COURT FILE NO.: 11-CV-424069CP

DATE: 20140219

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TRUSTEES OF THE MILLWRIGHT REGIONAL COUNCIL OF ONTARIO PENSION TRUST FUND

Plaintiff

– and –

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

Kirk M. Baert, Celeste Poltak, and Jonathan Bida, for the Plaintiffs

Nigel Campbell, Andrea Laing, Ryan A. Morris, and Will Morrison, for the Defendants

AND BETWEEN:

NABIL BERZI

Plaintiff

– and –

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

Kirk M. Baert, Celeste Poltak, and Jonathan Bida, for the Plaintiffs

Nigel Campbell, Andrea Laing, Ryan A. Morris, and Will Morrison, for the Defendants

AND BETWEEN:

HUACHENG XING

Plaintiff

– and –

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

Kirk M. Baert, Celeste Poltak, and Jonathan Bida, for the Plaintiffs

Nigel Campbell, Andrea Laing, Ryan A. Morris, and Will Morrison, for the Defendants

HEARD: December 8-10, 2013

Proceeding under the Class Proceedings Act, 1992

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION AND OVERVIEW

[1] The Plaintiffs, the Trustees of The Millwright Regional Council of Ontario Pension Trust Fund, Nabil Berzi, and Huacheng Xing, bring this motion for: (a) certification of this action as a class proceeding pursuant to the Class Proceedings Act, 1992, S.O. 1992, c. 6; and (b) leave to proceed with statutory claims for misrepresentation and failure to make timely disclosure under the Ontario Securities Act, R.S.O. 1990, c. S.5.

[2] The Plaintiffs seek to act on behalf of those who purchased Celestica Inc. shares between January 27, 2005 and January 30, 2007. They seek to advance claims under Part XXIII.1 of the Ontario Securities Act and for negligent misrepresentation at common law.

[3] The Plaintiffs allege that between January 2005 to the end of January 2007, Celestica, its chief executive officer, Stephen W. Delaney, and its chief financial officer, Anthony P. Puppi, misrepresented the progress of a restructuring that would close plants and transfer much of Celestica’s operations to its plants in lower-cost areas, including a plant in Monterrey, Mexico. The Plaintiffs also allege that the Defendants’ announcements and financial statements misrepresented its inventory and its revenue.

[4] The Plaintiffs allege that the Defendants failed to disclose material information and misrepresented the time, cost, progress, and impact of the restructuring. The Plaintiffs describe the alleged misrepresentations generally in paragraph 5 of their factum as follows:

5. Throughout the Class Period, the Defendants repeatedly stated the restructuring would be completed in 2006 and would fall within a costs range of no more than $275 million. The Defendants also reassured investors that the Mexico facility was suitable for a large transfer of manufacturing. Near the end of the Class Period, on October 26, 2006, the Defendants stated the restructuring was in its final stages, would be completed by the end of 2006 and had only $15 million in restructuring costs remaining (bringing the total to $271 million). The Defendants’ statements were incorrect and as such constituted misrepresentations under the OSA.

[5] Further, the Plaintiffs allege that during the Class Period, the Defendants wrongly treated obsolete inventory as current inventory, recorded revenue for sales Celestica did not make, delayed recording new inventory until after reporting periods, and physically removed inventory from Celestica’s facilities so it could represent lower inventory levels. Further still, the Plaintiffs allege that Celestica’s financial statements were not compliant with Canadian Generally Accepted Accounting Principles (“GAAP”).

[6] In resisting the Plaintiffs’ motion for leave under Part XXIII of the Ontario Securities Act, the Defendants deny that the Plaintiffs have produced any evidence of any misrepresentations. In this regard, the Defendants submit that a revision of an estimate does not make an earlier estimate a misrepresentation.

[7] Further, the Defendants submit that that in the absence of a restatement, an acknowledgement, a criminal or regulatory finding, or a qualified audit report, the Plaintiffs must adduce some evidence to show that they have a reasonable prospect of successfully demonstrating at trial that the Defendants misled the market by publishing an untrue statement of material fact or by failing to disclose a material change on a timely basis. Once again, the Defendants submit that the Plaintiffs have not produced the evidence to justify leave being granted.

[8] Further still, the Defendants submit that there is no evidence that the market was misled. They submit that the public disclosure record shows that the news that the 2005 restructuring would take longer and cost marginally more than was initially estimated was communicated to the market well in advance of January 30, 2007, the date when the Plaintiffs allege that misrepresentations about the 2005 restructuring were corrected.

[9] The Defendants submit, in any event, that the common law negligence should not be certified because, among other things, it does not satisfy the preferable procedure criterion.

[10] While the Defendants tendered evidence for the certification motion, they did not for the leave motion, and thus it should be noted that the Defendants’ defence to the leave motion under the Ontario Securities Act is that the Plaintiffs’ did not meet the evidentiary burden of the test for leave. In this regard, the Defendants open their factum with a quote from Justice Lax’s judgment in Ainslie v. CV Technologies Inc. (2008), 2008 CanLII 63217 (ON SC), 93 O.R. (3d) 200 at para. 15 (S.C.J.), where she stated:

15. No onus is placed upon proposed defendants by s. 138.8. Nor are they required to assist plaintiffs in securing evidence upon which to base an action under Part XXIII.1. The essence of the leave motion is that putative plaintiffs are required to demonstrate the propriety of their proposed secondary market liability claim before a defendant is required to respond. Section 138.8(2) must be interpreted to reflect this underlying policy rationale and the legislature’s intention in imposing a ‘gatekeeper mechanism’.

[11] The test for leave under the Ontario Securities Act is low, and the associated evidentiary burden is also low. In my opinion, the Plaintiffs have met the test and the evidentiary burden for some but not all of their misrepresentation claims.

[12] In my opinion, for the reasons that follow, for the Plaintiffs’ statutory claims, the Plaintiffs’ motion should succeed with respect to the alleged misrepresentations about Celestica’s restructuring and the motion should fail with respect to the alleged misrepresentations about Celestica’s inventory and reporting of revenue and with respect to non-compliance with GAAP.

[13] In my opinion, for the reasons that follow, the Plaintiffs’ common law negligent misrepresentation claim should not be certified.

B. EVIDENTIARY BACKGROUND

[14] The Plaintiffs supported their motion for certification under the Class Proceedings Act, 1992 and their motion for leave under the Ontario Securities Act with the following evidence:

• the affidavit of Ian McIsaac, the business representative, executive secretary, and union trustee of the Millwrights;

• the affidavit of Michael Mazzuca, a lawyer for the Plaintiffs’ lawyer of record, who provided copies of the publically available disclosure documents;

• the affidavit of Ken Froese, the senior Managing Director and a chartered accountant with Froese Forensic Partners Ltd., who was retained to prepare an expert’s report regarding financial reporting and accounting compliance with respect to Celestica’s Restructuring between 2005 to 2007;

• the affidavit of Frank C. Torchio, the President of Forensic Economics Inc., who was retained to provide an expert’s opinion regarding the efficiency of the markets of Celestica stock and to provide a preliminary estimate of potential aggregate damages;

• the affidavit of David Weir, the President of NPT RicePoint Class Actions Services Inc. to outline the manner in which notice of certification would be distributed;

• answers to written interrogatories from Foysten, Gordon & Payne, the Millwrights’ investment adviser and manager;

• the cross-examination of Mr. Berzi; and

• the cross-examination of Mr. Xing.

[15] Messrs. McIsaac, Mazzuca, Froese, and Torchio were cross-examined.

[16] The Defendants opposed the motion for certification with the following evidence:

• the affidavit of Will Morrison, an associate lawyer of their lawyer of record, who provided copies of the documents referred to in the Plaintiffs’ Amended Fresh as Amended Statement of Claim; and

• the affidavit of Robert Patton, a senior consultant at NERA Economic Consulting, who was retained to address Mr. Torchio’s evidence about an aggregate damages assessment.

C. PROCEDURAL BACKGROUND

[17] On March 2, 2007, which is 31 days after the date that the Defendants are alleged to have corrected their misrepresentations, the Millwrights commenced a class action against the Defendants in the United States.

[18] In Canada, on July 30, 2007, Mr. Xing brought a proposed class action against the Defendants, by Notice of Action issued in London, Ontario (Court File No. 54938CP). He filed a Statement of Claim on August 20, 2007.

[19] On August 27, 2008, Mr. Berzi brought a proposed class action by Statement of Claim issued in Toronto, Ontario (Court File No. 08-CV-361468-CP).

[20] On April 8, 2011, the Millwrights brought a proposed class action by Statement of Claim issued in Toronto (Court File No. 11-CV-424069CP).

[21] From July 2007 to April 2011, very little was done to advance the Canadian proposed class actions.

[22] In 2012, as a result of the Court of Appeal’s decision in in Sharma v. Timminco Limited, 2012 ONCA 107, reversing 2011 ONSC 8024, leave to appeal to the S.C.C. refused, [2012] S.C.C.A. No. 157, the Defendants moved to have these various actions struck out as statute-barred.

[23] More precisely, on February 16, 2012, the Court of Appeal released its reasons in Sharma v. Timminco Limited, where the Court held that s. 28 of the Class Proceedings Act, 1992, which normally suspends the running of a limitation period, did not apply to a claim under Part XXIII.1 of the Ontario Securities Act until leave had been granted to assert an action.

[24] Until the decision in Timminco, the parties to the case at bar were not aware that the running of the limitation period was not suspended by the Class Proceedings Act, 1992 pending a leave motion for a Part XXIII.1 claim under the Ontario Securities Act.

[25] The Timminco decision animated the parties to action, and on February 24, 2012, the Millwrights revved up the Ontario action, and they delivered notices of motion to certify their Ontario action as a class proceeding, and to obtain leave under s. 138.8 of the Ontario Securities Act or under the analogous provisions in other provinces, and in Ontario, on April 13, 2012, I ordered Mr. Xing’s, Mr. Berzi’s, and the Millwrights’ actions be consolidated without prejudice to the Defendants’ limitation period arguments.

[26] On May 14, 2012, the Plaintiffs delivered a Fresh as Amended Statement of Claim.

[27] Around June 22, 2012, the Defendants delivered their Statement of Defence.

[28] Around July 3, 2012, the Plaintiffs delivered their Reply.

[29] In October 2012, relying on a limitation period defence, the Defendants brought a motion to dismiss the Plaintiffs’ actions under the Ontario Securities Act.

[30] By order dated October 15, 2012, in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc., 2012 ONSC 6083, I dismissed the motion holding that the court had the jurisdiction to apply the special circumstances doctrine and that this jurisdiction could make the Plaintiffs’ actions timely if leave was granted under the Ontario Securities Act.

