Introduction
The Court of Appeal in Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc.[1] recently determined whether, once leave to assert a claim under part XXIII.1 of the Ontario Securities Act (the “OSA”)[2] has been granted, plaintiffs may later move to amend their claim under Rule 26.01 of the Rules of Civil Procedure without also obtaining leave under the OSA. The Court’s response was twofold: if the amendment is substantive and essentially involves a new misrepresentation, then the requirement of subsection 138.8(1) of the OSA must be satisfied, but if the amendments are not substantive, then only the requirements of Rule 26.01 apply.
Discussion
The plaintiffs commenced an action against SNC-Lavalin Group Inc. (“SNC”) in 2012 after public allegations against the company resulted in a corrective decline in the price of SNC’s shares. The plaintiffs obtained an order certifying the proceeding as a class action and sought leave (without opposition by SNC) to commence an action under Part XXIII.1 of the OSA, which governs actions for damages related to misrepresentation and imposes a limitation period to commence an action.[3] The plaintiffs’ original claim included the following allegations:
- that SNC misrepresented certain agreements that resulted in a USD$56 million profit for SNC; and
- that SNC misrepresented certain conduct of two former employees related to SNC’s presence in Bangladesh.
Over the course of the next two years, as ongoing criminal and regulatory investigations resulted in further allegations against SNC, the plaintiffs made multiple amendments to their Statement of Claim. SNC opposed the last round of these amendments on the basis that they required fresh leave under subsection 138.1(1) of the OSA, which ought to be refused because the amendments were statute barred by operation of the limitation period set out in subsection 138.14(1).
In January 2015, the Ontario Superior Court dismissed the plaintiffs’ motion to amend on the basis that to decide otherwise would result in procedural unfairness to the defendants. In his decision, Justice Perell observed that “[o]btaining leave cannot be used as a procedural bait-and-switch tactic or as a procedural bait-and-pile-on tactic,”[4] spurring legal commentators to query about the future impact of this decision on class actions.
The appeal was allowed in part. The Court of Appeal held that certain of the proposed amendments related to misrepresentations that had not been previously pleaded and as such, had become statute barred. The non-substantive amendments were allowed to proceed.
Comment
While it is too early to predict the effect of this decision on other actions brought under the OSA, the Court’s careful weighing of the purpose and objectives of Part XXIII.1 indicates that courts will be vigilant in ensuring that claims that are out of time are not “piggy-backed” onto existing allegations. This is consistent with the general principle enshrined in Rule 26 that amendments not tenable at law are prohibited.
[1] 2015 ONCA 718, 2015 CarswellOnt [“Drywall Acoustic”].
[2] RSO 1990 c S 5.
[3] Ibid – see s. 138.3(1), which sets out that there is a right of action for damages for a person or company who acquires or disposes of an issuer’s security between a document’s release and public correction of a misrepresentation in the document, regardless of whether the person or company relied on the misrepresentation; see s. 138.8(1), which requires leave of the Court to commence an action under s. 138.3; and see s. 138.14(1), which establishes a three-year limitation period to commence the action, beginning on the date the document containing the misrepresentation was initially released.
[4] Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v SNC-Lavalin Group Inc., 2015 ONSC 256, 2015 Carswell Ont 195 at para 7.
