On March 21, 2011, the Ontario Superior Court of Justice released an important decision on whether there is flexibility in extending the limitation period applicable to claims of prospectus misrepresentation under section 130 of the Ontario Securities Act (the “OSA”). More specifically and in the case of Dugal v. Manulife Financial Corp., 2011 ONSC 1764, it has now been ruled that the 180 day limitation period that bars claims of misrepresentation in a prospectus is not subject to extension through the common law doctrine of “special circumstances”.
In the Dugal case, the plaintiffs asserted that Manulife and its officers and directors were liable to certain purchasers of Manulife shares as a consequence of alleged misrepresentations made about Manulife’s risk management practices, which misrepresentations were purportedly set out in Manulife’s “interim and annual financial statements, annual reports, and management’s discussion and analysis” over a number of years. The initial Statement of Claim did not allege that Manulife shares had been purchased pursuant to a prospectus, nor did the plaintiffs expressly plead and rely upon section 130 of the OSA. However and by way of motion brought in May of 2010, the plaintiffs sought to amend the Statement of Claim to specifically assert alleged misrepresentations in ten (10) prospectuses filed by Manulife between February 2005 to December 2008. Of significance and in their pleading, the plaintiffs expressly indicated that the truth of the alleged misrepresentations made by Manulife was revealed by way of Manulife’s press release dated February 12, 2009; by this press release, Manulife announced that it had increased its reserves by $5 billion to reflect its increased exposure due to declines in the equity markets. Manulife opposed the plaintiffs’ motion to add these claims to the Statement of Claim on the basis that the new allegations of prospectus misrepresentation were statute barred by section 138 of the OSA, which provides that, other than an action for rescission, such claims expire on the earlier of:
- 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action; and
- 3 years after the date of the transaction that gave rise to the cause of action.
In short, it was the defendants’ position that the plaintiffs had knowledge of the facts giving rise to the cause of action on February 12, 2009 (the date of Manulife’s press release) such that the 180 day limitation period had expired well before the plaintiffs brought the motion in May of 2010 to assert these new claims under section 130 of the OSA.
Ultimately, the court dismissed the plaintiffs’ motion. The court found that the proposed claims for prospectus misrepresentation were now statute barred, and in so finding, the court ruled that:
- Not only is section 130 of the OSA a purely statutory cause of action, it is a “complete code” governing such claims.
- The plaintiffs could not rely upon the general allegations of misrepresentation in the initial Statement of Claim to shelter the section 130 cause of action that the plaintiffs were now seeking to incorporate in the proposed Amended Statement of Claim.
- The plaintiffs could not invoke the common law doctrine of “special circumstances” (a doctrine which permits the court to extend a limitation period in cases of procedural irregularities where no prejudice has been suffered by the defendant) to extend the limitation period.
- Even if the common law doctrine of “special circumstances” could apply to a cause of action under section 130 of the OSA, it would be inappropriate to apply it to extend the limitation period in this case because, in the view of the court, this was not a case of a procedural error that could simply be cured without creating prejudice to the defendants. On the contrary, the court was of the view that the plaintiffs had the assistance of experienced litigation counsel who were in possession of the material facts and who made a conscious decision to restrict the allegations in the initial Statement of Claim to a secondary market claim prescribed by section 138.3 of the OSA.
The case serves as a cautionary tale for individuals asserting claims based on a misrepresentation contained in a prospectus. In particular and subject to the Dugal decision being successfully appealed, the 180 day statutory limitation period in section 130 of the OSA is firm and is not subject to a common law extension based upon the “special circumstances” doctrine.