2018 QCCA 120, 2018 QCCA 120

Amaya inc. c. Derome 2018 QCCA 120 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026615-179 (500-06-000785-168) DATE: January 29, 2018 CORAM: THE HONOURABLE NICHOLAS KASIRER, J.A. MARIE ST-PIERRE, J.A. MARTIN VAUCLAIR, J.A. AMAYA INC. APPELLANT - Defendant v. PIERRE DEROME JACQUES LEMELIN RESPONDENTS – Representative Plaintiffs and DAVID BAAZOV DANIEL Y. SEBAG DIVYESH GADHIA HARLAN W. GOODSON WESLEY K.

CLARK IMPLEADED PARTIES - Defendants and AUTORITÉ DES MARCHÉS FINANCIERS ROYAL CANADIAN MOUNTED POLICE IMPLEADED PARTIES – Mises en cause JUDGMENT [ 1 ] Amaya Inc. has appealed a judgment of the Superior Court, District of Montreal (the Honourable Mr.

Justice Babak Barin), rendered on January 10, 2017, which granted, in part, Pierre Derome and Jacques Lemelin’s application for document disclosure in connection with a class action that they seek to bring for losses suffered in the secondary market for securities. [ 2 ] For the reasons of Kasirer, J.A. with which St-Pierre and Vauclair, JJ.A. agree, THE COURT : [ 3 ] GRANTS leave to appeal from the judgment of the Superior Court; [ 4 ] ALLOWS the appeal in part; [ 5 ] SETS ASIDE the judgment of first instance, and proceeding to render judgment on the written pleading entitled “ A vis de gestion to compel documentary disclosure and de bene esse

Avis de gestion to issue subpoenas ” filed in the Superior Court: ORDERS the Respondents [ i.e . Amaya Inc., David Baazov, Daniel Y. Sebag, Divyesh Gadhia, Harlan W. Goodson and Wesley K. Clark] to provide the Petitioners [ i.e . Pierre Derome and Jacques Lemelin] with the names and copies of their general liability, errors and omissions, as well as any directors’ and officers’ liability insurance policies that they may have in force relating to this case; DISMISSES the remainder of the A vis de gestion to compel documentary disclosure and de bene esse

Avis de gestion to issue subpoenas; [ 6 ] WITHOUT LEGAL COSTS , both in first instance and on appeal, given the divided outcome of the dispute. NICHOLAS KASIRER, J.A. MARIE ST-PIERRE, J.A.

MARTIN VAUCLAIR, J.A. Mtre Éric Préfontaine Mtre Frédéric Plamondon Mtre François Laurin-Pratte Osler, Hoskin & Harcourt For the Appellant Mtre Shawn Faguy Mtre Émilie-Béatrice Kokmanian Faguy & Co.

For the Respondents Date of hearing: August 29, 2017 REASONS OF KASIRER, J.A. [ 7 ] In 2007, Quebec enacted a statutory remedy favorable to shareholders who allege that they have suffered harm by reason of wrongful conduct – insider trading, misrepresentation by corporate officers or directors and the like – in the secondary market for publicly-traded securities. [1] Whether their recourse is pursued individually or as a class action, shareholders face a lightened burden under the Securities Act [2] compared to the general rules of civil liability in the Civil Code of Québec .

To obtain compensation – and in connection with a policy to deter misconduct in the secondary market for securities – shareholders are relieved, at least in part, from establishing causation, in particular that they relied on the corporate misdeeds to their detriment. [ 8 ] As is the case elsewhere in Canada, however, Quebec plaintiffs must secure leave of the court in order to bring action for secondary market liability under the Securities Act . The Supreme Court has observed that the “screening mechanism” established by

section 225.4 of the Act is a means of protecting public issuers and their shareholders from frivolous or bad faith actions, sometimes called “strike suits”, brought by opportunistic or disgruntled investors who unfairly seek to take advantage of the favourable statutory recourse. [3] [ 9 ] While the terms of the Securities Act are broadly similar to those in Ontario and other provinces and territories, it has been observed by the highest authorities that the Quebec regime is not identical to the rules elsewhere. [4] One point of apparent difference relates to the procedure governing these secondary market actions, in particular the stated rules pertaining to evidence that may be adduced leading up to the decision whether or not to grant leave for the statutory action.

Interpreting those rules in the Ontario Securities Act , [5] for example, courts have been resolute in prohibiting would-be plaintiffs from seeking evidence from a defendant issuer by way of discovery as a means of satisfying the requirements for leave.

Courts have warned against “mini-trials” that might result at this early stage of proceedings, and have held that discovery is incompatible with the legislative policy for the leave requirement which, they say, is to prevent strike suits against issuers. [6] This prohibition has been applied in circumstances in which the statutory recourse is pursued as a class action. [7] [ 10 ] The instant case arises in a class action as well. The motion judge decided that document discovery is available against public issuers and their officers and directors in Quebec, even if it is prohibited elsewhere.

To justify his decision, he relied on differences between the Quebec statutory regime and the rules applicable in Ontario and, in particular, his understanding of the rules favouring cooperation between parties and proportionality that are “guiding principles” in the Code of Civil Procedure . Sitting in a case management setting in this shareholder class action, the motion judge decided that discovery was available and invited the parties to provide particulars as to the documents in question. [ 11 ] The public issuer says the motion judge was mistaken to allow the forced disclosure of documents.

It argues before this Court that the judge failed to understand that, notwithstanding differences in statutory language, the screening mechanism in the Quebec Securities Act rests on the same legislative policy as that pursued elsewhere in Canada where discovery-like measures as a means of obtaining evidence for the leave hearing are prohibited.

Specifically, says the issuer, by allowing documentary discovery at this early stage of the case, the judge misinterpreted the Code of Civil Procedure in a manner that would defeat the purpose of securities law in Quebec. [ 12 ] The dispute raises questions relating to whether the judgment under review is subject to appeal as a case management measure relating to a class action.

More fundamentally, the outcome turns on the vocation of the guiding principles in the Code of Civil Procedure and the extent to which rules in secondary market actions in Quebec have been harmonized with securities law elsewhere in Canada.

I Setting for the dispute over disclosure [ 13 ] Amaya Inc. seeks leave to appeal from a judgment of the Superior Court authorizing Pierre Derome and Jacques Lemelin to file a “specific request for disclosure of documents” and ordering Amaya to provide them immediately with copies of certain of its insurance policies. [8] The judgment was rendered in connection with a class action in damages for misrepresentation brought by the respondents in the secondary market for securities. [ 14 ] Amaya provides services in the gaming entertainment industry, including products relating to online poker. The company’s

securities are listed on the Toronto Stock Exchange and the NASDAQ Global Select Market. It is a “reporting issuer” within the meaning of the Quebec Securities Act . [ 15 ] On March 23, 2016, the Autorité des marchés financiers issued a press release announcing that it had brought penal proceedings against, among others, David Baazov, then president, chief executive officer and shareholder of Amaya.

Mr Baazov and his co- defendants stood accused of having wrongly used privileged information pertaining to Amaya as a public issuer and of having conspired to commit offences under the Act . [ 16 ] The next day, respondent Lemelin filed a motion for authorization to bring a class action against Amaya and several of its principals. His motion included a request for leave to bring the action in damages under

section 225.4 of the Act . The motion was later amended to add respondent Derome as a second representative plaintiff. [ 17 ] Sometime shareholders in Amaya, the respondents allege that certain company officers and directors engaged in insider trading and share-price manipulation in a manner that caused them and other shareholders to lose money on their investments. Messrs.

Derome and Lemelin state that they were Quebec residents and holders of Amaya securities during the period relevant to the class action for which they seek authorization to act as representatives. [ 18 ] Relying in part on the notice of penal proceedings, the respondents say that certain of the defendants wrongly shared confidential material facts about Amaya with third parties, allowing the latter to trade in the company’s securities to their advantage.

