Ontario Securities Class Action Decision Addresses Merits Tests for Leave, and Certification

In a securities class action decision released today, Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc., Justice Perell addressed several important issues relating to of the test for leave under Part XXIII.1 of the Ontario Securities Act and the certification of common law misrepresentation claims. This decision is significant, in part, because it is the first decision to follow the Ontario Court of Appeal’s recent decision in Green v. CIBC. Justice Perell’s decision considers the following issues:

• The test for leave: In CIBC, the Ontario Court of Appeal considered the test for leave for the first time and confirmed that the test for leave is higher than a “mere” possibility of success: it requires a “reasonable” possibility of success. In his decision released today, Justice Perell expressed the test for leave as a negative formulation. For example, “There is not a reasonable possibility that an action will be resolved at trial in favour of the plaintiff, if [...] the plaintiff fails to provide any admissible or believable evidence of the material facts of his or her claim; [or if] the plaintiffs’ case is so manifestly weak that it cannot possibly succeed; [or if] the defendant shows that the plaintiff’s claim is based purely on speculation or suspicion rather than evidence [...].”

• Evidence on the test for leave: There are two significant aspects relating to evidence on the test for leave. First, the defendants succeeded in denying leave for some of the plaintiffs’ claims even though the defendants did not lead evidence on the leave motion. Second, Justice Perell rejected the plaintiffs’ argument that, although they did not have any evidence to prove that there had been misrepresentations in the defendant issuer’s financial statements, they should be granted leave to investigate potential misrepresentations. Justice Perell observed that the planitiffs were “seeking leave to find out whether there is a misrepresentation” and held that the plaintiffs had not met the evidentiary threshold for granting leave: “Leave is not granted to determine whether leave should be granted.”

• Certification of common law claims: Justice Perell held that the common law claims should not be certified because, regardless of whether the statutory claims were certified, the common law claims did not satisfy the preferable procedure criteria. Justice Perell accepted the defendants’ argument that the common law claims “would be unmanageable and would undermine the purpose of Part XXIII.1 [...] by impeding the efficient resolution of the statutory claims.”