On Friday, the Supreme Court of Canada released its decision1 in a trilogy of cases concerning the interaction between the Ontario Securities Act (“OSA”)2 and the Class Proceedings Act, 1992 (“CPA”)3. The decision provides helpful insight into the balance struck between parties in securities class actions and reaffirms the applicable standard to obtain leave under the OSA in order to commence a statutory secondary market misrepresentation claim under the OSA.
In each of Imax v. Silver, Celestica v. Millwright Regional Council of Ontario Pension Trust Fund, and CIBC v. Green, the plaintiffs pled both common law negligent misrepresentation claims and claims for secondary market misrepresentation under s. 138.3 of OSA. Section 138.8 of OSA requires a plaintiff to obtain leave of the court before commencing a statutory claim under s. 138.3 of OSA. The Ontario Court of Appeal’s (“ONCA”) decision in Sharma v. Timminco Ltd.4 held s. 28 of CPA did not operate to suspend the limitation period until leave was obtained under s. 138.8. This “thunderbolt” of a decision came while each of IMAX, Celestica, and CIBC were before the Ontario Superior Court of Justice. In each case the limitation period had expired before leave had been obtained, although the motion for leave had been filed in IMAX and CIBC within the limitation period. All three cases applied Timminco, but in IMAX Rensburg J. applied the common law doctrine of nunc pro tunc to backdate her decision within the limitation period. The nunc pro tunc doctrine was also applied in Celestica in conjunction with the doctrine of special circumstances. In CIBC, Strathy J. would have also applied nunc pro tunc in the circumstances, but found that he did not have the discretion to do so.
Sitting as a panel of five, the ONCA reversed Timminco and granted the appeals in CIBC, IMAX, and Celestica, holding s. 28 of CPA operated to suspend the limitation period once the statutory cause of action and intention to seek leave under s. 138.8 had been pled. Following the ONCA decision, the Ontario legislature acted to remove the ambiguity in the legislation by adding s. 138.14(2) to OSA, specifying that the limitation period is suspended from the date of the filing of a notice of motion for leave under s. 138.8.
The issues for the SCC
The court was tasked with addressing four issues raised by the parties on appeal (the last two having been raised by the CIBC defendants only):
- Does s. 28 of CPA operate to suspend the limitation period applicable to a statutory claim under s. 138.3 of OSA at the time when an intention to seek leave under s. 138.8 is pleaded in a proposed class proceeding?
- If not, could the plaintiffs obtain relief by way of an order granting leave nunc pro tunc or the doctrine of special circumstances?
- Was the threshold test for leave under s. 138.8 of OSA properly interpreted and applied?
- Can a class proceeding based on a common law cause of action be the preferable procedure for resolving a secondary market misrepresentation claim?
The court was divided on the first two of these issues, with Cromwell J. acting as the deciding vote between the reasons of Côté J., writing for McLachlin C.J. and Rothstein J., and Karakatsanis J., writing for Moldaver and Gascon JJ. On the third and fourth issues, however, the court was unanimous and wrote succinct reasons dismissing the CIBC defendants’ appeals on these issues.
On the issue of the applicable standard to obtain leave under s. 138.8 of OSA, the court held that this question had been answered by the its recent decision in Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18 (for a case comment on that case, see the DLA Piper (Canada) LLP Bulletin dated May 5, 2015, available here). The court noted that although the legislation in question in that case was the Quebec Securities Act5 there was “no difference” between the leave provisions under the two acts and applied the Theratechnologies low threshold test of “a reasonable or realistic chance that the action will succeed”6, where claimants must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim”7.
On the preferability issue, the defendants argued that the common law cause of action advanced by the plaintiffs failed the CPA s. 5(1)(d) preferability analysis because the common law cause of action is not preferable to the OSA statutory cause of action. In dismissing this ground of appeal, the court explained that this argument confused the preferability analysis of s. 5(1)(d) which looks at whether the proceeding is the preferable procedure and not whether a substantive cause of action is preferable over another. Further, the court noted the clear language of s. 138.13 of OSA which states that the statutory right of action is “in addition to, and without derogation from, any other rights”.8
The limitation period issue
Section 28 of CPA operates to suspend the limitation period for “a cause of action asserted in a class proceeding” in favour of the members of a class “on the commencement of the class proceeding”. Karakatsanis J. agreed with the ONCA that, properly interpreted, an action under s. 138.3 was “asserted” when the plaintiffs fully pled the cause of action, since “leave under s. 138.8 of OSA is not a constituent element of the statutory cause of action set out in s. 138.3.”9
However, it was the reasons of Côté J., supported by the concurring reasons of Cromwell J. that carried the day on this issue. Côté J. referred to the principle, stated repeatedly by the SCC in past cases, that “a class action provision cannot operate to create or modify substantive legal rights”10 and held that the interpretation of the ONCA and Karakatsanis J. did so by allowing plaintiffs in class proceedings an extension of the limitation period that they would not otherwise receive as individual plaintiffs.
