As I have previously detailed (here), 2016 was a record year for securities class action litigation in the U.S. The number of class action lawsuits filed in Canada more than doubled in 2016 compared to the year before, but the filing pace during the year was still below the pace during the period from 2010 to 2014, according to a new report from NERA Economic Consulting. The February 22, 2017 report, entitled “Trends in Canadian Securities Class Actions: 2016 Update,” which sets out a comprehensive overview of Canadian securities class action filing and case resolution trends, can be found here. NERA’s February 22, 2017 press release about the report can be found here.
There were nine new securities class action lawsuits filed in Canada in 2016, compared to only four in 2015. Though the number of lawsuit filings increased last year, the number of suits filed was below the annual average of 11.7 filings during the period 2008-2014, and below or equal to the number of filings during each of the years 2010 through 2014.
The recent slower pace of filings “reverses the upward trend following the introduction of secondary market civil liability at the end of 2005.” Seven of the nine cases filed in 2016 were statutory secondary market cases. The total of seven new secondary market cases is lower than the level in all but one year from 2008 through 2014. The report notes that “it is unclear whether the recent slowdown is being driven by higher expected costs and lower expected payoffs for class counsel, or by fewer potential claims, or whether it is merely a transient phenomenon.”
Not only are there far fewer securities class action lawsuits filed in Canada compared to the U.S., but the likelihood that a Canadian listed company would get hit with a securities suits appears to be significantly lower than the likelihood of a U.S.-listed company getting sued. While the annual chance of a U.S.-listed company getting sued is approximately 3.1% (not counting merger objection suits), the report states that the annual average litigation risk of a company listed on the Toronto Stock exchange is about 0.5%. The annual average litigation risk of companies listed on the TSX Venture Exchange is 0.07%.
Filings in Canadian securities class action lawsuits continue to be concentrated in Ontario, with six of the nine 2016 cases filed only in Ontario. Two of the other cases were filed in Quebec and one in Alberta. Historically, about 78% of all securities class action lawsuits have involved a filing in Ontario and 28% have involved a filing in Quebec (some cases are filed in more than one province—historically about 27% of all suits have been filed in more than one province.) Only 12% of all cases have not involved a filing in either Ontario or Quebec (with a majority of these “other” cases being filed in Alberta).
Six of the nine new Canadian class action lawsuits filed in 2016 also involved parallel securities class action lawsuits in the U.S. Of the total of 76 statutory secondary market cases that have been brought to date, 34 of them (45%) have involved parallel U.S. class actions. During the period 2011 through 2016, 49% of the cases have had a parallel U.S. filing.
Of the six cross-border cases in 2016, five involve companies with cross-listings on the TSX and one of the U.S. exchanges. The sixth case was brought in Canada against Volkswagen AG, which does not have securities listed on a Canadian exchange. The report notes that “class counsel” are continuing to “explore the scope of the ‘responsible issuer’ definition in the provincial securities act.” The report also notes that an action of this type would not be permitted in the U.S. under the U.S. Supreme Court’s ruling in the Morrison v. National Australia Bank decision.
In addition to these cross-border cases, there were four other Canadian domiciled companies that were hit with U.S.-only securities class action lawsuits.
The nine companies hit with Canadian securities suits in 2016 span a range of industries, including consumer durables and services, health, and technology. Three of the nine cases filed in 2016 involve companies in the non-energy minerals (mining) sector. Since 2010 approximately 42% of all cases have involved companies in either the energy or non-energy minerals sector, compared to 23% of all cases filed between 1997 and 2009.
Two Canadian class action lawsuits settled during 2016, the lowest number of settlements in a year since 2011. The Penn West Petroleum case settled for $53 million, to be split equally between the Canadian and U.S. classes. The RB Energy Inc. case settled for $0.4 million, all of which is to be paid to class counsel.
During the period 1997 through 2016, the average Canadian securities class action lawsuit settled for $70.4 million, although this average is skewed upward by two exceptionally large settlements involving Nortel Networks. The median Canadian class action lawsuit settlement during that period was $11.4 million, in U.S. dollar terms measured by the exchange rate in effect at the time of the settlement. (During that same period, the median U.S. securities class action settlement was $9 million).
Three Canadian securities suits were dismissed in 2016. During the period 1997 through 2016, 12.3% were dismissed (as of the end of 2016). During the period 1997 to 2005, 82% were resolved by settlement. Of the cases filed from 2006 to 2016, only 70% were settled (although this group of cases includes the more recently filed suits).
In conclusion, the report notes that while the number of Canadian securities suits rebounded in 2016, the filings pace was below that of prior years, although up from 2015. The report notes that a possible interpretation is that “a slower pace of filings is the new norm,” although the report also emphasizes that “only limited inferences can be made from the fairly small sample of cases.”