2021 QCCA 1547, 2021 QCCA 1547

Bausch Health Companies Inc. c. California State Teachers' Retirement System 2021 QCCA 1547 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-028886-208 , 500-09-028887-206 (500-11-055722-181, 500-11-054155-185) DATE: October 20, 2021 CORAM: THE HONOURABLE MARK SCHRAGER, J.A. CHRISTINE BAUDOUIN, J.A. FRÉDÉRIC BACHAND, J.A. No.: 500-09-028886-208 (500-11-055722-181) BAUSCH HEALTH COMPANIES INC. J. MICHAEL PEARSON HOWARD B. SCHILLER ROBERT L. ROSIELLO ROBERT A. INGRAM RONALD H. FARMER THEO MELAS-KYRIAZI G. MASON MORFIT LAURENCE PAUL ROBERT N. POWER NORMA A. PROVENCIO LLOYD M.

SEGAL KATHARINE B. STEVENSON COLLEEN GOGGINS JEFFREY W. UBBEN APPELLANTS – Defendants v. CALIFORNIA STATE TEACHERS’ RETIREMENT SYSTEM RESPONDENT – Applicant and PRICEWATERHOUSECOOPERS LLP AIG INSURANCE COMPANY OF CANADA ALLIANZ GLOBAL RISKS US INSURANCE COMPANY EVEREST INSURANCE COMPANY OF CANADA ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA LIBERTY MUTUAL INSURANCE COMPANY LLOYD’S UNDERWRITERS TEMPLE INSURANCE COMPANY IRONSHORE CANADA LTD.

XL INSURANCE COMPANY SE CHUBB INSURANCE COMPANY OF CANADA (formerly Ace INA Insurance) IMPLEADED PARTIES – Defendants _____________________________________________________________________ No.: 500-09-028887-206 (500-11-054155-185) BAUSCH HEALTH COMPANIES INC. J. MICHAEL PEARSON HOWARD B. SCHILLER ROBERT L. ROSIELLO ROBERT A. INGRAM THEO MELAS-KYRIAZI G. MASON MORFIT LAURENCE PAUL ROBERT N. POWER NORMA A. PROVENCIO LLOYD M. SEGAL

KATHARINE B. STEVENSON FRED HASSAN COLLEEN GOGGINS JEFFREY W. UBBEN APPELLANTS – Defendants v. BLACKROCK ASSET MANAGEMENT CANADA iSHARES TRUST iSHARES INC. BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A. RESPONDENTS – Applicants JUDGMENT [ 1 ] We are tasked with the resolution of two appeals brought with leave [1] from the judgment of the Superior Court, District of Montreal (the Honourable Mr.

Justice Peter Kalichman) , [2] in two files wherein it authorized each of the Respondents to institute an action in damages against Appellants pursuant to s. 225.4 of the Quebec Securities Act (“ QSA ”) . [3] [ 2 ] The QSA allows an acquirer of securities in a secondary market to sue for damages based on misrepresentation, subject to the Court’s prior authorization, which is granted where the action is in good faith and there is a reasonable prospect of success.

If so authorized, plaintiffs are not required to prove that they relied on the alleged misrepresentation in acquiring the securities, as they would be if suing under the general civil liability provisions found in the Civil Code of Québec ( “ C.C.Q. ” ) . The judge’s findings in such regard are not in issue in this appeal.

Rather, Appellants contend that the proposed proceedings are prescribed or the rights revendicated are forfeited and that the judge erred in law by finding for Respondents on the following issues: (a) Section 236 (3) creates a prescriptive period for the recourse rather than a term of forfeiture of the rights; (

b) Prescription was suspended pursuant to art. 2908 C.C.Q. in the circumstances of the case; and (

c) Prescription was interrupted pursuant to art. 2892 C.C.Q. [ 3 ] The facts are not disputed and are succinctly set out in each of Appellants’ briefs without material difference. Appellant Bausch Health Company Inc. (“ Bausch ”) states as follows: 5. The Appellants are Bausch Health Companies Inc. (formerly known as Valeant Pharmaceuticals International, Inc. or “ Valeant ”) and certain individuals who were Valeant’s officers and/or directors at the time of the alleged misrepresentations, including Howard B. Schiller and J. Michael Pearson (the “ Appellants ”). 6.

Valeant is a pharmaceutical and medical device company that develops, manufactures, and markets pharmaceuticals, over-the- counter products and medical devices. It is a public corporation whose securities trade in the secondary markets in Canada. 7. The Respondents are Blackrock Asset Management Canada, iShares Trust, iShares Inc. and Blackrock Institutional Trust Company, N.A. (collectively, “ BlackRock ”) and California State Teachers’ Retirement System (“ CalSTRS ”).

