On December 4, 2015, the Supreme Court of Canada published its long-awaited decision in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60 (hereafter “CIBC”). The Court affirmed and clarifed the threshold for investors to advance statutory claims against publicly traded companies as articulated in the lower courts. Additionally, the Court clarified how the limitations period is to be applied in statutory shareholder claims.
The Supreme Court took the opportunity in CIBC to clarify its earlier decision in Theratechnologies Inc v. 121851 Canada Inc, 2015 SCC 18. Since the publication of Theratechnologies, lower courts have published overtly hostile opinions against investors’ claims while denying leave to proceed except in the most blatant examples of securities fraud.
Within the recent past, the lower “motion” courts in Ontario appear to have been struggling with the issue of when a shareholder has presented enough evidence at the preliminary stage of litigation (pre-discovery and relying simply upon public information) to provide the court with the assurance that there is a reasonable possibility that the action will be resolved at trial in favour of the investor, in order to allow him/her to proceed with the statutory claim against the responsible issuer and others (see, section 138.8 of the Ontario Securities Act). We blame this struggle on an over-reaction (fueled by Bay Street rhetoric) to some ambiguous language found in Theratechnologies Inc. A thorough reading of CIBC suggests that the Supreme Court shares our sentiment.
In CIBC, the Court unanimously upheld the lower court’s decision on the standard of the threshold to grant leave to proceed with a statutory secondary market claim. Chief Judge McLachlin, Rothstein, Cromwell, Moldaver, Karakatsanis, Gascon, and Côté all concurred that:
Strathy J interpreted this statutory language as establishing a relatively low threshold according to which leave will be denied only if, ‘having considered all the evidence adduced by the parties and having regard to the limitations of the motions process, the plaintiffs’ case is so weak or has been so successfully rebutted by the defendant, that it has no reasonable possibility of success’: para. 374. The Court of Appeal upheld this interpretation of s. 138.8(1)(b). (CIBC, at para. 118)
The Court further added that a plaintiff “must ‘offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim.’” (Ibid., at para. 121, citing, Theratechnologies, emphasis added).
The Supreme Court of Canada reaffirmed that the threshold is there must be a reasonable possibility that the action will be resolved in favour of the plaintiff at the trial. (Ibid., at paras. 121 – 122). Justice Karakatsanis, on behalf of herself, Moldaver, and Gascon, expressly added that Justice Strathy’s view of the threshold for leave to proceed, upheld by the Court of Appeal, is the correct view, i.e. “a low threshold”. (See, Green v CIBC, 2012 ONSC 3637, at para. 373: “I respectfully agree with van Rensburg J. and Tausenfreud J. that the leave requirement is a relatively low threshold”, upheld in 2014 ONCA 90, at para. 96).
The Court has signaled that if an investor comes forward with credible evidence, e.g., uncontested expert evidence supporting the allegations that the defendant published misrepresentations, the lower courts cannot engage in weighing expert evidence and must allow the claim to proceed. Indeed, the Supreme Court reiterated the “low threshold” as interpreted by Justice Strathy within the context that the motion for leave to proceed is at the preliminary stages of the litigation prior to discovery. After the defendant(s) delivers its statement of defense, it is always welcome to seek to have the investor’s claim(s) dismissed by way of summary judgment.