Plaintiffs Denied Leave in the Latest Decision under Part XXIII.1 of the Ontario Securities Act

In Bayens v Kinross Gold Corp, released November 5, 2013, Justice Paul Perell of the Ontario Superior Court of Justice denied the plaintiffs in a putative class action leave to advance a statutory claim for securities market misrepresentation under Part XXIII.1 of the Securities Act. In denying leave, Justice Perell also dismissed the plaintiffs' motion to certify the statutory claim along with a common law claim for negligent misrepresentation.

The Kinross decision represents a welcome victory for potential defendants across the province, and one of the few instances since the 2006 enactment of Part XXIII.1 of the Securities Act that a motion for leave under this part has been denied.  Justice Perell denied leave on the basis that he was not satisfied on the evidence that there exists a reasonable possibility that the action will be resolved at trial in favour of the plaintiffs.  In arriving at this decision, he examined the legislative history pertaining to the leave test and thoroughly canvassed the relevant case law addressing the threshold that must be met to successfully obtain leave.  Justice Perell's decision may serve to reassure potential defendants that the judiciary views the test for leave as more than a mere bump in the road.  Rather, as defendants have consistently argued, the test ought to be a genuine screening mechanism, capable of weeding out unmeritorious claims.  While this decision arguably and, many will say, appropriately elevates the test, appellate guidance on the issue remains necessary to further define the test's precise parameters.

Notably, in deciding the matter of certification, Justice Perell went on to bootstrap the common law negligent misrepresentation claim to the statutory claim, and he denied certification of the entire action on the basis of the plaintiffs' failure to obtain leave under the Securities Act.  Justice Perell held that, with the failure of the statutory claim to be granted leave, it necessarily followed that both the statutory claim and the common law negligence claim failed to satisfy the certification criteria under section 5(1) of the Class Proceedings Act.

Specifically, in light of the plaintiffs' failure to obtain leave, Justice Perell held that the statutory claim could not be certified as there was no such cause of action.  More importantly, with respect to the common law claim, Justice Perell held that, having the same evidentiary foundation as the statutory claim, there was no basis in fact for three of the five certification criteria (class definition, common issues and preferable procedure), and thus the common law claim could not proceed.

Given that the merits-based test for leave under the Securities Act is evidence-based and more onerous than the procedural test for certification under the Class Proceedings Act, Justice Perell's conclusion concerning the common law claim may be met with a chorus of calls of overreaching from the plaintiff's bar, particularly given that the common practice is to bring statutory and common law claims concurrently.  It is no surprise, then, that the plaintiffs in this case intend to file their notices of appeal by the end of the month.  Next will be the Court of Appeal's decision on whether leave to appeal Justice Perell's decision will be granted.

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