Law Times

PAGE 8 An online resource 1.800.263.3269 Focus On CLASS ACTIONS Plaintiffs' bar loses key legal battle in Gammon Gold ruling Securities class actions a vexing issue T BY JULIUS MELNITZER For Law Times he securities class ac- tion plaintiff s' bar lost an important battle in its continuing eff orts to ad- vance the claims of secondary- market purchasers. On July 21, Ontario Divi- sional Court Justice Harriet Sachs refused leave to appeal in McKenna v. Gammon Gold Inc. It arose from alleged second- ary-market misrepresentations by Gammon Gold, a publicly traded gold and silver produc- tion company, and some of its senior offi cers and directors. Th e plaintiff s also sued BMO Nesbitt Burns Inc., Scotia Capital Inc., and TD Securi- ties Inc. On March 16, Superior Court Justice George Strathy certifi ed the action as a class proceeding but declined to certify any part of the claim on behalf of the secondary-market purchasers or any common law misrepresentation claim. Subsequently, plaintiff s' lawyers Dimitri Lascaris of Sis- kinds LLP in London, Ont., and Margaret Waddell of To- ronto's Paliare Roland Rosen- berg Rothstein LLP fi led an application for leave to appeal to the Divisional Court. Laura Cooper and Paul Martin of Fasken Martineau DuMoulin LLP represented Gammon and the individual defendants. Ron- ald Slaght and Nadia Campion of Toronto's Lenczner Slaght Royce Smith Griffi n LLP rep- resented Nesbitt Burns, Scotia, and TD. Although Sachs gave leave with respect to some aspects of Strathy's order, she de- nied it on the question of the secondary-market purchasers and the common law misrep- resentation claims. When the Ontario legisla- ture amended the Securities Act in 2005 to allow inves- tors to sue for misrepresenta- tion in the secondary market without having to prove that they had relied on it, the business community predict- ed a plethora of class action litigation, much of it lacking merit, whenever a company's stock took a dive. But the onslaught didn't occur either in Ontario, Alberta or Brit- ish Columbia, both of which followed the model here. In- deed, it wasn't until the last year or so that such lawsuits made a meaningful appear- ance on the legal landscape. Th ere were many reasons for this, including the eco- nomic boom's skyrocketing stock values and the fact that the Ontario legislation capped damages for negligent misrep- resentation, contained a gate- keeper provision that required investors to obtain leave from a judge before proceeding with their lawsuits, and provided for a loser-pays costs regime. More recently, however, such cases have started to make headway with Ontario courts certifying securities class ac- tions in cases like Silver v. Imax Corp., which is currently under appeal, and McCann v. CP Ships Ltd., which has since settled. Invariably, however, plain- tiff s have combined their statu- tory claim with a historical defendant's bugbear — the will in many cases require an individual inquiry into the circumstances under which each class member came to invest in a stock. If it's not, certifi cation is a less demand- ing legal proposition. In the meantime, plain- tiff s' lawyers like Lascaris have refi ned the argument. Th ey argue that the law deal- ing with the necessity for reliance is evolving and that judges hearing certifi cation motions should allow plain- tiff s to have the issue decided at trial. Th at argument won the If the courts restrict common law mis- representation claims, the effect will be to restrict the filing of secondary- market securities class actions, says Dimitri Lascaris. common law claim for negli- gent misrepresentation, which doesn't require leave, has no cap on damages, and doesn't raise the standard of proof beyond negligence when the misrep- resentation occurs in non-core documents like press releases. "If the courts restrict com- mon law misrepresentation claims, the impact will be to restrict the fi ling of secondary- market securities class actions to a signifi cant degree," Las- caris says. At the heart of the debate is whether an individual class member's reliance on the mis- representation remains a com- ponent of the common law claim. If it does, it dilutes the argument in favour of class certifi cation because the deter- mination of the reliance issue Electronic Documents Records Management, e-Discovery and Trial Effectively navigate the legal challenges posed by electronic documents Electronic data is modifying how lawyers interact, changing how information is collected and used, and transforming our courtrooms. This in-depth resource examines and analyzes the issues relating to electronic documents, including: • the sources and types of electronic documents • records management policies • the legal framework governing e-discovery in Canada • the preservation, collection, processing, review and production of electronic documents • the use of electronic evidence at trial canadalawbook.ca LT0906 For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book, a Thomson Reuters business. 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Binding authority, he ruled, made proof of reliance a "nec- essary requirement" of negli- gent misrepresentation claims. As he saw it, the need to prove reliance made the common law misrepresentation claims "fun- damentally unsuitable for cer- tifi cation." Here, the plaintiff s alleged multiple misrepresen- tations relating to a variety of complaints in a host of com- munications and documents available to numerous class members, which left the trial court to make individual in- quiries as to whether anyone had relied on any of the mis- representations. Barry Glaspell, a defence bar class action lawyer at Borden Ladner Gervais LLP, says there are underlying policy reasons motivating judges who lean against cases based on common law misrepresentation. "My view is that judges who have thought about it real- ize that the secondary-market common law negligent mis- representation claims are inef- fi cient to the degree that they seek to transfer wealth from existing shareholders to previ- ously wronged shareholders," he says. Judges are more likely to cer- tify in cases in which plaintiff s allege only one misrepresenta- tion or several of them with a common impact because such cases lend themselves more readily to the trial of common issues than separate misrepre- sentations with distinct subject matters. But Lascaris says the num- ber or nature of the misrepre- sentations isn't the issue. "In either case, there are common issues that will signif- icantly advance the litigation. In negligent misrepresentation, those issues at a minimum are whether there was a duty of care, whether there was a breach of the duty, and whether the al- leged misrepresentations were false or misleading." Th e issue won't be resolved in Ontario, Lascaris adds, until the matter makes its way to the Court of Appeal. LT September 7, 2010 • Law timeS Editors: Bryan Finlay, Q.C., Marie- W ith contributions from: Caroline Abela, Stephen Doak, Paul D. Guy, Nikiforos Iatrou, S Andrée Vermette and Michael S tatham tephanie L. Turnham, David Vitale and John W ilkinson

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