This morning, the Supreme Court of Canada released its long-awaited decision in a trilogy of proposed securities class actions in Ontario against CIBC, IMAX and Celestica. The principal issue before the Court was whether the three-year statutory limitation period for proceeding with the actions had expired or had been stayed by operation of section 28 of the Class Proceedings Act. On that issue, a majority of the Court disagreed with the Ontario Court of Appeal and found that section 28 did not operate to stay the limitation period until leave to commence the statutory action had been granted. However, because one of those judges also determined that it was appropriate to grant leave nunc pro tunc (i.e., retroactive prior to the expiry of the limitation period) in two of those cases, it was appropriate to allow the CIBC and IMAX actions to proceed, but not the Celestica action.

Although these appeals gave the Court the opportunity to consider other issues of potentially broader application to securities class actions, the court in its decision merely confirmed the existing law in Ontario with respect to the statutory leave test and the suitability for certification of common law claims for negligent misrepresentation.

The Court of Appeal’s Decision

The relevant background to these three proceedings is that, in each case, the three-year limitation period in section 138.14 of the Ontario Securities Act (the OSA) had expired without the plaintiffs obtaining leave to commence an action against the defendants.

In February 2014, a specially convened five-judge panel of the Court of Appeal for Ontario ruled that all three proceedings could proceed, effectively extending the limitation period in each case. The Court of Appeal held that the limitation period for class action claims will be suspended once a plaintiff: (1) pleads a cause of action based on Part XXIII.1 of the OSA; and (2) pleads the intent to seek leave. We covered the decision in a previous Osler Update.

The Supreme Court of Canada’s Decision

A.  Limitation Period

A majority of the Supreme Court disagreed with the Court of Appeal’s reasoning and found that section 28 of theClass Proceedings Act cannot suspend the limitation period until leave is granted.

Although the Court’s reasoning and findings are of particular interest to the parties in these proceedings, they will have limited application in future Ontario cases. Subsequent to the Ontario Court of Appeal’s decision, the Legislature amended the OSA to provide that the limitation period is suspended on the date that the plaintiff files a motion with the court seeking leave. The Supreme Court’s reasoning may, however, have some application in other provinces that have not passed similar amendments to their statutes.

The Court’s reasoning does raise interesting practical issues in cases in which the plaintiff seeks to advance both statutory and common claims. Justice Côté stated that statutory claims under Part XXIII.1 of the OSA cannot be validly commenced without leave of the court, and therefore, a statutory claim filed without having first obtained leave is a nullity. This may have an effect on whether plaintiffs choose to proceed: (1) by way of an application seeking leave with respect to the statutory claims and filing a separate Statement of Claim with respect to the common law claims, or (2) by filing common law claims in a Statement of Claim and bringing a motion within those proceedings to authorize commencing the statutory claims and, after leave is granted, amend the existing Statement of Claim.

The Supreme Court’s reasons also include a detailed commentary on the balancing between Part XXIII.1 of the OSA and the Class Proceedings Act. A positive aspect of this decision for issuers, directors, officers and other market participants is that the Supreme Court repeatedly acknowledged the “rigourous and exhaustive legislative balancing that produced Part XXIII.1 [of the] OSA”:

In sum, Part XXIII.1 [of the] OSA strikes a delicate balance between various market participants. The interests of potential plaintiffs and defendants and of affected long-term shareholders have been weighed conscientiously and deliberately in light of a desired precise balance between deterrence and compensation. The legislative history reveals a long, meticulous development of this balance, one that found expression in all the limits built into the scheme.

B.  Leave to Proceed under Part XXIII.1

The Supreme Court confirmed that the leave test set out in its decision in Theratechnologies earlier this year applies to the leave test under the OSA.

C.  Certification of Common Law Claims

The Supreme Court upheld the Court of Appeal’s ruling on the certification of common law negligent misrepresentation claims, essentially holding that in some circumstances in which statutory claims are certified, common issues relating to common law misrepresentation claims (except issues of reliance and causation) are capable of being certified alongside the statutory claims. However, it remains unclear how individual issues of reliance and causation could ever be efficiently or effectively resolved for large numbers of class members, even if common questions were successfully proved.

The Supreme Court did not address whether common law claims could be certified in circumstances in which leave to commence the statutory claims had been denied. Accordingly, the leading cases in these circumstances remain Bayens v. Kinross Gold Corp. [PDF] and Coffin v. Atlantic Power. In those cases, the Court held that, in such circumstances, a class action would not be the preferable procedure to resolve the common law claims.

Conclusion

While the reasoning of the Supreme Court of Canada was favourable to issuers and others who may be the subject of statutory claims, because of the subsequent amendments to the OSA, it will likely be of limited practical benefit in the future (and even to the parties to these cases, it was only of benefit to Celestica).