Overall snapshot of the data

A total of 74 secondary market claims were commenced between January 1, 2006 and December 31, 2015, involving 47 companies. Of the 74 cases, more than twice as many claims were commenced in the second half of the sample period (2011 to 2015) than in the first half (2006 to 2010), as illustrated in Figure 1. The relatively small number of claims reflects, in part, the relative size and maturity of the Canadian market.

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There was a sharp decrease in the number of claims filed in 2009 and 2015. This may be related to the gatekeeper role of the courts. A plaintiff in Canada is required to obtain leave of the court to commence secondary market statutory liability actions, which acts as an initial screening mechanism to discourage strike suits. Specifically, a plaintiff is required to establish that the “action is being brought in good faith” and that there is a “reasonable possibility that the action will be resolved at trial in favour of the plaintiff." Courts have focused more on what “reasonable possibility” of success means.

2009 marked the Ontario Superior Court’s decision in Silver v. Imax Corp (Imax), which marked the first case filed in Canada under the statutory civil liability scheme. Imax established that the threshold for the leave requirement is “relatively low,” requiring “more than a de minimis possibility” of success.

2015 marked the Supreme Court of Canada’s decision in Theratechnologies Inc. v. 121851 Canada Inc. (Theratechnologies), which raised the bar for plaintiffs to obtain leave. The court held that the threshold for reasonable probability of success “should be more than a ‘speed bump’;" it requires plaintiffs to provide a reasonable analysis of the relevant legislation and some credible evidence supporting the claim but does not entail a “mini-trial.

Who are the defendants?

Market Capitalization

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Between December 31, 2005 and December 31, 2015, claims were brought against public companies with market caps ranging from $12 million to $137 billion, with an average of $12 billion and a median of $1.2 billion. Excluding two public companies not listed on the TSX (American International Group Inc. and BP, PLC), market caps ranged from $12 million to $81 billion, with an average of $9 billion and a median of $1.1 billion. As a benchmark, the S&P/TSX Composite Index includes issuers with market caps ranging from $480 million to $149 billion, with an average of $9 billion and a median of $3 billion. The median of the data excluding the non-TSX public companies is much lower than the S&P/TSX Composite Index median. Thus, plaintiffs and their lawyers tended to pursue relatively large, but not the largest, companies.

Industry

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In terms of industry sector, 34% of the 47 companies named as defendants were mining companies. As a comparison, the materials sector, which includes mining, constitutes around 11% of the S&P/TSX Composite Index. Thus, a disproportionately high percentage of public companies from the mining industry were subject to securities class actions for secondary market misrepresentations, as illustrated in Figure 3. In contrast, financial institutions were disproportionately less likely to be named as a defendant. Around 15% of the companies named as defendants in the dataset were from the financial services sector, but the sector constitutes nearly 37% of the S&P/TSX Composite Index.

Gatekeepers

Gatekeepers such as auditors, underwriters, and lawyers were rarely, if ever, named as defendants by plaintiffs and their lawyers between December 31, 2005 and December 31, 2015. Plaintiffs and their lawyers named public companies and/or their officers and directors in 70 of the 74 cases (95%). None of the cases named the company’s lawyers as defendants. Only seven of the 74 cases (9%) named the company’s underwriters as defendants. In 2016, the ONSC held that underwriters are not “experts” for the purposes of a statutory civil liability action and “are not intended to be caught by the secondary market liability provisions.” The court reasoned that underwriters are already subject to primary market liability under section 130 of the Ontario Securities Act. This decision will likely further discourage claims against underwriters. Finally, 13 of the 74 cases (18%) named the company’s auditors as defendants. 

Who are the plaintiffs?

Retail Investors or Institutional Investors

Between December 31, 2005 and December 31, 2015, retail investors were more likely to commence actions as compared to institutional investors. 60 of the 74 cases (81%) were commenced by retail investors, six cases (8%) were commenced by both institutional and retail investors, and only eight cases (11%) were commenced by institutional investors alone.

Plaintiff's Counsel

One law firm was involved in 66% of the cases in the sample. Siskinds LLP was involved in 66% of the cases. Other firms included Sutts, Strosberg LLP and Koskie Minsky LLP. Representation on the defendants’ side was significantly more fragmented.

Settlements Obtained

Claims commenced by institutional investors were not necessarily more likely to obtain a settlement than claims commenced by retail investors. To date, five of the eight cases (63%) commenced by institutional investors have been completed (i.e. settled, dismissed, or time barred), of which four (80%) have settled. Similarly, 34 of the 60 cases (57%) led by retail investors have been completed, of which 27 (79%) have settled. However, in cases led by institutional investors, the average settlement is approximately $29 million, which is almost three times more than the$10 million average settlement in cases led by retail investors.

Progression of Claims

In Canada, plaintiffs are required to obtain leave of the court to commence secondary market statutory liability actions. Additionally, plaintiffs are also required to seek certification under the respective province’s Class Proceedings Act (e.g. section 5(1) of the Ontario Class Proceedings Act). Once plaintiffs obtain leave and certification to commence an action as a class, the case proceeds to judgment on the merits in the trial court.

Status of Cases

• None of the 74 cases have proceeded to a judgment on the merits, although many cases have been settled (46%).
• Of the 74 cases commenced during the sample period, 43 (58%) have been settled, dismissed, or time barred as of June 2017.
• 34 of the 43 cases (79%) were settled, 7 were dismissed, and 2 were time barred.
• 68% of the 34 cases that settled had not actually been certified, but were certified for the purpose of settlement.
• 31 of the 74 cases (42%) are still ongoing.

Duration

Based on the sample data, the average time until a class action was settled, dismissed, or time barred was 3 years. The shortest time was about 11 months for a case filed in 2008. The longest was slightly over 9 years, which was for the first case filed in Canada under the statutory civil liability scheme in 2006 (Imax).

Settlement Amounts

Settlement amounts have ranged from as low as $105,000 to $166 million, with an average of $18 million and a median of $12 million. 31 of the 74 cases (42%) are still ongoing. Based on the sample data, the average time until a class action was settled, dismissed, or time barred was three years. The shortest time was about 11 months for a case filed in 2008. The longest was slightly over nine years, which was for the first case filed in Canada under the statutory civil liability scheme in 2006.

 

For a PowerPoint on the key findings, please click here.