The Trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund et al. v. SNC-Lavalin Group Inc. et al.

[Indexed as: Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc.]

Ontario Reports

Ontario Superior Court of Justice,

Perell J.

January 13, 2015

124 O.R. (3d) 368 | 2015 ONSC 256

Case Summary

Securities regulation — Misrepresentation — Statutory cause of action — Leave of court — Plaintiffs obtaining leave under s. 138.1 of Securities Act to bring class action based on misrepresentation under Part XXIII.1 of Act — Plaintiffs' subsequent motion for leave to amend statement of claim to add new allegations of misrepresentation dismissed — Proposed amendments not constituting elaboration or particularization of what had already been pleaded but rather constituting discrete claims for which fresh leave application was required — Securities Act, R.S.O. 1990, c. S.5, Part XXIII.1, s. 138.1.

The plaintiffs brought a proposed class action based on misrepresentation under Part XXIII.1 of the Securities Act. They obtained leave to bring the action under s. 138.1 of the Act, and the action was certified as a class proceeding. The plaintiffs subsequently brought a motion for leave to amend their statement of claim to add new allegations of misrepresentation. The defendants consented to some of the amendments.

Held, the motion should be granted in part.

The proposed amendments to which the defendants consented merely expanded on the original allegations and were approved. The other proposed amendments were not merely elaborations or particularizations of what had already been pleaded. Rather, they represented discrete misrepresentation claims for which a fresh leave application was required. The procedural unfairness of allowing those amendments at this juncture would be particularly marked, as the defendants had consented to or did not oppose leave under Part XXIII.1 being granted for the claims as originally pleaded.

Cases referred to

Bayens v. Kinross Gold Corp., [2014] O.J. No. 6070, 2014 ONCA 901, 61 C.P.C. (7th) 1; Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc. (2012), 112 O.R. (3d) 569, [2012] O.J. No. 4389, 2012 ONSC 5288, 41 C.P.C. (7th) 375, 220 A.C.W.S. (3d) 275 (S.C.J.); Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, [1963] 2 All E.R. 575, [1963] UKHL 4 (H.L.); Lana International Ltd. v. Menasco Aerospace Ltd. (1996), 1996 CanLII 7974 (ON CTGD), 28 O.R. (3d) 343, [1996] O.J. No. 1448, 1 O.T.C. 298, 62 A.C.W.S. (3d) 1092 (Gen. Div.); Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc., [2014] O.J. No. 744, 2014 ONSC 1057, 49 C.P.C. (7th) 12, 238 A.C.W.S. (3d) 28 (S.C.J.); Rahn v. McNeill, 1987 CanLII 2507 (BC SC), [1987] B.C.J. No. 2337, 19 B.C.L.R. (2d) 384, 7 A.C.W.S. (3d) 233 (S.C.)

Statutes referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6 [as am.]

Criminal Code, R.S.C. 1985, c. C-46 [page369]

Securities Act, R.S.O. 1990, c. S.5, Part XXIII.1 [as am.], ss. 138.1 [as am.], 138.3, (1) [as am.], 138.8, (1) [as am.], 138.14 [as am.]

Rules and regulations referred to

Regulations Implementing the United Nations Resolution on Libya, SOR/2011-51 [as am.]

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 26.01

MOTION for leave to amend a statement of claim.

A. Dimitri Lascaris, Douglas Worndl and Anthony O'Brien, for plaintiffs.

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

Patricia D.S. Jackson, for defendant Michael Novak.

Laura Young, for defendant Stéphane Roy.

Paul Fruitman, for defendant Gilles Laramée.

Steven Sofer and Max Munoz, for defendant Pierre Duhaime.

PERELL J.:

A. Introduction and Overview

[1] The trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (the "trustees") and 0793094 B.C. Ltd. seek leave to deliver a fourth fresh as amended consolidated statement of claim and an order certifying new common issues.

[2] The defendants SNC-Lavalin, Ian A. Bourne, David Goldman, Patricia A. Hammick, Pierre H. Lessard, Edythe A. Marcoux, Lorna R. Marsden, Claude Mongeau, Gwyn Morgan, Michael D. Parker, Hugh D. Segal and Lawrence N. Stevenson (the "outside directors") do not oppose amendments that address already pleaded misrepresentations associated with an alleged bribery that took place in Bangladesh, namely, paras. 6, 11(b), 11(e), 14, 15, 27, 49, 51, 52, 57-65, 76, 81, 90, 95, 99, 102, 103, 107, 109, 112, 113, 116, 121, 124, 127, 128, 129, 139, 140(b) and 140(e) of the proposed fourth fresh as amended consolidated statement of claim. Accordingly, I grant leave that these amendments may be made.

