If uncertainty in the capital markets is not the new normal, it has at least persisted for several quarters. Many themes that clouded the outlook for the markets in 2012 remain the same for 2013: European stagnation; political debate between austerity and stimulus; and concerns about the lack of consumer spending. Despite these circumstances, Canada has weathered the storm, and in 2012 reached the highest level of global acquisitions in recent history. Also taking centre stage in this busy market is shareholder activism. While shareholder activism is not new to Canada, a clear message has been sent to Canadian boards: no widely held public company can ignore activists, and boards will increasingly be forced to respond with initiatives that enhance shareholder value, such as management changes, recapitalizations, asset sales, spin-offs or even a sale of the business as a whole.
Meanwhile, the Canadian government and regulators have sought to address issues of public importance relating to friendly and hostile acquisition activity while continuing to promote Canada as an attractive investment destination. The Ontario Securities Commission introduced changes to its rules relating to “poison pills,” or shareholder rights plans, intended to give target boards more latitude to decide when and how they respond to an unsolicited takeover bid.
On the litigation front, recent high-profile cases have encompassed a broad variety of issues, producing favourable results for both businesses and individual plaintiffs. Overall, class actions continue to dominate the litigation landscape, with Canadian courts certifying class actions or deciding common issues trials on a wide range of matters, including competition, securities, unpaid wages or overtime, and product liability.
We expect that developments in these areas will continue to warrant careful attention since many of the cases are proceeding to appeal, where the issues will receive fresh consideration.
Although Ontario’s regime for statutory secondary market liability came into effect several years ago, continued volatility in equity markets has resulted in a marked increase in the number of claims commenced. Amendments to Ontario’s securities legislation created a statutory cause of action allowing shareholders to seek damages when an issuer fails to make timely disclosure of material changes or an issuer’s disclosure contains a material misrepresentation. A shareholder need not prove actual reliance on the misrepresentation or the failure to make timely disclosure. The effect of deemed reliance is to facilitate certification of secondary market claims as class actions. The regime requires that the plaintiff obtain leave from the court to proceed with a claim. Although these measures are intended to protect defendants from coercive and unmeritorious claims, recent decisions considering the test for leave have arguably set the threshold at a level that will make it relatively easy for shareholders to pursue class actions against public companies for misrepresentations in their disclosure.
Settlement with the regulator may provide no defence to future class action liability. Unless the settlement is overturned on appeal, it is now the law that absent unique circumstances, a settlement reached in a regulatory proceeding will not preclude or bar a related class proceeding.
The development of the law in relation to competition class actions has been in a state of flux. Courts in Ontario have recently been more inclined to certify such claims. However, in a recent decision, the British Columbia appeal court followed the lead of US jurisprudence, holding that indirect purchasers may not assert claims because the law does not permit defendants to assert that an overcharge may have been passed on to them. If ultimately overturned on appeal, this decision could drastically widen the availability of consumer class actions for price-fixing. On the regulatory front, contested proceedings before the Competition Tribunal have picked up, and we expect more activity in 2013 as the Competition Bureau continues to take a firm enforcement stance.
There has been an increase in class actions against employers for unpaid overtime under federal and provincial labour and employment laws. To date, decisions on the issue of certification have gone both for and against defendant employers, with the tide in favour of certification. Commonality of the issues continues to be the area of greatest discussion and proved to be decisive in these cases.
Developments in product liability class actions indicate that Canadian courts may be moving away from what had been viewed as a relatively plaintiff-friendly environment. Before 2012, certification of a proposed class action of allegedly defective products, particularly medical products, was almost guaranteed. The bar for certification in these cases was low. As a result, most product liability cases settled long before reaching a common issues trial and often before certification. Now, however, it appears that the pendulum may be swinging back in defendants’ favour with courts denying certification and holding that, in the context of non-dangerous products, a manufacturer has no duty to disclose design defects and that, as a general rule, a claim for pure economic loss in such circumstances cannot succeed. Lastly, the doctrine of waiver of tort, which permits tort victims in certain cases to base their damages claim on disgorgement, also received judicial treatment that may limit the scope of its application in the future.