|
Securities - Securities Act - 'Misrepresentation' [SA 130.1]. Terry Longair Professional Corporation v. Akumin Inc. ['public corrections']
In Terry Longair Professional Corporation v. Akumin Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed a defendant's appeal, this from a class proceeding order that (as required by Securities Act s.138.8) "granted leave to the respondent to proceed with his claim under s. 138.3(1) for secondary market misrepresentation (the “Leave Order”), and certified as a class proceeding the following: (i) the respondent’s claim for secondary market misrepresentation under s. 138.3(1); (ii) his primary market misrepresentation claim under s. 130.1 of the SA; and (iii) his common law negligence claim, pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “CPA”) (the “Certification Order”)."
Here the court cites the above-noted Securities Act trial leave provision [SA s.138.8], and assesses a misrepresentation issue:[2] As legislatively required under s. 138.8(1) of the SA, the motion judge granted leave to the respondent to proceed with his claim under s. 138.3(1) for secondary market misrepresentation (the “Leave Order”), and certified as a class proceeding the following: (i) the respondent’s claim for secondary market misrepresentation under s. 138.3(1); (ii) his primary market misrepresentation claim under s. 130.1 of the SA; and (iii) his common law negligence claim, pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “CPA”) (the “Certification Order”).[1]
[3] The appellants appeal both the Leave Order and the Certification Order.
[4] The appellants argue that the motion judge erred in granting the Leave Order since Akumin’s alleged misrepresentations had not been “publicly corrected”. They also argue that the motion judge erred in granting leave to pursue a claim on behalf of secondary market purchasers of secured notes issued by Akumin since the secured notes do not trade in an efficient market, which they allege is a requirement before granting leave under s. 138.8 of the SA.
....
[7] In issuing the Leave Order, the motion judge correctly determined that Akumin’s disclosures were “public corrections” since they prima facie informed investors of errors and/or misstatements in the Impugned Statements. A plain reading of the disclosure shows that Akumin sought to clarify or correct information about the Impugned Statements and would have been so understood by the market. The motion judge similarly did not err in granting leave to proceed with a Secondary Market Claim on behalf of holders of the secured notes, notwithstanding the fact that the secured notes did not trade in an efficient market. As I explain below, to hold otherwise would be inconsistent with the underlying purposes of Part XXIII.1, which include making it easier for investors to obtain compensation for misrepresentations, thereby incentivizing accurate and timely disclosure by public issuers.
....
[45] As noted above, the primary issue in relation to the appeal of the Leave Order centres on whether the motion judge applied the correct test for identifying a public correction. This is a question of law reviewable on a standard of correctness. However, if the motion judge applied the correct test and did not otherwise make an extricable error of law, her determination of whether there had been one or more public corrections is a decision of mixed fact and law subject to review on a deferential standard of palpable and overriding error: Peters v. SNC-Lavalin Group Inc., 2023 ONCA 360, 166 O.R. (3d) 756, at para. 67, leave to appeal to S.C.C. refused, 41224 (September 26, 2024); Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation, 2024 ONCA 105 (“Barrick #2”), at para. 16, leave to appeal to S.C.C. refused, 41228 (September 26, 2024); Mask v. Silvercorp Metals Inc, 2016 ONCA 641, 132 O.R. (3d) 161, at paras. 37-38, leave to appeal requested but application for leave discontinued, [2016] S.C.C.A. No. 454.
....
G. ANALYSIS:
(1) The motion judge did not err in granting leave to proceed with the secondary market misrepresentation claim
[47] While the appellants raise three distinct grounds of appeal in relation to the Leave Order, they all relate directly or indirectly to the proper understanding of a public correction for the purposes of s. 138.3 of the SA. Accordingly, I first consider the principles governing the interpretation of this statutory term before turning to a consideration of the particular grounds of appeal advanced by the appellants with respect to the Leave Order.
(a) Public correction in the context of secondary market misrepresentation claims
[48] Although the existence of a misrepresentation is “at the heart of the statutory cause of action” (Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 104 (“Barrick #1”), at para. 46, leave to appeal to S.C.C. refused, [2021] S.C.C.A. No. 202) and is “the wrong at issue” (Baldwin v. Imperial Metals Corporation, 2021 ONCA 838, 159 O.R. (3d) 241, at para. 50), the public correction requirement plays a subsidiary albeit necessary role in the statutory scheme. Broadly, a public correction establishes an end-point for the market distortion caused by a misrepresentation. The SA presumes causation: once a misrepresentation has been fully corrected (either by a single public correction or the cumulative effect of several partial corrections), the price of the security should no longer be impacted by the misrepresentation.