[31] I also granted the Plaintiffs leave to amend their Statement of Claim to plead reliance as an element of their common law negligent misrepresentation claim, and I decided that the Plaintiffs had satisfied the cause of action criterion for certification.

[32] The Defendants appealed my October 2012 decision to the Court of Appeal. Meanwhile, the action continued for the balance of the certification motion and for the motion for leave under the Ontario Securities Act.

[33] The Defendants’ appeal of my October 2012 decision was argued in the Court of Appeal in May 2013, along with the appeals in two other class actions where there was an issue about whether an Ontario Securities Act claim was statute-barred as untimely. The Court of Appeal reserved judgment.

[34] While the Court of Appeal’s decision was still under reserve, the certification and leave motion in the case at bar went forward. As part of seeking certification and leave, the Plaintiffs proposed a Second Fresh as Amended Statement of Claim that is similar to the October 2012 pleading but that addresses the reliance issue of the common law negligence claim in paragraphs 125 to 127 as follows:

125. The plaintiffs and Class Members relied on these misrepresentations to their detriment by the act of purchasing or acquiring Celestica’s shares. They also relied on the defendants’ obligation to make timely disclosure of all material facts, to comply with securities law and to prepare quarterly and annual reports in accordance with Generally Accepted Accounting Principles [“GAAP”]. The defendants flagrantly violated these obligations.

126. The Trustees of the Millwright Regional Council of Ontario Pension Trust Fund retained the services of professional investment managers, Foyston Gordon & Payne Inc. ("FGP") for the purposes of providing professional investment services, including, but not limited to, purchasing, acquiring and managing investments on their behalf. FGP invested in Celestica shares at the market price in reliance upon the defendants’ obligation to make timely disclosure of all material facts, to comply with securities law and to prepare quarterly and annual reports in accordance with Generally Accepted Accounting Principles [“GAAP”], which obligations the defendants violated. As a result of the Trustees' reliance on the market price for Celestica shares and the defendants’ misrepresentations, the Trustees were therefore relying upon the misrepresentations set out above, to their detriment, resulting in damages to the Trustees and the plaintiffs as particularized below.

127. The Trustees’ agent, FGP, reviewed Celestica’s public disclosure and earning calls and relied on the defendants’ Class Period misrepresentations. FGP considered the costs range and timing for the restructuring that the defendants had represented. Based on the fact that management had provided a range of potential costs for the restructuring, FGP considered $275 million to be a maximum expectation. FGP invested in Celestica securities with the understanding that $275 million was a firm cap. FGP expected that any material increase in restructuring costs would be disclosed by management in a timely manner. FGP also relied on the defendants’ representation regarding the timing of the restructuring. On December 23, 2005, FGP improved its investment ratings for Celestica. At the time, FGP believed the restructuring would come to a close without any need for further restructuring. FGP believed that the restructuring would be completed on time and within stated dollar amounts. By October 27, 2006, FGP believed that the restructuring was largely done. FGP maintained their belief in the cost and timing disclosed by the defendants at the time of purchasing Celestica shares for the Trustees during the Class Period.

[35] The leave and certification motions were argued on December 8-10, 2013. I reserved judgment.

[36] On February 3, 2014, the Court of Appeal released its decision in the appeal of my October 2012 decision along with its judgments in the two companion appeals. See Green v. CIBC, 2014 ONCA 90.

[37] The Court of Appeal overturned its decision in Sharma v. Timminco, supra.

[38] The Court of Appeal dismissed the Defendants’ Appeal of my October 2012 decision. The Court held that the Plaintiffs’ action in the case at bar was timely, and that it was not necessary to rely on the special circumstances doctrine to save the Plaintiffs’ action from being statute-barred.

[39] The Court of Appeal made some comments about the leave test under the Ontario Securities Act, of which I will have more to say later.

D. THE CORE OF THE PLAINTIFFS’ ACTION: THE ALLEGED MISREPRESENTATIONS

[40] Before discussing the factual background and the Defendants’ predominately evidence-based argument to resist leave under the Ontario Securities Act and certification under the Class Proceedings Act, 1992, it is necessary to emphasize that that the Plaintiffs allege several misrepresentations, each of which must be considered discretely.

[41] In their Second Fresh as Amended Statement of Claim, the Plaintiffs enumerate the alleged misrepresentations at paragraphs 112-118 as follows, with my emphasis added:

The Defendants’ Misrepresentations

112. The defendants made, authorized or acquiesced in the making of the following misrepresentations, all of which were false, inaccurate or misleading:

(a) They stated Celestica’s financial reporting complied with Generally Accepted Accounting Principles [“GAAP”], which it did not;

(b) They recorded obsolete inventory as current inventory, falsely overstating the value of Celestica’s inventory;

(c) They failed to record charges to income (write down) relating to Celestica’s excess and obsolete inventory (which there was little or no chance of selling), in accordance with Generally Accepted Accounting Principles [“GAAP”] and which ought to have reflected a loss in Celestica’s earnings;

(d) They falsely underreported Celestica’s level of inventory by,

(i) failing to record inventory;

(ii) delaying the recording of new inventory until after quarter-end reporting periods so that it would not appear as part of the earlier quarter’s financial disclosure;

(iii) not recording inventory that Celestica owned, but which it had physically removed from its facilities;

(e) They falsely recorded revenues Celestica never received, reflecting sales that it had not yet or would never make;

(f) They delayed and manipulated the payment of expenses in order to show a falsely overstated picture of earnings;

(g) They announced a comprehensive restructuring, which they claimed would be completed within a certain time and within a range of costs, when they knew or ought to have known, the restructuring would not be completed in the disclosed time or at that cost;

(h) They falsely stated that Celestica’s restructuring was proceeding according to plan, understating the time they knew or ought to have known it would take to complete and the costs involved;

(i) they falsely stated that the restructuring would succeed and was succeeding when it was not objectively reasonable in light of the significant and known inventory issues at the Monterrey facility;

(j) They falsely stated that the restructuring would provide $125 to $150 million in costs savings for Celestica;

(k) They failed to disclose the true restructuring costs;

(l) They falsely stated that the restructuring was not adversely or significantly affecting its customer relationships, and failed to report significant customer dissatisfaction and the loss of major production contracts with key customers such as Lucent, Cisco, Motorola and AMD.

113. The defendants knew or ought to have known that Celestica had excessive amounts of obsolete inventory and that it was not writing off obsolete inventory as it should have.

114. The defendants knew or ought to have known that inventory levels were distorted by failing to properly record inventory including new inventory and holding substantial inventory off site.

115. The defendants knew or ought to have known that Celestica was falsely recording revenues and that it was delaying the payment of expenses in order to inflate earnings.

116. The defendants knew or ought to have known that the restructuring was not proceeding according to the plan they had disclosed, that its costs were far in excess of those disclosed and that it would not be completed in the time repeatedly promised. From the beginning of the Class Period (in January 2005), the defendants knew the Monterrey facility was suffering from significant inventory and production problems. They knew or ought to have known that it was unsuitable as a focal point for a massive restructuring involving multiple facilities across North America. The defendants’ representations with respect to the time it would take to complete restructuring activities, the costs involved and its successful implementation were not objectively reasonable in the circumstances.

117. Celestica’s quarterly and annual reports, management discussion and analysis, press releases and other public statements created a materially misleading and distorted picture of Celestica’s revenue, expenses, the nature of its inventory, its inventory levels, its inventory turnover ratio and the success of its restructuring. The defendants’ manipulation of how Celestica’s inventory was recorded allowed Celestica to show a better picture of Celestica’s financial circumstances during the Class Period. Given the significance of inventory control to Celestica’s business, this manipulation was materially misleading.

118. Further, the defendants’ misrepresentations about its restructuring were material. Celestica’s restructuring was critical to its future and its ability to retain customers and generate earnings.

E. FACTUAL BACKGROUND

1. The Parties

[42] Celestica is an Ontario corporation that develops and manufactures electronics. Its shares trade on the Toronto Stock Exchange, and it is a reporting issuer.

[43] Stephen W. Delaney was Celestica’s chief executive officer from January 2004 until his resignation and replacement on November 27, 2006. Anthony P. Puppi was the chief financial officer of Celestica from January 1994 until April 2007.

[44] Mr. Berzi purchased 4700 Celestica shares over the TSX between July 22, 2005 and August 17, 2006, and continued to hold 1000 of those shares as of January 31, 2007.

[45] Mr. Berzi made his own investment decisions. In deciding to invest in Celestica, he relied on Yahoo online business news and pricing information. He did not review Celestica’s annual or quarterly reports, financial statements or any other documents, and he did not review analyst reports. Mr. Berzi could not recall and had no records of what particular news or pricing information he reviewed, when he reviewed them relative to his purchases, or what he learned that affected his decisions to purchase Celestica shares.

[46] Mr. Xing purchased 1000 Celestica shares over the TSX on August 24, 2006 and continued to hold those shares as of January 31, 2007.

[47] Mr. Xing made his own investment decisions and with respect to Celestica, he reviewed its quarterly financial statements for revenue, margin and costs, and he accessed analyst reports from financial institutions. However, he could not recall which reports and how the reports affected his decisions to purchase Celestica shares.

[48] The Millwrights purchased 40,300 Celestica shares over the TSX between September 30, 2005 and November 28, 2006.

[49] In making investment decisions, the Millwrights relied on their advisors, Foyston, Gordon & Payne, who did review Celestica’s disclosures, but also relied on other information, such as the portfolio manager’s previous experience and knowledge, analyst reports of sell-side analysts dealing with Celestica and the industry generally, investment reports on Celestica’s competitors, and discussions with Celestica management.

[50] Foyston, Gordon & Payne performed its own independent analysis of Celestica and continuously updated it throughout the class period, including using models and research reports by its own analyst, Mohammad Ahmad, who reviewed Celestica’s financial statements and other public documents, company and industry reports by sell-side research analysts, and investment reports on Celestica’s competitors. He also had discussions with Celestica management. Mr. Ahmad noted further restructuring as a material risk in any decision to purchase Celestica shares.

[51] The Defendants submit that in light of Mr. Ahmad’s evidence, even if the Millwrights could establish that the Defendants made misrepresentations about the cost or duration of the 2005 restructuring neither the Millwrights nor their investment advisor relied on any such misrepresentations.

2. Public Disclosures and the Restructuring of Celestica

[52] On January 27, 2005 (the start of the Class Period), Celestica released its Q4 2004 results, and in a press release, it announced a restructuring plan that it expected to complete in 15 months at a cost in the range of $225- $275 million. The plan was to relocate some operations from high cost locations to a plant in lower cost Monterrey, Mexico. The same day, Mr. Delaney and Mr. Puppi described the restructuring plan in an earnings call to investors and securities analysts.

