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 Timminco, the Court of Appeal held the limitation period associated with Part XXIII.1 could only be suspended once leave had been granted. If leave has not been granted within three years of the occurrence of the secondary market misrepresentations, the Part XXIII.1 claim is time barred.
Green v. Canadian Imperial Bank of Commerce, Silver v. Imax, and Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc. are all post-Timminco cases addressing 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 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 Celestica, 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.
These decisions reflect 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 3-1/2 years had elapsed between the commencement of the action and the hearing of the leave motion. However, as Justice George 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.
These cases show the requirement that the leave application be brought, argued, and decided within three years of the misrepresentation at issue presents counsel and the court with serious challenges.
The Court of Appeal’s decision in Timminco arose from a vacuum in which the court failed to consider any of the consequences flowing from its decision. 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.