In addition, the defendants made false and misleading statements about company business and failed to reveal that one or more of its principals were acting in breach of Amaya’s written code of business conduct and ethics. Respondents say further that the company published core documents containing misrepresentations and omissions about material facts.

The whole indicates that certain directors’ and officers’ were involved in a “massive insider trading scheme” and the “manipulation of the price of Amaya’s publicly-traded securities” during a period when the company was raising capital and acquiring rival businesses. It is further alleged that Amaya had inadequate and ineffective internal controls against wrongful behaviour by its principals.

This caused the respondents to suffer losses when they transacted on Amaya shares. [ 19 ] In support of their re-amended motion for leave under the Act and for authorization for the class action, the respondents filed a number of exhibits, including materials in the public domain such as Amaya’s revised business code of conduct, documents relating to the penal proceedings initiated by the AMF, and the public response from Amaya that no violations of the law had been committed by the company, its officers or directors. [ 20 ] In order to advance to trial, the respondents must obtain from the Superior Court both leave under

section 225.4 of the Securities Act and authorization to bring a class action under

article 575 of the Code of Civil Procedure .

In this sense, when an action in damages is brought for secondary-market securities liability as a class action, it has aptly been called a “hybrid” proceeding in that a petitioner has the twin task of satisfying distinct burdens imposed by securities legislation and by the law relating to class actions. [9] The rules in the Securities Act and those in the Code relating to class actions both require – to differing degrees – some evidence to suggest that a petitioner has a valid claim before the action will be allowed to proceed to the merits. [ 21 ] The current dispute has arisen prior to leave under the Securities Act and prior to authorization for the class action. [ 22 ] Before the hearing of their requests for leave under the Act and for authorization of the class action, the respondents brought a preliminary motion to compel documentary disclosure.

Styling their demand as one for a case management measure, the respondents asked the motion judge, inter alia , for certain non-public documents – relating to the alleged insider trading scheme –, in order to assist them in meeting the evidentiary burden for leave they faced under

section 225.4 of the Act . They relied on the rules in the Code of Civil Procedure to compel disclosure of documents from Amaya, the AMF and the Royal Canadian Mounted Police. The respondents observed that cases decided under

section 225.4 require them to bring some “credible evidence” in support of their action in damages arising out of the alleged insider trading involving Amaya shares on the secondary market. The motion thus sought to compel Amaya, the AMF and the RCMP to disclose documents so that [they] can satisfy the evidentiary burden under the Quebec Securities Act ”. [ 23 ] The documents sought from Amaya, set out in a list filed an exhibit to the motion, fall into three categories: (

a) internal company control procedures for stock transactions; (

b) documents relating to corporate governance, investigations and sanctions, some of which had already been sent by Amaya to the AMF and the RCMP; and (

c) materials concerning the defendant Mr David Baazov, who allegedly “hatched the insider trading scheme” at the heart of the lawsuit. In addition, the respondents requested disclosure of the company’s general liability insurance policy, its errors and omissions policy, and the policy covering conduct of directors and officers. [ 24 ] Before the motion judge, the respondents withdrew their request for disclosure of documents from the AMF and the RCMP. They amended the list of documents accordingly to ask only for documents from Amaya, including the insurance policies.

II Judgment from which leave to appeal is sought [ 25 ] In a carefully-written and indeed cautious judgment, the motion judge decided that document disclosure was possible in Quebec at this stage of the proceedings but, with the exception of the insurance policies, he asked the parties for particulars regarding the materials requested before fixing the specifics of the order for disclosure. In his decision, entitled “pre-authorization class action judgment”, the judge concluded as follows: FOR THESE REASONS, THE COURT: PERMITS the Petitioners [ i.e .

Pierre Derome and Jacques Lemelin] to file with this Court a specific request for disclosure of documents by 4 p.m. on 25 January 2017; ORDERS the Respondents [ i.e . Amaya and the individual defendants] to file their response to the Petitioners’ request by 4 p.m. on 9

February 2017; ORDERS the Respondents to provide to the Petitioners, the names and copies of their general liability, errors and omissions, as well as any directors’ and officers’ liability insurance policies that they may have in force relating to this case; LEGAL COSTS to follow. [ 26 ] The judge explained that Messrs. Derome and Lemelin sought disclosure in order to furnish credible and sufficient evidence that would persuade the Superior Court that their claim has a reasonable possibility for success pursuant to the leave requirement set forth in

section 225.4 of the Act . [ 27 ] He noted that the standard for granting leave under

section 225.4 is a higher one than that generally required for a class action. Under the Securities Act , he observed, the court must not limit itself to determining whether the facts alleged justify the conclusions sought. Instead, it must ensure that the action is brought in good faith and that it has a reasonable possibility of success on the merits.

In that latter regard, the judge quoted Abella, J.’s judgment in Theratechnologies [10] to the effect that the court must “‘undertake a reasoned consideration of the evidence to ensure that the action has some merit’” (para. [25] of the judgment), but that the evidence required will not be “akin to that required at trial” (para. [27]). [ 28 ] The judge wrote that in order to decide upon the respondents’ request for documents, the court was required to identify the applicable rules of procedure and determine whether those rules permit document disclosure at this “early” stage.

The judge noted that nothing in the rules on class action inhibits a party’s ability to seek and obtain document disclosure at any stage of a class action, and underscored that

article 574 C.C.P . explicitly permits the court to allow relevant evidence to be submitted (paras. [39] and [40]). He cited

article 20 C.C.P ., pursuant to which the parties are required, as a directing principle of the law of procedure, to co-operate and keep one another informed of the facts conducive to a fair debate (paras. [41] to [43]). He added that

article 221 C.C.P ., which applies to all civil proceedings, permits the parties to seek documentary disclosure from one another and that this is not explicitly restricted in a class action setting (para. [45]). He concluded that “the Quebec legislature is interested in promoting the early search for truth rather than postponing it for procedural or other reasons” (para. [49]). [ 29 ] On the strength of this reading of the Code of Civil Procedure , the judge reasoned that, as a matter of fairness, a petitioner seeking to satisfy the evidentiary burden under

section 225.4 of the Act should have a reasonable opportunity to obtain that evidence from the issuer by way of document discovery. He added that the capital market system in Canada is built on a foundation of full disclosure of all material facts in a prospectus and continuous disclosure of material changes and information thereafter. To consider the request for disclosure “under any other circumstance would go against the very purpose for which

section 225.4 was drafted and enacted” (para. [56]). [ 30 ] The motion judge then compared the regime in

section 225.4 of the Act with its counterpart in Ontario law. He wrote that contrary to the Quebec regime, sections 138.8 (2) and (3) of the Ontario Securities Act “require a petitioner and a respondent to serve and file one or more affidavits setting forth material facts upon which each intends to rely and permit the affiant of such affidavit to be examined in accordance with the rules of court” (para. [60]).

Section 225.4 simply directs that the application for leave state the facts giving rise to the action and be accompanied by a “projected statement of claim”. [ 31 ] He then turned to the question as to what would satisfy the requirement of “sufficient evidence” that the claim would succeed as set forth in Theratechnologies .

The motion judge stated what he viewed to be the appropriate test to determine whether disclosure of documents should be ordered: the evidence sought must exist, it must be described with reasonable accuracy and it must be prima facie necessary to demonstrate a reasonable possibility that the claim would succeed at trial (para. [67]). To that end, a request for document disclosure should not be a “fishing expedition” and, as is the case with requests for production of documents under the general law of procedure, it should be limited in scope.

For the judge, considerations of fairness required that document discovery be available at this stage (paras. [71] to [73]). [ 32 ] Having concluded that the rules of procedure in Quebec permit early disclosure, the motion judge then invited the respondents to identify, in writing, the information or documents from the original list submitted in respect of which they continue to seek disclosure.

