COURT OF APPEAL FOR ONTARIO

CITATION: Drywall Acoustic Lathing and Insulation, Local 675 v. SNC-Lavalin Group Inc., 2015 ONCA 718

DATE: 20151028

DOCKET: C59951 (M45104)

Hoy A.C.J.O., Weiler and Huscroft JJ.A.

BETWEEN

The Trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund and 0793094 B.C. Ltd.

Plaintiffs (Appellants)

and

SNC-Lavalin Group Inc., Ian A. Bourne, David Goldman, Patricia A. Hammick, Pierre H. Lessard, Edythe A. Marcoux, Lorna R. Marsden, Claude Mongeau, Gwyn Morgan, Michael D. Parker, Hugh D. Segal, Lawrence N. Stevenson, Gilles Laramée, Michael Novak, Pierre Duhaime, Riadh Ben Äissa and Stéphane Roy

Defendants (Respondents)

A. Dimitri Lascaris, Douglas Worndl and Anthony O’Brien, for the appellants

Steve Tenai and Vasuda Sinha, for the respondents, SNC-Lavalin Group Inc., Ian A. Bourne, David Goldman, Patricia A. Hammick, Pierre H. Lessard, Edythe A. Marcoux, Lorna R. Marsden, Claude Mongeau, Gwyn Morgan, Michael D. Parker, Hugh D. Segal and Lawrence N. Stevenson

Clifford Lax, Q.C., for the respondent, Gilles Laramée

Rebecca Wise, for the respondent, Michael Novak

Scott Kugler and Max Muñoz, for the respondent, Pierre Duhaime

Laura Young, for the respondent, Stéphane Roy

Heard: July 8, 2015

On appeal from the order of Justice Paul M. Perell of the Superior Court of Justice dated January 13, 2015, with reasons reported at 2015 ONSC 256.

Hoy A.C.J.O.:

OVERVIEW

[1] Revelations of possible bribery by SNC-Lavalin Group Inc. (“SNC”) prompted the appellants to seek to commence a class action alleging statutory claims for misrepresentation in secondary market disclosure documents under Part XXIII.1 of the Securities Act, R.S.O. 1990, c. S.5 (“the OSA”). They sought to sue the respondents: SNC, certain officers of SNC, and persons alleged to have been directors of SNC when it released the disclosure documents containing the alleged misrepresentations.

[2] Under s. 138.3(1) of Part XXIII.1, a person or company who acquires or disposes of an issuer’s security between a document’s release and public correction of a misrepresentation in the document has a right of action for damages, without regard to whether the person or company relied on the misrepresentation. However, in order to limit meritless litigation or “strike suits”[^1], s. 138.8(1) of the OSA requires leave of the court to commence an action under s. 138.3. Section 138.14(1) also imposes a three-year limitation period for the commencement of the action, measured from the date the document containing the misrepresentation was first released.

[3] By order dated September 19, 2012, the appellants obtained leave to bring the misrepresentation claims pleaded in their Fresh as Amended Consolidated Statement of Claim. The action was certified at the same time as a class proceeding, with the appellants as the representative plaintiffs. The class consists of all persons who acquired SNC securities between November 6, 2009 to and including February 27, 2012 (the “Class Period”), subject to certain exceptions. The respondents did not oppose the appellants’ motions for leave and certification.

[4] The Fresh as Amended Consolidated Statement of Claim outlining the misrepresentation claims the appellants were granted leave to pursue referred to various allegations of wrongdoing, including: (1) allegedly improper agreements between SNC and various agents, pursuant to which SNC made payments totalling US$56 million, and (2) criminal activity by two former SNC employees relating to SNC’s activities in Bangladesh (“the Padma Bridge Project”) that resulted in criminal charges being filed.

[5] Criminal and regulatory investigations continued and information of a wider scale of alleged wrongdoing later became available. The appellants sought leave pursuant to r. 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to amend the Third Fresh as Amended Consolidated Statement of Claim to add what they characterize as further particulars of the wrongful conduct underlying the misrepresentation claims. The respondents opposed most of the amendments, arguing that the appellants sought to add new allegations of misrepresentation and that those new allegations required fresh leave under s. 138.8(1) of the OSA. The respondents also argued that the limitation period in s. 138.14(1) of the OSA barred the appellants from pursuing these new allegations of misrepresentation.

[6] The motion judge – who was the class proceeding case management judge – agreed with the respondents, and, by order dated January 13, 2015, denied leave under r. 26.01 for the bulk of the proposed amendments and dismissed the causes of action arising from those amendments. The appellants now appeal that order.

[7] At issue on appeal is whether the motion judge erred (1) in holding that the appellants could not make the amendments without bringing a new leave application under s. 138.8(1), and (2) in concluding that s. 138.14(1) barred those disallowed amendments as out of time.

