September 14th, 2012
A big reversal just happened in the fast-moving world of securities class action litigation. In the last eight months, it seemed that the Ontario Superior Court, the Ontario Court of Appeal, and the Supreme Court of Canada were all hitting the brakes on securities class actions. It started with Sharma v. Timminco, when the Court of Appeal decided that class action plaintiffs have only three years to get the court’s permission, or “leave”, to sue for misrepresentations in the secondary market under Part XXIII.1 of the Securities Act. In Green v. CIBC, the Superior Court time-barred a class action even though the plaintiffs brought their motion for leave within three years of the latest alleged misrepresentation. Then the Supreme Court declined to hear Sharma‘s appeal.
However, in Silver v. IMAX, the motion for leave was argued within three years, but by the time the court granted leave, the three years were up. On August 27, 2012, the Superior Court decided to let Silver proceed anyway, declining to follow the trend set by Sharma and Green.
How can this be? The answer turns on the Superior Court’s “inherent jurisdiction” to backdate its own orders. The Latin term for these orders is nunc pro tunc (now for then). In Silver, leave to proceed with a statutory secondary market claim under Part XXIII.1 of the Securities Act was originally granted on December 14, 2009. But the plaintiffs alleged that the latest misrepresentation occurred more than three years before, on March 9, 2006. To remedy this, Justice Katherine van Rensburg, who granted leave in Silver, agreed to amend her order granting leave so it was effective December 19, 2008.
Three years might seem like plenty of time, especially for a “fast-moving” area of law. But a lot can happen before a court decides to permit a Securities Act secondary market claim, especially in a class action. Litigants tend to combine motions for leave and motions to certify class actions, resulting in lengthy, expensive hearings involving complicated issues with potentially billions of dollars at stake. The Court of Appeal’s decision in Sharma created a widespread concern that plaintiffs who diligently seek leave might still miss the limitation period through no fault of their own. This was precisely the question in Silver, Ontario’s first certified class action suing for secondary market misrepresentation.
The case originated in February and March 2006, when, according to the plaintiff class, IMAX Corporation’s publicly filed press releases and financial statements misrepresented the company’s earnings for the previous year. Shares in IMAX lost significant value in August 2006 after the company announced an inquiry into its revenue reporting practices. In September 2006 the plaintiffs issued their statement of claim and announced their intention to seek leave to sue for secondary market misrepresentation under the Securities Act. The plaintiffs gave notice of their motion to obtain leave around November 2006 and served evidence in support of their motion in February 2007, all within a year of the alleged misrepresentations at issue.
Although the motion was initially scheduled for December 2007, it was not heard until December 2008. As described by Justice van Rensburg, the evidence had become “complex and voluminous”, with the litigants leaving “no stone unturned” as they prepared for Ontario’s first-ever Part XXIII.1 leave hearing. The hearing also included the plaintiffs’ motion to certify their class action and the defendants’ motion to strike certain elements of the plaintiffs’ claim. By the end of the hearing on the leave motion in December 2008, there were still almost three months left in the three-year limitation period. But the parties made further submissions in May and July 2009 regarding the other two motions, and the decision granting leave was issued on December 14, 2009.
The defendants unsuccessfully tried to appeal this decision, which delayed the case from proceeding until February 2011. From there the class action seemed headed for trial until the Court of Appeal released its decision in Sharma. The defendants then moved to dismiss the plaintiffs’ claim for falling outside the limitation period.
Justice van Rensburg distinguished Silver from both Sharma and Green, where the limitation period barred the claims from proceeding. In Silver, unlike the other cases, the parties completed their arguments on the leave motion before the limitation period expired. As Justice van Rensburg put it: “There was nothing more the plaintiffs could have done to comply with the limitation period.”
This is a key difference in procedural history, but the principles at play in her decision extend more deeply. Green had applied a narrow reading of the court’s nunc pro tunc power, and Justice van Rensburg specifically rejected this. In Green, the court decided it had no jurisdiction to interfere when the Securities Act‘s three-year limitation period expired. On this view, antedating an order would circumvent the clear wording of the Securities Act, which did not provide for any common law exceptions to the limitation period, and undermine the general philosophy that limitation periods should be defined clearly.
According to Justice van Rensburg, the nunc pro tunc power was of such inherent and longstanding jurisdiction that it would apply so long as the Securities Act did not prohibit it. She concluded that the power to make a retroactive order did not undermine the purpose of the Securities Act‘s three-year limitation period. Quoting the appeal decision in Sharma, she noted that the purpose of that limitation period is to “ensure that secondary market claims be proceeded with dispatch,” not “to arbitrarily bring to an end a cause of action that has been actively and vigorously pursued.”
Justice van Rensburg found that the plaintiffs in Silver had pursued their claim in this manner. In Green, the court did not question the plaintiffs’ diligence in bringing their motion for leave, but the court nonetheless noted that the litigation had “moved slowly.” Critically, the limitation period in Silver expired at a time when the plaintiffs had done all they could and the issue of leave was under reserve by the court.
Although Justice van Rensburg set out the basis for her decision on fundamental principles of the court’s jurisdiction, much turned on the fact that the motion for leave was fully argued before the limitation period came to an end. In her view, to require a claim to expire while a decision was under reserve would leave plaintiffs with nothing to ensure compliance with the limitation period. This complied with another Latin-named legal principle – actus curiae neminem gravabit – that actions of the court should not prejudice a litigant.
The tension between Green and Silver seems to leave significant room for appeal, so these issues may be far from resolved. Fortunately, the latest decision in Silver yields certain insights that will not expire on appeal. On one hand, the ruling confirms that courts have important discretion over procedural questions and may, in exceptional cases, provide some relief from statutory deadlines. On the other hand, Silver does not change Sharma‘s lesson that, in Securities Act secondary market misrepresentation claims, plaintiffs must move “expeditiously” to finish arguing for leave in three years. If they do not move fast enough, they may never get permission to run the big race.
 Part XXIII.1 of the Ontario Securities Act, RSO 1990, c S.5, allows plaintiffs to sue for misrepresentations in the secondary market, even if no one relied on the misrepresentations, but the plaintiffs need the court’s leave to do so. Part XXIII.1 also requires this type of action to be commenced within three years from the misrepresentations.
 See our firm’s comment on this decision: “Timminco Tossed By Supreme Court”.
 For our firm’s comment on this decision: “The IMAX Case“.
 For our firm’s comment on the decision dismissing leave to appeal: “Divisional Court Denies Leave to Appeal in IMAX case“.