The Ontario Superior Court of Justice and the Québec Superior Court handed down decisions that certify class proceedings against CP Ships.
The defendant issuer, CP Ships Limited, is a New Brunswick company headquartered in the UK. Its shares were listed on the TSX and NYSE during the class period, January 23, 2003 to August 9, 2004. In August 2004, CP Ships restated its financial statements and reduced its net income over a period of nine quarters by approximately $42 million. In late 2004, class actions were commenced in the United States and in Ontario, Québec and British Columbia.
At the outset, both the US action and the Canadian actions sought certification of a worldwide class and were therefore completely overlapping. Because the Canadian actions were filed before the coming into force of the provincial statutory regimes for secondary market civil liability, including Part XXIII.1 of the Ontario Securities Act, the Canadian actions asserted principally common law and civil law claims. The main cause of action asserted in the Ontario action was negligent misrepresentation. The Ontario action also asserted statutory insider trading claims against two senior officers of CP Ships who were named as defendants in the litigation.
After a lead plaintiff was appointed in the US action, the defendants moved for dismissal. In April 2007, the Middle District of Florida granted the motion based on the plaintiff's failure to plead “scienter” with adequate particularity. In the United States, actions brought under Rule 10b-5 must allege scienter, or fraudulent intent, with a high degree of particularity. Following the granting of the motion to dismiss the US action, the US plaintiffs appealed.
In early 2008, while their appeal was pending, the US plaintiffs settled their action for $1.3 million. The US settlement class excluded “Canadian citizens” who purchased their shares over the TSX. Thus, the proposed US settlement potentially extinguished the claims of the following categories of class members, among others: (1) Canadian institutions, which cannot have citizenship under Canadian law; (2) individuals who reside in Canada but who do not have Canadian citizenship; (3) individuals and institutions domiciled in Canada who acquired securities of CP Ships over the NYSE or pursuant to an offering memorandum or prospectus disseminated in Canada; and (4) individuals and institutions domiciled in countries other than Canada or the United States and who acquired their CP Ships securities over the TSX.
Significantly, however, the US settlement was structured as an “opt-out” settlement. This means that investors who fell within the definition of the US class had an opportunity to exclude themselves from the US settlement and could carry forward as members of the Canadian proceedings, if they qualified as members of the Canadian actions. Indeed, the US court provided class members with two opportunities to opt out of the US action. Nevertheless, after some 34,000 notices were mailed to class members on two occasions advising investors of the US settlement and the right to “opt out” and after notices of the US settlement were published in The Wall Street Journal, The Globe and Mail and La Presse, only seven investors chose to exclude themselves while nearly ten thousand investors have filed claims seeking to share in the US settlement.
The US settlement approval hearing was originally scheduled to occur in June 2008. Prior to that hearing, the proposed class representative from the BC action, a Canadian citizen who purchased shares of CP Ships over the TSX during the class period, filed an objection to the US settlement in the Middle District of Florida. At the settlement approval hearing, the US litigants proposed to the US court that a new notice of the US settlement be disseminated. The proposed new notice advised class members of the pendency of the Canadian actions (the original US settlement notice was silent about the Canadian actions), and the new notice also “clarified” that, for purposes of the US settlement, the term “Canadian citizens” included Canadian institutional investors. The court approved a new notice and ordered that the settlement approval hearing be adjourned until October 2008. The US court also rejected the objection of the BC plaintiff essentially on the basis that he was not a member of the US settlement class and did not have standing to object to the US settlement.
The proposed class representative in the Ontario action also attempted to challenge the proposed US settlement. The Ontario plaintiff brought a motion in the Ontario Superior Court of Justice seeking a declaration that the US settlement would not be enforceable in Ontario. The court dismissed the motion as premature, and noted that the relief sought by the plaintiff would be contrary to the principles of international comity.
On August 28, 2008, prior to final approval of the US settlement, Justice Frank G. Barakett of the Québec Superior Court granted the Québec petitioners' motion for authorization to commence a class action. In Nguyen v. CP Ships Limited, the Québec court certified a national class encompassing all persons resident in Canada who acquired CP Ships securities during the class period. Under Québec law, however, legal entities that employ more than 50 persons cannot participate in a class action. Thus, the Québec class excluded large institutional investors. In granting authorization to commence a class action, the Québec court also held that it would not be necessary for the petitioners to demonstrate reliance on the defendants' alleged misrepresentations in order to sustain a claim based on the civil law. The defendants subsequently sought leave to appeal this decision before the Supreme Court of Canada, but leave was denied.
Prior to the hearing of the adjourned US settlement approval hearing, a Canadian citizen who purchased CP Ships shares over the NYSE filed a further objection to the US settlement. In October 2008, the US court rejected that objection and approved the US settlement. The objector then filed an appeal, which has been heard by the United States Court of Appeals and is pending.
In October 2008, the Ontario plaintiff filed a motion in the Ontario action to add a large Canadian institutional investor, OMERS Administration Corporation, as a plaintiff. In November 2008, the Ontario Superior Court of Justice heard that motion as well as the motion for certification of the Ontario plaintiff.
On June 3, 2009, Justice Helen A. Rady of the Ontario Superior Court of Justice issued her decision on the Ontario plaintiff's motion for certification and motion for leave to add OMERS as a plaintiff. In McCann v. CP Ships Limited, the court granted the motion for leave to add OMERS as a plaintiff (on consent), and certified a class encompassing all persons who, during the class period, purchased CP Ships securities while they were resident in or citizens of Canada, and who are not included in the Québec class. Justice Rady also struck the plaintiff's conspiracy claim, without prejudice, but also held that it was not plain and obvious that the class members would have to prove detrimental reliance in order to assert a claim in negligent misrepresentation.
Simon Hébert of Siskinds, Desmeules s.e.n.c.r.l. acted for the petitioners in the Québec action. Donald Bisson and Shaun Finn of McCarthy Tétrault LLP acted for the respondents.
In Ontario, Charles Wright, Dimitri Lascaris and Monique Radlein of Siskinds LLP acted for the plaintiff. Michael Barrack (currently of ThorntonGroutFinnigan LLP), Chris Hubbard and Erica Richler of McCarthy Tétrault acted for the defendants.
The lead US lawyer for the defendants was Daniel Kramer of Paul, Weiss, Rifkind, Wharton & Garrison LLP. The lead lawyers for the US plaintiffs were Daniel Sommers of Cohen Milstein Sellers & Toll PLLC and Michael Yarnoff of Schiffrin Barroway Topaz & Kessler, LLP (now named Barroway Topaz Kessler Meltzer & Check, LLP).