2013 QCCA 1256, 2013 QCCA 1256

Unofficial English Translation Theratechnologies inc. c. 121851 Canada inc. 2013 QCCA 1256 COURT OF APPEAL CANADA PROVINCE OF QUÉBEC MONTRÉAL REGISTRY No. 500-09-022519-128 (500-06-000515-102) DATE: July 17, 2013 CORAM: THE HONOURABLE ANDRÉ ROCHON J.A. JEAN BOUCHARD J.A. CLÉMENT GASCON J.A. THERATECHNOLOGIES INC. YVES ROSCONI PAUL POMMIER APPELLANTS – Respondents v. 121851 CANADA INC.

RESPONDENT – Petitioner JUDGMENT [ 1 ] The appellants are seeking leave to appeal from a judgment of the Superior Court, District of Montréal (the Honourable Marc- André Blanchard J.), rendered on February 24, 2012, which authorized the respondent to institute an action for damages by means of a class action, within the meaning of

section 225.4 of the Securities Act . [ 2 ] For the reasons of Gascon J.A., to which Rochon and Bouchard JJ.A. subscribe, THE COURT: [ 3 ] ALLOWS the motion for leave to appeal, without costs; [ 4 ] DISMISSES the appeal, with costs. (

s) ANDRÉ ROCHON J.A. (

s) JEAN BOUCHARD J.A. (

s) CLÉMENT GASCON J.A. Mtre. Pierre Y. Lefebvre Mtre. Philippe Charest-Beaudry FASKEN MARTINEAU DuMOULIN For the appellants Mtre. Michel Savonitto SAVONITTO & ASSOCIÉS INC.

For the respondent Date of hearing: January 24, 2013 REASONS OF GASCON J.A. [ 5 ] This case raises an unprecedented issue of the appeal from a judgment authorizing the institution of a class action. For the first time, the Court must rule on the right of appeal from a judgment authorizing an action for damages by means of a class action, according to

section 225.4 of the Securities Act (S.A.). [1] [ 6 ] That

section of new law came into force in 2007. It makes it necessary to have the Court’s prior authorization before instituting an action pursuant to the division of the S.A. dealing with civil sanctions for false or misleading information in the secondary market. [2] The action for damages that the

section deals with is aimed at penalizing violations of the continuous disclosure requirements of reporting issuers within the meaning of the S.A. This is a new civil liability regime established by the Québec legislator for the secondary market. The authorization required is granted only if the Court “deems that the action is in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff”. [ 7 ] In the impugned judgment, [3] the Superior Court (the Honourable Marc-André Blanchard J.) authorized the respondent to institute an action for damages pursuant to that

section and the associated class action. Further to the appellants’ motion for leave to appeal, the Court must answer the following questions: (

a) Is there a right to appeal from that judgment? If so, is the appeal subject to leave? If so, should leave be granted in this case? (

b) If the appeal is authorized, did the trial judge err in his analysis of the criteria for granting the necessary authorization or in his application of the criteria to the facts in the case? [ 8 ] For the reasons that follow, I am of the opinion that, contrary to the rule that generally prevails for a judgment authorizing a class action (the second paragraph of art. 1010 of the Code of Civil Procedure (C.C.P.)), a right of appeal upon leave exists in this case.

I also believe that it should be granted in the circumstances. [ 9 ] However, I find that, although his analysis of the criteria for granting the required authorization requires some clarifications, the judge did not commit a palpable and overriding error in applying those criteria to the facts in the case. [ 10 ] I there conclude that the leave to appeal sought must be granted, but that the appeal must be dismissed. The authorized class action must take its normal course. CONTEXT [ 11 ] The appellant Theratechnologies Inc. (Thera) is a pubic corporation listed on the Toronto Stock Exchange.

The appellants Yves Rosconi and Paul Pommier were, respectively, president and chief executive officer, and chairman of the board of directors. Thera is an enterprise that develops and markets innovative therapeutic products, particularly in the peptide field. [ 12 ] Until May 25, 2010, the respondent, 121851 Canada Inc. (121CAN), held 190 000 common shares of Thera. [ 13 ] On June 1, 2009, Thera filed a new drug approval application (NDA) with the Food and Drug Administration (FDA) in the United States. The objective was to be able to market its most recent discovery, tesamorelin.

Th drug treats lipodystrophy, or excess abdominal fat in patients with HIV. The excess abdominal fat is the result of the administration of antiretroviral drugs and the virus itself. [ 14 ] In the NDA process, the FDA mandates an advisory committee (the Committee) to conduct a study of the new drug. However, the Committee’s report does not bind the FDA. [ 15 ] When the process began, Thera’s drug was still in the clinical studies stage, but the prognosis was very positive. It is admitted that Thera’s future depended to a great extent on marketing the product. At the time, it was marketing no other drug.

Hence, over the months that followed, Thera regularly informed its shareholders about developments related to the product and its upcoming marketing. [ 16 ] As part of the NDA process, a number of exchanges of documentation took place among the FDA, the Committee and Thera. Thera submitted, among other things, briefing materials that were analyzed by the FDA and the Committee.

In response, the FDA raised some questions related to the results of the clinical studies conducted, to which Thera had to respond. [ 17 ] One of the questions that the FDA raised with the Committee was as follows: Please comment on the findings of glucose intolerance and development of diabetes associated with Egrifta (tesamorelin) therapy and its impact on long-term cardiovascular risk. [ 18 ] For Thera, the documentation provided responded specifically and exhaustively to the questions asked. [ 19 ] At the end of the FDA process, the Committee had to hold a public meeting in order to hear any interested party.

For

tesamorelin, Thursday, May 27, 2010 was chosen for the holding of the public meeting. [ 20 ] Prior to this meeting, and in accordance with its procedural rules, the FDA published on its website the information compiled during the process. Thus, on Tuesday, May 25, 48 hours before the meeting was held, the FDA published on its website a number of documents related to its meetings and discussions with Thera, including, notably, the document containing the questions related to the results of the clinical studies, with the question cited above. [ 21 ] Thera did not react to that publication.

However, the information thereby published by the FDA attracted the attention of stock quotation enterprises, including Bloomberg, Dow Jones and Thomson Reuters. On the strength of their reading of the questions that the FDA asked Thera, the enterprises publicized, in a press release, the fear that tesamorelin could increase the risk of diabetes. [ 22 ] Informed in that manner of the documents published by the FDA, and given the absence of reaction by the corporation, 121CAN decided to sell its Thera shares the same day.

It recorded a net loss of $271 752 on their market value on Friday, May 21, 2010, the business day preceding the publication of the documents. [ 23 ] On May 25, 2010, in unusually high trading volume, the market price of the share in fact fell 58%. Moreover, on May 27, trading in Thera stock was ordered to cease, until the next day. [ 24 ] Also on May 27, 2010, following the public meeting scheduled, the Committee unanimously voted to approve Thera’s new drug application. Thera communicated the news immediately to its shareholders, as of 4:49 p.m.

Just a day later, on May 29, the value of the stock returned to normal. [ 25 ] Subsequently, the FDA approved the new drug application, thereby authorizing its sale to patients with lipodystrophy. [ 26 ] It was against that backdrop that, on July 26, 2010, 121CAN asked for authorization to institute an action for damages by means of a class action against the appellants.

The damages it claimed from them totalled $390 302; they included, in addition to the net loss identified, an amount for commissions ($750) and a loss of appreciation in value ($117 800). [ 27 ] 121CAN alleged that the appellants failed to disclose in a press release a “material change” as a reporting issuer pursuant to the S.A. According to 121CAN, a continuous disclosure requirement was incumbent on the appellants pursuant to

section 73 of the S.A. and

section 7.1 of Regulation 51-102 respecting continuous disclosure obligations . [4] It contended that, upon the occurrence of a material change that is unknown to the public and likely to have a considerable impact on the value or market price of the stock, Thera had to publish and file with the Commission des valeurs mobilières du Québec a press release disclosing the nature and substance of the change. [ 28 ] It allegedly failed to do so in this case. [ 29 ] Initially, 121CAN sought authorization to institute a class action solely according to articles 1002 et seq. of the C.C.P.

