Public issuers in Canada, and their directors and officers, will benefit from a recent ruling of the Court of Appeal for Ontario, which puts a strict time limit on investors seeking to advance a statutory cause of action for allegedly misleading secondary market disclosure.
In Ontario, as in all provinces, an investor seeking to commence such an action must have leave of the Court to proceed with claims brought under the secondary market misrepresentation provisions (Part XXIII.1) of the Ontario Securities Act. A specific provision in the Act states that no action under Part XXIII.1 may be commenced more than three years after the misrepresentations at issue.
In Sharma v. Timminco, the plaintiff issued a proposed class proceeding with a common law allegation of misrepresentations by Timminco from March 2008 to November 2008. In that Statement of Claim, he noted his intention to seek leave to proceed under the Securities Act, but by the end of February 2011, the plaintiff had not yet brought the necessary motion to the Court.
The plaintiff, faced with a limitation issue, sought a declaration from the Court that the three-year limitation period was suspended by virtue of s. 28 of the Class Proceedings Act,1992 which provides that limitation period applicable to a cause of action asserted in a class proceeding is suspended in favour of a class member on the commencement of the class proceeding, until one of many conditions is met.
The plaintiff was initially successful, as the motion judge determined that s. 28 suspended the Securities Act limitation period. However, the Court of Appeal, using principles of statutory interpretation, determined that because there can be no cause of action under Part XXIII.1 of the Securities Act until the motion for leave to proceed is brought and granted, the 3 year limitation period does not stop running simply because a Plaintiff issues a common law Statement of Claim that says such a motion will later be brought. Accordingly, the Plaintiff in Sharma had missed the time within which to bring that motion.
This decision should be applicable across Canada, and provides some closure to issuers and others that may be subject to such lawsuits, since the Ontario Court of Appeal has, in making this decision, rejected the notion that the limitation period can be suspended indefinitely, permitting claimants to take years to seek leave. The Plaintiff will be seeking leave to the Supreme Court of Canada, so the final word on this topic remains open.
Sharma v. Timminco Limited, 2012 ONCA 107
ONCA Court File No.: C53624
Date of Decision: February 16, 2012