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Securities

. Wright v. Horizons ETFS Management (Canada) Inc.

In Wright v. Horizons ETFS Management (Canada) Inc. (Ont CA, 2020) the Court of Appeal reviews statutory remedies under the Securities Act:
(2) The Legal Framework

(a) Purposes of the Securities Act

[126] One of the underlying purposes of the Securities Act is “the protection of the investing public through full, true and plain disclosure of all material facts relating to securities being issued”: Pacific Coast Coin Exchange v. Ontario Securities Commission, 1977 CanLII 37 (SCC), [1978] 2 S.C.R. 112, at p. 126, citing Re Ontario Securities Commission and Brigadoon Scotch Distributors (Canada) Limited, 1970 CanLII 436 (ON SC), [1970] 3 O.R. 714, at p. 717.

[127] With some exceptions, the Securities Act requires companies to file a prospectus before engaging in a trade in a security that qualifies as a “distribution”. The statutory definition of distribution under s. 1(1) of the Securities Act captures “that moment of initial distribution when a security first becomes available to the public, thereby triggering the disclosure obligations designed to protect investors”: David Johnston, Kathleen Rockwell, and Cristie Ford, Canadian Securities Regulation, 5th ed. (Toronto: LexisNexis Canada, 2014), at 5.7 (italics in original).

[128] The prospectus must make “full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed”: Securities Act, s. 56(1). Thereafter, companies must meet continuous disclosure obligations under Part XVIII of the Securities Act.

(b) Sections 130 and 138.3 of the Securities Act

[129] Sections 130 and 138.3 of the Securities Act enhance the common law by providing statutory causes of action for misrepresentations that affect the value of securities purchased.

[130] Section 130 provides a statutory cause of action for misrepresentations in a prospectus for funds distributed on the primary market: Tucci v. Smart Technologies Inc, 2013 ONSC 802, 114 O.R. (3d) 294, at paras. 21, 40. Section 130 in Part XXIII provides that:
130. (1) Where a prospectus, together with any amendment to the prospectus, contains a misrepresentation, a purchaser who purchases a security offered by the prospectus during the period of distribution or during distribution to the public has, without regard to whether the purchaser relied on the misrepresentation, a right of action for damages against,

(a) the issuer or a selling security holder on whose behalf the distribution is made…
[131] Section 138.3 provides a statutory cause of action for misrepresentations for purchasers who acquire securities on the secondary market: Sharma v. Timminco Limited, 2012 ONCA 107, 109 O.R. (3d) 569, at paras. 7-8, leave to appeal refused, [2012] S.C.C.A. No. 157. Section 138.3 in Part XXIII.1 provides that:
138.3 (1) Where a responsible issuer or a person or company with actual, implied or apparent authority to act on behalf of a responsible issuer releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer’s security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages against,

(a) the responsible issuer; …
[132] Section 138.3 provides fewer remedies to investors than s. 130. Unlike s. 130, s. 138.3 includes a damages cap of the greater of 5% of the issuer’s market capitalization or $1 million for a responsible issuer, and a loser pays costs rule: Securities Act, ss. 138.1, 138.7, and 138.11. Moreover, a plaintiff who brings a claim pursuant to s. 138.3 must first obtain leave to commence an action, unlike a plaintiff who commences an action under s. 130: Securities Act, s. 138.8(1).

[133] As such, there are distinct advantages to pursuing a claim under s. 130 rather than s. 138.3 of the Securities Act.

[134] Both sections enhance the remedies available to investors under the common law. The common law tort of negligent misrepresentation requirements are as follows:
a. There must be a duty of care based on a “special relationship” between the representor and the representee;

b. The representation must be untrue, inaccurate, or misleading;

c. The representor must have acted negligently in making the representation;

d. The representee must have relied, in a reasonable manner, on the negligent misrepresentation; and

e. The reliance must have been detrimental to the representee in the sense that damages resulted.
Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, at p. 110.

[135] While at common law plaintiffs must demonstrate reasonable reliance, plaintiffs who proceed with a claim for statutory misrepresentation are not required to demonstrate reliance in order to recover damages: Securities Act, ss. 130(1), 138.3(1).




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