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| Docket: | CA026972 CA026980 CA026983 |
COURT OF APPEAL FOR BRITISH COLUMBIA | |||
| BETWEEN: | |||
| DONALD PEARSON, ELIZABETH MATUS and KENNETH ELLIOTT as representative plaintiffs | |||
| RESPONDENTS (PLAINTIFFS)
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| AND: | |||
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BOLIDEN LIMITED, TRELLEBORG AB, ANDERS BÜLOW, JAN PETTER TRAAHOLT, KJELL NILSSON, LARS OLOF NILSSON, ALEX G. BALOGH, ROBERT K. McDERMOTT, ROBERT R. STONE, FREDERICK H. TELMER and NESBITT BURNS, INC.
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| APPELLANTS (DEFENDANTS)
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| Brought under the Class Proceedings Act, R.S.B.C. 1996, c. 50 | |||
| Before: | The Honourable Chief Justice Finch |
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| The Honourable Madam Justice Newbury |
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| The Honourable Madam Justice Saunders |
| E.M. Myers and D.
| Counsel for the Appellants Boliden Limited, Jan Petter Traaholt, Kjell Nilsson, Lars Olof Nilsson and Robert K. McDermott
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| R.J.R. Hordo, Q.C. | Counsel for the Appellants Alex G. Balogh, Robert R. Stone and Frederick H. Telmer
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| D.G.S. Rae, Q.C. and A.D. Borrell | Counsel for the Appellant Nesbitt Burns, Inc.
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| D.A. Klein | Counsel for the Respondents
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| Place and Date of Hearing: | | ||
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| Written Submissions Received:
| October 23 and 28, 2002 | ||
| Place and Date of Judgment: | | ||
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Written Reasons by:
The Honourable Madam Justice Newbury
Concurred in by:
The Honourable Chief Justice Finch
The Honourable Madam Justice Saunders
Reasons for Judgment of the Honourable Madam Justice Newbury:
[1] This appeal arises in the context of a procedural dispute about the definition of subclasses of plaintiffs under the Class Proceedings Act, R.S.B.C. 1996, c. 50, but it raises broader questions about the regulation of securities in
[2] Questions of this kind are rare because the Securities Acts of most of the provinces are so similar. (See Securities Act, R.S.B.C. 1996, c. 418; Securities Act, S.A. 1981, c. S-6.1; Securities Act, 1988, SS. 1988, c. S-42.2; Securities Act, R.S.M. 1988, c. S50; Securities Act, R.S.O. 1990, c. S.5; Securities Act, R.S.Q., c. V-1.1; Securities Act, R.S.N.S. 1989, c. 418; Security Frauds Prevention Act, R.S.N.B. 1973, c. S-6; Securities Act, R.S.P.E.I. 1988, c. S-3; and Securities Act, R.S.N. 1990, c. S-13, all as amended, herein referred to as the "Acts".) Most of the Acts create a "closed system" of securities trading and thereby regulate initial distributions of shares to the public, takeover bids, insider trading and the disclosure of information relating to publicly-traded shares. (See generally D. Johnston and K.D. Rockwell, Canadian Securities Regulation (2nd ed., 1998) Ch. 5, and M. Gillen, Securities Regulation in Canada (2nd ed., 1998) at 74-79.) Most require the registration or licensing of brokers, dealers and other market intermediaries, and establish securities commissions or similar bodies which have rule-making, investigative and adjudicative functions.
[3] In connection with the subject-matter of this case, a distribution of shares of a corporation by its controlling shareholder, most of the Acts require that a prospectus be filed with and accepted by provincial securities authorities before the distribution may proceed. Nine of the Acts, including
[4] In broad terms, eight of the Acts provide that if the prospectus contains a misrepresentation, a person who has purchased the offered securities "during the period of distribution" or "in a distribution" has a cause of action for damages against the issuer or seller of the securities, the underwriters thereof, and other specified persons. (A possible exception is
[5]
131 (1) If a prospectus contains a misrepresentation, a person who purchases a security offered by the prospectus during the period of distribution
(a) is deemed to have relied on the misrepresentation if it was a misrepresentation at the time of purchase, and
(b) has a right of action for damages against
(i) the issuer or a selling security holder on whose behalf the distribution is made,
(ii) every underwriter of the securities who is required under section 69 to sign the certificate in the prospectus,
(iii) every director of the issuer at the time the prospectus was filed,
(iv) every person whose consent has been filed as prescribed, and
(v) every person who signed the prospectus.
(2) A person referred to in subsection (1)(b)(iv) is liable only with respect to a misrepresentation contained in a report, opinion or statement made by the person.
. . .
(6) A person is not liable under subsection (1) with respect to any part of the prospectus purporting
(a) to be made on the person's own authority as an expert, or
(b) to be a copy of, or an extract from, the person's own report, opinion or statement as an expert
unless the person
(c) failed to conduct a reasonable investigation to provide reasonable grounds for a belief that there had been no misrepresentation, or
(d) believed that there had been a misrepresentation.
(7) A person is not liable under subsection (1) with respect to any part of the prospectus not purporting
(a) to be made on the authority of an expert, and
(b) to be a copy of, or an extract from, a report, opinion or statement of an expert
unless the person
(c) failed to conduct a reasonable investigation to provide reasonable grounds for a belief that there had been no misrepresentation, or
(d) believed that there had been a misrepresentation.
(8) Subsections (5) to (7) do not apply to the issuer or a selling security holder.
(9) An underwriter is not liable for more than the total public offering price represented by the portion of the distribution underwritten by the underwriter.
(10) In an action for damages under subsection (1), the defendant is not liable for all or any part of the damages that the defendant proves does not represent the depreciation in value of the security resulting from the misrepresentation.
(11) The liability of all persons referred to in subsection (1)(b) is joint and several as between themselves with respect to the same cause of action.
. . .
(13) The amount recoverable by a plaintiff under this section must not exceed the price at which the securities purchased by the plaintiff were offered to the public.
(14) The right of action for rescission or damages conferred by this section is in addition to and not in derogation from any other right the purchaser may have.
(The other provincial counterparts to these provisions are reproduced at Schedule A to these Reasons.)
[6] Most of the provinces impose a limitation on actions brought under these sections in terms similar to
140 Unless otherwise provided in this Act or in the regulations, an action to enforce a civil remedy created by this Part or by the regulations must not be commenced
. . .
(b) in the case of an action other than for rescission, more than the earlier of
(i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or
(ii) 3 years after the date of the transaction that gave rise to the cause of action.
[7] But there are differences among the Securities Acts which may be critical in this appeal. First, the
[8] A similar question arises in connection with persons who reside outside
FACTS
The Boliden Distribution
[9] The facts underlying this action, which the defendants conceded was appropriate for certification under the Class Proceedings Act, are fairly simple. On
[10] The prospectus disclosed that Boliden was engaged in the mining, processing and sale of metals and mineral products, principally zinc, cooper and gold. The company was a wholly-owned subsidiary of the defendant
[11] One of Boliden's subsidiaries was Boliden Apirsa SL, which at the time of the offering operated a mine in
At Apirsa (
Under the heading "Environment, Health and Safety", the prospectus continued:
Boliden is well advanced in the establishment of a comprehensive environmental management system consisting of an environmental policy, codes of practice, audits, job descriptions and procedures, rules and responsibilities, employee training, public and employee reporting, emergency prevention and response, hazard analysis and community awareness. Environmental protection and pollution prevention are priorities at all operations. . . .
As a condition of the mining concessions granted in connection with the development of its Los Frailes mine, Apirsa is required to satisfy certain conditions relating to environmental matters which involve estimated capital expenditures of approximately U.S.$4.6 million. These expenditures are included in the total capital expenditures of U.S.$163 million required to bring the mine into production and to upgrade the existing mill. Apirsa believes that it is able to comply with these provisions at a cost not in excess of such amounts and that it is otherwise in compliance with the environmental permits necessary to construct and operate the mine.
[12] The prospectus contained a "Certificate of the Corporation" stating that the contents of the document constituted full, true and plain disclosure of all material facts relating to the offered securities and that it did not contain any misrepresentation likely to affect the value or market price of the shares. As required by the Acts, the certificate was signed by Boliden's President and CEO, its CFO and two directors on behalf of the Board. Also as required, the prospectus advised purchasers that in several provinces:
. . . securities legislation . . . provides a purchaser with remedies for rescission or, in some jurisdictions, damages where the prospectus and any amendment thereto contain a misrepresentation or are not delivered to the purchaser, provided that such remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. Purchasers should refer to any applicable provisions of the securities legislation of their province for the particulars of these rights or consult with a legal advisor. [Emphasis added.]
The prospectus also made it clear that the offering and sale of the shares in the
The Common Shares represented by Instalment Receipts offered hereby have not been and will not be registered under the
The distribution of this prospectus and the offering and sale of Common Shares represented by Instalment Receipts are subject to certain restrictions under the laws of certain jurisdictions outside of
[13] The registrar and transfer agent for the shares was stated to be Montreal Trust Company at its offices in
[14] The offering was underwritten by the defendant Nesbitt Burns, which organized a syndicate consisting of 13 other Canadian underwriters and seven investment dealers in the
10. The Prospectus was filed electronically with each Securities Commission of the ten Provinces using the SEDAR system and a receipt was subsequently issued by each Securities Commission. . . .
12. In the present Offering, it was evident that there was greater demand for the shares at the price offered than there were shares to be distributed. By
13. The receipts from the
14. An offering of the nature undertaken in relation to Boliden requires a closing when, among other things, the principal amount of the shares offered will be transferred to the lead underwriter. The shares are in turn pledged to secure the payment of the purchase price and the instalment receipt is issued representing the right to acquire the common shares on payment of the final instalment. The closing in relation to the Offering took place on
15. Nesbitt Burns, as lead underwriter, obtained an instalment receipt in relation to 50,816,560 common shares at the closing of the Offering on
16. As can be seen from Exhibit "D", Nesbitt Burns had committed to distribute 60,917,216 instalment receipts. The number of instalment receipts to be distributed exceeded the 50,816,560 received on
17. In an effort to cover the short position and to support the instalment receipts in the days following the Offering Nesbitt Burns on behalf of the Underwriters purchased a total of 6,016,900 instalment receipts between the day when the instalment receipts first started trading on a when-issued basis and July 29, 1997 when it last acquired shares of Boliden.
18. The over-allotment option was exercised on
25. A number of the provincial Securities Commissions require information regarding the lot sizes and geographic distribution of shares distributed pursuant to offerings including offerings like the Boliden Offering. As a result, Nesbitt Burns obtained from each of the members of the Underwriters and the selling group, a certificate which indicates the lot sizes and geographic distribution of the securities distributed by them. Now produced and shown to me and marked as Exhibit "N" to this my Affidavit is a copy of the Distribution Certificate prepared by Nesbitt Burns which consolidates the information from the members of the selling group into a single document.
