ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-710-10
DATE: 2015Jul6
BETWEEN:
Tajdin Abdulla
Plaintiff
– and –
Canadian Solar Inc., Shawn Xiaohua Qu and Arthur Chien
Defendants
A. Lascaris, D. Worndl and A. O’Brien for the Plaintiff
B. Finlay, M. Statham and A. Sumakova, for the Respondents
HEARD: June 22 and 23, 2015
Justice J.C. Kent
Reasons for RULING
IntRODUCTION
[1] This is a ruling on a motion heard in writing pursuant to Rule 62.02 (2) of the Rules of Civil Procedure.
[2] The defendants are seeking leave to appeal from the Order of The Honourable Mr. Justice G. Taylor made 5 January 2015 which granted, in part, the plaintiff’s motion to certify this action pursuant to the Class Proceedings Act, 1992. The defendants also seek leave to appeal the Order of The Honourable Mr. Justice Taylor made 9 September 2014 (including an addendum to that Order made 11 September 2014) which granted, in part, the plaintiff’s motion for leave pursuant to Section 138.8(1) of the Ontario Securities Act to advance claims against the defendants under the statutory cause of action set forth in part XXIII.1 of the Ontario Securities Act.
[3] The court “heard” the motion on 22 and 23 June, 2015 and reserved its decision. The court’s decision and ruling were made 26 June 2015. These are the reasons for the decision of the court.
[4] To place this motion in context, some background information is helpful.
[5] This action is now a certified securities class action in which the plaintiff sues as a representative of a class of shareholders of Canadian Solar Inc., a publically traded company, incorporated under Canadian law with headquarters in the Province of Ontario. The plaintiff seeks a recovery of shareholder losses arising out of Canadian Solar Inc.’s materially inaccurate financial reporting and materially defective internal controls known as ICFR.
[6] The class claims are based on misrepresentations made by Canadian Solar Inc. in its legally required disclosure to the marketplace relating to undisclosed material problems affecting Canadian Solar Inc.’s financial reporting and ICFR for the 2009 financial year. Apparently, when those misrepresentations were corrected and the market was informed about the deficiencies and misrepresentations, the share price of Canadian Solar Inc. dropped and its shareholders suffered corresponding losses.
[7] The plaintiff asserts statutory rights of action pursuant to Part XXIII.1 of the Ontario Securities Act, R.S.O. 1990, cS.5 and an oppression remedy pursuant to the Canada Business Corporations Act, R.S.C. 1985, cC-44, as well as a claim for common law negligent misrepresentation.
[8] In order to proceed with the statutory claims, the plaintiff obtained the subject order before Taylor, J. pursuant to Section 138.8 of the Ontario Securities Act. Similarly, the plaintiff obtained an order to proceed with all claims as a class action from Taylor, J. pursuant to sections 2 and 5 of the Class Proceedings Act, 1992, S.O., c6.
[9] In granting both the leave order and the certification order sought, permitting the plaintiff to pursue both statutory and negligent misrepresentation and oppression claims, Taylor, J. did restrict those claims. Ultimately, the negligent misrepresentation claim was limited to the same basis as the statutory claim.
[10] This was not a matter that was addressed summarily by the motions judge. He heard oral submissions for over nine days. He reserved his decision and delivered reasons comprising fifty-one pages. It is significant that there is no submission on this motion asserting that the decision of the motions judge is in conflict with any other decision of a court. However, the defendants submit that, pursuant to Rule 62.02 (4)(b) there is “good reason to doubt the correctness of the order in question(s) and the proposed appeal involves matters of such importance that leave to appeal should be granted.”
[11] The progress of this class action, commenced in 2010, has been painfully slow. The defendants have yet to file a statement of defence. Discovery has not commenced.
[12] Taylor, J. has been case-managing this action since it was commenced. The current motion appears to be the third significant motion he has heard in this case. Including costs endorsements, he has now released seven written decisions. One previous motion involved an extensive evidentiary record including expert evidence, cross examinations and four days of hearing. The motion judge’s decision in favour of the plaintiff on that motion was upheld in its entirety by the Court of Appeal of this province and leave to appeal to the Supreme Court of Canada was denied. From his experience, case-managing this action, Taylor, J. is intimately familiar with the facts and issues of the case.
