Court of Appeal for Ontario
Citation: Coulson v. Citigroup Global Markets Canada Inc., 2012 ONCA 108 Date: 2012-02-16 Docket: C52001
Between:
Paul Coulson Plaintiff (Appellant)
and
Citigroup Global Markets Canada Inc., Merrill Lynch Canada Inc., CIBC World Markets Inc., National Bank Financial Inc., HSBC Securities (Canada) Inc., RBC Dominion Securities Inc., TD Securities Inc. and Deloitte & Touche Defendants (Respondents)
Before: Goudge, Armstrong and Lang JJ.A.
Counsel: Joel P. Rochon, Peter R. Jervis and Sakie Tambakos, for the appellant Robb C. Heintzman and Michael D. Schafler, for the respondent Deliotte & Touche Benjamin Zarnett and Jessica Kimmel, for the respondent Canadian Underwriters
Heard: November 1, 2011
On appeal from the judgment of Justice Paul Perell of the Superior Court of Justice dated March 18, 2010, with reasons reported at 2010 ONSC 1596.
By the Court:
[1] On July 8, 2003, the appellant commenced this proposed class action. The respondents are a group of Canadian underwriters and an auditor. The action asserts a statutory cause of action under s. 130 of the Ontario Securities Act, R.S.O. 1990, c. S.5 (the OSA). On March 18, 2010, Perell J. granted the respondents’ motions and found that the appellant’s claim is barred by the limitation period in s. 138 of the OSA, and is not saved by the suspension of limitation periods provided in s. 28 of the Class Proceedings Act, 1992, S.O., 1992, c. 6 (the CPA). This is the appeal from that order.
[2] For the reasons that follow, we agree with the motion judge. We would dismiss the appeal.
[3] The underlying facts are not complex. In November 1997, Philip Services Corp. made a public offering of its common shares in the United States and Canada. The prospectus contained statements from the respondent Canadian underwriters and financial statements from Philip’s auditor, the respondent Deloitte & Touche. In the spring of 1998, a series of press releases revealed that these documents contained serious inaccuracies, causing the value of Philip’s shares to plummet.
[4] On May 5, 1998, Joseph Menegon commenced a proposed class action in Ontario against Philip and the respondents, asserting a claim under s. 130 of the OSA and the common law claim for negligent misrepresentation. Mr. Menegon purchased his shares in the secondary market, not from the primary distribution.
[5] On March 6, 2001, Gans. J. dismissed his action. He found that Mr. Menegon could not bring the s. 130 claim because he did not purchase from the primary distribution. Nor did he have a claim for negligent misrepresentation. Mr. Menegon’s appeal was dismissed by this court on January 9, 2003. On July 17, 2003, the Supreme Court of Canada dismissed his application for leave to appeal to that court.
[6] On July 8, 2003, the appellant commenced this action.
[7] The statutory provisions on which the issues in the appeal turn begin with s. 130 of the OSA. It creates a statutory cause of action for purchasers from a primary distribution of securities for misrepresentation in a prospectus. These purchasers are deemed to have relied on the misrepresentation. If successful, they are entitled to either damages or rescission. Section 130(1) reads as follows:
Liability for misrepresentation in prospectus
- (1) Where a prospectus, together with any amendment to the prospectus, contains a misrepresentation, a purchaser who purchases a security offered by the prospectus during the period of distribution or during distribution to the public has, without regard to whether the purchaser relied on the misrepresentation, a right of action for damages against,
(a) the issuer or a selling security holder on whose behalf the distribution is made;
(b) each underwriter of the securities who is required to sign the certificate required by section 59;
(c) every director of the issuer at the time the prospectus or the amendment to the prospectus was filed;
(d) every person or company whose consent to disclosure of information in the prospectus has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by them; and
(e) every person or company who signed the prospectus or the amendment to the prospectus other than the persons or companies included in clauses (a) to (d),
or, where the purchaser purchased the security from a person or company referred to in clause (a) or (b) or from another underwriter of the securities, the purchaser may elect to exercise a right of rescission against such person, company or underwriter, in which case the purchaser shall have no right of action for damages against such person, company or underwriter.