26. The Distribution Certificate sets out the distribution of the 54,900,316 instalment receipts acquired pursuant to the Underwriting Agreement (50,816,560 on
[15] Using the final distribution certificate, the Chambers judge at para. 17 of his Reasons calculated and summarized the distribution of the 60,917,216 instalment receipts according to the residence of purchasers as follows:
| (a) | | 1,383,700 |
| (b) | | 30,501,734 |
| (c) | | 5,720,900 |
| (d) | All other Provinces | 1,341,700 |
| (e) | | 21,969,182 |
|
| TOTAL | 60,917,216 |
Since
The Alleged Misrepresentations
[16] On
[17] The plaintiffs are all persons who purchased Boliden shares in July 1997. On October 20, 1998, they brought their action in the Supreme Court of British Columbia pursuant to the Class Proceedings Act on their own behalf and "on behalf of all persons who acquired Boliden shares during the period of distribution or distribution to the public of Boliden's June 10, 1997 Initial Public Offering (the 'IPO'), other than the defendants, members of the defendants' immediate families and any entity in which a defendant has a controlling interest." All the individual defendants were directors or officers of Boliden at the time of the offering.
[18] The plaintiffs alleged that the prospectus did not contain full, true and plain disclosure (contrary to the representation to that effect) and that it omitted material facts which were known, or should have been known, to the defendants. These include, inter alia, allegations that the tailings dam had not been properly constructed or maintained and could not support the tailings generated by the Los Frailes mine; that a former Boliden engineer had warned Spanish authorities of deficiencies in the construction of the dam; and that a Spanish scientific publication had warned in 1996 that the leakage of residues from the related mine represented a "chemical time bomb" for a nearby national park.
[19] In their initial pleadings, the plaintiffs sued for negligence, negligent misrepresentation, "breach of fiduciary or other duty", as well as breach of the statutory duty of full and accurate disclosure contained in the provincial Acts. However, they eventually abandoned all claims other than the statutory breach. Thus they now rely solely on the action for misrepresentation created by s. 131 of the
The Certification Order
[20] The plaintiffs' application for certification of the action as a class proceeding came on for hearing in February 2000 before the pre-trial management judge sitting in Chambers. The defendants had agreed that the "minimum threshold requirements" for certification contained in subparas. 4(1)(a) through (d) of the Class Proceedings Act had been met and had agreed on the formulation of the common issues to be certified. This left the definition of classes and subclasses of plaintiffs.
[21] In order to forestall the expiration of some limitation periods, the Chambers judge made his Order (without the participation of counsel) on February 24, 2000 certifying the action as a class proceeding, dividing the plaintiff class into resident and non-resident subclasses, appointing Mr. Elliott as the representative plaintiff for all subclasses, and confirming the common issues. It was not until July 2001 that the Chambers judge issued his Reasons for Judgment explaining his formulation of the subclasses and addressing the arguments heard during the four-day hearing in early 2000. In the interim, the defendants filed their Notices of Appeal in this court.
[22] In accordance with s. 6(1) of the Class Proceedings Act, the Order first divided the plaintiff class into resident and non-resident subclasses. Then, the resident subclass, or "British Columbia Subclass", was defined as all persons who:
(a) purchased common shares (the "Common Shares") of Boliden Limited ("Boliden") pursuant to the offering set out in the prospectus dated June 10, 1997 (the "Prospectus");
(b) purchased such Common Shares in
(c) purchased such Common Shares during the Period of Distribution or distribution to the public of Boliden's
(d) do not opt out of the action by
[23] The Non-Resident Subclass was divided into four subclasses — the Alberta Subclass, the New Brunswick Subclass, the Ontario Subclass, and the "Remaining Non-Resident Subclass." For the
[24] It is from the definitions of these subclasses that the defendants appeal, although they also take issue with the Chambers judge's directions, made in his Reasons, that they apply under R. 18A for the "final determination" of the subclasses. In the defendants' submission, it is "plain and obvious" that five groups or subclasses of plaintiffs should have been excluded either because none of the Acts applies to give them a cause of action, or because their claims are precluded by the wording and intent of the applicable Act. The defendants describe these subclasses as plaintiffs who:
(1) purchased their shares in
(2) purchased their shares in
(3) purchased their shares in the Territories of Canada or outside
(4) purchased their shares on the secondary market; or
(5) sold or disposed of all their shares before the failure of the tailings dam on
The Judgment Below
[25] In his Reasons, the Chambers judge considered each of these subclasses separately and adopted the applicable law as that enunciated in Abdool v. Anaheim Management Ltd. (1995) 21 O.R. (3d) 453 (Ont. Ct., Gen. Div.) as follows:
(a) All allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proved;
(b) The defendant, in order to succeed, must show that it is plain and obvious beyond doubt that the plaintiffs could not succeed; [at 469]
The Chambers judge also cited the test stated more commonly in
While Hutchison J. [in Campbell v. Flexwatt Corp.] did not say so, I am satisfied that the appropriate test would be in accordance with the decisions dealing with Rule 18 of the Rules of Court: is there a "bona fide triable issue": Estaban Mgmt. Corp. v. Eidelweiss Int. Hldg. Corp. (1990), 43 B.C.L.R. (2nd ed.) 235 (B.C.S.C.) at p. 339; Golden Gate Seafood (Vancouver) Company v. Osborn & Lange Inc. (1986), 1 B.C.L.R. (2nd ed.) 145 (B.C.C.A.); and Memphis Rogues Ltd. v. Skalbania (1982) 38 B.C.L.R. 193 (B.C.C.A.) or the decisions dealing with Rule 12(24) [sic; R. 19(24)] of the Rules of Court dealing with whether no "reasonable claim" is disclosed, a pleading is "frivolous or vexatious", or if a pleading is "otherwise an abuse of the process of the court". [para. 42]
[26] Having thus formulated the applicable test, the Chambers judge considered whether "
At this stage, I am satisfied that there is a triable issue relating to the claims of residents of
In a tort action, the law to be applied is that of the place where the tort occurred: the lex loci delicti: Tolofson v. Jensen (1994), 120 D.L.R. (4th ed.) 289 (S.C.C.). However, it should be noted that La Forest J stated on behalf of the majority in that decision:
There are situations, of course, notably where an act occurs in one place but the consequences are directly felt elsewhere, when the issue of where the tort takes place itself raises thorny issues. In such a case, it may well be that the consequences would be held to constitute the wrong. Difficulties may also arise where the wrong directly arises out of some transnational or inter-provincial activity. There, territorial considerations may become muted; they may conflict and other considerations may play a determining role. (at p. 305)
This is neither a tort action nor a breach of contract action. Rather, it is an action founded on the breach of a statutory provision which creates a deemed reliance on misrepresentations made in documents such as the Prospectus. It remains to be seen whether the "territorial considerations" noted by La Forest J "become muted" so that "other considerations may play a determining role". [paras. 43-45; emphasis added.]
[27] Considering the "great flexibility" provided by the Class Proceedings Act for the resolution of common issues and the remedial purpose of both that statute and the "deemed reliance" provisions in most of the Securities Acts, the Chambers judge concluded that the question of whether the claims of plaintiffs who purchased Boliden shares in Alberta were statute-barred was one that could best be tried pursuant to R. 18A, the summary trial rule. He directed that such an application be set down before him as soon as possible. In the meantime, an "Alberta Subclass" was to be created out of the Non-Resident Subclass. The Alberta Subclass had been defined in his earlier Order as follows:
(A) the "Alberta Subclass" comprises all persons who satisfy the following requirements. They:
(a) purchased Common Shares of Boliden pursuant to the offering set out in the Prospectus;
(b) purchased such Common Shares in
(c) purchased such Common Shares during the Period of Distribution or distribution to the public of Boliden's
(d) opt in to this action by
[28] With respect to those plaintiffs who purchased their shares in
[29] At paras. 66-68 of his Reasons, the Chambers judge considered the claims of persons residing outside
This may or may not be a case where "... territorial considerations may become muted", "they may conflict and other considerations may play a determining role" (per La Forest J. in Tolofson, supra, at p. 305). While it may be very difficult for the Plaintiff Class to establish the intention of Provincial Legislators to give protection to those where the lex loci delicti is shown to be outside Canada or even outside their own Province, I am presently not satisfied that this claim is so patently ridiculous that purchasers who purchased outside of Canada should be excluded from the "Remaining Non-Resident Subclass" at this time. [para. 67]
The Chambers judge also included in the Remaining Non-Resident Subclass those purchasers who reside in
[30] The final two aspects of the Chambers judge's Reasons and Order raised in this appeal do not have a constitutional law or conflict of laws aspect. The first concerns persons who purchased Boliden shares in what is called the "secondary market" – i.e., shares (represented by instalment receipts pending payment of the entire $16 per share) not bought directly from the underwriters, but from other sellers in the market. As noted by the Chambers judge at para. 87 of his Reasons, trading in instalment receipts began as early as
[31] The Chambers judge noted the defendants' arguments based on the definition of "distribution" in s. 1 of the British Columbia Act (with similar counterparts in the other provincial Acts), and the fact that the statutory remedy provided by the Acts is generally not available to secondary market purchasers. However, he concluded that the plaintiff class had established a bona fide triable issue on this point, at least until a determination could be made under R. 18A "about whether such purchasers are to be included within a subclass because they purchased instalment receipts during the period of distribution even though they did not purchase them as a result of the distribution made pursuant to the IPO." (para. 88.) On the other hand, those who bought on the secondary market after the closing of the distribution were excluded from the action.
[32] The last matter raised for determination was whether plaintiffs who sold their Boliden shares prior to
In an action for damages under subsection (1), the defendant is not liable for all or any part of the damages that the defendant proves does not represent the depreciation in value of the security resulting from the misrepresentation. [Emphasis added.]
The defendants argued that such persons could not possibly be said to have suffered a depreciation in the value of their shares "resulting from the misrepresentation". They cited the decision of Winkler J. in Carom v. Bre-X Minerals Ltd. (1999) 44 O.R. (3d) 173 (Ont. Sup. Ct. J.), who on that occasion was dealing with causes of action framed in "negligence, negligent and fraudulent misrepresentation, conspiracy, breach of fiduciary duty and breach of the Competition Act" arising out of (now notorious) allegations of fraud. He ruled that those persons who had sold before the misrepresentations became publicly known had suffered no loss that could be attributed to the fraud. In Winkler J.'s words:
. . . those who purchased and sold the shares prior to the disclosure of the fraud, regardless of whether or not they suffered a loss, must also be excluded from the class. Their losses do not arise from the causes of action pleaded and, thus, they cannot be included in the class. [at 185]
This conclusion was affirmed by the
It is no part of the plaintiff's case that the market price before
Winkler J. held that the losses did not arise from the delicts alleged in the causes of action pleaded, and therefore could not be included in the class.
He correctly held that a Bre-X shareholder who sold her shares before
There is therefore no error in the temporal description of the class. [at 320; emphasis added.]
An appeal was allowed on other grounds: see (2000) 51 O.R. (3d) 236 (Ont.
