The Ontario Court of Appeal recently released its decision in Sharma v Timminco Limited.1 Sharma confirms the limitation period to bring a claim under the Ontario Securities Act2 for misrepresentations alleged to affect the value of secondary market securities will not be suspended merely because the action takes the form of a proposed class proceeding. All plaintiffs wanting to assert such causes of action must obtain leave to do so within three years of the date of the alleged misrepresentation or they will be barred from bringing their claim.

The key statutory provisions at issue in Sharma are as follows:

  • Section 138.3 of the OSA, which provides a statutory, civil cause of action against an issuer and those acting on its behalf for persons who acquire or dispose of the issuer's securities in the secondary market where misrepresentations have been made that adversely affect the value of those securities;
  • Section 138.8(1) of the OSA, which states that an action under section 138.3 can only be commenced with leave of the court;
  • Section 138.14 of the OSA, which provides that such an action must be commenced within three years of the alleged misrepresentation; and
  • Section 28(1) of the Class Proceedings Act3, which provides that if a cause of action is "asserted" in a class proceeding, the limitation period applicable to that cause of action will be suspended in favour of a class member on the commencement of the class proceeding.

The plaintiff in Sharma brought a putative class proceeding alleging that certain entities and individuals made misrepresentations that adversely affected the value of shares of Timminco Limited in the secondary market. These representations were alleged to have been made between March 17 and November 11, 2008. The plaintiff issued his claim on May 14, 2009, asserting the common law causes of action negligence and negligent misrepresentation. The statement of claim also indicated that the plaintiff intended to assert the statutory cause of action found under section 138.3 of the OSA but had not yet obtained leave to do so.  

By the end of February 2011, the plaintiff had not sought leave and so was faced with a possible limitation issue under section 138.14 of the OSA.  

The question on appeal was this: will section 28 of the CPA be engaged (and will the limitation period applicable to section 138.3 of the OSA be suspended) where a plaintiff "mentions" in a pleading that he has an intention to seek leave to bring a secondary market class action pursuant to the OSA but has not yet done so?  

Overturning the motion judge's decision, the Court of Appeal found that the answer to this question is "no." In such a case the limitation period under the OSA will not be suspended.

The unanimous 3-member panel based their decision, in part, on the principles of statutory interpretation. On a plain reading of the provisions at issue the Court found that merely mentioning that a plaintiff intends to bring a cause of action is not the same as actually asserting that cause of action. To actually "assert" a cause of action based on this provision of the OSA, and engage section 28 of the CPA, a plaintiff must first obtain leave under the OSA.  

The Court noted that to find otherwise would, without principled justification, put a class plaintiff in a better position than an individual plaintiff by allowing the class plaintiff to delay seeking leave. Permitting such a suspension would also disregard the legislature's intention, as found under section 138.14, to have civil secondary market disclosure actions resolved with all due dispatch.

Sharma is likely the most important decision to date on secondary market class proceedings. Following Sharma, it is clear that plaintiffs bringing secondary market class proceedings cannot take advantage of the suspension provisions of the CPA unless they have obtained leave to bring an action under section 138.3. For defendants in secondary market class actions Sharma offers some certainty: all plaintiffs asserting this statutory cause of action must obtain a decision on leave within three years of the date of the impugned representation.