SCC class action trilogy raises scrutiny
Leave for securities class actions now requires preliminary hearings on the merits
Plaintiffs seeking leave to file secondary-market securities class actions in Canada will face a steeper incline than they have in the past. For this, they can thank the Supreme Court of Canada’s December decisions in a trilogy of securities class action cases: CIBC v. Green, Silver v. IMAX and Trustees v. Celestica, all emanating from the Ontario Court of Appeal.
While the trilogy dealt mainly with the limitation period under s. 138.3 of Ontario’s Securities Act, the determinations on the leave issue will have by far the most lasting impact. Perhaps most importantly, the trilogy harmonized the test for leave throughout Canada. In a country where jurisdictional and carriage issues pertaining to class actions continue to perplex the judiciary, certitude in any area of the law is more than welcome.
For years the courts had gone back and forth on the issue. In February 2014, the Ontario Court of Appeal stated that the statutory test, which requires “a reasonable possibility that the plaintiff will succeed at trial,” was a “relatively low threshold.”
Two months later, the SCC threw more than a little water on that fire in Theratechnologies v. 121851 Canada. Dealing with the Q uébec equivalent of the Ontario test, the high court ruled that leave was intended to be a “meaningful screening mechanism” designed to prevent “costly strike suits with little chance of success.” Accordingly, plaintiffs had to show more than a mere possibility of success, as some courts had held; rather, the test required “a reasonable or realistic chance that the action will succeed.” The test, therefore, necessitated a preliminary assessment of the merits of the claims based on a review of the evidence as well as the law.
Theratechnogies, then, put some substance into the standard that plaintiffs must meet to satisfy the leave threshold for filing a securities class action, putting businesses in a much better position to avoid undue exposure to dubious secondary-market cases.
“The fact that there is an arguable chance of success is no longer sufficient to obtain leave,” said Pierre Lefebvre of Fasken Martineau Dumoulin LLP, who with colleague Philippe Charest-Beaudry represented the defendant Theratechnologies. “There must be a determination of whether success is a reasonable prospect — and that changes the whole dimension of the leave test.”
Doubt remained, however, as to whether Theratechnologies applied across Canada. “That doubt is gone,” says Andrea Laing, who with colleagues Nigel Campbell and Ryan Morris of Blake, Cassels & Graydon LLP in Toronto represented Celestica. “The trilogy supports a robust interpretation of the leave standard throughout Canada, including a realistic review of the evidence and meaningful legal analysis.”
Critics have argued that the SCC’s interpretation of the rule could result in unnecessarily complex, costly and lengthy leave proceedings. But Alan D’Silva of Stikeman Elliott LLP in Toronto argues that a hearing with a merits component comports with the legislative intent. “When the Canadian Securities Administrators invoked the need for a leave test, they were definitely thinking of a hearing on the merits,” he says. “But that doesn’t mean each leave hearing will involve a full-out, extensive evidentiary record, because each case will be different.”