Filings

According to National Economic Research Associates (NERA), in 2010 there were 8 new securities class actions filings in Canada involving claims of more than $870 million. Altogether, there are now a record 28 active Canadian securities class actions representing more than $15.9 billion in outstanding claims.

Included in the 28 active Canadian securities class actions are a number actions that have plead the new secondary market civil liability provisions of Canadian Securities Acts (i.e. Bill 198 cases), which came into force at the beginning of 2006. To date, there have been nearly 30 Bill 198 cases filed, of which 9 cases have settled.

Settlements

In 2010, NERA recorded settlements in 6 securities class action cases totalling almost $80 million (including one partial settlement). In the Bill 198 cases that settled, defendants paid an average of $10.7 million, with 4 of the 9 cases settling for more than $10 million and 3 settling for less than $3 million. Please note that the information relating to settlements is exclusive of defence costs. With such a relatively small sample, it is hard to make a prediction as to any trends at this time.

Recent Cases

Silver v. IMAX Corporation (“IMAX”)

The case commenced in September 2006 in Ontario and is the first case to consider the leave to proceed and class certification tests set forth in Bill 198. In IMAX, Justice Van Rensburg set a low standard for plaintiffs, ruling that plaintiffs only have to show there is a reasonable possibility for the action to succeed and that it is brought in good faith.

Justice Van Rensburg, in IMAX, certified a class action based on common law claims and the secondary market civil liability sections of the Ontario Securities Act and allowed for a global class of investors to be captured by the Ontario proceeding.

On February 14, 2011, the Ontario Divisional Court released its decision on the leave to appeal application brought by IMAX. The Court found that there was not “good reason to doubt the correctness” of the earlier decision. Thus, they specifically endorsed the right to form a global class. Further, Justice Corbett stated that “this is the sort of claim that ought to be permitted to proceed” at least to trial. The application was denied and thus the decision of Justice Van Rensburg stands, although it is by no means the last word. This decision has caused great debate as to whether Canada—and specifically Ontario—will now become a venue of choice for plaintiffs’ attorneys.

McKenna v. Gammon Gold Inc. (“Gammon Gold”)

In a departure from IMAX, the Court in, Gammon Gold, refused to certify the plaintiff’s common law negligent misrepresentation claim. In rendering this decision, Gammon Gold is consistent with and reaffirmed the way that Ontario courts have traditionally dealt with common law claims of negligent misrepresentation in the context of class actions—namely, that common law claims for misrepresentation are not appropriate for certification since each class member is required to prove reliance on the alleged misrepresentations. The Court did certify the statutory prospectus claim against Gammon Gold under Section 130 of the Ontario Securities Act. Also in contrast to IMAX, the Court in Gammon Gold refused to certify a global class, limiting the class to individuals who purchased directly from underwriters in Canada and under the prospectus.

The plaintiffs sought leave to appeal the Court’s decision and on June 23, 2010, the Ontario Divisional Court released its decision on the leave to appeal application brought by plaintiffs. With respect to the common law claim of negligent misrepresentation, the Divisional Court held that “there is no reason to conclude that the motion judge erred on his assessment of the case law on this subject. In fact, it is because of this that the legislature came-up with a statutory remedy for secondary market shareholders,” namely Bill 198. With respect to plaintiff’s argument that the motion judge erred in failing to certify a global class that included individuals who bought securities outside of Canada, the Divisional Court found that “there are cases where courts have certified an international class, there are cases where they have not... there is no reason to doubt the correctness of the motion judge’s decision on this point.”

In summary, IMAX and Gammon Gold are conflicting decisions in Canada with respect to class certification of common law negligence claims and whether a certified class should be global. It is still early days in terms of the development of the law in this area. We will have to wait and see how the law will ultimately be interpreted.

Increasingly Aggressive Plaintiffs’ Bar

We are observing a more aggressive and entrepreneurial plaintiffs’ bar in Canada. One Canadian law firm alone has sent over 50 letters to various public corporations alleging various securities-related improprieties, demanding that the company conduct an investigation, and threatening class action litigation. Canadian companies and their directors and officers have faced resulting securities class action litigation. Recently, this same plaintiff’s firm has begun to use a new tactic—monitoring the negative press releases of companies and associated stock drops, and announcing via press releases of their own that they are commencing an investigation and evaluating class action litigation.

Further evidence of this more aggressive environment is found in two additional cases: (i) AIG, a foreign issuer, being sued under Canadian securities laws; and (ii) the Sharma v. Timminco carriage motion in which two Canadian firms fought to act as lead plaintiff in respect of a Bill 198 action. The law firm that prevailed in the Timminco matter, Kim Orr LLP, was openly supported by a well-known U.S. securities class action plaintiffs’ firm, Milberg. Recently, a well-known U.S. securities class action plaintiffs’ lawyer from the Milberg firm was called to the Ontario bar in May 2011 and joined the Kim Orr firm to play a lead role in their securities litigation practice.