The Quebec Superior Court, in California States Teachers’ Retirement System v. Bausch Health Companies Inc. (2020 QCCS 275), recently clarified the rules applicable to limitation periods in the context of secondary-market liability actions under the Quebec Securities Act (QSA).
Much like its Ontario counterpart, s. 225.4 QSA provides for an authorization mechanism whereby applicants wishing to institute a secondary-market liability claim against a public issuer must convince the court that their actions are taken in good faith and have a “reasonable possibility of success”. While such actions can take on the form of class actions or individual claims, the QSA also provides for specific limitation periods related to the institution of these proceedings.
This judgment of the Quebec Superior Court essentially limits the arguments available to defendants based on those limitation periods to contest individual claims brought by class members who have opted out of secondary-market liability class actions. Leave to appeal was sought before the Quebec Court of Appeal.
Blackrock Assett Management Canada et al. (Blackrock) and the California States Teachers’ Retirement System (Cal) sought authorization to bring individual secondary-market liability claims under the QSA against Valeant, its directors and officers and its auditor (Defendants), claiming that (i) misrepresentations by the Defendants had caused the price of shares purchased in the secondary market to be artificially inflated, and (ii) that they suffered damages further to this information having been publicly corrected (Motions for Authorization).
On August 29, 2017, prior to Blackrock and Cal having filed the Motions for Authorization, the Superior Court of Quebec had authorized a class action in which similar facts were at issue (Catucci Class Action). Both Blackrock and Cal were originally members of the Catucci Class Action, but had opted out in order to bring forth their own individual claims: Blackrock on March 2, 2018, and Cal on December 19, 2018.
At issue in this matter was whether Blackrock and Cal’s respective claims had been forfeited or were prescribed. Defendants contested the Motions for Authorization on the grounds that pursuant to the QSA’s limitation periods, Blackrock and Cal had until March 5, 2018 (namely 6 months from the publication of the press release announcing that authorization had been granted in the Catucci Class Action) to file their claims on the merits (and in the case of Blackrock, not simply its Motion for Authorization).
The answer to this question largely centered on the interpretation of s. 236 (3) QSA, which provides that plaintiffs have 6 months from the publication of the press release announcing that authorization to bring a secondary-market liability claim has been granted to file their individual actions for damages.
Summary of the decision
Justice Kalichman of the Superior Court first determined that s. 236 (3) QSA does not create a delay of forfeiture, but rather sets out a time limit for actions in secondary-market liability to be filed. The relevance of this qualification is that a prescriptive delay (as opposed to a forfeiture delay) can be suspended and interrupted.
In coming to this conclusion, Justice Kalichman decided to adopt an interpretation that he viewed as being consistent with the OSA (s. 138.14), which provides for the same time limits (although with a different formulation). Even if he did not consider that s. 236 (3) QSA should be interpreted as creating a delay of forfeiture, he recognized the underlying objectives of the legislator to maintain predictability and stability in capital markets, as well as to ensure that actions based on the same alleged misrepresentation be brought expeditiously.
Justice Kalichman concluded that Blackrock and Cal’s claims were not prescribed, their right to bring forth their individual claims having been suspended as a result of the filing of the application for leave to bring the Catucci Class Action. His reasoning can be summarized as follows:
- The 6-month delay provided for in s. 236 (3) QSA began to run after the publication by the plaintiff of the press release disclosing the fact that authorization for a secondary-market liability claim had been granted in the Cattuci Class Action, i.e. on September 5, 2017.
- Like the OSA, the QSA does not contain any internal mechanisms to suspend or interrupt prescription. As such, the rules of the Quebec’s Civil Code governing suspension and interruption of prescription apply, including those providing that an application for leave to bring a class action suspends prescription in favour of all the members of the group for whose benefit it is made (See article 2908, CCQ). In this case, the filing of the application for leave to bring the Catucci Class Action on October 26, 2015 had effectively suspended Blackrock and Cal’s claims against Defendants until they opted out on June 19, 2018, when the prescription began to run again.
- Prescription was then interrupted by the filing of the Motions for Authorization by Blackrock on March 2, 2018 and by Cal on December 19, 2018 (within the 6-month delay under the QSA), which are to be considered judicial applications within the meaning of Quebec’s Civil Code. According to Justice Kalichman, the fact that the legislator requires that authorization be granted before a claim can be brought under the QSA does not alter the fact that Blackrock and Cal, via their respective Motions for Authorization, were clearly seeking recognition of their rights.
As an increasing amount of secondary-market liability class actions are being filed in Quebec, it will be interesting to assess how many members opt out to file their own individual actions. This Superior Court judgment essentially allows those members to seek authorization to bring individual secondary-market liability claims under the QSA within a 6-month delay after they have opted out of the class action. We will keep our eyes open to see whether the Quebec Court of Appeal agrees to hear the appeal.