On February 3, 2014, the Ontario Court of Appeal released its decision in a trilogy of cases concerning the effect of a plaintiff failing to obtain leave to commence an action for secondary market liability under Part XXIII.1 of the Ontario Securities Act within the three-year period prescribed by section 138.8 of the Securities Act. In Green v Canadian Imperial Bank of Commerce, Silver v IMAX Corporation and Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v Celestica Inc. (together, Green),1 Feldman J.A., writing for a unanimous five-judge court, found that where a representative plaintiff in a class action had issued a claim within the three-year limitation period of section 138.14 of the Securities Act that pleads:
- a cause of action for misrepresentation pursuant to section 138.3 of the Securities Act;
- facts founding that claim; and
- the intent to seek leave to commence an action under the Securities Act,
then the limitation period under section 138.8 is suspended for all class members by operation of section 28 of the Class Proceedings Act(CPA).
Until now, the binding authority on this issue was the Court of Appeal’s own 2012 decision in Sharma v Timminco.2 In Sharma, the Court of Appeal held that a statutory claim under Part XXIII.1 is barred if leave of the court to commence the action is not obtained within three years of the time the misrepresentation is made. The Timminco court also held that CPA section 28 does not suspend the running of the limitation period in favour of class members unless leave to commence the statutory claim has been obtained from the court pursuant to subsection 138.8(1) of the Securities Act.
The Court of Appeal in Green held that the Timminco court erred in interpreting the CPA and that section 28 of the CPA suspends any limitation period “applicable to a cause of action asserted in a class proceeding on the commencement of the class proceeding.” According to Timminco, in the context of a secondary market liability claim under Part XXIII.1 of the Securities Act, the words “cause of action asserted in a class proceeding” mean that leave of the court must be obtained.
The court in Green rejected this interpretation, finding instead that the meaning of “assert” in section 28 of the CPA includes simply pleading the statutory claim under section 138.3 of the Securities Act, because a plaintiff that does so is “making the claim” or “invoking the legal right,” both of which are among the meanings of the word “assert.” To the extent there is ambiguity in the word’s meaning, the Court of Appeal held that it should be resolved in favour of those whose rights are being truncated, namely the plaintiffs who are subject to the limitation period.
The Court of Appeal then considered whether it was appropriate to overrule Timminco. Applying the test fromDavid Polowin Real Estate Ltd. v Dominion of Canada General Insurance Co.,3 Feldman J.A. noted that the decision to overrule a previous decision “must weigh the advantages and disadvantages of correcting the error in a previous decision,” focusing on the nature of the error, and the effect and future impact of either correcting it or maintaining it. The Court of Appeal held that Timminco should be overruled for four reasons:
- Under Timminco the securities class action procedure is not viable. Since the limitation period is dependent on the time the misrepresentation occurred, the longer it takes to discover the misrepresentation, the shorter the period available for the representative plaintiff to obtain leave and commence the action. In addition, that period may be effectively cut even shorter by procedural delays and court availability. Under Timminco, unless the representative plaintiff commences the action effectively by obtaining leave within the limitation period, time does not cease to run for the other class members. Those class members would therefore have to commence their own actions with leave in order to ensure their claims do not fall outside the limitation period. Such an outcome is contrary to the goals of section 28 of the CPA, namely promoting access to justice and the deterrence of corporate misconduct;
- Timminco undercuts plaintiffs’ ability to control compliance with the limitation period, which in turn undercuts the viability of a section 138.3 action and the effectiveness of the class action procedure;
- Ontario and other provinces responded to Timminco by tabling legislation that would suspend the operation of the secondary market civil liability limitation period while leave to proceed is being sought. This response indicates that Timminco interpreted the legislation in an unintended way; and
- Timminco is very recent. It would be less confusing to correct Timminco now, before it takes root.
In light of this, the Court of Appeal held that none of the three actions under appeal were statute-barred.
The Court of Appeal also made two additional significant holdings:
The test for granting leave under Part XXIII.1 of the Securities Act, which asks if the action has a “reasonable possibility” of being resolved in the plaintiff’s favour at trial, represents a relatively low threshold. The test is designed only to weed out hopeless claims and ensure those with some chance of success go to trial.
While reliance is a fact-based individual inquiry that cannot be replaced by the “fraud on the market” theory in order to certify it as a common issue in a common law negligent misrepresentation class action, certification of issues other than reliance that are common to such claims is acceptable to advance the litigation.
Implications of the decision
The Court of Appeal’s decision in Green has important implications for securities class actions:
- Plaintiffs are no longer required to move as expeditiously to obtain leave as they were under Timminco, which may lead to more secondary market class actions commenced and certified.
- Green further affirms the relatively low threshold lower courts have applied to the test for leave under Part XXIII.1 secondary market liability.
- Finally, Green may signal a more liberal approach to certification of common law negligent misrepresentation claims when brought in conjunction with Part XXIII.1 claims.
Given the broad importance of the issues raised by Green, it is likely some of the parties will seek leave to appeal to the Supreme Court of Canada.