[8] I conclude that the motion judge erred only by not permitting the appellants to plead that SNC committed a misrepresentation by omission in failing to disclose the US$56 million agent payments and the criminal activity connected to the Padma Bridge Project in Bangladesh – to the extent they occurred during the Class Period – in management’s discussion and analysis (“MD&A”) and annual information forms (“AIFs”). Because he did not permit this amendment, the motion judge did not consider whether it was properly pleaded. If the parties cannot resolve the matter, I would direct the appellants to draft an amended pleading incorporating this limited omission allegation and attend before the motion judge to determine if it is properly pleaded. I would not interfere with the motion judge’s conclusion that the appellants require leave under s. 138.8(1) to plead the balance of the amendments, and that s. 138.14(1) bars those amendments as out of time. I would accordingly otherwise dismiss the appeal.

[9] Before addressing the substantive issues on appeal, I will briefly address the preliminary issue of this court’s jurisdiction.

JURISDICTIONAL ISSUE

[10] The respondents move to quash this appeal to the extent it concerns the motion judge’s order dismissing the appellants’ motion to make the refused amendments.

[11] The appeal arises from para. 2 of the motion judge’s order:

THIS COURT ORDERS that the Plaintiffs’ motion is hereby dismissed with respect to the proposed amendments in paragraphs … of the Plaintiffs’ proposed Fourth Fresh as Amended Consolidated Statement of Claim … and the causes of action arising from such amendments are hereby dismissed.

[12] The respondents argue that the order at issue is both interlocutory (to the extent that it dismissed the appellants’ motion to amend because the amendments require leave under s. 138.8(1)) and final (to the extent that it dismissed the causes of action arising from the refused amendments because they are statute-barred). They say that an appeal from the interlocutory portion of the order lies to the Divisional Court, with leave, and not to this court. They say the interlocutory portion of the appeal cannot be transferred to this court until the Divisional Court grants leave.

[13] I reject the respondents’ argument that this court does not have jurisdiction to hear this appeal and I would dismiss the respondents’ motion to quash. The respondents rely on the motion judge’s reasons to artificially parse the order under appeal. Appeals lie from orders, not reasons. The motion judge’s single paragraph permanently prohibits the appellants from advancing the refused amendments and pursuing the underlying misrepresentation claims and therefore constitutes a final order. In any event, as becomes clearer below, the motion judge’s reason for refusing the amendments underlies his conclusion that they are statute-barred.

[14] I now turn to the substantive issues on this appeal.

THE MISREPRESENTATIONS PLEADED

[15] Because we are asked to determine whether the proposed amendments constitute discrete misrepresentations, separate from those for which leave was initially granted, I must review in some detail the misrepresentations already pleaded when the appellants brought the motion below.

[16] Shortly after the appellants obtained leave under s. 138.8(1) of the OSA, they filed a Second Fresh as Amended Consolidated Statement of Claim. Then, in January 2014, the motion judge granted the appellants leave to deliver a Third Fresh as Amended Consolidated Statement of Claim. The respondents did not argue that the amendments in the Second or Third Fresh as Amended Consolidated Statement of Claim constituted discrete claims of misrepresentation, requiring further leave under s. 138.8(1). The paragraph references below correspond to the Third Fresh as Amended Consolidated Statement of Claim, the iteration of the appellants’ statement of claim when they brought the motion at issue.

[17] At para. 5, the appellants provide an overview. They allege that SNC conducted its business in an unlawful manner during the Class Period. They say that:

In particular, in December 2009 and July 2011, SNC entered into agreements with “agents” with respect to projects on which SNC was working, pursuant to which SNC made payments totalling US$56 million to those “agents”. Although SNC purports not to know the purpose of such payments, their purpose was, in fact, to bribe foreign government officials and/or persons in Canada for the procurement of business by SNC. In any event, the agreements and the payments thereunder violated SNC’s Agents Policy and Code of Ethics in numerous respects.

[18] At paras. 9 and 58, the appellants plead that SNC made the following misrepresentations during the Class Period:

a) SNC was a “socially responsible company” and a “responsible global citizen”;

b) SNC had in place controls, policies and practices that were designed to ensure compliance with anti-bribery laws to which SNC is subject;

c) SNC had ICFR [internal controls over financial reporting] and DC&P [disclosure controls and procedures] that were properly designed and/or operating effectively; and

d) SNC’s business was conducted in compliance with the Code of Ethics [SNC’s Code of Ethics and Business Conduct].

[19] These misrepresentations were contained in SNC’s annual and interim MD&A, annual and interim financial statements, management proxy circulars and AIFs.