DEFENDANTS’ POSITION
[13] Although counsel have provided this court with a factum of forty-nine pages that raises a multiplicity of issues and makes many detailed and helpful submissions, its position is best set out in its factum under the heading Part 1 – The Defendants’ Position in a Nutshell. It is set out below in full:
(1) “Core documents/non-core documents: Whether a document is a core document or not is an issue of statutory interpretation that must be resolved on the motion for leave to assert statutory claims under the Securities Act and not left, as Taylor, J. did, to the trial judge. If the issue is left to the trial judge, the test for leave is turned on its head and the step-by-step statutory process is undermined. The gatekeeping function of the leave motion, already minimal, is in danger of becoming an open door.
(2) The ICFR misrepresentation: To decide, as Taylor, J. did, on the obvious misapplication of expert evidence, that the plaintiff established a “reasonable possibility” of success at trial in respect of this claim is again to risk reducing the statutory safeguards against proceeding with a meritless statutory claim to a meaningless exercise.
(3) The certification of the global class for the Securities Act claims: Taylor, J.’s omission to engage in any constitutional applicability analysis raises good reason to doubt the correctness of his decision to certify the Global Shareholder Class for the OSA statutory claims. This where 96 per cent of the shareholders are non-Ontario residents: (i) each of whom acquired their securities on a foreign exchange; (ii) who seek damages for alleged misstatements in foreign continuous disclosure documents; (iii) which documents are filed only with a foreign regulator; and (iv) which securities do not trade on an Ontario exchange. This is a case of first impression that raises issues of general importance.
(4) The class period for the common law misrepresentation claim: Taylor, J.’s decision on this issue is the result of the incorrect application of the Court of Appeal’s decision in Bayens v. Kinross (“Bayens”) to achieve “symmetry”. This application is a matter of general importance, including the development of the law, since its precedential value will be to distort Bayens.”
PLAINTIFF’S POSITION
[14] The decision of the motions judge should be accorded “substantial deference”. He is intimately familiar with the facts and issues involved in this case. His decision on both the leave and certification orders are entitled to that deference. Reference was made to the decision Silver v. Imax, 2013 ONSC 6751, at paragraphs 34 and 35:
“34. It is important to recognize that Rule 62.02(4) is intended to be a “rigorous” screening mechanism that is designed to narrow the number of interlocutory decisions that qualify for appellate review. The test for granting leave is high. Leave will not be granted where the decision is well-reasoned and the issues raised are not of general importance.
- Furthermore, in the context of class proceedings, where the motions judge has substantial and intimate familiarity with the file, His or Her Honour ought to be accorded substantial deference.”
ANALYSIS
[15] Having reviewed and distilled the issues raised by counsel for the defendants, I have determined that there are two worthy of consideration as a possible basis for granting leave: the core/non-core documents issue and the (mis)application of the decision of the Ontario Court of Appeal in Bayens v. Kinross, 2014 ONCA 901.
A – The Core/Non-Core Documents Issue
[16] The plaintiff was granted leave by Taylor, J. to pursue three statutory claims relating to misrepresentations contained in Canadian Solar’s original Q4 2009 Financial Statement; for misrepresentations contained in a press release and conference call associated with the release of the Q4 2009 Financial Statement; misrepresentations contained in the Prospectus Supplement filed on October 15, 2009.
[17] The core documents issue raised a question as to whether disclosure documents prepared for and filed with the SEC in accordance with the requirements of US Federal Securities Law were “core documents” within the meaning of part XXIII.1 of the Ontario Securities Act in circumstances where the SEC disclosure documents are not filed with the Ontario Securities Commission.