The majority considered the legislative context of both s. 28 of CPA and Part XXIII.1 of OSA, noting in particular the “carefully calibrated statutory head of liability for secondary market misrepresentation” enacted to “balance the interests of plaintiffs, defendants and long-term shareholders”.11 This balance was ensured in part by the leave requirement, added to screen out unmeritorious claims as early as possible.12 The majority held that this context, combined with the ordinary meaning of the words in s. 28 of CPA, led to the conclusion that s. 28 only operates to suspend the limitation period for statutory secondary market misrepresentation once leave has been granted under s. 138.8.
As a result, all three of the actions were found to have been “asserted” outside the limitation period, leaving the nunc pro tunc and special circumstances doctrine as the plaintiffs’ only chance of success.
It should be reiterated here that the court’s reasons with respect to the limitation period, while necessary to resolve the issues for the plaintiffs in this trilogy of cases, have been rendered somewhat academic by the Ontario legislature’s passage of s. 138.14(2) of OSA which suspends the limitation period from the date an application for leave under s. 138.8 is filed.
The nunc pro tunc and the special circumstances doctrine issue
Only Côté J. and Cromwell J. addressed the nunc pro tunc and special circumstances issue. They agreed on their definitions, but not on their application to the trilogy. They explained that nunc pro tunc simply means “a court has the power to backdate its orders.”13 It is derived from the maxim actus curiae neminem gravabit (an act of the court shall prejudice no one), and its discretionary application by the courts has been based on an assessment of several non-exhaustive factors identified in the case law, with the caveat that a court should not apply the doctrine where doing so would undermine the purpose of the legislation at issue.14 The special circumstances doctrine was explained as only applying to allow a plaintiff to add a cause of action or party to a claim, making it wholly inapplicable to the cases at bar.15
Essentially Côté J. and Cromwell J. were divided on a review of the motions judges’ exercise of their discretion to apply nunc pro tunc. Côté would only have applied it in part in IMAX and not at all in CIBC. Cromwell J. would not have disturbed the application of nunc pro tunc by the motions judges in either CIBC or IMAX (this, combined with the minority’s dismissal of the appeals under the s. 28 issue disposed of these appeals). Both Côté J. and Cromwell J. agreed, however, that Celestica could not be saved through the application of nunc pro tunc, as the motion for leave was filed after the running of the limitation period in that case.
The Supreme Court of Canada’s decision has provided helpful guidance in the area of securities class actions by addressing the legislative balance struck between interested parties. The court’s affirmation of the Theratechnologies
standard for leave solidifies our understanding of the applicable threshold test that must be met to commence a statutory action for secondary market misrepresentation. The court’s analysis of nunc pro tunc
and the special circumstances doctrine is also instructive, although unlikely to be widely applicable. Further, although highly relevant to the trilogy, as mentioned, the specific analysis of the CPA
s. 28 and OSA
s. 138.8 interaction has been overtaken by amendments to OSA
. Finally, it should be noted that the court was simply addressing an initial procedural matter applicable to the cases in the trilogy. The statutory secondary market misrepresentation claims have yet to be tried on the merits.
1 Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60.
2 Securities Act, R.S.O. 1990, c. S.5.
3 Class Proceedings Act, 1992, S.O. 1992, c. 6.
4 Sharma v. Timminco Ltd., 2012 ONCA 107
5 Securities Act, CQLR, c. V-1.1
6 Theratechnologies at para. 38.
7 Ibid at para. 39.
8 At para. 128, citing OSA s. 138.13.
9 At para. 161.
10 At para. 62, citing Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9; St. Lawrence Cement Inc. v. Barrette, 2008 SCC 64; Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34.
11 At paras. 63 and 79.
12 At para. 68.
13 At para. 85.
14 At paras. 86 and 89-93.
15 At para. 113.