[3] However, SNC-Lavalin and the outside directors, with the support of other defendants, do oppose the balance of the proposed amendments, the impugned amendments; paras. 7, 8, 9, 11(a), 11(b), 11(c), 11(e), 12, 13, 16, 68, 69, 70, 71, 72, 73, 74, 75, [page370] 76, 77, 78, 79, 84, 86, 88, 92, 94, 97, 101, 105, 111, 118(a), 118(c), 120, 123, 126, 130, 131, 132 and 140 of the proposed fourth fresh as amended consolidated statement of claim. Their grounds of opposition are that leave is required pursuant to s. 138.1 of Part XXIII.1 of the Securities Act, R.S.O. 1990, c. S.5 (the "Act") for these amendments, which plead fresh or new allegations of misrepresentation but they submit that the amendments are statute-barred as untimely. SNC-Lavalin and the outside directors also submit that several of the amendments are not properly pleaded in accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[4] For the reasons that follow, I agree with SNC-Lavalin and the outside directors and their supporters that the impugned amendments require leave under Part XXIII.1 and that it is now too late to obtain leave.

[5] I disagree with the plaintiffs that these proposed amendments are merely an elaboration or particularization of what they have already pleaded against SNC-Lavalin and the outside directors. In my opinion, the impugned amendments are not a mere matter of degree; these proposed amendments represent discrete misrepresentation claims -- or as a matter of procedural fairness -- these proposed amendments go too far to be allowed without being tested by a fresh leave application.

[6] The plaintiffs submit that the impugned amendments are consistent with the purposes of the Ontario Securities Act but even assuming the new allegations of wrongdoing are true and even assuming that leave would have been granted in the first instance for the impugned allegations, the plaintiffs' submission misses the point that in the case at bar leave is required both as a matter of substantive law under the Ontario Securities Act and also as a matter of procedural fairness under both the Ontario Securities Act and the Class Proceedings Act, 1992, S.O. 1992, c. 6.

[7] The procedural unfairness of allowing these amendments at this juncture would be particularly marked in the case at bar where the defendants consented or did not oppose leave under Part XXIII.1 of the Ontario Securities Act being granted for the claims as originally pleaded. Obtaining leave cannot be used as a procedural bait-and-switch tactic or as a procedural bait-and-pile-on tactic.

[8] Accordingly, I do not grant leave for the impugned amendments for the fourth fresh as amended consolidated statement of claim. In these circumstances, it is not necessary to say anything about whether the refused amendments were properly pleaded in accordance with the Rules of Civil Procedure. [page371]

B. Factual and Procedural Background

[9] On May 9, 2012, the trustees commenced a proposed class action under the Class Proceedings Act, 1992 for damages for alleged misrepresentations that affected the market value of the shares of SNC-Lavalin, which shares were traded on the Toronto Stock Exchange ("TSX"), among other exchanges. The plaintiffs advanced a common law negligent misrepresentation claim, an oppression remedy claim, and a claim under Part XXIII.1 of the Ontario Securities Act (and the analogous provisions of the securities legislation of the other Canadian provinces and territories) for breach of the continuous disclosure provisions of the Act.

[10] On September 19, 2012, the plaintiffs moved for (1) leave under Part XXIII.1 of the Ontario Securities Act; (2) approval of the discontinuance of the plaintiffs' common law negligence and oppression claims; and (3) certification of the action as a class proceeding. The motion was unopposed, and the requested relief was granted. See Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc. (2012), 112 O.R. (3d) 569, [2012] O.J. No. 4389, 2012 ONSC 5288 (S.C.J.).

[11] The certified class comprises all persons who acquired SNC-Lavalin securities during the class period, subject to certain exclusions. The class period is defined as the period from November 6, 2009 to and including February 27, 2012.

[12] The common issues related to misrepresentations in the "impugned documents", which were various "MD&As" (management's discussion and analysis), quarterly and annual financial statements, "AIFs" (annual information forms) and management proxy circulars released between November 6, 2009 and November 4, 2011.

[13] In September 2012, following the granting of leave and certification, the plaintiffs filed a fresh as amended consolidated statement of claim.

[14] In November 2012, the plaintiffs delivered the second fresh as amended consolidated statement of claim.

[15] In January 2014, I granted the plaintiffs leave to deliver the third fresh as amended consolidated statement of claim, which is the current iteration of the statement of claim.

[16] In the plaintiffs' pleadings, the alleged misrepresentations concern SNC-Lavalin having entered into agreements with "agents" with respect to projects to whom SNC-Lavalin made payments totalling US$56 million. The plaintiffs allege that the payments were bribes and violated SNC-Lavalin's agents policy and code of ethics in numerous ways. The plaintiffs plead that [page372] the disclosure of the truth of the US$56 million in payments caused a corrective decline in SNC-Lavalin shares on February 28 and 29, 2012.

