Causes of action

Which causes of action can be asserted by claimants in relation to the offer and trade of securities and which are most commonly asserted?

Claimants may assert claims for misrepresentations in both primary and secondary markets.

Directors’ and officers’ liability

In what circumstances and to what extent can directors and officers be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?

Primary market

Each director of the corporation issuing securities under a prospectus is personally liable to the investors for losses suffered if the prospectus misstates or omits a material fact. A fact is material if it would reasonably be expected to have a significant effect on the market price or value of the issuer’s securities.

Secondary market

Directors can be potentially liable for any misrepresentation in a document, subject to the availability of a defence. They are, however, liable for a misrepresentation in a public oral statement or the failure to make timely disclosures if they “authorized, permitted or acquiesced in” the disclosure violation.

Can liability be limited in any way?

A director will not be liable for a misrepresentation (including a misstatement or omission) in a prospectus if he or she can discharge the due diligence defence. The defence is discharged if he or she can prove that he or she conducted a reasonable investigation to provide evidence that there was no misrepresentation. The legislation requires the court to consider “all relevant circumstances”, including a list of specified factors.

Secondary liability

In what circumstances and to what extent can secondary actors (eg, attorneys, auditors and underwriters) be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?

The secondary market civil liability provisions of the Ontario Securities Act (RSO 1990, c S5) include, among the class of potential defendants for misrepresentations contained in disclosure documents, experts whose report, statement or opinion is included in, or summarised or quoted from, a disclosure document if the expert consented in writing to the use of the report, statement or opinion in the document.

Can liability be limited in any way?

Expert defence

The Securities Act provides a defence from liability (commonly referred to as the ‘expert defence’) to an issuer and others involved with the publication of the continuous disclosure document with respect to any part of that document that includes such information provided by an expert where the issuer or other did not know and had no reasonable grounds to believe that there had been a misrepresentation in that part of the document.

Eligible claimants

Who may file securities claims? Are there any restrictions on foreign claimants? Who are the most common claimants (eg, pension funds, institutional investors)?

Subject to jurisdiction issues, there are no restrictions on foreign claimants. The most common claimants tend to be individual investors; however, institutional investors have also initiated some significant securities claims.

Pleading and evidentiary standards

What pleading and evidentiary standards apply to securities claims, including with regard to:

(a) Proof of reliance on the relevant misrepresentation, omission or other fraudulent conduct?

In Ontario, reliance is not a requisite element of the statutory right to make claims for misrepresentations under the Securities Act. Courts in Ontario have considered civil claims for negligence misrepresentation. In Carom v Bre-X Minerals Ltd ((1998), 41 OR (3d) 780) the court rejected the US fraud-on-the-market theory that would have vitiated the reliance requirement on the representation.

(b) Proof of loss causation?

Loss causation is presumed by reason only of a difference in share price during the relevant period, unless the defendant can prove otherwise. The defendant is not liable for all or any portion of such damages that the defendant proves does not represent the depreciation in value of the security as a result of the misrepresentation relied upon.

(c) Materiality requirements?

Misrepresentation requires a material fact. The revised definition of ‘material facts’ in Section 1(1) of the Securities Act continues to impose a market price or value test: ‘material fact’, where used in relation to securities issued or proposed to be issued, means a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of such securities.

In Re YBM Magnex International Inc 2003, 26 OSCB 5285, the Ontario Securities Commission concluded that the test for materiality in the Securities Act is objective and is one of market impact. An investor wants to know facts that would reasonably be expected to affect the market price or value of the securities significantly. The investor is an economic being and materiality must be viewed from the perspective of the trading markets – that is, the buying, selling or holding of securities.

(d) Scienter requirements?

Canadian misrepresentation claims, whether statutory or at common law, do not have the scienter requirement that exists in Rule 10b-5 actions in the United States.

(e) Any other requirements, standards or considerations?



What pre-trial disclosure/discovery mechanisms are available to support claims, if any?

In Ontario there is a discovery process governed by the Ontario Rules of Civil Procedure. All parties must list and produce documents in their possession, power or control, and list them in a Schedule A. Any documents over which a party claims privilege must be listed in a Schedule B. Any documents that were formerly in their power, possession or control, but are no longer, must be listed in a Schedule C. 

The parties may then conduct examinations for discovery of a representative of each party for no more than seven hours. If the parties wish to examine more than one party or examine a party for more than seven hours, it must seek leave from the court.

What rules and standards govern non-disclosure of documents on the grounds of professional privilege or other confidentiality considerations?

The parties must list all documents that they are claiming privilege over (on the basis of solicitor-client, litigation or common interest) in a Schedule B. The party must list a sufficient description so that the other side can determine the author, recipient, date and type of document.

Interim relief

What interim measures are available to claimants in securities cases?

There are no interim measures that are particular to securities cases; however, in each Canadian province interim extraordinary remedies are available, such as Mareva injunctions, interim and interlocutory injunctions and other extraordinary relief.

Statute of limitations

What is the statute of limitations for filing claims?

The statute of limitations is two years for common law civil claims. 

In respect of actions for misrepresentation in a prospectus made under the Securities Act, the claimant must make a claim within 180 days of the plaintiff first having knowledge of the facts giving rise to the cause of action or three years after the date of the transaction that gives rise to the cause of action.

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