[53] The January 2005 press release included a safe harbour and fair disclosure statement with respect to forward-looking statements:

This news release contains forward-looking statements related to our future growth, trends in our industry and our financial and operational results and performance that are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to: variability of operating results among periods; inability to retain or grow our business due to execution problems resulting from significant headcount reductions, plant closures and product transfer associated with major restructuring activities; the effects of price competition and other business and competitive factors generally affecting the EMS industry; the challenges of effectively managing our operations during uncertain economic conditions; our dependence on a limited number of customers; our dependence on industries affected by rapid technological change; the challenge of responding to lower-than-expected customer demand; our ability to successfully manage our international operations; component constraints; our ability to manage our restructuring and the shift of production to lower cost geographies.

[54] Pausing here, as will appear below in the discussion portion of these Reasons, the Defendants submit that the announcement was of a new or discrete restructuring plan following previous rounds of restructuring.

[55] On March 7, 2005, there was a conference at Morgan Stanley, where Mr. Delaney stated that Celestica’s restructuring would cost $225 to $275 million. At the conference, Mr. Delaney was asked: “What could go wrong after this restructuring where you think it would require even another additional round…?” Mr. Delaney responded: “What could go wrong? We could be 15% off, I guess.”

[56] To foreshadow their argument, noted below, the Defendants rely on Mr. Delaney’s comment that there could be further restructuring at further expense and with further passage of time as part of their argument that there were no misrepresentations.

[57] On March 21, 2005, Celestica released its 2004 Annual Report, which included a discussion of the restructuring. The Report indicated that the restructuring would take 15 months to complete and would involve charges in the range of $225 million to $275 million.

[58] The 2004 Annual Report included several cautions. It noted, among other things, that there were operating losses and significant restructuring charges that might reoccur in future periods. In the Report, Celestica indicated that there was the prospect that there would be a loss of customers, and the Report noted that restrictions on its ability to restructure quickly enough in some key manufacturing regions, such as Europe and the Americas, could affect the timing and effectiveness of restructuring efforts.

[59] The 2004 Annual Report includes an opinion from the Celestica’s auditors, KPMG LLP that the statements presented fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2004, the results of its operations, and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with GAAP.

[60] On April 21, 2005, in a press release, Celestica announced its Q1 2005 results and stated that there had been $31.9 million in restructuring charges for the quarter. The press release, the notes to the financial statements for Q1 2005, management’s discussion and analysis (“MD&A”), and Messrs. Delaney and Puppi in an earnings call with investors and analysts stated that Celestica expected to incur restructuring charges in the range of $225 million to $275 to be recorded in 2005 and Q1 2006.

[61] Celestica’s Q1 2005 financial statements detailed the results of Celestica’s restructuring programs from each of 2001, 2002, 2003, and 2004, together with the results to date from the restructuring announced in January 2005. The MD&A stated that the recognition of the restructuring charges required management to make certain judgments and estimates regarding the nature, timing and amount associated with the plans. The MD&A stated that Celestica would continue to evaluate its operations and could propose future restructuring actions as a result of changes in the marketplace and its exit from less profitable operations.

[62] On July 21, 2005, in a press release, Celestica announced its Q2 2005 results. Celestica’s July 21, 2005 press release detailed the results of Celestica’s restructuring programs from each of 2001, 2002, 2003, and 2004, together with the results to date from the 2005 restructuring. The press release, the notes to the financial statements for Q2 2005, the MD&A, and Messrs. Delaney and Puppi in an earnings call with investors and analysts indicated that Celestica expected to incur restructuring charges in the range of $225 million to $275 million to be recorded in 2005 and Q1 2006.

[63] On October 20, 2005, in a press release, Celestica announced its Q3 results. Celestica’s financial statements detailed the results of Celestica’s restructuring programs from each of 2001, 2002, 2003, and 2004, together with the results to date from the 2005 restructuring. The press release, the notes to the financial statement, the MD&A, and Messrs. Delaney and Puppi in an earnings call with investors and analysts indicated that the restructuring would be completed in 2006 and the costs would be limited to between $225 to $275 million to be recorded throughout 2005 and 2006.

[64] It is to be noted that there was a change here because the charges were now to be taken throughout 2006 and not just Q1 2006.

[65] As of September 30, 2005, Celestica disclosed that it had recorded restructuring charges totaling $104.8 million. Celestica’s MD&A stated that “the recognition of these [restructuring] charges requires management to make certain judgments and estimates regarding the nature, timing and amount associated with these plans.”

[66] In an earnings call with investors and analysts on October 20, 2005, Mr. Delaney was asked whether “another round of restructuring is potentially in the cards for 2006,” and he answered: “I don’t really see any need to make any major adjustments beyond the restructuring plan that we have in place, although as [Mr. Puppi] said earlier we’ll probably be to the high end of that range.”

[67] On January 26, 2006, in a press release, Celestica announced its Q4 results. Celestica’s financial statements detailed the results of Celestica’s restructuring programs from each of 2001, 2002, 2003, and 2004, together with the results to date from the 2005 restructuring. The press release and the notes to the financial statements indicated that Celestica expected to complete the restructuring in 2006 with expected costs of between $225 to $275 million to be recorded throughout 2005 and 2006 with the majority of these to be employee termination costs.

[68] In an earnings call with investors and analysts, Mr. Puppi stated that there was $160 million in restructuring charges for 2005 and that the balance of the $275 million restructuring costs would be incurred in 2006. He stated that three plants in the Americas were closed and the last three plants would close by the end of Q2 2006, only one of which was in the Americas. He said that the current restructuring program would be completed by the end of Q3 2006.

[69] In the earnings conference call on January 26, 2006, Messrs. Delaney and Puppi both discussed the difficulties that Celestica was experiencing at the Monterrey, Mexico facility in the fourth quarter of 2005. Mr. Puppi stated:

Despite our revenue increases and some incremental benefits from our restructuring, our profitability was severely impacted as a result of higher than expected costs incurred in one of our America’s plants. These additional costs were as a result of significant transfer activities, new program ramps, and changes in customer demand later in the quarter. These factors severely impacted our efficiency in labor and equipment, as well as causing premiums to be incurred to execute higher demand. Furthermore, we had to delay the completion of some of the restructuring to the first quarter in order to assist with capacity relief in the month of December.

[70] Pausing here, the Defendants submit that based on Messrs. Delaney’s and Puppi’s comments, it was known in the marketplace by January 2006 that the restructuring would take longer than initially anticipated, and that there were difficulties at the Monterrey facility due to the transfer activities associated with the restructuring.

[71] On March 14, 2006, at the Deutsche Bank Securities Technology Conference, Mr. Puppi acknowledged that the restructuring was causing a loss of some customers. With respect to the estimated restructuring charges, he said that Celestica was taking charges of close to $275 million.

[72] On March 21, 2006, Celestica filed its 2005 Annual Report, which Messrs. Delaney and Puppi certified as accurate. It reported a $46.8 million loss. The Annual Report stated that the focus for 2005 and into 2006 was to complete the restructuring by the end of 2006. The Annual Report stated that there were $160.1 million in restructuring charges for 2005 and stated that Celestica expected to incur restructuring charges in the range of $225 million to $275 million through 2006. In his “Letter to Shareholders,” Mr. Delaney stated that Celestica had commenced a $275 million restructuring in 2005 that would be complete by the end of 2006.

[73] The 2005 Annual Report included several cautions. It noted, among other things, that: Celestica had had significant restructuring charges and losses for several years and might experience restructuring charges and losses in future periods; Celestica might propose future restructuring activities; the complexity of moving its operations could have adverse effects; there was a risk of not retaining customers; and restrictions on Celestica’s ability to restructure quickly enough could delay the benefits of restructuring.

[74] The 2005 Annual Report includes an opinion from Celestica’s auditors, KPMG LLP that the statements presented fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in accordance with GAAP.

[75] On April 27, 2006, Celestica announced its results for Q1 2006. Revenues and net earnings had decreased. The notes to the financial statements stated that Celestica expected to complete the restructuring by the end of 2006 with charges of approximately $250 to $275 million to be recorded in 2005 and 2006, with the majority of the charges to be employee termination costs. The MD&A in the Q1 2006 report disclosed $160 million in restructuring charges in 2005, $17 million in Q1 2006 and stated that Celestica expected to incur further charges of between $75 million and $100 million to complete the restructuring by the end of 2006. The MD&A indicated that management might propose future restructuring actions. In his meeting with investors and analysts, Mr. Delaney indicated that that Celestica was in the final phases of its very aggressive restructuring program. He attributed the poor financial results to, among other things, “substantial investments being made to support our new program launches and growth in our low-cost facilities” such as the Monterrey, Mexico facility.

[76] On July 27, 2006, Celestica announced its results for Q2 2006. The notes to the financial statements and the MD&A stated that Celestica expected to complete the major components of the restructuring actions by the end of 2006 with total restructuring charges of approximately $250 to $275 million to be recorded in 2005 and 2006, with the majority of these charges to be employee termination costs. The MD&A stated that the focus for 2006 was to complete the restructuring and that Celestica had completed the transfer to the Monterrey facility and that, despite some inefficiencies in the short-term, Celestica anticipated improved cost performance going forward. The MD&A reported restructuring costs at between $250 and $275 million and stated that $160.1 million was recorded in 2005 and $37.2 million in the first half of 2006. Further charges to complete the restructuring were expected to be between $50 million and $75 million. The MD&A indicated that management might propose future restructuring actions. In his meeting with investors and analysts Mr. Delaney stated that the restructuring was entering into its final phase and Celestica was confident of completion by year-end 2006.

[77] On October 26, 2006, Celestica released its Q3 2006 results. The notes to the financial statement stated that Celestica expected to complete the restructuring by year end 2006. The notes stated that the cost had been $256.9 million for the 2005 restructuring or $279.7 million if the cost from past restructurings were also included, with $15 million to come in restructuring costs for all the programs. The MD&A indicated that the restructuring would be completed by year end 2006. Mr. Delaney told investors and analysts that Celestica had largely completed the restructuring.

[78] In the earnings conference call on October 26, 2006, Mr. Delaney discussed operational issues at the Monterrey, Mexico facility. He also discussed inventory control issues and identified a $6 million inventory control problem that would be sorted out and stabilized in the next few quarters. He said that Celestica was “in containment mode to make sure that our customers don’t suffer from any of this” because “certainly during the first half of the year, we had impacted customers.”

