SCC Releases Decision in Securities Class Action Trilogy

On December 4, 2015, the Supreme Court of Canada issued its highly anticipated decision in CIBC v. Green (“CIBC”), IMAX v. Silver (“IMAX”) and Celestica v. Trustees of the Millwright Regional Council of Ontario Pension Trust Fund et al. (“Celestica”).

This trilogy addresses important issues for those involved in securities class actions, including the application of the 3-year limitation period under the Ontario Securities Act (“OSA”), the threshold test for leave to proceed under the OSA, and the certification of common law misrepresentation claims.

Limitation Period under the OSA and Nunc Pro Tunc Orders
A significant portion of the Supreme Court’s decision was spent addressing how the limitation period under section 138.14 of the OSA ought to be applied. However, in July 2014, the OSA was amended such that filing a notice of motion for leave under section 138.8 is sufficient to “stop the clock” on the limitation period.

Despite these amendments, a majority of the Supreme Court confirmed that the 3-year limitation period in s. 138.14 of the OSA can only be suspended by s. 28 of the Class Proceedings Act (“CPA”) when an action is commenced, i.e. when leave is granted under s. 138.8 the OSA. Pleading a factual matrix and an intention to seek leave will not suffice to suspend the limitation period. This conclusion is consistent with the result in Sharma v. Timminco Limited (“Timminco”) where it was held that class actions for secondary market misrepresentation under the OSA were barred unless the plaintiffs were granted leave to proceed within three years of the misrepresentation.

The majority further held that the Court has jurisdiction to grant an order for leave nunc pro tunc where leave is sought prior to the expiry of the limitation period. The jurisdiction to make an order nunc pro tunc means that a court has the power to backdate its orders. The majority also considered the doctrine of special circumstances, concluding that it did not assist the plaintiffs in any of the three cases.

In CIBC and IMAX, Cromwell J.’s reasons were determinative of the appeals as he found no basis to interfere with the lower courts’ decision to exercise the nunc pro tunc discretion in the plaintiffs’ favour. Accordingly, the appeals in CIBC and IMAX were dismissed. In Celestica, the majority denied the nunc pro tunc order on the basis that a motion for leave was not filed before the expiry of the limitation period. Thus, a nunc pro tunc order could not remedy that expiry and the Celestica appeal was allowed.

Test for Leave to Proceed
With respect to the threshold for leave under s. 138.8 of the OSA, the Supreme Court unanimously held that the threshold that must be met by a plaintiff applying for leave is that there must be a reasonable or realistic chance that the action will succeed. In this regard, the Supreme Court confirmed that the threshold test under s. 225.4 of the Quebec Securities Act articulated in Theratechnologies inc. v. 121851 Canada inc. (“Theratechnologies”) applies in the context of s. 138.8 of the OSA.

Common Law Negligent Misrepresentation Claims
In CIBC, the Supreme Court further concluded, unanimously, that the Court of Appeal did not err in holding that five of the seven common issues proposed by the plaintiffs relating to the common law misrepresentation claim should be certified. The proposed common issues relating to reliance and damages were not certified by the motions judge and neither the Court of Appeal nor the Supreme Court disturbed this finding.

Due to the OSA amendments (mirrored in section 211.095(2) of the Alberta Securities Act), the decision of the Supreme Court on the limitations issue is rendered somewhat academic. However, the Supreme Court’s decision demonstrates the highly discretionary nature of the nunc pro tunc remedy. In light of the result in CIBC, it appears that the nunc pro tunc doctrine could extend to cases where plaintiffs do “absolutely nothing” to prevent the expiry of the limitation period.

Following the decision in Theratechnologies, the threshold for leave to proceed under the OSA appears to be settled law in light of the Supreme Court’s unanimous decision on the issue.

Unfortunately, the Supreme Court did not provide much insight into the certification of common law negligent misrepresentation claims in securities class actions, other than to uphold the Court of Appeal’s decision to certify five of the seven proposed issues. Although the Supreme Court upheld the Court of Appeal’s decision not to certify claims relating to reliance and damages, plaintiffs will inevitably continue to advance common law and statutory misrepresentation claims in securities class actions. Despite disagreement on the viability of such claims, litigants ought to be aware that certain issues relating to common law misrepresentation claims may be certified should the action proceed to that stage.