On Aug. 2, the Supreme Court of Canada denied the plaintiffs in
Sharma v. Timminco Ltd. leave to appeal the
landmark decision of the Ontario Court of Appeal, imposing a stringent deadline on the right of shareholders to obtain damages from companies that misrepresent their financial results.
Timminco is a securities class proceeding commenced by representative plaintiff Ravinder Sharma in May 2009 and seeking damages for alleged misrepresentations to purchasers of Timminco Ltd. shares on the secondary market (the TSX). This cause of action was commenced under s.138.3 of Part XXIII.1 (secondary market disclosure) of the Ontario Securities Act. That provision was added in 2005 to let secondary market purchasers sue public companies for misrepresentations in ongoing public disclosure.
This statutory cause of action presumes that such purchasers relied upon these misrepresentations and suffered damages as a consequence. Such claims are amenable to class proceedings as purchasers do not have to prove individual reliance. Sharma claimed that misrepresentations in public documents negatively affected the value of his shares in Timminco Ltd., as well as the shares of class members.
There were two obstacles to Sharma’s claim. First, s. 138.14 of the securities act provides that secondary market liability claims may not be commenced three years after the date on which the document containing the misrepresentation was released. Second, s. 138.8 of the act requires that a proposed plaintiff obtain leave of the court before proceeding with such a claim by showing good faith and a reasonable chance of success.
In March 2011, Ontario Superior Court Justice Paul Perell granted an order declaring that the limitation period associated with the secondary market claim for misrepresentation could be suspended pursuant to s. 28(1) of the Class Proceedings Act once this statutory cause of action was pleaded. This provision of the CPA suspends any limitation period upon commencement of a class proceeding applicable to a cause of action “asserted” in favour of putative class members.
In March 2012, the Ontario Court of Appeal overturned Perell’s decision, holding that the secondary market liability cause of action could not be “asserted” within the meaning of s. 28(1) of the CPA, and the limitation period under s.1 38.8 of the securities act could not be suspended until Sharma sought and obtained leave to bring the claim within three years of publication of the alleged misrepresentation. As leave had not yet been granted and three years had expired since the alleged misrepresentations had been made, the appellate court ruled Sharma’s claims were out of time.
In seeking leave to appeal to the Supreme Court of Canada, Sharma was charged with showing that the appellate court was wrong and, more importantly, that this case raised matters of national importance. Despite the outcry from many in the legal profession and elsewhere, this matter was not of sufficient import for Canada’s highest court to intervene.
We are now left with an appellate decision that does not acknowledge the practical realities of lengthy and complex motions for leave under the securities act and, at least in Ontario, the limited judicial resources devoted to class proceedings.
The Supreme Court has failed to protect Canadian shareholders in denying leave, for the following reasons:
1. Motions for leave under Part XXIII.1 of the securities act are hardly a fast-track affair. These motions usually involve voluminous motion records, lengthy hearings, as well as expert and layperson evidence. In fact, the closest anyone has come to a leave decision within three years was in
Silver v. Imax Corp.In
Imax the alleged misrepresentations occurred between February 2006 and August 2006, the action was commenced in September 2006, and the leave motion was heard in December 2008, with additional attendances and written submissions received up to July 2009. However, the motions judge did not release her decision until Dec. 14, 2009. According to the
Timminco decision, this claim would be beyond the applicable limitation period, notwithstanding the fact that the action was commenced one month after discovery of the claim.
2. Further,
Timminco ignores the reality of the snail’s pace of complex class action litigation in general. Until leave is granted, there is nothing a plaintiff can do to trigger the operation of s. 28(1) of the CPA, notwithstanding the many interlocutory motions a defendant can bring before a leave motion can even be scheduled, and the extensive time and preparation that is necessary for a leave motion under s. 138.8.
3. In addition, at least in Ontario and potentially in other jurisdictions, there are limited judicial resources devoted to class proceedings. How can the Supreme Court of Canada expect the judiciary to accommodate the lengthy and complex leave motions under the draconian time restraints mandated by
Timminco?
4. The purpose of the leave provision in the securities act is to bar frivolous and abusive claims. The Ontario Court of Appeal was incorrect in ignoring this crucial point in its literal interpretation of the provision.
5. The very purpose of the securities act is to ensure the healthy and transparent functioning of capital markets in Canada and to protect investors from unfair, improper, or fraudulent practices. The
Timminco decision undercuts these goals.
6. Given that most Canadian provinces have virtually identical securities legislation, it is highly possible that other appellate courts will follow this erroneous decision to the detriment of Canadian shareholders.
Given the lack of interest on the banks of the Ottawa River, shareholders must now turn to their provincial governments for protection. Indeed, Manitoba’s provincial government indicated in a press release on April 24 that it will be seeking to amend its securities legislation to make “changes to ensure the time needed by a court to decide whether to allow a shareholder lawsuit against a company in cases of alleged misleading secondary market disclosure will not be counted against the limitation period.”
Do Ontario and the other provinces have the resolve to do what the Supreme Court of Canada could not?
