Operation of limitation periods in the context of a class proceeding in Canada

The issue of how limitation periods should operate in the context of a class action was recently dealt with by Justice P. Perell of the Ontario Superior Court of Justice (Canada) in Coulson v. Citigroup Global Markets Inc., 2010 ONSC1596 (released March 18, 2010) ("Coulson").

The Coulson case arose from the distribution of shares of Philip Services Corp. through a public offering in November 1997. Mr. Coulson was a purchaser in the primary distribution and brought this proposed class action on July 8, 2003 under s. 130 of the Ontario Securities Act against the underwriters and auditors for rescission and/or damages. S. 138 of the Ontario Securities Act precludes the commencement of an action to enforce a right for rescission more than 180 days after the transaction, and precludes an action for damages more than the earlier of: (a) three years after the transaction; or (b) 180 days after the events giving rise to the s.130 claim were known.

A key question was whether Mr. Coulson's s.130 claim was statute barred. Mr. Coulson argued that its claim was timely because the running of limitation periods was suspended by a similar class action that was brought in 1998 by Mr. Joseph Menegon. Unlike Mr. Coulson, Mr. Menegon was a purchaser of Philip shares in the secondary market and not a purchaser from the primary distribution. However, Mr. Menegon's proposed class action in 1998 asserted two causes of action: a statutory claim under s. 130 of the Ontario Securities Act on behalf of purchasers in the primary distribution, and a common law claim for negligent misrepresentation on behalf of those who purchased in the secondary market. On March 6, 2001, Justice Gans dismissed Mr. Menegon's certification motion on two grounds: (1) he did not have a common law cause of action for misrepresentation; and (2) since he had not purchased under the prospectus, he could not represent the s.130 claimants and assert their cause of action. Mr. Menegon appealed challenging the first ground only. On January 9, 2003, the Court of Appeal dismissed Mr. Menegon’s appeal with respect to the common law cause of action. He sought leave to appeal to the Supreme Court of Canada on the grounds that the Court of Appeal had erred in deciding that he did not have a common law action for misrepresentation.

On July 8, 2003, while Mr. Menegon’s leave to appeal application was pending, Mr. Coulson commenced a separate class action for the s.130 claimants. The auditor and the underwriters argued that Mr. Coulson’s action was statute barred under s.138 of the Ontario Securities Act. Mr. Coulson relied on the commencement of Mr. Menegon's proposed class action and took the position that his action was timely.

In concluding that Mr. Coulson's proposed class action was statute barred, Justice Perell set out the following general principles on how limitation periods operate in the context of a class proceeding:

· S. 28 of the Class Proceedings Act suspends the running of an applicable limitation period until it is determined whether the class members will have access to justice by the vehicle of a class action. However, the s.28 protection applies only to causes of action that are being asserted in the class proceeding.
· When the proposed class action is dismissed without a determination on the merits (for example through an unsuccessful certification motion), the limitation period resumes, and the calculation of the running of the limitation period resumes at the time when the suspension started - not at the time when the suspension ended.
· If the dismissal decision is under appeal, the appeal would continue to suspend the running of the limitation period, but only for the cause of action that is the subject of the appeal. In this case, Mr. Menegon's appeal only asserted the common law claim and not the statutory claim under s. 130 of the Ontario Securities Act. Therefore, it did not provide further protection under s.28 of the Class Proceedings Act to Mr. Coulson and other s.130 claimants.
· If the representative plaintiff's appeal to the Court of Appeal suspends the running of limitation periods for causes of action asserted in the class proceeding, and if leave to appeal to the Supreme Court of Canada is sought, the protection provided by s.28 of the Class Proceedings Act would continue for those asserted causes of action.

Supreme Court of Canada clarifies the analytical framework for exclusion of liability clauses in commercial contracts

On February 12, 2010, the Supreme Court of Canada released its decision in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 ("Tercon"). The Court dealt with the question of whether, and in what circumstances, a court will refuse to enforce an exclusion of liability clause contained in an agreement entered into between sophisticated corporations with equal bargaining power. Although the 9-judge Court was split on the final disposition of the case, the Court unanimously agreed that the appropriate framework of analysis for exclusion of liability clauses in commercial contracts should involve three questions:

First, as a matter of contract interpretation, based on the parties' intention as expressed in the contract, whether the exclusion clause applies to the facts established in evidence.

Second, if the exclusion clause applies, then as a matter of contract formation, whether the exclusion clause was unconscionable at the time the contract was made and therefore invalid. Unconscionability might be found in situations involving contracting parties with unequal bargaining power.

Third, if the exclusion clause is held to be valid and applicable, then as a matter of contract enforcement, whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy that outweighs the very strong public interest in the enforcement of contracts.

To obtain a copy of this decision, please follow the link here: http://www.canlii.ca/en/ca/scc/doc/2010/2010scc4/2010scc4.html

Shareholder Disputes: Arbitrator's Power to Grant Statutory Oppression Remedy

The statutory shareholder oppression remedy in Canada has been considered "the broadest, most comprehensive and most open-ended shareholder remedy in the common law world". But if a shareholder dispute is caught by an arbitration agreement, will the aggrieved shareholder be able to obtain from the arbitrator whatever relief that is appropriate under the statutory oppression remedy provisions? The answer to this question is unclear.

I invite you to read my paper on this issue, which was recently published in the Advocates' Quarterly, Vol. 36, No. 4 (March 2010). And feel free to drop me a note if you have any thoughts.

Arbitration and Demand for Particulars in Litigation Proceedings

On January 18, 2010, the Court of Appeal for British Columbia (Canada) released its decision in Larc Developments Ltd. v. Levelton Engineering Ltd., 2010 BCCA 18. In this decision, the Court dealt with the issue of when a demand for particulars in a court proceeding would disentitle a party from subsequently seeking or obtaining a stay of the proceeding in favour of arbitration. The answer depends on the language of the request, instead of the stated intent of the party making the request.

If the demand is for information required to prepare a statement of defence, it would constitute a demand for particulars under the rules of court and a step in the litigation proceeding thereby precluding a subsequent stay application in favour of arbitration. However, by making a request for information solely to determine whether a claim is subject to arbitration, the party may still bring a stay application for arbitration because such request does not amount to an acceptance of the litigation process.

In this case, the demand letter was drafted to request information for the preparation of the statement of defence, followed by the party's intent to seek arbitration. The Court held that since the demand constituted a step in the litigation proceeding, the defendant was no longer entitled to seek to refer the matter to arbitration even though such intent was stated in the demand letter: "It cannot undo what has been done".