Litigation – Securities

The Supreme Court of Canada’s decision in AIC Limited v. Fischer is best known for the proposition that plaintiffs who have received settlements in regulatory proceedings (in this case, Ontario Securities Commission proceedings) are not necessarily precluded from bringing class actions against the settling respondents. At Fischer’s core, however, was the question of whether a class action is the preferable procedure for dispute resolution in such circumstances. In answering the question, the high court ruled that judges must go beyond the procedural differences between courts and regulatory bodies to examine the substantive aspects of a case.

There can be little doubt that this approach will complicate certification proceedings, for it means that judges must delve into the merits of a case sufficiently to determine the relative remedies that plaintiffs can achieve in different forums. In Fischer, for example, the court found that there was some evidence to support the claim that the regulatory settlement of $205 million that the defendants paid to the plaintiffs in the OSC proceedings did not amount to full compensation. The Court relied on expert evidence adduced by the plaintiff in support of this point and found that there was no reason to believe that this additional recovery, if achieved, would be consumed by the costs of a class action. The court’s conclusion was facilitated by the fact that the settlements had occurred and the sum awarded to the plaintiffs was easily ascertainable. The question would be a far more difficult one, however, if plaintiffs brought a class action before regulatory proceedings were commenced or completed, and a court had to determine the likely outcome of the regulatory proceedings as well as the class action. The upshot would almost certainly be a time-consuming and expensive battle of experts. It’s not that leading evidence on the issue of preferable procedure is new to plaintiffs or defendants. What is new is that the parties have been explicitly directed to address a new battleground based on the SCC’s cost-benefit analysis in Fischer. At the very least, there is certainly room for defendants to be more assertive in demonstrating that plaintiffs’ goals in a class action are no more than pie in the sky, and that the expected recovery in court may be even less than in the regulatory proceedings.


To no one’s surprise, plaintiff and defence lawyers differ on the extent to which the threshold leave requirement in Ontario’s Securities Act has proven to be an effective filter against scurrilous secondary market securities class actions.

Before such actions can proceed, the plaintiffs must establish that the action is being brought in good faith and that there is a reasonable possibility that the action will be resolved at trial in favor of the plaintiff.

At press time, there had been eight contested leave motions in Ontario. Leave was granted in part in six cases (Imax, Arctic Glacier, CIBC, Manulife, Canadian Solar, Celestica) and outrightly denied in two (Western Coal, Kinross). The defendants consented to leave in five instances (Agnico Eagle, Canada Lithium, SNC-Lavalin, Sino-Forest, easyHome). Otherwise in Canada there have only been two leave motions in securities class actions. Leave was denied in BC in Round v. McDonald Detwiler and granted in Québec in Theratechnologies, where the leave decision is under appeal to the Supreme Court of Canada.

The leave statistics come in the wake of a recent report from NERA Economic Consulting indicating that the number of outstanding Canadian securities class actions grew in 2014. NERA calculates there were 60 outstanding actions at the end of 2014 compared to 55 at the end of 2014. But that’s not due to an increase in the number of filings; rather, what happened is that the 11 actions filed in 2014 outstripped the six settlements and one dismissal that occurred. Indeed, NERA’s own statistics indicate that the 15 filings in 2011 were followed by 10 in 2012 and 11 in both 2013 and 2014. The average since 2009 has been 11.4 filings per year, meaning that the last three years have seen below average activity.

On their face, the 60 unresolved actions represented more than $35 billion in claims. Settlement amounts, however, were on average just 13.8 per cent of claimed compensatory damages, representing total settlements of under $5 billion if the outstanding claims were to be resolved on the same basis.

Extrapolating liability from the six Canadian securities class actions that settled in 2014 for $38.4 million, the potential damage works out to $384 million for the cases now on the dockets. Taking NERA’s average settlement of $10.7 million for the 50 settlements from 1997 to 2014 now in its database, the liability for outstanding cases would amount to a little more than $1 billion. The silver lining is that the six actions settled in 2014 and also in 2013 were twice as many as were settled in 2012.

The other bit of good news in NERA’s findings is that settlements in the US are declining. Excluding settlements above $1 billion, the drop from 2013 is 38 per cent; if settlements above $1 billion are taken into account, the drop is 61 per cent. This affects Canada because about one-half of Canadian securities class actions engage a parallel US proceeding. 

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