In Green v. CIBC, released on February 3, 2014, a specially convened five-judge panel of the Court of Appeal for Ontario addressed important issues for securities class actions across Canada.
The Court held that its prior decision in Sharma v. Timminco was incorrect, and effectively extended the limitation period for statutory securities misrepresentation claims asserted in class actions. The Court also considered the certifiability of common law misrepresentation claims, and the merits test for obtaining leave to bring a claim under Part XXIII.1 of the Ontario Securities Act.
Limitation Period under the Securities Act
Part XXIII.1 of the Securities Act establishes a statutory cause of action for misrepresentations affecting the price of securities on the secondary market.
In its 2012 decision in Timminco, the Court of Appeal held that the limitation period under Part XXIII.1 requires a plaintiff to obtain leave to proceed within three years of the date that the alleged misrepresentation was made – otherwise, the claim would be statute-barred.1 The Supreme Court of Canada refused leave to appeal from that decision.2
In Green v. CIBC, the Court of Appeal set aside the interpretation that it applied in Timminco. The Court instead held that the limitation period for class action claims will be suspended once a plaintiff: (i) pleads a cause of action based on section 138.3 of the Securities Act; and (ii) pleads the intent to seek leave.
The Court also noted that, to the extent that there are concerns about plaintiffs bringing motions for leave in a timely fashion, those concerns can be resolved by the parties and class action judges, presumably through case management.
Certification of Common Law Misrepresentation Claims
The Court of Appeal also considered important issues about common law claims, in an appeal from the lower court decision of Justice Strathy (who has since been elevated to the Court of Appeal) in Green v. CIBC.3 Common law claims can be significant because, unlike statutory securities misrepresentation claims, they have no prescribed caps on damages.
The Court of Appeal affirmed Justice Strathy’s holding that neither the ‘fraud on the market doctrine’ nor the ‘efficient market theory’ can supplant the need to prove individual reliance in common law misrepresentation claims. The Court therefore confirmed that the issue of reliance could not be certified as a common issue.
The Court held that it may be appropriate in certain circumstances to certify other common issues relating to common law misrepresentation claims alongside Part XXIII.1 claims if a class proceeding could significantly advance those common issues.
However, it remains unclear how individual issues of reliance could ever be efficiently or effectively resolved for large numbers of class members, even if common questions were successfully proved.
The Test for Leave under Part XXIII.1
The Court of Appeal also considered the test for leave to proceed with a statutory claim under section 138.8 of theSecurities Act. The Court affirmed Justice Strathy’s approach in CIBC. Justice Strathy had held that some claims met the threshold for leave, while others did not. The Court confirmed that the test for leave is higher than a “mere” possibility of success: it requires a “reasonable” possibility of success.
The Court stated that the test for leave would be the same as the certification test for determining whether a claim discloses a cause of action – although a key difference is that the test for leave is determined not on the facts as pleaded, but on the evidentiary record(s) filed by the parties on the leave motion.
This decision, like other recent decisions of the Supreme Court of Canada and the Court of Appeal for Ontario, focuses on the goal of providing access to justice for plaintiffs, and arguably less on fairness to issuers and other affected parties.
There are, however, positive aspects of the decision for defendants. By affirming Justice Strathy’s approach on the test for leave under Part XXIII.1, the Court of Appeal confirmed that the leave stage can be used to narrow or eliminate unmeritorious claims at an early stage of the proceeding. It is also significant that the Court confirmed, for common law misrepresentation claims, that the efficient market theory cannot supplant the need to prove individual reliance.