[18] Taylor, J. rejected the defendants’ arguments that the defendants’ SEC disclosure documents were not core documents. He appears to have done that on the basis that he did not need at this stage of the proceeding to make a definitive determination as to whether alleged misrepresentations were contained in core documents. He disposed of the issue by finding that there was a reasonable possibility that it would be found at trial that the misrepresentations or some of them were contained in core documents.
[19] The test applied by Taylor, J. appears to be the correct test and he appears to have applied that test on the basis of an evidentiary background. In the Bayens decision at paragraph 49, the Ontario Court of Appeal observed:
“The reasonable possibility requirement of the leave test is a relatively low threshold, merits-based test. The determination whether a plaintiff’s statutory action will have a reasonable possibility of success at trial requires some critical evaluation of the merits of the action, based on all the evidence proffered by the parties on the leave motion. Further, the standard applied to the evidentiary record is the same standard applicable to a certification determination under s. 51(1)(a) of the CPA or on a motion to strike.”
[20] The Ontario Securities Act contains a definition of core document and any document that is not a core document is a “non-core document”. It is acknowledged that the burden of proof on the plaintiff is higher in the case of non-core documents and public oral statements then in the case of core documents. Counsel for the defendants submit that by leaving the issue for trial, Taylor, J. did not follow the procedure set out in Green v. CIBC, 2014 ONCA 90. Taylor, J., however, was well aware of that decision and distinguished it on a factual basis.
[21] It may be that there are cases where it would be helpful and appropriate to resolve the core/non-core document issue before the motions judge, but there is no absolute requirement that resolution be made at that stage. It must be remembered that this case is, unfortunately, still at a very early stage. Pleadings are incomplete and no discovery has taken place. A fuller evidentiary record will be of considerable assistance to the ultimate trier of fact.
[22] At this stage, there is no reason to doubt that the correctness of the motions judge’s application of the “reasonable possibility of success” standard to the question of whether the documents in issue in this case are “core documents”.
[23] Similarly, there is no reason to doubt the correctness of the preliminary finding of the trial judge that the Q4 2009 Financial Statements and the Prospectus Supplement are core documents given the definition of core document contained in section 138 of the Ontario Securities Act.
[24] The finding of Taylor, J. that the documents are “core documents” is only a preliminary finding. The defendants will no doubt raise the issue afresh at trial and the trier of fact will make a decision based upon a complete record. The defendants will thereafter be entitled to an appellate review if they so desire.
[25] It is unnecessary that the issue be examined by an appellate court at this interlocutory stage.
B – Application of Bayens v. Kinross
[26] In his ruling on the certification motion, Taylor, J. observed that the certification of a global class would provide an opportunity to shareholders of Canadian Solar Inc. to claim compensation for damages if they participated in the action. Having concluded that the global class was appropriate for both the statutory claims and the claim for negligent misrepresentation, he stated:
“but because in my earlier ruling, I determined that the earliest date from which it could be concluded that the statutory cause of action arose was the date of issuance of the Prospectus Supplement on October 15, 2009, I find that the class period for the statutory claim and the claim of negligent misrepresentation commences on October 15, 2009.”
[27] He went on to acknowledge that the Ontario Court of Appeal in Bayens made it clear that, generally speaking, a claim for negligent misrepresentation was ill suited to resolution in a class action because of the need to prove individual reliance and individual damages. He observed, however, that the Court of Appeal had approved parallel proceedings based on negligent misrepresentation and a statutory claim pursuant to the Securities Act. He concluded that he was, therefore, driven to the conclusion that that the claims for negligent misrepresentation which are unrelated to the statutory claim would have to fail for the same reason as they did in Bayens. He then restricted the claims of negligent misrepresentation at paragraphs 62 and 63 of his reasons as follows:
“[62] The Court of Appeal in Bayens made it clear that , generally speaking, a claim for negligent misrepresentation is ill-suited to resolution in a class action because of the need to prove individual reliance and individual damages. On the other hand, the Court of Appeal approved parallel proceedings based on negligent misrepresentation and the statutory claim pursuant to the Securities Act. Therefore, I feel I must reach the conclusion that the claims for negligent misrepresentation which are unrelated to the statutory claim must fail for the same reasons as they did in Bayens.
