In July 2013, we reported on the decision rendered by the Quebec Court of Appeal in Theratechnologies, in which the Court ruled, for the first time, on the principles applicable to the authorization of a class action based on the secondary market liability provisions of the Quebec Securities Act.
On February 20, 2014, the Supreme Court of Canada granted the application for leave to appeal filed by Theratechnologies Inc. Accordingly, the Supreme Court will, in due course, weigh in on the principles relating to the authorization of a class action based on the secondary market liability regime provided under the Securities Act.
By way of background, on July 17, 2013, the Court of Appeal dismissed the appeal from the judgment of the Quebec Superior Court authorizing a shareholder of Theratechnologies Inc., a public corporation listed on the Toronto Stock Exchange, to bring an action for damages under section 225.4 of the Securities Act by way of a class action. In its motion for authorization, the shareholder claimed that Theratechnologies Inc. had failed to disclose a material change as a reporting issuer and that such failure had resulted in damage.
The Court of Appeal pointed out that while a judgment granting a motion for authorization to institute a class action can not be appealed as provided under the Code of Civil Procedure, the same was not true of a judgment authorizing an action under the relevant provisions of the Securities Act, which also requires prior authorization.
The Court of Appeal went on to affirm the trial judgment, holding that in the circumstances the test set out in the Securities Act had been met. Drawing on, amongst other things, case law from other Canadian provinces with similar regimes, the Court of Appeal noted that the requirement to obtain authorization before bringing an action under section 225.4 of the Securities Act was merely a filtering mechanism.
The Court of Appeal held that the “reasonable possibility of success at trial” test provided under section 225.4 of the Securities Act was more demanding than the colour of right test under the Code of Civil Procedure, but less demanding than the preponderance of evidence test applicable to the merits of the action.
It will be interesting to see what approach the Supreme Court of Canada will take on these questions of considerable importance for public corporations in Canada.