The D & O Diary
Have Class Actions in Canada "Reached Maturity"?
2012 was “another brisk year of class action activity” in Canada, according to a recent memorandum from the Osler Hoskin & Harcourt law firm entitled “Class Actions in Canada 2012” (here). There were a number of significant class action developments in Canada in 2012, including the “landmark” $117 million E&Y settlement in the Sino-Forest case (about which refer here). The developments during the past year “suggest that 2013 may be a tipping point for the maturing class action jurisprudence in Canada.”
The law firm memo covers class action developments across a broad range of areas of the law, including securities law, competition law, product liability law and employment law, among others. Among other things, the memo also discusses the increasing role of third party funding in class action litigation in Canada. The memo reviews several recent Canadian court decisions where third party funding arrangements have been allowed, and notes that more recently cases have set out a “road map” for approval of future third-party funding arrangements.
The memo notes that these developments involving third party funding arrangements “will undoubtedly encourage plaintiffs to seek approval of similar agreements in other class actions.” The memo’s authors add a note of concern about these kinds of funding arrangements. They note that under the “loser pays” model that applies to class action litigation in most of the Canadian provinces, “the risk of an adverse cost award has traditionally served an important function in discouraging plaintiffs from pursuing questionable cases.” The authors note that “if these risks are outsourced to third parties, there is a concern that plaintiffs may be relieved of some of the adverse consequences of poor case selection, resulting in more strategic class action litigation.”
With respect to securities class action litigation, the memo notes that there was “significant activity” in Canada in 2012. The key developments included the March 2012 ruling in the Canadian Solar case (about which refer here), in which the Ontario Court of Appeal held that the liability regime under the Ontario Securities Act applies to a company whose shares trade only on NASDAQ and that do not trade on any Canadian exchange, and that has its principal place of business in China. (The company has its head office and business operations in Ontario and some of the allegedly misleading documents originated in Ontario).
The memo also notes that, notwithstanding the low threshold plaintiffs must meet in order to obtain leave to proceed under the Ontario Securities Act in a secondary market securities class action formulated in the Imax case (about which refer here), class plaintiff nonetheless face “ a meaningful evidentiary burden.” In particular, the denial of leave in the Western Coal Corporation case -- in whichJustice George Strathy found "no reasonable possibility" that a trial judge would accept the plaintiffs' expert evidence -- provides a "welcome reminder" that "courts will exercise an important gatekeeping function at teh leave stage and the certification stage, and this gatekeeping function may include a rigorous assessment of the expert evidence and a threshold evaluation of the merits." (For more aboute the Western Coal decision and its possible implications, refer here.)
In connection with employment class actions, the memo notes that there was a trio of cases in 2012 released by the Ontario Court of Appeal concerning certification in three overtime class action cases. Among other things, these rulings resulted in one certification in a misclassification case and two certifications in an “off-the-clock” case. Because parties to at least two of these cases have sought leave to appeal to the Supreme Court, “we may see further judicial guidance on the certification of employment class actions in 2013.”
The memo concludes by noting that in light of the numerous significant class action developments in 2013, “there are signals that 2013 may be a watershed year for class action practice in Canada.” The memo notes that according to one of the leading Canadian class action judges, Canada’s “class action bar and jurisprudence” has now “reached maturity” – a development that has significant implications for both the class action bar and for businesses in Canada.
More on the New Wave of Say-on-Pay Litigation: In an earlier post, I noted the “new wave” of say-on-pay litigation, in which the plaintiffs’ firms have filed class action lawsuits seeking to enjoin an upcoming a shareholder vote, challenging the adequacy of proxy disclosures on executive compensation and equity plans. A January 31, 2013 memorandum from the Latham & Watkins law firm entitled “Defending the Latest Wave of Proxy Litigation: Say-on-Pay and Equity Plan Shareholder Class Action Injunction Litigation” (here) takes a look at the early results from these cases and notes that the results “provide guidance for companies that want to plan ahead to position themselves for a strong defense and minimize business disruption if a suit is filed.” The memo provides an outline for reviewing and drafting proxy disclosure in anticipation of these kinds of suits as well as the steps to take to prepare for the defense in the event a case is filed.
More About Rule 10b5-1: As a result of a series of recent Wall Street Journal articles, Rule 10b5-1 trading plans are under scrutiny once again, as I discussed here. The suspicion of the trading plans is ironic, since the Rule allowing the plans was designed to allow company insiders to trade their shares without incurring liability. When set up properly and used correctly, Rule 10b5-1 plans can be an effective securities litigation loss management tool. But that begs the question – how are they set up properly and used correctly?
A January 19, 2013 memo from the Davis Polk law firm entitled “Rule 10b5-1 Plans: What you Need to Know” (here), takes a look at the recent issues surrounding Rule 10b5-1 plans and lays out a set of practical guidelines to be used in establishing the plans in order to avoid the kinds of problems that have recently arisen. The guidelines also provide a useful basis to use to try to figure out if a particular plan is likely to cause problems. The guidelines answer a number of the recurring questions surrounding the plans.
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