Securities class action lawsuit filings in Canada hit
record levels in 2011 according to a new report from NERA Economic Consulting.
The January 31, 2012 report, entitled "Trends in Canadian Securities Class
Actions: 2011 Update" (here)
concludes that the persistent growth in Canadian securities class action
lawsuit filings "is not a transient phenomenon."
According to the report, in 2011, there were 15 new
securities class action lawsuit filing in 2011, more than in any previous year.
The 2011 filings bring the total number of pending and unresolved Canadian
securities class action lawsuit filings to 45.
The growth in securities lawsuit filings in Canada is
largely a result of the growth in new filings under Bill 198, the Ontario
legislation that amended the Ontario securities laws with regard to issuer's
continuous disclosure obligations. The report notes that there have been a
total 35 Bill 198 cases since the Act became effective at the end of 2005,
including nine in 2011. The Bill 198 cases account for more than two-thirds of
all of the suits filed between 2008 and 2011. The other claims filed in 2011
include, among other things, one prospectus claim; one related to a takeover
bid; two related to investment fund management; and two related to Ponzi
schemes.
Just as was the case with 2011
securities lawsuit filing in the U.S, a significant driver in the 2011
Canadian filings was the rise in filings against Chinese companies whose
shares trade on North American exchanges. Among the highest profile case in
Canada was the lawsuit involving Sino-Forest, whose shares trade on the Toronto
stock exchange. (As noted here,
U.S. investors recently have attempted to bring a class action in U.S. federal
court against Sino Forest alleging violations of NY state law.) At least
three of the other new 2011 filings involve Chinese companies.
Interestingly, the report notes that one Chinese company
involved in a 2010 Canadian securities lawsuit filing did not have shares
listed on a Canadian exchange, but did have shares listed on Nasdaq. So far,
the case, involving Canadian Solar, has been permitted to proceed.
Canadian companies with listings on U.S. exchanges also
face a securities class action litigation risk. The report notes that in 2011,
five Canadian domiciled companies were named as defendants in six securities
class action lawsuits in the U.S. At least one of these companies was also
named in a securities class action lawsuit in Ontario. Since 1987,
Canadian-domiciled companies have been named in 74 securities lawsuits in the
U.S. Of these, 21 had parallel actions in the U.S., although most of these
parallel actions were filed after the enactment of Bill 198.
Historically, class action lawsuit filings in Canada have
been concentrated in the financial sector, as well as the energy and minerals
sectors. In 2011, five of the Canadian filings involved companies in the
minerals sector and four involved companies in the finance sector.
Only two cases settled in 2011, involving total payments
of $58.6 million. Of the ten settlements so far of Bill 198 cases, the average
settlement amount is $10 million and the median settlement is $6.2 million. The
report notes that given the small number of settlements to date, "it is unclear
whether these are indicative of the size of settlements that should be expected
in the future."
The report concludes that the upward filing trend is
likely to continue in 2012 and beyond. The report's authors cite a number of
factors in support of their conclusion that "we are likely to continue to see
an increasing number of new cases filed," including the growth in the Canadian
securities class action bar; the track record that has been established with
the certification of global classes (in the IMAX
and Arctic
Glacier cases) and with plaintiffs being given leave to proceed in Bill 198
cases; the success of counsel in achieving large settlements (and obtaining
large fees); and the barriers in the U.S. under the Morrison decision to investors who purchased shares
outside the U.S. proceeding in U.S. courts.
Discussion
Although the number of securities class action
lawsuit filings in Canadian courts remains well below the number of
filings in the U.S., both the growth in the filings and the indicated trends
suggest that Canadian securities class action litigation could be increasingly
important.
The report's comment about the growth in the size of the Canadian
plaintiffs' securities bar may be the most telling point. Clearly, the
plaintiffs' attorneys sense that there is an opportunity. As non-U.S. investors
search for alternative ways to pursue claims in the wake of the U.S. Supreme
Court's decision in Morrison, Canada may be emerging as one of the most
attractive alternatives. The Canadian courts' willingness to certify global
classes in the IMAX and Arctic Glacier cases suggests the opportunity for
investors to pursue their claims in Canadian courts.
Among the many very interesting comments in the NERA
study of Canadian securities litigation was the comment about the action that
is pending in Canada against Canadian Solar, Inc. The case has been allowed to
proceed so far, even though the company's shares did not trade on a Canadian
securities exchange but did trade on Nasdaq. Although there undoubtedly is more
to the story, it is interesting to note that the investors chose to file their
action in Canada. The company has also been sued in a separate action in the
U.S. (refer here),
but the circumstances do suggest the possibility of an emerging jurisdictional
competition.
The sense of a jurisdictional competition is reinforced
with the filing of the state law class action filed by Sino-Forest in the
U.S. The same circumstances were also the subject of a separate action in
Canadian court.
The emergence and growth of significant securities class
action litigation outside the U.S. is one of the most interesting developments
in recent years, and the U.S. Supreme Court's holding in the Morrison case has added increased importance to the
issue. It could be increasingly important to watch developments in Canada and
elsewhere.
Special thanks to NERA for providing me with a copy of
their report.
Read
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.