At that point, the appellants opposed a motion to dismiss on the ground of the absence of prior authorization to institute the action for damages, as prescribed by

section 225.4 of the S.A. [ 30 ] On November 4, 2010, after a hearing on the motion to dismiss, the trial judge authorized an amendment by which 121CAN added a motion for authorization to institute the action for damages. Subsequently, on March 7, 2011, the judge allowed the appellants to file limited evidence to constitute their defence. [ 31 ] In first instance, 121CAN sought authorization to institute an action for damages under the aegis of

section 225.4 of the S.A. and authorization to institute a class action according to articles 1002 et seq. of the C.C.P. In the impugned judgment, which was rendered on February 24, 2012, the judge allowed the two aspects of the motion. [ 32 ] On March 20, 2012, the appellants filed a motion for leave to appeal. On August 22, Morissette J., sitting alone, referred to a panel of the Court the hearing on the leave and on the merits (the fifth paragraph of art. 509 of the C.C.P.).

In his judgment, he said he was of the opinion that the issues raised were interesting legal issues unprecedented in Québec law and merited the Court’s attention. He clarified in the following terms the questions that underpinned the dispute regarding leave to appeal: [TRANSLATION] 1. Is there such a close convergence between the conditions provided for in the third paragraph of

section 225.4 of the Securities Act and that provided for in subparagraph (

c) of

article 1003 of the Code of Civil Procedure that the conditions are more or less comparable, or are the provisions largely alien to one another, given the considerations they call for? 2. When, as in this case, the recourse in

section 225.4 of the Securities Act is exercised as part of a class action according to the rules of the Code of Civil Procedure , must the second paragraph of

article 1010 of the Code of Civil Procedure be made to prevail over the silence of

section 225.4 of the Securities Act on the subject of an appeal? 3. Since the Securities Act does not explicitly mention a right of appeal and some of its provisions imply that the process triggered by the authorization in

section 225.4 must be expeditious, must it be deduced that no right of appeal exists against a judgment of authorization rendered pursuant to that

section or, on the contrary, does it imply an interlocutory judgment governed, like many others rendered in application of particular laws, by the rules of general law of the Code of Civil Procedure ? 4. Even assuming that, in a case like this, the aspect governed by

section 225.4 of the Securities Act can be dissociated from that

governed by articles 1002 et seq. of the Code of Civil Procedure , can a judgment of authorization rendered pursuant to

section 225.4 of the Securities Act be the subject of an appeal according to

article 29 of the Code of Civil Procedure ? Inasmuch as it is said to be comparable to a judgment dismissing a motion to dismiss, such a judgment would not be governed by subparagraph (2) of

article 29 of the Code of Civil Procedure —and, in fact, the idea can be advanced that the fact, in and of itself, of being compelled to proceed on the merits, without any particular restriction, but having to bear the costs, inconvenience and time that that implies is not the type of situation that this specific provision concerns. On the other hand, if

section 225.4 is used particularly to screen recourse likely to create an economic imbalance between plaintiffs and defendants in the grips of this type of action for damages, that aim perhaps argues in favour of an

interpretation of

article 29 of the Code of Civil Procedure that favours a right of appeal upon leave. THE IMPUGNED JUDGMENT [ 33 ] The impugned judgment does not, of course, discuss the right of appeal at the heart of the debate before the Court. It deals only with the criteria applicable to the authorization required to institute the action envisioned. On that subject, the trial judge began his analysis by determining the degree of similarity between the requirements of

article 1003 of the C.C.P. and those of

section 225.4 of the S.A. [ 34 ] Refusing to require complete evidence of the alleged right before the trial on the merits, he opined that he could not conclude that the criteria in the two provisions were the same. According to the judge, that was apparent from the different vocabulary used in the two provisions, the well-known maxim that [TRANSLATION] “legislators do not speak if they have nothing to say”, the

interpretation rule that the more contemporary text must mean something different from the preceding one, and the parliamentary debates indicating the wish to tie the S.A. to Canadian legislation on the same subject. [ 35 ] Thus, the judge affirmed that [TRANSLATION] “the criterion that there be a reasonable possibility that the action will be resolved in favour of the plaintiff”, in

section 225.4 of the S.A., demands a more conclusive demonstration than that stemming from the application of paragraph (

b) of

article 1003 of the C.C.P., which requires that “the facts alleged seem to justify the conclusions sought” (at para. [78]). He pointed out that [TRANSLATION] “the criterion in paragraph (

b) of

article 1003 of the C.C.P. is a screening out process that requires a “ de minimis ” demonstration of the legal syllogism envisioned by the person seeking the authorization to institute a class action” (at para. [79]). [ 36 ] The judge continued by underscoring that he had to place himself at the time of the relevant period in order to objectively assess the information on which 121CAN based its action. He had to refrain from analyzing the situation with the benefit of hindsight. [ 37 ] The judge first concluded that 121CAN acted in good faith.

Next, on the basis, in particular, of National Policy 51-201 – Disclosure Standards of the Canadian Securities Administrators, he determined that, at that stage in the proceedings, it was not unreasonable to contend that the issues raised by the FDA might have an impact on Thera’s product or its markets. The legislative and regulatory provisions involved required, in his eyes, a detailed analysis and factual evidence, an equally meticulous examination. In that regard, he felt that the arguments of 121CAN were serious.

In his opinion, they therefore had a reasonable chance of success. [ 38 ] Despite the fact that the ultimate outcome of the action may be its dismissal, the judge believed that there was a serious issue that merited more ample debate. He criticized the appellants for confusing the preliminary assessment of the case with the assessment on the merits. In the judge’s opinion, it would be reckless to rule immediately that the action envisioned by 121CAN had no reasonable possibility of success. Hence, it discharged the burden imposed by

section 225.4 of the S.A. [ 39 ] The judge then went on to assess 121CAN’s burden in regard to

article 1003 of the C.C.P. He concluded that the requirements of subparagraphs (

a) to (

d) were met. [ 40 ] Hence, he allowed the two motions for authorization, one for damages under

section 225.4 of the S.A. and the other for a class action under

article 1003 of the C.C.P. So he authorized the institution of the action, attributed to 121CAN the status of representative, described the group concerned, and identified the questions of fact and of law that would be dealt with collectively and the associated conclusions sought. THE GROUNDS RAISED [ 41 ] The grounds raised before the Court focus on two aspects. [ 42 ] On the right of appeal : The appellants contended that the S.A. contains no provision indicating that a judgment authorizing a party to institute an action for damages under

section 225.4 cannot be appealed from. That distinguishes the situation from the one prevailing, for example, under the second paragraph of

article 1010 of the C.C.P. In Ontario, the province whose legislation Québec drew on for inspiration in creating the new regime of civil liability on the secondary market, the right of appeal from such a decision was said to have been acknowledged. [5] [ 43 ] For the appellants, the impugned judgment is an interlocutory judgment that can be appealed from upon leave according to articles 29 and 511 of the C.C.P. It is interlocutory because it was rendered during the proceedings, and it ordered something that the final judgment cannot remedy.

The new liability regime creates a mechanism for screening actions precisely to avoid having a public corporation be confronted with an unmeritorious suit that it would be obliged to settle in order to prevent a long and costly trial. According to the appellants, the interests of justice also require that the leave be granted: it is in the interest of the legal system to know the Court’s response to that new question, particularly since they contend that a serious injustice should be corrected here. [ 44 ] 121CAN responded that there is no right of appeal without a legislative provision.