[79] On November 27, 2006, Mr. Delaney resigned as CEO and was replaced by Craig H. Muhlhauser.

[80] On December 12, 2006, Celestica issued a pre-announcement press release warning it would not be meeting the operational targets for the fourth quarter. It explained that lower than estimated revenues and earnings per share was due to recent demand reductions from several customers. It also explained that the lowered adjusted net earnings included a net charge of $0.08 to $0.12 per share resulting predominantly from an increase in inventory provisions at the Monterrey, Mexico facility.

[81] On January 30, 2007, Celestica released its Q4 2006 results. It reported a net loss of $150.6 million.

[82] Mr. Muhlhauser explained that decreased demand and the impact of the inventory provision taken in Mexico significantly impacted operating margins. Mr. Muhlhauser announced that the restructuring would not be complete until the end or 2007, the restructuring had cost $314 million and would cost an additional $20-40 million to complete, and the operation of the Monterrey Mexico facility had adversely impacted Celestica.

[83] Mr. Muhlhauser disclosed there would be an additional $60 to $80 million of restructuring charges, $40 million of which had been recorded in the fourth quarter, with the remaining charges to be incurred during 2007. He explained that $30 million of the $40 million in charges related to the “increased inventory provision” at the Monterrey facility.

[84] The Plaintiffs submit that there were $314 million in restructuring charges to the end of 2006, $57 million of which was recorded in Q4 2006, which was almost four times the Defendants’ representation on October 26, 2006 that it would require only $15 million to complete the restructuring. In addition, with the additional $20 to $40 million in restructuring charges for 2007, the total for restructuring would be between $334 and $354 million.

[85] On January 31, 2007, in an an earnings conference call, Mr. Muhlhauser explained that the restructuring had not succeeded because Celestica’s Monterrey facility could not absorb the massive influx of customers from other facilities and had resulted in a loss of customers.

[86] The Plaintiffs submit that these revelations by Celestica and Mr. Muhlhauser corrected the earlier misrepresentations and disclosed that: (a) Celestica had significantly understated the timing and cost of the restructuring; (b) the restructuring and its implementation had not succeeded as previously claimed; (c) the Monterrey facility did not have the capacity to accommodate the transfer of operations that the restructuring involved; and (d) Celestica was losing customers.

[87] However, the Defendants characterize the restructuring charges as a new round of restructuring to reduce overhead, downsize Celestica’s workforce, and to disengage from unprofitable and non-strategic customers.

[88] The Defendants submit that Celestica’s announcement was clear that the additional restructuring was not an extension of the 2005 Restructuring but was a new initiative. They submit that of the $178.1 million in restructuring charges recorded in 2006, $138.1 million was related to the 2005 Restructuring and $40 million was related to restructuring actions initiated in the fourth quarter of 2006.

[89] The Plaintiffs plead that in response to Celestica’s announcement of new information Celestica’s shares fell 23%, from $7.73 on January 30, 2007 to $5.96 on January 31, 2007, and overall from October 26, 2006 to January 31, 2007, Celestica’s share price dropped from $11.74 to $5.96, a nearly 50% drop, wiping out more than $1.3 billion in market capitalization. The Plaintiffs allege that these losses resulted from the Defendants’ misrepresentations.

[90] The Plaintiffs claim damages of $300 million.

3. The Evidence of Frank C. Torchio

[91] The Plaintiffs retained an economist, Frank C. Torchio. He was asked to opine as to whether Celestica shares traded in an “efficient market” during the proposed class period, and to provide a preliminary estimate of the potential aggregate damages pursuant to section 138.5(1) of the Ontario Securities Act.

[92] Mr. Torchio proposed a mathematical model called a “multi-trader” model that uses algorithms and statistical analyses to approximate the number of shares purchased during the class period and held to the end of the class period. The Plaintiffs’ model incorporates varying turnover rates for different types of investors, based on the idea that different types of investors purchase and sell shares at different rates.

[93] The Plaintiffs estimate damages for the class using the trading model and the prescribed formula in section 138.5 of the Ontario Securities Act for Part XXIII.1 claims at $433 million for shares purchased during the class period and held as of the close of trading at the end of the class period.

[94] The Defendants criticize Mr. Torchio’s evidence because it does not isolate the effect of the alleged misrepresentations, if any, from the other information that was disseminated on January 30, 2007 and because it does not take into account the liability limits imposed by s. 138 (7) or the difficulties of proving causation for the common law negligent misrepresentation claim. The Defendants submit that Mr. Torchio’s evidence of the misrepresentations causing a price change wants for any analysis of whether the alleged misrepresentations were material; i.e. of a nature that might influence market prices. Mr. Torchio, for instance, made no investigation of the views of equity analysts about the materiality of the alleged misrepresentations.

[95] The Defendants submit that the Plaintiffs are asking the Court to assume that the drop in the price of Celestica shares which occurred after January 30, 2007 was caused by a “corrective disclosure” without adducing any evidence to show a correspondence between the price decline on that date and the alleged misrepresentations. The Defendants submit that other information disclosed on the January 30, 2007 could account for a price drop including the Q4 2006 financial results, a drop in customer demand in the telecommunications industry, more restructuring, and the retirement of Mr. Puppi.

4. Compliance with GAAP

[96] The Plaintiffs also allege the Defendants wrongly stated that Celestica’s financial statements complied with Generally Accepted Accounting Principles (“GAAP”). The Millwrights allege that the Defendants improperly recorded obsolete inventory as current inventory, delayed recording new inventory until after quarter-end reporting periods, failed to record inventory by physically removing it from its facilities, recorded revenue that it had not and would not receive, and improperly reported expenses.

[97] Mr. Froese, an investigative and forensic accountant, was retained by the Plaintiffs to review publicly available information in order to provide “preliminary comments and opinions” to Plaintiffs’ counsel “related to possible material financial accounting and reporting errors in Celestica’s consolidated annual and interim financial statements.”

[98] The Plaintiffs rely on the evidence of Mr. Froese that the following practices would be non-compliant with GAAP: (1) improperly recording obsolete inventory as current inventory, falsely overstating the value of that inventory; (2) failing to record charges for excess and obsolete inventory; (3) delaying recording new inventory; (4) failing to record inventory removed from Celestica’s facilities; (5) recording revenue that Celestica had not and would not receive; (6) improperly reporting expenses; and (7) unreasonably estimating the cost and duration of the restructuring. In other words, the thrust of Mr. Froese’s opinion is that assuming the Defendants’ misrepresented its inventory, revenue, and the nature of the restructuring, then Celestica’s financial statements would not comply with GAAP.

[99] The Plaintiffs state that Mr. Froese, however, could not opine about whether GAAP had actually been breached without documentary and oral discovery of Celestica’s representatives, which had not been forthcoming.

[100] Mr. Froese agreed on his cross-examination that KPMG had provided an unqualified audit report in respect of Celestica’s financial statements for the years ending December 31, 2004, December 31, 2005 and December 31, 2006 and that the financial statements issued during the proposed class period had never been restated. Mr. Froese agreed that, as part of its audit, KPMG would have independently assessed in accordance with GAAP: (a) the reasonableness of Celestica’s estimates of the duration and cost of restructuring; (b) the reasonableness of Celestica’s levels of inventory; (c) the reasonableness of Celestica’s revenue recognition.

[101] The Plaintiffs concede that they do not have internal evidence from Celestica to prove the GAAP allegations because Celestica did not provide any evidence for the leave motion and because it refused to disclose the information it disclosed in the United States proceedings. Without internal evidence, the Plaintiffs rely on the fact from the public disclosures that Celestica wrote down $36 million in inventory in less than 7 weeks; i.e., $6 million on October 26, 2006 and $30 million on December 12, 2006.

[102] The Defendants submit that since the regulators had not intervened and Celestica’s auditors had provided a clean audit opinion on Celestica’s financial statements for all periods at issue, and the Plaintiffs have not named the auditors as a defendant or otherwise challenged the quality of the audits, it therefore falls to the Plaintiffs to adduce the evidence (and not mere argument) that demonstrates a reasonable possibility of establishing a misrepresentation at trial. The Defendants submit that the Plaintiffs have failed to adduce any evidence and, therefore, the motion for leave under the Ontario Securities Act should be dismissed.

F. ANALYSIS AND DISCUSSION

1. Introduction and Methodology

[103] In this combined motion for certification of the Plaintiffs’ action under the Class Proceedings Act, 1992 and for leave under Part XXIII.1 of the Ontario Securities Act, the Plaintiffs advance: (1) a statutory claim for written and oral misrepresentations pursuant to ss.138.3(1) and (2) of the Ontario Securities Act; (2) a statutory claim for a failure to make timely disclosure of material changes pursuant to s. 138.3(4) of the Ontario Securities Act; and (3) a claim for common law negligent misrepresentation.

[104] The Plaintiffs’ statutory and common law misrepresentation claims can be categorized into three categories: (1) misrepresentations about the 2005 restructuring program; (2) misrepresentations about Celestica’s inventory and reporting of revenue; and (3) misrepresentations about whether Celestica’s financial statements complied with GAAP.

[105] In order to resolve the motion, using these three categories of misrepresentations, I will first consider whether leave should be granted for the statutory claims and whether the statutory claims should be certified for a class action.

[106] To foreshadow the outcome, as noted at the outset, in my opinion, only the misrepresentation claims associated with the 2005 restructuring should be granted leave and certified. Having granted leave for these statutory claims, it automatically follows that these claims should be certified as a class action. The Defendants conceded that if leave to proceed with the statutory claims under Part XXIII.1 were granted, certification of those claims would be the inevitable result.

[107] To further foreshadow the outcome, I will not grant leave for the statutory misrepresentation claims based on misrepresenting inventory and revenue and based on non-compliance with GAAP. If further follows that with the denial of leave for these statutory misrepresentation claims, these claims should not be certified for a class action. In addition to the circumstance that leave has not been granted, the reason for non-certification is evidentiary; there is no basis in fact for these misrepresentation claims.

[108] Having dealt with the statutory claims, I will turn to the common law negligent misrepresentation claims and analyze whether certification having been granted only for the 2005 restructuring statutory claim of misrepresentation, the common law negligent misrepresentation claims should be certified.

[109] My conclusion is that the common law negligent misrepresentation claim should not be certified because attached to the statutory claim or detached from the statutory claim, the common law negligent misrepresentation claim does not satisfy the preferable procedure criterion.

[110] Further, as already noted, there is no basis in fact for the misrepresentation claims based on misrepresentations associated with inventory and the reporting of revenue or based on non-compliance with GAAP.

