• Ontario court certifies Canada's first secondary market liability suit for misrepresentations under the Ontario Securities Act civil liability provisions
  • Relatively low threshold set for plaintiffs seeking leave to proceed with a civil action for secondary market liability under the Ontario Securities Act
  • Global class certified consisting of Canadian and non-Canadian shareholders, regardless of whether shares purchased on the TSX or NASDAQ
  • Court accepts as a common issue for determination at trial whether reliance can be inferred from purchases made on a stock exchange and whether aggregate damages can be assessed against the defendants

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On December 14, the Ontario Superior Court released its long-awaited reasons in IMAX.[i] This is the first judicial interpretation of the leave requirements which must be met by a shareholder wishing to bring a civil secondary market liability claim for misrepresentation under Ontario's Securities Act (the "OSA").

The Court granted leave to the plaintiffs to proceed with their action under section 138.3 of the OSA and, in so doing, established a "relatively low" threshold to be met by a plaintiff when seeking leave. The Court interpreted the statutory leave test under section 138.8[ii] to require the plaintiffs to: (1) establish that they are bringing their action in the honest belief that they have an arguable claim, and for reasons that are consistent with the purpose of the statutory cause of action and not for an oblique or collateral purpose; and (2) lead credible evidence that would permit the Court, after reasoned consideration, to conclude that the plaintiffs had a reasonable possibility of success at trial. The Court also decided that on a leave motion the defendants bear the onus of satisfying the court that evidence going to a "reasonable investigation" defence or other statutory defence will foreclose the plaintiff's reasonable possibility of success at trial.

The Court also certified IMAX as a class proceeding under the Class Proceedings Act, 1992 for both statutory and common law misrepresentation claims. Significantly, even though there is a pending parallel US proceeding, the Court certified a global class consisting of Canadian and non-Canadian shareholders, regardless of whether they purchased their shares on the TSX or NASDAQ. Moreover, it accepted as common issues for trial: (1) whether class members' purchases of shares on the TSX or NASDAQ may satisfy the reliance requirement for common law misrepresentation; and (2) whether aggregate damages can be assessed against the defendants. The decision departs from other secondary market decisions in which common law claims for misrepresentation were not certified because of the need for each class member to prove reliance.

Although it is the first decision interpreting the leave requirements for secondary misrepresentation claims under the new OSA, IMAX will not be the last word on how the leave requirements should be applied, nor will it be the last word on these certification issues. Apart from possible appeals, a number of other cases already filed seeking leave to bring statutory secondary market misrepresentation claims, and to have statutory and common law misrepresentation claims certified, will provide an opportunity for other judges to reflect and comment upon IMAX.