Canada: Supreme Court Of Canada Considers Limitation Period For Secondary Market Securities Class Actions

Overview

On December 4, 2015, the Supreme Court of Canada released its highly anticipated decision¹ in a trilogy of shareholder class actions under the secondary market liability provisions of the Ontario Securities Act² (the "OSA"). At issue was whether section 28 of the Class Proceedings Act, 1992³ (the "CPA") operates to suspend the limitation period applicable to a claim under section 138.3 of the OSA at the time when a plaintiff files a statement of claim or motion for leave under section 138.8 of the OSA, or whether the limitation period is suspended only once leave has in fact been granted.

A majority of the Supreme Court restored the Court of Appeal for Ontario's previous decision in Sharma v. Timminco⁴ ("Timminco") that a plaintiff must obtain leave from the court to proceed with the statutory claim within the three-year limitation period under section 138.14 of the OSA and that it was not sufficient to simply issue a statement of claim alleging that the defendants were liable under the OSA. The Court also considered the application of nunc pro tunc orders to retroactively permit otherwise time-barred actions to proceed. In doing so, the Court rejected a bright-line test for the application of limitation periods in secondary market class actions in favour of leaving motion judges with a residual discretion to permit otherwise time-barred claims to proceed.

Procedural Background

In IMAX Corp. et al. v. Silver and Cohen ("IMAX"), the Superior Court of Justice had already granted leave before the decision in Timminco was released. However, after the release of Timminco, the defendants applied for summary judgment to dismiss the proceeding as time-barred. Justice van Rensburg dismissed the motion and granted leave nunc pro tunc as the expiry of the limitation period occurred while the case was under reserve by the court.

In Celestica Inc. et al. v. Trustees of the Millwright Regional Council of Ontario Pension Trust Fund et al. ("Celestica"), the Ontario litigation was held in abeyance as a parallel proceeding made its way through the courts in the United States. The plaintiffs filed a notice of motion to seek leave after Timminco was released. The Superior Court of Justice applied the doctrine of special circumstances and refused to strike the claim as statute-barred. Justice Perell determined that leave could be granted nunc pro tunc if the plaintiffs satisfied the test for leave.

In Canadian Imperial Bank of Commerce et al. v. Green and Bell ("CIBC"), the Superior Court of Justice would have granted the application for certification under the CPA and leave to proceed under the OSA. However, on the penultimate day of the motion, the Court of Appeal released its decision in Timminco. Consequently, Justice Strathy dismissed the leave application and the statutory action as time-barred by the three-year limitation period.

On appeal, a five-member panel of the Court of Appeal determined that its previous decision in Timminco was incorrect and had unintended consequences as it deprived class members of an important benefit of the class action regime; that is, the suspension of the limitation period under section 28 of the CPA. In addition, the Court of Appeal held that it undercut the ability of investors to initiate class actions in compliance with the limitation period. The Court of Appeal therefore overruled Timminco and held that a plaintiff had three years from the date a misrepresentation was made to commence a secondary market misrepresentation claim (as opposed to three years to both commence a claim and obtain leave to pursue it).

Notably, after the Court of Appeal's decision in CIBC, the OSA was amended to provide that the three-year limitation period is suspended on the date a notice of motion for leave to commence the action is filed with the court.⁵ A similar provision is found in the securities acts of Alberta, Manitoba, and New Brunswick.⁶ However, the Supreme Court's decision is applicable in those provinces that have not yet amended their securities legislation in the same manner as Ontario.

CIBC

The Supreme Court delivered a complex and split decision based on competing interpretations of the interaction between Part XXIII.1 of the OSA and section 28 of the CPA. A majority, comprised of McLachlin C.J., and Rothstein, Cromwell, and Côté JJ., held that section 28 of the CPA does not operate to suspend the limitation period for secondary market liability claims under section 138.3 of the OSA, as it then stood, until leave to proceed with such claims is granted by the court.⁷

The same majority also held that an order granting leave to proceed with an action can be made nunc pro tunc, where leave is sought before the expiry of a limitation period:

The courts have identified the following non-exhaustive factors in determining whether to exercise their inherent jurisdiction to grant such an order: (1) the opposing party will not be prejudiced by the order; (2) the order would have been granted had it been sought at the appropriate time, such that the timing of the order is merely an irregularity; (3) the irregularity is not intentional; (4) the order will effectively achieve the relief sought or cure the irregularity; (5) the delay has been caused by an act of the court; and (6) the order would facilitate access to justice.⁸

The dissenting view, adopted by Moldaver, Karakatsanis, and Gascon JJ., would have affirmed the Court of Appeal's decision in CIBC overruling Timminco and that section 28 of the CPA will suspend the limitation period once the plaintiff commences a class action and pleads the statutory claim for misrepresentation based on section 138.3 of the OSA and the facts supporting the claim.⁹ In that context, the dissenting justices decided that none of the class actions were statute-barred.

However, while Côté J., writing on behalf of McLachlin C.J. and Rothstein J., declined to grant leave nunc pro tunc, in a separate decision, Cromwell J. would have exercised his discretion to grant an order nunc pro tunc for leave to proceed with the action based on the following analysis.

