The Securities

The Securities
Litigation Review

Litigation
Review

Editor
William Savitt

Law Business Research

 The Securities
Litigation Review

The Securities Litigation Review

Reproduced with permission from Law Business Research Ltd.

This article was first published in The Securities Litigation Review - Edition 1
(published in June 2015 – editor William Savitt).

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The Securities
Litigation
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Editor
William Savitt

Law Business Research Ltd

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i
 CONTENTS

Editor’s Preface ����������������������������������������������������������������������������������������������������v

William Savitt

Chapter 1 AUSTRALIA�������������������������������������������������������������������������������1
Luke Hastings and Andrew Eastwood

Chapter 2 BELGIUM��������������������������������������������������������������������������������22
Grégoire Jakhian and Mathias Lamberty

Chapter 3 BRAZIL������������������������������������������������������������������������������������38
Marcelo Trindade and Fabiana Martins de Almeida

Chapter 4 CANADA����������������������������������������������������������������������������������50
Mark A Gelowitz, Allan D Coleman and Robert Carson

Chapter 5 ENGLAND & WALES�������������������������������������������������������������64

Karen Anderson and Harry Edwards

Chapter 6 FRANCE�����������������������������������������������������������������������������������79
Bertrand Cardi and Nicolas Mennesson

Chapter 7 GERMANY�������������������������������������������������������������������������������91
Lars Röh, Jan Willisch, Martin Beckmann, Jonas-Benjamin Ulmrich
and Bijan Moini

Chapter 8 ISRAEL�����������������������������������������������������������������������������������109
Yechiel Kasher, Ittai Paldor and Amir Scharf

Chapter 9 ITALY��������������������������������������������������������������������������������������118
Vittorio Allavena, Monica Iacoviello, Francesco Sbisà
and Silvia Romanelli

iii
 Contents

Chapter 10 POLAND��������������������������������������������������������������������������������126
Konrad Konarski

Chapter 11 PORTUGAL���������������������������������������������������������������������������140
Nuno Salazar Casanova and Nair Maurício Cordas

Chapter 12 SPAIN�������������������������������������������������������������������������������������150
Cristian Gual Grau and Manuel Álvarez Feijoo

Chapter 13 SWITZERLAND��������������������������������������������������������������������162
Matthew T Reiter and Thomas U Reutter

Chapter 14 UNITED STATES������������������������������������������������������������������178

William Savitt and Noah B Yavitz

Appendix 1 ABOUT THE AUTHORS�����������������������������������������������������201

Appendix 2 CONTRIBUTING LAW FIRMS' CONTACT DETAILS�����213

iv
 EDITOR’S PREFACE

This inaugural edition of The Securities Litigation Review is a guided introduction to the
international varieties of enforcing rights related to the issuance and exchange of publicly
traded securities.
Unlike most of its sister international surveys, this review focuses on litigation –
how rights are created and vindicated against the backdrop of courtroom proceedings.
Accordingly, this volume amounts to a cross-cultural review of the disputing process.
While the subject matter is limited to securities litigation, which may well be the world’s
most economically significant form of litigation, any survey of litigation is in great part
a survey of procedure as much as substance.
As the chapters that follow make clear, there is great international variety in
private litigation procedure as a tool for securities enforcement. At one extreme is the
United States, with its broad access to courts, relatively permissive pleading requirements,
expansive pretrial discovery rules, readily available class-action principles and generous fee
incentives for plaintiffs’ lawyers. At the other extreme lie jurisdictions like Poland, where
private securities litigation is complex, expensive, seldom remunerative and accordingly
quite rare. As the survey reveals, there are many intermediate points in this continuum,
as each jurisdiction has evolved a private enforcement regime reflecting its underlying
civil litigation system as well as the imperatives of its securities markets.
This review reveals an equally broad variety of public enforcement regimes.
Canada’s highly decentralised system of provincial regulation contrasts with Brazil’s
Securities Commission, a powerful centralised regulator that is primarily responsible for
creating and enforcing Brazil’s securities rules. Every country has its own idiosyncratic
mixture of securities lawmaking institutions; each provides a role for self-regulating bodies
and stock exchanges but no two systems are alike. And while the European regulatory
schemes work to harmonise national rules with Europe-wide directives, few countries
outside Europe have significant institutionalised cross-border enforcement mechanisms,
public or private.
We should not, however, let the more obvious dissimilarities of the world’s securities
disputing systems obscure the very significant convergence in the objectives and design

v
 Editor’s Preface

of international securities litigation. Nearly every jurisdiction in our survey features a

