Recent decision in IMAX could limit Canada’s appeal for global class actions

The scope of securities class actions extends beyond the borders of the U.S., and our neighbors to the north have been quite active in terms of group litigation in years past. But for Canada, and for many other foreign jurisdictions, the class action process is an evolving one. It’s important to not only identify and track cases, but also to stay educated on recent legal developments across the globe.

One such development involves a recent decision by the Ontario Superior Court states that members of a class certified against IMAX in Ontario can be bound by a settlement in a related U.S. class action and therefore are excluded from participating in the Ontario class proceeding. The action alleges the defendant, a Canadian-based public company with shares listed on both the Toronto Stock Exchange (TSX) and the NASDAQ, made misrepresentations in its financial reports. The class, certified in 2009, included not only investors that purchased shares on the TSX but also those that purchased on the NASDAQ. A parallel action – commenced in the U.S. in 2006 – however, only affected those investors who purchased on the NASDAQ.

In 2012, a settlement agreement in the U.S. class proceeding was approved on the condition that the Ontario court amend its class to exclude those shareholders who purchased IMAX securities on the NASDAQ. As a result, the defendants in the Ontario class proceeding filed a motion to exclude those class members who were also part of the U.S. action.

The order was granted by Justice van Ransburg, holding it was appropriate to recognize the U.S. settlement order according to the test set out in Currie v. McDonald’s Restaurants of Canada Ltd. The Court determined there was a substantial connection between the U.S. claims and the NASDAQ purchaser claims in the Ontario case, and that the plaintiffs had received procedural fairness and were adequately represented in the U.S. action. Additionally, the Court held the U.S. settlement furthered the objectives of class proceedings, particularly the resolution of the proposed common issues, and that keeping the U.S. purchasers in the Ontario proceeding would not promote access to justice.

While the decision may be subject to an appeal, it effectively eliminated 85% of the class members from the Ontario action. The decision provides a framework for Canadian courts to approach parallel class actions with overlapping classes and recognize foreign settlements as binding. For defendants, the decision is a welcome one, as it provides them the opportunity to settle an action in one jurisdiction and simultaneously achieve a final resolution for class members in another. The precedent set here may also give defendants an incentive to insist on class action settlements that are conditional on excluding overlapping class members from parallel actions.

Financial Recovery Technologies has resources dedicated to international group actions research, so we can stay in front of trends and changes across the globe. Contact FRT today to learn more about FRT Global, our international information and research practice.