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Class Certification Affirmed by Supreme Court
Published in the March 2009 issue of Litigation Notes - View Article
The Supreme Court of Canada. has denied leave to appeal from a decision of the Superior Court of the Province of Quebec, which certified a class action brought on behalf of all persons resident in Canada who purchased shares of CP Ships between June 29, 2003 and August 9, 2004. The suit alleges that the share price dropped because CP Ships had to restate net income as a result of converting from Generally Accepted Accounting Principles (GAAP) to Statutory Accounting Principles (SAP)
Early in March, the Supreme Court of Canada denied an application for leave to appeal launched by CP Ships and senior officers of that company. The case involves an application for certification of a national class of claimants who allege they have suffered loss as a result of misleading statements which resulted in inflated share prices. In particular, the identified class is all persons resident in Canada who purchased shares of CP Ships between June 29, 2003 and August 9, 2004 and who, at the latter date, still held shares purchased in this period.
An application for certification of this class was considered by the Superior Court of the Province of Quebec in the summer of 2008. Certification was granted and the defendants then sought leave to appeal to the Supreme Court of Canada. As that leave application has been denied, the decision of the Superior court is final and the matter will proceed as a class action.
A refusal to grant leave to appeal is not, strictly, an affirmation of the decision below. However, the outcome of this leave application does give some additional support to the line of reasoning accepted in the Superior Court.
The points on which that court most insisted were all related to the propositions that any wrong committed was suffered by the market as a whole and that the damage suffered by individuals would differ only in so far as they held more or fewer shares. The court also made reference to a recent decision on the issue of extraterritorial application of class action legislation and adopted the reasoning of that decision. As the reasons for decision now have something like the imprimatur of the Supreme Court of Canada, they warrant closer examination.
At the heart of the complaint is the decision of CP Ships to convert from Generally Accepted Accounting Principles (GAAP) to Statutory Accounting Principles (SAP). On August 9, 2004, CP Ships announced that it would have to restate net income as a result of implementing SAP effective January 2004. The examination of its results under SAP would, the company announced, require negative revisions. The complainants allege that the requirement of these negative revisions was known as early as January of 2003 and should have been revealed at that time.
As in any proposed class action, the claimants were required to demonstrate that the claims of individual members of the class would raise identical or similar issues of law or fact. The defendants resisted certification on the basis that there was no sufficient similarity in the legal and factual issues. Presumably—although this is not explicitly stated in the reasons—they argued that the court would have to consider the situation of each individual purchaser to determine whether he had been misled and the financial consequences for him of any wrong he thus suffered.
The court rejected this argument and affirmed that if a wrong was committed, it was committed on the market as a whole and that the result would be a calculable damage which would be exactly the same for each share purchased. Once this damage per share is established, it does not matter, the Court concluded, when the individual purchaser sells his share or for what price. In the hypothetical case of a damage-per-share of $6.91, the individual loss will be $6.91 whether the shareholder sells for a loss which exceeds $6.91, for a loss of less than $6.91 or for a profit.
The proposed class defendants also objected on the grounds that the application of the Quebec legislation respecting class actions to persons resident outside the province was unconstitutional. The Court rejected this argument, referring to another recent Superior Court decision: Noelia Brito c. Pfizer Canada. Justice Barakett, who decided the present case, stated that he entirely agreed with the reasoning in Pfizer and adopted as his own the analysis set out therein.
In the Pfizer case, Justice Grenier undertook a lengthy examination of the issue of extraterritorial application and concluded that there can be no general rule precluding such application. Some dozen Quebec cases have allowed the certification of pan-Canadian classes and the legislatures of some provinces have specifically recognized the possibility of extraterritorial application. Although it is true that there may be problems with respect to enforcement and that the law applicable to residents of one province may be different from that applicable to another province, extraterritorial application will be appropriate so long as there is a “real and substantial connection” between the jurisdiction whose statute is to be applied and the persons who may be subject to the proceedings. On the basis of this analysis, Justice Barakett concluded that a pan-Canadian class was appropriate.
Nguyen v. CP Ships Ltd., 2008 QCCS 3817