[20] At para. 10, the appellants plead why these statements were false:

Such statements were materially false and/or misleading because, during the Class Period, SNC was paying bribes to the “agents”, or others with whom the “agents” contracted on behalf of SNC, in contravention of the Code of Ethics and applicable anti-bribery laws and, in any event the agency agreements and the payments to the “agents” thereunder violated the Agents Policy [SNC’s Policy on Commercial Agents/Representatives] and the Code of Ethics. Further, SNC’s ICFR and DC&P were not effective during the Class Period as a result of material weaknesses in the design and operating effectiveness of the ICFR relating to non-compliance with, and ineffective controls over compliance with, the Code of Ethics and the Agents Policy. [Emphasis added.]

[21] After describing the Audit Committee’s findings and recommendations, the appellants, at para. 57, plead that:

Although the investigation conducted by the Audit Committee identified problems with SNC’s ICFR relating to unlawful and improper payments made to third parties in respect of contracts in North Africa, the bribery practices extended to SNC’s operations in Asia and Canada. These practices and activities were systemic at SNC and were carried out with the full knowledge of senior management, including members of the Office of the President, as well as SNC’s inside directors. The full particulars of such activities are known to the Defendants. [Emphasis added.]

[22] At paras. 59 to 105, the appellants provide particulars of the alleged misrepresentations, including, at para 59:

SNC was paying bribes, whether directly or indirectly, to foreign government officials and/or persons in Canada in contravention of the Code of Ethics and applicable anti-bribery laws and, in any event, SNC entered into agreements with, and made payments pursuant to those agreements to, third parties in contravention of the Agents Policy and the Code of Ethics. [Emphasis added.]

[23] At para. 111, the appellants describe an SNC press release issued on February 28, 2012 announcing an expected 18% reduction in net income for 2011. It disclosed, among other things, that expenses of approximately $35 million “were documented to construction projects to which they did not relate and, consequently, had to be recorded as expenses in the quarter.” It announced that the Board of Directors had initiated an independent investigation, led by its Audit Committee, “of the facts and circumstances surrounding the $35 million of payments referred to above and certain other contracts.” At paras. 6, 7, and 112, the appellants plead that the value of SNC’s shares fell significantly as a result of this corrective disclosure.

[24] At paras. 8 and 113, the appellants allege further declines as a result of additional corrective disclosures, including the June 25, 2012 disclosure that two former employees of SNC had been charged with criminal offences under the Corruption of Foreign Public Officials Act, S.C. 1998, c. 34 (“the CFPOA”) relating to SNC’s activities in Bangladesh.[^2]

THE FIRST OPPOSED AMENDMENT MOTION

[25] The order under appeal arises out of the appellants’ second opposed motion to amend their statement of claim.

[26] After more information became available about the scale of alleged wrongdoing, the appellants brought their first opposed motion for leave under r. 26.01 to amend the Second Fresh as Amended Consolidated Statement of Claim. They sought to: add details of further declines in the market value of SNC’s securities following additional investigations undertaken by the RCMP and other authorities of SNC’s activities; to allege the jurisdictions in which SNC engaged in bribery; and to plead misrepresentation by omission in relation to conduct by SNC occurring before and during the Class Period that was not disclosed in its Class Period MD&A and AIFs.

[27] Because the appellants sought leave to make some of the same and similar amendments on the second opposed motion, the motion judge’s reasons on the first opposed motion are relevant.

[28] He permitted the appellants to plead additional facts which he characterized as “corrective disclosures”, namely that:

1. There was a decline in the market value of SNC’s securities during trading on April 13, 2012 as a result of the release of information that the Royal Canadian Mounted Police conducted a search of SNC’s headquarters in Montreal on April 13, 2012 … ;

2. There was a decline in the market value of SNC’s securities during trading on November 26, 2012 as a result of the release of information that Swiss authorities were investigating illegal or improper payments by SNC in the approximate amount of $139 million and that such payments were in addition to the US$56 million of payments referenced [earlier in the pleading] … ; (the “Swiss Investigation Disclosure”)

3. There was a decline in the market value of SNC’s securities during trading on November 28 and 29, 2012 as a result of the release of information that [the defendant Pierre] Duhaime had been arrested and charged with fraud and other criminal offences related to the contract awarded to SNC with respect to the construction and operation of the McGill University Health Centre hospital project in Montreal … ; and

4. There was a decline in the market value of SNC’s securities during trading on July 3, 2013 as a result of the release of information that SNC had paid a secret $13.5 [million] commission that was linked to a major oil sands project in Alberta.

These particular amendments were not opposed by the respondents: Drywall and Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc., 2014 ONSC 660, at paras. 26, 32 and 61.

