CIBCKevin Van Paassen/The Globe and Mail
The Supreme Court of Canada is poised to hear arguments next week in three shareholder class actions – including one alleging the Canadian Imperial Bank of Commerce misled shareholders about its exposure to the U.S. subprime mortgage meltdown – that could have wide ramifications for securities lawsuits.
Though some of the shareholder class actions filed in Canada demand hundreds of millions in damages, the number of cases remains small. It has grown steadily, however, after Ontario amended its securities legislation in 2005 to make it easier for investors who bought shares on a stock market to sue companies that they accuse of issuing misleading financial results. (Other provinces followed suit with similar legislation.)
On Monday, the court will hear from a phalanx of top Bay Street litigators on a trio of big shareholder cases featuring allegations against CIBC, Celestica Inc. and Imax Corp. The court's decision could see it weigh in on just how high the legal hurdles should be for the plaintiffs who launch this kind of action.
These three cases, and a number of others, have been left in a kind of limbo after a series of Ontario rulings. In February, 2012, an Ontario Court of Appeal ruling in another case, launched by shareholders against Toronto-based Timminco Ltd., set a strict three-year deadline for plaintiffs to win leave, or permission from a judge, for their case to proceed under the Ontario Securities Act.
That ruling appeared to scupper a long list of cases. Although defendants' lawyers celebrated, shareholder rights advocates and plaintiffs' lawyers warned that defendants could simply use procedural delays, and point to an overburdened court system, while running out the clock. In other class actions, legal limitation periods are frozen once plaintiffs have filed their cases.
In the CIBC case, Justice George Strathy said in his 2012 ruling that it was "with considerable regret" that he could not allow the case against the bank to proceed, despite his finding that it had a "reasonable possibility of success" at trial. CIBC denies the allegations.
The tide turned, however, after special five-judge panel of the Ontario Court of Appeal held an extraordinary hearing in May, 2013, and, in a ruling issued last February, reversed itself on the question of the three-year deadline. The move revived the CIBC case and others like it, and set the stage for next week's Supreme Court challenge.
In another wrinkle, the Ontario government has also changed its law to eliminate the ambiguity over the three-year deadline, whatever the Supreme Court eventually decides. (Manitoba has also changed its legislation.)
The Supreme Court is also being asked to rule on two other questions which could have broader implications. One is just how strong a case plaintiffs need to put forward in order for a judge to grant leave under the Ontario Securities Act. This screening provision is meant to discourage baseless U.S.-style "strike suits" that seek quick settlements.
"Getting leave to start a lawsuit in our legal system is relatively rare," said lawyer Eugene Meehan, a former executive legal officer of the Supreme Court. "It's like stopping a bus and asking permission of the bus driver to get on board – clearly that's what buses are for. But yet, how one gets leave in the context of cases such as this is of extreme importance to this emerging area of litigation."
The other issue is whether plaintiffs in cases such as these should be allowed to file common-law claims alongside their claims under the Ontario Securities Act. Common-law claims on behalf of shareholders are much more difficult to prove, but there is no cap on the damages that plaintiffs can claim. In claims under the Securities Act, however, damages from a company are limited to 5 per cent of its market capitalization.
Jasminka Kalajdzic, an associate professor of law at the University of Windsor, said the ruling could see the court weigh in on the broader issue of how class actions fit into the discussion around access to justice.
"We're talking about access to justice for shareholders … most of whom would not be able to pursue the corporations in question individually," Prof. Kalajdzic said. "The technical arguments are important for this larger conversation that we are having about breaking down the barriers to justice for people who say they have been wronged."