[33] The plaintiffs in the case at bar sought to distinguish Bre-X on the basis that, as noted by the Chambers judge, the failure of the tailings dam was "merely the catalyst for a review of the misrepresentations alleged in the Prospectus." In addition, they argued:
. . . had the Prospectus revealed the true condition of the Tailings Dam, the shares would have commanded a price lower than $16.00. Accordingly, the Plaintiff Class submits that, even class members who sold their shares before the failure of the Tailings Dam paid too much for their shares. The Plaintiff Class submits that it cannot be determined at this stage whether the "early sellers" received more for their shares than they would have if the Prospectus had contained a full disclosure. [para. 91; emphasis added.]
[34] The Chambers judge ruled that whether the "early sellers" could advance a claim should also be deferred until the trial of the common issues, although the defendants were at liberty to bring on an application, presumably pursuant to R. 18A, to have the matter determined. In the meantime, he was of the view that the plaintiffs had established a triable issue regarding the claims of such persons, and no specific subclass was created for them.
ON APPEAL
Triable Issues
[35] On appeal, the defendants contend that the five subclasses of plaintiffs described above must be excluded from the action because it is plain and obvious they do not have claims to advance under any of the Acts pleaded by them. In response, the plaintiffs say that it would be folly to "descend into a detailed examination of the merits of the claims for each subclass" at this stage of the certification process. They say the Chambers judge was correct to preserve the right of a broader class of plaintiffs to the courts "by not muting their claims", and that the difficult issues of territorial jurisdiction and statutory construction raised by the plaintiffs should be determined at the time of trial of the common issues. They note in particular the Court's comments in Hollick v.
[36] In response, the defendants note that the Court in Hollick also recognized that a class action should not proceed with "overbroad" classes of defendants (supra, para. 21). Counsel suggested that this is especially so where, as here, the primary defendant is a publicly-traded company whose financial well-being can be seriously affected by litigation, and particularly by the "most feared" stratagem of a statutory claim for misrepresentation. (See Chapman, supra, at 493-5.)
[37] It is trite law that when considering whether a triable issue has been raised by a plaintiff's pleadings, the court assumes the truth of those pleadings and does not enter into the merits of the case. As stated by Wilson J. in Hunt v. Carey Canada Inc. [1990] 2 S.C.R. 959:
. . . the test in Canada governing the application of provisions like Rule 19(24)(a) of the British Columbia Rules of Court is the same as the one that governs an application under R.S.C. O. 18, r. 19: assuming that the facts as stated in the statement of claim can be proved, is it "plain and obvious" that the plaintiff's statement of claim discloses no reasonable cause of action? As in
The question therefore to which we must now turn in this appeal is whether it is "plain and obvious" that the plaintiff's claims in the tort of conspiracy disclose no reasonable cause of action or whether the plaintiff has presented a case that is "fit to be tried", even although it may call for a complex or novel application of the tort of conspiracy. [at 980]
[38] The comments of McLachlin J.A. (as she then was) in a British Columbia case dealing with third-party claims, McNaughton v. Baker (1988), 25 B.C.L.R. (2d) 17 (B.C.C.A.), underline the fact that the determination is made on the basis of the pleadings, rather than evidence:
To require a party seeking to bring a third party claim to adduce evidence supporting that claim in advance of trial, is to deprive him of his right to plead a cause of action first and defer proof of it until trial. It is to require him to produce evidence at the outset, without the aid of discovery or the other means afforded by the rules for obtaining evidence, under peril that if he does not do so his claim will be struck out. It confuses the function of pleading — to outline the claim or defence — and the purpose of the trial — to determine whether, on the evidence, the claim or defence is made out.
As a general proposition, a party should not be required to adduce evidence in support of a pleading before trial. ("Trial" includes, of course, a proceeding under R. 18A). It is sufficient that his pleading discloses a reasonable cause of action or defence. [at 25]
Consistent with this reasoning, R. 19(27) expressly prohibits the admission of evidence for purposes of an application under R. 19(24)(a). Although that rule seems not to apply to a determination under s. 4(1)(a) of the Class Proceedings Act (s. 5 of which expressly contemplates the filing of affidavit evidence), the principle that the court does not enter into the merits of the case is in my view unaffected.
[39] This court has ruled, however, that Hunt v. Carey does not mean that difficult questions of law should not be decided in an application to strike pleadings under R. 19(24): see the judgment of Taylor J.A. for the Court in Kripps v. Touche Ross & Co. (1992) 94 D.L.R. (4th) 284. By analogy, the same would be true of an application to certify a class action, where by implication the action may not proceed unless the pleadings disclose a cause of action. Taylor J.A. observed further in Kripps:
It seems to me that a court is not bound to refuse relief under Rule 19(24) simply because the relevant area of law is uncertain, that is to say, because it seems possible another court might come to a different conclusion on the law. Every aspect of the common law is necessarily the product of evolution, and this process must continue if the common law is to serve its purpose. It would be wrong that those against whom action is brought in an area of law which happens to be in an active state of development should for that reason alone be required to bear the cost of inquiry into the facts before the court will decide whether the claim is one which calls for an answer. . . . To say that it is not obvious "at once" beyond reasonable doubt that a claim, as pleaded or as it might be amended, is in law "bound to fail", is something very different from saying, as did the House of Lords in Donoghue v. Stevenson, [1932] A.C. 562, that the plaintiff, if she proved the facts which she averred, would be entitled to succeed. [at 289]
[40] It is difficult to know whether the Chambers judge in the case at bar felt that the arguments of law made before him were inadequate or whether he was assuming that the availability of more evidence would assist him in deciding if the pleadings disclosed a cause of action available to the five contested subclasses of plaintiffs. His references to further applications under R. 18A suggest the latter; if that was so, then it appears he erred in his appreciation of the questions of law before him.
[41] As well, it appears from para. 42 of the Chambers judge's Reasons (quoted above at para. 25) that he may have erroneously "merged" the four parts of R. 19(24). The only matter to be decided was whether each of the contested subclasses of plaintiffs had raised or could raise a triable issue in pleading one or more of the provincial Securities Acts. Other formulations of the test are not helpful or necessary when s. 4(1)(a) of the Class Proceedings Act clearly states the issue — whether the pleadings disclose a cause of action.
[42] In this court, counsel agreed that this "test" is the same as the test that would be applied in an application under R. 19(24)(a). (See also Endean v. Canadian Red Cross Society (1998) 48 B.C.L.R. (3d) 90 (B.C.C.A.), at paras. 6-8.) Counsel also agreed that in the four-day hearing below, they had fully argued the application of this test in connection with all five of the contested subclasses. In these circumstances, the Chambers judge should, with respect, have decided the issues on the pleadings as they stood and should not have made what amounts to a provisional order with the suggestion that the questions be argued again, or argued more fully, in a summary trial proceeding. Of course, as noted by Wilson J. in Hunt v. Carey, any doubt as to whether a cause of action is or may be available "on the basis of the pleadings as they stand or as they might be amended" (see Kripps, at 289) must be resolved in the plaintiffs' favour. Contrary to Mr. Klein's suggestion, this is not a truly "discretionary" question, but one of law.
The 'Territoriality' Argument
[43] In respect of the first three contested subclasses — the Alberta purchasers, the New Brunswick purchasers, and those who bought their shares in the Territories or outside of Canada — the defendants contend that as a matter of constitutional law, the Securities Act of a province could not apply to give them a cause of action for misrepresentation in respect of a distribution which took place outside the province.
[44] I digress to note the definitions of "distribution" and "trade" (which term is incorporated by "distribution") in s. 1 of the
"distribution" means, if used in relation to trading in securities,
(a) a trade in a security of an issuer that has not been previously issued,
(b) a trade by or on behalf of an issuer in a previously issued security of that issuer that has been redeemed or purchased by or donated to that issuer,
(c) a trade in a previously issued security of an issuer from the holdings of a control person,
(d) a trade by or on behalf of an underwriter in a security that was acquired by the underwriter, acting as underwriter, before February 1, 1987, if the security continues, on February 1, 1987, to be owned by or on behalf of that underwriter so acting,
(e) a trade deemed to be a distribution
(i) in an order made under section 76 by the commission or the executive director, or
(ii) in the regulations,
(f) a transaction or series of transactions involving further purchases and sales in the course of or incidental to a distribution, and
(g) a prescribed class of trade or transaction;
* * *
"trade" includes
(a) a disposition of a security for valuable consideration whether the terms of payment be on margin, installment or otherwise, but does not include a purchase of a security or a transfer, pledge, mortgage or other encumbrance of a security for the purpose of giving collateral for a debt,
(a.1) entering into a futures contract,
(b) entering into an option that is an exchange contract,
(c) participation as a trader in a transaction in a security or exchange contract made on or through the facilities of an exchange or reported through the facilities of a quotation and trade reporting system,
(d) the receipt by a registrant of an order to buy or sell a security or exchange contract,
(e) a transfer of beneficial ownership of a security to a transferee, pledgee, mortgagee or other encumbrancer under a realization on collateral given for a debt, and
(f) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the activities specified in paragraphs (a) to (e). [Emphasis added.]
The corresponding definitions from the other Acts are reproduced at Schedule B to these Reasons. As will be seen, several of the Acts are very similar in this respect, notable exceptions being
[45] The defendants say that each of the provincial Acts was intended to regulate, and could only be intended to regulate, conduct or activities within the province – in this case, the "distribution" of securities. They note the basic structure of each Act – the requirement that before a person may distribute a security, a prospectus must be filed with the appropriate authority of that province and a receipt be obtained therefor; the requirement that a dealer who receives an order or subscription for a security "offered in a distribution" must provide the purchaser with a prospectus, the contents of which are mandated by the Acts and regulations thereto (see s. 83 of the British Columbia Act; in Alberta, s. 105; in Saskatchewan, s. 79; in Manitoba, s. 64; in Ontario, s. 71; in Quebec, s. 30; in Nova Scotia, s. 76; in New Brunswick, s. 14; in Prince Edward Island, s. 8.16; and in Newfoundland and Labrador, s. 72); and the remedies of rescission and civil damages provided to persons who purchase securities "offered by the prospectus" during the "period of distribution" if the document contains a misrepresentation.
[46] Like most legislation, each of the Acts is universally applicable on its face: none is confined by its terms to purchasers who reside in the province, for example, or to issuers or dealers who carry on business in the province. (On this point, see the comments of Beetz J. in Canadian Broadcasting Corp. v. Quebec Police Commission [1979] 2 S.C.R. 618 at 641, quoted by Edinger, supra, at 61.) However, the defendants say that because of the dictates of territorial sovereignty, a "trade" constituting a "distribution" within the meaning of an Act must mean a trade constituting a distribution taking place in the particular province which enacted the legislation, just as the "prospectus" referred to in s. 131 and its counterparts must mean the prospectus filed in the province. (The Chambers judge appears to have agreed with the latter proposition at para. 66 of his Reasons.)
[47] The defendants also emphasize that it was not and is not their position that a purchaser's place of residence determines the applicability of a Securities Act. This distinction will in fact be insignificant in most cases: the typical investor will be solicited in the province of his or her residence or place of business and will place his or her order to buy or sell with a dealer or broker in the same province. But this will not always be the case. An investment manager working in New Brunswick, for example, may telephone a broker in Toronto to place an order, or a person normally resident in P.E.I. might be travelling to Vancouver and place an order through a national brokerage firm having an office there. As noted earlier, the Acts generally state that a "trade" (the first component of a "distribution") does not include a purchase of securities; hence, while the broker's receipt of the buy order is a trade and a distribution must therefore occur where that receipt takes place, the investor's placing of the order to buy is itself not a "trade". Thus a distribution does not, without more, occur where the investor resides or happens to be when he or she places the order.