[29] At para. 33, the motion judge dismissed the balance of the first opposed motion to amend for one or more of the following reasons:

(a) [S]ome of the proposed amendments are barred by the Order granting leave under the Ontario Securities Act that foreclosed a common law negligence claim; (b) most if not all of the proposed amendments would re-open the certification motion; (c) the proposed amendments contravene the rules about pleadings, in particular the amendments do not meet the standard for pleading a case of bribery associated with a pleading of misrepresentation under Part XXIII.1 of the Ontario Securities Act …

[30] At para. 34, on which the respondents rely, he wrote:

The Plaintiffs’ main argument that their proposed amendments do not alter the fundamental structure of the action is not true or it is no more true than saying that a trip to Dhaka (the capital of Bangladesh) is the same as a trip to Montreal simply because both are cities. But more to the point, this argument fails because the proposed amendments are not proper pleadings.

[31] The motion judge, at para. 39, dismissed the proposed bribery-related amendments because the appellants had not pleaded the necessary material facts:

[T]here are no material facts pleaded as to who made the bribe, to whom was the bribe made, where was the bribe made, when was the bribe made, what was the amount of the bribe, and what was the purpos[e] of the bribe. The Plaintiffs’ proposed amendments plead that bribes were paid by a non-exclusive list of employees in respect of a non-inclusive list of countries.

[32] At paras. 44 and 45, he dismissed the pleading of misrepresentation by omission because the appellants had failed to plead the material facts with respect to a corrective disclosure, one of the elements of the statutory cause of action under the OSA. He wrote, at para. 46, that to “generalize undisclosed bribery as falsifying SNC-Lavalin’s disclosure documents [conceals] what counts as corrective disclosure.” He concluded that the only additional alleged corrective disclosure the appellants pleaded regarding pre-Class Period conduct was the Swiss Investigation Disclosure and the appellants failed to plead the material facts with respect to that disclosure.

[33] He concluded, at para. 47, that the proposed amendments were unfair. They did not provide notice to the respondents of the case they must meet, and they would permit the appellants to engage in a fishing expedition for more misconduct on discovery.

[34] The Divisional Court dismissed the appellants’ motion for leave to appeal the motion judge’s order: The Trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2014 ONSC 3438.

[35] The permitted amendments were incorporated into the Third Fresh as Amended Consolidated Statement of Claim.

THE AMENDMENTS AT ISSUE

[36] About a year after the first opposed motion to amend, the appellants brought the motion below. The appellants sought to amend the Third Fresh as Amended Consolidated Statement of Claim. The appellants moved to plead, among other things:

a) Additional Bribery Allegations: That in addition to the US$56 million, SNC offered or paid bribes to foreign public officials in Libya and Tunisia during the Class Period. The appellants provided particulars of who made the bribes to whom, when and where the bribes were made or offered, and the amount and purpose of the bribes;

b) Embezzlement Allegations: That the defendant Riadh Ben Äissa, a former senior executive of SNC, and the non-defendant Sami Bebawi embezzled money from SNC through Duvel Securities Inc. and Dinova International Inc., thereby violating SNC’s Code of Ethics;

c) Enrichment Allegations: That, between January 2003 and December 2010, Ben Äissa was enriched through payments to his company, Tresca Holding Inc., from several South Korean and Malaysian companies, again in violation of SNC’s Code of Ethics;

d) Gaddafi Allegations: That SNC funded a plan to extract Saadi Gaddafi and his family from Libya and transport them to Mexico, and paid fees in relation to a Toronto condominium owned by Gaddafi, both in violation of the Regulations Implementing the United Nations Resolutions on Libya, SOR/2011-51 (“the Regulations”);[^3]

e) Agent Agreements Allegations: That the quantum of fees paid under two agent agreements connected to a project in Angola breached SNC’s Agents Policy and Code of Ethics;

f) Violation of Laws Allegations: That SNC violated laws applicable to its business, including the Regulations and the Criminal Code, R.S.C. 1985, c. C-46; and

g) Omission Allegation: That SNC’s failure to disclose that it was engaged in bribery in multiple jurisdictions during the Class Period constituted a misrepresentation by omission.[^4]

THE MOTION JUDGE’S DECISION

[37] The motion judge granted leave to amend the pleadings related to alleged bribery in Bangladesh and alleged misconduct connected to Canadian projects. However, he concluded that the balance of the amendments advanced discrete misrepresentation claims and therefore required a fresh leave application under s. 138.8(1). He also held that it was too late to obtain leave, as per s. 138.14(1): Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc., 2015 ONSC 256, 124 O.R. (3d) 368.

[38] He concluded, at paras. 5 and 7, that allowing the appellants to advance the discrete misrepresentation claims without running them through the safeguard of a fresh leave analysis would be unfair to the respondents. The respondents had not opposed the granting of leave for the claims as originally pleaded and, he wrote at para. 7, “[o]btaining leave cannot be used as a procedural bait-and-switch tactic or a procedural bait-and-pile-on tactic”.

