IF A COMPANY HIDES FRAUD FOR MORE THAN THREE YEARS IT IS REWARDED: WHY ARE INVESTORS BEING PUNISHED?
APRIL 5, 2018. The Ontario Court of Appeal upheld a lower court’s decision that under absolutely no circumstance can an Ontario statutory claim for secondary market liability exceed three years in length. Yes, really.
In Kaynes v. BP PLC, 2018 ONCA 337, the investor alleged that BP PLC released documents containing misrepresentation about omitting material adverse facts about the Company’s Oil Spill Response Plan between May 9, 2007 and May 28, 2010. On November 15 and 17, 2012, the plaintiff served his claim and motion record in support for leave to proceed with the statutory secondary market claim.
In shutting access to justice to investors, the court took an ultra-conservative pro-business anti-investor approach towards reading the limitation period in section 138.14 of the Ontario Securities Act that reads “No action shall be commenced under section 138.3, in the case of a misrepresentation in a document, later than the earlier of three years after the date on which the document containing the misrepresentation was first released. Here, BP PLC successfully argued that limitation period expired on May 9, 2010, i.e., three years after the release of the first core document alleged to have a misrepresentation. Unfortunately, for investors, the 138.3 claim’s element has not crystalized because there no damages from the alleged fraud at that point in time. Equally as harsh about the court’s opinion, the result is that investors were really only provided a three week limitation period, e.g., three weeks from the explosion in the Gulf of Mexico, which was during a period that BP PLC admitted to intentionally down-playing the seriousness of the problem. See, SEC v. BP plc, Litigation Release No. 22531 [ https://www.sec.gov/litigation/litreleases/2012/lr22531.htm ]
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