Citing articles 25, 49 and 574 C.C.P . as authority, he said that the respondents must explain with precision why the document requested is relevant and necessary to persuade the Court that their action has a reasonable possibility of success pursuant to

section 225.4. Amaya and the other co-defendants were given a period during which they could respond to the request and seek any protective order they deemed appropriate (paras. [74] to [76]). [ 33 ] The motion judge then granted the request made pursuant to articles 2501 C.C.Q . and 20 C.C.P . for disclosure of certain of Amaya’s insurance policies. He noted that the respondents claim to have a direct cause of action against the insurers and their underwriters and that early communication of the policies would allow for informed decisions as to how to prosecute those claims.

He rejected the argument that the request was not useful because the respondents are not seeking punitive damages. He wrote that considerations of efficiency and the respect of the requirement of co-operation and openness set out in

article 20 C.C.P . justified disclosure at this time so that a direct action against the insurer could properly be undertaken (paras. [86] to [91]). III Questions on appeal [ 34 ] The matters in dispute are best organized under three headings. [ 35 ] The first pertains to the application for leave to appeal from the judge’s decision to permit the disclosure of documents at this stage of the proceedings. The respondents argue that the judgment is not susceptible of appeal in light of a general rule limiting appeals from decisions rendered in the pre-authorization stage of class actions.

Even if the judgment were susceptible of appeal, the respondents contend that this Court owes deference to the discretionary decision rendered by the case management judge and that there is no basis upon which it should be disturbed under

article 32 C.C.P . Alternatively, if the judgment is governed by

article 31, para. 2 C.C.P ., Amaya has only suffered financial inconvenience, thereby falling short of the “irremediable injury” requirement in that latter provision of the Code.

[ 36 ] Second , if leave is granted, the appellant contends that the motion judge erred in law by permitting disclosure of documents. Disclosure, says Amaya, is incompatible with the policy pursued in

section 225.4 of the Act and contradicts a uniform line of cases decided elsewhere in Canada in which discovery has been prohibited prior to the decision on leave. [ 37 ] The third issue concerns whether the judge committed a reviewable error by ordering the immediate disclosure of the insurance policies. [ 38 ] I propose to treat each of these issues in turn. IV Analysis [ 39 ] To a greater or lesser degree, all three issues turn on

section 225.4 of the Securities Act , found in Title VIII (“civil actions”), specifically Division II (“secondary market”) of

Chapter II (“misrepresentation”). Sections 225.4 to 225.27 treat “Actions for damages and burden of proof” in respect of remedies in the secondary market.

Section 225.4 provides: 225.4. L’action en dommages-intérêts 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 signifiée 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. 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 served 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. A.

The application for leave to appeal [ 40 ] The first question to resolve is whether the judgment under review is susceptible of appeal and, if so, whether the application for leave to this Court is governed by

article 31 or 32 C.C.P . (

i) Is the jurisprudence limiting the right of appeal from judgments rendered prior to the authorization of a class action relevant here? [ 41 ] The respondents argue that the judgment under review is not susceptible of appeal to this Court because it was rendered prior to authorization of the class action. They point to jurisprudence under the former Code of Civil Procedure indicating that pre-authorization judgments could not be considered to be “interlocutory” within the meaning of then

article 29 C.C.P . since the class action itself had not been formally instituted.

Some of those cases also held that pre-authorization judgments should not, at least as a general rule, be appealable because the right of appeal in respect of authorization itself was a limited one. [11] The respondents note further that in Valeant , [12] my colleague St-Pierre, J.A., addressed “this very issue” in chambers and held that, despite changes to the rules relating to appeals from class action authorization judgments in the new Code of Civil Procedure , the general rule against appeals established under the former law still obtains. [13] [ 42 ] In my view, decided cases limiting appeals from judgments rendered prior to authorization of class actions do not apply here.

In the circumstances, it is not necessary to decide here in what measure the former prohibition against appeals from pre-authorization class action judgments continues to apply under the new Code of Civil Procedure .

The judgment under review is susceptible of appeal, with leave, because it is best characterized as a judgment prior to leave under the Securities Act and not as a pre-authorization class action judgment. [ 43 ] I reason as follows. [ 44 ] By insisting that the decision rendered is a pre-authorization class action judgment, the respondents have mischaracterized its nature and failed to recall properly the reasons they had asked for document disclosure. [ 45 ] The request made to the motion judge and its relevance to the principal action mean that the judgment under review is best understood as one that relates directly to leave pursuant to

section 225.4 of the Act , and not to the requirements for authorization to institute a class action. It is true that the two authorizations were sought together in a “hybrid” application, and true as well that the judgment under review was rendered prior to the authorization of both. But on closer examination, it is plain that the judgment does not bear on the collective character of the class action for which authorization is sought. Instead, the request for document disclosure relates

directly to whether or not the respondents can meet the standard of showing a reasonable possibility of success at trial under

section 225.4 of the Act . [ 46 ] This standard for leave is not just higher than that required under

article 575 C.C.P ., but it is also substantively, temporally and procedurally distinct from the criteria that must be established by would-be representatives of a class action under the Code of Civil Procedure . Indeed, as in the recent case of Valeant [14] in the Superior Court, the evaluation of whether a plaintiff-shareholder has met the

section 225.4 leave standard will generally be undertaken before the question whether the class action should be authorized and based on different criteria. This is eminently logical: where leave is required under the Act , there is no action upon which the class action, as a procedural vehicle, can rest until that leave is granted. [ 47 ] As such, the limit on appeals from pre-authorization class action judgments, insofar it remains part of the law, is not applicable here.

The judgment is susceptible of appeal, with leave. [ 48 ] The proceedings before the motion judge concerned leave under the Act and not the question of authorization of the class action. First, the respondents made plain that their purpose in filing their motion was to meet their burden under

section 225.4 of the Act and not the criteria under the Code of Civil Procedure for a class action. In the motion, they cite the standard established by

section 225.4, paragraph 3, that their action have a “reasonable possibility” of success. Further, they quote at length in their motion from Theratechnologies in which the Supreme Court held that demonstrating a reasonable possibility of success requires a plaintiff to offer “some credible evidence in support of the claim”. [15] The respondents explain that they seek document disclosure to establish this credible evidence. [16] While they have framed their principal as a class action, their primary purpose in bringing the preliminary motion for document disclosure was not to meet the burden for authorization in

article 575 C.C.P ., but rather to satisfy the distinct and more onerous standard for leave in

section 225.4. They seek to show summarily that their action is not a strike suit as that idea is relevant under the Act. [ 49 ] The purpose of the leave provision in

section 225.4 is to provide a “screening mechanism” against all prospective plaintiffs – acting for themselves or as representatives of a class – who would bring frivolous suits under the secondary market provisions in the Act against issuers in hopes of obtaining a settlement.

The legislature requires a plaintiff – again, whether the action is brought individually or as a class action – to show the claim is brought in good faith and has a reasonable chance of success. [ 50 ] The motion judge understood the proceeding before him on that basis, noting explicitly that in deciding on the request for disclosure, he was not directly seized of the narrower question as to whether the facts alleged in the class action justify the conclusions sought.

