Still Out Of Time: Ontario Court Of Appeal Considers When A Claim Of Fraudulent Misrepresentation Is Discoverable In A Securities Class Action

• Published date: 30 January 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Class Actions, Securities, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Torys LLP
• Author: Mr Andrew Gray, Lara Guest and Henry Federer

In Kaynes v. BP p.l.c.¹, the Ontario Court of Appeal clarified when a claim for fraudulent misrepresentation is discoverable under the Ontario Limitations Act, 2002. The Court also confirmed the circumstances in which a limitations defence may be decided through a rule 21 motion. This decision is the latest in a series that has stood in the way of this action being litigated in Ontario.

What you need to know

• The limitation period in a fraudulent misrepresentation claim only starts when the fraudulent nature of a misrepresentation is discoverable.
• Courts will permit a limitation period defence to be considered under a rule 21 motion to determine a legal issue in circumstances where the facts regarding discovery of the claim are undisputed.
• This case demonstrates the importance of observing limitation periods in securities class actions Throughout the life of this action, the plaintiff advanced three different misrepresentation-based causes of actions. The defendant relying on limitation period defenses, was able to substantially limit the plaintiff's claims, ultimately leading to the dismissal of the action.

Background

This motion relates to a proposed securities class action brought by Peter Kaynes against British Petroleum (BP), following the Deepwater Horizon explosion in 2010. Peter Kaynes, on behalf of the class, claimed that BP made securities misrepresentations about the safety of its drilling operations in the Gulf of Mexico prior to the explosion, which had the effect of artificially inflating its share price. Following the explosion, Kaynes alleged that BP publicly corrected these misrepresentations, causing the share price to significantly drop.

This case has a long procedural history. After a failed attempt to bring the claim in Alberta², the plaintiff filed a statement of claim in Ontario in November 2012, advancing two causes of actions: 1) statutory misrepresentation under Ontario's Securities Act; and 2) common law negligent misrepresentation (the plaintiff later withdrew this claim).

BP brought a motion challenging Ontario's jurisdiction to hear some of these claims, arguing that there was no real and substantial connection between Ontario and the claims of Canadian residents who purchased their shares on foreign exchanges. This posed an issue for the class action as Kaynes purchased his shares on the NYSE, and the number of individuals who purchased BP shares on the TSX were negligible. The Ontario Court of Appeal ruled that Ontario...