2. Should Leave be Granted under Part XXIII.1 of the Ontario Securities Act?

(a) The Test for Leave under the Ontario Securities Act

[111] The statutory claims require leave to proceed. Section 138.8 of the Ontario Securities Act provides that leave is granted where: (a) the action is brought in good faith; and (b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

[112] The leave requirement is a threshold test intended to prevent plaintiffs from advancing non-meritorious claims. The leave test is meant to be a genuine screening mechanism, and it requires the court to assess and weigh the evidence and to determine whether the plaintiff’s chance of success is a reasonable possibility.

[113] See: Bayens v. Kinross Gold Corp., 2013 ONSC 6864; Dugal v. Manulife Financial Corp., 2013 ONSC 4083; Green v. CIBC, 2012 ONSC 3637, reversed but not on this point, 2014 ONCA 90; Gould v. Western Coal Corp., 2012 ONSC 5184; Canada Inc. v. Theratechnologies Inc., 2012 QCCS 699; Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25; Round v. MacDonald, Dettwiler and Associates Ltd., 2011 BCSC 1416, aff'd 2012 BCCA 456; Silver v. Imax Corp., 2009 CanLII 72342 (ON SC), [2009] O.J. No. 5573 (S.C.J.), leave to appeal refused, 2011 ONSC 1035 (Div. Ct.); Ainslie v. CV Technologies Inc. (2008), 2008 CanLII 63217 (ON SC), 93 O.R. (3d) 200 (S.C.J.).

[114] The good faith requirement under section 138.8 is met where a plaintiff has brought its action in the honest belief that it has an arguable claim and genuine intention and capacity to prosecute the claim if leave is granted: Silver v. Imax Corp., 2009 CanLII 72342 (ON SC), [2009] O.J. No. 5573 (S.C.J.) at para. 308, leave to appeal refused, 2011 ONSC 1035 (Div. Ct.); Green v. CIBC, 2012 ONSC 3637 at paras. 354-356, reversed but not on this point, 2014 ONCA 90.

[115] It is not disputed that the Plaintiffs satisfy the good faith requirement of the leave test.

[116] In Bayens v. Kinross Gold Corp., supra at paras. 16-55, I did a lengthy analysis of the jurisprudence about the test for determining whether “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.” I will not repeat that analysis here. Rather, I will simply set out the operative or determinative part of my analysis and then update it by adding the lessons learned from the Court of Appeal’s recent decision in Green v. CIBC, 2014 ONCA 90.

[117] My key conclusions about how the leave test should operate are set out in paragraphs 42-45 of Bayens v. Kinross Gold Corp. as follows:

42. At this juncture of the jurisprudence, it is somewhat easier to define what is “not” a reasonable possibility of success at trial, and approaching the test in this negative way does provide some insight into defining the parameters of the leave test under Part XXIII.1 of the Ontario Securities Act.

43. Thus, to properly borrow from the s. 5 (1)(a) analysis of the Class Proceedings Act, 1992, if notwithstanding a finding that the facts of the plaintiff’s claim are true, it is plain and obvious that the plaintiff could not succeed at trial, then the plaintiff does not have a reasonable possibility of success. Further, if the plaintiff fails to provide any admissible or believable evidence of the material facts of his or her claim, then the plaintiff does not have a reasonable possibility of success. Further still, if the plaintiff’s case is so manifestly weak that it cannot possibly succeed, then the plaintiff does not have a reasonable possibility of success. (This last articulation of the test shows that the bar is higher than the some basis in fact test used for certification.) Further still, if the defendant demonstrates that the plaintiff’s claim is frivolous, scandalous, vexatious, or an abuse of process, then the plaintiff does not have a reasonable possibility of success. Further still, if the defendant shows that the plaintiff's claim is based purely on speculation or suspicion rather than evidence, then the plaintiff does not have a reasonable possibility of success. (This is what occurred in Gould v. Western Coal Corp., supra.) Further still, if the defendant on the motion for leave meets the heavy burden: (a) of actually disproving the truth of the facts of the plaintiff’s claim; or (b) of indisputably proving a statutory defence, then the plaintiff does not have a reasonable possibility of success.

44. Expressed as a rule, this negative formulation of the test for leave would be as follow:

There is not a reasonable possibility that an action will be resolved at trial in favour of the plaintiff, if:

(a) assuming the material facts of the plaintiff’s claim are true, it is plain and obvious that the plaintiff could not succeed at trial;

(b) the plaintiff fails to provide any admissible or believable evidence of the material facts of his or her claim;

(c) the plaintiff’s case is so manifestly weak that it cannot possibly succeed;

(d) the defendant demonstrates that the plaintiff’s claim is frivolous, scandalous, vexatious, or an abuse of process;

(e) the defendant shows that the plaintiff's claim is based purely on speculation or suspicion rather than evidence;

(f) the defendant disproves the truth of the facts of the plaintiff’s claim; or

(g) the defendant proves a statutory defence.

45. In all events, the court must assess the evidentiary record provided by both parties and measure that evidence against a substantive but low threshold test of probity. In Green v. CIBC, supra at paragraph 377, Justice Strathy suggested the following analytical framework:

46. I begin with the observation that although s. 138.8(1) speaks of whether the action has a reasonable possibility of success, each representation must be examined, in relation to each defendant, to determine whether the plaintiff’s claim in respect of that representation, has a reasonable possibility of success against that defendant. That analysis also requires that I determine whether there is a reasonable possibility that the defendant will not be able to establish the reasonable investigation defence - i.e., that the person conducted a reasonable investigation and had no reasonable grounds to believe that the document or statement contained a misrepresentation. The analysis should therefore proceed as follows:

(a) Identify the representation at issue;

(b) Determine whether it was a core document or a non-core document or public oral statement;

(c) Determine whether there is a reasonable possibility that the plaintiff will establish at trial that the document or statement contains a misrepresentation of material fact;

(d) Determine, in the case of each individual defendant, whether there is a reasonable possibility that the plaintiff will establish at trial that the defendant authorized, permitted or acquiesced in the release of the document or the making of the statement;

(e) In the case of non-core documents or public oral statements, determine whether there is a reasonable possibility that the plaintiff will establish at trial that each individual defendant knew of the misrepresentation, deliberately avoided acquiring knowledge, or was guilty of gross misconduct in connection with the release of the document or the making of the misrepresentation;

(f) Determine whether there is a reasonable possibility that the defendant will not establish the reasonable investigation defence with respect to the misrepresentation - that is, that they conducted a reasonable investigation and had no reasonable grounds to believe that the document or public oral statement contained a misrepresentation.

[118] On the issue of the leave test under Part XXIII.1 of the Ontario Securities Act, earlier in my judgment in Kinross at paras. 31-34, I described Justice Strathy’s approach and his decision in Green v. CIBC as follows:

31. In Green v. Canadian Imperial Bank of Commerce, supra, Justice Strathy ultimately agreed with Justices van Rensburg in Silver v. Imax, supra and Justice Tausenfreund in Dobbie v. Arctic Glacier Income Fund, supra, that the threshold for leave was low, and Justice Strathy stated at paragraph 373:

32. I respectfully agree with van Rensburg J. and Tausenfreund J. that the leave requirement is a relatively low threshold. It is meant to screen out cases that, even though possibly brought in good faith, are so weak that they cannot possibly succeed. This is consistent with the purpose of the legislation - to screen out strike suits that are plainly unmeritorious. It is not meant to deprive bona fide litigants, with a difficult but not impossible case, from having their day in court. This interpretation is also consistent with the philosophy of our legal system that contentious issues of fact and law are generally decided after a full hearing on the merits.

33. At first blush, it would appear that Justice Strathy disagrees with the defendants’ arguments that Silver v. Imax, supra and Dobbie v. Arctic Glacier Income Fund, supra, set the leave bar too low and thus make it too easy for a plaintiff to obtain leave. However, in analyzing a case, it is as important to consider both the judge’s words and the judge’s deeds, and in Green v. Canadian Imperial Bank of Commerce, Justice Strathy gave some teeth and bite to the reasonable possibility of success test.

34. In Green v. Canadian Imperial Bank of Commerce, although but for a limitation period defence, he would have granted leave with respect to several alleged misrepresentations, Justice Strathy concluded that there was no reasonable possibility: (1) that the plaintiffs would establish that the July 10, 2007 news release expressed a misrepresentation; (2) that the plaintiffs would establish that the August 13, 2007 news release expressed a misrepresentation; (3) that the plaintiffs would establish that the August 30, 2007 Earnings Conference Call expressed a misrepresentation; (4) that the December 6, 2007 Earnings Conference Call expressed a misrepresentation; and (5) that the December 19, 2008 News Release expressed a misrepresentation. Then, with respect to the three misrepresentations for which he might have granted leave, he ultimately denied leave because they had no reasonable possibility of success given that the plaintiffs' claims were time-barred.

35. Justice Strathy’s deeds in Green v. Canadian Imperial Bank of Commerce reveal that the leave test is not a mere “road bump” threshold and is not so low as to be redundant to the notoriously low bar used to test whether a plaintiff has disclosed a cause of action (the not plain and obvious test) under Rule 21 of the Rules of Civil Procedure or under s. 5 (1)(a) of the Class Proceedings Act, 1992. And, remembering that certification is not to be a test of the merits, in my opinion, the merits-based leave test under the Ontario Securities Act sets a higher evidentiary standard than the “some basis in fact” standard used to implement the test for certification under the Class Proceedings Act, 1992.

[119] On the appeal in Green v. CIBC, supra the Court of Appeal considered the question whether Justice Strathy erred in his interpretation and application of the test for granting leave. The Court concluded that there was no basis to interfere with Justice Strathy’s decision.

[120] With respect to the test for leave under the Ontario Securities Act, Justice Feldman, who wrote the judgment for the 5-member panel of the Court, stated at paras. 84-91 as follows:

84. I do agree with the respondent that to properly interpret and apply the leave standard, a "reasonable possibility" that at trial the action will be resolved in the plaintiff's favour, it is essential to give full effect to the word "reasonable".

85. Fortunately, in the class action context, the reasonable possibility concept is very familiar be-cause it is used for determining whether the pleading discloses a cause of action as required by the first part of the test for certification in s. 5(1)(a) of the CPA. As this court recently said in Arora v. Whirlpool Canada LP, 2013 ONCA 657, at para. 14:

Certification is to be denied on the basis that the requirement of s. 5(1)(a) is not met only "if, assuming the facts pleaded are true, it is plain and obvious that the pleading discloses no reasonable cause of action, meaning that the plaintiff has no reasonable prospect of success": ….