To that end, he rightly contrasted the standard under the Securities Act , explained by the Supreme Court in Theratechnologies , with the lower standard under

article 575 , para. 2 C.C.P ., explained in Infineon . [17] The respondents sought not to establish mere good colour of right, but instead that their suit had a “reasonable possibility of success” at trial under

section 225.4, requiring the judge to “undertake a reasoned consideration of the evidence to ensure that the action has some merit” (paras. [24] and [25]). [ 51 ] The purpose of the disclosure request had no bearing whatsoever on the other criteria for authorization of a class action either. The documents are not required to show that the claims of the members of the class raise identical, similar or related issues of law or fact (art. 575, para. 1 C.C.P .). The respondents did not make the request to assist them in showing that the composition of the class makes it difficult or impracticable to apply the rules of mandate to take

part in proceedings on behalf of others (art. 575, para. 3 C.C.P .). Finally, they did not ask for disclosure to demonstrate that the class member appointed as representative plaintiff is in a position to represent the class members properly ( art. 575 , para. 4 C.C.P .). [ 52 ] It is true that, more often than not, secondary market liability actions will be class actions given that publicly-traded issuers generally have many investors in like circumstances and, if something goes wrong, they are likely to come together to avail themselves of the advantages of a class action. [18] But the collective character of the claim is not an inherent characteristic of an action brought under

section 225.2 et seq . of the Act or its analogues elsewhere in Canada. These are distinct matters, and the prohibition against pre- authorization appeals, should it apply, would only be relevant to a dispute relating to the criteria for authorization of a class action. [ 53 ] Moreover, a claim for civil liability based on misrepresentation in the securities market – including class actions – does not require leave under

section 225.4 of the Act in all circumstances. A class action for misrepresentation in the primary market – an investor who has subscribed for or acquired securities in a distribution effected with a prospectus containing a misrepresentation for example – can proceed immediately to the authorization stage under

article 575 C.C.P ., because

section 217 of the Act , unlike an action taken in the secondary market, does not require special leave. The same may be said of a class action brought for securities fraud based on the general rules of civil liability in articles 1457 and 1458 C.C.Q . Again, a representative plaintiff needs no prior leave before asking for authorization pursuant to

article 575 C.C.P . for the class action. Because he or she will not benefit from the reduced burden of proof in respect of causation, the legislature has deemed that protecting the public issuer against a strike suit is not necessary. [ 54 ] In a hybrid proceeding like the one in the present case before the Superior Court, it is generally most appropriate first to address the leave question under

section 225.4 of the Ac. Thereafter, if the court authorizes the action pursuant to the criteria set out there, to proceed with a consideration under

article 575 C.C.P . to see if the requirements associated with the chosen vehicle for the action – that of the class action – have been met. (They can of course be two sequential steps in a single judgment). In other words, in a hybrid application, the question relating to the authorization of the class character of the action generally comes second. The very text of

section 225.4 of the Act is highly suggestive of this temporal ordering. [19] Thus, even if it is asked for at the same time as authorization for the class action, the request for leave for an action in damages arises logically prior to the issue whether the proposed action meets the requirement of a class action. [ 55 ] For the moment, it is sufficient to observe that the question as to whether or not leave should be granted relates only to the calculus for leave under

section 225.4. In that sense, the debate as to the availability of disclosure arises in a proceeding distinct from, and indeed logically prior, to question whether authorization should be granted to bring the action collectively. As a result, the line of cases relating to whether a pre-authorization class action judgment is susceptible of appeal is not relevant here. It is of course true that the judgment under review was rendered prior to authorization of the class action, but that temporal fact is not the decisive factor. [20]

[ 56 ] The reasons generally advanced to justify the view that pre-authorization class action judgments are not susceptible of appeal do not apply here. The principal concern in those cases relates to the authorization of a cause of action on a collective basis.

When the parties are in the class action authorization phase of their action, the focus will be on whether it is appropriate, as a procedural vehicle, that the action be brought collectively. [21] When, however, the collective character of the action is not the subject-matter of the dispute, these considerations are not directly germane. [ 57 ] This is in some measure the same idea – or at least an extension of the same idea – that the

section 225.4 determination is not, in itself, a pre-authorization class action judgment. Gascon, J.A., then a member of this Court, explained this point in Theratechnologies: [22] [94] Dans le contexte particulier de ce nouveau régime, les précédents de la Cour sur l'absence de droit d'appel d'un jugement dit interlocutoire prononcé avant celui qui autorise l'exercice d'un recours collectif aux termes de l’art. 1003 C.p.c. [ art. 575 n.

C.p.c .] n'ont, à mon avis, aucune application. [95] Il est vrai que la Cour a indiqué plus d'une fois que « les décisions rendues dans le cours du processus qui conduit au refus ou à l'octroi de l'autorisation d'exercer un recours collectif ne sont pas susceptibles d'appel ». Selon la jurisprudence de la Cour, ces jugements ne sont pas interlocutoires puisque le recours collectif n'est pas encore institué.

Ils ne sont donc pas susceptibles d'appel. [96] Cependant, aux termes de l’art. 225.4 LVM , il ne s'agit pas d'un jugement rendu dans le cadre du processus qui conduit au refus ou à l'octroi de l'autorisation d'exercer un recours collectif. Il s'agit d'un jugement rendu dans le cadre d'un mécanisme distinct et indépendant, qui conditionne l'inclusion d'une action en dommages particulière dans la voie procédurale que constitue le recours collectif.

Ce mécanisme existe, que la voie procédurale choisie soit le recours individuel ou le recours collectif. [97] Cela reste, à mon avis, fort différent de jugements portant sur des procédures sous-jacentes au mécanisme d'autorisation d'un recours collectif, comme celles portant, par exemple, sur la permission de faire entendre des témoins, de produire une preuve ou de contester par écrit. [ 58 ] Moreover, contrary to what the respondents argue, the pre-authorization and pre-leave judgment in the Valeant [23] case did not raise the “very issue before this Court” in the present case.

It should be noted, first, that in Valeant , the principal action was brought under three heads: the general rules on civil liability in

article 1457 C.C.Q. (for which no leave under the Securities Act is required); primary market liability under

section 217 et seq . of the Act (for which no leave is required); and secondary market liability under

section 225.2 et seq . of the Act (for which leave is required under

section 225.4). [24] This is a critical distinction from the present case: in Valeant , elements of the class action could proceed whether or not leave was secured pursuant to

section 225.4 for the secondary market portion of the claim. When the dispute arose at the pre-authorization stage of the class action, an action in damages already existed in that no leave was required to bring the action under the general law and for the primary market portion of the claim.

In that sense, St- Pierre, J.A. in chambers had to address the issue whether the judgment under review in Valeant was susceptible of appeal under the rules relating to class actions. [25] [ 59 ] The manner in which the dispute arose in the two cases is also markedly different: the motion judge in Valeant refused a request for a safeguard order and a case management order that sought to bar the plaintiffs from prevailing themselves of an order issued by a foreign court authorizing the examination outside of court of a third party.

The motion judge had rejected the argument that the examination would circumvent the rule that pre-trial examinations need to be authorized by a Quebec court under the Code of Civil Procedure . For present purposes, it may be noted that when leave to appeal was sought, and denied, the parties argued the case as a pre- authorization class action judgment and not, as here, as a case relating only to the

section 225.4 screening mechanism under the Act . [26] The question of the applicability of the rule precluding appeals from pre-authorization class action judgments to the

section 225.4 phase of the proceeding was not the subject-matter of the dispute before the judge in chambers in this Court because, irrespective of whether leave would eventually be granted under that provision, the authorization of the class action had to be addressed as regards to the

article 1457 C.C.Q. and primary market claims.

That is not the case here. [ 60 ] Finally, my colleague St-Pierre, J.A., indicated that, in any event, an application for leave to appeal from the judgment a quo in Valeant would have been dismissed under the ordinary rules in that, first, it was a case management judgment to which deference was owed and, second, no irremediable injury was caused by the judgment. [27] Valeant is of no assistance to the respondents. [ 61 ] In my view, the general law set forth in articles 31 or 32 C.C.P ., depending on the nature of the decision rendered, provides the basis for the judgment to be appealed. [28] Notwithstanding the fact that the action for damages can only be brought with prior authorization pursuant to

section 225.4, a pre-leave judgment will be characterized as one rendered “in the course of a proceeding/ en cours d’instance” (within the meaning of

article 31, para. 1 C.C.P .) or, alternatively, as a case management judgment relating to the conduct of a proceeding (within the meaning of

article 32 C.C.P .), depending on the context. In either case, it is susceptible of appeal with leave. [ 62 ] Lastly on this point, I am mindful of the view that a judgment rendered prior to the authorization of a class action was sometimes considered not to be “interlocutory” under the former Code, because the action was not yet formally instituted. I am disinclined to come to the same conclusion for the expression “in the course of a proceeding/en cours d’instance” in

article 31 C.C.P . as it is relevant to

section 225.4 of the Act . To say that there is no “proceeding/instance” in the pre-leave phase of a secondary market liability dispute gives an unnatural sense to the word “proceeding”. [29] The “request for authorization / demande d’autorisation” in

section 225.4 is itself a proceeding, distinct from the principal class action, as the Act itself suggests in requiring the “projected statement of claim / projet de demande d’introductive d’instance” to be filed at the same time (s. 225.4, para. 2). [30] [ 63 ] In sum, the judgment under review is susceptible of appeal even if, technically speaking, it was decided prior to the authorization of a class action. I see no reason for the limit on the right of appeal from pre-authorization class action judgments to apply to the judgment under review. (ii) Given that a right of appeal with leave exists from the judgment of the Superior Court, should leave be granted?