national securities regulatory commission, empowered both to make rules and enforce
them. Nearly every jurisdiction focuses securities regulation on the proper disclosure of
investment-related information to allow investors to make informed choices, rather than
prescribing investment rules. Nearly every jurisdiction provides both civil penalties that
allow wronged investors to recover their losses and criminal penalties designed to punish
wrongdoers in the more exteme cases.
Equally notable is the fragmented character of securities regulation in nearly every
important jurisdiction. Alongside the powerful national regulators are subsidiary bodies
– stock exchanges, quasi-governmental organisations, trade and professional associations
– with special authority to issue rules governing the fair trade of securities and to enforce
those rules in court or through regulatory proceedings. Just as the world is a patchwork
of securities regulators, so too is virtually each individual jurisdiction.
The ambition of this volume is to provide readers with a point of entry to these
wide varieties of regulations, regulatory authorities and enforcement mechanisms. The
country-by-country treatments that follow are selective rather than comprehensive,
designed to facilitate a sophisticated first look at securities regulation in comparative
international perspectives, and to provide a high-level roadmap for lawyers and their
clients confronted with a need to prosecute or defend securities litigation in a jurisdiction
far from home.
A further ambition of this review is to observe and report important regulatory
and litigation trends, both within and among countries. This year’s edition reveals several
significant patterns that cut across jurisdictions. Since the financial crisis of 2008, nearly
every jurisdiction has reported an across-the-board uptick in securities litigation activity.
Many of the countries featured in this volume have seen increased public enforcement,
notably including more frequent criminal prosecutions for alleged market manipulation
and insider trading, often featuring prosecutors seeking heavy fines and even long prison
terms.
Civil securities litigation has also been a growth industry in the wake of the 2008
crisis. While class actions are a predominant feature of United States securities litigation,
there are signs that aggregated damages claims are making significant inroads elsewhere.
Class claims are now well established as part of the regulatory landscape in Australia and
Canada and there appears to be accelerating interest around the world in securities class
actions and other forms of economically significant private securities litigation. Whether
and where this trend takes hold will be one of the important securities law developments
to watch in coming years.
This suggests the final ambition for The Securities Law Review: to annually
reflect where this important area of law has been, and where it is headed. Each chapter
contains both a section summarising the year in review – a look back at important recent
developments – and an outlook section, looking toward the year ahead. The narrative
here, as with the book as a whole, is of both divergence and convergence, continuity and
change.
An important example is the matter of cross-border securities litigation, treated
by each of our contributors. As economies and commerce in shares become more global,
every jurisdiction is confronted with the need to consider cross-border securities litigation.
The chapters of this volume show jurisdictions grappling with the problem of adapting

vi
 Editor’s Preface

national litigation systems to a problem of increasingly international dimensions. How

the competing demands of multiple jurisdictions will be satisfied, and how jurisdictions
will learn to work with one another in the field of securities regulation will be a story to
watch over the coming years. We look forward to documenting this development and
other emerging trends in securities litigation around the world in subsequent editions.
Many thanks to all the superb lawyers who contributed to this inaugural edition.
For the editor, reviewing these chapters has been a fascinating tour of the securities
litigation world, and we hope it will prove to be the same for our readers. Contact
information for our contributors is included in Appendix 2. We welcome comments,
suggestions and questions, both to create a community of interested practitioners and to
ensure that each edition improves on the last.

William Savitt
Wachtell, Lipton, Rosen & Katz
New York
June 2015

vii
 Chapter 4

CANADA
Mark A Gelowitz, Allan D Coleman and Robert Carson1

I OVERVIEW

i Sources of law
Canada does not have a national securities regulator. Canada’s provinces and territories
have enacted securities laws and regulations and established provincial securities
regulators tasked with the enforcement of those laws and regulations.2 While there is
a great degree of harmonisation across the various provinces, there can be important
differences. Securities regulation in Canada therefore consists of a patchwork of
legislation, regulations, rules, instruments and policies.
Capital markets are also regulated by stock exchanges, the most notable of which
is the Toronto Stock Exchange (TSX), and self-regulatory organisations such as the
Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund
Dealers Association of Canada, all of which are subject to the oversight of the provincial
securities commissions.3 These stock exchanges and self-regulatory organisations typically
have by-laws, procedures and other rules that regulate the capital markets activity that
falls within the scope of their jurisdiction.
The Criminal Code of Canada4 contains a few offences that relate to securities
and capital market matters, including general offences such as fraud that can apply in the

1 Mark A Gelowitz and Allan D Coleman are partners and Robert Carson is an associate at
Osler, Hoskin & Harcourt LLP.
2 See, e.g., Ontario Securities Act, RSO 1990, Chapter S-5; General Regulation under the
Securities Act, RRO 1990, Reg 1015; and National Instrument 45-106: ‘Prospectus and
Registration Exemptions’.
3 The Ontario Securities Commission has issued recognition orders pursuant to section 21.1(1)
of the Ontario Securities Act recognising these entities.
4 Criminal Code, RSC, 1985, Chapter C-46.

50
 Canada

securities context, and offences particular to securities, such as manipulation of a stock

exchange and insider trading. However, provincial securities legislation also contains
quasi-criminal provisions.
Business corporation statutes also have a bearing on securities regulation. For
example, this legislation addresses aspects of corporate governance and the exercise
of shareholder rights such as voting and proxy solicitation, and also includes robust
statutory protections of minority shareholders in the form of the oppression remedy.5
The common law also plays a role in the private enforcement of breaches of applicable
securities law – for example, the common law tort of negligent misrepresentation is often
relied on in proceedings concerning the adequacy of an issuer’s public disclosure.6

