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Securities - Securities Act - Statutory Tort. Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation
In Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation (Ont CA, 2023) the Court of Appeal considered the statutory misrepresentation tort under Securities Act (SA) s.138.3, here largely on the tort leave requirement of SA s.138.8:The Legal Principles
[22] Unlike most other misrepresentation actions, the statutory causes of action in s. 138.3, including s. 138.3(1), do not require the plaintiff to prove reliance on a misrepresentation: Green v. Canadian Imperial Bank of Commerce, 2015 SCC 60, [2015] 3 S.C.R. 801, at paras. 11, 75, 183. In a s. 138.3(1) action such as this one, so long as the plaintiff traded in securities of the responsible issuer after the responsible issuer made a material misrepresentation, and before that misrepresentation was corrected, damages are available.
[23] Not only does s. 138.3(1) remove the usual requirement of proof of reliance applicable in other misrepresentation actions but it presumes that fluctuations in value during this period are attributable to the misrepresentation: Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18, [2015] 2 S.C.R. 106, at para. 33.[2]
[24] All of the misrepresentation actions enacted by s. 138.3 are equally generous, and were developed by a pan-Canadian committee of securities regulators, the “Committee on Corporate Disclosure” (the “Allen Committee”),[3] to improve the enforcement of the disclosure regime in secondary markets, and to make remedies accessible to traders: Theratechnologies Inc. at para. 29.
[25] It was evident to the Allen Committee itself, and to Ontario’s legislators that, given their generosity the s. 138.3 misrepresentation actions carry the risk of inviting unmeritorious claims and attracting “strike suits” launched to provoke unwarranted settlements: See Green, paras. 67- 69. Therefore, when the s. 138.3 misrepresentation actions were enacted, legislators included a leave requirement to address this risk, as recommended by the Allen Committee: see Theratechnologies Inc., at para. 39; Badesha v. Cronos Group Inc., 2022 ONCA 663, 163 O.R. (3d) 481, at para. 46, citing Green, at paras. 67-69; and Rahimi v. SouthGobi Resources Ltd., 2017 ONCA 719, 137 O.R. (3d) 241, at paras. 36 - 38, leave to appeal denied, [2017] S.C.C.A. No. 443.
[26] To ensure that this leave requirement is effective in preventing abusive actions, s. 138.8 of the OSA assigns a “robust” and “important gatekeeping role” to the judge conducting the leave hearing: Theratechnologies Inc., at paras. 36, 38; Mask v. Silvercorp Metals, 2016 ONCA 641, 132 O.R. (3d) 161, at paras. 42, 67, leave to appeal requested but application for leave discontinued, [2016] S.C.C.A. No. 454. It imposes two statutory prerequisites to obtaining leave: (a) the action is being brought in good faith; and (b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.
[27] Only the reasonable possibility of success requirement is in issue before us. Abella J. described this requirement in Theratechnologies Inc., at para. 39. She said, “[w]hat is required is sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant’s favour” (emphasis original): Theratechnologies Inc., at para. 39. Justice Abella then affirmed that this requirement is meant to “prevent … litigation with little chance of success”: Theratechnologies Inc., at para. 39.
[28] It can readily be seen that s. 138.8 calls for a qualitative evaluation of the proposed action. It is not enough under s. 138.8 to show that there is a triable issue: Mask, at para. 43. Similarly, it is not enough that the action has a “mere possibility of success”: Theratechnologies Inc., at para. 4. As the language of the provision directs, to secure leave “there must be a ‘reasonable or realistic chance that [the action] will succeed’”: Green, at para. 121, citing Theratechnologies Inc., at para. 38.