[ 64 ] The parties disagree as to whether the judgment is governed by

article 31 or 32 C.C.P. and whether leave should be granted here. The respondents argue that the judgment is one of case management such that, pursuant to

article 32 C.C.P ., deference is owed to the motion judge unless the judgment is shown to be unreasonable in light of the guiding principles of procedure. They note that because no specific order for disclosure was rendered by the judge (except for the insurance policies), it plainly cannot be anything but a case management measure. Even if the judgment is governed by

article 31, para. 2 C.C.P ., the respondents contend that the judgment orders nothing that causes irremediable injury to Amaya and the other co-defendants, which precludes leave from being granted. [ 65 ] In my view, the judgment is governed by

article 31 , para. 2 C.C.P . [ 66 ] The judge’s conclusion that document discovery is available and the reasons he gave in support of that view suggest strongly that the judgment is not one of mere case management.

It is the substantive nature of a judgment rendered in the course of proceedings, and not the formal setting in which it is rendered, that decides its characterization as case management. [31] While the judgment evinces some of the qualities of a case management measure, in particular in the judge’s choice to allow the parties to draw up lists and counter- lists of documents to be disclosed, the motion judge consciously decided a point of principle – the availability of document discovery in Quebec where it is prohibited in like circumstances elsewhere – and set out a “test” for courts to use in the future to determine whether, in a case-to-case basis, disclosure should be allowed. [ 67 ] In short, the judgment under review was designed to establish a standard in law for the exercise of discretion in subsequent cases, and not merely one that bears on the orderly conduct of the proceedings, as in case management measures.

This was not a judgment that simply decided the procedure and time limits for the discovery of exhibits or other evidence (article 158, para. 1 C.C.P .), but instead one that fixed a new rule of evidence as a matter of law. With respect, the motion judge was wrong to suggest that he was merely ruling on a “special request/demande particulière” by the parties pursuant to

article 158, para. 5. C.C.P . Read as part of

article 158 which sets out a list of “case management measures”, a “special request” of the parties is a species of a genus: it allows judges to craft tailor-made responses to sui generis requests that must, by their nature, fall within the scope of case management measures.

By asking the judge to decide the question of principle as to the availability of document discovery at this stage, the respondents did not make a “special request”. [ 68 ] I do recognize that the tenor of the judge’s conclusions – his choice to defer the formal order for document discovery until the parties assist the court in identifying those documents that meet his test – might suggest that his judgment has a discretionary dimension such that it would be one of management only, or that an appeal of any sort would be premature. Both of these

interpretations seem to me to be wrong. The judgment decided a point of law that, if left undisturbed, would stand for the principle that document disclosure is available at this stage, whatever the outcome of his second-order weighing of the circumstances. The character of the judgment – deciding on the question of law as to the availability of discovery as opposed to simply fixing the modalities thereof – transcends mere case management. [ 69 ] I am also aware that a judge charged with the case management of a class action has broad discretionary powers, including, as

article 574 C.C.P . provides, authority to “allow relevant evidence to be submitted / permettre la présentation d’une preuve appropriée”. But it is mistaken to suggest that this provision, which deals with the collective aspect of a class action, has a direct bearing on the question as to whether, prior to

section 225.4 leave under the Act , discovery is available. As noted above, the leave mechanism under the Act is distinct from the authorization mechanism for the class action, and the powers of a judge under the latter procedure do not necessarily translate to powers under the former. It may be recalled that not all secondary market liability actions are class actions. [ 70 ] The better view is that the decision that document disclosure was available, and the test according to which it would be ordered, was a judgment in the course of proceedings leading up to leave under

section 225.4. In this sense, it is susceptible of appeal pursuant to

article 31 , para. 2 C.C.P . if it determines part of the dispute or causes irremediable injury to the appellant. [ 71 ] The respondents say that even if leave to appeal from the judgment is governed by

article 31, para. 2 C.C.P ., leave should be refused because it does not cause “irremediable injury/préjudice irrémédiable” to a party. At best, they argue, the judgment results in a financial inconvenience for Amaya, but causes no inherent prejudice to the proceedings within the meaning of Elitis Pharma . [32] Not only is the anticipated harm purely financial, but that harm is, for the moment, hypothetical in that, apart from the insurance policies, no disclosure has yet been ordered. [ 72 ] I disagree. The prejudice caused by the judgment is sufficient for the purposes of granting leave under the second paragraph of

article 31 C.C.P . [ 73 ] First, I note that Gascon, J.A., in Theratechnologies [33] , turned his mind to precisely this issue, deciding that a financial prejudice was, exceptionally and notwithstanding Elitis Pharma , sufficient to justify leave under

article 31 C.C.P . in connection with the screening mechanism in

section 225.4 of the Act . He wrote: [88] Aux termes de l'art. 225.4 LVM , l'un des fondements de l'autorisation requise est le contrôle des actions dites opportunistes dont les conséquences financières peuvent justement être sérieuses et néfastes pour un émetteur assujetti. Sous ce rapport, les frais afférents au processus judiciaire sont une des raisons d'être du mécanisme de filtrage instauré. [ 74 ] Second, and decisively to my mind, is the fact that the prejudice alleged by the appellant is not just financial.

Fundamentally, Amaya takes the position that by allowing documentary discovery against an unwilling defendant, the motion judge’s decision altered the manner in which leave is obtained under

section 225.4 of the Act . Without discovery, the would-be plaintiff is charged with finding evidence that indicates summarily that the proposed action is brought in good faith and has a reasonable possibility of success. If discovery is allowed, the character of the debate changes. Not only is a defendant exposed to the time and costs associated with the discovery process, but it may be called to produce evidence – contrary, Amaya claims, to the purpose of the Act – that justifies the commencement of the action by the would-be plaintiffs that otherwise might not rise to the level of the evidentiary bar set by

section 225.4 of the Act . [ 75 ] If Amaya is correct on this point, this changes the nature of the proceedings at the leave stage under

section 225.4. As such, the decision to allow discovery would involve more than expense: it would have an impact on the character of the proceedings themselves,

as contemplated in Elitis Pharma . [34] In my view, this is sufficient to give jurisdiction for leave to be granted, subject to the requirement that granting leave also be in keeping with the interests of justice (

article 9 C.C.P .) and the respect of the principle of proportionality (

article 18 C.C.P .). [ 76 ] These latter two requirements are also met here. It is in the interests of justice that the question as to whether the principles governing document discovery applicable at the leave stage elsewhere in Canada also apply in Quebec be addressed on appeal. Moreover, granting leave would be proportionate in that it would allow the parties and the courts to avoid the costs associated with undertaking discovery, including the extra step the judge considered necessary to evaluate if the documents were in fact needed. [ 77 ] I would therefore grant leave pursuant to

article 31, para. 2 C.C.P . B. Did the motion judge err in deciding that documentary disclosure can be ordered prior to leave under

section 225.4 of the Act ? [ 78 ] I turn now to the substance of the appeal. [ 79 ] The appellant submits that the motion judge was mistaken to decide that documentary disclosure could be ordered prior to leave being granted for the secondary market claim brought by the respondents. He is said to have erred in his understanding of the purpose of