[17] The plaintiffs plead that a further corrective decline in the value of SNC-Lavalin's shares occurred on June 15, 2012 from the disclosure that two former SNC-Lavalin employees had been charged with criminal offences relating to SNC-Lavalin's activities in Bangladesh for the Padma Bridge project.

[18] The only evidence led on the unopposed motions for leave under Part XXIII.1 of the Securities Act and for certification pertained to the audit committee's investigation into the US$56 million in agent payments and to the Padma Bridge allegations.

[19] The affidavit filed by the plaintiffs' expert addressed only the changes in the trading price of SNC-Lavalin shares on February 28-29, 2012 and June 25, 2012 in relation to the US$56 million in payments and the Padma Bridge charges.

[20] The plaintiffs' pleading consisted of 134 paragraphs of allegations. There is only one sentence that alleges that the bribery practices and activities were "systemic" at SNC-Lavalin.

[21] SNC-Lavalin and the outside directors oppose the following proposed amendments, namely, paras. 7, 8, 9, 11(a), 11(b), 11(c), 11(e), 12, 13, 16, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 84, 86, 88, 92, 94, 97, 101, 105, 111, 118(a), 118(c) 120, 123, 126, 130, 131, 132 and 140 of the proposed fourth fresh as amended consolidated statement of claim, which are set out below:

7. In addition, during the Class Period, SNC, acting through its employees and agents, directly or indirectly offered or paid or authorized the offering or payment of bribes to foreign public officials of Libya, Tunisia and Bangladesh for the purpose of securing business for SNC in those countries, as particularized herein. Such bribes were in addition to the payments totalling US$56 million described above.

8. Further, during the Class Period, SNC directly or indirectly made very substantial payments to Duvel and Dinova, companies beneficially owned and/or controlled by Ben Aïssa. The payments to Duvel and Dinova were made pursuant to agency agreements with those companies purportedly relating to various projects in Libya. There was no legitimate business purpose for the agency agreements with Duvel and Dinova and the payments thereunder. A substantial portion of the funds transferred to Duvel and Dinova during the Class Period was converted for the personal use and benefit of Ben Aïssa and former SNC executive Bebawi. The funds transferred to Duvel and Dinova were also used to pay bribes to foreign public officials of Libya and Tunisia for the purpose of securing business for SNC in those countries, as particularized herein. The agreements with Duvel and Dinova, the payments to Duvel and Dinova thereunder and the subsequent improper use of the funds by Duvel and Dinova all violated the Agents Policy and the Code of Ethics. [page373]

9. Ben Aïssa was further enriched during the Class Period through the dealings of Tresca, a company beneficially owned and/or controlled by him. Ben Aïssa received, directly or indirectly, consulting commissions from several companies located in South Korea and Malaysia, as well as an individual. These commissions were paid into the account of Tresca. Between January 2003 and December 2010, Ben Aïssa received commissions in the amount of US$7.92 million and Ç1.3 million. Ben Aissa redistributed these funds from the bank account belonging to Tresca to a bank account belonging to Bebawi's uncle, as well as to a bank account he himself controlled. The true purpose of the payments to Tresca was to cause SNC, through Ben Aïssa's efforts, to procure goods and/ or services from the third parties that made the payments to Tresca. These payments violated the Code of Ethics in numerous respects.

11(a) . . . The search was in aid of an investigation by the RCMP into bribes paid by SNC to foreign public officials of Libya and Tunisia, payments made by SNC to Duvel and Dinova, payments received by Tresca, embezzlement by Ben Aissa and Bebawi, and a plan to extract Saadi Gadhafi and his family from Libya and transport them to Mexico[.]

11(b) . . . [the criminal offences were] in respect of the Padma bridge project[.]

11(c) . . . The investigation by Swiss authorities concerned alleged bribery of foreign public officials of Libya, payments made by SNC to Duvel and Dinova, and embezzlement by Ben Aissa[.]

11(e) . . . [the secret commission was linked to] the Canadian Natural Resources Limited froth treatment plant project in Alberta that had been awarded to SNC in 2011. The "commission" was in fact a bribe paid to foreign public officials and/or persons in Canada for the procurement of business by SNC and the import of the corrective disclosure was that the "commission was a bribe. . . .

12. The alleged share price declines resulted from] (e) a misrepresentation by the failure to disclose the material fact that SNC engaged in bribery in multiple jurisdictions during the Class Period.

13. The statements and the omission described in the preceding paragraph were materially false and/or misleading. During the Class Period, SNC offered or paid bribes, either directly or indirectly, to foreign public officials and/or persons in Canada in contravention of the Code of Ethics and applicable anti-bribery laws, as particularized herein. SNC also entered into agreements with, and made payments pursuant to those agreements to, "representatives" or "agents" in contravention of the Agents Policy and the Code of Ethics. Further, SNC's ICFR and DC&P were not effective during the Class Period and, as a result, SNC failed to detect, prevent and/or disclose bribes offered or paid by SNC, payments made by SNC to companies controlled by Ben Aïssa (Duvel and Dinova), and violations of the Agents Policy and the Code of Ethics.