86. The phrase "reasonable prospect of success" was used by McLachlin C.J. in Knight v. Imperial Tobacco Canada Ltd, 2011 SCC 42, … where, in reference to a motion to strike a claim, the Chief Justice stated the test to be whether "the claim has any reasonable prospect of success". She described its effect as "weeding out the hopeless claims and ensuring that those that have some chance of success go to trial" (para. 19). Again, at para. 20, she refers to claims that have "a reasonable prospect of success" and "a reasonable chance of success".

87. It is apparent that the terms "prospect" and "chance" are being used by the Chief Justice as synonyms, and I would include the term "possibility" as another one.

88. The purpose of the leave provision under Part XXIII.1 of the Securities Act is to discourage and eliminate bad faith strike suits that do not have a reasonable possibility of being successful. The statute asks the leave judge to first determine good faith, then whether there is a "reasonable possibility" that the action will be resolved at trial in favour of the plaintiff, i.e. that the plaintiff's case will be successful -- a reasonable possibility of success. In order to make that determination, the motion judge applies the same test that is used for determining whether the claim has a reasonable prospect of success for the purpose of certification. As the Chief Justice has described it, the purpose is to weed out hopeless claims and only allow those to go forward that have "some chance of success".

89. Of course, the evidentiary record for the leave and certification motions is quite different. For the leave motion, each side may file affidavit evidence upon which there can be cross-examination. But, as has been pointed out by both Strathy J. and van Rensburg J., the motion is brought before discovery and production of documents, with the result that the evidence may or may not be the same at the trial. In contrast, for the certification motion under s. 5(1)(a), there is no evidentiary record, but the facts as pleaded in the statement of claim are taken to be true. In both cases, there is an evidentiary or deemed evidentiary record to which the test is applied.

90. The motion judge stated that he agreed with van Rensburg J. (in Silver v. IMAX) and Tausenfreund J. (in Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25, 3 C.P.C. (7th) 261) that the leave requirement is "a relatively low threshold". Perell J. in Zaniewicz v. Zungai Haixi Corp, 2012 ONSC 6061, at para. 37, described it as a "preliminary low-level merits based leave test". I agree with these descriptive characterizations. However, beyond that, it is not necessary, in my view, to try to further qualify the test. As discussed above, it has been effectively described by McLachlin C.J. in relation to the Hunt v. Carey test for determining if a claim should be struck as disclosing no cause of action, when deciding whether a class action can be certified.

91. In the securities class action context, there is also a significant procedural advantage to having the same test apply to the leave motion as to the certification motion. If the leave motion is heard before the certification motion and leave is denied, the claim is at an end. But if leave is granted, it will be unnecessary to reconsider the issue on the certification motion. Because the test is the same, and the evidentiary basis is the highest it can be for the plaintiff on the certification motion, once leave is granted on the record filed, the claim will also meet the cause of action criterion under s. 5(1)(a) of the CPA.

[121] Since my judgment in Bayens v. Kinross Gold Corp., supra was, in part, based on Justice Strathy’s decision and approach in Green v. CIBC, 2004 and since the Court of Appeal has approved of Justice Strathy’s approach and since my decision foresaw the connection between the leave test and the certification test, I regard the Court of Appeal’s decision as confirmatory of the negative test that I set out in paragraph 44 of my judgment in Bayens v. Kinross, which is the test that I intend to apply in the case at bar.

[122] I note that, in any event, in the case at bar, the contest between the parties is not so much about the rigours or lack thereof in the test for leave under the Ontario Securities Act and more about whether the Plaintiffs satisfied the low evidentiary standard for granting leave. The fundamental position of the Defendants is that the Plaintiffs have failed to provide any evidence of the material facts of their misrepresentation claims.

(b) The Misrepresentation Claims with Respect to the 2005 Restructuring

[123] Section 1 (1) of the Ontario Securities Act, defines “material fact” and “misrepresentation” as follows:

Interpretation, other general matters

Definitions

1. (1) In this Act,

“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;

“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;

[124] The Defendants argue that there is no evidence of misrepresentations with respect to the 2005 restructuring. They submit that: that there were multiple restructuring programs; there were no misrepresentations as to the costs of restructuring or time required for restructuring; that by their very nature, restructuring estimates may need to be revised over time; and that while the estimates did change over time, the changes were appropriate and properly disclosed well in advance of January 30, 2007. Relying in part on the Supreme Court of Canada’s decision in Kerr v. Danier Leather Inc., 2007 SCC 44, the Defendants submit that the statements about the 2005 restructuring being estimates or opinions cannot as a legal and factual matter constitute a false statement if it simply turns out that the estimates are incorrect.

[125] Further, the Defendants argue that their alleged corrective announcement in January 2007 was nothing of the sort. They submit that no new information about the restructuring is to be found in the announcement, and rather the announcement conveyed new information about the departure of Celestica’s CFO and gave notice of a brand new round of restructuring activities that were identified by Celestica in Q4 2006.

[126] Without proffering any evidence of their own, the Defendants submit that it is clear from the public record that the changes to management’s estimates with respect to the 2005 restructuring were disclosed before January 2007 and that the disclosure in January 2007 provided no new information; i.e., the Defendants submit that the January 2007 communication was not a correction but was an announcement of a new round of restructuring.

[127] In my opinion, the Defendants’ interpretation of the meaning of the documents and the public communications, which are a matter of argument applied to a factual record, may ultimately be correct, but it does not mean that the Plaintiffs’ interpretation of the statements and the public record does not establish a reasonable prospect of success for their misrepresentation claim with respect to the 2005 restructuring.

[128] Put somewhat differently, ultimately, the Defendants’ argument that there were no misrepresentations may ultimately be found to be correct, but for present purposes, the Defendants’ arguments miss the point that their arguments are based on their interpretation of a factual record.

[129] Investors making a decision about investing in a corporation could be influenced by information that the corporation had a restructuring plan that it expected to complete in 15 months at a cost in the range of $225- $275 million. The Defendants submit, however, that in the case at bar, there is no evidence that the Defendants’ estimate was a negligent misrepresentation. Thus, the Defendants say that the Plaintiffs have failed to produce any evidence of a negligent misrepresentation. However, upon analysis, it turns out to that the Defendants’ argument is just their interpretation of the evidence that was produced by the Plaintiffs. The Defendants’ arguments are based on interpreting a factual record that may show that there was a discrepancy between what was said about the time, expense, and success of the 2005 restructuring (a significant matter for investors) and the outcome of the restructuring as explained by the Defendants in January 2007.

[130] The Defendants argue that when a speaker expresses an opinion as to the occurrence of a future events, for there to be liability for negligent misrepresentation, the speaker must have breached a duty of care in speaking at the time the statement was made. For liability, the mistaken opinion must be shown to have resulted from a lack of skill, competence or diligence at the time the statement was made: Hodgins v. Nepean (Township) Hydro-Electric Commission, 1975 CanLII 31 (SCC), [1976] 2 S.C.R. 501; Kerr v. Danier Leather Inc. The Defendants submit that there is no evidence that the estimates were false in the requisite sense at the time when they were made.

[131] In advancing their argument, the Defendants note and take comfort from the circumstances that Part XXIII.1 of the Ontario Securities Act provides defendants with a special, added defence in circumstances in which forward-looking information is found to constitute a misrepresentation. Subsection 138.4(9) states:

Forward-looking information

(9) A person or company is not liable in an action under section 138.3 for a misrepresentation in forward-looking information if the person or company proves all of the following things:

1. The document or public oral statement containing the forward-looking information contained, proximate to that information,

i. reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and

ii. a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information.

2. The person or company had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information.

[132] The Defendants submit that this statutory defence demonstrates that defendants are simply not held to the same standard of accuracy when it comes to projections, estimates, or other forward-looking information and the statute recognizes that forward-looking information involves a certain degree of judgment and opinion and that an issuer is not required to predict the future, but rather only to behave reasonably in formulating forward-looking statements.

[133] However, it may be noted that the existence of s. 138.4 (9) also undermines the thrust of the Defendants’ argument on this leave motion because it presupposes that forward-looking information might constitute a misrepresentation, and then provides a special statutory defence to such claims. In my opinion, the existence of s. 138.4 (9) rather suggests that forward-looking statements are an important type of information to purchasers and sellers of corporate equity and debt instruments and that the statute imposes a balanced regulatory treatment precisely because the truth value of forward-looking statements is complex and cannot necessarily be determined by a simple after-the-fact determination of accuracy.

[134] For present purposes, the major point is that the Ontario Securities Act makes misrepresentations about estimates actionable if leave is granted and provides a special defence for these claims.

[135] Upon analysis, once again, the Defendants’ argument, which may ultimately succeed, does not go far enough in showing that at this juncture it can be said that the Plaintiffs’ misrepresentation claim has no reasonable prospect of success. Given that the leave test is a low threshold merits test, unlike the situation that I will discuss below about the statements about inventory and the reporting of revenues, there is enough on the evidentiary record in the case at bar to satisfy the test that there is a reasonable possibility that the action about misrepresentations about the 2005 restructuring will be resolved at trial in favour of the Plaintiffs.

[136] In any event, it cannot be said that the Plaintiffs have failed to provide any admissible or believable evidence of the material facts of their claim. Although, it remains to be proven whether the Defendants failed to exercise due diligence when they expressed opinions about the time, expense, and anticipated success of the 2005 restructuring, there is enough on the record to suggest that there is a reasonable possibility that having regard to what the Defendants knew about their customers, the nature of supply and demand, and their own facilities and capabilities, their opinions or estimates about restructuring were negligently made and, therefore, a misrepresentation.

[137] In my opinion, the Plaintiffs have satisfied the test for leave with respect to the alleged misrepresentations associated with the 2005 restructuring.

(c) The Misrepresentation Claims with respect to the Reporting of Inventory and Revenue

[138] The misrepresentation claims with respect to the reporting of inventory and revenue are a different matter from the misrepresentations claims with respect to the 2005 restructuring.

[139] I agree with the Defendants’ arguments that these very serious allegations about false reporting made by the Plaintiffs do not have an evidentiary foundation.

[140] Putting it bluntly, the Plaintiffs are guessing and hoping that documentary discovery and the examinations for discovery will establish that the Defendants did not properly state Celestica’s inventory and its revenues.

[141] The Plaintiffs admit that they do not have any evidence to establish these alleged misrepresentations, but they excuse this absence of evidence by arguing that the evidence is only available to the Defendants, who did not provide any evidence for the leave motion, and thus the Plaintiffs should be given the opportunity to prove their allegations.

[142] Having admitted that they do not have evidence at this juncture, however, is the end of the matter.

[143] Leave is not granted in order to determine whether leave should be granted.

