Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50884
when Silver v. IMAX Corp. became the fi rst class action brought under the 2005 provisions on civil liability for secondary mar- ket disclosure — part XXIII.1 of the Ontario Securities Act — to be certifi ed. In a report on trends in Canadian class actions released earlier this year, NERA Economic Consulting noted that the decisions in IMAX and other recent cases "may ultim- ately prove to be an infl ection point for this type of litigation." Dimitri Lascaris, a partner with Siskinds LLP in London, Ont., who is representing the plaintiff s in IMAX, says while there is limited jurisprudence to date, the courts are thus far taking a liberal view of the legislation. "If that trend continues, then what I think you're going to see is a robust civil liability regime, which is going to provide an additional and powerful incentive to issuers and their directors and offi cers to comply with the disclosure requirements under the securities acts, as long as that trend continues. If however, the barriers to a pur- suit of a civil liability claim are set too high, then I don't think part XXIII.1 is likely to achieve its ultimate purpose," he says. Also, the fact that there is now the potential for certifi cation of a global class action against a Canadian company that had its shares listed in the United States is going to raise some interest- ing jurisdictional issues, he says. For public companies that aren't in the investment services business, Inglis says they are paying attention to emerging law in the continuous disclosure area as it relates to transactions, over and above issues such as the national regulator. "It's a check and balance in the system and corporations and their counsel need to be aware that that's there, that there's a possibility of these types of actions, and that they want to do everything they can to protect themselves from that," says Zordel. While many companies are undoubtedly watching this case closely, the consensus among many lawyers is that the case it- self hasn't directly resulted in a change in disclosure practices as many issuers have been paying close attention to this mat- ter since the provisions were brought into force several years ago across the country. "I'm not sure if [IMAX] really, from a compliance point of view, did much more than confi rm where people thought they were in advance of the decision. Th at would be the case with most of the companies we deal with," adds Inglis. While Alan D'Silva, a partner at Stikeman Elliott, says: "More broadly, I would say the secondary-market liabil- ity legislation has made people more aware and more cautious about their disclosure obligations and about such things as ensuring that their directors and offi cers have adequate D&O insurance." Pinsky also says the issue of liability insurance, the specifi cs as to what is or is not covered, for example, is of great con- cern to directors. "Th e liability is potentially substantial and all companies have to look at their director and offi cer liability insurance. It's not only getting some but making sure that the kind that you get is a) with an insurer that's not going to have fi nancial diffi culties, and b) isn't full of loopholes," he says. He explains his fi rm and others were very active at the time the legislation was enacted in telling clients how to protect themselves. "One of the things that we did at the time was really pushed that our clients beef up very substantially their forward-looking statements disclaimers, very, very carefully look at each one," he says. Th e harmonized national rules for forward- looking information disclosure, brought forward in late 2007 as amendments to National Instrument 51-102 Continuous Disclosure Obligations, are something Vanderpol thinks regulators are look- ing at when they do their regular continuous dis- closure reviews, in terms of how issuers report forward-looking information and whether they are complying with their obligations. "I think it's an interesting thing for in-house counsel, it requires them to be a little more involved with the business people in terms of under- standing the disclosures," he says, includ- ing what's implied, what assumptions have been made, and the risks it presents. In July, the CSA released the results of its 2010 continuous disclosure review program, consisting of 1,351 continuous disclosure reviews of public companies that are reporting issuers. Th e CSA reports that in the year up to March 31, 72 per cent of issuers reviewed were required to take action to improve disclosure, com- pared to 80 per cent in the same period last year. Of the most recent reviews, 43 per cent resulted in "prospective requiring issuers changes," reporting hancements disclosure fi lings. At time, to make en- to their in future the same the CSA identi- fi ed an improvement in the quality of disclosure by reporting issuers on their upcoming transition to international reporting fi nancial standards, saying that 95 per cent of reporting issuers re- viewed disclosed their IFRS changeover plan in their 2009 INHOUSE OCTOBER 2010 • 23