14. Accordingly, the fact that SNC engaged in bribery in multiple jurisdictions during the Class Period, as particularized herein, was a material fact which SNC was required to disclose in its Class Period MD&As and AIFs, but which it omitted to disclose therein or otherwise. Such omission [page374] constituted a misrepresentation within the meaning of the OSA and Other Canadian Securities Legislation.

15. Although the investigation conducted by the Audit Committee identified problems with SNC's ICFR relating to unlawful and improper payments made to third parties in respect of contracts in Africa, the bribery practices extended to SNC's operations not only in Africa but in Asia and Canada. These practices and activities were systemic at SNC and were carried out with the full knowledge of senior management, including members of the Office of the President, as well as SNC's inside directors. The full particulars of such activities are known to the Defendants.

16. During the Class Period, SNC directly or indirectly made very substantial payments to Duvel and Dinova, companies beneficially owned and/or controlled by Ben Aïssa. The payments to Duvel and Dinova were made pursuant to agency agreements with those companies purportedly relating to various projects in Libya. There was no legitimate business purpose for the agency agreements with Duvel and Dinova and the payments thereunder. A substantial portion of the funds transferred to Duvel and Dinova during the Class Period was converted for the personal use and benefit of Ben Aïssa and former SNC executive Bebawi. The funds transferred to Duvel and Dinova were also used to pay bribes to foreign public officials of Libya and Tunisia for the purpose of securing business for SNC in those countries, as particularized herein. The agreements with Duvel and Dinova, the payments to Duvel and Dinova thereunder and the subsequent improper use of the funds by Duvel and Dinova all violated the Agents Policy and the Code of Ethics.

17. Ben Aïssa was further enriched during the Class Period through the dealings of Tresca, a company beneficially owned and/or controlled by him. Ben Aïssa received, directly or indirectly, consulting commissions from several companies located in South Korea and Malaysia, as well as an individual. These commissions were paid into the account of Tresca. Between January 2003 and December 2010, Ben Aïssa received commissions in the amount of US$7.92 million and Ç1.3 million. Ben Aissa redistributed these funds from the bank account belonging to Tresca to a bank account belonging to Bebawi's uncle, as well as to a bank account he himself controlled. The true purpose of the payments to Tresca was to cause SNC, through Ben Aïssa's efforts, to procure goods and/ or services from the third parties that made the payments to Tresca. These payments violated the Code of Ethics in numerous respects.

18. Further, during the Class Period, SNC, acting through its employees and agents, directly or indirectly offered or paid or authorized the offering or payment of bribes to foreign public officials of Libya, Tunisia and Bangladesh for the purpose of securing business for SNC in those countries, which bribes were in addition to the payments totaling US$56 million discussed above. [page375]

19. The particulars of the bribes are as follows:

[page376]

[page377]

[page378]

73. The first disclosure to the Class Members of the above-mentioned payments to Duvel, Dinova and Tresca occurred on or around April 13, 2012, with further disclosure on or around November 26, 2012, as particularized in paragraphs 11(a) and 11(c) hereof.

74. The first disclosure to the Class Members of the above-mentioned bribery of foreign public officials of Libya occurred on or around April 13, 2012, with further disclosure on or around November 26, 2012, as particularized in paragraphs 11(a) and 11(c) hereof.

75. The first disclosure to the Class Members of the above-mentioned bribery of foreign public officials of Tunisia occurred on or around April 13, 2012, as particularized in paragraph 11(a) hereof.

76. The first disclosure to the Class Members of the above-mentioned bribery of foreign public officials of Bangladesh occurred on or around June 25, 2012, as particularized in paragraph 11(b) hereof.

77. In addition, during the Class Period, SNC entered into one or more agreements with two agents, Toptrade and Keymore, in connection with the Matala hydroelectric power project in Angola. The agreements and the [page379] payments thereunder violated the Agents Policy and the Code of Ethics. In particular, the fees payable to Toptrade under the agency agreement (10% of the value of the contract) exceeded the commercial fee limits under the Agents Policy and were not approved by the authorized signatories prescribed in the Agents Policy. The failure to comply with the authorization procedure stipulated in the Agents Policy violated the Code of Ethics. Subsequently, in an attempt to circumvent the Agents Policy and provide Toptrade with fees of 10%, SNC entered into a new agreement with Toptrade providing for fees of 5% of the value of the contract, and a separate agreement with Keymore, which was affiliated with Toptrade, also providing for fees of 5% of the value of the contract. The substance of the transaction remained the same and resulted in the payment of excessive fees to Toptrade and the persons controlling Toptrade, in violation of the Agents Policy and the Code of Ethics.

