The latest from the Ontario Court of Appeal on the interplay between statutory limitation periods and the tolling effect of s. 28 of the Class Proceedings Act, 1992 was delivered in February 2012 in the case of Sharma v. Timminco Ltd. This decision effectively put the last nail in the coffin for class action plaintiffs looking to s. 28 as a lifeline to extend the time for commencing proceedings after the time for an individual to commence an action had expired.

The decision provides good guidance to class counsel regarding the diligence with which they must pursue potential claims, and it delivers much needed certainty to corporations regarding the duration of their potential exposure to a class proceeding.

In Sharma, the plaintiff commenced a proposed securities class action in May 2009, with respect to alleged public misrepresentations that took place between March 17 and Nov. 11, 2008. The plaintiff asserted common law claims in negligence and negligent misrepresentation. In addition, the claim stated that the plaintiff would be seeking an order granting leave to assert the statutory claim for misrepresentation provided under s. 138.3 of Part XXIII.1 of the Ontario Securities Act.

This section of the Securities Act came into force Dec. 31, 2005, and is meant to overcome the challenges of pursuing a class action for negligent or fraudulent misrepresentation by a public issuer. At common law, the plaintiff must establish reliance as one of the constituent elements of a misrepresentation claim. This has proven difficult to establish on a common basis, depending on the nature of the claims alleged. Recognizing the difficulties that plaintiffs in class actions were facing to certify a common issue arising from issuer misrepresentations, the legislature enacted s. 138.3 OSA. This section includes a deemed reliance provision:

“Where a responsible issuer . . . releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer’s security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages against,

(a) the responsible issuer . . .”

Prior to the Court of Appeal’s decision in Sharma, typically class counsel would commence the class action and include a clause asserting the plaintiff’s intent to seek an order granting leave to assert the s. 138.3 claim. A commonly held view was that the inclusion of this language in the statement of claim would be sufficient to meet conditions for commencing a claim within the three-year limitation period set by s. 138.14 of the act, and/or that a pleading that the plaintiff was going to pursue the s. 138.3 claim would trigger the suspension of limitations periods established by s. 28 of the Class Proceedings Act.

Section 28 of the CPA suspends the running of limitation periods applicable to the causes of action asserted in a class proceeding, and sets out the circumstances under which the limitation may resume:

“28. (1) Subject to subsection (2), any limitation period applicable to a cause of action asserted in a class proceeding is suspended in favour of a class member on the commencement of the class proceeding and resumes running against the class member when,

(a) the member opts out of the class proceeding;

(b) an amendment that has the effect of excluding the member from the class is made to the certification order;

(c) a decertification order is made under section 10;

(d) the class proceeding is dismissed without an adjudication on the merits;

(e) the class proceeding is abandoned or discontinued with the approval of the court; or

(f) the class proceeding is settled with the approval of the court, unless the settlement provides otherwise.

(2) Where there is a right of appeal in respect of an event described in clauses (1) (a) to (f), the limitation period resumes running as soon as the time for appeal has expired without an appeal being commenced or as soon as any appeal has been finally disposed of.”

Having asserted in the statement of claim that the plaintiff intended to seek leave to commence the s. 138.3 Securities Act claim, it was thought that the claim was, in fact, adequately commenced to meet the three-year s. 138.14 limitation period, and, in any event, the tolling effect of s. 28 of the CPA would stop the time from continuing to run. The plaintiff could then proceed in the ordinary course to proceed to certification and have the s. 138.3 leave motion heard at the same time. For example, in both Silver v. Imax Corp. and Dobbie v. Arctic Glacier Income Fund, class counsel brought the certification and s. 138.3 leave motions contemporaneously.

The Court of Appeal’s decision in Sharma has brought an end to that notion. In Sharma, the appeal court interpreted the relevant provisions of the OSA to mean that no action is “commenced” under s. 138.3 until leave is granted under s. 138.8.