[29] In order to satisfy this reasonable or realistic chance of success standard, a plaintiff must “‘offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the [plaintiff’s] claim’”: Green, at para. 121, citing Theratechnologies Inc., at para. 39. To meet the first of these conditions, the analysis of the applicable legislative provisions must provide a plausible legal foundation for the claim: Markowich v. Lundin Mining Corp., 2023 ONCA 359, 166 O.R. (3d) 732, at para. 67, leave to appeal to S.C.C. requested, 40853. To satisfy the second condition, the evidence relied upon by a plaintiff must be “credible”. However, it must be emphasized that these two conditions – the plausible legal foundation, and the credible evidence inquiry - do not alone express the leave standard. These conditions must be satisfied plus the record before the leave judge must demonstrate that there is a realistic or reasonable chance that the action will succeed. Notably, in SouthGobi, at para. 38, Hourigan J.A. described these inquiries conjunctively when summarizing the governing case law:These cases establish that for there to be a reasonable possibility that a misrepresentation action will be resolved at trial in favour of the plaintiff under s. 138.8(1)(b), ‘there must be a reasonable or realistic chance that it will succeed’ and the plaintiff must ‘offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim [Emphasis Added]. [30] As I will discuss below, at times Drywall proceeded as if the entire standard for obtaining leave is the “some credible evidence” standard. It attempted on a number of occasions to identify “credible evidence” favouring its case and then submitted on this basis that the motion judge should have granted leave. However, as Hourigan J.A. went on to state in SouthGobi, at para. 38, the “plaintiff must adduce ‘sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the [plaintiff’s] favour’” (emphasis added), citing from Theratechnologies Inc., at para. 39. Put simply, to be sufficient, evidence must be credible, but even credible evidence may not be sufficient to show that there is a realistic or reasonable chance that a claim will succeed.
[31] It is for this reason that s. 138.8 does not call for a review, in isolation, of only evidence that supports the plaintiff’s theory. “The motion judge must review all the evidence adduced by both parties to ascertain whether there is ‘a reasonable or realistic chance that the action will succeed’”: Mask, at para. 43, citing Theratechnologies Inc., at paras. 38, 39; SouthGobi, at para. 46. Justice Abella commented in Theratechnologies Inc., at para. 38, that a motion judge “must undertake a reasoned consideration of the evidence to ensure that the action has some merit.” As Hourigan J.A. further explained in SouthGobi, at para. 46, “[t]his must include some weighing of the evidence that both parties are required to proffer under ss. 138.8(2) and (3) and scrutiny of the entire body of evidence”.
[32] Of importance, in applying the s. 138.8 leave test, evidence is not to be assumed to be true or taken at face value. As indicated, the credibility of the evidence is to be assessed, an inquiry that is facilitated by the cross-examination that is available under the OSA when supporting affidavits are filed during leave applications: Bayens v. Kinross Gold Corporation, 2014 ONCA 901, at para. 56, leave to appeal requested but application for leave discontinued, [2015] S.C.C.A. No. 59; Goldsmith v. National Bank of Canada, 2016 ONCA 22, 128 O.R. (3d) 481, at para. 33. Similarly, the evidentiary evaluation conducted during a s. 138.8 leave motion includes an assessment of the reliability of the evidence: Bayens, at para. 67. Therefore both the credibility and reliability of the evidence as a whole are material considerations in gauging whether the plaintiff has established a realistic or reasonable chance that their claim will succeed.[4]
[33] Within limits, the comparative strength of competing evidence is also to be considered; the evidence must be sufficiently strong to show a reasonable or realistic chance of success. Therefore, if evidence relied upon by the defendant is so compelling that there is no reasonable possibility that the appellant would succeed at trial, leave may be denied: Nseir v. Barrick Gold Corporation, 2022 QCCA 1718, at para. 46. It follows that if critical evidence offered by a plaintiff is shown by other evidence to be “completely undermined by flawed factual assumptions” a motion judge may choose not to act on that evidence: Mask, at para. 48. In Mask, for example, the plaintiff’s geologist provided evidence that the defendant underreported the amounts of material delivered from a mine, while overestimating the grade of ore produced. The motion judge did not err in finding that this evidence was undermined by competing, uncontroverted evidence provided by the defendant explaining why the testimony of the plaintiff’s geologist was inaccurate: Mask, at paras. 20-26, 48.
[34] It is in this context that the oft-repeated admonition that a s. 138.8 inquiry should not be treated as a “mini-trial” needs to be understood. Regardless of the limitations this admonition imposes, a s. 138.8 motion judge cannot be found to have engaged in a mini-trial simply because their decision turned on considerations of the credibility and reliability or weight of the evidence.
[35] The reach of the prohibition on conducting mini-trials can best be identified by considering its underlying purpose. In explaining her direction to motion judges not to engage in mini-trials, Abella J. focused on the concern that “a full analysis of the evidence” is not only unnecessary but would defeat the objective of a screening mechanism by replicating the trial: Theratechnologies Inc., at para. 39. A second related, and equally powerful, concern is that it would be unfair for a motion judge to purport to conduct a “full analysis of the evidence” at the leave stage, because the leave application will occur before the plaintiff has enjoyed the benefit of documentary and oral discovery procedures: SouthGobi, at para. 48. And a third concern is that if the analysis undertaken by the motion judge purports to finally resolve truly contentious factual controversies that arise, the motion judge will be usurping the role of the trial judge without the benefit of a complete record.
