Securities Litigation: Developing Issues in Canada

Recent court rulings and emerging regulatory practices have significant implications for public issuers and other capital market participants in Canada. These developments touch a range of issues, from corporate disclosure obligations to takeover defence strategies and enhanced enforcement.

Below are five key updates on the securities litigation landscape in Canada:

1. Material Change Reporting. The upcoming Supreme Court of Canada appeal hearing in the Markowich case could affect public issuers’ understanding of their disclosure obligations under applicable securities laws and potentially encourage securities class actions. The appeal will focus on the interpretation of “material change” and the threshold courts should apply in determining leave applications in securities class actions raising the issue of whether a material change has occurred and been adequately disclosed.
2. Takeover Defence Strategies. Recent cases like Bitfarms and Greenfire Resources illustrate the regulatory scrutiny faced by shareholder rights plans. The Ontario Capital Markets Tribunal and Alberta Securities Commission have reinforced that rights plans must align with Canada’s modern takeover bid regime. The rulings signal limited tolerance for deviations, especially those perceived as tactical or retroactive.
3. Administrative Monetary Penalties. The Poonian case addressed whether administrative monetary penalties (AMPs) imposed by securities regulators can be discharged in bankruptcy. The Supreme Court of Canada ruled that, in contrast to court-imposed fines, AMPs can be discharged, marking a potentially significant categorical distinction between AMPs and conventional fines. Regulators have indicated they may seek amendments to their AMPs powers in response to the decision, and it is likely that the contest over the extent and nature of AMPs powers will continue.
4. Procedural Fairness. The Morabito case highlights procedural fairness issues at the B.C. Securities Commission (BCSC). The B.C. Court of Appeal found that the BCSC’s handling of evidence and a blended hearing format denied respondents a fair process. Key concerns included aggressive investigative tactics, inadequate disclosure and improper restrictions on the respondents’ ability to cross-examine witnesses. The court ordered a rehearing with a new panel. Its reasons will guide respondents facing abusive tactics at the BCSC.
5. Quebec’s Enforcement Tools. Quebec’s Bill 30, which became law on May 9, 2024, enhances securities enforcement by holding directors and officers jointly liable for unpaid penalties and allowing the regulators to register legal hypothecs on their assets. These measures aim to improve penalty collection rates. They may, however, complicate proceedings by creating a need for separate corporate and individual defences.

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