Thus, given an explicit stipulation prohibiting an appeal from a judgment authorizing a class action (the second paragraph of art. 1010 of the C.C.P.), and given the absence of a provision allowing an appeal from the authorization to institute an action for damages in the S.A., it must be concluded that the

judgment cannot be appealed from. [ 45 ] 121CAN alleged that the S.A. contains sections that explicitly demonstrate the existence or absence of a right of appeal. That legislation contains no general provision allowing the appeal from any decision rendered under it. Hence, it is contended that there is no explicit or implicit manifestation of the legislator’s willingness to allow an appeal from an authorization granted under

section 225.4 of the S.A. It added that the relevant provisions of the S.A. show the legislator’s concerns that the recourse, once authorized, in fact proceeds without delay. [ 46 ] 121CAN considered that the situation prevailing in Ontario is of no use. The Ontario legislation explicitly provides for a right of appeal from the authorization. The Québec legislator’s decision not to import that feature must be assumed to have been voluntary.

It must therefore be deduced that a different approach was deliberately adopted here. [ 47 ] Subsidiarily, 121CAN argued that the criteria of articles 29 and 511 of the C.C.P. were not met and that the leave to appeal should be dismissed. According to it, authorizing an action to proceed on the merits is not the same as ordering something that the final judgment cannot remedy. [ 48 ] On the merits of the case : The appellants contended that the judge improperly applied the rule of law in his

interpretation of the criteria applicable to the leave to institute an action for damages pursuant to

section 225.4 of the S.A . According to them, in contrast to what prevails at the stage of the authorization of a class action, the burden to be discharged is not a simple demonstration. A complete, in-depth analysis of the evidence adduced by the potential plaintiff must be conducted. That is the only way to assess the reasonable possibility of success of the action envisioned. [ 49 ] The appellants continued by stressing that the judge erred in failing to consider whether a “material change” in the business, operations or capital of Thera occurred.

In the absence of such a change, the reasonable possibility of success of 121CAN’s action would be non-existent. The questions raised by the FDA could not constitute such a change. [ 50 ] 121CAN retorted that, regarding the criterion of the existence of a reasonable possibility that the action would be resolved in favour of the plaintiff, the judge took an approach in keeping with that advocated by the case law of Ontario and British Columbia, given similar legislative provisions.

In that exercise, the judge did not have to analyze, in the detail suggested by the appellants, the proceedings, exhibits, sworn statements and examination filed before him. [ 51 ] Regarding the potential “material change” found by the judge, 121CAN indicated that the information released by the FDA on May 25, 2010 was not known to the public. Its disclosure potentially changed the situation. That was sufficient to meet the applicable test regarding the authorization required according to

section 225.4 of the S.A. ANALYSIS

(1) The right of appeal [ 52 ] The appellants acknowledged that

article 1010 of the C.C.P. does not allow an appeal from an authorization to institute a class action. They seek leave to appeal only in regard to the aspect of the judgment that authorized the action for damages provided for in the S.A. [ 53 ]

Section 225.4 of the S.A., the source of the action for damages, reads as follows: 225.4. No action for damages may be brought under this division without the prior authorization of the court . The request for authorization must state the facts giving rise to the action. It must be filed together with the projected statement of claim and be notified by bailiff to the parties concerned, with a notice of at least 10 days of the date of presentation. The court grants authorization if it deems that the action is in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff . 225.4. L’action for damages intentée en vertu de la présente

section doit être préalablement autorisée par le tribunal. La demande d’autorisation énonce les faits qui y donnent ouverture. Elle doit être accompagnée du projet de demande introductive d’instance et être notifiée par huissier aux parties visées, avec un avis d’au moins 10 jours de la date de sa présentation. Le tribunal accorde l’autorisation s’il estime que l’action est intentée de bonne foi et qu’il existe une possibilité raisonnable que le demandeur ait gain de cause . [Emphasis added.] [ 54 ] In comparison, the excerpts from the relevant articles of the C.C.P. in matters of class actions that are useful to the debate read as follows:

1002. A member cannot institute a class action except with the prior authorization of the court, obtained on a motion. . . . 1003. The court authorizes the bringing of the class action and ascribes the status of representative to the member it designates if of opinion that: (

a) the recourses of the members raise identical, similar or related questions of law or fact; (

b) the facts alleged seem to justify the conclusions sought ; (

c) the composition of the group makes the application of

article 59 or 67 difficult or impracticable; and (

d) the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately. 1010. The judgment dismissing the motion is subject to appeal pleno jure by the applicant or, by leave of a judge of the Court of Appeal, by a member of the group on behalf of which the motion had been presented. The appeal is heard and decided by preference. The judgment granting the motion and authorizing the exercise of the recourse is without appeal . 1002.

Un membre ne peut exercer le recours collectif qu’avec l’autorisation préalable du tribunal, obtenue sur requête. […] 1003. Le tribunal autorise l’exercice du recours collectif et attribue le statut de représentant au membre qu’il désigne s’il est d’avis que:

a) les recours des membres soulèvent des questions de droit ou de fait identiques, similaires ou connexes;

b) l es faits allégués paraissent justifier les conclusions recherchées ;

c) la composition du groupe rend difficile ou peu pratique l’application des articles 59 ou 67; et que

d) le membre auquel il entend attribuer le statut de représentant est en mesure d’assurer une représentation adéquate des membres. 1010. Le jugement qui rejette la requête est sujet à appel de plein droit de la part du petitioner ou, avec la permission d’un juge de the Court of Appeal, de la part d’un membre du groupe pour le compte duquel la requête a été présentée. L’appel est instruit et jugé d’urgence. Le jugement qui accueille la requête et autorise l’exercice du recours est sans appel . [Emphasis added.] [ 55 ] As for the articles of the C.C.P. dealing with leave to appeal, they read as follows:

29. An appeal also lies, in accordance with

article 511, from an interlocutory judgment of the Superior Court or the Court of Québec but, as regards youth matters, only in a matter of adoption: (1) when it in part decides the issues; (2) when it orders the doing of anything which cannot be remedied by the final judgment ; or (3) when it unnecessarily delays the trial of the suit. . . . Any judgment is interlocutory which is rendered during the suit before the final judgment . * * * 511. An appeal lies from an interlocutory judgment only on leave granted by a judge of the Court of Appeal if he is of opinion that t h e case is one that is contemplated in

article 29 and that the pursuit of justice requires that leave be granted ; the judge must then order the continuation or suspension of the proceedings in first instance. . . . 29. Est également sujet à appel, conformément à l’article 511, le jugement interlocutoire de the Superior Court ou celui de the Court of Québec, mais, s’il s’agit de sa compétence dans les matières relatives à la jeunesse, uniquement en matière d’adoption: 1. lorsqu’il décide en

partie du litige; 2. lorsqu’il ordonne que soit faite une chose à laquelle le jugement final ne pourra remédier ; ou 3. lorsqu’il a pour effet de retarder inutilement l’instruction du procès. […] Est interlocutoire le jugement rendu en cours d’instance avant le jugement final . * * * 511.

L’appel d’un jugement interlocutoire n’a lieu que sur permission accordée par un juge de the Court of Appeal, lorsqu’il estime qu’il s’agit d’un cas visé à l’article 29 et que les fins de la justice requièrent d’accorder la permission ; il doit alors ordonner la continuation ou la suspension des procédures de première instance. […] [Emphasis added.] [ 56 ] Analysis of the right of appeal from an authorization granted pursuant to

section 225.4 of the S.A. requires, firstly, an understanding of the new regime that the legislator established in sections 225 et seq. of the law. (

a) The new regime under sections 225 et seq. of the S.A. [ 57 ] The S.A. imposes on the reporting issuer a regime of disclosure on the secondary market. The objective is to [TRANSLATION] “maintain equal access for investors to complete, up-to-date information concerning the issuers whose securities are traded on the secondary market” . [6] These disclosure obligations may be periodic, required at specific times of the year, or timely. For example, a reporting issuer must reveal, without delay, any material change in its affairs. [7] Those obligations are important, of course.

However, until 2007, civil recourse for a violation of the disclosure obligations involving the secondary market were not very appealing. [ 58 ] In fact, investors who wanted to defend their rights had to prove fault, prejudice and a causal connection, as in any civil liability action.