[48] In recognition of this distinction, I will use the phrase "
[49] As I understand it, the defendants make their argument on the basis of choice of law principles as well as constitutional ones. This connection between territorial sovereignty and private international law should not be surprising — as stated by La Forest J. for the majority in Tolofson v. Jensen [1994] 3 S.C.R. 1022:
The underlying postulate of public international law is that generally each state has jurisdiction to make and apply law within its territorial limit. Absent a breach of some overriding norm, other states as a matter of "comity" will ordinarily respect such actions and are hesitant to interfere with what another state chooses to do within those limits. . . . These are the realities that must be reflected and accommodated in private international law. [at 1047]
The principle of comity also applies, of course, between provinces of
[50] The plaintiffs take a different view of the application of conflict of laws principles to this case. They rely heavily on Tolofson, where the issue was what law governed a motor vehicle accident in
The common law regarding the recognition and enforcement of foreign judgments is firmly anchored in the principle of territoriality . . . . This principle reflects the fact, one of the basic tenets of international law, that sovereign states have exclusive jurisdiction in their own territory. . . .
Modern states, however, cannot live in splendid isolation and do give effect to judgments given in other countries in certain circumstances. . . . This, it was thought, was in conformity with the requirements of comity, the informing principle of private international law, which has been stated to be the deference and respect due by other states to the actions of a state legitimately taken within its territory. [at 1095]
[51] After quoting this passage in Tolofson, La Forest J. noted that to prevent over-reaching by states, courts had developed rules governing and restricting the exercise of jurisdiction over extra-territorial and transnational transactions. In
From the general principle that a state has exclusive jurisdiction within its own territories and that other states must under principles of comity respect the exercise of its jurisdiction within its own territory, it seems axiomatic to me that, at least as a general rule, the law to be applied in torts is the law of the place where the activity occurred, i.e., the lex loci delicti. There are situations, of course, notably where an act occurs in one place but the consequences are directly felt elsewhere, when the issue of where the tort takes place itself raises thorny issues. . . . Difficulties may also arise where the wrong directly arises out of some transnational or interprovincial activity. There territorial considerations may become muted; they may conflict and other considerations may play a determining role. But that is not this case. Though the parties may, before and after the wrong was suffered, have travelled from one province to another, the defining activity that constitutes the wrong took place wholly within the territorial limits of one province . . . . That being so it seems to me, barring some recognized exception, . . . that as Willes J. pointed out in Phillips v. Eyre, [(1870) L.R. 6 Q.B. 1], at p. 28, "civil liability arising out of a wrong derives its birth from the law of the place [where it occurred], and its character is determined by that law". In short, the wrong is governed by that law. It is in that law that we must seek its defining character; it is that law, too, that defines its legal consequences. [at 1049-50; emphasis added.]
[52] La Forest J. noted various "sound practical considerations" that in his view favoured the choice of the lex loci delicti and commented at 1064 that the nature of
It is useful, however, in understanding why one should not venture far from what is clearly constitutionally acceptable, to give some notion of the nature of these problems. Unless the courts' power to create law in this area exists independently of provincial power, subject or not to federal power to legislate under its residuary power — ideas that have been put forth by some of the Australian judges . . . but never, so far as I know, in Canada — then the courts would appear to be limited in exercising their powers to the same extent as the provincial legislatures; . . . . I note that provincial legislative power in this area would appear to rest on s. 92(13) — "Property and Civil Rights in the Province". If a court is thus confined, it is obvious that an extensive concept of "proper law of the tort" might well give rise to constitutional difficulties. Thus an attempt by one province to impose liability for negligence in respect of activities that have taken place wholly in another province by residents of the latter or, for that matter, residents of a third province, would give rise to serious constitutional concerns. [at 1065-66; emphasis added.]
In the end, the Court in Tolofson ruled that the lex loci delicti of the alleged tort, the law of
[53] The plaintiffs in the case at bar contend that the "lex loci delicti" concept may be applied to a statutory cause of action such as that advanced here, and that the question of which law is the lex loci delicti of the (alleged) wrong can be properly decided only after a full assessment of the evidence relating to the transactions in question. In Mr. Klein's submission, it is at least arguable that, as the Chambers judge suggested, the Securities Act of Ontario will be found to apply to all or most of the plaintiffs' claims, since according to the prospectus, Boliden's office is located in Toronto and its accounting and legal advisors, and those of the underwriters, are Toronto firms or at least have offices there. These might be slender reeds on which to rest a choice of law, but Mr. Klein suggested additional facts might well be adduced at trial that would make the choice clearer.
[54] In one sense, however, Tolofson runs contrary to the plaintiffs' argument. La Forest J. focussed on the place where the wrong occurred and on the legitimate interests of states in attaching rights and liabilities to acts or conduct occurring within their territorial confines. Indeed, he said it seemed "self-evident" that "State A has no business in defining the legal rights and liabilities of citizens of State B in respect of acts in their own country, or for that matter the actions in State B of citizens of State C." (At 1052; emphasis added.) If this is correct,
[55] Although Tolofson was concerned with a common law tort with inter-provincial aspects, courts when considering the applicability and constitutional validity of securities legislation have focussed on conduct or activity within the province rather than, for example, the situs of particular contracts, the location of share registers or the residence of particular parties. (See Edinger, supra, at 78-80.) In the seminal case of Gregory & Co. Inc. v. Quebec Securities Commission [1961] S.C.R. 584, the Court ruled that a
The fact that the securities traded by appellant would be for the account of customers outside of the province or that its weekly bulletins would be mailed to clients outside of the province, does not, as decided in the Courts below, support the submission that appellant was not trading in securities or acting as investment counsel, in the province, within the meaning and for the purposes of the Act Respecting Securities.
The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities initiated in the province by persons therein carrying on such a business. [at 587-88; emphasis added.]
Accordingly, the fact that the broker printed its bulletin in Montreal, contacted clients by telephone from Montreal, and received cheques from its clients in Montreal, left the Court in no doubt that it "did in the province of Quebec (i) carry on the business of trading in securities and (ii) act as investment counsel." (at 590.) This conclusion was not, the majority said, affected by the fact that certain contracts solicited by the broker might have been "perfected" outside the province. The Court added that the
[56] In R. v. W. McKenzie Securities Ltd. (1966) 56 D.L.R. (2d) 56 (Man. C.A.), the facts were the mirror image of those in Gregory. Three individuals operating from their offices in
[57] Freedman J.A. (as he then was) resolved the constitutional argument in favour of the validity of the provincial legislation. In his analysis:
It seems clear that the true nature of the provincial statutes above considered, no less than the Securities Act of our own Province, is to provide protection to the public through a system of regulating and supervising the conduct of persons who engage in trading activities in securities within the Province. The Securities Act of
The issue as to whether the activities of the accused constituted a violation of the Securities Act of
[58] Also of interest is the more recent decision of the Supreme Court in Multiple Access Ltd. v. McCutcheon [1982] 2 S.C.R. 161. At issue were the insider-trading provisions contained in the
Federally-incorporated companies are subject, with one important exception, to provincial regulations with respect to trading in securities. . . . Subject to that exception, a federal company empowered to carry on a particular business in a province is subject to the competent legislation of the province as to that business. If it wishes to raise capital through the sale of securities there is no reason why it should not be subject to the laws of the province applicable to all those in the province who wish to raise capital through security sales, and subject thereafter to rules requiring honest dealings in securities, so that the public be not defrauded. Sections 113 and 114 [of the
[59] In his dissenting judgment, Estey J. also upheld the validity of the securities legislation at issue, but would have ruled the impugned provisions of the Canada Corporations Act ultra vires. He noted:
The purpose is to protect the general public from suffering a loss on their investment and corporate securities due to defined improper conduct by a wide range of persons who may be in a position to affect the value of these securities in the hands of the public. [at 223]
This consideration buttressed his conclusion that the Canada Corporations Act provisions were not "traditional corporate legislation required to fill out the constitutional and functional aspects of a federal corporation" but "the regulation of the trading of the corporation's securities in the province as an incident of general regulation of securities trading." (at 224, 219-20; emphasis added.)
[60] Counsel brought Interprovincial Co-operatives Ltd. v. The Queen, [1976] 1 S.C.R. 477, to our attention. There the Court considered the validity of the
It seems to me that in the present case, the question from the point of view of constitutional legislative authority, is not at all the same as in a lawsuit between private parties where the question arises whether the proper law to be applied is the law of the place where the tortious act was committed or that of the place where the damage was suffered. In such a situation, a choice has to be made and regard must sometimes be had for both to a certain extent. If the two elements have occurred in different countries and there are bases on which the Courts of both countries can take jurisdiction, there is no guarantee against conflicting decisions. (See The "Atlantic Star" [[1974] A.C. 436].) Fortunately in
His Lordship continued:
The cases dealing with the complex jurisdictional situation concerning fisheries are well known and I find it unnecessary to refer to them. It seems clear that a province, as owner of inland fisheries in its territory, is entitled to legislate for the protection of its property. However, in respect of injury caused by acts performed outside its territory, I cannot accede to the view that this can be treated as a matter within its legislative authority when those acts are done in another province any more than when they are accomplished in another country. [at 516; emphasis added.]
[61] Chief Justice Laskin, in contrast, emphasized the "interest" of
Neither
[62] From the foregoing, I take it that, as stated in Pezim v. British Columbia (Superintendent of Brokers) [1994] 2 S.C.R. 557, at 589, the "primary aim" of the provincial Securities Acts is the protection of the public from acts or conduct — particularly the solicitation of trades and the sale of securities — taking place within the respective provinces. As stated succinctly by Gillen, supra, at 122, ". . . it is the vendor that is the object of the [legislation], and it is the purchaser that the legislation is designed to protect." The other goals of securities legislation — ensuring the efficiency of capital markets and increasing public confidence in the markets (see Johnston and Rockwell, supra, at 2-4) — do not detract from this principle.
[63] In a very real sense, then, the Acts are analogous to consumer protection legislation. The conduct in the province of issuers, brokers and other market intermediaries, wherever they may reside or carry on business, is regulated in order to protect the public, and the integrity of the market, in that province. A dealer or broker may not trade in
[64] I also take from the foregoing cases that the lex loci delicti choice of law rule is not directly applicable to the question of which provincial Act or Acts may found a statutory cause of action for misrepresentation in a prospectus. As La Forest J. observed in Tolofson, courts are limited in exercising their powers (as to choice of law issues) to the same extent as the provincial legislatures. Thus, with all due respect to Mr. Klein's argument, I do not agree that it is open to a plaintiff, or a court of law, to choose to apply the Act of one province that will provide a cause of action in misrepresentation for a plaintiff who was solicited in and purchased his or her shares pursuant to a distribution in another province. Once the Act of a province applies to regulate (by means of a prospectus requirement) the "distribution" of securities taking placing within the province's boundaries, the same Act must surely be looked to for any statutory cause of action for misrepresentation contained in the document. Its form, contents and filing are all mandated by the Act; the creation of a right to civil damages for infringing the Act must also be found in that Act.