[63] Therefore, for the claims of negligent misrepresentation and the statutory cause of action, the Class will be defined as:
All persons wherever they may reside or be domiciled, who acquired securities of Canadian Solar in the secondary market during the Class Period [the opening of trading on October 15, 2009 to the close of trading on June 1, 2010], and who continued to hold some or all of those securities at the close of trading on the NASDAQ, on June 1, 2010, other than Excluded Persons.”
[28] Counsel for the defendants contends that in an effort to follow Bayens, Taylor, J. misapplied the case.
[29] At paragraph 37 of his reasons, Taylor, J. noted the comment of Perrell, J. in Bayens, at paragraph 210:
“To over simplify, if leave is granted under part XXIII.1 of the Ontario Securities Act, it follows that the court should certify a class action for both the statutory and common law negligent misrepresentation claim.”
[30] Taylor, J. went on to note that the Ontario Court of Appeal had approved of parallel claims of common law misrepresentation and the statutory cause of action being certified. He referred to Green v. CIBC, where at paragraph 103, the court had indicated that a common law misrepresentation claim could be certified alongside a statutory claim pursuant to the Ontario Securities Act.
[31] At paragraph 39 of his reasons, Taylor, J. felt that the conclusion of Perrell, J. in Bayens that certification of the negligent misrepresentation claim would follow automatically certification of the statutory claim was not disapproved of by the Court of Appeal. He correctly observed that that conclusion was not contested before the Court of Appeal. The reasons of Taylor, J. make it clear that he was fully aware of and was alert to the issues raised in both the Bayens and the Green decision and his conclusion was that the case law permitted him to do what he did for purposes of symmetry.
TEST TO BE APPLIED BY THIS COURT
[32] The test for “correctness” and “public importance” were recently articulated by Ducharme, J. in Apotex Inc. v. Eli Lilly, 2013 ONSC 1135 at paragraph 5:
“[5] It is not necessary for the moving party to show that the decision is wrong or probably wrong, only that there is good reason to doubt the correctness of the decision. Nonetheless, the test for leave is an onerous one. The question is whether the decision is open to serious debate and, if so, that the decision warrants resolution by a higher level of judicial authority. Leave then should be granted if the matters involved are of general importance that relate to matters of public importance and matters relevant to the development of the law and the administration of justice.”
[33] In his application of the Bayens case to arrive at his decision, Taylor, J. appears to have been mindful of the relevant paragraphs of the decision. I am unable to find that he reached any incorrect decision as to what the law was or that he applied it incorrectly. There is, therefore, no reason to doubt the correctness of his decision or the manner in which he applied the Bayens decision.
[34] Similarly, Taylor, J. was aware of the case law that described the manner in which the “reasonable possibility” test could be applied. He utilized that test in his consideration of the core document issue and arrived at his decision. I am unable to find that his understanding of the test or his application of the test to the evidence that was before him was in any way incorrect. There is, therefore, no reason to doubt the correctness of the order that he made.
RESULT
[35] Having found against the moving parties on the first leg of conjunctive test set out in Rule 62.02(4)(b), there is no need to consider the “such importance” component of the test.
[36] For all of the above reasons, the defendants’ motion for leave must be dismissed.
COSTS
[37] If counsel are unable to agree on the appropriate disposition as to costs for this motion, they may make written submissions. The submissions of the successful plaintiff are to be served and delivered to me within 21 days of the release of this ruling. Responding submissions are to be served and delivered to me within 14 days thereafter and reply, if any, within 7 days thereafter. No submission may exceed three pages, exclusive of a bill of costs and outline.
Kent, J.
Released: July 6, 2015
COURT FILE NO.: C-710-10
DATE: 2015Jul6
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Tajdin Abdulla
Plaintiff
– and –
Canadian Solar Inc., Shawn Xiaohua Qu and Arthur Chien
Defendants
REASONS FOR RULING
Kent, J.
Released: July 6, 2015