[144] Unlike the situation for the alleged misrepresentations about the 2005 restructuring, the Plaintiffs are, in effect, seeking leave to find out whether there was a misrepresentation. Recalling that the financial statements were audited and there is no evidence that the statements have been recalled or repudiated by the auditors, there is no misrepresentation that has been identified and only speculation about what might be discovered at examinations for discovery.

[145] The Plaintiffs have not met the very low evidentiary burden of showing a reasonable possibility that the action about misrepresentation about inventory and revenues will be resolved at trial in their favour.

(d) The GAAP Claims

[146] As noted above, without any internal proof from Celestica and relying on a public disclosure of a $36 million write-down of inventory and Mr. Froese’s expert opinion about what would be non-compliance with GAAP, the Plaintiffs submit that they have shown a reasonable possibility that the action about non-compliance with GAAP will be resolved at trial in their favour.

[147] The Defendants’ counterargument is that the Plaintiffs have provided no evidence at all to support this claim.

[148] I agree with the Defendants’ argument. The circumstances of the Plaintiffs’ claims of non-compliance with GAAP are similar to the predicament of its claims about false reporting of inventory and revenues.

[149] For the GAAP claims, the Plaintiffs have not met the very low evidentiary burden of showing a reasonable possibility that the action will be resolved at trial in their favour.

(e) Conclusion re Leave under the Ontario Securities Act

[150] For the above reasons, I grant leave with respect to the alleged misrepresentations about Celestica’s restructuring and I dismiss the motion for leave with respect to the alleged misrepresentations about Celestica’s inventory and reporting of revenue and with respect to non-compliance with GAAP.

3. Should the Statutory and the Common Law Misrepresentation Claims be Certified under the Class Proceedings Act, 1992?

(a) Introduction to Certification

[151] Pursuant to s. 5(1) of the Class Proceedings Act, 1992, the court shall certify a proceeding as a class proceeding if: (a) the pleadings disclose a cause of action; (b) there is an identifiable class; (c) the claims of the class members raise common issues of fact or law; (d) a class proceeding would be the preferable procedure; and (e) there is a representative plaintiff who would adequately represent the interests of the class without conflict of interest and who has produced a workable litigation plan.

[152] For an action to be certified as a class proceeding, there must be a cause of action shared by an identifiable class from which common issues arise that can be resolved in a fair, efficient, and manageable way that will advance the proceeding and achieve access to justice, judicial economy, and the modification of behaviour of wrongdoers: Sauer v. Canada (Attorney General), 2008 CanLII 43774 (ON SC), [2008] O.J. No. 3419 (S.C.J.) at para. 14, leave to appeal to Div. Ct. refused, 2009 CanLII 2924 (ON SCDC), [2009] O.J. No. 402 (Div. Ct.).

[153] On a certification motion, the question is not whether the plaintiff's claims are likely to succeed on the merits, but whether the claims can appropriately be prosecuted as a class proceeding: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158 at para. 16.

[154] The test for certification is to be applied in a purposive and generous manner, to give effect to the important goals of class actions -- providing access to justice for litigants; promoting the efficient use of judicial resources; and sanctioning wrongdoers to encourage behaviour modification: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534 at paras. 26 to 29; Hollick v. Toronto (City), supra at paras. 15 and 16.

[155] The purpose of a certification motion is to determine how the litigation is to proceed and not to address the merits of the plaintiff's claim; there is to be no preliminary review of the merits of the claim: Hollick v. Toronto (City), supra at paras. 28 to 29.

(b) Cause of Action Criterion

[156] As noted above, in October 2012, as a part of deciding the Defendants’ motion to have the Plaintiffs’ action dismissed, I granted the Plaintiffs leave to amend their Statement of Claim to plead reliance as an element of their common law negligent misrepresentation claim, and I decided that the Plaintiffs had satisfied the cause of action criterion for certification.

[157] I have now decided that leave should be granted to advance the statutory misrepresentation claim with respect to the 2005 restructuring.

[158] The cause of action criterion is, therefore, satisfied.

(c) Identifiable Class Criterion

[159] The second criterion for certification is that there be an identifiable class.

[160] The definition of an identifiable class serves three purposes: (1) it identifies the persons who have a potential claim against the defendant; (2) it defines the parameters of the lawsuit so as to identify those persons bound by the result of the action; and (3) it describes who is entitled to notice: Bywater v. Toronto Transit Commission, [1998] O.J. No. 4913 (Gen. Div.).

[161] In defining class membership, there must be a rational relationship between the class, the causes of action, and the common issues, and the class must not be unnecessarily broad or over-inclusive: Pearson v. Inco Ltd. (2006), 2006 CanLII 913 (ON CA), 78 O.R. (3d) 641 (C.A.) at para. 57, rev'g 2004 CanLII 34446 (ON SCDC), [2004] O.J. No. 317 (Div. Ct.), which had aff'd [2002] O.J. No. 2764 (S.C.J.).

[162] The proposed class definition is as follows:

All persons, other than Excluded Persons, who acquired Celestica shares during the period from January 27, 2005 through and including January 30, 2007 (the “Class Period”) by either a primary distribution in Canada or an acquisition on the Toronto Stock Exchange or other secondary market in Canada and who held some or all of those shares at the close of trading on the Toronto Stock Exchange on January 30, 2007.

Excluded from the Class are Celestica’s past and present subsidiaries, affiliates, officers, directors, employees, legal representatives, heirs, predecessors, successors and assigns, and any member of the individual defendants’ families, and any entity in which they have or had during the Class Period any legal or de facto controlling interest, as well as Onex Corporation and past and present subsidiaries, affiliates, officers, directors, employees, legal representatives, heirs, predecessors, successors and assigns (the “Excluded Persons”).

[163] The evidence of Robert Patton, a Senior Consultant at NERA Economic Consulting, is that a rough but conservative estimate of the number of members in the proposed Canadian class ranges from 21,212 to 33,408.

[164] The Defendants challenged the proposed class definition because they say that in correspondence between the parties, the Plaintiffs appeared to take the position that under the proposed definition early sellers were not excluded from class membership. The Defendants argue that early sellers must be excluded or the class definition would not satisfy the class identification criterion.

[165] In Carom v. Bre-X Minerals Ltd., 1999 CanLII 14794 (ON SCDC), [1999] O.J. No. 1662 (S.C.J.) at para. 18, affirmed, 1999 CanLII 19916 (ON SCDC), [1999] O.J. No. 5114 (S.C.J.), Justice Winkler (as he then was) found that a proposed class definition, which included early sellers, was over-inclusive because there was no rational connection between the class definition and the common issues; he stated:

[T]hose who purchased and sold the shares prior to the disclosure of the fraud, regardless of whether or not they suffered a loss, must also be excluded from the class. Their losses do not arise from the causes of action pleaded and, thus, they cannot be included in the class.

[166] In McKenna v. Gammon Gold Inc., 2010 ONSC 1591 at para. 121, Justice Strathy found that as a general rule, it may be appropriate to exclude early sellers because no damages are suffered until the misrepresentation is disclosed and shareholders who dispose of their securities before the disclosure date cannot suffer a loss as a result of the misrepresentation.

[167] In the case at bar, I do not see the proposed class definition as including early sellers as class members, save for those early sellers who purchased shares during the class period and did not sell all of those shares by January 30, 2007.

[168] As I understand the proposed class definition, these early sellers would have claims with respect to the shares that they continued to hold but not for the shares that they sold before January 30, 2007. There is nothing objectionable to including these early sellers as members of the class.

[169] In my opinion, the identifiable class criterion is satisfied.

(d) Common Issues Criterion

[170] For an issue to be a common issue, it must be a substantial ingredient of each Class member's claim and its resolution must be necessary to the resolution of each Class member's claim: Hollick v. Toronto (City), supra at paragraph 18.

[171] The Plaintiffs propose the following common issues:

(a) Did the Defendants make representations that were untrue, inaccurate or misleading, including omissions, and if so, what are the misrepresentations, who made these representations, when, where and how?

(b) If the answer to (a) is yes, do the misrepresentations constitute misrepresentations within the meaning of the OSA?

(c) Did the Defendants fail to make timely disclosure within the meaning of the OSA?

(d) If the answers to (b) or (c) are yes,

(i) Did the individual Defendants authorize, permit or acquiesce in the release of documents containing such misrepresentations, in the making of a public oral statement containing such misrepresentations or in the failure to make timely disclosure?

(ii) For public oral statements containing such misrepresentations, did the person who made the statement do so with actual implied or apparent authority to speak on behalf of Celestica?

(iii) For misrepresentations regarding forward-looking information (other than those in a financial statement), did the Defendants have a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information and did the defendants provide reasonable cautionary language and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking statement?

(iv) For the misrepresentations in non-core document or in a public oral statement, did the Defendants know of the misrepresentations at the time they were made? If not, did the Defendants deliberately avoid acquiring such knowledge or were they guilty of gross misconduct in connection with the misrepresentations?

(v) Before the release of the documents and the public oral statements containing misrepresentations and before the failure to make timely disclosure first occurred, did the Defendants conduct or cause to be conducted a “reasonable investigation” in accordance with subsection 138.4(6) of the OSA?

(vi) At the time of the release of the document and public oral statements containing misrepresentations or at any time for a failure to make timely disclosure, as they case may be, did the Defendants have reasonable grounds to believe that the documents or oral statement contained the misrepresentations or that the failure to make timely disclosure would occur?

(e) If the answer to (a) is yes, did the Defendants owe a duty of care to the class members?

(f) If the answer to (e) is yes, did the Defendants act negligently in making the misrepresentations?

(g) If the answer to (f) is yes, can each class member’s reliance be inferred from the fact of the class member having acquired Celestica shares in an efficient market?

(h) Can the amount of damages for negligent misrepresentation or the statutory claims under Part XXIII.1 of the OSA be determined on an aggregate basis? If so, in what amount and who should pay it to the class?

(i) What are the applicable limits on damages, if any, for each Defendant under section 138.7 of the OSA?

(j) For each Defendant found liable for claims under Part XXIII.1 of the OSA, what is the Defendant’s respective responsibility for assessed damages?

(k) Is Celestica vicariously liable or otherwise responsible for the acts of the individual Defendants?

[172] In light of my conclusions that only the statutory misrepresentation claim about the 2005 restructuring should be certified, the proposed common issues must be revised to remove statutory misrepresentation issues that will not be certified.

[173] Pausing here, I note here that apart from the fact that the alleged misrepresentations about Celestica’s inventory and revenue and about non-compliance with GAAP did not satisfy the evidentiary burden for leave under Part XXIII.1 of the Ontario Securities Act, these allegations of misrepresentation also did not satisfy the low evidentiary burden of some basis in fact under the Class Proceedings Act, 1992.

