The Court of Appeal for Ontario’s recent decision Bayens v. Kinross Gold Corporation clarifies the standard for obtaining leave to advance statutory claims for secondary market misrepresentation and affirms that parallel common law negligent misrepresentation claims in such cases will not be certified as a matter of course.

In Bayens, the plaintiffs brought a proposed C$6-billion class action on behalf of purchasers of shares of the defendant issuer. The plaintiffs alleged statutory misrepresentations under Part XXIII.1 of the Ontario Securities Act (OSA) and common law misrepresentations related to the disclosure of certain goodwill write-downs. The Court of Appeal heard the plaintiffs’ appeal of the dismissal of their motion for leave to proceed with statutory claims and certification of the action as a class proceeding.

LEAVE STANDARD FOR STATUTORY CLAIMS

The judge at first instance concluded that the proper standard for granting leave to proceed with a statutory claim under the OSA is a “low-threshold evidentiary merits-based test” whereby the court must be satisfied on the evidence that there is a “reasonable possibility” that the action will be resolved at trial in favour of the plaintiff. Applying this test to the evidence, the motion judge denied leave, concluding that there was no possibility that the plaintiffs’ statutory action could succeed at trial.

The Court of Appeal upheld this decision, confirming that the “reasonable possibility of success” standard for leave is the correct standard and that it is a “relatively low threshold, merits-based test.” The court clarified that while the leave standard is the same standard applied when deciding whether to certify a class action or whether to strike a pleading, the evidentiary bases in the these scenarios are different. On a certification motion or a motion to strike pleadings, no evidence is filed and the facts pleaded are assumed to be true. On a leave motion, however, evidence is adduced and the “determination whether a plaintiff’s statutory action will have a reasonable possibility of success at trial requires some critical evaluation of the merits of the action, based on all the evidence proffered by the parties....”

CERTIFICATION OF COMMON LAW CLAIMS

The motion judge held that if leave is granted under the OSA, a court should certify a class action for both the statutory and the common law negligent misrepresentation claims. If leave is not granted, then the class action should not be certified for the common law claims. Having denied leave, the motion judge therefore denied certification of the common law claims.

The Court of Appeal upheld the result but for different reasons. It held that it does not automatically follow from the denial of leave for the statutory claims that there will be no basis in fact for determining that a class action is not the preferable procedure for the common law claims. Nonetheless, the Court of Appeal concluded that a class action was not the preferable procedure for prosecution of the common law claims. The Court of Appeal held that proof of reliance, causation and damages posed particular difficulties, that the determination that the statutory misrepresentation claims have no reasonable prospect of success was a relevant consideration and that other actions in which common law claims were certified alongside statutory claims were not of assistance in determining the appropriate outcome in the particular circumstances of the case.

While the Court of Appeal performed a separate preferability analysis, it noted that standalone common law negligent misrepresentation claims in securities cases are not generally suitable for certification because they give rise to individual issues of causation and reliance that would be unmanageable. In this case, numerous individual trials would be required to establish reliance, causation and damages, rendering access to justice more illusory than real and undercutting the goal of judicial economy.

 CONCLUSTION

The Bayens decision provides important clarification of the leave standard for statutory secondary market misrepresentation claims and serves as yet another example of how plaintiffs should not be permitted to use parallel common law claims to avoid the protections for defendants provided by the statutory regimes. These issues are scheduled to be considered by the Supreme Court of Canada in Green v. CIBC in early 2015.