A secondary market class proceeding against Timminco Ltd. has been in legal purgatory since 2012, a victim of the changing jurisprudence governing the limitation period applicable to those claims. In a May 2017 decision (Timminco 2017), the Ontario Court of Appeal decided that the case could not proceed because the plaintiff investor had not commenced his motion for leave to proceed under Ontario’s Securities Act in time.
Timminco 2017 represents the last gasp of the group of proposed class actions in which the courts of Ontario – and ultimately, the Supreme Court of Canada – worked out the governing interpretation of the interplay between Ontario’s Class Proceedings Act, 1992 and Securities Act.
The Solar Panels Announcement
The path to the Ontario Court of Appeal’s decision in Timminco 2017 sheds some light on the development of secondary market class proceedings in Ontario. The substance of the case (which has never been litigated) relates to the issuer’s announcement in March 2007 that it developed a process to produce silicon for solar panels. The company’s share price increased dramatically in response to the disclosure of its financial results for Q4 2007 on March 17, 2008 and continued until November 2008, when it made corrective disclosures concerning its financials. Upon those disclosures, the share price fell precipitously.
On May 14, 2009, an investor filed a Statement of Claim alleging misrepresentations beginning on March 17, 2008, which: (1) sought certification as a class proceeding under the Class Proceedings Act, 1992, and (2) pleaded an intention to seek leave to proceed with the statutory cause of action for secondary market misrepresentation under Ontario’s Securities Act (the “OSA”). In the two years that followed, there was a dispute between plaintiffs’ law firms over carriage of the action, and the successful firm worked to settle the case – presumably because the issuer was in financial distress.
In March 2011, in response to a decision in another proposed secondary market case, the investor brought an urgent motion to attempt to deal with the possible limitations issue with the claim. On March 14, 2011, the investor filed a notice of motion seeking “conditional leave” to proceed under the OSA.
The Tortured History of the Limitations for OSA Secondary Market Class Proceedings
Before turning to the decision on the motion – the first step in the many years of litigation that followed – a word about the statutes. In a typical class proceeding (not under Part XXIII.1 of the OSA), section 28 of Ontario’s Class Proceedings Act expressly “suspend[s]” the limitation period applicable to the claims when a proposed class member “assert[s]” a cause of action. Filing a Statement of Claim seeking certification is sufficient to trigger this provision.
For individual proposed statutory secondary market misrepresentation claims (not proposed class proceedings), the OSA sets a bright line limitation period: an investor has three years from the date of the misrepresentation or failure to make disclosure to “commence” an action. To “commence” such an action, however, the investor must first obtain leave of the court by bringing a motion and demonstrating that: (a) the action is brought in good faith, and (b) it has a reasonably possibility of success. But the statutory cause of action was designed to facilitate class proceedings.
The question for a class proceeding, then, is whether an investor “assert[s]” a cause of action under the Class Proceedings Act, when she has only stated an intention to seek leave under the OSA, or whether leave must actually be granted before the action is “asserted” and the suspension kicks in.
The Pendulum Swings on the Limitation Period
The narrow question of statutory interpretation – whether stating an intention to seek leave under the OSA is enough to “assert” a cause of action for purposes of the Class Proceedings Act – was the issue on the Timminco investor’s motion in March 2011. Justice Perell decided that pleading an intention to seek leave to proceed in the Statement of Claim was sufficient to trigger the suspension in the Class Proceedings Act of the three-year limitation period in the OSA. After the decision was released, the investor delivered notices of motion seeking certification of his action as a class proceeding and leave to proceed under the OSA. The delivery occurred three years and two days after the last alleged misrepresentation.
The issuer appealed Perell J.’s decision to the Ontario Court of Appeal. In a unanimous judgment (Timminco 2012), the Court allowed the appeal, concluding that a cause of action is not “asserted” for purposes of the Class Proceedings Act until leave was granted under the OSA. The investor’s motion for leave to appeal that decision to the Supreme Court was denied. The Supreme Court’s decision to deny leave and its implications was discussed in a blog post on the Canadian Appeals Monitor at the time.