section 225.4 of the Act and to have underestimated the importance of the legislature’s design to harmonize the Quebec rules on secondary market actions with those applicable elsewhere in Canada. In addition, the appellant says the motion judge misapplied the rules in the Code of Civil Procedure , including those relating to discovery in class actions. Finally, says the appellant, the test the judge proposed for a case-by-case determination for disclosure is based on principles that would only make sense on the merits of a dispute and are thus, at this pre-leave stage, unworkable. [ 80 ] The respondents answer that the motion judge made no error in his

interpretation of

section 225.4 of the Act , and that he correctly to decided that the Quebec regime is different from that in Ontario in respect of the applicable rules of procedure. They say the motion judge was prudent to leave the matter to the discretion of the judge seized of leave proceedings under

section 225.4. [ 81 ] I agree with the appellant. Document disclosure should not be allowed at this early stage of the proceedings because it is incompatible with the legislative policy pursued in

section 225.4 of the Act . It is not justified by differences between the Quebec regime and that applicable elsewhere, nor do rules promoting cooperation between the parties in the Code of Civil Procedure warrant a departure from the policy common to securities legislation in Quebec and the other provinces. [ 82 ] First, I am of the respectful view that the motion judge did misinterpret the primary purpose of the screening mechanism set forth in

section 225.4 of the Act . He wrote that the determination as to whether disclosure should be permitted prior to leave involves a balancing process between the competing interests of the issuer to prevent strike suits and the plaintiff’s ability to satisfy the threshold for leave in

section 225.4 (para. [30]). In the motion judge’s view, considerations of “due process” and “fairness” applicable to the

section 225.4 proceedings mean that plaintiffs should have a fair opportunity to obtain evidence from the public issuer so that they can meet the reasonable possibility standard for leave set forth by the Supreme Court (paras. [50] to [52]). Concluding on the availability of document discovery prior to leave under

section 225.4, he wrote: [71] The Court is of the view that practical and fairness considerations in this case require the parties to participate in a measured early disclosure of documents at the pre-authorization stage. [72] The Court is also of the view that such early disclosure is the only way that a fair and equitable playing field can be established in this case following the decision of the Supreme Court in Theratechnologies . [73] Based on the above, therefore, Petitioners can obtain disclosure of evidence that exists, and that is relevant and necessary at this stage for them to convince the Court that there is a reasonable possibility that their claim will succeed at trial. [ 83 ] Much of the motion judge’s analysis of legislative intent relevant to the Act strikes me as helpful and I note that others, like him, have characterized the key feature of the overall legislative policy underlying secondary market statutory remedies as reflecting a “balance” between the interests of aggrieved shareholders and public issuers. [35] I am of the view, however, that he wrongly interpreted

section 225.4 as itself having a dual purpose of protecting the interests of both the plaintiff-shareholder and the issuer. Its purpose is to protect public issuers, innocent shareholders, the markets and the courts, but not plaintiff-shareholders. [ 84 ] The screening mechanism in

section 225.4 is indeed designed, above all things, to protect public issuers against frivolous lawsuits brought by investors who have no meaningful evidence to show that they have been the victims of misconduct in the secondary market. It also serves to protect long-term shareholders of the issuer who, not party to the unmeritorious action, would bear the cost of any settlement paid to opportunistic plaintiffs. The screening mechanism thus contributes to protect the public confidence in the capital markets by ensuring that investors will not be held hostage to frivolous litigation. Finally,

section 225.4 of the Act helps courts avoid costs and wasted time of frivolous or unmeritorious litigation. In that sense, it shares some of the policy foundation of rules that allow actions to be dismissed summarily as improper proceedings. [ 85 ] Protection for plaintiff-shareholders is only obliquely found in

section 225.4. It is no doubt true that the screening mechanism should not be interpreted in such a manner that would defeat the remedial vocation of the whole of the division as it relates to protecting investors against corporate wrongdoing. That said, the playing field is not level, and should not be levelled, in a

section 225.4 hearing lest the screening mechanism be so compromised that it cannot serve its primary purpose. The process for leave requires those shareholders to show, summarily, that their action is not a strike suit, but the defendant is not bound to assist the plaintiffs in that task. The judge should have identified the purpose of the screening mechanism more narrowly as one that seeks to deter opportunistic or abusive litigation by plaintiff-shareholders who inappropriately wish to take advantage of the favourable conditions for secondary market actions against issuers. Accordingly, by deciding that “fairness” to plaintiffs under

section 225.4 justified discovery, he mistakenly suggested that the screening mechanism is also based on a legislative intention to protect plaintiffs. I agree with the appellant’s submission that the motion judge failed to distinguish between the purpose of the statutory regime as a whole and the purpose of the screening mechanism

itself. [ 86 ] The authorities are plain as to the competing policies that explain the workings of the rules relating to secondary market liability actions under the Act as a whole and that “checks and balances” between these policies are found in various rules in the statute. [36] The first of these policies favours the plaintiff-shareholder who claims that he or she has suffered loss as a result of misrepresentation.

Recognizing that the burden of showing that the misrepresentation caused the loss in value of the defendant issuer’s shares is heavy, the Act relieves the plaintiff from proving that he or she relied on the misrepresentation or on the issuer having complied with its timely disclosure obligations when the plaintiff acquired or disposed of the issuer’s security (section 225.12). [37] [ 87 ] This history of this relative importance of pro-plaintiff and issuer-protection policies is long and nuanced, dating back to the late 1970s in Canada, when the first recommendations were formally made that additional remedies should be available to shareholders, more generous than those under the private law of general application, for breaches by issuers of their continuous disclosure obligations. [38] The 1997 final Allen Report of the Toronto Stock Exchange, cited by the judge on another point, did take into account the interests of issuers, seeking a “balance” of interests otherwise, but declined to propose a “gatekeeper” leave requirement to protect issuers from irresponsible plaintiffs given the “risk of duplication of process”. [39] In that sense, contrary to what the motion judge wrote in paragraph [56] of his reasons,

section 225.4 is not connected to the fundamental principle recognized in the Allen Report of the importance of full disclosure of material facts by public issuers, because that Report did not propose a gatekeeper provision. I think, therefore, that the judge was wrong when he wrote that “[t]o consider a petitioner’s request for disclosure under any other circumstance would go against the very purpose for which

section 225.4 was drafted and enacted”. [ 88 ] A gatekeeper rule, like that found in

section 225.4 of the Act , that the Allen Report declined to follow, favours more resolutely a competing policy protecting the public issuer and, indirectly, non-plaintiff shareholders of the company.

It was proposed by the Canadian Securities Administrators, “an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets” . [40] While the authors of the Allen Report were aware of the mischief caused by strike suits in the United States, they were of the view this country represented a litigation environment “sufficiently different to make it unlikely that meritless class actions will be brought in Canada”. [41] [ 89 ] Mindful of concerns expressed in the issuer community and signs of entrepreneurial litigation in Canada, the CSA’s proposed legislation to Canadian provinces included a screening mechanism as a means to combat “strike suits” – frivolous claims made by opportunistic plaintiff-shareholders seeking to obtain quick settlements. [42] The proposal would require the plaintiff to show, summarily, that his or her action had been brought in good faith and that it had a reasonable chance of success before proceeding. [43] This proposal inspired the threshold in screening mechanisms found in

section 138.8(1) of the Ontario Securities Act and

section 225.4 of the Quebec statute – along with the ones in other provinces and territories [44] – in respect of which, it has been noted, there is no substantial difference in language. [45] The differences that exist were only “necessary adjustments […] made to reflect civil law notions and vocabulary, and to ensure its harmonious integration into the Quebec legislative corpus […]”. [46] [ 90 ] Importantly, the Supreme Court in Theratechnologies recognized these two competing legislative policies that are both at play in various provisions of the Act , but explicitly linked the policy of protecting the issuer from the costs of an unnecessary trial – as against the competing policy of protecting the plaintiff-shareholder – to

section 225.4: “the objective of the screening mechanism […] is to protect reporting issuers from unsubstantiated strike suits and costly unmeritorious litigation”. [47] The Supreme Court confirmed the Court of Appeal on this very point [48] and I note that the view of

section 225.4 was recently reiterated in the thoughtful judgment on leave in Valeant . [49] [ 91 ] A central aspect, for the present case, of the legislative history of the manner in which strike suits have been combatted must be mentioned. Consideration was given by law reformers to the possibility of allowing plaintiff-shareholders to obtain evidence from issuers by way of discovery as a means of showing, at the leave stage, that their suit has a reasonable possibility of success at trial.