ii Regulatory authorities
The primary regulators responsible for enforcement of securities law in Canada are
the provincial securities commissions. For ease of reference, this article focuses on
the provisions of the Ontario Securities Act and the Ontario Securities Commission,
as Ontario is Canada’s most populous province and is the home of the Toronto Stock
Exchange.
The Commission has broad rights to investigate the conduct of capital market
participants in Ontario. Where the Commission concludes that an enforcement
proceeding is warranted, the Commission typically proceeds in one of two fora, as
described below.7
The staff of the Commission can bring administrative enforcement proceedings
before a panel of commissioners. The commissioners constitute an independent branch
of the Commission. These proceedings seek to prevent future harm to, and to protect
investor confidence in, Ontario’s capital markets under Section 127 of the Ontario
Securities Act. Enforcement proceedings generally take the form of a public hearing
before a panel of three commissioners, who have the power to make findings concerning
whether a breach of the Securities Act has occurred or whether there has been conduct
contrary to the public interest. The panel also has the power to impose a variety of
sanctions (see Section III.iv, infra) including fines and limiting a respondent’s ability to
participate in the capital markets in Ontario.
Alternatively, the staff of the Commission can also initiate and prosecute
quasi-criminal proceedings in the Ontario Court of Justice under the Ontario Provincial

5 This legislation may be federal or provincial, depending on the form of an issuer’s

incorporation. See, e.g., Canada Business Corporations Act, RSC 1985, Chapter 44; Ontario
Business Corporations Act, RSO 1990, Chapter B.16.
6 See, e.g., McKenna v. Gammon Gold Inc, 2010 ONSC 1591.
7 The Commission can also apply to court for certain orders, including a declaration that a
person has not complied with or is not in compliance with securities law (Ontario Securities
Act, Section 128) or an order appointing a receiver over the property of a company (Ontario
Securities Act, Section 129).

51
 Canada

Offences Act.8 Although these proceedings are often considered regulatory, they carry
penal consequences, including the possibility of imprisonment for individuals and
significant monetary penalties.
In certain situations, market participants can themselves invoke proceedings
before the Commission that resemble enforcement proceedings by seeking relief from
the Commission such as a cease-trade order in the context of an unsolicited takeover bid.
Self-regulatory organisations can bring enforcement proceedings to regulate the
conduct of market participants within their sphere and protect the integrity of capital
markets.9

iii Common securities claims

The majority of securities claims in Canada are class actions based on allegations of
misrepresentations in an issuer’s continuous disclosure or a failure to make timely
disclosure of material changes in the issuer’s business. As discussed in Section II, infra,
the Ontario Securities Act provides different statutory private rights of action to investors
depending on whether the alleged misrepresentation affected the primary market (e.g.,
securities sold under a prospectus or offering memorandum) or the secondary market
(e.g., securities sold by investors over the facilities of a stock exchange). The content of the
right of action and the available defences also depend on whether the misrepresentation
was included in a document or a public oral statement, and, if in a document, on the
nature of the document. In addition to these statutory rights of action, shareholders
commonly seek to invoke the common law tort of negligent misrepresentation. The
key limitation of the common law tort, however, is that the investor must prove actual
reliance on the alleged misrepresentation in buying or selling shares.10
Most misrepresentation claims are brought against the issuer and some or all of
its directors and executive officers. The statutory rights of action also permit investors to
bring these claims against experts (including auditors), underwriters and others. There
are significant defences, including due diligence defences and a defence for reliance on
an expert, that are available in certain circumstances.11
Although the Ontario Securities Act provides a right of action to seek damages
for insider trading, private proceedings in respect of insider trading are not particularly
common. This is likely due, in large part, to the fact that the Ontario Securities Act

8 In contrast, criminal charges under the Criminal Code, a federal statute, are typically brought
by Crown counsel in the criminal court system. Those cases follow strict criminal procedures
set out in the Criminal Code.
9 See, e.g., IIROC Dealer Member Rules, Rules 19 & 20 and the IIROC Sanction Guidelines.
10 Quebec is a civil law jurisdiction and, while the Quebec Securities Act contains similar
statutory rights of action to those in the Ontario Securities Act, plaintiffs may also seek to
bring misrepresentation claims under the Civil Code of Quebec.
11 In addition, Canadian courts have imposed limits on the liability of certain defendants: see,
for example, Hercules Management v. Ernst & Young, [1997] 2 SCR 165, which addresses the
scope of the duty of care that auditors owe in relation to secondary market investors.

52
 Canada

only provides for the party who suffered damages in a trade to seek damages against the
counter-party to that trade, and therefore does not facilitate class actions.12
There are a variety of potential claims against an issuer or its directors and officers
that may be available under business corporation statutes in Canada, including:
a oppression claims alleging that the conduct of a corporation was oppressive,
unfairly prejudicial to, or unfairly disregarded the interests of shareholders or
other potential complainants;13
b derivative actions that allow shareholders (typically minority shareholders) and
other complainants to apply to the court for leave to bring an action on behalf of
a corporation to redress harm to the corporation;14 and
c the exercise of dissent and appraisal remedies in connection with certain corporate
transactions, including amalgamations and going-private transactions.15

In recent years, Canada has also seen a rise in litigation arising from shareholder activism,
including proxy fights in both the provincial securities commissions and the courts.

