Recent Decision Renders Uncertain How Strictly Courts Will Apply Limitation Period for Claims of Secondary Market Misrepresentation
Oct 16, 2012
On October 15, 2012, the Ontario Superior Court of Justice released its decision in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc. (Celestica). In Celestica, Justice Paul Perell held that, where a claim for secondary market misrepresentations under Part XXIII.1 of Ontario’s Securities Act was otherwise barred by the operation of that Act’s limitation period, courts nevertheless retained discretion to grant relief from the limitation period in “special circumstances.” Celestica is particularly noteworthy as it stands in direct contrast to the Court’s July 3, 2012 decision in Green v. Canadian Imperial Bank of Commerce (CIBC)1, where Justice George Strathy expressly held that the court did not have such discretion. The conflicting decisions leave the issue of how strictly courts will apply the statutory limitation period under Part XXIII.1 in a state of uncertainty. As such, the issue calls out for, and will almost certainly receive, appellate clarification.
In Celestica, three separate actions were brought against the company and its former CEO and CFO, alleging both statutory claims for secondary market misrepresentations under Part XXIII.1 of the Securities Act and common law claims for negligent misrepresentation. The actions related to alleged misrepresentations made by the defendants between 2005 and 2007 as to the progress of Celestica’s restructuring efforts. The defendants brought a motion seeking, among other things, to strike the plaintiffs’ Part XXIII.1 claims as being statute-barred.
Following the Court of Appeal for Ontario's decision in Sharma v. Timminco Ltd., (Timminco)2, Justice Perell held that section 28 of the Class Proceedings Act (which suspends the running of a limitation period once a class proceeding has been commenced) cannot operate to suspend the three-year limitation period under section 138.14 of the Securities Act until leave to bring the action under section 138.8 has been granted. Consequently, as the plaintiffs had failed to obtain leave to commence their claims within three years, they were statute-barred. However, Justice Perell found, after conducting a comprehensive statutory interpretation analysis of the interplay between the Securities Act and the Limitations Act, 2002, that the “special circumstances” doctrine, which allows courts to render an otherwise limitation-barred claim timely in appropriate circumstances, could apply in actions brought under Part XXIII.1. This was the opposite conclusion from the one reached by Justice Strathy in CIBC, where he conducted his own comprehensive statutory interpretation analysis and held that the special circumstances doctrine could not be relied upon in Part XXIII.1 claims. Justice Perell acknowledged the conflicting conclusions, but found that the availability of the doctrine was necessary to “ameliorate the rigours of an absolute limitation period in appropriate circumstances” [paragraph 105], and that “the Legislature did not intend to sacrifice access to justice on the altar of expeditiousness” [paragraph 108]. Justice Perell cautioned that the doctrine was “principled, limited and narrow”, and could not operate “if the defendant is prejudiced apart from the prejudice of having to defend an action on its merits” [paragraph 113]. He further pointed out that the doctrine was “tethered to amending an existing claim, and is not available to commence an action after the expiry of a limitation period” [paragraph 136]. Nevertheless, he held that it would apply in the circumstances of Celestica in the event leave was granted at some point in the future. Justice Perell did strike the plaintiffs’ common law claims for negligent misrepresentation for being improperly pleaded, but granted leave to amend them.
The recent decisions in Timminco and CIBC appeared to indicate that the courts were taking a hard-line approach as to the application of the limitation period in section 138.14 of the Securities Act. However, the introduction of the element of judicial discretion to extend that period in Celestica casts doubt on whether this is in fact the case. Given the glaring legal issue at the heart of the discrepancy between the findings in CIBC and Celestica, and the importance of this issue to both plaintiffs and defendants in Part XXIII.1 actions, this is a matter that will almost certainly find its way to an appellate court in the relatively near future.
1 2012 ONSC 3637. For a summary of CIBC, please see our Osler Update of July 5.
2 2012 ONCA 107. For a summary of Timminco, please see our Osler Update of August 2.