[49] Among other things, a public correction defines the class of putative plaintiffs, identifies the end of the class period, and plays a key role in the statutory formula for the calculation of damages: Barrick #1, at para. 71; Imperial Metals, at para. 51. It is thus important that the term be defined with clarity and precision, so as to not distract the court or litigants from the more important task of determining whether there has been a “misrepresentation” which “does the heavy lifting in the statutory cause of action”: Imperial Metals, at para. 50.
[50] Three recent decisions of this court have clarified the role and meaning of “public correction” in the context of Part XXIII.1: Barrick #1; Imperial Metals; and Barrick #2. These cases have provided a straightforward definition of what constitutes a “public correction”, as a disclosure that is “reasonably capable of being understood in the secondary market as correcting what was misleading in the impugned statement.”: Barrick #1, at para. 76; Barrick #2, at para. 71.
[51] This court has further explained that a public correction can occur in one of two ways: Barrick #1, at paras. 48, 51 & 76. The first and most common way is through an express correction, where a subsequent disclosure expressly or on its face states that an assertion in a previously issued document was untrue at the time it was made. To provide a simple example, suppose Issuer A’s prior year financial statements had asserted that the revenues for the year were $X. Suppose, further, that Issuer A later restates its financial statements for the relevant year and discloses that in fact the revenues for the year were significantly lower, namely, $Y. In such a case there is no need for a statistical or other complex analysis to recognize that there has been a public correction since it is plain and obvious on the face of the corrective disclosure that the statement of revenues in the prior year’s financial statements was untrue. When this is so, the focus of the litigation can rightly focus on the more challenging and important question of whether the impugned statement (i.e. that Issuer A’s revenues for the prior year were $X) amounts to a “misrepresentation”, such that at the time it was made it “would reasonably be expected to have a significant effect on the market price or value of the [issuer’s] securities”: SA, s. 1(1).
[52] As this court pointed out in Imperial Metals, at para. 53, the vast majority of secondary market misrepresentation cases that have come before Canadian courts have involved express public corrections. Nevertheless, cases may arise where it is not entirely clear on the face of the alleged public correction whether it actually reveals to the market that a prior statement was untrue at the time it was made. This was the circumstance presented in Barrick #1, where the defendant made a number of announcements which, although resulting in significant declines in its share price, did not expressly state that prior statements it had made could no longer be relied upon. The motion judge found that these announcements could not be considered to be public corrections because they did not expressly state or identify any prior statements as being untrue.
[53] On appeal, this court held that the motion judge applied an unduly narrow understanding of what constitutes a public correction. The fact that the alleged public correction did not expressly identify a prior misstatement could not be the end of the analysis. This is because even if the subsequent disclosure did not expressly identify a prior error or misstatement, when considered in context and in light of all surrounding circumstances, the public correction was reasonably capable of being understood as revealing to the market the existence of an untrue statement of material fact or an omission to state a material fact: Barrick #1, at para. 76. As this court stated in Imperial Metals, at para. 54:[T]he public correction need not be a “mirror-image” of the alleged misrepresentation or a “direct admission that a previous statement is untrue”: at para. 62, citing Ironworkers Ontario Pension Fund (Trustee of) v. Manulife Financial Corp., 2013 ONSC 4083, at paras. 64-71. There need only be “some linkage or connection between the pleaded public correction and the alleged misrepresentation”: Swisscanto, at para. 65; SNC-Lavalin, at para. 147; Cappelli, at para. 143; Kauf, at para. 124. That linkage or connection will assist the judge in determining how the alleged corrective disclosure would be understood in the secondary market. [Emphasis in original.] [54] Finally, nothing in this court’s decision in Cronos is inconsistent with this understanding of public corrections in the context of s. 138.3 actions.
[55] In Cronos, there was no dispute that certain untrue statements had been publicly corrected. The live issue was whether these untrue statements were “misrepresentations” and, if they were, whether the issuer had made thousands of separate misrepresentations as opposed to a single misrepresentation. In the course of summarizing the motion judge’s reasoning on whether the impugned statements in that case were material and, thus, misrepresentations, this court noted that the motion judge had stated that “whether a correction is material is not a matter of semantics, but rather requires an understanding of how a specific correction would be understood in an efficient market and also requires a statistical analysis of the effect of the correction.”: Cronos, at para. 66. But it would be a misreading of what was simply a summary of the motion judge’s reasons in Cronos as having somehow altered the established meaning of “public correction”, a matter that was not even at issue in that case.