[65] This is not to suggest that a provincial Securities Act may not have extra-provincial aspects or that activities in one province may not be incidentally affected by legislation in another. (Gregory and McKenzie Securities are obvious examples; see also Global Securities Corp. v. British Columbia (Securities Commission) [2000] 1 S.C.R. 494.) Nor do I suggest that an issuer or market intermediary may not be subject to more than one Act in carrying on its business. The broad definition of "trade" in most of the Acts, extending to advertisements and solicitations, means that an underwriter or investment dealer in Ontario, for example, who mails out a monthly newsletter to all its clients across Canada, and who receives orders from investors in Alberta, is subject to the Acts of both provinces — Alberta because of the solicitation there, and Ontario because of the dealer's preparation of the bulletin, as well as its receipt of the buy order, there. But in respect of a misrepresentation contained in a prospectus circulated in a province and deemed to be relied on by a person in purchasing securities offered thereby, a court would in making a choice of law be bound to follow the constitutional principle that it is the province in whose territory the securities are distributed which has the jurisdiction (in the constitutional sense) to regulate the manner in which the distribution is carried out and to attach civil consequences to non-compliance.
[66] There are also practical reasons that support this choice of law. In an industry in which certainty and predictability are important, it avoids the complexity and uncertainty of rules such as the lex loci delicti rule applied to torts and the "most substantial connection" rule applied to contracts. It provides a principled way through the thicket of the many extra-provincial aspects that will be involved in any national securities distribution — the vagaries of where the issuer carries on business or maintains its share register, where the prospectus was prepared, where the issuer's directors reside, where the stock exchange (or now, the securities depository) is located (if electronic records can be said to be located anywhere), or where a particular plaintiff or defendant resided or carried on business at any particular time. (As an example of the difficulty of determining the lex loci delicti of a misrepresentation at common law, see Canadian Commercial Bank v. Carpenter (1989) 39 B.C.L.R. (2d) 312 (B.C.C.A.).) As well, it comports with what a reasonable investor would expect — that when he or she purchases shares offered under a distribution taking place in a province, the securities legislation of that province will govern the filing of the prospectus, its contents, and the rights and obligations of the parties thereunder.
[67] Finally, this approach seems to comport with the assumptions that underlie current regulatory practice in
Each
All
(See also National Policy 47-201 regarding the distribution of securities on the Internet.)
[68] It follows in my view that the Chambers judge erred in holding open the possibility that a lex loci delicti rule might have applied to the statutory causes of action before him, and that he should have applied to the first three contested subclasses of plaintiffs the Act of the province in which the respective "distribution" (as defined) occurred. I turn briefly to each of those subclasses.
[69]
[70] Outside Purchasers: Similar reasoning applies to exclude those (the "outside purchasers") who bought their shares pursuant to distributions occurring in the Territories of Canada or outside of Canada, where no provincial Securities Act has application and where no prospectus (as defined in any of the Acts) was or could be required to be circulated. Instead, the laws of those jurisdictions must be looked to establish disclosure and filing requirements and the consequences of non-compliance. As submitted by counsel for Nesbitt Burns, the Acts of the provinces do not attach civil consequences to offering documents prepared in and pursuant to the laws of a foreign state.
[71]
Unless otherwise provided in this Act, no action shall be commenced to enforce the right created by this Part more than, . . .
(b) in the case of any action, other than an action for rescission, the earlier of
(i) 180 days from the day that the plaintiff first had knowledge of the facts giving rise to the cause of action; or
(ii) one year from the day of the transaction that gave rise to the cause of action. [Emphasis added.]
The one-year period in subpara. (ii) differs from the three years provided in the counterparts of this provision, such as s. 140 of the
[72] Although this appeal as argued, obviously raised questions about "foreign" law – here the limitation period established by s. 175 of the
[73] The first branch of s. 175(b) is dependent on evidence of when each particular plaintiff first obtained knowledge of the collapse of the tailings dam. It is conceivable there are plaintiffs who are not, even now, aware of the facts giving rise to the cause of action — i.e., the collapse of the tailings dam and the resulting decrease in the market value of Boliden shares. The "transaction" referred to in the second branch must in my view be taken to mean the date of a plaintiff's purchase of Boliden shares from the underwriter (rather than the date of the failure of the tailings dam as suggested at one point by counsel for Nesbitt Burns).
[74] Since the statutory cause of action is limited to persons who purchased their securities "during the period of distribution", any
[75] Remaining Factual Issues: I am not under any illusion that the definition of
Purchasers on the Secondary Market
[76] The fourth group of plaintiffs sought to be excluded is those who purchased their shares or instalment receipts "during the period of distribution" in temporal terms, but who purchased on the secondary market — i.e., from persons other than the underwriters. Mr. Myers on behalf of Boliden submitted that since s. 131 of the Securities Act of British Columbia (and its counterparts, in slightly different terms) all refer to a person who purchased a security "offered by the prospectus" either "during the period of distribution" or "in a distribution", any plaintiff must have purchased his or her shares directly from the underwriters.
[77] There are very few Canadian cases dealing with whether secondary market purchasers may invoke the statutory cause of action for misrepresentation. The subject has been the commented on by academics and regulators, since it goes to the scope and purpose of the prospectus requirements in the Acts (and, as far as market intermediaries are concerned, the extent of liability to what could be a very expanded group of plaintiffs). In 1989, one commentator with experience in the industry observed in connection with s. 126 (now s. 130) of the
The intention of subsection 126(1) is clearly to provide a remedy to those who purchase shares as part of a primary distribution. These purchases will by definition be face-to-face purchases that can exercise [sic] a rescission right or claim damages. Where rescission cannot be granted, damages can clearly be calculated on a rescission basis.
As the section is presently drafted, it is not clear whether the remedy is limited to those who purchase directly from the issue or underwriter under the prospectus, or would also include those who purchase shares originally distributed under the Prospectus, i.e. "offered thereby" in the open market on resale by an earlier purchaser. If the latter is the case, subsection 126(1) raises questions of damage calculation for open market purchasers since the distribution period may continue for up to a year before the prospectus must be refiled under subsection 61(1) of the Act. This creates a potentially expanded group of plaintiffs purchasing in the secondary market with claims for damages, but not rescission. A plaintiff group will thus be constituted identifying all those who may claim to have suffered damages during the distribution period, in the purchase of securities offered by the prospectus.
If the intention of the current civil remedy is to compel appropriate due diligence in respect of the prospectus document, then the imposition an arbitrary limitation on those who could recover can hardly be questioned. However, if the purpose of the current system is restitution, then it would seem that an expansive rather than a limiting interpretation of subsection 126(1) is appropriate. With this objective, it would be anomalous that purchasers of securities who rely on the prospectus should be in a better position in respect of material losses resulting from a misrepresentation than those who purchase in the open market and suffer the same loss.
It was not the intention of the draftsmen of the present Act that civil liability should extend to open market purchasers under subsection 126(1). The inclusion of the word "thereby" was intended to eliminate purchasers in the after-market. However, it is admitted by one of those responsible for the language that the suggestion remains unclear on the point. [Emphasis added.]
(Julia E. Gresham, "The POP System, Dissemination and Civil Liability: A Proposed Alternative to the Closed System" in (1989) LSUC Special Lectures, at 406-8.)
[78] Before and since these comments were made, recommendations have continued for legislative change in the form of a statutory cause of action for misrepresentations made in documents released under the "continuous disclosure" requirements applicable to securities traded on the secondary market: see, for example, "Canadian Securities Administrators' Notice 53-302" (Report of the Canadian Securities Administrators) (2000) 23 OSCB 1). However, none of the provincial legislatures has as yet adopted such legislation.
[79] One of the few cases to have considered the issue is Menegon v. Philip Services Corp. (2002) 23 B.L.R. (3d) 151 (Ont. Sup. Ct. J.). In that case, the plaintiff had bought shares of Philip Services Corp. in November 1997 "on the open or secondary market." (per Gans J. at 153.) During the preceding month, the corporation had issued a prospectus for the sale of some 20,000,000 common shares, less 25 percent which it proposed to sell through certain underwriters. The plaintiff purported to sue on his own behalf and on behalf of others who had bought between November 6 and December 18, 1997, claiming a right of action under s. 130(1) of the Ontario Act against the underwriters for "errors or omissions" in the prospectus, and damages for negligent misrepresentation arising from matters contained in or omitted from the prospectus.
[80] The plaintiff in Menegon encountered considerable difficulty in persuading the Court that a "special relationship" existed between himself and the underwriters for purposes of the negligence part of the claim. Gans J. described the plaintiff's next argument:
Plaintiff's counsel, in an ever shifting argument, first tried to inveigle me into creating some new law to fill an apparent lacuna created by the amendments to the Securities Act in, as best as I could determine, 1978. In an attempt to appeal to my sense of fair play, he sought to persuade me to permit an action on behalf of purchasers of shares who did not buy pursuant to a prospectus. These people are said to have bought in what is commonly referred to as the secondary or open market, as did the plaintiff. The case law provided, part of which is of a different era, is clear that a purchaser of shares in a secondary market cannot be heard to complain about a faulty prospectus. [Citations omitted.]
Notwithstanding the urgings of plaintiff's counsel, I was not prepared to fill the suggested legislative void for a variety of reasons. In the first place, it is my view that I lack the jurisdiction to do so. The creation of such a cause of action absent a special relationship is completely within the province of the legislature.
The Act in its present form has gone through three wholesale changes since 1966, as best as I can determine from my own limited research. The legislature, presumably in its desire to keep pace with the challenges of the day and, specifically, the expanding causes of action against issuers and their directors, did not see fit to provide secondary market securities purchasers with a section 130-type cause of action. That section itself, which went through a metamorphosis over the past three decades, limited the causes of action, therein described, to purchasers of shares offered and purchased under a prospectus. It is only now, I am led to believe, that the legislature is contemplating an expansion of the class of claimants to secondary market purchasers. [paras. 15-17; emphasis added.]
