On February 24, 2012, the Superior Court rendered the first decision in Quebec on the application of the new provisions of the Securities Act (the "Act") regarding secondary market liability (121851 Canada inc. c. Theratechnologies inc. – available in French only). With this decision, the Plaintiff, 121751 Canada Inc., was granted the authorization to bring an action for damages under section 225.4 of the Act and to do so by way of a class action.

In this case, the Plaintiff alleges that the Respondent, Theratechnologies, failed to disclose a material change in its business, operations or capital in the course of the approval process surrounding its lead drug, tesamorelin, by the Food and Drugs Administration.

Theratechnologies sought from the Court of Appeal permission to appeal this judgement on the grounds that the Superior Court, even though it acknowledged that the authorization mechanism provided in the Act differs from that governing class actions, failed to apply it correctly. Indeed, section 225.4 of the Act provides that an authorization must be applied for prior to bringing an action under the secondary market liability regime set out in sections 225.2 ss. of the Act. In order to obtain such court authorization, the plaintiff must demonstrate that "the action is in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff".

Given the obvious attention generated by this matter, the motion seeking permission to appeal was exceptionally referred to a three-judge bench, that will have to decide whether to grant the motion or not and, if applicable, to pass upon the merits of the appeal.

On January 24, 2013, the Court of Appeal heard the parties, both on the leave to appeal from a judgement rendered under section 225.4 of the Act and on the merits of the appeal of the trial decision.

If leave to appeal is granted, the Court of Appeal will be called upon to decide upon the following issues, which will certainly garner the attention of relevant authorities in other Canadian jurisdictions:

  • Can a judgement authorizing the institution of an action under section 225.4 of the Act be appealed with leave (s. 29 and 511 C.c.p.)?
  • Must the analysis of the evidence under the authorization mechanism provided for in section 225.4 of the Act show more than a mere colour of right?
  • What constitutes a "material change" triggering a reporting issuer's continuous disclosure obligation?
  • Does 121751 Canada Inc. have a reasonable chance of proving that a material change occurred in the business, operations or capital of Theratechnologies which triggered its continuous disclosure obligation?