CIBC v. Green: The Supreme Court Of Canada Clarifies Key Provisions Of The Ontario Securities Act And The Ontario Class Proceedings Act

A recent decision by the Supreme Court of Canada offers both clarity and further questions on the timing of secondary market misrepresentation claims brought under the Ontario Securities Act (the "Securities Act"). While we are not Canadian attorneys, our reactions to the case may be of interest to institutional investors who transact in Canadian securities subject to the Securities Act.

In 2012, the Canadian securities class action bar was stunned by the Ontario Court of Appeals decision in Sharma v. Timminco. There, the Court held that a cause of action for "secondary market misrepresentation" (discussed below) under the Securities Act was time-barred if leave to bring the action was not moved for and actually granted within the three-year statute of limitations period. This rattled proposed class plaintiffs and counsel, who had generally operated under the assumption that the mere bringing of a statutory cause of action within the three-year limitation period satisfied the statute. Three years later, the Supreme Court of Canada issued its decision in Canadian Imperial Bank of Commerce v. Green ("CIBC v. Green"), which, while clarifying the acceptable time period to move for and obtain leave to commence a statutory action, still leaves several questions unanswered.

Part XXIII.1 of the Securities Act creates a statutory cause of action for "secondary market misrepresentation." Briefly stated, it provides for a cause of action against "responsible issuers" and various related parties for misrepresentations or omissions affecting the price of securities on the secondary market. However, the Securities Act requires prospective plaintiffs to obtain leave of the court to commence an action under the statute, where they must prove to the court that 1) the action is brought in good faith, and 2) the action has a reasonable possibility of success at trial. The Securities Act also requires that such leave be obtained within three years from the time of the alleged misrepresentation.

The Securities Act left unanswered whether the three-year limitation period requires a prospective plaintiff to commence their claim within three years, or if it requires them to commence their claim and actually obtain leave within three years. Without guidance from the legislature or the courts, it was assumed that section 28 of the Ontario Class Proceedings Act ("CPA") tolled the three-year limitation period by suspending the period if "on the commencement of [a]...