In the result, the plaintiff was found to have no possible cause of action under s. 130 of the
[81] The issue was also touched upon by Farley J. in Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. (1994) 15 B.L.R. (2d) 140 (Ont. Ct. J.). That case dealt with a purchase of debentures by the plaintiffs pursuant to a private agreement. The debentures were issued by Peoples Jewellers Ltd., which had issued a prospectus a few weeks earlier in connection with a distribution of shares. A copy of the prospectus had been provided to the purchasers when they were negotiating the acquisition of the debentures. The plaintiffs later alleged that the prospectus had failed to disclose a material liability. They sued their solicitors and investment banker, ScotiaMcLeod. Those defendants in turn sought to join as third parties the auditors of Peoples Jewellers, Ernst & Young. The auditors had prepared and opined on the financial statements of the company which had been included in the prospectus. Ultimately, the Court struck out the third party claim as failing to disclose a cause of action, whether for negligent misrepresentation at common law or under s. 130 of the
. . . if it were desired to have auditors responsible to any security holder/purchaser (whether from treasury on an original issue or via an after-market acquisition) for their opinions in financial statements which are on the public record, then there would need to be a change to the legislation. If on the public record pursuant to a prospectus filing or being a public company, then there would need to be a change to the securities/corporate legislation. I note that if it were suggested that liability already existed, then s.130(d) of the Securities Act would be redundant. I am of the view that holding an auditor responsible in such circumstances would be flying in the face of the law (common law and statute) as it now stands. [at 154]
[82] Farley J.'s ruling was reversed by the Ontario Court of Appeal at [1995] O.J. No. 3555 on the basis that the plaintiffs might be able to make out a common law claim at trial founded on the second "test" referred to by the Supreme Court of Canada in Haig v. Bamford, [1977] 1 S.C.R. 466, at 476. The Court made no comment about s. 130 of the
[83] In dealing with a related motion in the same action (15 B.L.R. (2d) 160), Farley J. commented further on the point:
Section 130 goes on to provide that there is no liability for anyone other than the issuer "unless he ... failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation" [s. 130(4)(a)] or if the offending part of the Prospectus was purported to be made on the authority of an expert he "had no reasonable grounds to believe ... that there had been a misrepresentation" [s. 130(3)(c)]. In regard to this last point, I think it fair to observe that neither
[84] A British Columbia decision, Grenoble v. MacNaught (1991) 20 R.P.R. (2d) 259 (B.C.S.C.), aff'd [1992] B.C.J. No. 2257 (Q.L.) (B.C.C.A.), provides some additional support for restricting the meaning of the phrase "person who purchases a security offered by the prospectus" in s. 131 of the British Columbia Act and its counterparts.
59. (1) Where a prospectus has been accepted for filing by the superintendent under this Part,
(a) every purchaser of any part of the subdivided land . . . to which the prospectus relates shall be deemed to have relied on the representations made in the prospectus whether the purchaser has received the prospectus or not;
The plaintiff had not bought directly from the developer, but from a person who had done so. The developer had filed a prospectus and provided the document to its buyer as required by the statute. The plaintiff alleged that the document contained a misrepresentation and sought to invoke s. 59(1).
[85] Cohen J. ruled that the plaintiff was not protected by, and could not rely on, the prospectus. This Court affirmed his conclusion. Prowse J.A. observed:
In my view, the conclusion reached by Mr. Justice Cohen as to the meaning to be attributed to the words, "every purchaser", in s. 59(1)(a) of the Act is supported, not only by the authorities upon which he relied, and by an analysis of the whole of Part 2 of the Act, but also by common sense. While there is no doubt that Part 2 of the Act is designed for the protection of the public, it is unreasonable to suppose that the Legislature intended Part 2 to create an indefinite and unlimited liability on developers of property and on the other persons described in s. 59(1)(b) of the Act. I do not accept the proposition advanced by the plaintiff that s. 59(1)(a) of the Act creates a form of statutory tort which makes developers, and the others described in s. 59(1)(b) of the Act, liable in damages to all purchasers of subdivided property for all time. [para. 20]
[86] Setting to one side for the moment the 10,118,656 instalment receipts referred to in Mr. Allison's affidavit (see para. 14 above), I conclude that both as a matter of statutory construction and as a matter of policy, the legislatures did not make the cause of action in s. 131 of the British Columbia Act and its counterparts available to persons buying securities on the secondary market, even though such persons might acquire their securities "during the period of distribution." The legislatures of most of the provinces chose to draw a line between purchasers of securities "offered by the prospectus" and all others insofar as the statutory cause of action was concerned. This line can be supported on a principled basis, whereas the line between persons buying in the secondary market during the period of distribution and those buying on the secondary market thereafter is more difficult to justify, in my respectful view. Consistent with this conclusion, such purchasers are not entitled to receive a prospectus under s. 83(1) of the
[87] An exception, however, must be made to this conclusion for
141. Where a receipt for a prospectus has been issued by the director, notwithstanding that the receipt is thereafter revoked, every purchaser of the securities to which the prospectus relates shall be deemed to have relied upon the statements made in the prospectus whether the purchaser has received the prospectus or not, and, if a material false statement is contained in the prospectus, every person who, at the time of the issue of a receipt for the prospectus, is a director of a company issuing the securities or a person or company that signed the certificate required by section 52 is liable to pay compensation to all persons or companies who have purchased the securities for any loss or damage the persons or companies have sustained as a result of the purchase . . . . [Emphasis added.]
[88] It will be seen that the restriction of the securities to those "offered by" the prospectus is not present in this provision; nor is the qualification that they were acquired "in the period of distribution" or "in a distribution." Given the uniqueness of this wording among the provincial Securities Acts, it is arguable that the legislature of
[89] The other exception relates to the 10,118,656 instalment receipts which were sold by the underwriters in addition to the 50,816,560 shares offered by the prospectus. Of these it will be recalled that 4,083,756 were issued by
[90] Following the hearing of this appeal, we sought written submissions from counsel as to whether the sale of such shares might come within the expanded definition of "distribution" in the various Securities Acts. In
[91] In their written submissions, counsel for the defendants conceded that it is arguable that some or all of the 10,118,956 receipts were sold to investors as part of a "distribution" as defined in the Acts. I agree that this is an issue that cannot be determined on the pleadings under s. 4(1)(a) of the Class Proceedings Act. I would therefore order that appropriate subclasses of plaintiffs be defined (on the assumption that these investors are ascertainable) and that the parties will be at liberty to adduce evidence at trial on the factual question of whether they purchased securities "offered by the prospectus" (as previously explained in these Reasons) and "during the period of distribution" or "in a distribution" for purposes of s. 131 of the British Columbia Act and its counterparts; or whether on the other hand they purchased securities on the secondary market or outside the "distribution" as defined.
The "Early Sellers"
[92] The final group of persons sought to be excluded from the action are those who purchased in the distribution but sold their shares prior to the date on which the failure of the tailings dam was reported. On this point, I agree with the defendants that s. 131(10) of the
[93] Finally on this point, although Mr. Klein sought to persuade us that such persons suffered some 'loss of opportunity', it is clear in my view that this is not the kind of loss referred in s. 131(10) and its counterparts, even if such loss could be quantified. Thus I would exclude the "early sellers" from the class of plaintiffs.
DISPOSITION
[94] For the foregoing reasons, I would allow the appeal and set aside the paragraphs numbered 1 and 2 of the Order of the Chambers judge. Subject to compliance with s. 6(2) of the Class Proceedings Act, I would order that the
[95] We are indebted to all counsel for their helpful submissions.
“The Honourable Madam Justice Newbury”
I AGREE:
“The Honourable Chief Justice Finch”
I AGREE:
“The Honourable Madam Justice Saunders”
SCHEDULE A
Securities Acts Provisions
re Prospectus Misrepresentations
168(1) If a prospectus contains a misrepresentation, a purchaser who purchases a security offered by it during the period of distribution shall be deemed to have relied on the misrepresentation and has a right of action for damages against
(a) the issuer or a selling security holder on whose behalf the distribution is made,
(b) each underwriter of the securities who is required to sign the certificate referred to in section 91,
(c) every director of the issuer at the time the prospectus was filed,
(d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them, and
(f) every person or company, other than ones referred to in clauses (a) to (d), who signed the prospectus.
(2) If a prospectus contains a misrepresentation, a purchaser who purchases a security offered by it during the period of distribution shall be deemed to have relied on the misrepresentation and has a right of action for rescission against
(a) the issuer or a selling security holder on whose behalf the distribution is made,
(b) each underwriter of the securities who is required to sign the certificate referred to in section 91, and
(c) any other underwriter of the securities.
. . .
(3) No person or company is liable under subsection (1) or (2) if he or it proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(5) No person or company, other than the issuer or the selling security holder, is liable under subsection (1) or (2) with respect to any part of the prospectus purporting to be made on his or its own authority as an expert or purporting to be a copy of or an extract from his or its own report, opinion or statement as an expert unless he or it
(a) did not conduct an investigation sufficient to provide reasonable grounds for a belief that there had been no misrepresentation, or
(b) believed there had been a misrepresentation.
(6) No person or company, other than the issuer or selling security holder, is liable under subsection (1) or (2) with respect to any part of the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless he or it
(a) did not conduct an investigation sufficient to provide reasonable grounds for a belief that there had been no misrepresentation, or
(b) believed there had been a misrepresentation.
(7) No underwriter is liable for more than the total public offering price represented by the portion of the distribution underwritten by him.
(8) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of the damages that the defendant proves do not represent the depreciation in value of the security as a result of the misrepresentation relied on.
(9) All or any one or more of the persons or companies specified in subsection (1) that are found to be liable or accept liability under this section are jointly and severally liable.
(10) If in a distribution of securities
(a) no receipt for a prospectus was issued,
(b) no exemption exists or was given exempting the filing of a prospectus, and
(c) a misrepresentation existed in respect of the distribution,
each purchaser of the securities has a right of rescission and a right of action for damages as if a prospectus containing a misrepresentation had been filed in respect of the distribution.
(11) If a purchaser purchases securities pursuant to a statement of material facts that contains a misrepresentation, he has a right of rescission and a right of action for damages as if the statement of material facts were a filed prospectus containing a misrepresentation.
(12) The amount recoverable under this section shall not exceed the price at which the securities were offered to the public.
(13) The right of action for rescission or damages conferred by this section is in addition to and does not derogate from any other right that the purchaser may have at law.
137(1) Where a prospectus together with any amendment to the prospectus contains a misrepresentation, a purchaser who purchases a security offered by them during the period of distribution is deemed to have relied on that misrepresentation if it was a misrepresentation at the time of purchase and has a right of action for damages against:
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by section 67 or an alternative certificate pursuant to section 68;
(c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) every person who or company that, in addition to the persons or companies mentioned in clauses (a) to (d), signed the prospectus or the amendment to the prospectus.
. . .
(3) No person or company is liable pursuant to subsection (1) or (2) if the person or company proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(5) No person or company, other than the issuer or selling security holder, is liable pursuant to subsection (1) or (2) with respect to any part of the prospectus or the amendment to the prospectus purporting to be made on the person’s or company’s own authority as an expert or purporting to be a copy of or an extract from the person’s or company’s own report, opinion or statement as an expert unless the person or company:
(a) failed to conduct a reasonable investigation sufficient to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(6) No person or company, other than the issuer or selling security holder, is liable pursuant to subsection (1) or (2) with respect to any part of the prospectus or the amendment to the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless the person or company:
(a) failed to conduct a reasonable investigation sufficient to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(7) No underwriter is liable for more than the total public offering price represented by the portion of the distribution underwritten by it.
(8) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of the damages that he proves do not represent the depreciation in value of the security as a result of the misrepresentation relied on.
(9) All or any one or more of the persons or companies specified in subsection (1) are jointly and severally liable and every person or company who becomes liable to make any payment pursuant to this section may recover a contribution from any person or company who, if sued separately, would have been liable to make the same payment.
