Court denies leave to commence secondary market class action

11 juillet 2012

Ce billet est disponible en anglais seulement.

In Green v. Canadian Imperial Bank of Commerce, a decision released on July 3, 2012, Justice Strathy denied the plaintiffs in a putative secondary market securities class action leave to assert a cause of action under Part XXIII.1 of the Ontario Securities Act (“OSA”).  His Honour concluded that although the plaintiffs met the test for leave under section 138.8 of the OSA, the right to pursue an action under section 138.3 was time-barred because leave had not been obtained prior to the expiry of the three year limitation period under section 138.14. In addition, Justice Strathy refused to certify the plaintiffs’ common law claim for negligent misrepresentation.


The plaintiffs, two shareholders of Canadian Imperial Bank of Commerce (“CIBC”), sought leave under section 138.8 of the OSA to pursue an action under section 138.3 for statutory misrepresentation in the secondary securities market against CIBC and four of its senior directors for misrepresentations that allegedly occurred between May 31, 2007 and February 28, 2008 (the “Class Period”). The plaintiffs also sought to certify the action as a class proceeding pursuant to section 5 of the Class Proceedings Act, 1992 (“CPA”).

The plaintiffs alleged that CIBC misrepresented its financial position in its public disclosures by failing to reveal the full extent of its exposure to the U.S. Residential Mortgage Market (“USRMM”) and by failing to write down, soon enough and sufficiently enough, the position it held in the USRMM, thereby overstating its income. The plaintiffs alleged misrepresentations with respect to CIBC’s Q2, Q3, Q4 and 2007 fiscal financial statements.


The Plaintiffs’ Statutory Misrepresentation Claim is Time-Barred 

Of significance to Justice Strathy’s decision in Green was the Court of Appeal for Ontario’s decision in Sharma v. Timminco.  During the hearing of the leave and certification motion in Green, the Court of Appeal released its decision in Timminco, which held that in order for a statutory misrepresentation cause of action to be asserted in a class proceeding, so as to trigger the suspension provision in section 28 of the CPA, leave must be granted under section 138.8 of the OSA.  Section 138.14 of the OSA provides for a limitation period of three years from the date of the first alleged misrepresentation in respect of the cause of action for secondary market misrepresentation provided by section 138.3. Section 28 of the CPA provides for the suspension of limitation periods for all class members upon the commencement of an action.  The Court of Appeal held that section 28 of the CPA does not operate to suspend the three year limitation period for the cause of action for statutory misrepresentation until leave has been granted.    

The action in Green was commenced on July 22, 2008, some eight months after the last alleged misrepresentation. The plaintiffs had not obtained leave within the three year limitation period provided by section 138.14 and approximately three and a half years had elapsed between the commencement of the action and the hearing of the motions. Until the release of Timminco, the limitation period had not been the subject of discussion between the parties.

Relying on Timminco, the defendants argued that nothing short of obtaining leave to commence an action could suspend the limitation period pursuant to section 28 of the CPA.  The plaintiffs attempted to distinguish Timminco asserting that: (1) there was no request for an order nunc pro tunc in Timminco; (2) throughout the proceedings they had requested that leave be granted on a nunc pro tunc basis; (3) the “special circumstances” doctrine should apply to extend the limitation period; and (4) the defendants were precluded from relying on the expiry of the limitation period by virtue of the doctrines of estoppel by convention and waiver.

Distinguishing Timminco

Justice Strathy found that, like the plaintiff in Timminco, the plaintiffs in Green had indicated, in their statement of claim, their intention to pursue the cause of action under section 138.3. However, he noted that the case was distinguishable from Timminco because the plaintiffs in Green had expressed an intention to seek leave nunc pro tunc if the limitation period expired before the motion for leave was heard.

Justice Strathy explained that part of the concern in Timminco was that the plaintiff could simply “assert” the OSA claim, thereby suspending the limitation period, and then leave the action to languish. He found that this was clearly not the situation in Green because the plaintiffs had demonstrated a consistent intention to proceed with the leave motion. Nonetheless, this distinction did not permit him to circumvent the Court of Appeal’s clear decision that without leave being granted, the cause of action has not been “asserted” so as to suspend the three year limitation period under section 28 of the CPA.

Granting Leave Nunc Pro Tunc

In Justice Strathy’s view, nunc pro tunc and “special circumstances” were simply two ways of giving effect to the court’s discretionary jurisdiction to extend a limitation period in appropriate circumstances.  However, the exercise of such discretionary jurisdiction in Green would be inconsistent with Timminco.  The decision of the Court of Appeal in Timminco was inconsistent with the notion that the mere inclusion of this language in the Timminco statement of claim would have been sufficient to preserve the limitation period in that case. Accordingly, Justice Strathy held that the inclusion of the words “nunc pro tunc” in Green could not change the result.

