can flag 2In the United States, securities class action lawsuit filings were at their highest level in years in 2015. The situation in Canada during 2015 was completely the opposite. According to a February 11, 2016 report from NERA Economic Consulting, securities class action lawsuit filings in Canada during 2015 were at their lowest levels since 2003. According to the report, which is entitled “Trends in Canadian Securities Class Actions: 2015,” and subtitled “Are We in Bear Territory?” (here), there were only four securities class action lawsuits filed in Canada in 2015, well below the levels seen in recent years and well below historical averages. Indeed, according to the report, case resolutions far outpaced new filings in 2015. NERA’s February 11, 2016 press release about the report can be found here.


Using the data from the report, it appears that the average annual number of securities class action lawsuits filed during the period 1997-2015 was 6.7, and the average for the period 2008-2014 was 11.7, so the four securities class action lawsuits filed in 2015 was not only below historical averages, but well below the average number of filings in more recent years. The four securities suits filed in 2015 were also well below the 13 filed in 2014. The drop in 2015 filings represents the first annual decline in the number of filings since 2011.


The report cites a number of factors that it suggests may have led to the decline in the number of filings in 2015. Perhaps the most significant is that there have been a series of court rulings that are widely viewed as having raised the evidentiary threshold to obtain leave to proceed with the securities action, as is required by the secondary market liability provisions of the provincial securities acts.  As the report notes, these rulings confirmed that the leave requirement is “a merits-based test and not simply a ‘speedbump’ for plaintiffs.” In addition, increasing litigation costs arising from competition among class counsel for the right to lead the case may also be contributing to the decline. Other possible factors are discussed below.


During the period 2010-2015, 46 securities class action lawsuits were filed in Canada against TSX-listed companies, representing about 3% of the average number of companies listed, or an annual average annual litigation risk of approximately 0.5%. The equivalent litigation risk for companies listed on the TSX Venture Exchange is 0.06%.


Three of the four new cases in 2015 were filed in Ontario (although two of those three involve cases that were also filed in other provinces, British Columbia and Quebec). The fourth case was filed only in Alberta. Historically, 78% of all new cases involve a filing in Quebec, and 25% involve a filing in Quebec. Only 12% of cases do not involve a filing in either Ontario or Quebec. About 23% of all cases involve filings in more than one province.


Two of the four cases filed in 2015 involve parallel class actions in the U.S. (Valeant Pharmaceuticals and MDC Partners). In addition to these two cases, there were also three other cases filed in the U.S. during 2015 involving Canadian domiciled companies (Silver Wheaton Corp.; 6D Global Technologies; and Nobilis Health). Of the 68 statutory secondary market cases that have been filed in Canada to date, 43% have involved parallel U.S. class actions. Since 2006, about half of all the Canadian companies sued in the U.S. have also had a parallel action in Canada.


In the wake of the financial crisis, cases against financial companies predominated among the Canadian filings. In more recent years, the number of filings against financial companies has declined and filings against companies in the minerals sector have “increased significantly.” Since 2010, about 43% of all filings have involved minerals companies, compared to 23% of all cases filed between 1997 and 2009. Two of the four cases filed in 2015 involved companies in the minerals sector.


While the number of new case filings declined in 2015, the number of case resolutions hit an annual high, including seven settlements and six dismissals. The aggregate total value of the seven settlements was approximately $107 million, for an average of $15.3 million and a median of $11 million.  (Please note that all dollar values expressed in the report and in this blog post reflect Canadian dollars, rather than U.S. dollars.) During the period 1997 to 2015, the average (skewed by two large settlements) was $71.9 million and the median was $11.4 million.  The six case dismissals was a record annual number of dismissals, which, the report notes, may have been a factor contributing to the lower number of filings in 2015. Of the 129 securities class action lawsuits filed since 1997, 14 (10.9%) have been dismissed as of the end of 2015.


There are now a total of 52 unresolved Canadian securities class action lawsuits pending as of the end of 2015, representing a decline from the peek of 61 active cases as of the end of 2014. The large number of active cases, the report suggests, “may be another factor contributing to the relatively low number of new filings in 2015.” The report also speculates that if this factor is in fact at work, “one might expect that this lull in filings to be a transient phenomenon and that the rate of filings of new cases may increase as more of the currently active cases are resolved.” In addition, the report also speculates that the increased market volatility that we have experienced in 2016 may also counter some of the factors that contributed to the filing decline last year.