78. As particularized below, during the Class Period, SNC made the following misrepresentations, either explicitly or implicitly or by omission, in the Impugned Documents:

(a) SNC was a "socially responsible company" and a "responsible global citizen";

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

(c) SNC had ICFR and DC&P that were properly designed and/ or operating effectively;

(d) SNC's business was conducted in compliance with the Code of Ethics; and

(e) a misrepresentation by the failure to disclose the material fact that SNC engaged in bribery in multiple jurisdictions during the Class Period.

79. The statements and the omission described in the preceding paragraph were materially false and/or misleading. During the Class Period, SNC offered or paid bribes, either directly or indirectly, to foreign public officials and/or persons in Canada in contravention of the Code of Ethics and applicable anti-bribery laws, as particularized herein. SNC also entered into agreements with, and made payments pursuant to those agreements to, "representatives" or "agents" in contravention of the Agents Policy and the Code of Ethics. Further, SNC's ICFR and DC&P were not effective during the Class Period and, as a result, SNC failed to detect, prevent and/or disclose bribes offered or paid by SNC, payments made by SNC to companies controlled by Ben Aïssa (Duvel and Dinova), and violations of the Agents Policy and the Code of Ethics.

80. The above statement was materially false and/or misleading in that SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. [page380]

81. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

82. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

83. The above representation was materially false and/or misleading in that, during the Class Period, there were material violations of the Code of Ethics by persons bound by the provisions of the Code of Ethics, namely that:

(a) bribes were offered or paid, either directly or indirectly, to foreign public officials and/or persons in Canada in contravention of the Code of Ethics;

(b) agency agreements were entered into, and payments were made pursuant to those agreements, in contravention of the Code of Ethics;

(c) payments were made to Duvel, Dinova and Tresca, and Ben Aïssa converted the funds received by those entities for his personal use and benefit, in contravention of the Code of Ethics; and

(d) there were violations of laws applicable to SNC's business, including the Regulations and the Criminal Code.

94. The above statement was materially false and/or misleading in that SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa.

. . . . . [page381]

97. The above statement was materially false and/or misleading in that SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa.

98. The above statement was materially false and/or misleading in that SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa.

99. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

100. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

101. The above representation was materially false and/or misleading in that, during the Class Period, there were material violations of the Code of Ethics by persons bound by the provisions of the Code of Ethics, namely that:

(a) bribes were offered or paid, either directly or indirectly, to foreign public officials and/or persons in Canada in contravention of the Code of Ethics; . . . .

(b) payments were made to Duvel, Dinova and Tresca, and Ben Aïssa converted the funds received by those entities for his personal use and benefit, in contravention of the Code of Ethics[.][page382]

120. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

121. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was not effective at any time during the Class Period, and as a result SNC failed to disclose these matters during the Class Period.

122. The above statements were materially false and/or misleading. SNC's ICFR was not then effective, and was not effective at any time during the Class Period, as a result of material weaknesses in the design and operating effectiveness of the ICFR. The material weaknesses in ICFR arose from non-compliance with, and ineffective controls over compliance with, the Code of Ethics, the Agents Policy and applicable anti-bribery laws, and inadequate controls that failed to detect or prevent payments to Duvel and Dinova, companies controlled by Ben Aïssa. SNC's DC&P was also not then effective, and was 130. The fact that SNC engaged in bribery in multiple jurisdictions during the Class Period, as particularized herein, was a material fact which SNC was required to disclose in its Class Period MD&As and AIFs, but which it omitted to disclose therein or otherwise.

The Omission

130. The fact that SNC engaged in bribery in multiple jurisdictions during the Class Period, as particularized herein, was a material fact which SNC was required to disclose in its Class Period MD&As and AIFs, but which it omitted to disclose therein or otherwise.

131. Further, the fact that SNC engaged in bribery in multiple jurisdictions during the Class Period, as particularized herein, created ongoing material risks to SNC's business and financial condition during the Class Period, including (1) a material risk of criminal and/or regulatory prosecution or enforcement action, including pursuant to the Criminal Code, the CFPOA and the FCPA, that could result in substantial fines and other penalties, (2) a material risk of severe reputational damage that could compromise SNC's ability to procure new business, particularly in developing countries, which has in fact occurred, and (3) a material risk of loss of access to projects funded in whole or in part by international organizations such as the [page383] World Bank, which loss of access has in fact occurred. SNC was required to disclose all material risks in its Class Period MD&As and AIFs, but SNC omitted to disclose, in those documents or otherwise, the material risks identified in the preceding sentence.

132. The above omissions constituted misrepresentations within the meaning of the OSA and the Other Canadian Securities Legislation.

