© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the December 2005 edition of BENEFITS CANADA magazine.
The Law: Double take
Ontario’s new securities regime allows pension administrators to recover investment losses caused by misrepresentations in the secondary securities market.
By Jonathan Foreman, Paul Bates and David Williams

ADMINISTRATORS AND TRUSTEES OF CANADIAN PENSION funds are legally bound to preserve and increase the pension fund assets of plan members. Their duties may require launching legal actions, including class actions where appropriate. Though class actions brought by administrators and trustees have been rare, changes to Ontario’s Securities Act mean a new legal door is about to open for sponsors in that province.

Under Ontario’s revised securities rules which come into force on Jan. 1, 2006, administrators and trustees will possess a powerful new means for reclaiming investment losses in the secondary market(where securities are sold in day-to-day business other than as part of an initial public offering).

They will now be able to launch class actions if misrepresentations or failures to make accurate and/or timely disclosure by an issuer of publicly traded shares occur in the secondary market. Litigation of this nature was formerly difficult to pursue in Canada because each investor had to prove a reliance on a misrepresentation or material ommission resulting in loss.

Ontario’s new securities regime, used in the class action context, is designed to give the claimant power by acting not only for themselves, but for all affected investors and to generate desirable outcomes within reasonable timeframes in bona fide cases.

The size, sophistication and purpose of pension funds makes them highly credible and persuasive litigants which can favourably influence Canadian and international markets in the interests of their members and for investors generally.

Class actions are cost-effective because class action lawyers routinely offer their services on a contingency basis and carry the out-of-pocket costs of a case, thereby assuming virtually all of the risks associated with the litigation. Arguably, the commencement of class actions using the new regime may become the standard in meeting the duties applicable to this group.

The following are the highlights of the new regime:
1. Who can sue?
A person or company which buys or sells securities in the secondary market following a misrepresentation which includes a failure to provide timely disclosure.

2. Who can be sued?
An issuer of securities, its directors and officers, influential persons or firms and their directors or officers)and experts such as accountants and lawyers.

3. What is the basis of a claim?
Claims may proceed when misrepresentations are made in documents or where oral statements are made by a person with actual or apparent authority to speak on behalf of an issuer, or in circumstances where timely disclosure of a material change is not made.

4. What defences are available?
Among other defences issuers, may defend themselves by demonstrating that they were duly diligent in all of the circumstances.

5. What remedies are available?
The losses caused can be recovered subject to limits established under the new regime. The limit does not apply where the misrepresentation is found to be intentional.

6. Are there procedural controls?
The court’s approval is required for an action to proceed. Good faith and a reasonable possibility of success at a trial must be demonstrated by the plaintiff following an extensive review of all information.

Administrators and trustees of Canadian pension funds will find their member and shareholder duties well aligned with the processes available under Ontario’s new securities regime and class proceedings legislation. Class actions will afford the best opportunity to preserve assets and favourably influence corporate governance in a timely way.

Jonathan Foreman and David Williams are lawyers with Harrison Pensa LLP, foreman@harrisonpensa.com, dwilliams@harrisonpensa.com. Paul Bates is a lawyer with Bates Barristers, pbates@batesbarrister.ca.