Canadian Underwriter

IMAX decision in Ontario lowers threshold for proceeding with a civil action for secondary market liability

December 21, 2009   by Canadian Underwriter

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Ontario’s Superior Court in IMAX has established a “relatively low” threshold to be met by plaintiffs seeking leave to proceed with a civil action for secondary market liability, according to Ogilvy Renault.
The decision provides the first judicial interpretation of leave requirements that must be met when shareholders wish to bring a civil secondary market liability claim for misrepresentation under the Ontario Securities Act.
The court interpreted the statutory leave test under the Ontario Securities Act to require plaintiffs to:
•    establish they are bringing their action in the honest belief that they have an arguable claim (and not for some other “oblique or collateral purpose”); and
•    lead credible evidence that would permit the court, after reasoned consideration, to conclude that the plaintiffs had a reasonable possibility of success at trial.
The decision also sends a signal that it is easier to certify a class of shareholders that wants to sue company boards and directors over allegations of misrepresentation.
The Ontario Superior Court on Dec. 14 released reasons in IMAX, which certified a global class of Canadian and non-Canadian shareholders, regardless of whether they purchased their shares on the (Canadian) TSX or (American) NASDAQ stock exchanges.
To make a case for misrepresentation, shareholders are required to show that they relied on a company’s deceptive statements, be they transmitted in the form of stocks, press releases, reports, etc.
But in IMAX, the Ontario Superior Court ruled it was a matter for trial whether the class members’ share purchases on the TSX or NASDAQ exchanges satisfied the reliance requirement for common law misrepresentation.
“The [IMAX] decision departs from other secondary market decisions in which common law claims for misrepresentation were not certified because of the need for each class member to prove reliance,” Ogilvy Renault said in a newsletter.
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