In revisiting and overruling its own decision in Green v. Canadian Imperial Bank of Commerce, the Court of Appeal recognized the draconian effects of a faulty interpretation of this limitation period provision, and restored the careful balance intended by the framers of the Ontario Securities Act.
Section 138.3 of the Ontario Securities Act allows persons who purchased securities on the secondary market to advance claims for misrepresentations in ongoing disclosure documents, such as financial statements and annual reports. Secondary market claims under the statute are circumscribed by several limitations.
First, s. 138.8 provides that no action may be commenced under the secondary market liability provision without leave from the court. Second, pursuant to s. 138.14, secondary market liability claims may not be commenced three years after the date on which the document containing the misrepresentation was released.
In 2012, the Court of Appeal released its decision in Timminco, in which it held the statutory claim was statute-barred if leave to commence the action is not obtained within the three-year limitation period, and that s. 28 of 1992’s Class Proceedings Act did not suspend the running of the limitation period in favour of class members until leave has been obtained.
The impact of that decision was immediately felt in three cases where lower courts struggled to manage the practical consequences that flowed from this decision.
Green v. CIBC, Silver v. Imax, and Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc. were all post-Timminco cases that addressed the court’s jurisdiction to grant relief to plaintiffs when the three year limitation period under the Securities Act has expired and leave has not yet been granted.
In all three cases, a class action had been issued within the three-year limitation period provided by the act. All the facts that formed the basis of the cause of action were pleaded, along with the stated intention to seek leave to commence the statutory claims.
In Silver, the defendants moved post-certification and post-leave for an order dismissing the claims of the plaintiffs on the grounds they were limitation barred, in view of the fact the limitation period expired while the matter was under reserve.
In Green, Timminco was released on the penultimate day of the original hearing of the leave and certification motions, and counsel were provided an opportunity to make further submissions on whether the action was time-barred.
In Millwrights, the defendants moved to strike the representative plaintiffs’ cause of action under Part XXIII.1, notwithstanding that until Timminco, the defendants were not aware the limitation period was not tolled pending a leave motion for a Part XXIII.1 claim.
In all three cases, both the defendants and the plaintiffs shared a common understanding that the Part XXIII.1 limitation period was suspended by s. 28 of the Class Proceedings Act, and all three cases dealt with the practical implications that arose pursuant to the “thunderbolt” decision of Timminco.
Justice Paul Perell in Millrights found the doctrine of special circumstances could be used to thwart the draconian interpretation of the Court of Appeal in Timminco. Justice Katherine van Rensburg in Silver held that notwithstanding the Court of Appeal’s decision in Timminco, leave could be granted nunc pro tunc. In Green, however, Justice George Strathy held neither doctrine was available, and the plaintiffs’ motion for leave in Green was dismissed.
These decisions reflected a disconnect between the strict application of the Part XXIII.1 limitation period and the realities surrounding the practice of class proceedings. For example, in Green, the action was filed eight months after the last alleged misrepresentation, and approximately three and a half years had elapsed between the commencement of the action and the hearing of the leave motion.
However, as Strathy noted, the time it had taken for this action to reach a hearing was not at all unusual for a substantial, complicated leave application. The materials required are generally voluminous, and in many cases, the defendants mount a substantial evidentiary defence. The requirement that the leave application be brought, argued, and decided within three years of the misrepresentation at issue would present counsel and the court with serious challenges.
These three decisions were appealed, and up they went to the Court of Appeal to be heard together before a five-judge panel. The flaws made bare by the Court of Appeal’s earlier interpretation of the suspension of the limitation period were evident the second time around.
For example, since the limitation period is not dependent on discovery of the misrepresentation, the action must be commenced within three years of the misrepresentation. The longer it takes to discover the misrepresentation, the shorter is the period available to conduct the leave motion (and any appeals), obtain leave, and commence the action. In addition, once the plaintiffs have decided to bring a motion for leave, the timing of that motion is beyond their control. It can be affected by court availability, and the defendant may initiate procedural steps causing delay.
The purpose of the Securities Act is to protect investors from unfair, improper, or fraudulent practices and to foster fairness, efficiency, and confidence in capital markets. A strict application of Timminco has caused undue prejudice to plaintiffs and retards these aims. The Court of Appeal’s decision in Timminco arose from a vacuum in which the court failed to consider any of the consequences that flowed from its decision.
Directly faced with the consequences of Timminco, the Court of Appeal reversed itself, and set aside its previous interpretation given to the suspension of the limitation period associated with claims made for misrepresentations in respect of shares trading in the secondary market. In so doing, it struck the correct balance between prejudice to plaintiffs, the rights of the defendants, the public interest, and the goals of the act.