These were particularly arduous to demonstrate in the context proper to financial markets; it had to be demonstrated that the investor relied on false information or the failure to declare a material change in order to buy the security and that the change in the value of the security was the result of the false declaration or the failure to make a declaration. [8] [ 59 ] Aware of that reality, in the early 1990s, a committee of the Toronto Exchange, the Allen Committee, studied the way to offset that major shortcoming in Canadian securities legislation, namely, the absence of a particular civil recourse adapted to the secondary

market. Professor Rousseau explained the approach of the Allen Committee as follows: [9] [TRANSLATION] These results were considered particularly worrisome by the committee because of the preponderant role of the secondary market for securities. As the committee rightly stressed, the secondary market for securities is much larger than the primary market because of the number of transactions in it.

Although prospectuses are a major source of information for investors, disclosure of information by issuers on the secondary market is now central to the integrity and efficiency of the market. [ 60 ] In its final report published in 1997, the Allen Committee proposed the creation of a statutory civil liability regime allowing investors to sue issuers, directors, officers and experts in the event of violation of the requirements of the law in regard to continuous information. [10] Several provincial legislatures decided to follow those recommendations. [ 61 ] Coming together in the committee of the Canadian Securities Administrators, they collaborated in writing bills inspired by the recommendations of the Allen Report.

That was how the

section of the S.A. dealing with recourse for damages in the secondary market following false or misleading information came into force in 2007. [11] [ 62 ] The objective of the recourse is help to improve the quantity and quality of information disclosed on the market; the recourse is aimed, first and foremost, at deterrence and then at compensation of victims. [12] [ 63 ] To balance the forces involved, the new recourse established a presumption in favour of the investor: when the security is acquired or transferred at the time of a false declaration or a failure to point out a material change, the fluctuation in the value of the security is presumed to be attributable to that fault.

Investors are therefore released from a heavy burden, namely, demonstrating that they relied on the false information or the failure to point out a material change and that the variation in the market price of the security is the result of that information or failure. [ 64 ] In return, in order to avoid abuse, a mechanism for authorizing the recourse exercised by investors is set up in order to prevent actions in bad faith with no reasonable possibility of being resolved in favour of the plaintiff. [ 65 ] Thus, the law is aimed at preventing certain consequences noted in the past in the United States, where investors acting in bad faith instituted strike suits immediately after the market price of a security fell, often even before it was determined that the fall was simultaneous with a violation of the obligation to disclose, in short, before knowing whether the recourse had a certain merit as its basis. [13] A number of these actions resulted in settlements solely because the issuer wanted to avoid the even higher cost of legal proceedings.

Not surprisingly, these settlements had unfortunate consequences for both the issuers and the shareholders. [ 66 ] The stage prior to authorization is therefore aimed at eliminating from the start frivolous and strike suits against reporting issuers.

As a regulator pointed out, this screening mechanism ensures that unmeritorious legal cases are eliminated early on: [14] This screening mechanism is designed not only to minimize the prospects of an adverse court award in the absence of a meritorious claim but, more importantly, to try to ensure that unmeritorious litigation, and the time and expense it imposes on defendants, is avoided or brought to an end early in the litigation process. [ 67 ] That said, the parliamentary debates that preceded the adoption of these amendments to the S.A. confirm that class actions are the favoured regime for this type of recourse . [15] The Allen Report, which was the source of these amendments, noted, in fact, that the loss incurred by each investor rarely justified the costs of a dispute unless it was in the form of a class action: [16] 4.1 The loss incurred by each victim of a misrepresentation is not likely to be enough to warrant the financial and time commitments involved in pursuing a civil action, whereas the combined losses of all victims of a misrepresentation would likely provide the critical mass for a class action.

Without the spectre of class actions, issuers may perceive that no one investor would bother to commence an action based on a misrepresentation or delay in disclosure and may not devote adequate resources to ensuring that their continuous disclosure complies with the requirements.

The Committee concluded that a statutory provision for a civil liability for a misrepresentation in a continuous disclosure system would have more deterrent effect in the context of class actions. [ 68 ] Lastly, again at the time of the parliamentary debates that preceded the adoption of the new regime, it was acknowledged that the recourse was mainly aimed at harmonization with that already available in the other Canadian provinces (Ontario, in particular), while ensuring its harmonious integration into the Québec legislative corpus: [17] [TRANSLATION] The recourse proposed in Bill 19 is highly harmonized with that in place in Ontario, which is recourse that strongly inspired the other provinces and territories.

Only the necessary adjustments were made to reflect civil law notions and vocabulary, and to ensure its harmonious integration into the Québec legislative corpus, including the Securities Act , into which it will be incorporated. The Bill preserves the balance between the interests of investors and the interests of issuers in the same way as in Ontario and the other provinces.

It should be pointed out in that regard that all the other provinces and territories have already adopted the recourse or are on the verge of doing so, and that it will thus be identical throughout Canada. [ 69 ] It follows that, as regards its rationale, the authorization mechanism provided for in

section 225.4 of the S.A. is distinguished from that provided for in the C.C.P. in terms of class actions. Whereas the latter is aimed at ensuring the quality of the legal syllogism proposed through a burden of demonstration, not of proof, [18] the former is aimed at preventing strike suits in which good faith is lacking and evidence of the alleged violation is not [TRANSLATION] “reasonably established”. [ 70 ] These features of the new regime having been summarized, I will go on to analyze the leave to appeal sought. (

b) Leave to appeal

[ 71 ] Two theories clash in regard to the right to appeal from a judgment granting the authorization provided for in

section 225.4 of the S.A.:

(1) The appellants’, according to which, in the absence of prohibition in the S.A., the general rules of articles 29 and 511 of the C.C.P. must be relied on, since the judgment is interlocutory in nature;

(2) The respondent’s, according to which, by analogy, in the absence of an appeal mechanism provided for in the S.A., the second paragraph of

article 1010 of the C.C.P., which denies the right of appeal from a judgment of authorization in the context of a class action, must be relied on. [ 72 ] I am of the opinion that the appellants’ position must prevail. [ 73 ] The S.A. provides for no right to appeal from a judgment of authorization required under

section 225.4. But it does not prohibit it. When the Québec legislator sought to prohibit a right of appeal in the S.A., it was done so explicitly.

Section 37 of the S.A. testifies to that. [19] [ 74 ] Furthermore, when the Québec legislator chose to prohibit the right of appeal from a judgment of authorization to institute an action, the legislator stated that just as clearly. Here again, the second paragraph of

article 1010 of the C.C.P. testifies to that. [ 75 ] The fact that the Québec legislator chose not to do so in

section 225.4 of the S.A., although no doubt aware of that reality, is, in my opinion, revealing as regards the legislator’s intentions. [ 76 ] Contrary to the respondent’s contention, I believe that it cannot be presumed that legislator’s silence means a denial of the right of appeal. I also do not find such denial in the sole fact that an action for damages authorized under

section 225.4 of the S.A. must be filed within three months (s. 225.6), with the prompt issuing of a press release and notice to the Autorité des marchés financiers within seven days (s. 225.5). [ 77 ] Rather, I believe that we must rely on the general rule provided for appeals from an interlocutory judgment, i.e. that of articles 29 and 511 of the C.C.P. [ 78 ] Moreover, I note that neither the Allen Report nor the parliamentary debates prior to the adoption of the new S.A. regime suggests a denial of the right of appeal from a judgment granting the authorization provided for in

section 225.4 of the S.A. Neither mentions it. Furthermore, in Ontario, a jurisdiction that the Québec legislator, in fact, says provided inspiration in adopting the recourse, [20] it is acknowledged that the right of appeal in the corresponding provision of the Ontario Securities Act [21] is governed by the customary rules of general law in matters of appeals from interlocutory judgments. [22] [ 79 ] The central argument raised by the respondent does not resist analysis. The respondent’s contention that the second paragraph of

article 1010 of the C.C.P. should be applied by analogy because the context is one of a class action leads, with respect, to an incongruous, even illogical, result. [ 80 ] The action for damages provided for in

section 225.4 of the S.A. can be instituted by means of an individual suit or a class action. If the respondent’s contention were accepted, there would be no right of appeal when the judgment for authorization under

