In Green v CIBC, Court underscores the importance of deterring untrue, misleading or incomplete disclosure by public companies.
Summary: In a breakthrough decision, the Ontario Court of Appeal has overturned its own earlier ruling and has protected the rights of investors to sue where there has been untrue, misleading or incomplete disclosure by a public company. While every securities act across Canada gives investors this right, it is relatively new and only a few appeal court decisions have considered it. In a 2012 decision, the Ontario Court of Appeal had severely constrained this right by requiring investor plaintiffs to both commence litigation and obtain leave to proceed from a judge within 3 years of the alleged misrepresentation, even though much of the process for obtaining leave might be outside their control. With this latest decision, the Court has overturned its earlier ruling and restored a common sense approach to a remedy which was intended to protect investors from misleading or fraudulent claims by companies. SHARE participated in this case as an intervenor and argued that credible, reliable disclosure by companies was essential to the health of public capital markets.
Read more: The main issue in Green v. CIBC was how to interpret the time limit for bringing the action. Companies and directors and officers that had been sued argued that the time limit had expired for the investors in the three cases before the court of appeal. They argued that, even though the investors had started litigation within the time limit, it was not enough because the investors also had to obtain leave to proceed (or permission to proceed with the action) for the deadline to be met. The suing investors argued this was unreasonable. They argued the deadline was met when they started the litigation, but even if the time limits had expired, the court could extend the deadline in certain circumstances.
SHARE, with its lawyers Koskie Minsky LLP, participated in the Green v. CIBC appeal as an intervenor to provide the perspective of institutional investors. SHARE emphasized that institutional investors are the main users of Canadian public markets and they and the capital markets as a whole depend on disclosure from companies. SHARE explained that the right of action was an important way of deterring public companies from improper disclosure and argued that the right of action would be meaningless if it was not practical. SHARE asserted that the arguments from companies and individuals that had been sued were not practical – to the point that the right of action was being undermined.
The Court of Appeal agreed and found that the time limit had expired in none of the cases before it. The Court of Appeal provides a discussion of the importance of disclosure and the right of action to investors and the capital markets at large: “civil actions are an important way of obtaining compliance with the corporate obligation for ongoing, accurate disclosure”.
Green v. CIBC signals a shift in favour of improving disclosure and the integrity of Canadian capital markets. This shift ultimately benefits the investor community at large. While a particular public company may lament the cost of a lawsuit for its shareholders, there are immeasurable market-wide benefits of improved public disclosure.
A copy of the decision can be viewed here.