First, the plaintiffs had been diligent in advancing their action. There was no doubt that the plaintiffs intended to seek leave and that significant time and effort was invested in the development of their case.¹⁰

Second, neither the plaintiffs, nor the defendants considered the prospect that the cause of action under section 138.3 of OSA would be statute-barred if the certification and leave motion did not occur and leave was not granted before expiry of the three-year limitation period. It was only until the Court of Appeal's decision in Timminco that the parties faced the prospect that the plaintiffs' claim was irremediably statute-barred.¹¹

Third, extending the limitation period in this particular case would not undermine the purpose of limitation periods. To the contrary, according to Cromwell J., "[h]olding that the plaintiffs' claim is irremediably statute-barred is to defeat that claim by allowing the defendants to take advantage of an after-the-fact 'gotcha'— a technical defence, the application of which in this case does not further either the purpose of the limitation defence or reinforce public confidence in the administration of justice."¹²

Fourth, the court has an obligation to protect unrepresented putative class action members. Indeed, until Timminco, it was reasonable for these class members to assume that their action was sheltered.¹³

Finally, the plaintiffs' statutory claim had a reasonable chance of success and should therefore be resolved on its merits rather than as a result of the expiry of a limitation period.¹⁴

In the result, the statutory claim in CIBC was permitted to proceed.

IMAX

In the IMAX case, a majority of the Supreme Court was of the view that the statutory action was time-barred. However, Côté J., writing on behalf of McLachlin C.J. and Rothstein J., would grant leave nunc pro tunc in favour of the plaintiffs who were parties to the original claim because the parties agreed to suspend the limitation period while the leave application was under reserve. They would not grant leave in favour of the plaintiffs who were not plaintiffs at the time when argument on the leave application concluded. In their view, granting relief to the plaintiffs against those defendants in this context would undermine the strict limitation period set out in section 138.14 of the OSA.¹⁵

Yet, Cromwell J., in a separate decision, was of a different view and exercised his discretion to grant an order nunc pro tunc in favour of all plaintiffs on the basis that the law in Ontario is currently unsettled with respect to whether parties can be added to an existing cause of action after the limitation period has expired in cases where the limitation period is contained "under another Act" (that is, not in the Limitations Act, 2002).¹⁶ Cromwell J. indicated that recent commentary takes the view that discretionary jurisdiction may apply to other limitation periods contained in different legislation, such as the OSA in this case (citing Dentons' lawyers, Christina Porretta and Rahim Punjani's "The Clock Strikes: A Review of the Limitations Act, 2002, A Decade Later" (2015), 44 Adv. Q. 346 at 375 for this proposition).

In the result, the statutory claim in IMAX was permitted to proceed.

Celestica

In the Celestica case, a majority of the Supreme Court, consisting of McLachlin C.J. and Rothstein, Cromwell, and Côté JJ., held that the statutory action was time-barred and would deny the nunc pro tunc order on the basis that no motion for leave was filed before the expiry of the limitation period.¹⁷

Thus, of the cases decided by the Supreme Court, only the Celestica case was held to be time-barred and prohibited from proceeding.

Comment

The Supreme Court determined by a narrow margin that section 28 of the CPA does not operate to suspend the three-year limitation period that applies to the statutory cause of action under section 138.3 of the OSA when an intention to seek leave is pleaded in a class action for common law misrepresentation. Therefore, under the OSA, as it then was, a representative plaintiff had three years to both commence a claim and obtain leave of the court to pursue it.

While the Supreme Court restored the Court of Appeal's initial strict interpretation in Timminco, it also produced a mix of views on the court's inherent jurisdiction to grant orders nunc pro tunc and ameliorate the harsh consequences of statutory limitation periods in class action proceedings. This is perhaps the most significant implication of the majority of the Supreme Court's decision and lower courts will be faced with the challenge of refining the boundaries of the court's power to effectively back-date an order or judgment.

On a final note, while the trilogy of decisions dealt largely with limitation periods, the Supreme Court also confirmed its previous articulation of the test for leave to proceed with secondary market securities class actions in Theratechnologies Inc. v. 121851 Canada Inc.¹⁸ The Supreme Court further affirmed the Court of Appeal's decision in CIBC that although a class action would not be the preferable procedure to resolve a reliance-based claim in common law negligent misrepresentation, certain issues related to the intent and conduct of the defendant should be certified as common issues in order to advance the litigation.

Footnotes

1 Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60 [CIBC].

2 Securities Act, RSO 1990, c s.5.

3 Class Proceedings Act, 1992, SO 1992, c 6.

4 Sharma v. Timminco, 2012 ONCA 107, leave to appeal to SCC refused, [2012] SCCA no. 157.

5 See OSA, supra note 2, s 138.14(2).

6 Securities Act, RSA 2000, c S-4, s 211.095(2); The Securities Act, CCSM, c S50, s 197(2); and Securities Act, SNB 2004, c S-5.5, s 161.9.

7 CIBC, supra note 1 at para. 53.

8 Ibid at paras. 90 and 130.

9 Ibid at para. 162.

10 Ibid at para. 136.

11 Ibid at paras. 137-139.

12 Ibid at para. 141.

13 Ibid at paras. 142-143.

14 Ibid at para. 144.

15 Ibid at para. 106.

16 Ibid at paras. 151-152.

17 Ibid at para. 111.

18 Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18.

For more information, visit our Canadian Securities Litigation blog at www.canadiansecuritieslitigation.com/

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