the action will succeed. This decision affirmed the SCC’s prior ruling in Theratechnologies inc. v. 121851 Canada inc., which set a reasonably low bar for leave and certification of class actions. Though Theratechnologies was on appeal from the Quebec Court of Appeal and was based in Quebec’s Securities Act, the SCC noted that there is no difference in language between Quebec’s Act and the OSA. For this reason, the same threshold test for granting leave will apply in other common law provinces that have similar legislative schemes, as does British Columbia (see s. 140.8 Securities Act).

By reaffirming a low threshold to attain leave, the SCC has provided more certainty for statutory securities actions in common law provinces. As a result, the SCC’s decision signals that investors will have greater access to bring claims for alleged misrepresentations.


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