Section 138.8 states:

“No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that,

(a) the action is being brought in good faith; and

(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”

Until leave is granted, the three-year limitation period continues to run. Issuing a statement of claim in which the intent to seek leave is asserted does not “commence” the s. 138.3 claim to trigger the tolling effect of s. 28 of the CPA. There is no s. 138.3 claim commenced until the court, in fact, grants leave. The Court of Appeal drew the distinction between “asserting,” i.e. making allegations, in a statement of claim, and “commencing” the action in which the allegations are asserted.

“Without leave having been granted, a s. 138.3 cause of action cannot be enforced. It cannot be invoked as a legal right. Section 138.14 says as much. Thus giving the suspension provision in s. 28(1) of the CPA its ordinary meaning, the s. 138.3 cause of action cannot be said to be asserted in the [plaintiff’s] class proceeding since no leave has been granted. . . . without leave being granted, the cause of action cannot be said to be asserted in a class proceeding.”

The result of Sharma is that all securities class actions that seek to rely on the s. 138.3 deemed reliance provisions for secondary market purchasers will have to be pursued on a fast track. The plaintiff only has three years from the date of the corrective disclosure to gather a sufficient record to meet the evidentiary burden of s. 138.8(b), and to obtain the order granting leave of the court to commence the s. 138.3 claim. (Before leave is granted, the court must be satisfied that “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff,” according to Imax.)

Since the claim is not commenced until that court order is made, there will be significant time pressures on class counsel. They will have to schedule the leave motion allowing sufficient time for a reserved decision, which means pursuing the motion and disclosure expeditiously.

It remains to be seen whether this will result in lowering the evidentiary burden on plaintiffs for the leave motion because of the limited time they will have to independently investigate the claim and marshall the relevant evidence on the merits, or whether class counsel will become more aggressive in seeking early discovery from the defendants through cross-examination.

In my view, there should be no need for the plaintiff to undertake a substantial pre-discovery to prepare for the leave motion. This is contrary to the intent of the legislation, and would place undue burdens on the parties before the claim is even out of the box.

On May 25, I was delighted to have the opportunity to attend a special session of Convocation of the Law Society of Upper Canada during which it granted the Law Society Medal to some of the profession’s inspired leaders, including Ron Slaght, Alfred Mamo, and Cynthia Petersen. In addition to the LSM, two other awards were presented: the Lincoln Alexander Award and the Laura Legge Award.

The Laura Legge Award is a relatively new addition to the honorifics bestowed by the LSUC on its brightest and best leaders. It was created in 2007 for the purpose of recognizing women lawyers from Ontario who have exemplified leadership within the profession. It commemorates Legge’s exemplary (60-plus-year) career, mentorship of other lawyers, her long-standing service to the law society (as its first female bencher and first female treasurer), and for her community service. This year’s recipient of the award was my colleague and longtime friend, Fay Brunning of Ottawa.

I can think of no one more deserving of this award, and I am proud and honoured to be counted among her friends and enthusiasts. The following is an edited version of Brunning’s acceptance speech, which she kindly agreed to share with a wider audience, at my request:

[note: let’s put this all in italics or a different colour or something when it’s posted on the web]

I am very grateful and inspired to receive this award, which honours Laura Legge, a woman who provided tremendous leadership to our profession for many decades. As this award in her name demonstrates, her legacy will continue to be an inspiration to the women who have followed her. I feel bashful to be in the midst of the honourees and of our benchers tonight, and am a bit puzzled as to why I was chosen for this recognition. There are many accomplished women lawyers in this province. Laurie Pawlitza advised me that the LSUC wanted to recognize a woman who is regarded as a leader, who is [in] the middle of her career, doing many things, and providing mentoring and inspiration to those around her. So, on that premise, I would particularly like to thank the LSUC for this recognition, on behalf of all the middle-aged women lawyers, who are self-employed in private practice, serving the public, and raising our families.