[8] The s. 130 cause of action is subject to a strict limitation period set out in s. 138 of the OSA:
Limitation periods
- Unless otherwise provided in this Act, no action shall be commenced to enforce a right created by this Part more than,
(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of any action, other than an action for rescission, the earlier of,
(i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or
(ii) three years after the date of the transaction that gave rise to the cause of action.
[9] However, s. 28(1) of the CPA provides some relief for class proceedings from this limitation period:
Limitations
- (1) Subject to subsection (2), any limitation period applicable to a cause of action asserted in a class proceeding is suspended in favour of a class member on the commencement of the class proceeding and resumes running against the class member when,
(a) the member opts out of the class proceeding;
(b) an amendment that has the effect of excluding the member from the class is made to the certification order;
(c) a decertification order is made under section 10;
(d) the class proceeding is dismissed without an adjudication on the merits;
(e) the class proceeding is abandoned or discontinued with the approval of the court; or
(f) the class proceeding is settled with the approval of the court, unless the settlement provides otherwise.
Idem
(2) Where there is a right of appeal in respect of an event described in clauses (1) (a) to (f), the limitation period resumes running as soon as the time for appeal has expired without an appeal being commenced or as soon as any appeal has been finally disposed of.
[10] The respondents based their motions in this case on these statutory provisions. The central issue was clear. The appellant’s action was commenced on July 8, 2003. It was based on s. 130 of the OSA and the misrepresentations of November 1997, made public in the spring of 1998. It is clearly barred by the limitation period in s. 138 of the OSA unless that bar was suspended for a sufficient period of time by the Menegon action, because of s. 28 of the CPA. In careful reasons, the motion judge found that the Menegon action expressly asserted the same s. 130 claim that the appellant seeks to advance, that s. 28 of the CPA temporarily suspended the running of the limitation period in respect of that claim, and that Gans J. dismissed that claim without a determination on the merits. None of this is contested in this court.
[11] The motion judge succinctly provides the purpose of s. 28 at para. 49 of his reasons:
The purpose of s. 28 of the Class Proceedings Act, 1992 is to protect class members from the operation of limitation periods until it has been determined whether class members may obtain access to justice through membership in a class proceeding as an alternative to obtaining access to justice by pursuing individual actions. In the absence of s. 28, class members would have to commence a multitude of individual actions and then, if a class action was certified, the class members who [sic] have the choice of opting out or of abandoning or having their individual actions stayed. The operation of s. 28 makes it unnecessary for class members to commence multitudes of individual claims by protecting them from the operation of limitation periods until it is determined whether they actually have the option of membership in a class proceeding that mentions their claim.
[12] What is contested is the motion judge’s finding that the appeal in the Menegon action was about the common law cause of action, but was not about the s. 130 statutory cause of action. In consequence, the suspension provided by s. 28 ended with the decision of Gans J. and the lapse of the appeal period from it without an appeal being taken on the issue. The motion judge therefore concluded that the appellant’s action was time-barred.
ANALYSIS
[13] It is clear that the limitation period imposed by s. 138 of the OSA on the appellant’s s. 130 claim began to run with his knowledge of the misrepresentations, which at the latest arose with the commencement of the Menegon action on May 5, 1998. That is what the motion judge found.
[14] It is also clear that the suspension of that limitation period provided by s. 28(1) of the CPA began on the same day with the commencement of the Menegon action, and ran until thirty days after the action was dismissed on March 6, 2001 without an adjudication on the merits, unless the limitation period was continued by the appeal from the dismissal.
[15] Finally, it is equally clear that if the appeal in the Menegon action did not continue the suspension, then the s. 138 limitation period of 180 days had long expired when, over two years after March 6, 2001, the appellant commenced his action on July 8, 2003 based on the same s. 130 statutory cause of action.
[16] Thus, everything turns on the effect to be given to the Menegon appeal under s. 28(2) of the CPA.