II PRIVATE ENFORCEMENT

i Forms of action
As noted above, the majority of securities class actions in Canada are based on claims
of misrepresentations in an issuer’s public disclosure or its failure to make timely
disclosure of material changes. Traditionally, it had been difficult for Canadian investors
to pursue lawsuits alleging negligent misrepresentations at common law because of the
requirement that an investor prove that it actually relied to its detriment on the alleged
misrepresentation. Canadian courts have generally found that the need to prove reliance
in complex individual inquiries has rendered common law securities misrepresentation
claims unsuitable for certification as class actions.16 However, the governing securities
legislation of each province now contains statutory rights of action for misrepresentations
in both the primary and secondary markets that do not require the investor to prove
reliance. These types of action were designed to proceed as class actions in appropriate
circumstances and the courts have found they are particularly suited to that procedure.17
Part XXIII.1 of the Ontario Securities Act, which contains the statutory right of
action for misrepresentations affecting the price of securities in the secondary market,

12 In contrast, the British Columbia Securities Act provides a broader right of action
(Section 136).
13 Canada Business Corporations Act, Section 241; Ontario Business Corporations Act,
Section 248.
14 Canada Business Corporations Act, Sections 238–240; Ontario Business Corporations Act,
Sections 246–247.
15 Canada Business Corporations Act, Section 190; Ontario Business Corporations Act,
Section 185.
16 See, e.g., McKenna v. Gammon Gold Inc, 2010 ONSC 1591.
17 See, e.g., Bayens v. Kinross Gold Corp, 2014 ONCA 901 at paragraph 136.

53
 Canada

provides a variety of important statutory protections for issuers and other defendants,
including the following:18
a The plaintiff must first bring a motion seeking leave of the court to commence an
action. To obtain leave, the plaintiff must establish that the action is brought in
good faith and there is a reasonable possibility that the action will be resolved in
the plaintiff’s favour.19
b Defendants generally have the protection of ‘liability limits’ (see subsection iv,
infra), unless found to have authorised, permitted or acquiesced in the making of
a misrepresentation with knowledge that it was untrue.20
c Defendants have the benefit of a ‘reasonable investigation’ defence and a ‘safe
harbour’ for forward-looking information, provided certain requirements are
met. In certain circumstances, reliance on an expert constitutes a defence.21

ii Procedure
Private enforcement actions are typically commenced in the courts of the relevant
province.22 The unfortunate result is that parallel proceedings regarding the same subject
matter are often brought in multiple provinces. This problem is particularly acute in
securities class actions. Ultimately, however, claims are typically litigated in a single
jurisdiction on behalf of a proposed national class of investors who are alleged to have
been harmed by the alleged misrepresentation.
For certain claims in the securities context, the applicable legislation imposes an
initial gatekeeping stage before the action can be commenced. For example, as described
above, secondary market actions brought under Part XXIII.1 cannot proceed unless the
plaintiff satisfies the court on a motion or application that the action is brought in good
faith and there is a reasonable possibility that the action will be resolved at trial in the
plaintiff’s favour.23 A shareholder who seeks to bring a derivative action on behalf of
a corporation under the applicable business corporation statute must obtain leave of
the court, which requires the shareholder to, among other things, satisfy the court that
the shareholder is acting in good faith and that it appears to be in the interests of the
corporation that the action be brought.24

18 The primary market right of action also includes important statutory protections and
defences, including a due diligence defence.
19 Ontario Securities Act, Section 138.8.
20 Because the liability limits do not apply to common law misrepresentation claims, class
counsel often try to bring common law claims alongside the statutory claims.
21 Ontario Securities Act, Section 138.4.
22 In certain situations, particularly where a potential violation of securities law is alleged (but
has not yet occurred), jurisdiction may lie with the provincial securities commissions rather
than the courts.
23 Ontario Securities Act, Section 138.8.
24 Canada Business Corporations Act, Sections 238–240; Ontario Business Corporations Act,
Sections 246–247.

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 Canada

The pleading requirements vary depending on the nature of the claim. For
example, a common law negligent misrepresentation claim requires the plaintiff to plead
that each class member detrimentally relied on the alleged misrepresentation. As there
is no fraud-on-the-market presumption in Canada, it is generally insufficient to plead
reliance on the market price of the securities.25 Another important distinction is that
Canadian misrepresentation claims, whether statutory or at common law, do not have
the scienter requirement that exists in Rule 10b-5 actions in the United States.
An action cannot be brought as a class proceeding unless the court has granted
certification of the proceeding as a class action. In Ontario, the plaintiff must establish
each of the following requirements:
a the pleadings disclose a cause of action;
b there exists an identifiable class of two or more persons;
c there are common issues as between members of the proposed class;
d proceeding by way of a class action is the ‘preferable procedure’; and
e a representative plaintiff exists who would fairly and adequately represent the
interests of the class.26

In most civil proceedings, the parties have the right to both documentary discovery and
oral discovery before trial. Discovery rights are prescribed by statutes or rules of court, but
can generally be varied by agreement of the parties or by order of the court. In actions,
parties generally have a positive duty to produce copies of all relevant, non-privileged
documents to the opposing parties. Oral discovery of a corporation is commonly limited
to the examination of a single representative of the corporation.
Once certified, class proceedings will generally proceed in a manner that is largely
similar to standard civil proceedings. The common issues will usually be tried first,
followed by any remaining individual issues.
An important feature of civil proceedings in Canada is that costs typically ‘follow
the event’, which usually means that the losing party pays a portion of the successful party’s
costs. This can apply on a range of steps in a proceeding including both interlocutory
motions and trials. There are important differences among the provinces and types of
proceedings – for example, in British Columbia the loser-pays rule generally does not
apply in class actions. However, as a general rule, costs awards are at the discretion of
the courts.

iii Settlements
While settlements in commercial litigation do not necessarily require court approval
of the settlement, settlements in proceedings commenced under class proceedings
legislation generally require court approval, as may settlements brought under the

25 Carom v. Bre-X Minerals Ltd (1998), 41 OR (3d) 780 (Gen Div).

26 Ontario Class Proceedings Act, 1992, SO 1992, Chapter 6, Section 5(1). The requirements
for certification will be different in each province although there will be significant overlap
in the legislation. For the procedure in Quebec, see Civil Procedure of Quebec, Articles
1002–1006.