(b) The motion judge did not err in finding that the Disclosures were public corrections since they expressly identified errors or misstatements in the Impugned Statements
[56] As noted above, the appellants argue that none of the four Disclosures issued by Akumin between August 15 and November 15, 2021 constituted “public corrections” for purposes of s. 138.3. This is because: (i) the August 15, 2021 Disclosure did not “correct” anything; and (ii) the latter three Disclosures on October 12, November 8 and November 15, 2021, respectively, were not followed by statistically significant declines in the price of the Common Shares, which the appellants claim is a necessary component of a public correction in light of this court’s comments in paragraph 66 of Cronos, as highlighted above.
[57] If the appellants’ arguments were accepted, the outcome would be that Akumin’s financial statements contained untrue statements; those untrue statements were material for SA purposes; those untrue statements were subsequently corrected in disclosures which were released publicly; and yet the untrue statements would never have been “publicly corrected”.
[58] I see no merit to either of the appellants’ arguments on this point. The motion judge applied the correct legal test for identifying public corrections, namely, did the Disclosures expressly or on their face identify misleading or erroneous statements in Akumin’s previous financial statements.[5] She did not make a palpable or overriding error in finding that the Disclosures satisfied that test.
[59] The motion judge correctly pointed out that the August 15, 2021 Disclosure alerted the market to the fact that Akumin’s previous financial reporting of credit losses could no longer be relied upon. While Akumin was not in a position to quantify the extent of the additional credit losses incurred in prior years, it nevertheless made it clear that it expected to file updated financial results within 60 days.
[60] Thus, consistent with Barrick #1, the August 15, 2021 Disclosure expressly identified certain statements in Akumin’s prior financial documents that were untrue or misleading. The motion judge rightly rejected the suggestion that this was not a public correction merely because Akumin was not then in a position to specify the extent of its prior misstatements. As the motion judge observed, such an interpretation might well encourage issuers to make vague disclosures such as “something has happened, and we are looking into it” in the hopes of escaping liability. This would be inconsistent with the underlying purposes of the statutory scheme, since it would “undermine confidence in the securities market and deprive shareholders of compensation.”: Imperial Metals, at para. 57.
[61] Nor did the motion judge err in finding that the remaining three Disclosures on October 12, November 8 and November 15, 2021 constituted “public corrections”. The appellants do not dispute that these Disclosures expressly and on their face publicly corrected untrue representations in Akumin’s prior financial statements. The appellants nevertheless argue, based on the reference in paragraph 66 of Cronos to “statistical analysis of the effect of the correction”, that a corrective statement can only constitute a public correction if it is followed by a statistically significant decline in the price of an issuer’s securities. The appellants further argue that because there was no such decline in Akumin’s Common Share price following these latter three Disclosures, the Disclosures cannot be regarded as public corrections.
[62] As the motion judge pointed out, this argument confuses the materiality of the misrepresentation with the materiality of the correction. The market reaction to a public correction can certainly be probative of whether the prior untrue statement was material for SA purposes. But whether the corrective statement constitutes a public correction does not require that it be followed by a statistically significant decline in the price of an issuer’s securities. The appellants’ attempt to extrapolate such a requirement from paragraph 66 of Cronos is unfounded.
[63] There is no materiality analysis for a public correction, nor is a drop in price required to establish a public correction. That would miss the point of the public correction inquiry. An issuer might plainly correct an untrue statement without discernable reaction from the market (this might affect materiality or damages, but not the existence of a correction). Equally, market movement may provide evidence of how a disclosure was perceived. For example, where a disclosure is not facially connected to the misrepresentation, a drop in price may indicate that the market viewed the disclosure as a correction. In all cases, the inquiry should be straightforward and functional: did the alleged correction actually correct the alleged misrepresentation or not?
[64] In this case, all four of the Disclosures expressly and on their face identified misleading or incorrect statements in Akumin’s prior financial statements, which establishes that they were public corrections for purposes of s. 138.3 claims. The appellants do not appeal the motion judge’s finding that the untrue statements in Akumin’s prior financial statements were material. (Indeed, shortly after releasing the August 15, 2021 Disclosure, Akumin filed a Material Change Report acknowledging that the information it was disclosing was material for SA purposes).