section 225.4 is rendered in the framework of an action for damages instituted by means of a class action, but a right of appeal would exist when the recourse is by means of an individual action. [ 81 ] It would be surprising for the legislator to have sought such a result, particularly in a context where the parliamentary debates confirm that the legislator was well aware that a class action would be the means favoured for an action for damages instituted under the new regime. [23] [ 82 ] The fact that, in this case, the same judgment ruled on both the authorization of the action for damages pursuant to

section 225.4 of the S.A. and the authorization of the class action pursuant to

article 1003 of the C.C.P. cannot impact or deny the right of appeal from a judgment rendered pursuant to

section 225.4 of the S.A . [ 83 ] The authorization mechanisms pursuant to

section 225.4 of the S.A. and

article 1003 of the C.C.P. are separate. Nothing prevents them from coexisting. Sometimes, a right of action pursuant to

section 225.4 of the S.A. constitutes one element among many that are part of a motion for authorization to institute a class action. The fact that that right of action is, as in this case, the only one underlying the class action does not make the judgment of authorization concerning that right of action any less appealable. [ 84 ] In such a case, even though the judgment is not appealable as regards the aspect authorizing the institution of a class action, solutions exist. If, following an appeal, the authorization provided for in

section 225.4 of the S.A. is denied, the concomitant authorization to institute a class action, which is not subject to appeal, could then be challenged by a subsequent motion to dismiss filed by the defendant. The requirement provided for in that section, namely, a condition prior to the authorization of a class action other than those laid down in

article 1003 of the C.C.P., would then be lacking. [ 85 ] That said, I believe that, in its own particular context, the judgment granting the authorization to institute a class action for damages provided for in

section 225.4 of the S.A. is an interlocutory judgment ordering a thing that the final judgment cannot remedy. Hence, it is a specific case contemplated by subparagraph (2) of

article 29 of the C.C.P. [ 86 ] As demonstrated by the analysis of the new regime, the required authorization stems from a compromise between, on the one hand, the legislator’s wish to facilitate the exercise of recourse for liability on the secondary market and, on the other, the legislator’s wish to adopt a screening mechanism in order to prevent unmeritorious strike suits aimed at prying settlements from reporting issuers that want to avoid long and costly legal debates. [ 87 ] To that extent, the Court’s jurisprudence according to which [TRANSLATION] “the irreparable thing that the final judgment

cannot remedy” cannot be a possible economic prejudice or inconvenience of a financial or commercial nature that a party could sustain,for example, through a needless trial must be mentioned.[24] [88] Pursuant to

section 225.4 of the S.A., one of the foundations of the required authorization is control over so-called strike suits,the financial consequences of which can, in fact, be serious and detrimental for a reporting issuer. In that respect, the costs related to thejudicial process constitute one rationale for the screening mechanism established. [89] In that regard, the screening mechanism meets the requirements of a reality of which the legislator was aware and was sensitiveto. One of the avowed objectives is to avoid a market vulnerable to the undue pressure of the high costs of strike suits.

The AssistantDeputy Minister of Finance clearly stated that in the parliamentary debates preceding the adoption of the new regime:[25] [TRANSLATION] . . . Recourse for damages is simplified, but there is a procedure that must be followed because it must be ensured that all kinds offrivolous suits will not be filed. Furthermore, at the same time, a balance must be struck between the plaintiffs and the defendants on themarket. But what must be understood is that this mechanism, the procedure, is going to be identical throughout Canada.

Hence, it is veryimportant here, in Québec, for the procedure to be the same as in the rest of Canada. If those who acquire securities from pan-Canadianissuers institute a suit in Québec, the procedure must be the same as that in Ontario or other Canadian provinces. [Emphasis added.] [90] Two judgments rendered by Ontario’s Superior Court of Justice on the similar provisions of the Ontario Securities Act clearlyhighlight that justification for the authorization mechanism adopted by the Québec legislator in

section 225.4 of the S.A. In Ainslie v.

CVTechnologies Inc.,[26] Lax J. explained the rationale for the screening mechanism as follows: [12] In recommending that the Act include a screening mechanism, the CSA concluded that, irrespective of whether it was believed thatthe proposed legislation would result in strike suits, a screening mechanism was necessary in order to prevent corporate defendants frombeing exposed to proceedings “that cause real harm to long-term shareholders and resulting damage to our capital markets.” The 2000Draft Legislation proposed by the CSA retained the “loser pay” costs, proportionate liability and damage cap provisions recommendedby the Allen Committee, but added the screening mechanism now found in

section 138.8(1). The CSA described its purpose as follows: This screening mechanism is designed not only to minimize the prospects of an adverse court award in the absence of a meritorious claimbut, more importantly, to try to ensure that unmeritorious litigation and the time and expense it imposes on defendants, is avoided orbrought to an end early in the litigation process. . . . [15] . . . The

section [section 138.8] was not enacted to benefit plaintiffs or to level the playing field for them in prosecuting an actionunder

Part XXIII.1 of the Act. Rather, it was enacted to protect defendants from coercive litigation and to reduce their exposure to costlyproceedings. No onus is placed upon proposed defendants . . . [Emphasis added.] [91] In Silver v. Imax Corporation,[27] van Rensburg J. justified the existence of the screening mechanisms the same way: [231] . . .

The report [the CSA report] also proposed a “screening mechanism” for such actions (which had not been part of the AllenCommittee recommendations) and stated: One of the risks of creating statutory liability for misrepresentations or failures to make timely disclosure is the potential for investors tobring actions lacking any real basis in the hope that the issuer will pay a settlement just to avoid the cost of litigation. To limitunmeritorious litigation or strike suits, plaintiffs would be required to obtain leave of the court to commence an action.

In granting leave,the court would have to be satisfied that the action (

i) is being brought in good faith, and (ii) has a reasonable possibility of success. [232] Later in its report under the topic “Strike Suit Exposure”, the CSA noted the concerns raised by issuers about strike suits. InEpstein v. First Marathon Inc., (ON SC), [2000] O.J. No. 452 (S.C.), Cumming J. at para. 41 described a “strikesuit” as follows: The term “strike action” or “strike suit” has emerged in the context of certain class proceedings litigation in the United States.

The termconnotes the commencement and pursuit of a class proceeding where the merits of the claim are not apparent but the nature of the claimand targeted transaction is such that a sizeable settlement can be achieved with some degree of probability. The term suggests a classproceeding that is properly regarded as an abuse of process.

. . . [Emphasis added.] [ 92 ] I would add that that judgment of authorization directly and irremediably impacts the way the proceeding unfolds since it influences the evidence to be administered and, therefore, the bringing of the case to a state of readiness. Thus, by granting the authorization of an action for damages pursuant to

section 225.4 of the S.A., the judgment triggers the application of the other provisions of the new regime, including those related to the burden of proof of the plaintiff and the defendant (s. 225.12 et seq. ) and the determination of damages (s. 225.28 et seq. ). [ 93 ] It follows that dismissal of the action on the merits will not remedy the consequences that the mechanism in fact aims to overcome or strike the balance that the legislator seeks to establish by juxtaposing it to the flexibility of the action allowed under the new regime. [ 94 ] In the particular context of the new regime, the Court precedents regarding the absence of a right to appeal from a so-called interlocutory judgment handed down before a judgment authorizing the institution of a class action pursuant to

article 1003 of the C.C.P. do not in any way apply, in my opinion. [ 95 ] It is true that the Court has indicated more than once that [TRANSLATION] “the decisions rendered in the course of the process leading to the denial or granting of the authorization to institute a class action cannot be appealed from”. [28] According to the Court’s jurisprudence, these judgments were not interlocutory, since the class action was not yet instituted. Hence, they cannot be appealed from. [29] [ 96 ] However, according to

section 225.4 of the S.A., it is not a matter of a judgment rendered in the framework of the process leading to the denial or granting of the authorization to institute a class action. It is a matter of a judgment rendered in the framework of a separate and independent mechanism that affects the inclusion of a particular action for damages in a class action’s procedural course.

