On July 17, 2013, the Quebec Court of Appeal upheld a Quebec Superior Court judgment authorizing a shareholder of TSX-listed Theratechnologies Inc. to institute an action for damages by way of a class action under Section 225.4 of the Securities Act.1 It was the Court of Appeal’s first ruling on Quebec’s secondary market liability regime since the regime was adopted in 2007.
In 2010, a shareholder of Theratechnologies Inc. filed a motion for authorization to institute, by way of a class action, an action for damages against Theratechnologies Inc. based on the secondary market liability provisions of the Quebec Securities Act. The shareholder claimed, among other things, that Theratechnologies Inc. had failed to disclose a material change as a reporting issuer and the failure had resulted in damage.
In 2012, the Superior Court granted the motion. It held that the test for authorization to institute a class action was different from the test for authorization to bring an action under the secondary market liability provisions of the Securities Act. It found that, in this particular case, both tests were met, and thus authorized the action against Theratechnologies Inc.2
Court of Appeal’s decision3
Theratechnologies Inc. appealed the decision. However, the shareholder contested the appeal on the grounds that under the Code of Civil Procedure, no appeal lies from a judgment allowing a motion for authorization to institute a class action. The Court of Appeal pointed out that while a judgment authorizing the institution of a class action cannot be appealed, a judgment authorizing an action under the secondary market liability regime could be.
The Court of Appeal also confirmed the Superior Court’s decision to authorize the recourse against Theratechnologies Inc. Drawing on case law from other Canadian provinces with similar regimes, the Court of Appeal held that the requirement to obtain authorization before instituting a class action under Section 225.4 of the Securities Act was merely a filtering mechanism.
The Court of Appeal stated that the “reasonable possibility of success at trial” test set out in Section 225.4 of the Securities Act is more demanding than the colour of right test, but less demanding than the preponderance of evidence test. The court is therefore not bound to carry out a comprehensive, in-depth analysis of the evidence presented, including the proposed grounds of defence.
Applying these criteria, the Court of Appeal found that the shareholder had adequately discharged its burden of proof and that its action had a reasonable chance of success. A trial will therefore take place to determine Theratechnologies Inc.’s liability, if any.
This is an interesting decision on two fronts. It is the first Court of Appeal decision to deal with the secondary market liability regime set out in Quebec’s Securities Act. In addition, the Court of Appeal drew on case law from courts of other Canadian provinces and, therefore, the development in Quebec of the action provided for in Section 225.4 of the Securities Act is likely to be influenced by that case law.