Ontario Court of Appeal Rules on Limitation Periods for Securities Class Actions

On February 3, 2014, the Ontario Court of Appeal released Green v. CIBC, which overruled the Court’s previous decision in Sharma v. Timminco Ltd. As determined in Green v. CIBC, a statutory misrepresentation claim is brought within time so long as the action is commenced within the time limits prescribed by the securities legislation.

Prior to Green v. CIBC, the time limit to bring a statutory misrepresentation claim was governed by Sharma v. Timminco Ltd. In Timminco, the plaintiff commenced a proposed class action against the defendant, alleging that the defendant’s misrepresentations adversely affected shares in the secondary market.

In the Timminco statement of claim, the plaintiff indicated that it would seek an Order granting leave to assert the statutory cause of action for misrepresentation. Specifically, Ontario’s Securities Act required the plaintiff to seek leave of the Court before commencing an action based in statutory misrepresentation.

However, the Securities Act also required the plaintiff to commence its action for statutory misrepresentation within three years from the date of the misrepresentation. Prior to the expiration of the three years, the plaintiff had yet to obtain leave and moved for an Order declaring the limitation period was suspended.

Ultimately, the Court of Appeal dismissed the plaintiff’s motion. In so doing, the Court of Appeal in Timminco held that the three-year limitation period would only be met when leave to bring the statutory cause of action was granted by the Court.

Timminco thus required securities class action plaintiffs to apply for leave, obtain leave, and commence a statutory misrepresentation claim within three years from the date of the misrepresentation. Such a timeline was often unworkable, particularly in light of the fact that a misrepresentation may not be discovered for years and the delays which can occur in the commencement of, and leave motions for, securities class actions.

Ontario judges struggled with the Court’s decision in Timminco. Conflicting case law emerged on whether the limitation period could be extended, or whether leave could be granted retroactively to circumvent the harsh effect of Timminco.

A special five-member panel of the Ontario Court of Appeal considered these issues in Green v. CIBC. As a result of Green v. CIBC, Courts no longer need to resort to such measures. So long as the representative plaintiff in a class action brings its action within the limitation period prescribed by the Securities Act and pleads an intention to seek leave to commence an action under the Act, the action will not be statute-barred.

In addition to overruling Timminco, Green v. CIBC further clarified that the threshold a plaintiff must meet to obtain leave of the Court is a relatively low threshold. To obtain leave, the plaintiff must show that its claim has a “reasonable” prospect of success, as opposed to a “mere” possibility of success.

Without a doubt, the Court’s landmark decision in Green v. CIBC will be utilized by plaintiffs’ counsel to preserve a representative plaintiff’s secondary market misrepresentation claim. However, defence counsel should also take note – while Green v. CIBC may be considered a major win for plaintiffs, the Court also expressly rejected the “fraud on the market” or “efficient market” theories. As a result, plaintiffs who wish to pursue a common law negligent misrepresentation claim must still prove individual reliance.

As the securities acts in most provinces contain similar provisions, there is a strong likelihood that Green v. CIBC will be followed in other provinces.