The Supreme Court of Canada has granted leave in a case regarding the appropriate burden of proof to authorize an action under the Quebec civil liability for a secondary market disclosure scheme.
On February 20, 2014, the Supreme Court of Canada granted an application for leave to appeal filed by Theratechnologies Inc. and two of its administrators in a securities class action filed by a disgruntled shareholder who had lost monies because of the Issuer’s alleged omission to properly inform its shareholders of a material change in the Issuer’s operations.
Theratechnologies inc. c. 121851 Canada Inc., 2013 QCCA 1256 concerns the interpretation of s. 225.4 of the Quebec Securities Act which allows an action in damages against Issuers, administrators, executives, experts and other parties who play an influential role in an Issuers compliance obligations regarding its activities in the secondary markets. The appeal is significant not only because it is the first decision to interpret the scope of s. 225.4 of the QSA which came into effect as a result of the famous Allen Report, but it is also important because the action was also filed as a class proceeding – an element which effectively colored much of the lower courts’ analyses of the QSA provision in comparison to the authorization process found in the class context under Quebec’s Code of civil procedure.
The Superior Court authorized the action under s. 225.4 of the QSA, concluding that the evidence the plaintiff filed showed its case had a reasonable chance of success at trial. Theratechnologies Inc. and its two administrators appealed the decision, but the Quebec Court of Appeal decided:
- that even though the QSA does not explicitly allow an appeal, and even though an authorization decision in the class context in not subject to appeal under Quebec law, an action under s. 225.4 of the QSA could be appealed as an interlocutory decision because the authorization of the action would itself have significant consequences on the Issuer which a final judgment on the merits could not be able to remedy, and
- that the Plaintiff’s burden of proof at the authorization stage under s. 225.4 of the QSA is heavier than the «prima facie case» threshold found at the authorization stage in class proceedings because the plaintiff must show the Court that the action has « a reasonable possibility that it will be resolved in favour of the plaintiff ». The Court of Appeal reasoned that in order to satisfy that threshold set by s. 225.4 of the QSA, a Court must not decide whether the evidence presented by the Plaintiff demonstrates whether or not a material change occurred, but a Court should rather limit itself to determine whether the Plaintiff’s arguments are serious enough to demonstrates has a reasonable chance to succeed.
In light of the Supreme Court’s recent precedents regarding the nature and scope of the authorization process in class actions under Quebec law, we suspect the Supreme Court will use those precedents to craft their analysis of the nature and scope of the authorization process outlined in s. 225.4 of the QSA. Lastly, given the fact that securities regulation in each of the provinces is, in most respects, harmonized, at least with respect to the inclusion of a similar remedy in their statutes, we strongly suspect this ruling will carry persuasive authority outside of Quebec as well.