[65] I would therefore dismiss the first two grounds of appeal in relation to the Leave Motion. . Terry Longair Professional Corporation v. Akumin Inc. [common law tort]
In Terry Longair Professional Corporation v. Akumin Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed a defendant's appeal, this from a class proceeding order that (as required by Securities Act s.138.8) "granted leave to the respondent to proceed with his claim under s. 138.3(1) for secondary market misrepresentation (the “Leave Order”), and certified as a class proceeding the following: (i) the respondent’s claim for secondary market misrepresentation under s. 138.3(1); (ii) his primary market misrepresentation claim under s. 130.1 of the SA; and (iii) his common law negligence claim, pursuant to s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “CPA”) (the “Certification Order”)."
Here the court considered the certification order appeal:[5] With respect to the Certification Order, the appellants argue that the motion judge improperly certified the common law negligence claim, since a statutory claim under the SA is the preferable procedure for pursuing the respondent’s claims in relation to the Impugned Statements. They also argue that the motion judge erred in certifying the primary and secondary market misrepresentation claims of holders of the secured notes, which do not trade in an efficient market, and by extending the class period beyond the date when there was a statistically significant decline in the price of Akumin’s common shares.
[6] As I explain below, the motion judge made none of the errors alleged by the appellants.
....
[8] Nor did the motion judge err in her Certification Order. There is ample precedent for certifying a common law negligence claim alongside statutory misrepresentation claims under the SA. The motion judge applied the correct legal principles governing the certification of class proceedings under s. 5(1) of the CPA and did not commit a palpable and overriding error in applying those principles.
....
(2) The motion judge did not err in certifying the claim as a class proceeding
(a) The motion judge properly certified the common law negligent misrepresentation claim
[72] The appellants argue that the motion judge erred by finding that a class proceeding was the preferable procedure for pursuing the common law negligent misrepresentation claim, as required by s. 5(1)(d) of the CPA.
[73] The appellants submit, first, that common law negligent misrepresentation claims in securities cases are generally not suitable for certification because proof of reliance, causation and damages all require individualized inquiries that do not lend themselves to resolution on a class-wide basis.
[74] They further argue that where (as in this case) there is a statutory misrepresentation claim as well as a common law claim for the same misrepresentation, the statutory claim is the preferable procedure for resolving any common issues and the common law claim ought not to be certified.
[75] These arguments were not directly addressed by the motion judge, as it appears they were not raised before her. Nevertheless, both arguments were considered and rejected by the Supreme Court of Canada in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801 (“CIBC”).
[76] In CIBC, the plaintiffs sought certification for seven common issues relating to a common law misrepresentation claim. The Supreme Court held that, while issues relating to reliance and damages ought not to be certified because they required individualized assessments, the remaining five issues related to the intent and conduct of the defendant, CIBC, and should be certified, as they could be answered on a class-wide basis and would advance the litigation.
[77] The same conclusion applies here. The common issues certified by the motion judge in relation to the common law misrepresentation claim can be resolved without the need to undertake individualized assessments of each investor’s circumstances. Their resolution would avoid duplication of fact-finding or legal analysis, thereby facilitating judicial economy and access to justice: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 15.
[78] The Supreme Court in CIBC also concluded that there was no difficulty in certifying a common law negligent misrepresentation claim alongside a statutory claim under s. 138.3 of the SA. As the court pointed out, the SA expressly provides that the right of action under s. 138.3 is “in addition to, and without derogation from, any other rights”: CIBC, at para. 128.
[79] The court further pointed out that the objection raised by the defendants in CIBC (identical to that raised by the appellants here), “confuses procedure with substantive causes of action.”: CIBC, at para. 128. The preferability analysis under s. 5(1)(d) requires a court to assess whether a class proceeding is the preferable procedure for pursuing a given cause of action. It does not involve an assessment of whether one cause of action is preferable to another in pursuing a claim arising from the same facts.
[80] I thus see no difficulty with the motion judge’s certification of the common law misrepresentation claim and would dismiss this ground of appeal. . Ontario Securities Commission v. Bridging Finance Inc.
In Ontario Securities Commission v. Bridging Finance Inc. (Ont CA, 2023) the Court of Appeal considered what I think can be describes as a securities liquidation. A "privately held investment management firm" was put into receivership pursuant to s.129 of Ontario's Securities Act (OSA) by the Ontario Securities Commission, in addition to related ancillary orders.
