Adding Allegations of Misrepresentation in Secondary Market Disclosure Actions – By Alan Melamud

In Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc., [2015] O.J. No. 125 (S.C.J.), the Court considered a matter of first instance under the liability for secondary market disclosure provisions of Ontario’s Securities Act, R.S.O. 1990, c. S.5 – to what extent can a plaintiff amend its pleadings after obtaining leave to proceed under s. 138.8 and after the limitation period under s. 138.14 has expired?

The Plaintiffs in this class proceeding alleged that SNC-Lavalin and the other Defendants had made misrepresentations concerning certain payments that were in reality bribes, and that SNC-Lavalin’s share price suffered a corrective decline once the truth came out. On September 19, 2012, the Plaintiffs moved for certification of the class proceeding and for leave under Part XXIII.1 of the Securities Act. The motion was unopposed and was granted. Over the course of the next two-years, the Plaintiffs made numerous amendments to the Statement of Claim, culminating in the Fourth Fresh as Amended Consolidated Statement of Claim.

The Defendants objected to a number of the proposed amendments, arguing that the Plaintiffs were attempting to add several new causes of action and various allegations after the limitation period had expired. The Plaintiffs contended that they had obtained the requisite leave, and that the amendments were merely elucidating or illustrative allegations connected to their original cause of action.

Justice Perell reinforced that the focus of a claim under Part XXIII.1 of the Securities Act is the misrepresentation associated with the disclosure document. An allegation of misrepresentation under Part XXIII.1 of the Securities Act is comprised of a specific representation, a falsity, and a corrective disclosure. The central issue, therefore, was not whether the amendments could be said to be connected with the Plaintiffs’ original statutory cause of action (i.e., misrepresentation), but rather whether the amendments were seeking to plead different allegations of misrepresentation that required a different articulation of the constituent elements.

Justice Perell sided with the Defendants, holding that the Plaintiffs could not use a sweeping misrepresentation that had served as the basis for their s. 138.8 motion for leave to now include additional misrepresentations that were only tangentially connected:

Obtaining leave cannot be used as a procedural bait-and-switch tactic or as a procedural bait-and-pile-on tactic.

 

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