The Ontario Law Reform Commission proposed, in 1982, a series of pro-plaintiff rules that would have, to use the motion judge’s phrase, created a fair playing field at the leave stage, but they were not enacted.

One of these was a recommendation that a discovery-like procedure be adopted “that will guarantee that a representative plaintiff will have access to the information in the possession of the defendant necessary to help him meet the preliminary merits test proposed”. [50] This was not included in the CSA’s draft that would serve as a model for legislation across Canada, including Quebec. [ 92 ] In other words, the very rule the motion judge said was necessary in Quebec to create a fair debate at leave was rejected in the draft legislation proposed by the national CSA which served as a model across the country including, as I will note, Quebec.

In fairness to the motion judge, I do not believe that the Ontario Law Reform discovery proposal, and the decision of the national securities administrators to reject it, were drawn to his attention in the present case. [ 93 ] In any event, the reading of the screening mechanism as a device to protect public issuers, rather than plaintiffs, has been given to the analogous screening mechanisms in securities legislation in other provinces as justification for excluding discovery at this early stage.

As a corollary of their reading of legislative intent of the screening provision, courts have held, in respect of disputes as to how evidence may be adduced prior to leave, that the defendant issuers are not required to assist plaintiffs in securing evidence because that would risk undermining the protection against strike suits and amplifying the scope of the proceedings to the equivalent of a mini- trial. [51] This has included circumstances, analogous to the present case, in which a plaintiff was refused document disclosure using a request to inspect documents under the applicable law of procedure. [52] Forcing a defendant to produce evidence would involve time and costs and would potentially prompt “fishing expeditions” undertaken in the hope of finding some document that would justify leave.

Particularly useful in this regard is the judgment of Lax, J. of the Ontario Superior Court of Justice, in Ainslie : [53] [15] This submission ignores the legislative purpose of s. 138.8 [the equivalent of s. 225.4 of the Quebec statute]. The

section was not enacted to benefit plaintiffs or to level the playing field for them in prosecuting an action under

Part XXIII.1 of the Act. Rather, it was enacted to protect defendants from coercive litigation and to reduce their exposure to costly proceedings. No onus is placed upon proposed defendants by s. 138.8. Nor are they required to assist plaintiffs in securing evidence upon which to base an action under

Part XXIII.1. The essence of the leave motion is that putative plaintiffs are required to demonstrate the propriety of their proposed secondary market liability claim before a defendant is required to respond.

Section 138.8(2) must be interpreted to reflect this underlying policy

rationale and the legislature's intention in imposing a "gatekeeper mechanism". [ 94 ] This position has been taken on various occasions by courts in Ontario, including in instances where courts have said that allowing a discovery-like inquiry at this stage would undermine this same legislative intention. [54] In holding that there should be no discovery at this stage, courts outside Quebec have decided that while the procedure in a province may allow for cross-examination on affidavits, “the application remains an initial hurdle and not a substitute for the trial”. [55] The fear is that by allowing discovery, a plaintiff will fish for documents that might support a suit or simply coerce the issuer into a protracted dispute, prompting a possible settlement that the ordinary rule against strike suits would not allow. [56] [ 95 ] There is every reason to believe, to paraphrase Lax, J. in Ainslie , that the Quebec screening mechanism was not enacted to level the playing field for plaintiffs and that it should be interpreted so that defendant issuers are not required to assist plaintiffs in securing evidence upon which he or she might base a secondary market civil action.

This is because the Quebec statute, as a matter of substantive securities law, reflects the same legislative policy as that in Ontario, having been based on the initiatives leading up to and including the Allen Report, and the addition, some years later, of the screening mechanism proposal by the CSA. This included the decision of law reformers to set aside the Ontario 1982 proposal to include the possibility of discovery at the leave stage. Like in Ontario – to quote Justice Lax once more –, “the ‘gatekeeper provision’ was intended to set a bar.

The bar would be considerably lowered if the plaintiffs’ view is correct”. [57] In other words, the integrity of the threshold in

section 225.4 might well be compromised if discovery was authorized at the pre-leave stage. Indeed the achievement of the purpose of the screening mechanism, explained recently by Côté, J. in Green , as reflecting an “overriding policy concern […] for long-term shareholders, who are unfairly affected by the volatility of share prices that results from spurious claims”, requires that unmeritorious actions be screened out “ as early as possible in the litigation process”. [58] [ 96 ] In his review of the workings of

section 225.4 in Theratechnologies , [59] Gascon, J.A. quoted from the proceedings of the Commission permanente des finances publiques of the National Assembly that recalled how the Quebec screening mechanism is substantively identical to that applicable in the rest of Canada: [89] À ce chapitre, ce mécanisme de filtrage répond à des impératifs propres à une réalité connue du législateur et à laquelle il se dit sensible. L'un des objectifs avoués est d'éviter à un marché vulnérable aux pressions indues les coûts élevés de recours opportunistes.

Le sous-ministre adjoint au ministère des Finances l'affirme clairement lors des débats parlementaires précédant l'adoption du nouveau régime 25 : […] On simplifie le recours en dommages-intérêts, mais il y a une procédure qui doit être suivie parce qu'il faut s'assurer qu'il n'y aura pas toutes sortes de recours frivoles , d'une part. Il faut aussi en même temps faire l'équilibre entre les demandeurs et les défendeurs sur le marché. Mais ce qu'il faut comprendre, c'est que cette mécanique-là, la procédure, elle va être identique dans tout le Canada .

Donc, il est bien important qu'ici, au Québec, la procédure soit la même que dans le reste du Canada. Si des acquéreurs de titres d'émetteurs pancanadiens prennent un recours au Québec, il faut que la procédure soit la même que celle qui va être suivie en Ontario ou dans d'autres provinces du Canada . 25 Québec, Assemblée nationale, Journal des débats de la Commission permanente des finances publiques [ « Étude détaillée du projet de loi n° 19 – Loi modifiant la

Loi sur les valeurs mobilières et d'autres dispositions législatives » dans Journal des débats de la Commission permanente des finances publiques , vol. 40, n°10, (25 octobre 2007), p. 10 et 12 ]. [ 97 ] It is plain that the Quebec rules were designed to be harmonized with the provincial securities legislation elsewhere as a matter of substantive law – not surprising considering the nature of secondary markets for securities in Canada.