[17] The appellant makes two arguments in this court. First he says that the motion judge erred in failing to apply s. 28 from the perspective of absent class members including himself. He argues that absent class members would have concluded from the documents available on the public record that Mr. Menegon’s appeal encompassed his s. 130 claim and therefore that the s. 138 limitation period continued to be suspended until that appeal was decided in this court. As a result, none of these people would have thought it necessary to commence their own actions during that time to preserve timeliness.
[18] We disagree with that approach. Section 28(2) is designed to preserve the suspension of the limitation period applicable to the cause of action, as long as the appeal preserves the possibility that the cause of action may ultimately be successful. That requires an objective assessment about what the appeal is about, which is exactly what the motion judge did here.
[19] There is nothing in s. 28(2) to suggest the subjective approach argued by the appellant. Where the appeal does not encompass the cause of action, there is no possibility that the appeal may result in the cause of action being successful, whatever the absent class members may think the appeal is about. The rationale for the continuation of the suspension pending the appeal simply does not exist if the subjective approach is used.
[20] Second, the appellant argues that in fact the Menegon appeal continued to assert the s. 130 claim, and therefore kept the suspension alive until at least January 9, 2003, when this court decided that appeal.
[21] Again we disagree. The motion judge examined the record carefully and found that the Menegon appeal was not about the s. 130 claim but rather about the negligent misrepresentation claim. This finding deserves significant deference in this court as a finding of fact. Moreover, we agree with it.
[22] The notice of appeal in the Menegon appeal focuses on an appeal of the dismissal of the common law cause of action for negligent misrepresentation. In that context, there is only a single oblique reference to s. 130 of the OSA, and it carries no suggestion that the dismissal of the s. 130 statutory claim is also being appealed.
[23] Mr. Menegon’s factum in this court confirms this. The argument it contains is entirely about negligent misrepresentation. Indeed, the factum explicitly acknowledges that Mr. Menegon is not even a proper representative plaintiff for the s. 130 claim.
[24] The reasons of this court dismissing the Menegon appeal are equally clear. The appeal is described as being about whether the statement of claim sufficiently pleads negligent misrepresentation. Mr. Menegon’s argument, as described in those reasons, addressed the s. 130 claim only to say that in effect it was included in the common law action, and that his success on appeal depended on the validity of his action at common law. The survival of the statutory misrepresentation claim was not raised in this court by Mr. Menegon.
[25] Finally Mr. Menegon’s application for leave to appeal to the Supreme Court of Canada says nothing at all about the s. 130 claim.
[26] To summarize, it is clear that the Menegon appeal did not seek a reversal of the dismissal of the s. 130 statutory misrepresentation claim. Thus s. 28(2) of the CPA did not continue the suspension of the limitation period provided by s. 138 of the OSA during the Menegon appeal. It resumed running as soon as the time expired for appeal from the dismissal on March 6, 2001, of the s. 130 statutory misrepresentation claim. The appellant’s identical claim was long out of time when his action was commenced on July 8, 2003.
[27] The appeal is therefore dismissed.
[28] As indicated in argument we will receive brief submissions of counsel concerning costs of the appeal. They are to be limited to five pages and to be filed within 30 days of the release of these reasons.
[29] We conclude with this. Although he recognized it was unnecessary for his decision, the motion judge added a lengthy explanation of why, in his view, when the suspension of the limitation period pursuant to s. 28 of the CPA ends, that period arguably resumes, but retroactive to the time when the suspension started. While he did so with a view to providing guidance for future cases, this was not an issue requiring decision, nor apparently was it argued by counsel. In our view, such a practice is best used only very sparingly. However, because the argument has been judicially introduced, we are obliged to say only that we have grave doubts about it, given the plain and ordinary meaning of s. 28 and the policy rationale for it. Decision on the issue is best left for a future case requiring its resolution.
RELEASED: February 16, 2012 “STG”
“S.T. Goudge J.A.”
“Robert Armstrong J.A.”
“S.E. Lang J.A.”