I feel privileged to be a lawyer. To me, it is an honour to have and to be able to apply the skills I have learned to serve the public, and to be able to use the law to contribute to the proper functioning of our democracy.

Laura Legge was a genuine leader of our profession throughout her career, and she served as an excellent role model for women in the practice of law today. But what is leadership? Do women provide different leadership?

Many people I have worked for are great leaders, who have generously mentored me and shared their wisdom: in Saskatchewan, Queen’s law, Ottawa legal community, Advocates’ Society, Scott & Aylen, Borden Ladner Gervais, and now Sack Goldblatt Mitchell. I have been very fortunate to have had access to inspiring leaders.

Twenty-five years ago, I started in the private practice of law as a woman litigator. In Ottawa, there were very few women lawyers. I saw successful men in law, and observed their tried and true paths to success, but I could not simply replicate what men do, nor did I want to. I wanted some of my own female values and dreams and characteristics to be part of what I was becoming and part of what I believed the profession could become.

I have found inspiration in the five Canadian women from the prairies, who in 1929 went all the way to England to have the highest court in the British Empire declare something that now appears obvious: “Women are persons.” That case gave birth to human rights entitlements for the entire Commonwealth legal system. Those five Canadian women, now historically known as the Famous Five, used the law to effect social reform. They took a specific legal issue through the courts because the political arm of our democracy did not have the wisdom or will to evolve. It was one legal issue, but its long-term impact on where we are as a nation is interesting to consider.

These five women leaders, if you look at what they did individually, brought in reforms such as the Dowry Act, Minimum Wage Act for Women, child protection legislation, and started organizations such as the Victorian Order of Nurses, YWCA. These were significant changes which all helped to reshape our society in one generation and to improve life for the disadvantaged. Not everything they did in their time deserves praise, but not one of them became a senator as a result of the Persons case, so personal gain was not the outcome of their individual or collective efforts.

Nellie McClung, one of the Famous Five, once said: “No nation rises higher than its women.” If we look around Canada and the world today, almost 100 years later, that still holds true, and there is still a lot to be done. Louise McKinney, another of the Five said: “What after all, is the purpose of a woman’s life? The purpose is the same as the purpose of a man’s life: that she make the best possible contribution to the generation in which she is living.” These are still inspiring words to live by.

Along the way, I have discovered that women generally are more comfortable to contribute and lead in ways that differ from men. Men and women are different and have different strengths. Nothing is wrong with that. Working together, in our firms and in our legal community, contributing the best way we can as men and women, with our respective different styles of leadership, we can collectively accomplish more for our system of justice.

What is leadership? I believe that in Canada, leadership is a gift of trust from one to another, earned over time. Leaders are trusted by those they represent to lead on their behalf on issues that are within their sphere of influence. If a person displays passion, interest, energy, aptitude, and integrity around an issue or within a firm or organization, the gift of leadership is given.

I observe that many women are more comfortable with the “inside out” form of leadership rather than “top down.” From within our firms, from within our communities, from within our profession, women work hard to support others and ideas, and thereby earn their trust. Women are often worker bees and the first ones to raise their hands to volunteer for the “soft” work that it takes to bring things to fruition. The health and well-being of our workplaces, legal communities, firms, and profession attract our natural instincts.

However, it has also been my experience that women do not generally have the same desire or confidence as men to step into the political arena where the democratic power is at play. We now know that firms, communities, organizations, and our legal system function better when both men and women are working together in ways that they can contribute their best. We need to find ways to properly value those different forms of contributions within our legal profession. We need to ensure that women and men of substance and integrity who are ready to lead are given the support they need to take that step. I am proud to be part of a firm that does provide those opportunities and support and I encourage every other law firm to do the same.

In closing, I would like to again thank Tom Conway and the Ottawa legal community, as well as the LSUC and its current Treasurer, Laurie Pawlitza. I am indebted to all of you for this recognition.