On February 16, 2012, the Ontario Court of Appeal released a decision that comes as good news to issuers. In the case of Sharma v. Timminco Limited,1 the Court provided clear guidance on the conduct of secondary market securities class actions pursuant to section 138.3 of Part XXIII.1 of the Ontario Securities Act (the “OSA”). In overturning the Superior Court’s decision, the Court of Appeal held that a secondary market securities class action could not proceed because the plaintiff failed to obtain leave of the court to commence the action before the three-year limitation period had expired. When the plaintiff moved to suspend the limitation period, the order was denied on the basis that leave had not been granted and the action was statute-barred.
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The plaintiff shareholders in Sharma v. Timminco commenced a proposed class action against the defendant company for over $500 million, alleging that it made misrepresentations in public statements that adversely affected the value of its shares in the secondary market. The alleged misrepresentations took place over a period of roughly eight months, commencing in March of 2008. The plaintiff class issued a statement of claim in May of 2009, which alleged common law causes of action against the defendant company for negligence and negligent misrepresentation. The statement of claim did not claim a secondary market statutory cause of action under Part XXIII.1 of the OSA, but it stated that the plaintiff intended to seek an order to obtain leave of the court to assert such an action.
The plaintiff did not seek leave to commence an action under section 138.3 of the OSA in a timely manner. By the end of February of 2011, when faced with the expiration of the three-year limitation period, the plaintiff moved to obtain an order from the Ontario Superior Court of Justice under section 28 of the Class Proceedings Act (the “CPA”) to suspend the three-year limitation period. Section 28 of the CPA permits the suspension of limitation periods for class proceedings.
Ontario Superior Court of Justice
The Superior Court, granting the relief sought, held that the plaintiff’s stated intention to seek leave of the court in its claim at a later date was sufficient to permit it to suspend the limitation period pursuant to section 28 of the CPA and stated that the litigation pursuant to the OSA does not actually have to be commenced for an action to be “asserted” under this provision. As such, the Superior Court permitted the suspension on the basis that a cause of action under section 138.3 of the OSA was mentioned in a class proceeding that had already been commenced.
Court of Appeal
The Court of Appeal overturned the order of the Superior Court to suspend the limitation period and held that it was not sufficient for the plaintiff to merely express an intention to commence an action in order to engage the suspension provision of the CPA. The Court reasoned that section 28 of the CPA must be read in its “grammatical and ordinary sense”, which means leave of the court must be obtained in order for a cause of action under section 138.3 of the OSA to be “asserted”. The meaning of the term “assert”, the Court noted, goes beyond merely mentioning an intention to commence a proceeding. Rather, the Court relied on the dictionary definition of the term, which means to “make or enforce a claim” or “to invoke or enforce” a legal right. As such, the Court stated that a cause of action under s.138.3 of the OSA cannot be said to be “enforced” without leave having been granted and the mere mention of an intention to seek leave was insufficient.
The purpose of the limitation period imposed by Part XXIII.1 of the OSA is to ensure that secondary market claims proceed “with dispatch” and leave should therefore be sought expeditiously. The potential for an indefinite suspension of the limitation period, with no guarantee that an action will ultimately be brought, is inconsistent with this purpose.
Therefore, the suspension of the limitation period imposed by Part XXIII.1 of the OSA will only be allowed if leave has been granted to commence a statutory cause of action before the three-year limitation period expires.
We understand that leave to appeal to the Supreme Court of Canada has been sought.