That mechanism exists, whether the procedural course chosen is an individual action or a class action. [ 97 ] In my opinion, that is very different from judgments dealing with proceedings underlying the mechanism whereby a class action is authorized, like those dealing with, for example, leave to have witnesses testify, to adduce evidence or to contest in writing. [ 98 ] In the same way, contrary to the contentions of the respondent, a judgment authorizing an action after the screening mechanism provided for in

section 225.4 of the S.A. is distinguished from a judgment that dismisses a motion to dismiss, in which leave to appeal is rarely granted. [30] [ 99 ] Although, in both cases, the effect of the judgment is to order that the trial proceed on up to the merits, according to

section 225.4 of the S.A. simply instituting the proceeding can generate a situation that the final judgment cannot remedy. The very purpose of the screening mechanism is to ensure than a reporting issuer is not needlessly forced to bear the irremediable consequences of having to face a long and costly dispute, with particular rules of evidence. [ 100 ] That being so, I also believe that, in the case at bar, the interests of justice justify granting leave to appeal pursuant to

article 511 of the C.C.P. [ 101 ] The issue raised by the appeal is new and unprecedented. The legal system would do well to know the Court’s response to the problem posed. [31] Apart from the impugned judgment, there is no other Québec precedent on the subject. I agree with the appellants that it is useful and important for the Court to clarify the rules applicable to the authorization of this new recourse. [ 102 ] But that does not mean I affirm that, in any motion for leave to appeal from a judgment of authorization rendered pursuant to

section 225.4 of the S.A., the interests of justice justify granting the leave sought. Although I conclude that the judgment granting that authorization is a specific case, contemplated by subparagraph (2) of

article 29 of the C.C.P., the interests of justice must be assessed according to the circumstances proper to each case. [ 103 ] I restrict myself to pointing out that this criterion is met here. The legal system would do well to know the Court’s response to the issue raised by the appeal because of its new and unprecedented nature.

(2) The merits of the appeal [ 104 ] Now on the merits of the appeal, the appellants attack two aspects of the impugned judgment. [ 105 ] Firstly, they believed that the respondent’s burden at the stage of the authorization required pursuant to

section 225.4 of the S.A. is greater than that found by the trial judge. Secondly, they contend that the respondent did not meet the criteria provided for in that

section in order to be authorized to institute the action envisioned in this case. (

a) The burden to be met under

section 225.4 of the S.A. [ 106 ] In paragraph [72] of his judgment, the judge ruled that, under

section 225.4 of the S.A., the required analysis [TRANSLATION] “cannot constitute a trial within the trial”. He added that, in his opinion, there was, however, no [TRANSLATION] “similarity between the criteria stemming from

article 1003 of the C.C.P. and the criterion of

section 225.4 of the S.A.”. He felt that the criterion of the [TRANSLATION] “reasonable possibility that the action will be resolved in favour of the plaintiff, in

section 225.4 of the S.A., requires a more conclusive demonstration than that stemming from the application of subparagraph (

b) of

article 1003 of the C.C.P.” (at para. [78]). He contrasted that, [TRANSLATION] “from a relativist perspective”, he said, to what he described as a [TRANSLATION] “‘ de

minimis ’ demonstration of the legal syllogism” to which the jurisprudence in matters of authorization to institute a class action refers (at para. [79]). [ 107 ] I share the substance of his opinion on this point. However, I believe it is necessary to tone down some of his statements somewhat. [ 108 ] Firstly, it is correct to affirm that the criterion of the “reasonable possibility that it [the action] will be resolved in favour of the plaintiff”, found in

section 225.4 of the S.A., is more stringent than the criterion of the colour of right (“the alleged facts appear to justify the conclusions sought”) in subparagraph (

b) of

article 1003 of the C.C.P.

Here again, the Québec legislator’s choice of different terminology, although the legislator was well aware of the class action mechanism to assert the right of action provided for in the new regime of the S.A., is revealing. [ 109 ] That more stringent requirement is in keeping with the legislator’s intention to make the provision a serious screening mechanism, from the perspective of a compromise between, on the one hand, the objective of facilitating recourse for liability on the secondary market and, on the other, the need to prevent strike suits motivated by the objective of prying unjustified settlements out of reporting issuers that want to avoid long and costly legal debates. [ 110 ] It is interesting to note that the English version of the provision is actually a copy of the corresponding provisions of the Ontario Securities Act [32] (s. 138.8(1)(b)) and the British Columbia Securities Act [33] (s. 140.8(2)(b)).

It refers to the expression “a reasonable possibility that it [the action] will be resolved in favour of the plaintiff ” . [ 111 ] In Silver v.

Imax Corporation , [34] the first judgment rendered in Ontario pursuant to its provisions that are similar to the S.A.’s, van Rensburg J. concluded her in-depth analysis of the use of the words “possibility” and “reasonable” as follows: [324] The word “reasonable” as it is used in s. 138.8 captures both meanings. “Reasonable” is used instead of “mere” to denote that there must be something more than a de minimis possibility or chance that the plaintiff will succeed at trial .

The adjective “reasonable” also reminds the court that the conclusion that a plaintiff has a reasonable possibility of success at trial must be based on a reasoned consideration of the evidence . [Emphasis added.] [ 112 ] The judge clarified her thinking as follows: [330] The statutory leave provision is designed to prevent an abuse of the court’s process through the commencement of actions that have no real foundation, actions that are based on speculation or suspicion rather than evidence . [331] The leave provision, working with the definition of the statutory cause of action and defences, requires plaintiffs to put forward the evidence they rely on as to the misrepresentation, and the extent of knowledge or participation required for non-core documents and liability for officers, and permits each proposed defendant to offer an account that may contradict the plaintiffs’ allegations, or would fall within the terms of one or more of the defences afforded by the statute. [332] The evidence must be considered at the leave stage to determine whether the plaintiffs’ action, after the respondents have had the opportunity to put forward evidence to support their defences and the positions of the parties have been explored in cross-examination, has a reasonable possibility of success. [333] In this regard it is not sufficient (as the respondents contend) to put forward defences which the plaintiffs must “overcome”.

Nor is the court required (as the plaintiffs assert) to leave any assessment of the defences to a trial. The court must consider all of the evidence put forward in the leave motion, including evidence supportive of any statutory defence. Because the onus of proof of a statutory defence is on the respondents, the court must be satisfied that the evidence in support of such a defence at the preliminary merits stage will foreclose the plaintiffs’ reasonable possibility of success at trial. [Emphasis added.] [ 113 ] In Dobbie v.

Arctic Glacier Income Fund , [35] Tausenfreund J. expressed as follows the threshold to be met at that stage of authorization: “the applicable standard is more than a mere possibility of success, but is a lower threshold than a probability”. [ 114 ] In Green v. Canadian Imperial Bank of Commerce , [36] Strathy J. shared the opinion of his two colleagues regarding the tenor of the burden required at the authorization stage.

He pointed out that “the leave requirement is a relatively low threshold”: [373] I respectfully agree with van Rensburg J. and Tausenfreund J. that the leave requirement is a relatively low threshold . It is meant to screen out cases that , even though possibly brought in good faith, are so weak that they cannot possibly succeed . This is consistent with the purpose of the legislation – to screen out strike suits that are plainly unmeritorious. It is not meant to deprive bona fide litigants, with a difficult but not impossible case, from having their day in court . This

interpretation is also consistent with the philosophy of our legal system that contentious issues of fact and law are generally decided after a full hearing on the merits . [Emphasis added.] [ 115 ] In fact, he indicated that, being a screening mechanism, it cannot be a “mini-trial on the merits”. [37]

[ 116 ] The sole judgment in that regard rendered by the Supreme Court of British Columbia, Round v. MacDonald, Dettwiler and Associates Ltd. , [38] is to the same effect. In it, Harris J. stressed the following: [76] Establishing a reasonable possibility of success at trial involves more than merely raising a triable issue or articulating a cause of action. Equally, it does not require a plaintiff to demonstrate that it is more likely than not that he or she will succeed trial . But it is clear, in my view, that the test is intended to do more than screen out clearly frivolous, scandalous or vexatious actions.

