On February 19, 2014, the Ontario Superior Court released its decision in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v Celestica Inc.1 This is the first decision to consider leave to proceed under Part XXIII.1 of the Securities Act following the Ontario Court of Appeal's decision in Green v CIBC.2
The Honourable Justice Perell:
- dismissed the plaintiffs’ motion for leave for some of the alleged misrepresentations because of a lack of evidence led by the plaintiffs establishing a basis in fact for misrepresentation;
- allowed claims to proceed for forecasts and estimates as to Celestica's restructuring; and
- did not certify the common law misrepresentation claims because they did not satisfy the preferable procedure criterion.
In Celestica, the plaintiffs alleged that the company made material misrepresentations about the progress of its restructuring plans, including the time, costs, progress and impact of the restructuring. The plaintiffs also alleged improper financial reporting in relation to inventory and revenue.
The plaintiffs brought a motion for class certification and leave to proceed with statutory claims for misrepresentation under Part XXIII.1 of the Securities Act. The plaintiffs further advanced claims for common law negligent misrepresentation.
Celestica challenged the motion arguing the plaintiffs had failed to lead any evidence of any misrepresentations, submitting that a revision of an estimate does not make an earlier estimate a misrepresentation. Moreover, Celestica noted none of its financial statements had been restated.
In the result, the Ontario Superior Court granted leave to proceed and certified some of the statutory misrepresentation claims, while denying others. However, the court declined to certify the negligent misrepresentation claims because they did not satisfy the preferable procedure criterion under subsection 5(1) of the Class Proceedings Act.
The test for leave to proceed under the Securities Act
With respect to the “reasonable possibility that the action will be resolved at trial in favour of the plaintiff” standard, Justice Perell reiterated that the statutory leave test is meant as a screening mechanism for weeding out non-meritorious claims.
For the substance of the test, Justice Perell regarded the Court of Appeal's decision in Green v CIBC as confirming the following test set out in his opinion in Bayens v Kinross Gold Corp.3:
"There is not a reasonable possibility that an action will be resolved at trial in favour of the plaintiff, if:
- assuming the material facts of the plaintiff's claim are true, it is plain and obvious that the plaintiff could not succeed at trial;
- the plaintiff fails to provide any admissible or believable evidence of the material facts of his or her claim;
- the plaintiff's case is so manifestly weak that it cannot possibly succeed;
- the defendant demonstrates that the plaintiff's claim is frivolous, scandalous, vexatious or an abuse of process;
- the defendant shows that the plaintiff's claim is based purely on speculation or suspicion rather than evidence;
- the defendant disproves the truth of the facts of the plaintiff's claim; or
- the defendant proves a statutory defence.”
On the evidence, the court denied leave to proceed for the allegations of false inventory reporting and improper accounting practices, finding that the plaintiffs did not provide any credible evidence on either front.
Celestica argued that statements made as to the costs and time required for restructuring were estimates or opinions and could not as a legal and factual matter constitute a false statement if it simply turns out that the estimates are incorrect.
Justice Perell noted that the existence of an express statutory defence under s.138.4(9) suggests that forward-looking statements can form the basis for a Part XXIII.1 claim.
The court further held that Celestica's factual arguments about the lack of a corrective announcement entailed an interpretation of the meaning of public communications and did not go far enough to show at the leave juncture that the plaintiffs' misrepresentation claim has no reasonable prospect of success.
Perell J. found there was enough on the record to suggest that there is a "reasonable possibility" that having regard to what was known about their customers, the nature of supply and demand and their own facilities and capabilities, the defendants' opinions or estimates about restructuring were negligently made and therefore a misrepresentation.
Peferable procedure element of certification
Justice Perell held that where there are claims for both statutory and common law misrepresentation for the same misrepresentation, then the statutory claim is the preferable way to resolve the claims. This is because:
- the purpose of the statutory misrepresentation cause of action is to overcome the difficulties of a class action for negligent misrepresentation. Indeed, Justice Perell puts it plainly: “Part XXIII.1 of the Ontario Securities Act was designed to be the preferable procedure for misrepresentation claims in the marketplace for shares”;
- a common law misrepresentation class action may lead to economically unfeasible and non-viable individual cases where the element of reliance must be proven; and
- it is doubtful that many investors would be motivated, willing or able to perfect their common law claims at an individual issues trial.
Consequently, the court certified the statutory misrepresentation claims with respect to the 2005 restructuring as a class action, but declined to certify the claims for common law negligent misrepresentation.
The Celestica decision highlights the importance of the evidentiary record to support leave under Part XXIII.1, as well as the continuing debate on the certification of common law misrepresentation claims. Moreover, the decision adds support to the view that forecasts and estimates can be the subject of Part XXIII.1 claims where it can be shown such forecasts and estimates were negligently formulated.