Quebec Superior Court certifies"fraud on the market" case

October 2, 2002

On September 25, 2002, Justice Pierre Viau of the Quebec Superior Court certified a class proceeding against all the defendants to an action brought on behalf of those shareholders of Jitec Inc. who purchased their shares between July 26, 2000 and November 9, 2000 (hereinafter “the Shareholders”). The defendants included Jitec Inc., its president Benoît Laliberté as well as three brokerage firms (Canaccord, Leduc & Associates & CIBC World Markets). The Petitioners have alleged that they suffered damages as a result of manipulation of Jitec’s share price pursuant to a conspiracy among the defendants to maintain it at an artificially high level.

Justice Viau was of the opinion that the Petitioners had satisfied the four conditions required by Section 1003 of the Quebec Code of Civil Procedure(hereinafter “C.C.P.”) because:

  • the facts alleged by the Petitioners (the accuracy of which is presumed for the purposes of the motion for authorization to institute class proceedings), if proven at trial, may justify the conclusions sought against the defendants (Section 1003b) C.C.P.); 
  •  determination of the accusations by the Shareholders that the defendants committed fraud (namely of knowingly or negligently maintaining the price of the shares of Jitec at an artificially high level) as well as the damages consequent to it would be of benefit to all the Shareholders (Section 1003a) C.C.P.); and
  • a class action is the appropriate procedural vehicle to adequately promote the rights of the members of the class (Section 1003c) C.C.P.). This decision creates a significant precedent in securities class actions as:
  • it is the first time that a class action has been certified against brokerage firms in Quebec;
  • it marks a clear departure by the Superior Court of Quebec from the principles applied and set forth by the Ontario courts in the Bre-X case (in which the “fraud on the market” theory was rejected); and it continues a trend in Quebec towards a more permissive approach regarding certification of class actions.
  • it continues a trend in Quebec towards a more permissive approach regarding certification of class actions.

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