Leave to appeal the IMAX decisions denied - secondary market liability under Ontario's Securities Act
February 25, 2011
On February 14, 2011, the defendants' motion for leave to appeal two related decisions in Silver v. IMAX [i] to the Ontario Divisional Court was denied by the Honourable Justice D.L. Corbett. Those decisions had (i) provided the first judicial interpretation of the test under section 138.8 [ii] of the Ontario Securities Act (OSA) for leave to commence an action alleging secondary market misrepresentation under the OSA; (ii) deferred to a common issues trial the question of whether individual reliance has to be established to prove common law misrepresentation; and (iii) certified a global shareholder class including non-Canadian shareholders who purchased their shares on a U.S. exchange, notwithstanding a parallel proposed class action pending in the U.S.
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Leave Test for OSA Secondary Market Misrepresentation Claims
The defendants asserted that the motion judge erred in interpreting the OSA's leave test to impose a reverse onus on defendants to demonstrate that any affirmative defences will render the plaintiff's claim unlikely to succeed at trial.
Although he accepted that the interpretation of the leave test raised a matter of general importance, Justice Corbett found there was no good reason to doubt the correctness of the decision granting leave in this case given the evidence that was before the motion judge. Specifically, Justice Corbett held that “whatever the precise formulation of the onus, standard of proof, and test to be applied in respect to affirmative defences”, on the basis of the evidence before the motion judge he was satisfied that the plaintiffs had an arguable case worthy of moving forward. Consequently, we will need to wait for future cases to revisit and refine the precise interpretation of the statutory leave requirements and associated burdens of proof.
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The defendants also argued that the motion judge erred in leaving it open to the plaintiffs to argue at trial that proof of individual reliance by each class member is not required and that reliance by each class member can be inferred simply by proving the common act of purchasing IMAX shares on the secondary market.
Again, although Justice Corbett accepted that the issue was one of importance, he noted that the motion judge's decision does no more than permit the plaintiffs to proceed to trial and the “Court of Appeal will be able to give full consideration to these issues if and when the case is appealed after a trial judgment.” He saw no reason to doubt the correctness of leaving it open for a plaintiff to attempt to prove reliance on a class wide basis and noted there is a “distinction between reliance by operation of law and a factual finding that the ‘efficient market’ theory applies to the specific statements allegedly made by this public issuer to the market in this case.” Unfortunately, Justice Corbett did not further elaborate on how to reconcile this purported distinction in light of prior courts' rejection of the American “fraud on the market” theory in Ontario.
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Global Shareholder Class
Finally, the defendants asserted that the motion judge erred in certifying a global shareholder class despite the existence of an overlapping putative class action in the U.S. Justice Corbett saw no reason to doubt the correctness of the motion judge's decision in this respect either. He commented that it “would be wrong to preclude [foreign investors] from participating in Canadian proceedings if they wish their claims to be pursued in Ontario”. He also said the proper respect for the exercise of jurisdiction of the American courts will unfold over time as the two cases proceed. The motion judge had left open the possibility of later revisiting the composition of the class if the U.S. action was certified. Justice Corbett reasoned that overlapping class actions in different countries “does not require balkanization of class proceedings, but rather sensitive integration of them.”
In denying leave to appeal, Justice Corbett did not address the conflicting decisions on whether foreign shareholders should form part of an Ontario class. Indeed, in CP Ships, [iii] the Court refused to certify a class that included non-Canadian shareholders. Similarly, the Court in Gammon Gold [iv] found it was inappropriate to include as part of an Ontario class non-residents who had purchased their securities outside Canada.
With leave to appeal in IMAX denied, we will have to wait somewhat longer for an appellate court to weigh into these important issues.
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[i] Silver et al. v. IMAX Corporation et al., Ontario Superior Court of Justice, Court File No. CV-06-3257-00.
[ii] Subsection 138.8(1) of the OSA provides that the court shall grant leave to commence a civil action for secondary market misrepresentation pursuant to section 138.3 only where it is satisfied that (a) the claim is brought in good faith, and (b) there is a reasonable possibility that the claim will be resolved in the plaintiffs' favour at trial.
[iii] McCann v. CP Ships Ltd., Ontario Superior Court of Justice, Court File No. 46098 CP,  O.J. No. 5182 (QL) (Ont. S.C.J.).
[iv] McKenna v. Gammon Gold Inc., Ontario Superior Court of Justice, Court File No. CV-08-0036143600CP,  O.J. No. 1057 (QL), leave to appeal granted in part  O.J. No. 3183 (QL) (Ont. S.C.J.).
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