The Court of Appeal’s interpretation of the legislation came as a “surprise” (or, as one lawyer put it, a “thunderbolt”), and defendants in three other proposed statutory secondary market actions brought motions to dismiss the claims as time-barred. In those cases, the judges grappled with how to do justice in the case, while respecting the Court of Appeal’s binding decision in Timminco 2012:
- In CIBC, Strathy J. (as he then was) concluded that he had no discretion to apply the doctrine of “special circumstances” to extend the limitation period or grant the order for leave to proceed under the OSA nunc pro tunc (literally, “now for then”) – a legal Latin phrase meaning that the order is essentially backdated; the legal effect is as if it had been granted on the earlier date.
- In IMAX, van Rensburg J. (as she then was) decided that although the limitation period would have expired, she granted the investor class’s motion for leave to proceed under the OSA nunc pro tunc before its expiry; she concluded that she could not apply the doctrine of “special circumstances” to the legislation.
- In Celestica, Perell J. (who had decided Timminco in 2011) determined that he could grant the investor class’s motion for leave to proceed nunc pro tunc or on the basis of “special circumstances”.
The Ontario Court of Appeal convened a five-judge panel to hear appeals from those three decisions and considered whether to overturn the interpretation adopted in Timminco 2012 of the Class Proceedings Act and the OSA. In a unanimous ruling, the Court did just that: it decided that, after all, stating an intention to seek leave to proceed under the OSA in a Statement of Claim “asserted” a cause of action sufficient to trigger the suspension of the limitation period under the Class Proceedings Act. The Canadian Appeals Monitor also discussed that decision at the time.
Once again, the story was not over. The Supreme Court granted motions for leave to appeal the three decisions (which was also discussed in a blog post), and in December 2015, the Supreme Court yet again reversed course (as discussed in a blog post), confirming, by a 4-3 majority, that the Class Proceedings Act only suspends the limitation period once leave has been granted under the OSA. The Supreme Court therefore brought the law full circle to the interpretation in Timminco 2012.
Critically for the plaintiff investor who sued Timminco Ltd., the Supreme Court also determined that courts have an inherent authority to grant leave to proceed nunc pro tunc if a motion for leave was filed prior to the expiry of the limitation period.
The Court of Appeal’s Decision in Timminco 2017
Given the Supreme Court’s decision after Timminco 2012, the plaintiff investor brought a motion seeking leave to proceed under the OSA nunc pro tunc to March 2011. Justice Perell, who remained the case management judge, refused to grant leave to proceed nunc pro tunc because the investor had not delivered his notice of motion within three years of the alleged misrepresentation (as noted above, it was three years and two days after March 17, 2008). He further held that if he could rely on the motion for “conditional leave” (which was filed a few days before the expiry of the three-year period), he would not do so because the investor had not pursued the claim with diligence, the merits of the case were untested, and there was prejudice to the issuer.
On behalf of unanimous Court of Appeal, Strathy C.J.O. dismissed the investor’s appeal. He reasoned that although the investor’s proposed motion for “conditional leave” on March 14, 2011 might anchor an order nunc pro tunc and thereby avoid the three-year bright line rule, there was no basis to interfere with Perell J.’s exercise of discretion in refusing to make such an order. In the result – subject to leave to appeal to the Supreme Court – the investor’s proposed class action on the basis of ten-year-old alleged misrepresentations was at an end.
The End of an Era
Mercifully, the litigation over the limitation period applicable to statutory secondary market class proceedings should be over in Ontario – although the same is not true in every other province. Between the decisions of the Ontario Court of Appeal and the Supreme Court of Canada in the trilogy, Ontario’s legislature amended the OSA to state expressly that the limitation period under the OSA is suspended upon the filing of a motion seeking leave to proceed. That legislation applies to all actions commenced after the date it passed in 2014. Timminco 2017 therefore represented one of the last cases under the old limitations rules. Its final disposition therefore marks the end of the first generation of statutory secondary market proceedings in Ontario.