The case itself was an appeal of an application to declare priority (or rather non-priority or pari passu) of different investors. In the course of the receivership several investors sought rescission remedies [under OSA 130.1: 'Liability for misrepresentation in offering memorandum']:[4] Following the appointment of the Receiver, certain Unitholders and their advisors informed the Receiver that they may wish to pursue and/or preserve certain rights of rescission or rights of action for damages that arose before the Appointment Order as a result of alleged misrepresentations contained in the offering memoranda. Those potential claimants included Unitholders who intended to bring a claim for rescission under s. 130.1 of the OSA (or equivalent securities legislation) or who had statutory rescission rights granted to them in their contracts (the “Statutory Rescission Claims”). These investors (the “Statutory Rescission Claimants”[1]) assert that they should have a priority claim on the assets of the Bridging Funds.
....
(3) Statutory Rescission Claims
[25] As noted, the motion judge found that the Statutory Rescission Claims are entitled to priority over the General Unitholders’ Claims. He also stated that the remedy for the Statutory Rescission Claimants must be meaningful and concluded that it was appropriate to impose a constructive trust.
[26] It is unclear from the reasons how the motion judge arrived at this conclusion. In his analysis, the motion judge made the following statements without referring to any specific authorities. He stated that “the nature of rescission as a remedy creates a de facto priority.” The motion judge also found that “statutory rescission is a remedy conferred by the OSA and its application is non-discretionary.” It would appear, therefore, that there are two possible sources for the priority granted by the motion judge to the Statutory Rescission Claims: (a) the wording of s. 130.1 of the OSA, and (b) the nature of the rescission remedy. Below, I will consider each source in turn.
(a) Section 130.1 of the OSA
[27] The relevant subsections of s. 130.1 of the OSA provide:130.1(1) Where an offering memorandum contains a misrepresentation, a purchaser who purchases a security offered by the offering memorandum during the period of distribution has, without regard to whether the purchaser relied on the misrepresentation, the following rights:
1. The purchaser has a right of action for damages against the issuer and a selling security holder on whose behalf the distribution is made.
2. If the purchaser purchased the security from a person or company referred to in paragraph 1, the purchaser may elect to exercise a right of rescission against the person or company. If the purchaser exercises this right, the purchaser ceases to have a right of action for damages against the person or company. 2004, c. 31, Sched. 34, s. 7.
Defence
(2) No person or company is liable under subsection (1) if he, she or it proves that the purchaser purchased the securities with knowledge of the misrepresentation. 1999, c. 9, s. 218.
Limitation in action for damages
(3) In an action for damages pursuant to subsection (1), the defendant is not liable for all or any portion of the damages that the defendant proves do not represent the depreciation in value of the security as a result of the misrepresentation relied upon. 1999, c. 9, s. 218.
...
Limitation re amount recoverable
(6) In no case shall the amount recoverable under this section exceed the price at which the securities were offered. 1999, c. 9, s. 218.
No derogation of rights
(7) The right of action for rescission or damages conferred by this section is in addition to and without derogation from any other right the purchaser may have at law. 1999, c. 9, s. 218.[3] [28] Given the motion judge’s comments about s. 130.1 being “non-discretionary,” it is essential to consider what the section actually provides. It is clear on the face of s. 130.1 that the legislature has made it easier to assert a claim for either rescission or damages based on a misrepresentation in an offering memorandum by obviating the need to prove reliance. The legislature also took the decision regarding choice of remedy between damages or rescission out of the hands of the court and permitted the plaintiff to make the election. Therefore, the OSA confers a non-discretionary right to elect a remedy, but it does not grant a non-discretionary right to a remedy. The right to damages or rescission is not automatic. The court must be satisfied regarding several factors, including that a misrepresentation was made and that the defence in s. 130.1(2) does not apply. Only then will a plaintiff be entitled to a remedy. This remedy is available generally to security holders and is not limited to insolvency situations.
[29] The more significant issue is whether, in enacting this section, the legislature intended to grant a priority to rescission claimants. There is no language in the section that explicitly references granting a priority. This is a curious omission if that was the legislature’s intention. A legislature is presumed to use the clearest way of expressing its intention: Ruth Sullivan, The Construction of Statutes, 7th ed. (Toronto: LexisNexis Canada, 2023), at § 8.02. Accordingly, the ordinary meaning of a legislative provision is deemed to be the meaning intended by the legislature, unless compelling reasons exist to justify a departure from the ordinary meaning: Sullivan, at § 3.01; Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21. In keeping with this presumption, Canadian courts have consistently held that express and unambiguous statutory language is required to create a statutory priority. The list of examples is numerous, both in the insolvency context and beyond.
