CANADA – A recent Ontario court decision has underlined the high threshold to be met for parties seeking leave to pursue secondary market securities class actions. In Coffin v. Atlantic Power Corp. (“Coffin“), Justice Belobaba of the Ontario Superior Court of Justice denied certification of a proposed secondary market securities class action, holding that the claim lacked a reasonable possibility of success and reinforcing the high bar in place to dispense with unmeritorious claims.
An action for secondary market misrepresentation under Part XXIII.1 of the Ontario Securities Act (“OSA“) requires leave of the court. The test for leave under the OSA necessitates (i) that the plaintiff(s) bring the action in good faith and (ii) that “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”
This leave threshold was implemented in 2005 when the provincial legislature amended the OSA to allow for secondary market misrepresentation claims to proceed under the statute. The hope was that a leave test would limit frivolous claims going forward. Relying on both Supreme Court of Canada and Ontario Court of Appeal case law, the Coffin decision reinforces this policy objective.
In Coffin, the Plaintiffs alleged that Atlantic Power Corp. (“APC”), a publicly-traded power generation company, significantly reduced a dividend in early 2013 despite public announcements to the contrary in late 2012. The Plaintiffs claimed that APC misrepresented its ability to maintain the dividend, resulting in substantial losses to shareholders given the eventual drop in the company’s share price. As a result, the Plaintiffs claimed APC was liable under ss. 138.3(1) and (2) of the OSA.
After finding that the Plaintiffs met the first part of the leave test (i.e., brought their action in good faith), Justice Belobaba inquired whether there was a reasonable possibility that the action will be resolved at trial in the Plaintiffs’ favour. Following the principles outlined by the Supreme Court of Canada in Theratechnologies Inc. v. 121851 Canada Inc., and the Ontario Court of Appeal in Green v. Canadian Imperial Bank of Commerce, Justice Belobaba reiterated the leave threshold’s purpose is to be a “robust deterrent screening mechanism” to help “weed out hopeless claims”.
From here, Justice Belobaba noted the Defendants strongly challenged the certification efforts from the outset, presenting a number of expert reports, public materials and non-public documents to contest the misrepresentations allegations. Following a review of the substantial evidentiary record (which included some 14,000 electronic records), Justice Belobaba found there to be no misrepresentations, either by assertion or omission, and dismissed the motion for leave under the OSA.
Justice Belobaba also dismissed the Plaintiffs’ common law certification claims as they relied upon the same evidentiary record as the claims made under the OSA. Finding that such a class action would be destined to fail, Justice Belobaba concluded it would also be unsuccessful in promoting principles of judicial economy and access to justice. As a result, the Plaintiffs’ proposed class action was held not to be the preferred procedure.
The Coffin decision reinforces the fact that secondary market securities class actions in Ontario face an uphill battle to satisfy the test for seeking leave under the OSA. Courts in this province will continue to closely scrutinize Plaintiffs’ claims and ensure those without merit are screened out at an early stage. In addition, the results of Coffin may lead defence counsel to becoming more aggressive in challenging such claims from the outset with the filing of voluminous evidentiary records and expert reports to attack allegations of misrepresentation.