Law Times

Law Times • march 15, 2010 Will IMAX open the floodgates? Lawyers doubtful despite recent court decision BY JULIUS MELNITZER For Law Times I t's hard to fi nd a plaintiff s' or defendants' counsel who believes Ontario Superior Court Justice Katherine van Rensburg's decision in Decem- ber to grant leave to proceed with the class action in Silver v. IMAX Corp. will open the fl oodgates on similar cases in Ontario. Alan D'Silva of Stikeman El- liott LLP, who represents defen- dants in securities class actions, will only go so far as to observe that it's "premature" to predict whether the leave decision will lead to more cases. Nonethe- less, his subsequent comments suggest he's skeptical of a Pan- dora's box scenario. "You have to remember that ORDER your copy today Hardbound • 154 pp. • $78 February 2010 P/C 0871010000 ISBN 978-0-88804-500-3 there are other safeguards built into the legislation, including costs sanctions and a cap on damages," he says. "Th is having been said, the legislative intent behind the leave provisions, which is to ensure safeguards against the strike suits that are common in the United States, suggests that courts considering leave should take a harder look at the merits, and I'm hoping that the issue gets further consideration at the appeal court level." Th e leave ruling was the fi rst judicial pronouncement dealing with the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions of the Ontario Securities Act. Th e allegations have yet to be proven in court. Th e act, under s. 138(3), mandates leave where the court is sat- isfi ed that the plaintiff s have brought the claim in good faith and there is a reasonable possibility they'll be successful at trial. Interest- ingly, all of the IMAX parties concurred that these requirements necessitated some consideration of the action's merits. Th e defendants, represented by Paul Steep and Dana Peebles of McCarthy Tétrault LLP, argued the burden of establishing good faith was an onerous one requiring the plaintiff s to establish that the action was for the corporation's as opposed to the plaintiff s' benefi t and that the plaintiff s had a reasonable belief in the merits of their claim. Van Rensburg disagreed. In her view, the plaintiff s had only to show they were suing with the honest belief that they had an arguable claim consistent with the act's intent and not for an "oblique or collateral purpose." Th e claim, if successful, would permit shareholders to recover losses, hold the defendants accountable for the alleged misrepresen- tations, and deter others from acting in the same way. All these goals were consistent with the statutory intent. Th e plaintiff s, represented by Dimitri Lascaris and Michael Robb of Siskinds LLP in London, Ont., along with William Sasso and Sharon Strosberg of Sutts Strosberg LLP in Windsor, argued they needed only to provide some evidence acceptable to the court that was consistent with the allegations of misrepresentation. Th e defendants countered that a heavier onus was necessary given that the purpose of the leave application was to deter unmeritorious claims. Van Rensburg, concluding that the requirement for leave was aimed only at abuses of process or purely speculative claims, leaned to a low threshold. A reasonable possibility, she ruled, required "something more than a de minimis possibility or a chance that the plaintiff will succeed at trial." She also decided it was open to the defendant to establish the statu- tory defences of due diligence and expert reliance at the leave stage. Th e defendants could succeed, however, only if the evidence they proff ered foreclosed a reasonable possibility of success for the plaintiff s. "Th e upshot is that we're left with more of an emphasis on the good-faith requirement than on a substantial examination of the merits," says Won Kim of Toronto's Kim Orr. He represents plain- tiff s in securities class actions. Lascaris says the history of the leave provision supports a low thresh- old. Nevertheless, he doesn't expect a spate of securities class actions. "Although the ruling in Imax is a positive development from plain- tiff s' perspective, I don't think it will dramatically change the environ- ment," he says. "Given the safeguards we have here, and the fact that these cases are expensive and time-consuming, I think we're going to see consistently fewer securities class actions than in the U.S. even adjusting for the relative size of the capital markets." 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