Application of the Special Circumstances Doctrine

Justice Strathy concluded that he had no jurisdiction to make an order granting leave nunc pro tunc or extending the limitation period to the date of the decision by application of the special circumstances doctrine because: (1) Part XXIII.1 of the OSA was a complete code governing a statutory remedy of civil liability and there was nothing in the statute to suggest that the limitation period could be extended as a result of common law principles such as discoverability or special circumstances; (2) there was nothing in the judicial interpretation of Part XXIII.1 or Part XXIII to suggest that the special circumstances doctrine applied.  Importantly, the Court of Appeal’s decision in Timminco contained no suggestion at all that there was scope for judge-made exceptions; and (3) the general philosophy of the Limitations Act, 2002, reflected the desirability that limitation periods be clearly defined and not subject to judicially crafted exceptions.

Estoppel by Convention and Waiver

Justice Strathy held that the most that could be said in Green was that the parties may have assumed that the limitation period had been interrupted by the commencement of the action seeking leave nunc pro tunc. However, he concluded that there was no evidence that the defendants actually shared the plaintiffs’ assumption and silence could not be taken as evidence of such an assumption. The defendants were entitled to say nothing, see how the case progressed, how the law developed and assert the defence when the law improved their position.  Moreover, he reasoned, a shared assumption did not give rise to estoppel by convention unless it was communicated by one party to the other.

With regard to the plaintiffs’ argument based on the doctrine of waiver, Justice Strathy concluded that the requirements of unilateral waiver of rights had not been met as there was no evidence that the defendants conducted themselves, by words or actions, so as to evidence an intention to abandon their rights to rely on the limitation defence.  Even if the defendants had been aware of the possibility that the plaintiffs’ claim might ultimately be time-barred if leave was not obtained within three years, they had no obligations to share their views with the plaintiffs.

The Plaintiffs’ Common Law Misrepresentation Claim is not Capable of Resolution on a Common Basis

Turning to the plaintiffs’ motion for certification, Justice Strathy held that the plaintiffs had satisfied the requirements for certification of the action and he certified common issues pertaining to the statutory misrepresentation claim, for which he would have granted the plaintiffs leave to proceed but for the Court of Appeal’s decision in Timminco.  In this regard, Justice Strathy adopted the test for leave which had been enunciated by Justice van Rensburg in Silver v. Imax. However, consistent with his previous decision in McKenna v. Gammon Gold Inc., Justice Strathy refused to certify the plaintiffs’ common law misrepresentation claim on the basis that the need to establish individual reliance precluded the common law misrepresentation claim from being resolved on a common basis. In Justice Strathy’s view, there was no authority to support the proposition that the “fraud on the market” or the “efficient market” theory could supplant the need to prove individual reliance.  Justice Strathy explained that certification of a common law cause of action for misrepresentation would allow the plaintiffs to “circumvent the elaborate procedural and liability structure of Part XXIII.1” of the OSA which was designed to protect the public. In addition, the availability of the common law cause of action would render the statutory system “redundant” and the granting of leave “unnecessary.”

Similarly, Justice Strathy concluded that a class proceeding was not preferable for resolving the reliance-based common law claim.  However, he stated that there was no doubt that it was the preferable procedure for pursuing claims under Part XXIII.1 of the OSA.


Justice Strathy concluded that had he not been required to dismiss the action as time-barred, he would have granted leave to pursue the statutory cause of action, and would have certified the action as a class proceeding for that purpose.

The decision is an important win for defendants in securities class actions and will encourage plaintiffs to move expeditiously towards obtaining leave to commence a Part XXIII.1 claim given the significant consequences of failing to obtain leave within the three year limitation period. It may be that the decision will lead to a new practice of separating the leave and certification motions to ensure that leave is obtained within the requisite period. In addition, the decision will encourage parties to give thought to the limitation period and their available options early in the action, including, (as parties in other securities class actions have done), whether a tolling agreement may be appropriate. As Justice Strathy explained, had the limitation period been raised, the parties might have considered a tolling agreement and had the parties failed to reach an agreement he would have considered whether the hearing could be scheduled at an early date or whether some other order could have been made.

MISE EN GARDE : Cette publication a pour but de donner des renseignements généraux sur des questions et des nouveautés d’ordre juridique à la date indiquée. Les renseignements en cause ne sont pas des avis juridiques et ne doivent pas être traités ni invoqués comme tels. Veuillez lire notre mise en garde dans son intégralité au

Restez au fait grâce à Notre savoir