[39] He noted, at para. 18, that the only evidence led on the unopposed motion for leave and for class certification pertained to the Audit Committee’s investigation into the US$56 million agent payments and to the allegations of criminal activity connected to the Padma Bridge Project in Bangladesh. Similarly, the appellants’ expert only addressed price drops in SNC shares on February 28-29 and June 25, 2012, dates that immediately followed disclosure of the US$56 million in payments and the Padma Bridge Project charges.

[40] He also noted, at para. 20, that only one sentence of the appellants’ lengthy pleading alleged that bribery was “systemic” at SNC.

[41] At para. 28, he explained why identifying the misrepresentation associated with the disclosure document is necessary. Among other reasons, “one needs a benchmark to determine when and whether there was a corrective disclosure” and to determine whether leave should be granted under s. 138.8.

[42] He explained, at para. 29, that to identify a misrepresentation, a plaintiff must specify the facts represented and why those facts are false. That is, the plaintiff must specify what makes the representation a misrepresentation. Each misrepresentation is distinct, even if the representation is the same. Therefore, he held at para. 34, a plaintiff applying for leave under s. 138.8(1) must lead evidence of each discrete allegation of misrepresentation that she wishes to pursue. He wrote, at para. 42, that whether a plaintiff requires leave under s. 138.8(1) to amend a statement of claim turns on the nature of the misrepresentation claim that was pleaded for the purpose of obtaining leave.

ANALYSIS

[43] I am not persuaded that the motion judge erred in principle in his approach. I reject the appellants’ argument that the motion judge failed to consider the objectives of the leave requirement in s. 138.8(1), Part XXIII.1 and the OSA as a whole and that his conclusion is inconsistent with those objectives. I agree with the motion judge that when a plaintiff seeks leave to amend a statement of claim under r. 26.01 after receiving leave under s. 138.8(1), and after the expiry of the limitation period in s. 138.14(1), the motion judge must consider the precise misrepresentation that was pleaded for the purpose of obtaining leave. I also agree with him that, in such circumstances, the motion judge must focus on the facts the plaintiff pleaded that make the representation a misrepresentation. I further agree that the plaintiff must lead sufficient evidence to satisfy the leave requirement for each discrete allegation of misrepresentation.

[44] Nor – with one limited exception – am I persuaded that there is any basis for the court to interfere with the motion judge’s decision that the refused amendments in this case constitute discrete misrepresentation claims.

Objectives of the Leave Requirement

[45] I first address the appellants’ argument that the motion judge failed to consider the objectives of the leave requirement in s. 138.8(1), Part XXIII.1 and the OSA as a whole and that his conclusion is inconsistent with those objectives.

[46] The appellants argue that the OSA is remedial legislation: its purposes, which are explicitly stated in s. 1.1 of the OSA are “(a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets.” They also point to the twin goals of the statutory scheme under Part XXIII.1: (a) facilitating and enhancing access to justice for investors, and (b) deterring corporate misconduct and negligence: Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90, 118 O.R. (3d) 641, at para. 36, leave to appeal granted, [2014] S.C.C.A. No. 137, appeal heard and reserved February 9, 2015. They reiterate that the objective of the leave requirement in s. 138.8(1) is to limit meritless litigation or “strike suits”.

[47] The appellants argue that the motion judge failed to consider these objectives and elevated concerns about the right of defendants to procedural fairness above the interests of investors. They say that once the leave test is met, and the court is satisfied that the proposed action is not a “strike suit”, a pleading amendment that does not alter the core or essence of the action cannot convert the action into a “strike suit”. The appellants submit that a further leave motion should be required only if the proposed pleading fundamentally alters the action for which leave was granted. In this case, they argue, the allegations at issue are not new misrepresentations wholly unrelated to the misrepresentation claims for which leave was granted. Therefore, the motion judge should have permitted the proposed amendments.

[48] I am not persuaded that the motion judge’s conclusion is inconsistent with the objectives of the leave requirement, Part XXIII.1 or the OSA generally.

[49] Part XXIII.1 was added to the OSA after a lengthy period of study and debate and only came into force on December 31, 2005. Its scheme includes various defences and other important limitations that temper its goals of providing access to justice for aggrieved secondary market investors and deterring disclosure violations. The scheme also provides various protections to issuers, including the three-year absolute limitation period in s. 138.14(1), a cap on a responsible issuer’s liability in s. 138.7 and the leave requirement in s. 138.8(1), which is reproduced below. The objectives of Part XXIII.1 must be considered in light of these countervailing limitations.