[36] These underlying concerns give rise to at least three clear limitations that arise from the prohibition on conducting mini-trials.
[37] First, it is the trial judge that is to determine whether the matter in issue has been proved on the balance of probabilities. It is not the motion judge’s role to do so. In considering the comparative strength of the competing case, the motion judge is therefore required to keep in mind the “relatively low merits-based threshold” of a realistic or reasonable chance of success: Mask, at para. 45. A motion judge who effectively assesses the case against the ultimate burden rather than this standard will err by conducting a mini-trial: Nseir, at para. 46.
[38] Second, if a motion judge attempts to resolve realistic and contentious issues arising from conflicting credible evidence they will be lapsing into a mini-trial. In SouthGobi, at para. 75, the motion judge was found to have lapsed into a mini-trial by purporting to resolve a key issue that was in dispute because of conflicting, credible evidence. In Cronos, at paras. 77-78, the motion judge was found to have “tip[ped] into the realm of a mini-trial” by concluding that a misrepresentation was not material in the face of “credible, complex and competing evidence on whether misrepresentations have a material effect on share prices.”
[39] Third, during the leave motion, judges must consider the evidence that is not before them: SouthGobi, at para. 48. More precisely, given the early stage at which leave inquiries are undertaken, motion judges must determine whether the lack of a complete record leaves uncertainty about whether a realistic or reasonable chance of success exists: SouthGobi, at para. 50. If a motion judge fails to inquire into whether the record is capable of determining the issue before them, the risk is presented that a motion judge will have intruded on the province of the trial judge by proceeding as though they are conducting a full analysis of the evidence, when they are not.
[40] Therefore, the completeness of the record should affect how a motion judge proceeds. If a motion judge determines that the record is capable of identifying the potential merit of the case, the motion judge may proceed on that record. But if the lack of a complete record could impede the evaluation, the motion judge must take the incompleteness of the record into account in coming to their decision. This is not to say that motion judges should operate on speculative assumptions that missing evidence would favour the plaintiff. After all, the motion judge is to engage in a “reasoned consideration”: SouthGobi, at para. 46, citing Theratechnologies Inc., at para. 38. Instead, motion judges who have reason to be concerned about the incomplete state of the record should be mindful to not impose a standard that is so exacting that, given evidential limitations, it “can work to the prejudice of plaintiffs who have potentially meritorious claims”: SouthGobi¸ at para. 48.
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[71] A “public correction” of an alleged misrepresentation will serve as a “necessary time-post for the proposed [s. 138.3(1) action] and any eventual damages calculation”: Drywall #1, at para. 66; Baldwin v. Imperial Metals Corporation, 2021 ONCA 838, 159 O.R. (3d) 241, at para. 46. A motion judge considering whether leave should be granted pursuant to s. 138.8 must therefore determine “whether [an] alleged public correction was reasonably capable of being understood in the secondary market as correcting what was misleading in the impugned statement”: Drywall #1, at para. 76.
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[86] Ultimately, s. 138.3(1) of the OSA is meant to provide generous access to justice to those whose trading decisions may have been tainted by misrepresentations. It would not be in keeping with this objective or with judicial economy to permit misrepresentation actions to be pursued on behalf of those who trade in securities after alleged misrepresentations have been completely publicly corrected, since a complete public correction will have removed any realistic prospect that those trading decisions may have been tainted. . Markowich v. Lundin Mining Corporation
In Markowich v. Lundin Mining Corporation (Ont CA, 2023) the Court of Appeal canvasses a Securities Act statutory tort, here under s.138.3(4) regarding disclosure by the listed company:(3) Statutory cause of action and test for leave under s. 138.8 of the Securities Act
[47] Section 138.3(4) of the Securities Act creates a statutory right of action for an issuer’s failure to make timely disclosure. The provision gives a right of action to a person or company who acquires or disposes of the issuer’s security between the time when the disclosure should have been made and the time when the disclosure is made, regardless of whether the person or company relied on the issuer having complied with its timely disclosure requirements.
