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The number of securities class action lawsuit filed in Canada during 2014 was consistent with the recent annual average number of filings, and because case filings exceeded case resolutions, the aggregate total of unresolved class actions continued to grow during the year, according to a February 10, 2015 report from NERA Economic Consulting. According to the report, which is entitled “Trends in Canadian Securities Class Actions: 2014 Update” (here), there are now a total of 60 pending securities class action lawsuits in Canada representing more than $35 billion in total claims. NERA’s February 10, 2015 press release about the report can be found here.
According to the report, there were eleven securities class action lawsuits filed in Canada in 2014, the same number as in 2013. While the number of filings last year is consistent with the average annual number of filing during the period 2009-2013 (11.4), it is below the record number of filings in 2011 (when there were 15 new cases filed). Of the 123 Canadian securities class action lawsuits filed between 1997 and 2014, 68 (or 55 percent) were filed just in the last six years.
In addition, over the last six years a total of 46 class actions have been filed against companies listed on the Toronto Stock Exchange (TSX), representing about three percent of that average number of companies listed during that time, for an annual average litigation risk of approximately 0.5 percent. (By way of comparison, in its 2014 report of U.S. securities class action litigation activity, NERA reported that the probability of a U.S. listed company being sued in a securities class action lawsuit was about 4.2% in 2014.)
Of the eleven securities suits filed in 2014, eight were filed in Ontario; one was filed both in Alberta and British Columbia; one was filed only in British Columbia; and one was filed in Quebec. Historically, 78 percent of all new securities class action lawsuits involve a filing in Ontario; 24 percent involve a filing in Quebec; and 20 percent involve filings in provinces other than Quebec. About 23 percent involve filings in more than one province.
Four of the eleven new lawsuits filed in 2013 also involve parallel class action lawsuits in the U.S. At the same time, there were five other U.S. securities class action lawsuits filed against Canadian-domiciled companies where there was no equivalent lawsuit filed in Canada. Since 2006, approximately half of all U.S. filings against Canadian companies correspond to a parallel claim in Canada.
Unsurprisingly given the importance to the Canadian economy of the mining and the oil and gas sectors, cases involving companies in those sectors “continue to account for a substantial share of new filings.” Seven of the eleven 2014 securities suit filings involved companies in the energy and non-energy mineral sectors. On the other hand, filings against companies in the financial sector have declined compared to prior years. During the period 2010 to 2014, about 14 percent of all new filings involved companies in the financial sector, compared to about 31 percent during the period 1997 to 2009.
Almost all of the 2014 filings involved claims asserted under the secondary market civil liability provisions of the provincial securities acts. In 2014, ten of the 11 new filings were Statutory Secondary Market cases, consistent with the filing trends since the statutory provisions came into force at the end of 2005. There have now been 63 cases filed asserting claims under these statutory provisions.
Of the 123 securities class actions filed in Canada between 1997 and 2014, nine (7.3 percent) have been dismissed as of the end of 2014. Of the 63 Statutory Secondary Market cases, three (4.8 percent) have been dismissed so far.
During 2014, a total of six Canadian class action lawsuits settled, for a total of approximately $38.4. Both the median settlement and the average settlement during 2014 were $6.4 million. Five of the six cases settled during 2014 were Statutory Secondary Market cases, for which the average settlement was $5.7 million and the median was $5.9 million.
For the 50 settlements in NERA’s database that were entered between 1997 and 2014, the median settlement is $10.7 million. The average settlement among those 50 cases is $79.5 million, a figure that is inflated by two very large settlements involving Nortel Networks Corp.
Of the 50 settlements, 22 resolved Statutory Secondary Market cases, with an average settlement of $8.7 million and a median settlement of $7.0 million. Of these 22 settlements, 15 were domestic only cases and seven were cross-border cases. The 15 domestic only settlements averaged $6.8 million and had a median settlement value of $3.9 million. The seven settlements involving cross-border actions had an average settlement of $12.8 million – “about twice the amount of the typical settlement in domestic-only cases.” The median settlement value of these cross-border cases was $9.5 million.
At the end of 2014, 60 Canadian securities class action lawsuit remained unresolved, the largest number ever, and more than double the number of cases pending just five years ago and nearly three times the number as of the end of 2006. The 60 unresolved cases represent more than $35 billion in claims, including both claims compensatory and punitive damages. All but six of the 60 pending cases were filed in 2007 or later. As of the end of 2014, there were also a total of 21 cases pending in the United States against Canadian domiciled companies.
The report concludes by noting that the oil and gas sector is under pressure, as are the Canadian and world economies in general. The report notes that in the U.S. class action lawsuit filings have tended to increase during periods of economic upheaval. The report states that “Whether we will see a similar increase in filing in Canada following the next episode of economic volatility remains to be seen.”
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.
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