Following on the heels of leave to appeal being denied in IMAX,1 a second case has been granted leave to pursue secondary market misrepresentation claims under Part XXIII.1 of the Ontario Securities Act ("OSA") and has been certified as a class action for common law and statutory misrepresentation claims: Dobbie v. Arctic Glacier Income Fund.2

The action raises primary and secondary market misrepresentation. It alleges that Arctic Glacier Income Fund ("Income Fund"), a mutual fund trust and a reporting issuer, misrepresented that it and its subsidiaries were good corporate citizens operating lawfully in a very competitive market. In 2009, the principal operating subsidiary of the Income Fund pleaded guilty to a charge of participating, during the proposed class period, in a criminal, anti-competitive conspiracy in the United States.

The following findings of The Honourable Justice Tausendfreund, in the Court's reasons released on March 1, are worthy of note:

(a) Statutory Misrepresentation Claims Under the OSA

  • Defendants do not need to file any responding material in opposing a plaintiff's leave motion under Part XXIII.1 of the OSA.
  • In interpreting the leave test under Part XXIII.1 of the OSA, Justice Tausendfreund adopted the analysis in IMAX.
  • The Court allowed claims under Part XXIII.1 of the OSA to proceed for statements made as far back as 2002. While Part XXIII.1 only came into effect at the end of December 2005 and includes a three-year limitation period, the Court accepted that it was open to the plaintiffs to demonstrate at trial that the defendants' representations between 2002 and 2008 could be treated as a single misrepresentation3 and a continuing fact situation.
  • To pursue statutory claims for investors who purchased their units outside of Ontario, the plaintiff must plead the relevant provisions of the securities acts of the other provinces in which purchases were made by the proposed class.4

(b) Common Law Misrepresentation

  • Section 130 of the OSA does not subsume common law claims, and it is not "plain and obvious" that an issuer's directors/trustees do not owe a duty of care to investors.
  • Claims in negligence and negligent misrepresentation are not necessarily duplicative. In this case, Justice Tausendfreund found the claims to raise separate causes of action, noting that the plaintiffs' negligence simpliciter claim asserts that securities issued pursuant to the prospectuses would not have been issued but for the defendants' negligence, whereas the negligent misrepresentation pleading deals with a number of misrepresentations contained in various prospectuses and public disclosures.
  • The Court refused to strike out the plaintiffs' assertion that reliance can be inferred from the act of purchasing units on the secondary market. Instead, it adopted the previously articulated view in CP Ships5 that the case law remains in a state of evolution.
  • Justice Tausendfreund acknowledged that depending on the type and number of alleged misrepresentations in a particular case, questions of reliance could in certain circumstances overwhelm the common issues and would, as such, not be suitable to be resolved as a class proceeding. However, in this case he noted that the alleged misrepresentations were consistent, repetitive and could essentially be treated as one. Therefore, he was prepared to allow the question of whether reliance could be inferred on a class-wide basis to proceed as a common issue for trial.

Footnote

1 Silver v. IMAX Corporation, 2011 ONSC 1035

2 Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25

3 The Court cited s. 138.3(6) of the OSA which provides that multiple misrepresentations having a common subject matter or content may, in the discretion of the court, be treated as a single misrepresentation.

4 Arctic Glacier Income Trust was a reporting issuer in ten provinces including Ontario. The plaintiffs had simply pleaded the OSA.

5 [1]McCann v. CP Ships Ltd, [2009] O.J. No. 5182 (Ont.S.C.J.)

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