[50] Section 138.8(1) provides as follows:

Leave to Proceed

138.8 (1) No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that,

(a) the action is being brought in good faith; and

(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

[51] Section 138.8(1) is intended to be a “robust deterrent screening mechanism”: see Theratechnologies inc. v. 121851 Canada inc., 2015 SCC 18, 382 D.L.R. (4th) 600, at para. 38. It must be remembered that an action under s. 138.3 is an action for misrepresentation. Thus, when a plaintiff seeks to amend its misrepresentation claim under r. 26.01 after receiving leave under s. 138.8(1), and after the expiry of the limitation period in s. 138.14(1), the analysis is necessarily whether the plaintiff seeks to advance a different misrepresentation claim. The approach that the appellants urge would permit a plaintiff which has met the leave test in s. 138.8(1) to significantly expand the scope of its action to include discrete, untested allegations of misrepresentation that are without merit. Permitting this would, in my view, frustrate the objective of the leave requirement. The threat of expanded litigation has the possibility of affecting the settlement dynamic – the very matter that the leave requirement sought to address.

Discrete Misrepresentation Claims

[52] The need to assess whether each pleaded misrepresentation meets the leave test was identified by the motion judge in an earlier decision: Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc., 2014 ONSC 1057, 49 C.P.C. (7th) 12. Leave was granted with respect to an alleged misrepresentation about Celestica’s restructuring but denied with respect to other alleged misrepresentations because the plaintiffs failed to meet the requisite evidentiary burden.

[53] While the appellants argue that the motion judge erred in principle, in my view, their real dispute is with his conclusion that the proposed amendments represent discrete misrepresentation claims, and “go too far to be allowed without being tested by a fresh leave application”: at para. 5.

[54] The motion judge has case-managed every aspect of this complex action. Most importantly, he heard and granted the appellants’ unopposed motion for leave under Part XXIII.1 of the OSA. The motion judge was best positioned to determine the nature of the claim he had granted the appellants leave to pursue. His conclusion that the proposed amendments constitute discrete misrepresentation claims is entitled to deference.

[55] The motion judge emphasized that the respondents had not opposed the leave motion. In my view, it is significant that they did not do so, and is something to be encouraged. If a defendant who does not oppose leave based on one set of allegations and on the evidence that the plaintiffs advanced in support of those allegations can – in the motion judge’s words – be exposed to a “procedural bait-and-pile-on tactic”, defendants will be more inclined to oppose leave motions. This would increase the cost of litigation and be contrary to the goal of Part XXIII.1 of facilitating and enhancing access to justice for investors.

(a) Additional Bribery Allegations

[56] In disallowing the Additional Bribery Allegations, the motion judge rejected the appellants’ argument that they were simply providing further particulars of already pleaded “systemic bribery”. He noted that there was only a single reference to “systemic” bribery in the lengthy pleading and that the evidence on the unopposed motion for leave pertained only to the US$56 million agent payments and the allegations connected to the Padma Bridge Project. As I have said, the motion judge, who heard the leave motion, was in the best position to determine the nature of the claim he granted the appellants leave to pursue.

[57] I am not persuaded that, in permitting the amendment to the Second Fresh as Amended Consolidated Statement of Claim to plead the Swiss Investigation Disclosure (an investigation distinct from the scrutiny into the US$56 million), the motion judge acknowledged that the appellants’ claim was one of systemic bribery. I therefore reject the appellant’s argument that, in light of this earlier amendment, the motion judge’s failure to allow the Additional Bribery Allegations amounts to a palpable and overriding error. Nor does the respondents’ failure to object to the amendment prevent them from now objecting to the Additional Bribery Allegations.

[58] The Swiss Investigation Disclosure amendment was proposed by the appellants, and permitted by the motion judge, in the absence of any pleading that the representations at issue were false because of the payments that were the subject of the Swiss investigation. In other words, the motion judge did not allow the amendment on the basis that the additional corrective disclosure provided further particulars of or refined the misrepresentation claims for which leave had already been granted. He allowed it because it was unopposed by the respondents.

[59] It is not clear to me that the proper approach is to define (or re-define) the misrepresentation by alleged further corrective disclosure pleaded following the leave motion. This is an issue best left for another day. What constitutes corrective disclosure for the purposes of this action may be an important issue and one which the respondents may choose to address in a forum other than a pleadings motion.

(b) Omission Allegation

[60] The motion judge did not specifically address the Omission Allegation in the decision at issue. However, it follows that if the appellants cannot plead the Additional Bribery Allegations, they cannot plead the Omission Allegation, which is similarly founded on SNC’s failure to disclose that it was engaged in bribery in “multiple jurisdictions”. It suffers from the same defect as the allegations based on a reference to “systemic” bribery. This is perhaps why the motion judge did not specifically address the Omission Allegation.

