An Ontario court has just released a welcome decision for issuers who may find themselves defending parallel securities class actions in multiple jurisdictions. In the decision, the judge held that members of a class certified in Ontario can be bound by a settlement reached in a related class proceeding in the U.S., and then excluded from participating further in the Ontario class proceeding. In rendering her decision, the judge noted, “[i]t is not the function of this court to jealously guard its own jurisdiction over a class proceeding that has been certified here.”
In Silver v. IMAX, 2013 ONSC 1667, released on March 19, 2013, van Rensburg J. granted the defendants’ motion to amend the Ontario class to exclude those who were part of the class in a parallel, conditionally-settled U.S. action. The result is that, by settling their action in the U.S., the defendants were able to resolve the overwhelming majority of claims on both sides of the border.
The parallel Canadian and U.S. proceedings in IMAX were both commenced in 2006. The shares of the defendant IMAX had traded on both the Toronto Stock Exchange and the NASDAQ. In an earlier decision, van Rensburg J. had certified a class in Ontario that included purchasers on both exchanges. The lead plaintiff in the U.S. proceeding had also originally sought to represent such a “global” class. However, as a result of the U.S. Supreme Court’s decision in Morrison v. National Australian Bank in 2010, which effectively excludes purchasers on foreign exchanges from bringing statutory claims for secondary market misrepresentations in the U.S., the class certified in the U.S. did not include those who purchased their securities of IMAX on the TSX.
The defendants subsequently reached a settlement with the plaintiffs in the U.S. proceeding. The settlement was approved by the court in the U.S. subject to the Ontario court granting an order excluding those persons who overlapped with the U.S. class (i.e. those who purchased their IMAX securities on the NASDAQ) from the class in the Ontario proceeding.
In granting the defendants’ motion to amend the class in the Ontario proceeding, van Rensburg J. held that it was the preferable procedure to remove the overlapping claims from the Ontario proceeding, on the basis that the settlement in the U.S. furthered the objectives of class proceedings, in particular the objective of access to justice. In so doing, van Rensburg J. found that “it would be consistent with the reasonable expectations of the overlapping class members, who acquired their shares on the NASDAQ, and in circumstances where IMAX was subject to both U.S. and Ontario securities laws, that their rights could be determined by the U.S. Court in the context of applicable U.S. law.”
The judge also stated that “[i]t is not the function of this court to jealously guard its own jurisdiction over a class proceeding that has been certified here. Such an approach is inconsistent with the principles of comity. It is also not the function of the court to favour or protect the interests of class counsel within this jurisdiction, knowing that they have invested time and resources into the litigation, and that their compensation will depend on the size of the judgment or settlement they are able to achieve.”
Justice van Rensburg (following the test prescribed by the Court of Appeal for Ontario in Currie v. McDonald’s Restaurants of Canada) also formally recognized the U.S. court’s approval of the settlement on the basis that (i) there was a “real and substantial connection” between the U.S. and the overlapping class members’ claims, (ii) those overlapping class members were accorded procedural fairness in the U.S. proceeding, and (ii) the overlapping class members’ rights were adequately represented in the U.S.
The decision in IMAX provides some needed assurance to defendant issuers that, in appropriate circumstances, Ontario courts will recognize settlements in foreign proceedings as being binding on Ontario class members who are included in the foreign settlement. This decision helps alleviate some of the uncertainty about whether a defendant is required to settle all global proceedings at once, and therefore risk being held up in settlement efforts by intransigent plaintiffs in one or more jurisdictions. It is possible that van Rensburg J.’s decision will be appealed, but for now it should provide issuers with some welcome relief.