. . .
(11) In no case shall the amount recoverable pursuant to this section exceed the price at which the securities were offered to the public.
(12) The right of action for rescission or damages conferred by this section is in addition to and without derogation from any other right the purchaser may have at law.
141 Where a receipt for a prospectus has been issued by the director, notwithstanding that the receipt is thereafter revoked, every purchaser of the securities to which the prospectus relates shall be deemed to have relied upon the statements made in the prospectus whether the purchaser has received the prospectus or not, and, if a material false statement is contained in the prospectus, every person who, at the time of the issue of a receipt for the prospectus, is a director of a company issuing the securities or a person or company that signed the certificate required by section 52 is liable to pay compensation to all persons or companies who have purchased the securities for any loss or damage the persons or companies have sustained as a result of the purchase unless it is proved
(a) that the prospectus was filed with the commission without his knowledge or consent, and that, on becoming aware of its filing with the commission, he forthwith gave reasonable public notice that it was so filed; or
(b) that, after the issue of a receipt for the prospectus and before the purchase of the securities by the purchaser, on becoming aware of any false statement therein, he withdrew his consent thereto and gave reasonable public notice of such withdrawal and of the reason therefor; or
(c) that, with respect to every false statement, he had reasonable grounds to believe and did believe that the statement was true; or
(d) that he had no reasonable grounds to believe that an expert who made a statement in a prospectus or whose report or valuation was produced or fairly summarized therein was not competent to make such statement, valuation or report; or
(e) that, with respect to every false statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, it was a correct and fair representation of the statement or copy of or extract from the document.
130. —(1) Where a prospectus together with any amendment to the prospectus contains a misrepresentation, a purchaser who purchases a security offered thereby during the period of distribution or distribution to the public shall be deemed to have relied on such misrepresentation if it was a misrepresentation at the time of purchase and has a right of action for damages against,
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by section 59;
(c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) every person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in clauses (a) to (d),
or, where the purchaser purchased the security from a person or company referred to in clause (a) or (b) or from another underwriter of the securities, the purchaser may elect to exercise a right of rescission against such person, company or underwriter, in which case the purchaser shall have no right of action for damages against such person, company or underwriter.
(2) No person or company is liable under subsection (1) if he, she or it proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(4) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus purporting to be made on his, her or its own authority as an expert or purporting to be a copy of or an extract from his, her or its own report, opinion or statement as an expert unless he, she or it,
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(5) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless he, she or it,
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(6) No underwriter is liable for more than the total public offering price represented by the portion of the distribution underwritten by the underwriter.
(7) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of such damages that the defendant proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon.
(8) All or any one or more of the persons or companies specified in subsection (1) are jointly and severally liable, and every person or company who becomes liable to make any payment under this section may recover a contribution from any person or company who, if sued separately, would have been liable to make the same payment provided that the court may deny the right to recover such contribution where, in all the circumstances of the case, it is satisfied that to permit recovery of such contribution would not be just and equitable.
(9) In no case shall the amount recoverable under this section exceed the price at which the securities were offered to the public.
(10) The right of action for rescission or damages conferred by this section is in addition to and without derogation from any other right the purchaser may have at law.
217. A person who has subscribed for or acquired securities in a distribution effected with a prospectus containing a misrepresentation may apply to have the contract rescinded or the price revised, without prejudice to his claim for damages.
The defendant may defeat the application only if it is proved that the plaintiff knew, at the time of the transaction, of the alleged misrepresentation.
218. The plaintiff may claim damages from the issuer or the holder, as the case may be, whose securities were distributed, from its senior executives, or from the dealer under contract to the issuer or holder whose securities were distributed.
219. The plaintiff may also claim damages from the expert whose opinion, containing a misrepresentation, appeared, with his consent, in the prospectus.
220. The defendant in an action provided for in sections 218 and 219 is liable for damages unless it is proved that
(1) he acted with prudence and diligence, except in an action brought against the issuer or the holder whose
securities were distributed, or that
(2) the plaintiff knew, at the time of the transaction, of the alleged misrepresentation.
221. Rights of action established under sections 217 to 219 may also be exercised if a misrepresentation is contained in
(1) the information presented in the permanent information record and incorporated in the simplified prospectus;
(2) the offering memorandum or the offering notice provided for in Title II or prescribed by regulation;
(3) any other document authorized by the Commission for use in lieu of a prospectus.
137 (1) Where a prospectus together with any amendment to the prospectus contains a misrepresentation, a purchaser who purchases a security offered thereby during the period of distribution shall be deemed to have relied on such misrepresentation if it was a misrepresentation at the time of purchase and has a right of action for damages against
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by Section 64;
(c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) every person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in clauses (a) to (d),
or, where the purchaser purchased the security from a person or company referred to in clause (a) or (b) or from another underwriter of the securities, he may elect to exercise a right of rescission against such person, company or underwriter, in which case he shall have no right of action for damages against such person, company or underwriter.
(2) No person or company is liable under subsection (1) if he proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(4) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus purporting to be made on his own authority as an expert or purporting to be a copy of or an extract from his own report, opinion or statement as an expert unless such person or company
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(5) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless he
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been misrepresentation.
(6) No underwriter is liable for more than the total public offering price represented by the portion of the distribution underwritten by him.
(7) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of such damages that he proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon.
(8) All or any one or more of the persons or companies specified in subsection (1) are jointly and severally liable, and every person or company who becomes liable to make any payment under this Section may recover a contribution from any person or company who, if sued separately, would have been liable to make the same payment provided that the court may deny the right to recover such contribution where, in all circumstances of the case, it is satisfied that to permit recovery of such contribution would not be just and equitable.
(9) In no case shall the amount recoverable under this Section exceed the price at which the securities were offered in the distribution to other than underwriters.
(10) The right of action for rescission or damages conferred by this Section is in addition to and without derogation from any other right the purchaser may have at law.
No equivalent section.
16. (1) Where a prospepctus together with any amendment to the prospectus contains a misrepresentation, a purchaser who purchases a security offered thereby during the period of distribution or distribution to the public shall be deemed to have relied on such misrepresentation if it was a misrepresentation at the time of purchase and has a right of action for damages against
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by section 8.6;
(c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) every person or company whose consent has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) every person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in clauses (a) to (d),
or, where the purchaser purchased the security from a person or company referred to in clause (a) or (b) or from another underwriter of the securities, he may elect to exercise a right of rescission against such person, company or underwriter, in which case he shall have no right of action for damages against such person, company or underwriter.
(2) No person or company is liable under subsection (1) if he proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(4) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus purporting to be made on his own authority as an expert or purporting to be a copy of or an extract from his own report, opinion or statement as an expert unless he
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(5) No person or company, other than the issuer or selling security holder, is liable under subsection (1) with respect to any part of the prospectus or the amendment to the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless he
(a) failed to conduct such reasonable investigation as to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(6) No underwriter is liable for more than the total public offering price represented by the portion of the distribution under written by him.
(7) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of such damages that he proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon.
(8) All or any one or more of the persons or companies specified in subsection (1) are jointly and severally liable, and every person or company who becomes liable to make any payment under this section may recover a contribution from any person or company who, if sued separately, would have been liable to make the same payment provided that the court may deny the right to recover such contribution where, in all the circumstances of the case, it is satisfied that to permit recovery of such contribution would not be just and equitable.
(9) In no case shall the amount recoverable under this section exceed the price at which the securities were offered to the public.
(10) The right of action for rescission or damages conferred by this section is in addition to and without derogation from any other right the purchaser may have at law.
130. (1) Where a prospectus together with an amendment to the prospectus contains a misrepresentation, a purchaser who purchases a security offered by it during the period of distribution or distribution to the public is considered to have relied on the misrepresentation if it was a misrepresentation at the time of the purchase and has a right of action for damages against
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by section 60;
(c) a director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) a person or company whose consent has been filed under a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) a person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in paragraphs (a) to (d),
or, where the purchaser purchased the security from a person or company referred to in paragraph (a) or (b) or from another underwriter of the securities, he or she may elect to exercise a right of rescission against the person, company or underwriter, in which case he or she shall have no right of action for damages against the person, company or underwriter.
(2) A person or company is not liable under subsection (1) where he or she proves that the purchaser purchased the securities with knowledge of the misrepresentation.
. . .
(4) A person or company, other than the issuer or selling security holder, is not liable under subsection (1) with respect to a part of the prospectus or the amendment to the prospectus purporting to be made on his or her authority as an expert or purporting to be a copy of or an extract from his or her report, opinion or statement as an expert unless he or she
(a) failed to conduct a reasonable investigation in order to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(5) A person or company, other than the issuer or selling security holder, is not liable under subsection (1) with respect to a part of the prospectus or the amendment to the prospectus not purporting to be made on the authority of an expert and not purporting to be a copy of or an extract from a report, opinion or statement of an expert unless he or she
(a) failed to conduct the reasonable investigation necessary to provide reasonable grounds for a belief that there had been no misrepresentation; or
(b) believed there had been a misrepresentation.
(6) An underwriter is not liable for more than the total public offering price represented by the portion of the distribution underwritten by him or her.
(7) In an action for damages under subsection (1), the defendant is not liable for all or a portion of the damages that he or she proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon.
(8) All or 1 or more of the persons or companies specified in subsection (1) are jointly and individually liable, and every person or company who becomes liable to make a payment under this section may recover a contribution from a person or company who, where sued separately, would have been liable to make the same payment provided that the court may deny the right to recover the contribution where, in all the circumstances of the case, it is satisfied that to permit recovery of the contribution would not be just.
(9) In no case shall the amount recoverable under this section exceed the price at which the securities were offered to the public.
(10) The right of action for rescission or damages conferred by this section is in addition to and without derogation from another right the purchaser may have at law.
SCHEDULE B
Definitions of "distribution" and "trade"
1 . . .
(f) "distribution", when used in relation to trading in securities, means
(i) a trade in securities of an issuer that have not been previously issued,
(ii) a trade by or on behalf of an issuer in previously issued securities of that issuer that have been redeemed or purchased by or donated to that issuer,
(iii) a trade in previously issued securities of an issuer from the holdings of a control person,
(iv) a trade by or on behalf of an underwriter in securities which were acquired by that underwriter, acting as underwriter, prior to the coming into force of this section if those securities continue on the day this section comes into force to be owned by or for that underwriter, so acting,
(v) a distribution referred to in sections 109 to 112, or
(vi) a transaction or series of transactions involving a purchase and sale or a repurchase and resale in the course of or incidental to a distribution referred to in subclauses (i) to (v);
. . .
(x) "trade" includes
(i) any sale or disposition of a security for valuable consideration, whether the terms of payment are on margin, instalment or otherwise but does not include
(A) a purchase of a security, or
(B) except as provided in subclause (iv), a transfer, pledge or encumbrance of securities for the purpose of giving collateral for a bona fide debt;
(ii) any participation as a floor trader in any transaction in a security on the floor of a stock exchange;
(iii) any receipt by a registrant of an order to buy or sell a security;
(iv) any transfer, pledge or encumbrancing of securities of an issuer from the holdings of a control person for the purpose of giving collateral for a bona fide debt;
(v) any act, advertisement, solicitation, conduct or negotiation made directly or indirectly in furtherance of anything referred to in subclauses (i) to (iv);
Saskatchewan
2(1) . . .
