A wealth of information about securities class actions in Canada and the U.S. is available thanks to the excellent efforts of NERA Economic Consulting ("NERA"). On February 10, 2015, NERA published Trends in Canadian Securities Class Actions: 2014 Update (the "Canada Report"). A few weeks prior, on January 20, 2015, NERA published Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review (the "U.S. Report").
In the Canada Report, NERA found that the number of outstanding Canadian securities class action cases has grown, as new filings outpace settlements. According to NERA, the docket now sits at 60 unresolved securities class actions representing more than $35 billion in total claims.
Meanwhile, south of the border, the U.S. Report found that average settlement amounts have plummeted 38% to 61% as compared to last year; measured by median amount, NERA notes that these settlement numbers are the lowest in 10 years.
Canada Report: Summary of NERA's Findings
Litigation Risk – Consistent with the average number of new cases over the past five years, 11 new securities class actions were filed in 2014. Of these, seven involved issuers listed on the Toronto Stock Exchange ("TSX"), three involved issuers listed on the TSX Venture Exchange ("TSX-V"), and one involved a non-publicly listed company. From 2009 to 2014, a total of 46 class actions were filed against TSX-listed companies and nine against TSX-V listed companies, representing an annual litigation risk of approximately 0.5% and 0.7%, respectively, as determined by NERA with reference to the number of listed companies during this period.
Nature of Cases – Similar to 2012 and 2013, each of the 11 new cases filed in 2014 was a shareholder class action. With the exception of one, all of the newly filed securities class actions involved claims under the secondary market civil liability provisions of provincial securities acts. Four of the 11 new cases involved parallel class actions in the U.S., corresponding to the trend that approximately half of all U.S. filings against Canadian companies since 2006 were linked to a parallel claim in Canada.
Industry Sectors – Mining and oil and gas sectors continued to account for a substantial share of new filings, with seven of the 11 new filings in 2014 implicating companies in the energy and minerals sectors. Cases involving companies in the financial sector (excluding claims against companies who provided financial services to reporting issuers) have declined in the last five years.
Settlements – Six Canadian securities class actions were settled in 2014, matching the number of settlements in 2013 and doubling the number of settlements in 2012. Defendants in these cases agreed to pay a total of approximately $38.4 million, averaging out to $6.4 million per settlement. In these cases, the settlement amount was on average 13.8% of claimed compensatory damages, however, NERA notes that these numbers may not accurately reflect the plaintiffs' recovery of actual compensable losses, as estimates of aggregate damages may ultimately differ significantly from the initial claimed amount.
U.S. Report: Summary of NERA's Findings
Generally speaking, due to a much larger sample size and the availability of data, the U.S. Report employed a more sophisticated statistical analysis as compared to the Canada Report. For the purposes of this post, some of NERA's key findings in the U.S. Report are summarized with observations about comparisons that could be drawn between the two jurisdictions.
Litigation Risk – Consistent with the average number of new cases over the past six years, 221 securities class actions were filed in federal courts in 2014. With listing data from the three major stock exchanges in the U.S., NERA calculated that the average probability of a company being targeted by a securities class action was 4.2% in 2014.
Industry Sectors – In 2014, three sectors taken together continued to account for more than half of primary defendants: health technology and services (24%); finance (19%); and electronic technology and services (13%). In addition to being implicated as primary defendants, companies in the financial sector were also targeted as co-defendants. In 2014, 32% of the securities class actions filed had a defendant in the financial sector, although this is a reversal of a trend where, between 2007 and 2013, filings involving a financial sector defendant steadily declined from 67% to 23%. Furthermore, although 30% of the filings in 2014 had accounting allegations, only two named accounting firms as co-defendants (0.9%, as compared to 10.6% in 2006).
Settlements – Excluding settlements above $1 billion, average settlements amounted to $34 million, representing a drop of 38% from 2013. Including settlements above $1 billion, average settlements amounted to $86 million, representing a 61% from 2013. The median settlement amount in 2014 was $6.5 million, the lowest amount in ten years, as more than half of the settlements were less than $10 million. Adjusted for inflation, the 2014 median was the third lowest since 1996.
Comparing the Two Jurisdictions
Although the sample size in Canada makes meaningful comparisons difficult, one could observe based on NERA's findings that:
- Not surprisingly given Canada's economic base, claims against mining and resource companies make up a greater portion of securities class actions. Claims against financial companies remain less prevalent, although it remains to be seen whether claims against underwriters will increase in the future.
- Average settlement size tends to be larger in the U.S. – this may reflect the size of the claims or other factors, such as litigation exposure given the different legal regimes in the two jurisdictions.
- While the number of outstanding cases has grown, the number of new filings appears to be relatively stable in Canada. This suggests that the carrying capacity of plaintiff-side counsel is increasing.
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