[48] While s. 138.3(4) of the Securities Act creates a statutory cause of action that eliminates the need to prove reliance, to guard against strike suits, s. 138.8(1) of the Securities Act requires that a party obtain leave of the court before proceeding with a claim: see Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801, at paras. 67‑69; Rahimi v. SouthGobi Resources Ltd., 2017 ONCA 719, 137 O.R. (3d) 241, leave to appeal refused, [2017] S.C.C.A. No. 443, at paras. 36‑38. The statutory test for leave provides that the court is only to grant leave if it is satisfied that: (a) the action is being brought in good faith, and (b) there is a reasonable possibility that the action will be resolved in favour of the plaintiff at trial.
[49] In Theratechnologies, at paras. 38-39, the Supreme Court explained, in relation to the same provision in the equivalent Quebec statute, that the “reasonable possibility” branch of the test for leave is meant to be “more than a speed-bump” but not meant to be a “mini-trial”. When seeking leave, a plaintiff must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim”: at para. 39. The court also explained the rationale for these requirements, at para. 39:A case with a reasonable possibility of success requires the claimant to offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim. This approach, in my view, best realizes the legislative intent of the screening mechanism: to ensure that cases with little chance of success – and the time and expense they impose – are avoided. I agree with the Court of Appeal, however, that the authorization stage under s. 225.4 should not be treated as a mini-trial. A full analysis of the evidence is unnecessary. If the goal of the screening mechanism is to prevent costly strike suits and litigation with little chance of success, it follows that the evidentiary requirements should not be so onerous as to essentially replicate the demands of a trial. To impose such a requirement would undermine the objective of the screening mechanism, which is to protect reporting issuers from unsubstantiated strike suits and costly unmeritorious litigation. What is required is sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant’s favour. [Emphasis added.] [50] In Rahimi, at para. 48, this court emphasized that, on a motion for leave under s. 138.8 of the Securities Act, a motion judge is to engage in some weighing of the evidence, but this is also to include consideration of the evidence not available at this early stage of the proceeding:To be clear, the motion judge's duty to scrutinize the entire record is not restricted to a review of the evidence filed on the motion. The motion judge is also obligated to consider what evidence is not before her. She must be cognizant of the fact that, at the leave stage, full production has not been made and the defendant may have relevant documentation that has not been produced or relevant evidence that has not been tendered. Consideration of these evidential limitations of the leave stage is important because they can work to the prejudice of plaintiffs who have potentially meritorious claims. [Emphasis added.] . Wong v. Pretium Resources Inc.
In Wong v. Pretium Resources Inc. (Ont CA, 2022) the Court of Appeal considered a statutory tort under the Securities Act:[34] The statutory claim was brought pursuant to Part XXIII.1 of the OSA, which provides under s. 138.3 for a claim in respect of a document issued by a “responsible issuer” (which includes a reporting issuer), where that document contains a misrepresentation, by a person who acquired or disposed of the issuer’s security between the time the document was released and the time when the misrepresentation was publicly corrected. A “misrepresentation” is defined as (a) an untrue statement of a material fact, or (b) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made. “Material fact when used in relation to securities issued or proposed to be issued” is defined as “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities”. Section 138.4 provides for a number of defences to the statutory claim, including the defence of reasonable investigation.
[35] Section 138.8 sets out a leave requirement, which requires the court to be satisfied that (1) the action is brought in good faith, and (2) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.
[36] The motion judge framed the first issue as whether there was a reasonable possibility that the appellant’s claim that Strathcona’s concerns were material and should have been disclosed (such that the failure to do so in the various impugned documents amounted to a misrepresentation by omission) would succeed at trial. The motion judge accepted that Pretium genuinely believed that Strathcona’s concerns were based on faulty data which, in Pretium’s judgment, were inherently unreliable. He also accepted that Pretium was ultimately proven right: the mill results after completion of the BSP were positive and confirmed the validity of the Resource Estimate. The issue was, however, whether there were misrepresentations by omission by virtue of the failure to disclose material information.
[37] Citing the Supreme Court’s guidance in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175 (an authority relied on by both sides at all stages of these proceedings, including on appeal), the motion judge observed that the materiality standard calls for the disclosure of information that a reasonable investor would consider important in making an investment decision, and that materiality is determined objectively from the perspective of the reasonable investor, and not based on the subjective views of the issuer.
