Earlier today, the Supreme Court of Canada dismissed the plaintiff's application for leave to appeal from the decision of the Ontario Court of Appeal in Sharma v. Timminco Limited. In doing so, the Court reinforced the clear message delivered by the Court of Appeal in February of this year that plaintiffs in secondary market class actions are required to obtain leave to commence an action for misrepresentation under Part XXIII.1 of the Ontario Securities Act (the "OSA")within three years of the alleged misrepresentation.
Background
On May 14, 2009, Ravinder Kumar Sharma commenced a proposed class proceeding in which he alleged that misrepresentations by Timminco Limited ("Timminco") and certain individual defendants aversely affected the value of Timminco's shares in the secondary market. The misrepresentations detailed in the Statement of Claim (the "Claim") are alleged to have commenced on March 17, 2008 and continued until November 11, 2008.
The Claim stated the plaintiff's intention to seek an order granting leave to assert the statutory cause of action provided to secondary market investors by s. 138.3 of Part XXIII.1 of the OSA. Part XXIII.1 of the OSA imposes a limitation period of three years from the misrepresentation for the commencement of an action under this Part. It also provides that such an action can only be commenced with leave.
By early 2011, the plaintiff had not yet obtained the required leave. Faced with the prospect of missing the three year limitation period, he moved for an order declaring that the applicable limitation period in the OSA is suspended pursuant to s. 28 of the Class Proceedings Act, 1992 (the "CPA"). S. 28 of the CPA, in general terms, provides for the suspension of the limitation period applicable to a cause of action asserted in a class proceeding on commencement of the class proceeding. It also sets out the circumstances in which the applicable limitation period will resume running.
Superior Court of Justice
Justice Paul Perell of the Ontario Superior Court of Justice granted the plaintiff's motion and declared that the applicable three year limitation period in the OSA is suspended pursuant to s. 28 of the CPA, effective as of the date of the issuance of the Claim.
Even though the plaintiff had not yet sought or obtained the required leave to proceed with the Part XXIII.1 claim, Justice Perell held that s. 28 of the CPA only required that a cause of action be mentioned in an already commenced class proceeding in order for the applicable limitation period to be suspended.
Ontario Court of Appeal
On February 16, 2012, the Ontario Court of Appeal allowed the defendants' appeal from Justice Perell's order and dismissed the plaintiff's motion for an order declaring that the limitation period in the OSA had been suspended by the CPA.
The Court of Appeal concluded that in order for a s. 138.3 cause of action to be asserted in a class proceeding so as to trigger the suspension provision in s. 28 of the CPA, leave must be granted. In other words, the plaintiff's mention in the Claim that he intended to seek leave was not enough to activate s. 28 of the CPA. Since the plaintiff in Sharma v. Timminco Limited had not obtained leave, s. 28 had not been activated.
The Court of Appeal commented that the purpose of the three year limitation period in Part XXIII.1 of the OSA is served by its interpretation of s. 28 of the CPA. "Section 138.14", the Court reasoned, "was clearly designed to ensure that secondary market claims be proceeded with dispatch. That requires the necessary leave motion to be brought expeditiously. To suspend that limitation period with no guarantee that the s. 138.3 cause of action, including the prerequisite leave motion, will be proceeded with expeditiously is inconsistent with that purpose".
Practical Implications
Today's Supreme Court of Canada decision has important implications not only for the defendants in Sharma v. Timminco Limited but for other pending and future actions seeking leave to assert the statutory remedy for misrepresentation in the secondary market. The decision will provide certainty to defendants in numerous other outstanding securities class actions involving claims under Part XXIII.1 regarding the status of the claims against them.
Plaintiffs intending to seek leave to proceed with Part XXIII.1 claims will be required to move with dispatch so as to obtain leave prior to the expiry of the applicable three year limitation period. Alternatively, and now that the law on this issue has been clarified, plaintiffs will no doubt request tolling agreements with defendants and/or early hearing dates for their respective motions for leave.
Leave it to the Legislature
The Court's decision to deny leave to appeal in Sharma v. Timminco Limited has sent a clear message to the plaintiffs' class action bar that the concerns they have expressed about the Court of Appeal's interpretation of the Part XXIII.1 limitation period will have to be taken up with the legislature. It remains to be seen whether there is any appetite on the part of the government to consider an amendment to the OSA to address their concerns.
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