133. Since February 28 and 29, 2012, there have been further declines in the market value of SNC's securities as a result of the release of information that was partially corrective of the misrepresentations alleged herein, namely:

(a) there was a decline in the market value of SNC's securities during trading on April 13, 2012 as a result of the release of information that the RCMP conducted a search of SNC's headquarters in Montreal on April 13, 2012. The search was in aid of an investigation by the RCMP into bribes paid by SNC to foreign public officials of Libya and Tunisia, payments made by SNC to Duvel and Dinova, payments received by Tresca, embezzlement by Ben Aïssa and Bebawi, and a plan to extract Saadi Gadhafi and his family from Libya and transport them to Mexico. SNC's shares closed at $40.07 on the TSX on April 12, 2012, but closed at $38.40 on the TSX on April 13, 2012 on unusually heavy trading volume;

(b) there was a decline in the market value of SNC's securities during trading on June 25, 2012 as a result of the release of information that two former employees of SNC had been charged with criminal offences under the CFPOA relating to SNC's activities in respect of the Padma bridge project in Bangladesh. SNC's shares closed at $38.56 on the TSX on June 22, 2012, but closed at $37.48 on the TSX on June 25, 2012;

(c) there was a decline in the market value of SNC's securities during trading on November 26, 2012 as a result of the release of information that Swiss authorities were investigating illegal or improper payments by SNC in the approximate amount of $139 million. The investigation by Swiss authorities concerned alleged bribery of foreign public officials of Libya, payments made by SNC to Duvel and Dinova, and embezzlement by Ben Aïssa. SNC's shares closed at $41.54 on the TSX on November 23, 2012, but closed at $40.63 on the TSX on November 26, 2012 on unusually heavy trading volume;

(d) there was a decline in the market value of SNC's securities during trading on November 28 and 29, 2012 as a result of the release of information that Duhaime had been arrested and charged with fraud and other criminal offences related to the contract awarded to SNC with respect to the construction and operation of the McGill University Health Centre hospital project in Montreal. SNC's shares closed at $40.91 on the TSX on November 27, 2012, but closed at $39.99 on the TSX on November 28, 2012 and $39.00 on November 29, 2012 on unusually heavy trading volume; and

(e) there was a decline in the market value of SNC's securities during trading on July 3, 2013 as a result of the release of information that SNC had paid a secret $13.5 million "commission" that was linked to the Canadian Natural Resources Limited froth treatment plant project [page384] in Alberta that had been awarded to SNC in 2011. The "commission" was in fact a bribe paid to foreign public officials and/or persons in Canada for the procurement of business by SNC and the import of the corrective disclosure was that the "commission" was a bribe. SNC's shares closed at $44.84 on the TSX on July 2, 2013, but closed at $43.85 on the TSX on July 3, 2013.

[22] Documentary discovery in this action is complete with examinations for discovery to be scheduled.

C. Discussion and Analysis

[23] The case at bar is a case of first instance and likely not envisioned by the legislature when it enacted s. 138.3(1) under Part XXIII.1 of the Ontario Securities Act.

[24] Section 138.3(1) of the Act provides a plaintiff a right of action for damages for secondary market misrepresentations without regard to whether the plaintiff relied on the misrepresentations. Section 138.3 is subject to leave being granted pursuant to s. 138.8(1) of the Act, and it is subject to a three-year absolute limitation period established by s. 138.14 of the Act.

[25] Sections 138.3(1), 138.8(1) and 138.14 of the Act state:

Liability for secondary market disclosure

Documents released by responsible issuer

138.3(1) Where a responsible issuer or a person or company with actual, implied or apparent authority to act on behalf of a responsible issuer releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer's security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages against,

(a) the responsible issuer;

(b) each director of the responsible issuer at the time the document was released[.]

Leave to proceed

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

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

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

Limitation period

138.14(1) No action shall be commenced under section 138.3, [page385]

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

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

(ii) six months after the issuance of a news release disclosing that leave has been granted to commence an action under section 138.3 or under comparable legislation in the other provinces or territories in Canada in respect of the same misrepresentation[.]

Suspension of limitation period

(2) A limitation period established by subsection (1) in respect of an action is suspended on the date a notice of motion for leave under section 138.8 is filed with the court and resumes running on the date,

(a) the court grants leave or dismisses the motion and,

(i) all appeals have been exhausted, or

(ii) the time for an appeal has expired without an appeal being filed; or

(b) the motion is abandoned or discontinued.

[26] What makes the immediate case of first instance is that it is doubtful that the legislature envisioned that there would be a dispute between statutory plaintiffs and statutory defendants about the scope, semantically or jurisprudentially, of the misrepresentation that is the foundation of the statutory cause of action, and thus the Ontario Securities Act does not address the circumstances of the case at bar. Thus, the Act does not address the phenomenon of a motion to amend a cause of action that has received leave under s. 138.8 of the Act after the limitation period provided for under s. 138.14 of the Act has expired.