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(ii) Sharbern Holding
[70] Sharbern Holding is a decision of the Supreme Court that addresses the materiality of omitted information in the context of an alleged misrepresentation. At issue was information that was not disclosed by Vancouver Airport Centre Ltd. (VAC), in its marketing of strata lots in two hotels (a Hilton and a Marriott) it was developing on the same property. At trial, VAC was found liable at common law and under s. 75 of the Real Estate Act, R.S.B.C. 1996, c. 397, for having made material false statements in its disclosure documents when it failed to disclose to prospective purchasers of the Hilton units the more favourable financial arrangements it had offered to purchasers of the Marriott units. It was alleged that the Disclosure Statement (a document required under the Real Estate Act) for the Hilton units made actionable misrepresentations when it stated that VAC had entered into agreements with the Marriott that were “similar in form and substance” to those governing the Hilton, and that VAC was not aware of any existing or potential conflicts of interest that could reasonably be expected to materially affect the purchaser’s investment decision.
[71] The B.C. Court of Appeal allowed VAC’s appeal, concluding that, based on VAC’s extensive factual and expert evidence concerning actual and industry practice in the management of multiple hotels by a single entity, and the absence of evidence to objectively support that a reasonable investor would have been concerned about the details of the financial arrangements, the omitted information was not material.
[72] On further appeal, the Supreme Court concluded that the trial judge erred in finding that the omitted facts were “inherently” material and in not considering their materiality in light of the evidence. In his reasons for a unanimous court, Rothstein J. addressed in detail the meaning of “materiality” in the context of the requirement to disclose material facts, including the standard of proof that is required and the type of evidence that is relevant.
[73] At para. 45, Rothstein J. formulated the test for the materiality of an omitted fact as follows:An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote…Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available” [citing TSC Industries Inc. v. Northway Inc., 426 U.S. 438 (1976), a leading U.S. case dealing with proxy solicitations, at p. 449]. [74] He observed that: “materiality” involves the application of a legal standard to particular facts; it is a question of mixed law and fact, determined objectively from the perspective of a reasonable investor; and, it is a fact-specific inquiry to be determined on a case-by-case basis in light of all relevant considerations and “from the surrounding circumstances forming the total mix of information made available to investors”: at para. 61.
[75] Rothstein J. explained that the requirement that the material fact “would”, rather than “might”, have been considered important by a reasonable investor creates a “standard tending toward probability rather than toward mere possibility”: at para. 49. He held that issuers are not under an obligation to “disclose all facts that would permit an investor to sort out what was material and what was not”, and that doing so would “overwhelm investors with information and impair, rather than enhance, their ability to make decisions”: at para. 65.
[76] He explained that the materiality of a fact, statement or omission is something that must be proven by the party alleging materiality, except in those cases where common sense inferences are sufficient. He described the required analysis for materiality in the case of an omission as follows, at para. 61:A court must first look at the disclosed information and the omitted information. A court may also consider contextual evidence which helps to explain, interpret, or place the omitted information in a broader factual setting, provided it is viewed in the context of the disclosed information. As well, evidence of concurrent or subsequent conduct or events that would shed light on potential or actual behaviour of persons in the same or similar situations is relevant to the materiality assessment. However, the predominant focus must be on a contextual consideration of what information was disclosed, and what facts or information were omitted from the disclosure documents provided by the issuer. [Emphasis added.] ....
[110] Finally, I would observe that the motion judge’s analysis does not run afoul of the well-canvassed policy objectives of securities regulation. It is trite that a core objective of the continuous disclosure regime is the protection of investors through the “full, true and plain disclosure of all material facts”: Pacific Coast Coin Exchange of Canada Ltd. v. Ontario (Securities Commission), 1977 CanLII 37 (SCC), [1978] 2 S.C.R. 112, at p. 126. Continuous disclosure creates “a ‘level playing field’ where all investors have access to the same information and all pricing and investment decisions are made from the same starting point”: Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18, [2015] 2 S.C.R. 106, at para. 25. Continuous disclosure in the secondary market is “at the heart of securities regulation and must be scrupulously accurate and fair”: Rahimi v. SouthGobi Resources Ltd., 2017 ONCA 719, 137 O.R. (3d) 241, at para. 80, leave to appeal refused, [2017] S.C.C.A. No. 443. None of these policy objectives would have been served by the disclosure of Strathcona’s concerns in the factual circumstances of this case. . Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation
In Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation (Ont CA, 2021) the Court of Appeal heard an appeal from a Securities Act class action lawsuit motion, dealing with the s.138.1(1) issue of when (and whether) a listing corporation issued a 'public correction', and it's effect. Securities Act cases are unusual so I've linked the entire case [114 paras and an appendix] for now.
. 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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