A series of recent decisions has given issuers, directors, officers and other capital market participants reason for optimism that the leave requirement in secondary market securities class actions can fulfil its initial promise of screening clearly unmeritorious claims.
The leave requirement requires a plaintiff seeking to proceed under the right of action in Part XXIII.1 of the Ontario Securities Act to establish that the action is brought in good faith and that there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff. The Ontario Court of Appeal’s decision in Bayens v. Kinross and the Supreme Court of Canada’s decision in Theratechnologies show that courts are undertaking a reasoned consideration of the evidence at the leave stage – and are prepared to find in appropriate cases that there is no reasonable possibility of success.
In Coffin v. Atlantic Power Corp., Justice Belobaba similarly concluded that the plaintiffs’ action had no reasonable possibility of success, as he found that Atlantic Power had made no misrepresentations, whether by positive assertion or omission. Atlantic Power is a good example of the type of case in which opposing a leave application with a substantial evidentiary record can be effective. Justice Belobaba stated that the defendants had filed “a massive amount of non-public (indeed court-sealed) internal and corporate narrative evidence to fully rebut the plaintiffs’ allegations and show they have no reasonable possibility of succeeding at trial.”
Justice Belobaba also declined to certify the parallel common law claims, which rested on the same evidentiary foundation as the statutory claims and therefore also had no reasonable possibility of success. He concluded: “Encumbering the parties and the courts with a complex class action that is destined to fail promotes neither judicial economy nor access to justice. Therefore, a class action is not a preferable procedure.”
These recent decisions are encouraging and give reason to believe that the protections in Part XXIII.1, including the leave threshold, can be used at an early stage of proceedings to protect issuers and other defendants from the costs, time and distraction of actions without merit.