[27] The famous case of Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, [1963] 2 All E.R. 575 (H.L.) exposed speakers to a duty of care in providing information and advice, and s. 138.3 of the Act, sensibly enough, envisions that the plaintiff, who is being given a statutory cause of action for misrepresentation (without any reliance on the misrepresentation), would be able to identify and articulate the false advice or information contained in the document released on behalf of the responsible issuer.

[28] It seems almost obvious that identifying the misrepresentation associated with the disclosure document is necessary in order (1) to plead the constituent elements of the statutory cause of action; (2) to determine when the misrepresentation contained in the document was publicly corrected (i.e., one needs a benchmark to determine when and whether there was a corrective [page386] disclosure); (3) to determine whether any assertion of the statutory right of action is timely under s. 138.14 of the Act; (4) to determine whether leave should be granted under s. 138.8 of the Act, which requires that the statutory action is being brought in good faith and there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff; and (5) to satisfy the fundamental principle of procedural fairness that a party should have notice of the claim he or she is expected to meet.

[29] I agree with the submissions of Ms. Young for the defendant Stéphane Roy and of Mr. Tenai for SNC-Lavalin and the outside directors that identifying a misrepresentation involves specifying what is represented (the representation) and specifying its falsity, i.e., what makes the representation a misrepresentation. See Lana International Ltd. v. Menasco Aerospace Ltd. (1996), 1996 CanLII 7974 (ON CTGD), 28 O.R. (3d) 343, [1996] O.J. No. 1448 (Gen. Div.); Rahn v. McNeill, 1987 CanLII 2507 (BC SC), [1987] B.C.J. No. 2337, 19 B.C.L.R. (2d) 384 (S.C.), at p. 392 B.C.L.R.

[30] As mentioned above, I rather doubt that the legislature envisioned that there would be a controversy between the statutory plaintiffs and statutory defendants about these components of the statutory cause of action because the legislature would have not foreseen that expressing a misrepresentation would be a problem. The focus of the legislature rather was on eliminating the reliance requirement of the common law tort of negligent misrepresentation to facilitate the regulation of the secondary market in securities and access to justice when there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

[31] However, in the case at bar, the articulation of the misrepresentation has proven problematic. The plaintiffs, in effect, submit that they did identify a cause of action and they obtained leave to pursue it and, therefore, there is no impediment to the court applying the normal rule about amending pleadings. The plaintiffs submit that if the court applies the normal approach to amendments to pleadings, then the amendments set out in paras. 7, 8, 9, 11(a), 11(b), 11(c), 11(e), 12, 13, 16, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 84, 86, 88, 92, 94, 97, 101, 105, 111, 118(a), 118(c) 120, 123, 126, 130, 131, 132 and 140 of the proposed fourth fresh as amended consolidated statement of claim, which are set out above, should be allowed.

[32] The plaintiffs submit that once the leave test is met, it means that the court is satisfied that the proposed suit is not a strike suit, i.e., when there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff, and, [page387] therefore, any pleading amendments for that lawsuit ought not to necessitate a further grant of leave, unless the action is fundamentally altered, which they say is not the situation in the case at bar.

[33] SNC-Lavalin and the outside directors, however, submit that the plaintiffs have fundamentally altered their claim and are asserting new causes of action for which new leave is required.

[34] Relying on Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc., [2014] O.J. No. 744, 2014 ONSC 1057 (S.C.J.), at paras. 106 and 123-50 and Bayens v. Kinross Gold Corp., [2014] O.J. No. 6070, 2014 ONCA 901, at paras. 83-87, SNC-Lavalin and the outside directors submit that the requirements for leave are assessed against every cause of action pleaded, such that leave for one allegation of misrepresentation does not mean that leave is granted for all other allegations of misrepresentation and, therefore, a plaintiff must lead sufficient evidence to satisfy the court as to the leave requirement for each discrete allegation of misrepresentation. I agree with this submission.

[35] SNC-Lavalin and the outside directors submit that the proposed fourth fresh as amended consolidated statement of claim goes significantly further than simply pleading additional particulars and it substantially expands the breadth and scope of the action by (a) adding new causes of action for bribes paid to foreign governments in Libya and Tunisia; (b) adding new allegations of violations of SNC-Lavalin's code of ethics pertaining to embezzlement from SNC-Lavalin by the defendant Riadh Ben Aïssa and the non-defendant Sami Bebawi through agent payments to Duvel and Dinova; (c) adding new allegations of enrichment by the defendant Riadh Ben Aïssa through payments received through his company Tresca between January 2003 and December 2010 from several companies located in South Korea and Malaysia; (d) adding new allegations of a plan to extract Saadi Gadhafi and his family from Libya; (e) adding new allegations of breaches of SNC-Lavalin's agent policy and code of ethics in respect of the quantum of fees paid on agent agreements with Toptrade and Keymore in connection with a hydroelectric power project in Angola; (f) adding new allegations of violations of the 2011 Regulations Implementing the United Nations Resolution on Libya, SOR/ 2011-51; (g) adding un-particularized allegations of non-bribe related violations of the Criminal Code, R.S.C. 1985, c. C-46; and (h) adding new allegations of misrepresentations by omission for failing to disclose that SNC-Lavalin engaged in bribery in multiple jurisdictions during the class period. [page388]

