10 April 2018By Khrystina McMillan
In a decision released last week, the Ontario Court of Appeal held that section 138.3(6) of Ontario’s Securities Act cannot be used to avoid the “statute-bar monster”. In Kaynes v BP, P.L.C., the Court of Appeal upheld the motion judge’s decision to strike eleven of fourteen secondary market misrepresentation claims in a putative class action on the grounds that they were statute-barred. In doing so, the Court of Appeal rejected the plaintiff’s submission that the court could treat all the misrepresentations as a single representation under section 138.3(6) to extend the limitation period for the eleven statute-barred misrepresentations.
Background: The facts giving rise to this putative class action are worthy of, and indeed have been made into, a Hollywood blockbuster. On April 20, 2010, Deepwater Horizon, an oil rig operated by BP in the Gulf of Mexico, exploded killing eleven workers and causing enormous environmental damage.
Over two years later, after a failed attempt to initiate a class action in Alberta, the representative plaintiff commenced his Ontario action. The plaintiff alleged that he acquired shares of BP’s securities in 2008, after reviewing BP’s core documents that contained alleged misrepresentations about BP’s operating system and its ability to respond to an oil spill in the Gulf of Mexico. The proposed class action was brought under Part XXIII.1 of the Securities Act on behalf of all Canadian residents who acquired BP equity securities from May 9, 2007 to and including April 23, 2010. The claim alleged that fourteen continuous misrepresentations began on May 9, 2007 and were publicly corrected between April 21, 2010 and May 28, 2010.
Of the fourteen misrepresentations, eleven were made more than three years before the action was commenced on November 15, 2012.
The defendant moved under rule 21.01(1)(a) of the Rules of Civil Procedure to strike the claim on the grounds that it was statute-barred pursuant to section 138.14 of the Securities Act. The motion judge allowed the defendant’s motion for eleven of the fourteen misrepresentation claims. The plaintiff appealed.
The Securities Act Event-Based Limitation Period: Section 138.14 of the Securities Act provides that no action can be commenced later than the earlier of: (1) three years after the alleged misrepresentation was made; and (2) six months after the issuance of a news release announcing that leave has been granted to commence an action under section 138.3 or under comparable legislation in the other provinces or territories in Canada.
The limitation period under section 138.14 is different from the claims-based limitation periods found in the Limitations Act, because it is an event-triggered limitation. The key difference between these two is that, when the legislature specifies that the commencement of a statutory limitation period is linked to an event and not to the accrual of a cause of action, the court cannot impose a discoverability requirement. In other words, it doesn’t matter if or when the claim was discoverable to the plaintiff: the limitations clock begins to run when the triggering event (in this case, the alleged misrepresentation) occurs.
Treating Multiple Misrepresentations as One: In an attempt to avoid what the motion judge called the “statute-bar monster” and its clear effect on his case, the plaintiff argued that the court could use its discretion under section 138.3(6) to treat all of the alleged misrepresentations as a single misrepresentation for the purposes of calculating when the limitation period should begin to run. According to the plaintiff’s submissions, in this way section 138.3(6) operates to extend the limitation period in cases of multiple misrepresentations.
Both the motion judge and the Court of Appeal rejected the plaintiff’s submissions. Such an interpretation is not supported by the wording of the statutory provisions, and is contrary to the policy object of the event-based limitation period: to protect subsequent shareholders from claims based on alleged misrepresentations made to previous shareholders. Moreover, the legislative history of section 138.3(6) demonstrates that it was designed to protect issuers from multiple claims for the same misrepresentation repeated on a number of occasions. In other words, section 138.3(6) was designed to protect defendants: the provision was not intended to affect the Securities Act limitation provisions.
The Court of Appeal further noted that even if section 138.3(6) could be used in the fashion argued by the plaintiff, it is arguable that the limitation period would begin to run from the date of the first misrepresentation (not the last, as the plaintiff argued). Section 138.14 of the Securities Act dictates that the limitation period commences when the misrepresentation is “first” released.
The Takeaway: The Kaynes decision makes it clear that plaintiffs cannot avoid the effect of the event-based limitations period under the Securities Act by asking the courts to treat multiple representations as one.