There were ten securities class action lawsuits filed in Canada in 2013, the same number as were filed in 2012 and only slightly below the annual average number of 11. 6 filings during the period 2006-2012, according to a February 19, 2014 report from NERA Economic Consulting entitled “Trends in Canadian Securities Class Actions: 2013 Update” (here). NERA’s February 20, 2014 press release about the report can be found here.
Of the ten Canadian securities class action lawsuits filed in 2013, eight were filed in Ontario. Two of the eight Ontario suits also had parallel cases filed in other provinces. Of the two cases that were not filed in Ontario, one as filed in Alberta and one was filed in Quebec.
Five of the ten companies that were sued in Canada in 2013 also had securities class action lawsuits filed against them in the United States. There were four additional Canadian companies that were sued in securities class action lawsuits in the U.S. that have not (yet) been sued in Canada.
Eight of the companies named in Canadian securities class action lawsuits in 2013 are listed on the Toronto Stock Exchange (TSX). During the period 2008-2013, 48 TSX companies have been sued in Canadian securities class action lawsuits, representing about 3% of the average number of companies listed during that period, implying an annual average litigation risk of about 0.5%.
At year end 2013, there were a total of 54 pending securities class action lawsuits in Canada, nearly double the number four years ago. At year end there were also 20 cases pending against Canadian companies in U.S. courts. Of the 111 securities class action lawsuits filed in Canada between 1997 and 2013, half have been filed just in the last five years. This recent increase in filing is due in significant part to the enactment at the end of 2005 of the Bill 198 secondary market civil liability provisions. Obviously, the global financial crisis was a significant contributing factor as well.
The industry sectors with the largest number of filings in 2013 were mining, oil and gas, and non-energy minerals, which together accounted for 40% of the 2013 filings. On the other hand, the finance industry, which in the past has accounted for a large number of Canadian securities class action lawsuit filings, only accounted for one of the twenty filings in the last two years.
Six Canadian securities class actions settled in 2013, for a total aggregate settlement amount of $52 million. The average settlement was $8.6 million and the median was $9.9 million. Of the 44 Canadian securities class action settlements during the period 1997-2013 for which NERA has records, the median settlement was $12.7 million. Due to the effect of the outsized Nortel Networks settlement, the average settlement during that period was $89.5 million
Canada is one of the few countries outside of the U.S. where securities class action litigation has become well-established. To be sure, the litigation rates remain well below those of the U.S. For example, while the implied annual securities class action frequency for TSX companies is about 0.5%, the annual frequency rate for U.S.-listed companies in 2013 was 3.3% (refer here, Figure 12). The risk of securities class action litigation remains much greater for U.S. listed companies than for companies listed on the TSX.
But though Canadian litigation levels remain well below the levels in the U.S., it is clear that class action litigation is becoming established in Canada. Indeed, as the NERA report emphasized, a Canadian litigation funding industry has grown up to help finance this litigation, and this type of funding increasingly is gaining judicial acceptance.
In addition, as the pending cases work their way through the system, a number of threshold issues (such as statue of limitations issues and the standard for leave to proceed) are getting sorted out. As these issues are resolved, Canadian securities litigation will mature and become an even more developed phenomenon.
The development of Canadian securities class action litigation raises an interesting possibility, in light of pending developments in the United States. The Halliburton case now pending before the U.S. Supreme Court (about which refer here) could significantly alter securities class action litigation in the U.S. If the U.S. Supreme Court were to throw out the fraud on the market theory and make class action litigation impossible in Section 10 misrepresentation cases, the plaintiffs’ attorneys will be forced to find other ways to pursue investors’ claims.
To the extent Canadian jurisdiction can be established, disappointed investors might well seek out class remedies available in Canada, particularly since under Bill 198, investor claimants do not have to show that they relied on alleged misrepresentations. The loser pays regime and other aspects of litigating under Bill 198 may present impediments, but if the ability to bring Section 10 misrepresentation cases is eliminated in the U.S., the Canadian alternative may represent a more attractive alternative, at least in cases where jurisdiction can be established.
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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