An action may have some merit, and not be frivolous, scandalous or vexatious, without rising to the level of demonstrating that the plaintiff has a reasonable possibility of success. [Emphasis added.] [ 117 ] Like the trial judge, I believe it is appropriate to refer to these analyses by the judges of Ontario and British Columbia as regards a terminology that is similar to that used in

section 225.4 of the S.A. [ 118 ] I conclude that, if the criterion of the reasonable possibility that the action will be resolved in favour of the plaintiff is more stringent than that of a simple colour of right, it is, however, less stringent than the criterion of the preponderance of the evidence. In fact, the legislator uses the words “reasonable possibility” that the action will be resolved in favour of the plaintiff, not “reasonable probability” of success. That screening mechanism therefore is not aimed solely at preventing recourse that appears frivolous or unmeritorious.

It also tends to prevent recourse that, ultimately, has no reasonable chance of success. [ 119 ] That is an expression used by the Québec legislator in, for example, subparagraph (4.1) of

article 501 of the C.C.P., which the Court applies in its analysis of motions aimed at the preliminary dismissal of an appeal that has “no reasonable chance of success”. [ 120 ] But, in such cases, it is generally sufficient to show the existence of arguments that are coherent and legally defensible, even though they are debatable or contradict the opinions admitted, in order to establish a reasonable chance of success. It is not a matter of transforming a

summary hearing into an accelerated appeal on the merits. [39] [ 121 ] In my opinion, when the legislator refers to an authorization mechanism on the strength of a reasonable possibility that the action will be resolved in favour of the plaintiff, reference is made to a

summary assessment of the right of action claimed. The mechanism for authorizing recourse is, after all, an exception to the capacity of a litigant to bring an action. It must be given a scope that reflects the exceptional nature of the mechanism. [ 122 ] Hence, secondly, it is correct to affirm that the more stringent requirement does not go so far as to impose an analysis in the nature of the analysis incumbent upon the trial judge.

At that stage of authorization, it is not a matter of conducting a trial before the trial, or a mini-trial before the action is instituted. [ 123 ] From that standpoint, I disagree with the appellants’ assertion that, at this stage, the Court must conduct a complete and in-depth analysis of the evidence as adduced, including the proposed grounds of defence. Going down that path would distort the preliminary authorization procedure contemplated by

section 225.4 of the S.A . [ 124 ] In fact, requiring, as the appellants suggest, a complete and in-depth analysis of the evidence at the authorization stage pursuant to

section 225.4 of the S.A. would, in my opinion, give little importance to the objective underlying that screening mechanism. At the risk of repeating myself, it is, first and foremost, a matter of protecting reporting issuers from strike suits, the foundations of which are non-existent or little substantiated. [40] [ 125 ] In that regard, although the Ontario and British Columbia authorities shed useful light on the

interpretation of the notion of reasonable possibility that the action will be resolved in favour of the plaintiff, given the similarity of the terminologies used in their legislation, prudence is called for, given the particularly substantial analyses that certain decisions rendered in Ontario [41] have conducted before authorizing or denying the recourse envisioned. [ 126 ] In that province, in contrast to the S.A., the applicable legal provisions [42] provide for the filing of detailed affidavits by right and examinations of the deponents in a context that, in class actions, is in keeping with a very different authorization (“certification”) process from that prevailing in the authorization of class actions in Québec.

To that extent, the approach taken in these decisions, which were all rendered in a context of “certification” of a class action, must be distinguished from the approach to be advocated pursuant to the S.A. [ 127 ] Firstly, despite these distinctions, the decisions note that the objective is not, in those cases as well as in this case, to conduct a mini-trial before the hearing on the merits.

They recognize that the threshold remains relatively low at the authorization mechanism stages, although an analysis of the evidence available is necessary. [ 128 ] That said, that is nevertheless a screening mechanism requiring more than a simple demonstration, as under the aegis of subparagraph (

b) of

article 1003 of the C.C.P., where a sworn statement is no longer required. [ 129 ] At the authorization stage provided for in

section 225.4 of the S.A., the plaintiff bears a burden of persuasion. Sufficient evidence that meets the criteria provided for in the

section is required. Bear in mind that the screening mechanism is aimed at protecting reporting issuers from strike suits motivated solely by the objective of obtaining a rapid settlement on the strength of circumstances, rather than a right based on real and tangible evidence. [ 130 ] From that standpoint, this provision differs from those prevailing for the authorization of a class action. Coupling, as in this case, the application for authorization under

section 225.4 of the S.A. with an application for authorization under articles 1002 et seq. of the C.C.P. does not reduce the plaintiff’s burden in that regard. [ 131 ] Given the more stringent burden than a simple demonstration, sufficient evidence to establish the reasonable possibility that the action will be resolved in favour of the plaintiff varies according to the circumstances. It must, however, exist to a certain extent, by means of sworn statements, examinations for discovery, exhibits validly produced or otherwise.

[ 132 ] In the case at bar, although the trial judge referred, erroneously in my opinion, to a simple demonstration rather than a burden of proof, that has no real consequence. Although the respondent surprisingly chose not to submit any sworn statement in support of its amended motion introductive of suit of November 23, 2010, the matter still proceeded assuming that the exhibits filed by both parties (nearly 40 of them) were allowed and validly adduced.

Furthermore, as defendants, the appellants chose to file two statements sworn by their witnesses, as well as their examination before defence of the respondent’s representative, Mr. St-Germain.

He explained, among other things, the tenor of the central allegations of the respondent’s proceeding regarding the foundation of the action for damages instituted pursuant to the new regime provided for in the S.A. [ 133 ] In their statement, the appellants confirmed the existence of that evidence and, in fact, attacked the trial judge for incorrectly analyzing it. [ 134 ] These clarifications concerning the burden that the respondent had to discharge at that authorization stage having been provided, I will go on to the appellants’ criticism of the trial judge’s analysis of the applicable criteria. (

b) The criteria of good faith and of the reasonable possibility that the action will be resolved in favour of the plaintiff (

i) The criterion of good faith [ 135 ] Concerning the first criterion that the respondent must meet according to

section 225.4 of the S.A., that of good faith, the trial judge succinctly rejected the appellants’ claim that the respondent was not acting in good faith. In their statement and at the hearing, the appellants did not really insist on that point. [ 136 ] It must be said that, in that regard, the appellants did not establish a palpable and overriding error by the trial judge in his conclusion that there was sufficient evidence that that criterion was met (at para. [89]). [ 137 ] Firstly, as the judge pointed out, in Québec,

article 2805 of the Civil Code of Québec provides that good faith is presumed. Neither the sworn statements of the appellants, nor the exhibits filed in the record, nor the examination for discovery of the respondent’s representative provide evidence that would overturn that presumption. [ 138 ] Secondly, Mr. St-Germain’s examination establishes in a satisfactory manner that he was of good faith. He was able to explain and justify the foundation of his recourse. He articulated in a well-thought-out manner why he believed that he had a right of action.

He was motivated by the sincere belief that, in this case, the appellants committed acts that could be criticized and underpinned his recourse. (ii) The criterion of the reasonable possibility that the action will be resolved in favour of the plaintiff [ 139 ] The criterion of the reasonable possibility that the action will be resolved in favour of the plaintiff requires an analysis of the respondent’s theory of the case in support of the recourse envisioned under the new regime of the S.A. [ 140 ] The respondent developed that theory of the case mainly in paragraphs [35] to [43] of its motion to be authorized to file a motion for authorization to institute a class action.

The evidence in support of its theory is found in the many exhibits filed, with consent, in the case, particularly Thera’s press releases, and in Mr. St-Germain’s examination for discovery by the appellants’ attorney. The sworn statements of the appellants’ two witnesses and certain additional exhibits filed by the appellants supplement that evidence. [ 141 ] Paragraphs [35] to [43] read as follows: [TRANSLATION] 35. As of that date, the respondent published only one press release, on April 5, 2010, concerning Mr.