55
 Canada

oppression remedy provisions of business corporation statutes.27 When considering

whether a settlement in a class proceeding is fair and reasonable, Canadian courts tend
to consider the following types of factors, among others:
a the likelihood of success;
b the amount and nature of discovery or investigation;
c recommendation and experience of counsel;
d recommendation of neutral parties such as a mediator;
e future expenses, likely duration of litigation and risk;
f the number and nature of objections; and
g the presence of arm’s-length bargaining.28

Where the settlement occurs before the action has been certified as a class proceeding,
the general practice is that the parties will seek certification ‘for settlement purposes
only’ to facilitate the settlement and bind class members to its terms. Class members are
typically given notice of a proposed settlement and the opportunity to object and to opt
out of the settlement.
Class counsel are typically required to obtain court approval of their fees.29
Canadian courts tend to consider factors such as the time expended, the risks undertaken,
and the results achieved, among others, in establishing the quantum of fees awarded.

iv Damages and remedies

Primary market misrepresentation claims under Part XXIII of the Ontario Securities Act
are subject to particular rules regarding the calculation of damages and availability of
other remedies. For example, an investor who purchases a security offered by a prospectus
that contains a misrepresentation can elect whether to seek damages or rescission against
the issuer or underwriter.30
Secondary market claims brought under Part XXIII.1 of the Ontario Securities
Act are also subject to prescribed rules regarding damages. First, Part XXIII.1 provides
a formula for assessing damages. In general, the damages payable for misrepresentations
are calculated with regard to the price paid and the price at which the investor disposed
of the securities following the corrective disclosure.31 The defendant will not be liable
for any amount that the defendant proves is attributable to a change in market price

27 There are often differences in the regimes of different provinces as to whether a putative class
action can be settled, discontinued or withdrawn before certification without court approval.
In Ontario, Court approval is almost invariably required. In the context of the oppression
remedy, see specific requirements for court approval of steps, including withdrawal and
discontinuance in certain circumstances: Ontario Business Corporations Act, Section 249;
Canada Business Corporations Act, Section 242(2).
28 See, e.g., Metzler Investment v. Gildan Activewear, 2011 ONSC 1146.
29 Ontario Class Proceedings Act, Sections 32 and 33.
30 Ontario Securities Act, Section 130(1).
31 Ontario Securities Act, Section 138.5(1).

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 Canada

unrelated to the misrepresentation.32 As the drop in share price attributable to the

misrepresentation would only occur after its public correction, price fluctuations before
the corrective disclosure would typically be viewed as unrelated to the misrepresentation.
This means that the true measure of damages would generally be measured with reference
to the amount of the decline in share price following the corrective disclosure, after
controlling for other contemporaneous market events.
Second, in claims under Part XXIII.1 of the Ontario Securities Act, most
defendants have the protection of liability limits, which vary by defendant.33 For example:
a the liability limit for an issuer is the greater of 5 per cent of its market capitalisation
and C$1 million; and
b the liability limit for a director or officer of an issuer is the greater of C$25,000 and
50 per cent of the aggregate of the director’s or officer’s compensation from the
issuer and its affiliates.

The liability limits do not apply for a person or company, other than the responsible
issuer, if the person or company authorised, permitted or acquiesced in the making of
the misrepresentation while knowing that it was a misrepresentation.34
The liability limits do not apply to common law misrepresentation claims.
Accordingly, class counsel often try to bring common law claims alongside statutory
claims. The calculation of damages in common law claims is based primarily on common
law principles and attempt to put the investor back in the position that he or she would
have been in had the misrepresentation not been made.

III PUBLIC ENFORCEMENT

i Forms of action
There are two principal forms of enforcement proceedings brought by the Ontario
Securities Commission: administrative proceedings and quasi-criminal proceedings.
Administrative enforcement proceedings before a tribunal of commissioners are
most common. These can take a variety of forms but typically involve an investigation
phase followed by a hearing. The tribunal has a broad power to make orders in the
public interest, including in some situations in which the respondent has not breached
securities law.
Alternatively, the Commission may bring quasi-criminal proceedings in the
Ontario Court of Justice for certain offences prescribed in the Ontario Securities Act,
including insider trading and tipping, misrepresentations in disclosure documents,
and other breaches of securities law.35 The offences generally carry a maximum fine of
C$5 million or a maximum prison sentence of five years less a day, or both.

32 Ontario Securities Act, Section 138.5(3).

33 Ontario Securities Act, Section 138.1 (liability limit) and Section 138.7(1).
34 Ontario Securities Act, Section 138.7(2).
35 In Ontario, proceedings are typically prosecuted by Commission staff. In some jurisdictions,
the proceedings are referred to Crown counsel.

