Timminco tossed by Supreme Court of Canada
The Supreme Court of Canada typically agrees to hear only about 10 – 15% of the cases that seek its attention. Not only does a proposed appellant need to explain why the court(s) below got it wrong, but an appellant also has to explain how and why a particular case raises matters of such importance that Canada’s highest court should weigh in and provide an opinion. Constitutional cases often meet this test; commercial cases, not so much.
Despite all of this, it is a surprise that the Supreme Court of Canada today decided not to even hear an appeal from a recent decision of the Ontario Court of Appeal in Sharma v. Timminco that sent shockwaves through the class action bar across the country. Sharma v. Timminco is a securities class action seeking billions in damages for alleged misrepresentations to purchasers of Timminco shares on the secondary market (i.e. the stock market). Such actions are brought primarily under Part XXIII.1 of the Securities Act – which was added to the Securities Act in 2005 to make it easier for secondary market purchasers of securities in public companies to sue for misrepresentations by, among other things, presuming that such purchasers relied upon any misrepresentations and suffered damages from that reliance. This makes it easier to bring such cases as class actions, as individual reliance by each class member need not be proven.
However, two hurdles to bringing a secondary market misrepresentation claim under Part XXXIII.1 of the Securities Act are: (1) a 3-year limitation period running from the date when an alleged misrepresentation was first published; and (2) a requirement that a proposed plaintiff obtain leave of the court before proceeding with such a claim by showing good faith and a reasonable chance of success. The Court of Appeal’s decision in Timminco dealt with the interplay between these two provisions. What the Court of Appeal decided was that, not only does a plaintiff have to issue a claim under Part XXIII.1 within the three year limitation period, it has to seek and obtain leave of the court under that section within three years of the publication of the alleged misrepresentation. The problem with this finding is that motions for leave under Part XXIII.1 are hard-fought affairs that typically involve thousands of pages of materials being filed with the court, multiple examinations of witnesses, expert evidence, and hearings that take a week or longer. To date, no such motions in Canada have ever been brought and decided within three years. The closest that anyone has come was in the Silver v. IMAX case, where the motion was brought within three years, but the presiding judge then took a year to make her decision – thus taking the case beyond the applicable limitation period. The Ontario Court of Appeal’s decision effectively statute-barred numerous Securities Act claims seeking billions of dollars in damages and, given that most Canadian provinces have virtually identical legislation, there is no reason to suggest that other appellate courts across Canada will not decide this issue in a similar manner.
Understandably, such a decision caused much consternation across the country – both among plaintiffs’ lawyers and even some government authorities. An example of this is that the Manitoba government indicated within a few weeks of the Timminco decision that it would be seeking to amend its version of Part XXIII.1 to, in its words, make “[c]hanges to ensure the time needed by a court to decide whether to allow a shareholder lawsuit against a company in cases of alleged misleading secondary market disclosure will not be counted against the limitation period.” The link to the Manitoba government press release, dated April 24, 2012, is here.
The Timminco decision has been a frequent topic of discussion among lawyers, judges, legislators, media, and shareholder activists across the country since it was released in February. However, in denying leave to appeal, it would appear that Canada’s highest court did not share that enthusiasm.
What remains to be seen is what other legislatures (including Ontario’s) will do with the Timminco decision, not to mention other provinces’ courts of appeal.