Rosconi’s presentation at a BioFinance 2010 conference in Toronto, whereas the enterprise was preparing for the meeting of the Advisory Committee and knew and/or should have known that the FDA had specific questions about certain side effects of tesamorelin that could compromise the Advisory Committee’s recommendation to the FDA, all as it appears from the press release submitted in support of these presents as Exhibit R-18 ; 36.

On May 21, 2010, it was clear from the documents published by the respondents that no reference was made to side effects related to the use of tesamorelin and even less specifically to problems of glucose intolerance, the development of diabetes or the long-term impact on increased cardiovascular risks; 37.

The respondents were clearly informed that 48 hours before the meeting of the Advisory Committee planned for May 27, 2010, the FDA would make public the information discussed at that meeting, particularly the questions that the respondents would have to answer if they wanted a favourable vote by the Advisory Committee; 38. The respondent knew and/or should have known in advance the questions and/or various aspects that would be discussed at that meeting, so as to prepare for May 27, 2010;

39. On May 25, 2010, well before the opening of the Toronto Stock Exchange (TSX), the FDA published, on its website, the documents that would be studied and discussed at the meeting of May 27, 2010. The documents revealed aspects that were still unknown to the public, particularly the association that might exist between the use of tesamorelin and increased diabetes and/or glucose intolerance and its long-term impact on cardiovascular risks , all as it appears from the documents filed in a bundle in support of these presents as Exhibit R-19 ; 40.

That explosive information was immediately relayed by such stock quotation networks as Bloomberg, Dow Jones and Thomson Reuters, and the information was then noted by many people, going by the reaction of the market, as a material change in the respondent’s business and operations.

Thus, the possibility that the Advisory Committee would refuse to recommend approval of the respondent’s flagship product because of its side effects suddenly constituted a material change since the respondent’s activities, operation and capacity to generate income depended essentially on tesamorelin , all as it appears from the documents filed in a bundle in support of these presents as Exhibit R-20 ; 41.

Although the respondent was in contact with the FDA, had been cooperating with it for months and knew that the FDA would publish, 48 hours before the meeting of May 27, 2010, certain information that would constitute a material change, the respondents decided, contrary to what they had done in the past, not to publish a press release to set the record straight and/or explain the situation , which would avoid seeing the market get carried away in light of the information that was unknown until then; 42.

Although the respondents reportedly had an opportunity to respond to the publication of that information by the FDA before the stock markets opened and/or to request that trading in its security cease in order to allow the public to gain a better understanding of the news, they decided to leave the shareholders in the dark and promote a speculative frenzy in regard to its security ; 43.

That decision not to immediately publish and file a press release and/or request that trading in its security cease because of that material change had a catastrophic effect on the market price and value of the security, all as it appears from the chart submitted in support of these presents as Exhibit R-21 ; [Emphasis added.] [ 142 ] Paragraph [51] of the motion summarized the respondent’s contention: [TRANSLATION] 51.

That information, made public by the FDA on May 25, 2010, constituted, in the respondent’s particular case, a material change in its business and operations, on the basis of which it was reasonable to expect a significant impact on the market price and value of the respondent’s security, for the following reasons: a. Tesamorelin was the respondent’s flagship product; b. The respondent’s business plan focused on approval of its flagship product and its marketing in the United States; c. The possibility of generating income in the short term depended solely on FDA approval of its flagship product; d.

All the energy of the respondent’s internal teams had been directed for months toward responding to the requirements and questions of the FDA; e. All the enterprise’s press releases were resolutely turned toward FDA approval of its flagship product, to the point that the question arose as to what would happen to the respondent should approval be denied; f. A sizeable share of the respondent’s liquidities came from agreements signed for the marketing of its flagship product;

g. The respondent itself admitted that the various stages in the approval process were material changes, as it appears from the documents filed with regulators on June 1, August 12 and November 5, 2009, and filed in a bundle in support of these presents as Exhibit R-28 ; [ 143 ] I note that, according to the respondent, Thera knew that its drug had possible side effects that could cause diabetes and cardiovascular problems.

According to it, these risks were sufficiently serious to be of concern to the FDA; Thera had, in fact, actively participated in the preparation of reports and information aimed at responding to those concerns. [ 144 ] The respondent felt that Thera did not, however, disclose that information to its shareholders. It reportedly became public only when the FDA published it on its website on May 25, 2010. The shareholders, and the public in general, then learned of that potential risk.

That disclosure was thus said to constitute a “material change” that Thera was obliged to communicate, but did not. [ 145 ] So in support of its claim, the respondent identified a specific event at a specific time. At the current stage, it explained the event by means of clearly identified documentary evidence and Mr. St-Germain’s testimony. On the strength of that evidence, it contended that the FDA’s questions made public a number of questions about certain side effects of the drug, which were unknown at the time by Thera’s shareholders and the general public.

Moreover, the information that Thera allegedly provided the FDA to completely answer its questions was equally unknown by the public, including the very fact that those answers had been provided. [ 146 ] In his examination for discovery, Mr. St-Germain stressed that he was not aware of the FDA’s questions about the side effects of the drug. He said that, as far as he knew, those questions were unknown to the public. In support of that contention, he referred to many Thera press releases that did not mention that.

When he found out about it on May 25, 2010, he said he [TRANSLATION] “did not know which way to turn”, particularly in the absence of information from Thera. In his responses, he insisted on the fact that Thera did not in any way comment or take a position on the information that thereby became public. Thera’s silence was, in his opinion, inappropriate. [ 147 ] Questioned more specifically about the absence of disclosure of the “material change” for which he criticized the appellants, he stressed that the questions about the side effects of the drug should have been disclosed.

That was not the case until May 25, 2010. The public disclosure by the FDA changed a decisive element in the situation. Once the information was made public, Thera had to notify the shareholders of its position on those questions. Mr. St-Germain said that, at that point, neither he nor the public knew Thera’s response to the questions. He added that the questions published by the FDA were in keeping with a procedure whose ramifications were equally unknown to the public.

According to him, it was up to Thera to inform the shareholders about them and respond to them so that everyone would be informed about the situation in the same way. [ 148 ] That testimony shows that the respondent’s main grievance concerned the fact that information, until then unknown, about certain concerns related to certain side effects of the drug became public. Since that information concerned Thera’s flagship product, and the very reason for its existence and operations, it was a change that required a press release issued by the corporation, as well as explanations.

The importance of the change was undeniable in terms of the potential impact on the market price of the security, in a context where Thera’s future depended directly on the FDA’s approval process for the drug. [ 149 ] The respondent insisted on the fact that the existence of a change and its significance were demonstrated by the immediate reaction of the market to the public release of the information, which resulted, the very same day, in a drastic decline in the market price of the security in unusual and high trading volume. [ 150 ] For the respondent, if Thera had reacted with an appropriate press release confirming that it was aware of the questions and that it had already responded fully to them, and providing notice that the questions did not reflect a concern, since they were addressed directly, the loss sustained would have been avoided. [ 151 ] As the trial judge pointed out in paragraphs [82] and [83] of his judgment, sections 5.3 and 73 of the S.A. and 1.1 and 7.1 of Regulation 51-102 are relevant to a reporting issuer’s obligation to disclose a material change: S.A. 5.3.

When used in relation to an issuer other than an investment fund, “material change” means a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer , or a decision to implement such a change made by the directors or by senior management of the issuer who believe that confirmation of the decision by the directors is probable. . . . 73.

A reporting issuer shall provide periodic disclosure about its business and internal affairs, including its governance practices, timely disclosure of a material change and any other disclosure prescribed by regulation in accordance with the conditions determined by regulation. Regulation 51-102

1.1

Definitions and

Interpretation . . . “Material change” means (

a) a change in the business, operations or capital of the reporting issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the reporting issuer ; or 7.1 Publication of Material Change

(1) If a material change occurs in the affairs of a reporting issuer, the reporting issuer must (

a) immediately issue and file a news release auth

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