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The Commission has the right to apply to the Court to seek certain relief, including
for a declaration that a person or company has not complied with securities law36 or
appointing a receiver or liquidator over the property of a person or company.37
The Criminal Code contains criminal offences unique to securities law (such as
market manipulation), and general economic crimes (such as fraud) that may arise in
the securities context.38 Criminal offences are typically prosecuted by Crown counsel,
regardless of whether the offences relate to securities law.
The TSX and other self-regulatory organisations, including IIROC, have their
own enforcement procedures for regulating the capital market participants within their
purview. These organisations have the ability to invoke a variety of sanctions, including
suspension or termination of market access or fines.39

ii Procedure
Most regulatory proceedings in the securities context begin with an investigation by
one or more provincial securities commissions or by another law enforcement agency,
such as the Royal Canadian Mounted Police. A major difference between private and
public enforcement in Canada is that the securities commissions have very broad
investigative powers, including the power to conduct examinations of a wide range of
potential witnesses, including examinations under oath.40 The Commission also has a
broad power to compel issuers and potential witnesses to produce documents as part of
the investigation.41
Administrative regulatory proceedings under Section 127 of the Ontario
Securities Act typically commence when the Commission issues a notice of hearing
and files a statement of allegations. The proceedings progress in accordance with the
Commission’s Rules of Procedure, which provide, among other things, for the parties to
make pre-hearing motions, including motions seeking the production of documents or
the exclusion of evidence.
In the ordinary course, proceedings under Section 127 are determined following
an oral hearing before a panel of commissioners. The rules are set out in the Commission’s
Rules of Procedure, and are also governed by the Ontario Statutory Powers Procedure
Act.42 As a general rule, hearings are open to the public but the panel may hold all or a
portion of the hearing in camera in certain circumstances. The hearings usually involve
live testimony of witnesses and argument by the parties.

36 Ontario Securities Act, Section 128.

37 Ontario Securities Act, Section 129.
38 See, e.g., Criminal Code, Sections 380 (fraud), 382 (fraudulent manipulation of stock
exchange transactions) and 382.1 (prohibited insider trading).
39 See, e.g., IIROC Dealer Member Rules, Rules 19 & 20 and the IIROC Sanction Guidelines.
40 Where the predominant purpose of an investigation moves from the purely regulatory sphere
to ‘the determination of penal liability’, the investigation powers become more circumscribed:
see, e.g., R. v. Jarvis, [2002] 3 SCR 757.
41 See Ontario Securities Act, Part VI.
42 Ontario Statutory Powers Procedure Act, RSO 1990, Chapter S.22.

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Quasi-criminal proceedings brought under Section 122 of the Ontario Securities

Act are governed by the procedural rules in the Ontario Provincial Offences Act and
generally proceed as ordinary criminal proceedings before a judge in the Ontario Court
of Justice.43 The proceedings are typically prosecuted by the Commission (rather than
Crown counsel).

iii Settlements
Settlements in administrative enforcement proceedings are generally subject to
the approval of a Commission tribunal, which determines whether the terms of the
settlement are fair and reasonable in the circumstances and within acceptable parameters.
The Commission generally gives significant deference to the recommendations of the
Commission staff who negotiated the agreement. The Commission also considers
specific and general deterrence as a significant factor. The Commission may also consider
factors such as:
a the seriousness of the allegations;
b the size of any profit (or loss avoided) from the illegal conduct;
c whether the respondent has recognised the seriousness of the improprieties or
shown remorse;
d whether the respondent cooperated with the investigation; and
e the effect that the sanctions might have on the livelihood of the respondent.44

Settlement agreements commonly contain, among other things, a statement of the

relevant facts admitted by the respondent. The payment of the Commission’s investigation
or hearing costs are commonly a negotiated term of the settlement.
In 2014, the Ontario Securities Commission announced that, in certain
circumstances, it would allow ‘no-contest’ settlements under which respondents do not
make formal admissions respecting their misconduct. Any decision to accept or reject a
proposed no-contest settlement would be made by a Commission panel considering the
particular circumstances.
The Ontario Securities Commission Rules of Procedure prescribes basic parameters
for settlements in administrative enforcement matters under Section 127.45 Among other
features, the Rules provide that once a proposed settlement is reached, Commission
staff or a respondent typically request an in camera settlement conference with a panel
to review the proposed settlement prior to it being submitted to the Commission for
approval. The panel is entitled to give guidance on the adequacy of the specific settlement
proposal.
Where a settlement is approved, the Commission’s practice is to make the
settlement public immediately, absent exceptional circumstances.
In criminal or quasi-criminal proceedings, a settlement resulting in a guilty plea
must be approved by the Court. The Court maintains jurisdiction to determine the

43 Ontario Securities Act, Section 122(8).

44 See, e.g., Re Belteco Holdings Inc (1998), 21 OSCB 7743.
45 OSC Rules of Procedure, Rule 12.

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appropriate sentence. In the securities context, courts have considered factors such as
whether there were elements of fraud or breach of trust in the offence, whether there
was planning and deliberation in the offence, whether the respondent was working
with others to carry out the offence, and mitigating factors such as an early guilty plea,
remorse or restitution.