(r) "distribution", where used in relation to a trade in a security, means a trade:
(i) in a security of an issuer that has not been previously issued;
(ii) by or on behalf of an issuer in a previously issued security of that issuer that has been redeemed or purchased by or donated to that issuer;
(iii) in a previously issued security of an issuer from the holdings of a control person;
(iv) in a security of an issuer by a promoter of the issuer;
(v) in a security of an issuer by an incorporator or organizer of the issuer;
(vi) by an underwriter in a security which was acquired by the underwriter acting as underwriter before, on or after the coming into force of this Act;
(vii) a distribution as mentioned in subsections 96(6) and (8);
and includes any transaction or series of transactions involving a purchase and sale or a repurchase and resale in the course of or incidental to a distribution;
. . .
(vv) "trade" includes:
(i) any transfer, sale or disposition of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or, except as provided in subclause (iv), a transfer, pledge, mortgage or encumbrance of securities for the purpose of giving collateral for a bona fide debt;
(i.1) any entering into of an exchange contract;
(ii) any participation as a floor trader in any transaction in a security or an exchange contract on the floor of any exchange;
(iii) any receipt by a registrant of an order to buy or sell a security or an exchange contract;
(iv) any transfer, pledge, mortgage or encumbrancing of a security from the holdings of a control person for the purpose of giving collateral for a bona fide debt; and
(v) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of anything mentioned in subclauses (i) to (iv);
Manitoba
1(1) . . .
"primary distribution to the public", used in relation to trading in securities, means
(a) trades that are made for the purpose of distributing to the public securities issued by a company and not previously distributed to the public; or
(b) trades in previously issued securities of a company for the purpose of distributing those securities to the public where the securities form all or part of, or are derived from, the holdings of any person, company or any combination of persons or companies holding a sufficient number of any of the securities of that company to materially affect control of that company;
whether the trades are made directly to the public or indirectly to the public through an underwriter or otherwise, and includes any transaction or series of transactions involving a purchase or sale or a repurchase or resale in the course of or incidental to such distribution;
. . .
"trade" or "trading" includes
(a) any sale or disposition of or other dealing in or any solicitation in respect of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, or any attempt to do one of the foregoing;
(b) any participation as a floor trader in any transaction in a security upon the floor of any stock exchange;
(c) any receipt by a person or company registered for trading in securities under this Act of an order to buy or sell a security; and
(d) any act, advertisement, conduct or; negotiation directly or indirectly in furtherance of any of the foregoing;
Ontario
1. (1) . . .
"distribution", where used in relation to trading in securities, means,
(a) a trade in securities of an issuer that have not been previously issued,
(b) a trade by or on behalf of an issuer in previously issued securities of that issuer that have been redeemed or purchased by or donated to that issuer,
(c) a trade in previously issued securities of an issuer from the holdings of any person, company or combination of persons or companies holding a sufficient number of any securities of that issuer to affect materially the control of that issuer, but any holding of any person, company or combination of persons or companies holding more than 20 per cent of the outstanding voting securities of an issuer shall, in the absence of evidence to the contrary, be deemed to affect materially the control of that issuer,
(d) a trade by or on behalf of an underwriter in securities which were acquired by that underwriter, acting as underwriter, prior to the 15th day of September, 1979 if those securities continued on that date to be owned by or for that underwriter, so acting, and
(e) a trade by or on behalf of an underwriter in securities which were acquired by that underwriter, acting as underwriter, within eighteen months after the 15th day of September, 1979, if the trade took place during that eighteen months,
and on and after the 15th day of March, 1981, includes a distribution as referred to in subsections 72(4), (5), (6) and (7), and also includes any transaction or series of transactions involving a purchase and sale or a repurchase and resale in the course of or incidental to a distribution and "distribute", "distributed" and "distributing" have a corresponding meaning; ("placement", "placer", "placé")
. . .
"trade" or "trading" includes,
(a) any sale or disposition of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or, except as provided in clause (d), a transfer, pledge or encumbrance of securities for the purpose of giving collateral for a debt made in good faith,
(b) any participation as a floor trader in any transaction in a security upon the floor of any stock exchange,
(c) any receipt by a registrant of an order to buy or sell a security,
(d) any transfer, pledge or encumbrancing of securities of an issuer from the holdings of any person or company or combination of persons or companies described in clause (c) of the definition of "distribution" for the purpose of giving collateral for a debt made in good faith, and
(e) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the foregoing; ("opération")
Quebec
5 . . .
"distribution" means
(1) the endeavour to obtain, or the obtaining, by an issuer, of subscribers or acquirers of his securities;
(2) the endeavour to obtain, or the obtaining, by a firm underwriter, of purchasers for securities he has underwritten;
(3) the endeavour to obtain, or the obtaining, by a subscriber or purchaser of securities which he acquired under an exemption provided under sections 43 to 56, of purchasers for such securities without the benefit of a final exemption from a prospectus;
(4) the endeavour to obtain, or the obtaining, by a subscriber or purchaser of securities which he acquired through a transaction for which no prospectus was prepared as required by law and no exemption was granted, of purchasers for such securities;
(5) the endeavour to obtain, or the obtaining, by a subscriber or purchaser of securities which he acquired outside Québec, of purchasers for such securities in Québec, except on a stock exchange or on the over-the-counter market;
(6) the endeavour to obtain, or the obtaining, of purchasers for securities of a formerly closed company that have not previously been the subject of a prospectus;
(7) the endeavour to obtain, or the obtaining, by an agent, of subscribers or purchasers of securities being distributed in accordance with subparagraphs 1 to 6;
(8) the giving in guarantee by an issuer of securities issued by him for that purpose;
[No definition for "trade".]
2(1) . . .
(l) "distribution", where used in relation to trading in securities, means
(i) a trade in securities of an issuer that have not been previously issued,
(ii) a trade by or on behalf of an issuer in previously issued securities of that issuer that have been redeemed or purchased by or donated to that issuer,
(iii) a trade in previously issued securities of an issuer from the holdings of any person, company or combination of persons or companies holding a sufficient number of any securities of that issuer to affect materially the control of that issuer, but any holding of any person, company or combination of persons or companies holding more than twenty per cent of the outstanding voting securities of an issuer shall, in the absence of evidence to the contrary, be deemed to affect materially the control of that issuer,
(iv) a trade by or on behalf of an underwriter in securities which were acquired by that underwriter, acting as underwriter, prior to the coming into force of this Act if those securities continue on the day this Act comes into force to be owned by or for that underwriter, so acting,
(v) a first trade made in securities by a vendor who acquired them pursuant to a trade that was in contravention of Section 58 or 67,
(vi) a trade specified to be a distribution by the regulations,
(vii) a trade specified in a decision of the Commission to be a distribution,
and includes a distribution referred to in subsections (5), (6), (7), (7A), (7B), and (10) of Section 77, and also includes any transaction or series of transactions involving a purchase and sale or a repurchase and resale in the course of or incidental to a distribution;
. . .
(as) "trade" or "trading" includes
(i) any sale or disposition of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or, except as provided in subclause (iv), a transfer, pledge or encumbrance of securities for the purpose of giving collateral for a bona fide debt,
(ii) any participation as a floor trader in any transaction in a security upon the floor of any stock exchange,
(iii) any receipt by a registrant of an order to buy or sell a security,
(iv) any transfer, pledge or encumbrancing of securities of an issuer from the holdings of any person or company or combination of persons or companies described in subclause (iii) of clause (l) for the purpose of giving collateral for a bona fide debt, and
(v) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the foregoing;
1 . . .
[No definition for "distribution".]
"trade" or "trading" includes any solicitation or obtaining of a subscription to, disposition of, transaction in, or attempt to deal in, sell or dispose of a security or interest in or option upon a security for any valuable consideration, whether the terms of payment be upon margin, instalment or otherwise, and any underwriting of an issue or part of an issue of a security, and any act, advertisement, conduct or negotiation directly or indirectly in furtherance of any of the foregoing or specifically designated as "trade" or "trading" in the regulations.
1 . . .
(b.1) "distribution", where used in relation to trading in securities, means
(i) a trade in securities of an issuer that have not been previously issued,
(ii) a trade by or on behalf of an issuer in previously issued securities of that issuer that have been redeemed or purchased by or donated to that issuer,
(iii) a trade in previously issued securities of an issuer from the holdings of any person, company or combination of persons or companies holding a sufficient number of any securities of that issuer to affect materially the control of that issuer, but any holding of any person, company or combination of persons or companies holding more than twenty per cent of the outstanding voting securities of an issuer shall, in the absence of evidence to the contrary, be deemed to affect materially the control of that issuer;
. . .
(k) "trade" or trading" includes any solicitation or obtaining of a subscription to, disposition of, transaction in, or attempt to deal in, sell or dispose of a security or interest in or option upon a security, for any valuable consideration, whether the terms of payment are upon margin, instalment, or otherwise, or attempt to purchase or induce any person to sell or otherwise dispose of any security, and any underwriting of any issue or of a security and any act, advertisement, conduct or negotiation directly or indirectly in furtherance of any of the foregoing or specifically designated as "trade" or "trading" in the regulations.
2. (1) . . .
(l) "distribution", where used in relation to trading in securities, means
(i) a trade in securities of an issuer that have not been previously issued,
(ii) a trade by or on behalf of an issuer in previously issued securities of that issuer that have been redeemed or purchased by or donated to that issuer,
(iii) a trade in previously issued securities of an issuer from the holdings of a person, company or combination of persons or companies holding a sufficient number of securities of that issuer to affect materially the control of that issuer, but holdings of a person, company or combination of persons or companies holding more than 20% of the outstanding voting securities of an issuer shall, in the absence of evidence to the contrary, be considered to affect materially the control of that issuer,
(iv) a trade by or on behalf of an underwriter in securities which were acquired by that underwriter, acting as underwriter, before April 1, 1991 if those securities continued on that date to be owned by or for that underwriter so acting,
and after March 31, 1991 includes a distribution as referred to in subsections 73(4), (5), (6) and (7), and also includes a transaction or series of transactions involving a purchase and sale or a repurchase and resale in the course of or incidental to a distribution and "distribute", distributed" and "distributing" have a corresponding meaning;
. . .
(ss) "trade" or "trading" includes
(i) a sale or disposition of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or, except as provided in subparagraph (iv), a transfer, pledge or encumbrance of securities for the purpose of giving collateral for a genuine debt,
(ii) participation as a floor trader in a transaction in a security upon the floor of a stock exchange,
(iii) receipt by a registrant of an order to buy or sell a security,
(iv) a transfer, pledge or encumbrancing of securities of an issuer from the holdings of a person or company or combination of persons or companies described in subparagraph (l)(iii) for the purpose of giving collateral for a genuine debt, and
(v) an act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of the above;
CORRECTION: At p. 45, para. 50, the first sentence should read:
“The plaintiffs take a different view of the application of conflict of laws principles to this case.”
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