[61] The motion judge did not consider whether a narrower omission allegation should be permitted. I would permit the appellants to plead a narrower form of omission allegation under s. 138.3(1) of the OSA, limited to SNC’s failure to disclose the US$56 million agent payments and the criminal activity connected to the Padma Bridge Project in Bangladesh – to the extent they occurred during the Class Period – in its MD&A and AIFs.[^5]

[62] On the initial leave motion, the appellants pleaded that various representations made by SNC in specified core documents[^6], such as the fact that it was a “socially responsible company”, were false because SNC paid US$56 million to agents and because its former employees were involved in criminal activity connected to the Padma Bridge Project in Bangladesh. The motion judge was satisfied that sufficient material facts were pleaded in respect of these misrepresentation claims. He also accepted that the claims were made in good faith and that there is a reasonable possibility they will be resolved in the appellants’ favour. Given this, a claim that SNC committed a misrepresentation by omission in failing to disclose the already-pleaded material facts that were required to be disclosed in order to make the representations listed above in para. 18 not misleading would have obtained leave.

[63] Denying the appellants leave under r. 26.01 to plead this “variant without a difference” would not enhance justice for investors or serve the purposes of s. 138.8(1). It would constitute an overly technical approach that disregards the twin goals of Part XXIII.1 and the purpose of the leave requirement in s. 138.8(1).

[64] On the first opposed amendment motion, the motion judge dismissed the appellants’ request to amend their pleading to include a broad allegation that SNC failed to disclose bribery that occurred both prior to and during the Class Period on the basis that they had failed to plead the material facts with respect to the associated corrective disclosure. His concern appears to have related to the allegations regarding the pre-Class Period. On the motion at issue, the motion judge did not revisit this issue. He disposed of all of the proposed further allegations on the basis that they constituted discrete misrepresentation claims and therefore required a fresh leave application. The narrower Omission Allegation – and the portion of it that I would permit the appellants to plead – relates only to the Class Period. If the corrective disclosures of the alleged misrepresentations relating to the US$56 million agent payments and the criminal activity connected to the Padma Bridge Project in Bangladesh are adequately pleaded, it follows that the corrective disclosures for the corresponding omission allegation are sufficiently pleaded.

[65] The respondents’ argued, in oral submissions, that where the alleged misrepresentation is a misrepresentation by omission, a plaintiff must plead and prove that the defendants had knowledge of the omitted material fact. They say that, because the appellants did not plead or lead any evidence on the leave motion that the defendants had knowledge of the omitted material fact, they cannot now advance an omission allegation. I reject this argument.

[66] “Misrepresentation” is defined in s. 1(1) of the OSA:

“misrepresentation” means,

(a) an untrue statement of material fact, or

(b) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made.

“Material fact” is in turn defined as follows:

“material fact”, when used in relation to securities issued or proposed to be issued, means a fact that would reasonably be expected to have a significant effect on the market price or value of the securities.

Neither the definition of “misrepresentation” nor the definition of “material fact” includes a knowledge requirement. A plaintiff who, as in this case, makes a claim under s. 138.3(1) alleging misrepresentations in a core document[^7] (as opposed to a non-core document or a public oral statement) is not required to prove that the defendant knew of the omission: see OSA, s. 138.4; Gould v. Western Corp., 2012 ONSC 5184, 7 B.L.R. (5th) 19, at para. 100.

(c) Embezzlement, Enrichment, Gaddafi and Agent Agreements Allegations

[67] Like the motion judge, I view the Embezzlement, Enrichment, Gaddafi and Agent Agreements Allegations as discrete misrepresentation claims. The misrepresentations previously pleaded made no reference to agent agreements in Angola, payments for the benefit of Saadi Gaddafi in violation of the Regulations, or the embezzlement of funds by or for the personal enrichment of Ben Äissa. These allegations constitute separate reasons why the broad representations described in para. 18 above are false.

(d) Violation of Laws Allegations

[68] As for the Violation of Laws Allegations, the appellants allege “violations of laws applicable to SNC’s business, including the Regulations and the Criminal Code.” From the outset, the appellants pleaded that SNC was paying bribes “in contravention of … applicable anti-bribery laws”. They also pleaded that two former employees had been charged with criminal offences under the CFPOA. The proposed pleading retains these references. As the appellants already pleaded violations of “applicable anti-bribery laws”, I infer that the proposed addition alleges violations of laws other than anti-bribery laws.[^8] SNC’s possible violation of non-bribery-related laws falls outside the scope of the misrepresentation claim for which the appellants obtained leave. Accordingly, the appellants must bring a fresh leave application to allege that SNC violated laws other than anti-bribery laws.

LIMITATIONS ISSUE

[69] The motion judge concluded that it was too late for the appellants to obtain leave under s. 138.8(1) to plead the denied amendments.

[70] Section 138.14(1) imposes a three-year limitation period. It provides, in relevant part:

Limitation period

No action shall be commenced under section 138.3,

(a) in the case of misrepresentation in a document, later than the earlier of,

(i) three years after the date on which the document containing the misrepresentation was first released …

[71] The parties agree that the documents alleged to contain the misrepresentations were released between November 6, 2009 and November 4, 2011.

[72] The limited portion of the Omission Allegation that I would permit the appellants to plead is not statute-barred because it forms part of the misrepresentations initially pleaded.

