Court of Appeal Maintains Denial of Leave in Securities Action

January 28, 2016

The most recent decision from the Ontario Court of Appeal on leave in securities class actions, Goldsmith v. National Bank, continues a trend of denying leave. The action had its origin in the demise of Poseidon Concepts in 2013, a publicly-traded energy services company. The defendant in the action, National Bank, was Poseidon’s financial advisor on its public offering. The plaintiff sought to commence an action against National Bank under  Part XXIII.1 of the Ontario Securities Act (OSA).

The motions judge denied the plaintiff’s motion for leave to commence the action. The motions judge followed Theratechnologies Inc. in noting that the leave requirement is meant as a “robust deterrent screening mechanism” and that such a screening is intended to ensure that actions without “merit are prevented from proceeding”. A key issue was whether the defendant was a “promoter” under the OSA statutory framework. The motions judge held that the defendant was “merely engaged in ordinary commercial banking” and was not a “promoter” for purposes of the OSA.

The Court of Appeal upheld the motion judge’s decision, echoing early decisions that the objective of the leave test is to “[screen] out unmeritorious claims at an early stage.” The Court of Appeal also upheld that the defendant did not fit within the statutory framework as a “promoter” and that the phrase “requires a form of active and autonomous involvement in the organization or reorganization of a company.” The Court of Appeal as well made clear that “determining whether a plaintiff has offered a plausible interpretation is something that will have to be analyzed on a case-by-case basis.”

Goldsmith v. National Bank of Canada, 2016 ONCA 22

Theratechnologies inc. v. 121851 Canada inc., 2015 SCC 18

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