This case marks a significant retreat from the low-water mark set by the Court of Appeal’s problematic interpretation of the secondary market misrepresentation’s limitation period provision and provides the court with a flexible tool to do justice between the parties.
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, two of which were relevant to these proceedings.
First, s. 138.8 of the OSA 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 that the s. 138.14 limitation period could only be suspended once leave had been granted by the court. If leave has not yet been granted within three years of the occurrence of the secondary market misrepresentations, the s. 138.3 claims are time barred.
In Silver v. Imax, the plaintiffs alleged that misrepresentations were made to the secondary market by Imax between Feb. 17, 2006 and Aug. 9, 2006. The action was commenced in September 2006. The notice of motion seeking leave to assert the cause of action pursuant to s. 138.3 of the OSA was served on the defendants on Nov. 28, 2006.
The leave motion was originally scheduled to be heard in December 2007, but through no fault of either party, it didn’t happen until a year later. There were additional attendances in May 2009 and further written submissions in July 2009. Van Rensburg released her decision Dec. 14, 2009, granting the plaintiffs leave to proceed with their s. 138.3 claim.
This chronology is typical of secondary market misrepresentation claims proceeding by way of class action. The record on the motion was complex and voluminous. The leave motion was heard together with the motion seeking certification of the action as a class proceeding, as well as a Rule 21 motion seeking to strike various common law causes of action. Van Rensburg’s decision was long and complex. Even where the plaintiffs moved expeditiously to advance their motion, leave was not granted until over three years had passed since the misrepresentations were said to have been made.
Upon the release of Timminco, an unexpected boon to Imax given the prevailing understanding of the operation of secondary market limitation periods at that time, the defendants moved for an order dismissing the plaintiffs’ secondary market misrepresentation claims on the ground that leave was not granted within the strict three-year limitation imposed by the Court of Appeal. In response, the plaintiffs moved for an order nunc pro tunc that the leave order be deemed to have been granted as of the commencement of the proceeding.
Van Rensburg dismissed Imax’s motion and amended the order granting leave nunc pro tunc effective Dec. 18, 2009, the date the argument was concluded on the leave motion. This decision is consistent with the purpose of s. 138.14: to ensure that secondary market claims proceed with dispatch, requiring the necessary leave motion to be brought expeditiously.
In Imax, the plaintiffs pursued their statutory claims with dispatch, the defendant had notice of all the claims against it within the limitation period, and the expiry of the limitation period had nothing to do with any default by either party. Her Honour affirmed the courts’ jurisdiction to grant orders nunc pro tunc in order to do justice between the parties.
Imax represents an important shift in the treatment of limitation periods in secondary market disclosure claims as it explicitly recognizes some of the practical difficulties associated with the rigid application of the Court of Appeal’s decision in Timminco.
First, unless the court is able to grant leave nunc pro tunc, there is nothing a plaintiff with a s. 138.3 cause of action can do in order to ensure that the limitation period under s. 138.14 will be met. Second, the ability of the court to make an order nunc pro tunc ensures that the rights of the parties will not be impacted arbitrarily by the court’s schedule, which is outside the control of the parties.
The appeal decision in Timminco arose from a vacuum in which the court failed to consider any of the consequences that flowed from its decision. The purpose of the OSA is to protect investors from unfair, improper, or fraudulent practices and to foster fairness, efficiency, and confidence in capital markets. A broad application of Timminco would cause undue prejudice to the plaintiffs and retard these aims.
As such, it should be applied narrowly by confining it to situations where the plaintiff has not moved expeditiously to seek leave to proceed with secondary market disclosure claims. Only in these circumstances will it strike the correct balance between prejudice to plaintiffs, the rights of the defendants, the public interest, and the goals of the act.