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.