[30] Courts have held that the absence of express statutory language is fatal to claims for statutory priority. For example, the Supreme Court has rejected the proposition that the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“BIA”) or the Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C‑36 (“CCAA”) confer on the Crown a statutory priority in respect of GST claims upon insolvency, concluding that if Parliament had “sought to give the Crown a priority for GST claims, it could have done so explicitly as it did for source deductions”: Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379, at para. 51. Similarly, this court has refused to import a municipal super priority into the provisions of the Residential Tenancies Act, 2006, S.O. 2006, c. 17, dealing with payment for vital services, holding that there is no basis for any sort of priority “[w]ithout explicit language from the legislature”: Hamilton (City) v. The Equitable Trust Company, 2013 ONCA 143, 114 O.R. (3d) 602, at para. 29. In short, courts have rejected statutory priority claims unless the claim is supported by unequivocal statutory language.
[31] Two such examples of clear language are s. 67(3) of the BIA and the former s. 18.3(2) of the CCAA. Both of these provisions use express language to provide that deemed trusts for source deductions – unlike other deemed trusts – remain effective in insolvency. That is, the ordinary meaning of these provisions indicates that Parliament has legislated a statutory priority “explicitly and elaborately”: Century Services, at para. 45. Other BIA and CCAA provisions similarly use explicit language to create a statutory priority. These provisions include BIA, s. 14.06(7)(b) and CCAA, s. 11.8(8)(b) (super priority of the Crown for environmental remediation costs in respect of the real property of a debtor), as well as BIA, s. 136 (general priority distribution scheme for the property of a bankrupt).
[32] The legislative use of express language to create a priority is not limited to insolvency statutes. It is also evidenced in, for example, ss. 221(1) and 222 of the Business Corporations Act, R.S.O. 1990, c. B.16; ss. 30-35 of the Personal Property Security Act, R.S.O. 1990, c. P.10; and ss. 2- 5 of the Wages Act, R.S.O. 1990, c. W.1. In each of these statutory provisions, the language indicating a priority is plain and unambiguous.
[33] The primary difficulty with the submission that s. 130.1 grants a priority is that the legislation does not state that explicitly. I have difficulty accepting that it was the intention of the legislature to grant a priority by implication. The whole point of creating statutory priorities is to alert the world regarding the distribution scheme for a given fund. The idea is to create certainty so that claimants understand where they stand relative to other claimants. A clear priority scheme also makes it easier for courts to adjudicate competing claims. They are not required to examine the equities of the positions of the parties but are only obliged to implement the existing rules. The important public policy objectives of certainty, transparency, and efficiency underlying statutory priorities would be eroded if courts presume an intention of a legislature to create a priority. I decline to do so in this case.
(b) The Nature of the Rescission Remedy
[34] The other suggested basis for a priority is the nature of the remedy of rescission. The argument advanced by the Statutory Rescission Claimants is that rescission is a proprietary remedy, which puts the claimant in a position where the contract is void ab initio. This submission may be dealt with by considering the categories of potential rescission claims.
[35] The Statutory Rescission Claims are reserved for those who can assert a claim under s. 130.1 of the OSA (and equivalent securities legislation) and residents of British Columbia, Alberta, and Quebec who were granted that statutory remedy under the constating documents. For the purpose of the motion, it was agreed that these claimants would be able to make out their claims and no defences would apply.
[36] The competing claims were the General Unitholders’ Claims, which, as mentioned, are the claims that are not Statutory Rescission Claims or Potential Redemption Claims. The Agreed Statement of Facts also references a court order that tolled limitation periods for certain claims. Included in this list are claims for damages or rescission pursuant to, among other things, “any common law or civil law rights.”
[37] It is clear, therefore, that the General Unitholders’ Claims include common law claims to rescission. In other words, there is a subclass of Unitholders who could potentially assert a successful common law claim for rescission. There can therefore be no basis to award a priority to the Statutory Rescission Claimants over those with common law claims to rescission. Regardless of how the claim for rescission is established, the nature of the remedy is identical. Thus, the motion judge erred in finding that the Statutory Rescission Claimants have a “different relationship to the assets.”
[38] In summary, neither the wording of s. 130.1 of the OSA nor the nature of the remedy of rescission provides a basis for finding that the Statutory Rescission Claimants have a priority. Accordingly, I would grant the General Unitholders’ appeal.
|