[36] As I understand the competing arguments, the plaintiffs and the defendants agree that a genuinely new cause of action for misrepresentation or the same cause of action for misrepresentation against a new defendant would require a discrete leave motion and would not be sheltered by leave having already been granted under s. 138.8(1) of the Ontario Securities Act. Where the parties disagree is that the plaintiffs say they are just making elucidating or illustrative allegations connected to the cause of action that already received leave and the defendants say the opposite.

[37] Thus, the plaintiffs in their factum state:

The Opposed Amendments raise no new causes of action, because they relate to misrepresentations already alleged, to disclosure documents already impugned (the "Impugned Documents"), and to defendants in respect of whom leave has already been granted. The Opposed Amendments merely provide particulars for misrepresentations already alleged. They do not fundamentally alter the action, and, therefore, a further leave motion under the OSA is not required.

[38] In my opinion, with respect, the plaintiffs' focus on the nature of the allegations in the original cause of action is an exercise in sophism, which is to say that the plaintiffs make an apparently clever but actually flawed argument.

[39] The flaw of the plaintiffs' argument is that if a plaintiff pleads a sweeping misrepresentation as the basis of its statutory cause of action -- which is what the plaintiffs have done in the case at bar -- then virtually every other remotely related allegation can be said to be a subset of that misrepresentation and, therefore, encompassed by the original granting of leave. But, in my opinion, such an interpretation of the operation of Part XXIII.1 of the Ontario Securities Act would frustrate rather than fulfill the purposes of identifying the misrepresentation in the disclosure documents, described above, and would be procedurally unfair to the defendants.

[40] I agree with the submission of SNC-Lavalin and the outside directors that the leave requirement would be rendered illusionary and easily capable of abuse if a plaintiff could obtain leave for one claim for misrepresentation and then, through rule 26.01 [of the Rules of Civil Procedure] amendments, proceed with other misrepresentation claims for which Part XXIII.1 leave had not been granted, including claims for which leave would not have been granted based on the evidence actually advanced when leave was granted.

[41] Of course, in the immediate case, the motion for leave to advance claims based on the amended allegations has not been brought and it is neither possible nor fair to say whether or not [page389] a timely motion for leave based on the serious allegations of wrongdoing now elucidated would have been granted.

[42] I should say that I believe that both parties' focus on the concept of causes of action is ultimately not that helpful; rather, the focus should be on the nature of the misrepresentation that was pleaded for the purposes of obtaining leave. The case at bar demonstrates the point.

[43] In my opinion, the defendants were correct in not opposing the amendments to the paragraphs associated with an alleged bribery that took place in Bangladesh, namely, paras. 6, 11(b), 11(e), 14, 15, 27, 49, 51, 52, 57-65, 76, 81, 90, 95, 99, 102, 103, 107, 109, 112, 113, 116, 121, 124, 127, 128, 129, 139, 140(b) and 140(e) of the proposed fourth fresh as amended consolidated statement of claim.

[44] In my opinion, the defendants were on solid ground in opposing the amendments to the impugned paragraphs, which if not a new and separate statutory cause of action, constitute, at least, a different allegation of misrepresentation that (a) requires the specificity of an articulation of a representation connected to both a specified falsity and also a corrective disclosure; and (b) provides adequate notice to the defendant of the case that he or she is expected to meet.

D. Conclusion

[45] Accordingly, I grant leave for the amendments in paras. 6, 11(b), 11(e), 14, 15, 27, 49, 51, 52, 57-65, 76, 81, 90, 95, 99, 102, 103, 107, 109, 112, 113, 116, 121, 124, 127, 128, 129, 139, 140(b) and 140(e) of the proposed fourth fresh as amended consolidated statement of claim, and I refuse leave for the amendments in paras. 7, 8, 9, 11(a), 11(b), 11(c), 11(e), 12, 13, 16, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 84, 86, 88, 92, 94, 97, 101, 105, 111, 118(a), 118(c) 120, 123, 126, 130, 131, 132 and 140 of the proposed fourth fresh as amended consolidated statement of claim.

[46] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with those claiming costs within 20 days of the release of these reasons for decision followed by responding submissions within a further 20 days.

[47] I alert the parties that my inclination is to order costs in the cause.

Motion granted in part.

End of Document