In its recent decision in Bradley v Eastern Platinum Ltd., 2016 ONSC 1903, the Ontario Superior Court of Justice denied leave to commence a secondary market securities class proceeding under Part XXIII.1 of the Securities Act. This decision confirms that the leave hurdle is a meaningful screening mechanism and that the proposed plaintiff must demonstrate a realistic chance that its action will succeed in order to be able to proceed with its claim.
The Claim
In its proposed statement of claim, the plaintiff alleged that the defendant mining company failed to disclose a complete or partial shutdown of operations at its platinum mine in South Africa in 2011, which was a material change requiring disclosure. The plaintiff then amended its proposed statement of claim to allege that the introduction of certain support technologies at the mine constituted a material change that the defendant failed to disclose.
The Application for Leave Test
Part XXIII.1 of the Securities Act sets out a two-branch test which a plaintiff must meet in order to be successful on a leave application: the plaintiff must establish that (1) the action is being brought in good faith; and (2) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.
In her decision, Rady J. reiterated that the purpose of the statutory leave requirement was to “prevent strike suits, namely coercive and unmeritorious claims, which are aimed at pressuring a defendant into settlement in order to avoid costly litigation.” Rady J noted that a motions judge must ensure that “the leave requirement is more than a ‘speed bump’ in the litigation”.
Following the Supreme Court of Canada’s guidance from CIBC v Green, 2015 SCC 60, Rady J. described the leave test as requiring a robust, meaningful examination and critical evaluation of both the fact and expert evidence filed by the parties. While not strictly necessary for the defendants to file any evidence on these leave applications, as noted by Rady J., “it may be a risky venture not to do so particularly where there are, as here, highly contentious factual issues.”
In the result, the Court found that the evidence tendered by the defendants overwhelmingly contradicted the plaintiff’s allegations. As such, the Court found that the plaintiff had no reasonable prospect of success at trial and dismissed the application for leave.
This case is a helpful recent illustration in Ontario of how the leave test under Part XXIII.1 of the Securities Act can be applied to screen out claims which do not have a reasonable chance of success at an early stage in the proceedings. We will continue to monitor how courts apply the principles regarding the leave requirements for secondary market securities class actions.