Faced with a class-action lawsuit, the Canadian-based film company Imax Corp. must wish it could rewind a decade or so. At the time, Ontario’s Securities Act operated according to the principle of “individual reliance,” which meant each investor had to prove that he or she was duped into buying stocks by faulty company numbers. This made certifying a class-action case quite difficult. But south of the border, U.S. regulators could apply a concept called “fraud on the market” — meaning if companies failed to disclose information affecting their stock price, plaintiffs could automatically launch a class-action suit.
The tide has turned. In 2005, Ontario introduced amendments to part of the Securities Act that made it easier to do away with individual reliance. Now, as Ontario is becoming more lenient with class-action suit regulations, the U.S. is tightening its laws.
The United States Supreme Court and Ontario’s Superior Court are currently both hearing the Imax case, in which investors are suing Imax for inflating revenue numbers in 2005. The U.S. judge has excluded foreign investors, based on a precedent set in a 2010 Supreme Court ruling in the case of Morrison v. National Australian Bank. Meanwhile, in 2009 Ontario courts approved the Imax class-action suit and ruled it would be tried as a global class, meaning any investor who bought shares, whether on the TSX or Nasdaq, can be included as a plaintiff. (A similar global class-action case was approved this month against Winnipeg-based Arctic Glacier Income Fund.)
The increasingly plaintiff-friendly nature of the Ontario courts has some analysts wondering whether the province will become a hub for aggrieved foreign investors. The firm representing Imax, McCarthy T?trault LLP, declined to comment, but the plaintiff lawyer representing the investors, Dimitri Lascaris from Siskinds law firm, thinks the precedent being set is significant. He says though Ontario won’t become a “plaintiff nirvana,” mostly due to the fact that in order to be sued a company must have a tangible Canadian connection and that these lawsuits are costly to launch, the Ontario court is showing financial savviness. “The way people buy shares in the world today is by clicking on the Internet,” says Lascaris. “Forcing people to have claims adjudicated in a foreign climate is bad policy and divorced from the way capital markets function today.”
Won Kim, a Toronto-based class-action plaintiff lawyer, agrees that during a time where the TSX could be merging with LSE, and the NYSE could be swallowed by the Frankfurt stock exchange, a global-class precedent just makes sense. Class-action defence lawyers are skeptical, though, and while Joseph D’Angelo, a senior litigation partner at McMillan LLP, says the Imax case means the door is open to foreign investors, “whether it manifests in reality remains to be seen.” He points out so far there hasn’t been “an avalanche of cases,” and that only about 12 were launched in the past two years.
Won, though, says that while it’s still early days, Ontario’s potential to be a class-action powerhouse is real: “There are 20 other cases going through the system already,” he says. “So I mean, we’re in for interesting times.”