[73] The word “action” is not defined in the OSA. The appellants argue that since they commenced this action and pleaded the misrepresentations in the impugned documents within the applicable limitation period, any related misrepresentation claim arising out of the already-pleaded impugned documents is not statute-barred. In other words, if a plaintiff commences an action asserting misrepresentation in a disclosure document within the limitation period, the plaintiff can, at any time thereafter, assert any related misrepresentation claims arising out of the same documents.

[74] The appellants were granted leave to commence a particular action, namely one asserting that representations in the impugned documents were false because of evidence that amounts had been paid to agents and that SNC was engaged in criminal activity with respect to the Padma Bridge Project in Bangladesh. As I concluded above, the appellants did not obtain leave to pursue claims founded on other misrepresentations, and therefore those other claims are not part of the action. As the impugned documents are now more than three years old, those claims are statute-barred.

[75] If leave is required to advance further misrepresentation claims arising out of previously impugned documents, then those further misrepresentation claims are a different “action”, and are subject to the limitation period in s. 138.14(1).

DISPOSITION

[76] I would allow the appeal only to the extent of permitting the appellants to plead that SNC committed a misrepresentation by omission in failing to disclose the US$56 million agent payments and the criminal activity connected to the Padma Bridge Project in Bangladesh – to the extent they occurred during the Class Period – in its MD&A and AIFs. Because he did not permit this amendment, the motion judge did not consider whether it was properly pleaded. If the parties cannot resolve the matter, I would direct the appellants to draft an amended pleading incorporating this limited omission allegation and attend before the motion judge to determine if it is properly pleaded. I would not interfere with the motion judge’s decision that the appellants require leave under s. 138.8(1) to plead the balance of the amendments, and that s. 138.14(1) bars those amendments as out of time. I would accordingly otherwise dismiss the appeal.

[77] The parties agreed to costs of $2,000 to the successful party on the motion to quash and costs of $10,000 to the successful party on the appeal – in each case, inclusive of disbursements and HST. On the motion to quash, I would order the respondents to pay the appellants $2,000. As the respondents were substantially successful on the appeal, I would order the appellants to pay the respondents’ costs of the appeal in the amount of $10,000.

Released: “AH” “OCT 28 2015”

“Alexandra Hoy A.C.J.O.”

“I agree K.M. Weiler J.A.”

“I agree Grant Huscroft J.A.”

[^1]: Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90, 118 O.R. (3d) 641, at paras. 39-40, leave to appeal granted, [2014] S.C.C.A. No. 137, appeal heard and reserved February 9, 2015. At para. 39, the court describes “strike suits”, which had become prevalent in the United States in the period prior to enactment of Part XXIII.1: “In a strike suit, a class action lawyer would sue on a corporate statement whenever the share price fell, in order to obtain a quick settlement from the corporation, regardless of the merit of the claim.”

[^2]: See para. 28 below for a description of the additional corrective disclosures that the motion judge permitted the appellants to plead in the Third Fresh as Amended Consolidated Statement of Claim. While I refer to them in these reasons as “corrective disclosures”, I make no determination as to whether or not they constitute corrective disclosures for purposes of this action.

[^3]: The Regulations implemented a United Nations Security Council resolution passed in the first days of Libya’s 2011 civil war. The Regulations prohibit Canadians or persons in Canada from supplying arms or related material to Libya or any person in Libya. The Regulations also prohibit Canadians or persons in Canada from knowingly dealing in any property in Canada owned or controlled by a designated person, and from knowingly making any property available to a designated person. The Regulations define a “designated person” as a person listed by the Security Council. The Security Council lists people with ties to the Muammar Gaddafi regime.

[^4]: This allegation is narrower than that which the appellants sought to plead on the first opposed amendment motion. There, the appellants also sought to allege that SNC failed to disclose bribery that occurred prior to the Class Period.

[^5]: The appellants allege misrepresentations by omission arising only out of SNC’s Class Period MD&A and AIFs.

[^6]: A “core document” is defined in s. 138.1 of the OSA and includes: a prospectus, a take-over bid circular, an issuer bid circular, a directors’ circular, a notice of change or variation in respect of a take-over bid circular, issuer bid circular or directors’ circular, a rights offering circular, MD&A, an AIF, an information circular, annual financial statements, an interim financial report and a material change report, where used in relation to a responsible issuer (among others). The appellants allege that SNC’s AIFs, financial statements, management proxy circulars and MD&A contained misrepresentations.

[^7]: See footnote 6.

[^8]: I also note that the Regulations do not appear to fall under the category of anti-bribery laws. As explained in a footnote above, the Regulations, passed in the context of the Libya’s 2011 civil war, aim to shrink the Libyan arms trade and to limit some Libyan officials’ dealings in property. It is not clear to me that such war sanctions would be characterized as anti-bribery laws.