iv Sentencing and liability

The Ontario Securities Act prescribes the types of orders that the Commission can make
in the public interest in a regulatory proceeding under Section 127, which include orders:
a requiring a person or company to pay an administrative penalty of not more than
C$1 million for each failure to comply with securities law;
b requiring a person or company who has not complied with Ontario securities law
to disgorge amounts obtained as a result of the non-compliance;
c suspending the registration, recognition or exemption granted to a person or
company under securities law;
d directing that trading in any securities by or of a person or company cease, either
temporarily or permanently;
e prohibiting the acquisition of securities by a person or company; and
f prohibiting a person from acting as a director or officer of an issuer or registrant.46

The Commission has a very broad jurisdiction to make these orders in the public interest
and, in determining the appropriate penalty, the Commission will generally consider
factors relating to the protection of investors and the fostering of fair and efficient capital
markets and confidence in capital markets generally. The Supreme Court of Canada
has stated that the purpose of the Commission’s public interest jurisdiction is neither
remedial nor punitive; it is protective and preventive, intended to be exercised to
prevent likely future harm to Ontario’s capital markets.47 Some of the factors that the
Commission has considered in the past include the seriousness of the allegations, the
respondent’s experience in the marketplace, whether the respondent has recognised the
seriousness of the improprieties, the size of any profit or loss avoided from the illegal
conduct, whether the sanction imposed may serve to deter not only those involved in
the case being considered, but any like-minded people from engaging in similar abuses of
the capital market, and any mitigating factors.48 The Commission is generally not bound
by its previous orders.
In addition, in many cases, the Commission has the power to order respondents
to pay costs of the Commission’s investigation, the costs of the hearing, or both.49

46 The Ontario Securities Commission has the jurisdiction to issue other orders in certain
circumstances, such as the power to freeze assets of any person until the Commission or a
court orders otherwise: Ontario Securities Act, Section 126.
47 Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities
Commission), [2001] 2 SCR 132.
48 See, e.g., Spork v. Ontario Securities Commission, 2014 ONSC 2467.
49 Ontario Securities Act, Section 127.1.

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Section 122 of the Ontario Securities Act provides that a person or company found
guilty of an offence under Section 122 is liable to a fine or not more than C$5 million
or to imprisonment for a term of not more than five years less a day, or to both.50 In
exercising its sentencing discretion, the Court may consider the types of factors described
in the previous section of this article.

IV CROSS-BORDER ISSUES

As a general rule, Canadian courts are able to exercise jurisdiction over a dispute where
there is a ‘real and substantial connection’ between the subject matter of the dispute and
the province or between the defendant and the province.51 Foreign issuers should be
aware that Canadian courts have tended to take broad approaches to jurisdiction and
have shown a willingness to certify a global class in certain circumstances.52
Notably, however, in a significant decision released in 2014, the Court of Appeal
for Ontario held that even though it could exercise jurisdiction to hear a claim against
BP, PLC arising from the Deep Water Horizon oil spill, it should decline to exercise
that jurisdiction on the basis of forum non conveniens – particularly the principle of
comity, which required the Court to consider the implications of departing from the
international norms in England and the United States, where the vast majority of the
shares were traded.53 Accordingly, in appropriate circumstances, Canadian courts may
decline to exercise jurisdiction over claims against a foreign issuer where the foreign
issuer does not have a particularly substantial connection to Canada or parallel claims
are being brought in another jurisdiction with a closer connection to the subject matter
of the dispute.

V YEAR IN REVIEW

According to research by NERA, there are now approximately 60 unresolved securities

class actions in Canadian courts representing more than C$35 billion in total claims.54
Eleven new securities class actions were filed during 2014. The majority of these claims
are putative or certified class actions alleging misrepresentations affecting the price of
shares in the secondary market.

50 In criminal prosecutions under the Criminal Code, the potential sentences and penalties vary
depending on the offence. The Court has discretion, within the parameters of the Criminal
Code, to sentence a defendant as appropriate in the circumstances.
51 See, e.g., Abdula v. Canadian Solar, 2012 ONCA 211.
52 See, e.g., Silver v. Imax Corp, [2009] OJ No. 5585.
53 Kaynes v. BP, PLC, 2014 ONCA 580, leave to appeal to SCC refused. [2014] SCCA No. 452.
54 Available at: www.nera.com/content/dam/nera/publications/2015/PUB_Recent_Trends_
Canada_0115.pdf.

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The Canadian Securities Administrators, the council of the provincial and

territorial securities regulators in Canada, reported on the following statistics relating to
enforcement by securities regulators in 2014 across Canada:55
a 105 total proceedings were commenced involving, in aggregate, 189 individuals
and 92 companies.
b Almost half of the respondents were alleged to have engaged in wrongdoing related
to illegal distributions (129 of 281 respondents). Other common categories
included fraud (81 respondents) and market manipulation (23 respondents).
c Matters were concluded against 255 respondents. More than half of the matters
proceeded through a contested hearing before a tribunal. Approximately 31 per
cent of the matters were concluded by way of settlement agreement.
d Approximately C$58.2 million was ordered in fines and administrative penalties,
and approximately C$65.7 million was ordered in restitution, compensation and
disgorgement. The majority of fines were laid in cases of illegal distributions,
fraud and misconduct by registrants.

