Ontario’s Top Court upholds decision significantly limiting proposed securities class action against Barrick Gold
In its decision last week in Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation, the Court of Appeal for Ontario has upheld the decision of Superior Court Justice Jasmine Akbarali to refuse to grant leave to proceed under Part XXIII.1 of the Securities Act for a proposed misrepresentation class action against mining giant Barrick Gold Corporation. On the original motion, leave to proceed had been denied in relation to a number of alleged misrepresentations Barrick made in its public filings and it had been granted only in relation to two alleged misrepresentations issued in February and March 2012 relating to Barrick’s capital expenditure budget. On appeal, the appellants challenged the denial of leave for misrepresentations made in Barrick’s 2011 public filings. The appellants also challenged the May and July 2012 dates when the motion judge found that the alleged misrepresentations were publicly corrected, saying that partial public corrections actually happened later, as late as June 28, 2013 – thereby extending the class to purchasers in a longer timeframe.
The statutory background to this appeal is, of course, the requirement for leave to proceed with a misrepresentation claim under Part XXIII.1 of the Securities Act. That requirement is intended to avoid unmeritorious “strike suits” against public companies by requiring plaintiffs to show a reasonable chance of success at trial at an early stage of a proceeding in order to be allowed to proceed. In writing for a unanimous appeal panel, Justice David Paciocco highlighted that the requirement for a reasonable chance of success at trial under s. 138.8 of the Securities Act does not call for a review, in isolation, of only evidence that supports the plaintiff’s theory. Rather, the motion judge must review all the evidence adduced by both parties to ascertain whether there is a reasonable or realistic chance that the action will succeed. A “triable issue” or “a mere possibility of success” are not enough to meet the test. The plaintiff must show both a plausible legal foundation for the claim and the evidence relied upon must be credible and it is not to be assumed to be true or taken at face value.
Justice Paciocco indicated that it can also be the case that the evidence for the defence may be so compelling that there is no realistic possibility that the plaintiff will succeed at trial and leave should be denied in such cases. In the case of Barrick, he found that the motion judge did not err in finding that the plaintiff’s evidence was “undermined by competing, uncontroverted evidence provided by the defendant explaining why the testimony of the plaintiff’s geologist was inaccurate.”
Having said all fo the above, Justice Paciocco’s reasons cautioned against the leave test being a mini-trial or involving the weighing of evidence of a full analysis of the evidence. He also directed that a motion judge must be cognisant of the fact that, on a leave motion, the record will still be incomplete and that the motion judge should consider the incompleteness of the record in coming to a decision on whether there is a reasonable chance of success at trial – when, presumably, the trial judge will have the benefit of the full record.
In this case, the Court of Appeal found that the motion judge’s consideration of the evidence had not been an impermissible “mini-trial” and that she properly acted within the scope of her duties under s. 138.8 of the Securities Act in assessing whether, on the evidence, the plaintiff had a reasonable chance of success at trial.
The Court of Appeal further refused to overturn the motion judge’s rejection of the claim that the misrepresentations were actually corrected on later dates and therefore captured a larger class of persons who had purchased Barrick securities as late as June 2013 – more than a year after the misrepresentations at issue. In the words of Justice Paciocco, “…s. 138.3(1) of the OSA is meant to provide generous access to justice to those whose trading decisions may have been tainted by misrepresentations. It would not be in keeping with this objective or with judicial economy to permit misrepresentation actions to be pursued on behalf of those who trade in securities after alleged misrepresentations have been completely publicly corrected, since a complete public correction will have removed any realistic prospect that those trading decisions may have been tainted.”
The test for leave to proceed under s.138.3(1) of the Securities Act has been subject to significant and often contradictory judicial guidance since Part XXIII.1 was enacted more than 17 years ago – guidance that has in the past described the leave test as little more than a “speed bump.” However, since the 2015 release of the Supreme Court of Canada’s decision in Theratechnologies, appellate decisions have been much more consistent in saying that the hurdle to obtain leave is a significant one, requiring plaintiffs to adduce plausible theories of liability and credible evidence at an early stage before any chance at discoveries has occurred.
