Ontario Court of Appeal (again) clarifies the limitation period for secondary market shareholder claims under the Ontario Securities Act
Part XXIII.1 of the Ontario Securities Act, which created a statutory cause of action for misrepresentation available to purchasers of securities on the secondary market (i.e. a stock market), was enacted more than 13 years ago to much fanfare. At that time, few would have predicted that the most troublesome and litigated section in Part XXIII.1 would be the section (s.138.14) that created a seemingly simple three year limitation period after a public company’s alleged misrepresentation was released within which to advance claims.
First there was the 2011 Sharma v. Timminco decision which said that, unless leave to proceed under Part XXIII.1 was obtained within the three year limitation period, a claim would be statute-barred. This decision was very problematic for many plaintiffs’ counsel, given that leave motions can be hotly contested and may take most or all of a three year period just to be brought and finally decided. Provincial legislatures across Canada scrambled to amend their versions of Part XXIII.1 to address the difficulties raised by Timminco.
Later, a series of cases culminating in a 2015 decision of the Supreme Court of Canada in Green v. CIBC (and several other cases heard together with it) developed and established the practice of granting leave to proceed nunc pro tunc under Part XXIII.1 – where leave to proceed can in appropriate circumstances be “backdated” to the date when the original motion for leave to proceed under Part XXIII.1 was filed.
The latest (final?) chapter in the saga of the limitation periods under Part XXIII.1 of the Securities Act came in an April 5, 2018 decision of the Court of Appeal for Ontario in Kaynes v. BP, P.L.C. In that case, the plaintiffs claimed that prominent oil company, BP, had made misrepresentations regarding its operating management system and its ability to respond to an oil spill in the Gulf of Mexico. The genesis of the action was the explosion of the BP oil rig, Deepwater Horizon, on April 23, 2010 and the resulting massive environmental damage. The disaster also negatively impacted the value of BP’s shares – leading to the proposed class action on behalf of its Canadian shareholders.
The plaintiffs sued on fourteen alleged misrepresentations – eleven of which dated to more than three years before the action was commenced. In a preliminary motion to strike out the claim at the pleadings stage, Mr. Justice Perell struck out as statute-barred the eleven claims relating to statements made more than three years before the action, between May 8, 2007 and February 26, 2010. The claim relating to three later misrepresentations survived, as it was not plain and obvious that the plaintiffs would not succeed in obtaining leave to proceed with those claims nunc pro tunc.
The plaintiffs appealed, arguing that, under s.138.3(6) of the Securities Act it is open to the court to treat a series of misrepresentations regarding a common subject-matter as a single misrepresentation for the purposes of a claim under Part XXIII.1. The plaintiffs argued that treating the fourteen misrepresentations as a single ongoing misrepresentation had the effect of extending the three-year limitation period for the claims arising from the eleven out-of-time statements.
Both Justice Perell and the three judges of the Court of Appeal disagreed with the plaintiffs’ argument for a number of reasons:
- Firstly, there is nothing in the language of s.138.3(6) of the Ontario Securities Act that suggests it is intended to modify the clear limitation period under s.138.14;
- Secondly, the policy objectives of Part XXIII.1 of the Securities Act did not support the plaintiffs’ assertions – as it is clear that the three-year limitation period was intentionally put into place “to protect subsequent shareholders from claims based upon alleged misrepresentations made to previous shareholders;”
- Thirdly, the legislative history of Part XXIII.1 and s.138.3(6) demonstrates that it was enacted to protect issuers from multiple rights of action or multiple liabilities for essentially the same misrepresentation repeated on a number of occasions – which runs to contrary to the plaintiff’s submissions; and
- Finally, in the event that s.138.3(6) of the Securities Act was intended to modify the limitation period analysis, it is arguable that this would mean that the claim relating to all fourteen of the alleged misrepresentations would be statute-barred – given that the limitation period under 138.14 runs from the date when a document containing a misrepresentation is “first released.”
It remains to be seen whether this is the last chapter in the ongoing saga of s.138.14 of the Ontario Securities Act. The plaintiffs will almost certainly seek leave to appeal to the Supreme Court of Canada and the legislative policy issues cited by the Court of Appeal in its decision might just give them a hook to get the attention of Canada’s highest court.