Ontario Court of Appeal declines to grant retroactive relief in securities class action
In its recent decision in Pennyfeather v. Timminco Limited, the Court of Appeal for Ontario declined to retroactively relieve the plaintiff from the strict application of the statutory limitation period for secondary market securities class actions. The Court upheld the motion judge’s dismissal of the action on the basis that the three year limitation period set out in s. 138.14 of the Ontario Securities Act had expired before the plaintiff had sought leave to proceed with his action, and that the plaintiff had failed to meet the test for nunc pro tunc relief. This decision was the Court of Appeal’s first opportunity to apply the test established by the Supreme Court of Canada in Green v. CIBC for the granting of nunc pro tunc relief in a secondary market securities class action.
Limitations period in securities class actions
Part XXIII.1 of the Securities Act requires a plaintiff to obtain leave of the court to bring a statutory claim for misrepresentation. The Securities Act also imposes a three year limitation period for bringing a claim, which commences running from the date of the alleged misrepresentation (regardless of issues of discoverability). However, s. 28 of the Ontario Class Proceedings Act, 1992 (“CPA”) suspends any limitation period applicable to a cause of action asserted in a class action on the commencement of a class proceeding. The question of whether s. 28 of the CPA operates to suspend the limitation period as soon a claim is commenced or only after leave to bring the claim is granted under the Securities Act spawned considerable litigation until it was ultimately resolved by the Supreme Court in its 2015 in Green v. CIBC. This ambiguity has since been resolved by the introduction of s. 138.14(2) of the Securities Act which explicitly suspends the limitation period for bringing a secondary market securities claim on the date a notice of motion for leave under s. 138.8 is filed with the court.
Three years prior to the Supreme Court’s decision in Green v. CIBC, in an earlier decision in the Timminco proceeding, the Court of Appeal held that the three year limitation period is not suspended until leave is actually granted (“Timminco #1”). Accordingly, the plaintiff’s claim was presumptively time-barred in Timminco #1 because the plaintiff did not obtain leave within the three year limitation period. Leave to appeal to the Supreme Court of Canada was denied (for a summary of the Timminco #1 decision, see our Osler Update here).
In its 2015 consideration of this same issue, the Supreme Court of Canada confirmed in Green v. CIBC that s. 28 of the Class Proceedings Act does not suspend the operation of the limitation period for a statutory claim for misrepresentation until leave has been granted. However, it also held that the court has inherent jurisdiction to grant leave on a retroactive, nunc pro tunc basis, to alleviate the plaintiff from the strict application of the statutory limitation period. Justice Côté, in the lead judgment, summarized a non-exhaustive list of factors the court should consider in determining whether to exercise this discretion, but pointed out that there is an important limit on that discretion. This limit, which the parties in Timminco referred to as the “red-line” rule, requires that the plaintiff at least seek leave within the limitation period.
The motion judge denied retroactive relief
Relying on Green v. CIBC, the plaintiff (whose action had been dismissed in Timminco #1), brought a motion seeking to reinstate his action on the basis that he should be granted nunc pro tunc relief. The motion judge refused to grant retroactive relief because the plaintiff had not sought leave until after the expiry of the three-year limitation period. The plaintiff appealed relying primarily on the finding that he was not barred by the red-line rule because he brought a motion for “conditional leave” three days before the expiry of the limitation period.
The Court of Appeal upheld the motion judge’s decision and denied relief
The Court of Appeal upheld the motion judge’s decision and dismissed the appeal. The Court relied on Justice Côté’s comments in Green v. CIBC that “if the judge has given sufficient weight to all the relevant considerations, an appellate court must defer to his or her exercise of discretion”. The Court found the motion judge in this case was particularly well-suited to assess the circumstances of the case having managed the class action since its commencement. As the motion judge adequately considered the factors listed in Green, including the plaintiff’s diligence (or lack thereof) in asserting the claim, the merits of the claim, acts of the court that may have delayed the proceeding, prejudice to the defendants, and the purpose of the statutory limitation period, the Court held that he made no errors in principle in the exercise of his discretion.
The Court also held that it was unnecessary in this case to determine whether nunc pro tunc relief could be granted where the plaintiff fails to seek leave before the expiry of the three-year limitation period. It nevertheless stated in obiter that, because the plaintiff brought a motion for conditional leave prior to the expiry of the three-year limitation period, this may have served as the anchor for nunc pro tunc relief. The Court found that the red-line rule might not apply in this case because the granting of nunc pro tunc relief would not necessarily undermine the purpose of the limitation period. However, the Court upheld the motion judge’s discretionary refusal not to grant the relief and did not decide this issue.
While s. 138.14(2) of the Securities Act clarified that the limitation period is suspended when the plaintiff files a motion for leave, this decision provides important insight into the discretionary nature of nunc pro tunc relief. The Court demonstrated that where the motion judge gave sufficient weight to all of the relevant factors, appellate courts should defer, even where the denial of such relief is dispositive of the entire proceeding. Deference appears to be particularly important where the motion judge was involved in the full history of the action and is therefore especially well positioned to determine whether the equities favour granting discretionary relief nunc pro tunc.