Green v. CIBC: Recent Decision Gives Defendants To Securities Class Actions Cause For Optimism

A recent decision of the Ontario Superior Court of Justice addresses important aspects of Ontario's secondary market liability regime. In Green v. Canadian Imperial Bank of Commerce, 2012 ONSC 3637, Justice George Strathy denied the plaintiffs leave to commence a proposed class action under Part XXIII.1 of the Ontario Securities Act on the basis that the limitation period had expired. Justice Strathy also rejected the plaintiffs' request to certify common law claims for negligent misrepresentation. Both aspects of the CIBC decision are discouraging for prospective plaintiffs. While the Canadian jurisprudence considering the tests for leave and certification in securities misrepresentation cases continues to evolve, CIBC suggests that a more restrictive approach is developing.

The plaintiffs, who were shareholders of CIBC, alleged that during a period from May 31, 2007 to February 28, 2008, CIBC and four of its senior officers misrepresented and/or failed to disclose CIBC's exposure to the US residential mortgage market, including its exposure to subprime mortgages. They further allege that the "true state" of CIBC's exposure was not revealed until early 2008, at which point the value of CIBC's shares fell. The plaintiffs commenced statutory claims under Part XXIII.1, as well as common law misrepresentation claims. The plaintiffs sought leave under section 138.3 of the Securities Act to commence an action in respect of the statutory claims and certification of a class action including both the statutory and common law claims.

The Plaintiffs' Claims are Barred by the Limitation Period in Part XXIII.1

While the parties were arguing the leave motion in CIBC, the Ontario Court of Appeal released its decision in Sharma v. Timminco Ltd., 2012 ONCA 107, which interpreted the limitation period for commencing claims under Part XXIII.1. Specifically, section 138.14 of the Securities Act provides that such claims must be commenced within three years of the date that an alleged misrepresentation is made (or, in the case of a failure to disclose, within three years of the date on which the disclosure was required to be made). The Court of Appeal held that a cause of action under Part XXIII.1 cannot be asserted until leave has been granted and an action has been commenced. Accordingly, if leave has not been obtained within three years of the alleged misrepresentation, the statutory claims are statute-barred.

Until the release of the Court of Appeal's...