FAIR Canada is very concerned about a legislative loophole that has allowed defendants in large securities class action cases to escape civil liability to the detriment of investors. Investors are being “timed out” as a result of the judicial interpretation of limitations period provisions.

An action for secondary market disclosure liability must be commenced within 3 years of the misrepresentation in accordance with Ontario’s Securities Act (“OSA”). Leave of the court is required in order to commence the action. Normally, a representative plaintiff pleads in the statement of claim that leave will be sought to proceed with a secondary market liability claim, along with other causes of action, in a class action. The Court of Appeal in Timminco has held that section 28 of the Class Proceedings Act does not operate to suspend the limitation period. While it may take several years to obtain leave of the court to commence an action for secondary market disclosure liability, the 3 year limitation period may have fully run. Thus, the plaintiff is in a catch 22 situation – he or she wants to commence the action within the 3 year time limit, however the plaintiff may be prevented from doing so given that it may take more than 3 years, in light of the realities of civil litigation in our court system, to obtain the order from the court granting leave to commence the secondary market disclosure action.

Perversely, this situation creates financial incentives for defendants to engage in tactics to delay as much as possible the granting of leave, thereby exacerbating the problems with our system of civil litigation.  In light of the Timminco decision, the 3 year limitation, combined with the need for leave, effectively frustrates the intention of the Legislature. A simple quick fix is needed to the OSA to allow cases to be decided on their merits. In the meantime, cases are being dismissed on the basis they are statute-barred (for example, Green and Bell v. CIBC). Kudos to the regulator in Manitoba which appears to be ahead of the other provinces and has already introduced legislation to fix the problem (See Bill 10, The Securities Amendment Act).