Commenting the legislative policy underpinning changes to the Quebec statute in 2007, Professor Stéphane Rousseau wrote that the law was strongly inspired by the proposal from the national CSA: “le recours [québécois] témoigne de la volonté du législateur d’assurer l’harmonisation – voire l’uniformisation – des règles régissant la responsabilité civile sur le marché secondaire”. [60] [ 98 ] The motion judge was of course right to say that the Ontario rules and those in Quebec are not identical. [61] But as Côté, J. noted in Green , these differences do not affect the threshold the plaintiff must meet. [62] While Ontario’s Securities Act is explicit, for example, on the affidavit evidence to be filed, and the right to cross-examine the affiant, both Quebec and Ontario share the same ultimate understanding that the leave hearing should not be a “mini-trial” as Abella, J., wrote in respect of

section 225.4. [63] [ 99 ] What about the explanations offered by the motion judge to justify the rule allowing document disclosure in Quebec? [ 100 ] The judge observed, quite correctly, that the Act does not speak directly to whether document discovery is available in anticipation of the hearing under

section 225.4. On the strength of that “silence”, he fell back on the general rules of civil procedure, including the general provision on pre-trial discovery and disclosure in

article 221 C.C.P ., as well as rules applicable to class actions, to fill the gap in the Securities Act . He did so on the strength of his reading of the Preliminary Provision of the Code of Civil Procedure which provides that the rules in the Code are to “be interpreted in the light of the specific provisions it contains or of those of the law, and in the matters it deals with, the Code compensates for the silence of the other laws if the context so admits ” (“il supplée au silence des autres lois si le contexte le permet”). [ 101 ] In my respectful view, the judge used supplementary rules of procedure in a manner that is inconsistent with the policy of

section 225.4. [ 102 ] As a code in the civilian tradition, the Code of Civil Procedure has, to be sure, a suppletive vocation for other legislation and, as a code, it plays a role in Quebec law unlike statements of the law of procedure elsewhere. That said, when a judge is confronted with silence in a statute on a procedural matter, the Code cannot compensate for that silence with a rule that undermines legislative intent of the statute itself. The Preliminary Provision says that it operates to complete a statute “if the context so admits / si le context le permet”.

The Code supplements the law, it does not supplant it. The law of procedure in Quebec remains adjectival; procedure is, of course, the servant of justice and the law and cannot not, in the instant case, stand as a substitute for or contradict substantive rules of securities legislation.

[ 103 ] While the Securities Act is silent on the specific issue as to whether document discovery is possible at the pre-leave stage, the substantive legislative purpose that underpins

section 225.4 is incompatible with it. [ 104 ] The motion judge wrote that

article 20 C.C.P ., as a guiding principle of procedure, required the appellant Amaya to cooperate with the respondents’ request for disclosure. Indeed, he was not wrong to say, relying on the Commentaires de la ministre de la Justice , that this rule is connected to “la communication de la preuve”, [64] and he rightly observed that, on its own,

article 20 does not create an independent right to disclosure. He proposed however to read

article 20 in conjunction with the general rule on discovery in

article 221 C.C.P . as a basis for allowing discovery under

section 225.4 of the Act in the absence of a rule to the contrary (paras. [52] and [53]). He added that in connection with a class action, articles 571 and 574 C.C.P . direct that the court may allow relevant evidence to be submitted. He used these provisions to fill the “silence” on the issue as to whether discovery was permissible and decided, as a matter of fairness, that the respondents were entitled to document disclosure. [ 105 ] None of the provisions cited, alone or grouped with the others, justifies allowing discovery in a manner that would amount to a change in the policy underlying

section 225.4 of the Act . Importantly, it is not “unfair” to require a plaintiff-shareholder to show, according to the terms of the screening mechanism, that his or her proposed action is not a strike suit given the policy behind that rule to protect issuers, innocent shareholders, the markets and the courts. On the other hand, it would potentially be unfair to the issuer and to innocent shareholders, as well as to the justice system, to subject the parties to a “mini-trial” that might result if discovery was allowed. When

section 225.4, paragraph 3, refers to the requirement that the putative plaintiff show “a reasonable possibility that it [ i.e . the proposed action in the annexed projected statement of claim] will be resolved in favour of the plaintiff”, the legislature refers to a reasonable possibility of that outcome at a trial down the road, one at which, where appropriate, discovery can be sought.

At this stage, however, the evidentiary bar is lower than at trial – just some credible evidence to support the view that the suit is not destined to fail. [ 106 ] In support of his extension of rules of documentary discovery to this stage of the case, the motion judge wrote that rules in the new Code of Civil Procedure , in particular the injunction to parties to cooperate in

article 20, show that “the Quebec legislature is interested in promoting the early search for the truth rather than postponing it for procedural or other reasons” (para. [49]). In my respectful view, the abstract value of the search for truth cannot neutralize the rule of substantive law that says that, in

summary proceedings, issuers have a right to protection against strike suits. [ 107 ] Moreover, I think it was inappropriate to rely on rules concerning what evidence can be adduced in a class action to solve this problem that arose in the pre-leave stage under

section 225.4 of the Act . As noted, the leave requirement under the Securities Act and the authorization requirements for class action are distinct. Here, the debate had nothing to do with the collective character of the claim. Whatever the vocation of

article 574 C.C.P . prior to authorization in a class action, it cannot be invoked to sustain a request for document discovery in the present context. [65] [ 108 ] Finally, I disagree with the motion judge’s view that it would be unfair to hold the leave hearing without the respondents having the benefit of document disclosure. A motion judge seized of an application for leave brought under

section 225.4 knows that, in a

summary setting, the merits of the dispute will not be fully aired. That judge can therefore take into account the limited opportunity a plaintiff-shareholder has to adduce evidence. In deciding whether the shareholder has shown a reasonable possibility that his or her action will succeed, a judge should consider, in weighing the evidence for this limited purpose, that the shareholder did not have the benefit of evidence that would come from discovery. As van Rensberg, J. of the Ontario Superior Court of Justice observed in Silver v.

Imax Corporation , “[i]n undertaking this evaluation the court must keep in mind that there are limitations on the ability of the parties to fully address the merits because of the motion procedure”. [66] Perrell, J. wrote similarly in Musicians’ Pension Fund of Canada (Trustees of) v.

Kinross Gold Corp. , that “[t]he court’s weighing of the evidence for the leave test must be tempered by the recognition that there has been no discovery and that the analysis is conducted on a paper record with all its attendant limitations”. [67] In Quebec, the shareholder can bring evidence in support of his or her motion – exhibits or sworn statements for example [68] – but the defendant is not obliged to assist at this stage. In my view the motion for leave pursuant to

section 225.4 in this case, as presented with the supporting exhibits, could fairly proceed to hearing without discovery. [69] [ 109 ] I note as well the motion judge’s concern that, without document disclosure, plaintiffs will be unfairly placed when seeking to adduce “credible evidence” required of them in the effort to meet the standard of the screening mechanism. It is true, as Abella, J. wrote, that

summary adjudication pursuant to

section 225.4 involves a “reasoned consideration of the evidence”. [70] But this does not, in itself, justify forcing the defendant issuer to disclose documents. In keeping with Theratechnologies , a motion judge should weigh the evidence proffered by the plaintiff and, if the defendant has chosen to bring evidence as well, that too should be scrutinized in the

summary proceedings envisaged by the legislature. Indeed in Mask v. Silvercorp , decided after both Theratechnologies and Green , Strathy, C.J.O. decided that the “reasonable possibility” leg of the leave test requires scrutiny of merits of the action “based on all the evidence proffered by the parties”. [71] That said, the injunction that the evidence from both sides be weighed at this stage, and the burden that a plaintiff faces to bring credible evidence in support of his or her request for leave, does not in itself justify document discovery. C. Did the motion judge err in ordering immediate disclosure of the appellant’s insurance policies? [ 110 ] Relying on

article 2501 C.C.Q . and the guiding principle of procedure in

article 20 C.C.P . that encourages cooperation between the parties, the motion judge ordered the appellant and other defendants to provide copies of their insurance policies. He noted that immediate disclosure of the policies was consonant with considerations of practicality and fairness that are essential for the proper administration of justice. [ 111 ] The appellant alleges that the same prohibition against disclosure associated with

section 225.4 of the Act should apply to the insurance policies. Moreover,

article 2501 C.C.Q . is said to be inapplicable at this stage of the proceedings and, in any event, does not justify an automatic right to the insurance policies. Acknowledging that some judgments in Ontario have ordered disclosure of policies, the appellant contends that these cases offer no guidance here in that they rely on rules relating to class action procedures that are not found in the Code of Civil Procedure .

[ 112 ] In my view, the motion judge’s decision to order disclosure of th

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