[174] In the next part of these reasons, I conclude that the common law misrepresentation action does not satisfy the preferential procedure for a class action. It follows that the common issues associated with the common law negligence claim should also be removed from the list of certifiable common issues.

[175] With the necessary deletions, I am satisfied that the following revised list of common issues satisfies the common issues criterion.

(a) Did the Defendants’ statements during the Class Period about restructuring its operations constitute misrepresentations within the meaning of the OSA?

(b) Did the Defendants fail to make timely disclosure during the Class Period about restructuring its operations within the meaning of the OSA?

(c) If the answers to (a) or (b) are yes,

(i) Did the individual Defendants authorize, permit or acquiesce in the release of documents containing such misrepresentations, in the making of a public oral statement containing such misrepresentations or in the failure to make timely disclosure?

(ii) For public oral statements containing such misrepresentations, did the person who made the statement do so with actual implied or apparent authority to speak on behalf of Celestica?

(iii) For misrepresentations regarding forward-looking information (other than those in a financial statement), did the Defendants have a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information and did the Defendants provide reasonable cautionary language and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking statement?

(iv) For the misrepresentations in non-core document or in a public oral statement, did the Defendants know of the misrepresentations at the time they were made? If not, did the Defendants deliberately avoid acquiring such knowledge or were they guilty of gross misconduct in connection with the misrepresentations?

(v) Before the release of the documents and the public oral statements containing misrepresentations and before the failure to make timely disclosure first occurred, did the Defendants conduct or cause to be conducted a “reasonable investigation” in accordance with subsection 138.4(6) of the OSA?

(vi) At the time of the release of the document and public oral statements containing misrepresentations or at any time for a failure to make timely disclosure, as they case may be, did the Defendants have reasonable grounds to believe that the documents or oral statement contained the misrepresentations or that the failure to make timely disclosure would occur?

(d) Can the amount of damages under Part XXIII.1 of the OSA be determined on an aggregate basis? If so, in what amount and who should pay it to the class?

(e) What are the applicable limits on damages, if any, for each Defendant under section 138.7 of the OSA?

(f) For each Defendant found liable for claims under Part XXIII.1 of the OSA, what is the Defendant’s respective responsibility for assessed damages?

(g) Is Celestica vicariously liable or otherwise responsible for the acts of the individual Defendants?

[176] Because there may be an appeal, I note that had I been satisfied that the common law negligence claim satisfied the preferable procedure criterion, I would not have certified the following questions from the original list because, in my opinion, these questions do not satisfy the commonality criteria but rather are individual issues:

(g) If the answer to (f) is yes, can each class member’s reliance be inferred from the fact of the class member having acquired Celestica shares in an efficient market?

(h) Can the amount of damages for negligent misrepresentation … be determined on an aggregate basis? If so, in what amount and who should pay it to the class?

(e) Preferable Procedure Criterion

[177] Preferability captures the ideas of: (a) whether a class proceeding would be an appropriate method of advancing the claims of the class members; and (b) whether a class proceeding would be better than other methods such as joinder, test cases, consolidation, and any other means of resolving the dispute: Markson v. MBNA Canada Bank (2007), 2007 ONCA 334, 85 O.R. (3d) 321 (C.A.) at paragraph 69, leave to appeal to S.C.C. ref'd, [2007] S.C.C.A. No. 346; Hollick v. Toronto (City), supra.

[178] For a class proceeding to be the preferable procedure for the resolution of the claims of a given class, it must represent a fair, efficient, and manageable procedure that is preferable to any alternative method of resolving the claims: Cloud v. Canada (Attorney General) (2004), 2004 CanLII 45444 (ON CA), 73 O.R. (3d) 401 (C.A.) at paragraphs 73-75, leave to appeal to S.C.C. ref'd, [2005] S.C.C.A. No. 50.

[179] Whether a class proceeding is the preferable procedure is judged by reference to the purposes of access to justice, behaviour modification, and judicial economy and by taking into account the importance of the common issues to the claims as a whole, including the individual issues: Markson v. MBNA Canada Bank (2007), 2007 ONCA 334, 85 O.R. (3d) 321 (C.A.) at para. 69, leave to appeal to S.C.C. ref'd, [2007] S.C.C.A. No. 346; Hollick v. Toronto (City), supra.

[180] In considering the preferable procedure criterion, the court should consider: (a) the nature of the proposed common issue(s); (b) the individual issues which would remain after determination of the common issue(s); (c) the factors listed in the Act; (d) the complexity and manageability of the proposed action as a whole; (e) alternative procedures for dealing with the claims asserted; (f) the extent to which certification furthers the objectives underlying the Act; and (g) the rights of the plaintiff(s) and defendant(s): Chadha v. Bayer Inc. (2001), 2001 CanLII 28369 (ON SCDC), 54 O.R. (3d) 520 (Div. Ct.) at para. 16, aff'd (2003), 2003 CanLII 35843 (ON CA), 63 O.R. (3d) 22 (C.A.), leave to appeal to S.C.C. ref'd, [2003] S.C.C.A. No. 106.

[181] The Defendants submitted that if leave were granted for the statutory claims, then certifying parallel common law claims would be unmanageable and would undermine the purpose of Part XXIII.1 of the Ontario Securities Act by impeding the efficient resolution of the statutory claims. Therefore, the Defendants submit that the common law misrepresentation claim does not satisfy the preferable procedure criterion.

[182] I agree with the Defendants’ argument. And, I agree with the Defendants’ second argument that leads to the conclusion that the common law misrepresentation claim does not satisfy the preferable procedure criterion.

[183] The Defendants argue, and I agree, that where there is a statutory misrepresentation claim and also a common law misrepresentation claim for the same misrepresentation, the statutory claim is the preferable way to resolve the Class Members’ claims; indeed, the statutory claim was introduced precisely to overcome the difficulties of a class action for negligent misrepresentation with respect to the distribution of debt and equity instruments in the primary and secondary market for securities.

[184] Part XXIII.1 of the Ontario Securities Act was designed to be the preferable procedure for misrepresentation claims in the marketplace for shares.

[185] A common law misrepresentation class action with respect to the sale of securities, unless it settles, may lead to economically unfeasible or non-viable individual issues trials where the Class Members are confronted with the enormous difficulty of proving reliance, (the surrogate of causation) and damages.

[186] In the immediate case, the Plaintiffs’ Litigation Plan does not adequately address how the individual issues are to be determined or what effect they will have on the resolution of the statutory claims. The proposed plan does not address who will represent the individual Class Members and who would cover the cost of that representation or other costs associated with the individual trials.

[187] While the resolution of the common issue of whether the Defendants made a misrepresentation would undoubtedly be productive for Class Members with a parallel common law negligent misrepresentation claim, it is doubtful that many would be motivated, willing, or able to perfect their common law claims at an individual issues trial especially when Class Counsel may no longer be acting on their behalf.

[188] Significantly and ironically, in the case at bar, a common law negligent misrepresentation class action would be preferable only for those persons with significant enough claims that it would be worthwhile for them to opt out of the statutory misrepresentation class action.

[189] My conclusion is that in the circumstances of the case at bar, the common law misrepresentation claim does not satisfy the preferable procedure criterion.

(f) Representative Plaintiff Criterion

[190] The fifth and final criterion for certification as a class action is that there is a representative plaintiff who would adequately represent the interests of the class without conflict of interest and who has produced a workable litigation plan.

[191] The representative plaintiff must be a member of the class asserting claims against the defendant, which is to say that the representative plaintiff must have a claim that is a genuine representation of the claims of the members of the class to be represented or that the representative plaintiff must be capable of asserting a claim on behalf of all of the class members as against the defendant: Drady v. Canada (Minister of Health), 2007 CanLII 27970 (ON SC), [2007] O.J. No. 2812 (S.C.J.) at paras. 36-45; Attis v. Canada (Minister of Health), [2003] O.J. No. 344 (S.C.J.) at para. 40, aff'd [2003] O.J. No. 4708 (C.A.).

[192] Provided that the representative plaintiff has his or her own cause of action, the representative plaintiff can assert a cause of action against a defendant on behalf of other class members that he or she does not assert personally, provided that the causes of action all share a common issue of law or of fact: Boulanger v. Johnson & Johnson Corp., [2002] O.J. No. 1075 (S.C.J.) at para. 22, leave to appeal granted, [2002] O.J. No. 2135 (S.C.J.), varied (2003), 2003 CanLII 45096 (ON SCDC), 64 O.R. (3d) 208 (Div. Ct.) at paras. 41, 48, varied 2003 CanLII 52154 (ON CA), [2003] O.J. No. 2218 (C.A.); Matoni v. C.B.S. Interactive Multimedia Inc., 2008 CanLII 1539 (ON SC), [2008] O.J. No. 197 (S.C.J.), at paras. 71-77; Voutour v. Pfizer Canada Inc., [2008] O.J. No. 3070 (S.C.J.); LeFrancois v. Guidant Corp., [2008] O.J. No. 1397 (S.C.J.) at para. 55.

[193] Whether the representative plaintiff can provide adequate representation depends on such factors as: his or her motivation to prosecute the claim; his or her ability to bear the costs of the litigation; and the competence of his or her counsel to prosecute the claim: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534 at para. 41.

[194] In my opinion, the Representative Plaintiff Criterion is satisfied for the claims that have been certified.

(g) Conclusion on Certification

[195] For the above reasons, I certify the statutory misrepresentation claim with respect to the 2005 restructuring as a class action under the Class Proceedings Act, 1992.

G. CONCLUSION

[196] For the above reasons, I grant the Plaintiffs’ motion with respect to the statutory claim for alleged misrepresentations about the 2005 restructuring.

[197] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Plaintiffs’ submissions within 20 days of the release of these Reasons for Decision, followed by the Defendants’ submissions within a further 20 days.

Perell, J.

Released: February 19, 2014

COURT FILE NO.: 11-CV-424069CP

DATE: 20140219

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TRUSTEES OF THE MILLWRIGHT REGIONAL COUNCIL OF ONTARIO PENSION TRUST FUND

Plaintiff

‑ and ‑

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

AND BETWEEN:

NABIL BERZI

Plaintiff

• and ‑

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

AND BETWEEN:

HUACHENG XING

Plaintiff

• and ‑

CELESTICA INC., STEPHEN W. DELANEY and ANTHONY P. PUPPI

Defendants

Proceedings under the Class Proceedings Act, 1992

REASONS FOR DECISION

Perell, J.

Released: February 19, 2014