On December 4, 2015, the Supreme Court of Canada held that leave to commence a class action alleging a statutory claim for secondary market misrepresentation under the Ontario Securities Act (the “OSA”) must be granted prior to the expiry of the three-year limitation period. However, a majority of the justices also held that there is a judicial discretion to grant an order nunc pro tunc, which allows a motion for leave that was filed before expiry of the limitation period, but not granted until after expiry, to be “backdated”.

The Court issued one decision for three appeals that were heard together (CIBC v. GreenIMAX v. Silver, andCelestica v. Millwright Regional Council of Ontario Pension).  The three cases arose from separate chambers motions brought before the Ontario Superior Court for leave to commence those actions under the OSA.  The justices of the Court were divided in their opinions and issued three separate judgments, each one disagreeing to some extent with another.

The Court had before it the following issues:

  1. Does s. 28 of the Class Proceedings Act (Ontario)  (the “CPA”) operate to suspend the limitation period applicable to a statutory cause of action for secondary market misrepresentation in s. 138.3 of the OSA at the time when the class proceeding action is properly pleaded in the statement of claim or when the requisite leave is obtained under s. 138.8 of the OSA?
  2. Upon expiry of the limitation period, do the courts have the inherent jurisdiction to issue ordersnunc pro tunc for leave to proceed with an action where leave is sought prior to expiry?
  3. Upon expiry of the limitation period, may the courts grant leave based upon the application of the doctrine of special circumstances?
  4. What is the appropriate threshold for a motion for leave under s. 138.8 of the OSA?

Section 28 of the CPA

Section 28 of the CPA provides that the limitation period applicable to a class proceeding is suspended when a cause of action is asserted. Chief Justice McLachlin and Justices Rothstein, Côté and Cromwell, for the majority, held that a cause of action is asserted when leave is granted, not merely when it is pleaded. This interpretation followed the principle that “a class action provision cannot operate to create or modify substantive legal rights.”[1] According to Justice Côté, suspending the limitation period at the pleadings stage would modify the substantive legal rights attributable to a class proceeding by extending the limitation period for class action plaintiffs, but not for individual plaintiffs.

Since the limitation period had expired before leave had been granted in each of CIBCIMAX, and Celestica, the Court concluded that the actions had not been asserted within the limitation period and, therefore, were presumptively time-barred.

Remedies – Nunc Pro Tunc Orders & The Doctrine of Special Circumstances

The Court then addressed whether a chambers judge could exercise its discretion to issue an order nunc pro tunc or whether the doctrine of special circumstances could be applied to grant relief to the class plaintiffs. An order nunc pro tunc effectively “backdates” a successful leave motion such that it is considered to have been granted within the limitation period. Chief Justice McLachlin and Justices Rothstein, Côté and Cromwell all held that the courts have inherent jurisdiction to make an order nunc pro tunc, but that such discretion should be used sparingly. However, the justices disagreed on how that discretion should be applied.  Three of the justices held that an order nunc pro tunc ought to be granted solely to the IMAX plaintiffs whereas Justice Cromwell would have also granted the CIBC plaintiffs an order nunc pro tunc.  All four judges were unanimous in their refusal to “backdate” the Celestica plaintiffs’ leave motion on the ground that it had not been filed until after expiry of the limitation period.

The Court also found that the doctrine of special circumstances (which allows a party upon application to the courts to add another party or add a cause of action after the expiry of a limitation period) can only be applied to pleadings amendments and cannot extend the limitation period for secondary market misrepresentation claims.

The Threshold Test for Leave

In order to obtain leave under s. 138.8 of the OSA, a plaintiff must demonstrate that (1) the claim is brought in good faith and that (2) there is a reasonable possibility of success at trial. While the Ontario Court of Appeal considered the “reasonable possibility” criterion to be “a relatively low threshold”, the majority of the Supreme Court disagreed, citing its previous decision in Theratechnologies Inc. v. 121851 Canada Inc.[2] wherein it interpreted the Québec equivalent of s. 138.8 as requiring “a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim.”[3] Justices Moldaver, Cromwell, Karakatsanis and Gascon all determined that the CIBC plaintiffs had met this standard by showing a reasonable or realistic chance of success. Based upon this decision, it would appear that the relevant threshold has been raised somewhat so as to provide a barrier to unmeritorious class action claims.

Implications

This decision has significant consequences for both plaintiffs and defendants in class action proceedings. It reaffirmed a higher class certification threshold, which should function to reduce frivolous claims. However, it is important to note that the Ontario legislature has since removed any statutory ambiguity by introducing s. 138.14(2) to the OSA, which specifically states that the limitation period shall be suspended from the date of filing the notice of motion for leave under s. 138.8. While this provides more certainty for the defendants, it primarily benefits plaintiffs by effectively extending the limitation period.