Forecasts Subject To Part XXIII.1 Claims, But Common Law Misrepresentation Found Not To Be Preferable Procedure

On February 19, 2014, the Ontario Superior Court released its decision in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v Celestica Inc.1 This is the first decision to consider leave to proceed under Part XXIII.1 of the Securities Act following the Ontario Court of Appeal's decision in Green v CIBC.2

The Honourable Justice Perell:

dismissed the plaintiffs' motion for leave for some of the alleged misrepresentations because of a lack of evidence led by the plaintiffs establishing a basis in fact for misrepresentation; allowed claims to proceed for forecasts and estimates as to Celestica's restructuring; and did not certify the common law misrepresentation claims because they did not satisfy the preferable procedure criterion. Overview

In Celestica, the plaintiffs alleged that the company made material misrepresentations about the progress of its restructuring plans, including the time, costs, progress and impact of the restructuring. The plaintiffs also alleged improper financial reporting in relation to inventory and revenue.

The plaintiffs brought a motion for class certification and leave to proceed with statutory claims for misrepresentation under Part XXIII.1 of the Securities Act. The plaintiffs further advanced claims for common law negligent misrepresentation.

Celestica challenged the motion arguing the plaintiffs had failed to lead any evidence of any misrepresentations, submitting that a revision of an estimate does not make an earlier estimate a misrepresentation. Moreover, Celestica noted none of its financial statements had been restated.

In the result, the Ontario Superior Court granted leave to proceed and certified some of the statutory misrepresentation claims, while denying others. However, the court declined to certify the negligent misrepresentation claims because they did not satisfy the preferable procedure criterion under subsection 5(1) of the Class Proceedings Act.

The test for leave to proceed under the Securities Act

With respect to the "reasonable possibility that the action will be resolved at trial in favour of the plaintiff" standard, Justice Perell reiterated that the statutory leave test is meant as a screening mechanism for weeding out non-meritorious claims.

For the substance of the test, Justice Perell regarded the Court of Appeal's decision in Green v CIBC as confirming the following test set out in his opinion in Bayens v Kinross Gold Corp.3:

"There is not a reasonable...