The Court of Appeal for Ontario released a series of decisions addressing important
issues regarding securities misrepresentation claims in Ontario. These issues included
the standard and application of the test for leave to commence an action under Part
XXIII.1 of the Ontario Securities Act,56 the certifiability of common law claims for
negligent misrepresentation (whether alongside parallel statutory claims or as stand-alone
claims),57 the limitation period for commencing claims under Part XXIII.158 and the
jurisdictional reach of Canadian courts to hear misrepresentation claims relating to
securities that trade primarily, if not entirely, on foreign exchanges.59
In 2014, the Government of Canada and the governments of several provinces
including Ontario and British Columbia (but not Alberta or Quebec) issued draft
legislation as part of an initiative named the Cooperative Capital Markets Regulatory
System.60 These participating jurisdictions seek to establish a national securities regulator
to replace the patchwork of different legislation, rules, instruments and policies that
regulate securities transactions and capital markets across the country. In 2014, the
participants sought comments on the draft legislation. It is expected that the participants
will issue draft regulations for public comment in 2015. The draft legislation proposed
a variety of changes to securities litigation and enforcement proceedings including by,
among other things, shifting certain onuses to defendants in misrepresentation claims
and by opening the door to collective actions to recover damages caused by insider
trading.

55 Available at: http://er-ral.csa-acvm.ca/wp-content/uploads/2015/02/CSA-2014-English.pdf.

56 Bayens v. Kinross Gold Corporation, 2014 ONCA 901; Green v. CIBC, 2014 ONCA 90.
57 Ibid.
58 Green v. CIBC, 2014 ONCA 90. This decision has been appealed to the Supreme Court of
Canada, and the appeal is pending at the time of writing.
59 Kaynes v. BP, PLC, 2014 ONCA 580, leave to appeal to SCC refused. [2014] SCCA No. 452.
60 See http://ccmr-ocrmc.ca/.

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VI OUTLOOK AND CONCLUSIONS

2015 is likely to bring additional clarification in issues relating to securities class

actions: there are three decisions pending before the Supreme Court of Canada that
are expected to decide issues relating to the test for leave to commence an action under
Part XXIII.1 of the Ontario Securities Act, the certifiability of common law claims for
negligent misrepresentation and the limitation period for commencing claims under Part
XXIII.1.61
The Ontario Securities Commission’s approach to insider trading is also likely
to be clarified in 2015. In March, a panel of the Commission found a former lawyer
and four investment advisors to have engaged in insider tipping and trading.62 While
Canada’s enforcement agencies have not had great success obtaining criminal convictions
for insider trading and tipping, the Commission appears to be willing to rely on its
public interest powers to combat insider trading, which the panel described as ‘a cancer
which erodes public confidence in the capital markets’.
We also expect that governments participating in the Cooperative Capital
Markets Regulatory System will continue their efforts to establish a national securities
regulator and to advance the legislation and regulations that could form the basis for
future securities law in Canada.

61 Green v. CIBC, 2014 ONCA 90.

62 www.osc.gov.on.ca/en/Proceedings_rad_20150324_azeffp-2.htm.

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 Appendix 1

ABOUT THE AUTHORS

MARK A GELOWITZ
Osler, Hoskin & Harcourt LLP
Mark A Gelowitz is a senior litigation partner at Osler. He is the chair of the firm’s
national corporate governance and securities litigation group. Mark has a business-focused
civil and securities litigation, appellate and international commercial arbitration practice.
His practice covers a wide variety of issues in corporate and commercial law including
mergers and acquisitions litigation, director and officer liability, oppression, mining
litigation and class actions. He has appeared before the Supreme Court of Canada, the
Ontario, Alberta, British Columbia and Yukon Courts of Appeal, the superior trial courts
of numerous provinces and the Ontario and British Columbia Securities Commissions.
Mark completed two appellate judicial clerkships, the first with the late Chief Justice ED
Bayda of the Saskatchewan Court of Appeal in 1986 and the second with the late Justice
John Sopinka of the Supreme Court of Canada in 1989. He completed the BCL degree
at Oxford University in 1989, between his clerking experiences. Mark has had a number
of legal publications including a book co-authored with the late Justice Sopinka entitled
The Conduct of an Appeal (third edition, LexisNexis 2012). Mark maintains a blog on
recent developments in Canadian appellate law and practice at Conductofanappeal.com.

ALLAN D COLEMAN
Osler, Hoskin & Harcourt LLP
Allan D Coleman is a partner in the litigation department at Osler. He has a wide-
ranging practice, with particular emphasis on corporate and securities litigation. He has
developed significant expertise in advising public companies involved in litigation arising
from major mergers and acquisitions and other business-critical transactions. Allan also
represents public issuers in class proceedings relating to alleged misrepresentations made
in prospectuses, financial statements and other public disclosure documents. In addition,
as part of his securities litigation practice, he has advised public companies and registrants

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 About the Authors

in the context of inquiries and investigations by the Ontario Securities Commission.

Allan also has extensive commercial litigation experience, including class action defence
work and conducting complex commercial arbitrations, including disputes arising from
asset purchase agreements and shareholder agreements.

ROBERT CARSON
Osler, Hoskin & Harcourt LLP
Robert Carson is an associate in the litigation department of Osler. He has acted for
issuers and other market participants in a variety of securities and corporate governance
litigation, including securities class actions, proxy fights, and oppression proceedings.

OSLER, HOSKIN & HARCOURT LLP

Box 50, 1 First Canadian Place
Toronto
Ontario M5X 1B8
Canada
Tel: +1 416 362 2111
Fax: +1 416 862 6666
mgelowitz@osler.com
acoleman@osler.com
rcarson@osler.com
www.osler.com

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