BlackRock and CalSTRS are investors who allege that they purchased securities of Valeant in the Canadian secondary market during periods in which Valeant’s public disclosure contained misrepresentations. 8. On August 29, 2017, the Honourable Justice Chantal Chatelain of the Superior Court issued a judgment (the “ Catucci Authorization Judgment ”) granting Celso Catucci and Nicole Aubin (the “ Catucci Plaintiffs ”): (

i) authorization under s. 225.4 QSA to bring an action against the Appellants; and (ii) authorization under art. 575 C.C.P. to proceed by way of a class action. 9. On September 5, 2017, the Catucci Plaintiffs issued the press release required by s. 225.5 QSA announcing that authorization under s. 225.4 QSA had been granted (the “ Catucci Press Release ”). The Catucci Press Release triggered the six-month delay in s. 236 (3) QSA. 10. On November 21, 2017, the Catucci Plaintiffs commenced their class action (the “ Catucci Class Action ”).

At that time, the Respondents were members of the class authorized in the Catucci Authorization Judgment (the “ Catucci Class ”). On June 19, 2018, BlackRock and CalSTRS opted out of the Catucci Class. 11. On March 2, 2018, BlackRock filed its Authorization Application under s. 225.4 QSA in respect of the same alleged misrepresentations that were the subject of the Catucci Authorization Judgment and the Catucci Class Action. 12.

On December 19, 2018, CalSTRS filed its Authorization Application under s. 225.4 QSA, also in respect of the same alleged misrepresentations that were the subject of the Catucci Authorization Judgment and the Catucci Class Action. Accordingly, no QSA action was commenced by either CalSTRS or BlackRock prior to March 5, 2018, being six months after the Catucci Press Release was issued. (References omitted)

(

a) Does s. 236(3) QSA create a prescriptive period or term of forfeiture? [ 4 ] Sections 235 and 236 QSA provide as follows: 235. Any action for damages under this title is prescribed by the lapse of three years from knowledge of the facts giving rise to the action, except on proof that tardy knowledge is imputable to the negligence of the plaintiff. 235. Les actions en dommages-intérêts établies par le présent

titre se prescrivent par trois ans à compter de la connaissance des faits y donnant ouverture, sauf preuve d’une connaissance tardive imputable à la négligence du demandeur. However, in the case of an action under Division II of

Chapter II, the plaintiff is deemed to have knowledge of the facts as of the date on which the document containing the misrepresentation was first released, the oral public statement containing the misrepresentation was made or the material change should have been disclosed. Toutefois, dans le cas d’une action intentée en vertu de la

section II du

chapitre II, le demandeur est réputé avoir connaissance des faits à compter de la date de la première publication du document ou de la déclaration publique contenant l’information fausse ou trompeuse, ou la date à laquelle le changement important aurait dû être rendu public. The prescription provided for by this

section is suspended by the filing of a request for authorization with the court under

section 225.4; moreover, the suspension of prescription provided for by

article 2908 of the Civil Code is effective only as of the filing of that request. The suspension ceases, as the case may be, La prescription prévue par le présent

article est suspendue par le dépôt au tribunal d’une demande d’autorisation en vertu de l’article 225.4; de plus, la suspension de la prescription prévue par l’

article 2908 du Code civil n’a lieu qu’à compter de ce dépôt. La suspension prend fin, selon le cas: (1) when the court has rendered its decision on the request for authorization and the decision can no longer be appealed; 1° lorsque le tribunal a rendu sa décision à l’égard de la demande d’autorisation et qu’elle n’est plus susceptible d’appel; (2) when the plaintiff has discontinued the action; or 2° lorsque le demandeur s’est désisté; 3) at the time provided for in

article 2908 of the Civil Code , with respect to a member of the group that is the object of a class action who is excluded from the class action by a judgment subsequent to that authorizing the action under

section 225.4. 3° au moment prévu à l’

article 2908 du Code civil , à l’égard du membre du groupe visé par une action collective qui en est exclu par un jugement postérieur à celui autorisant l’action en vertu de l’article 225.4. 236. However, the prescriptive periods under

section 235 are subordinate to the following limitations: 236.

Toutefois, les prescriptions établies par l’article 235 sont subordonnées aux limites suivantes: (1) five years from the transaction, in the case of actions for damages provided for in sections 214, 215, 226, 227 and 228; 1° cinq ans à compter de l’opération, dans le cas des actions en dommages-intérêts prévues aux articles 214, 215, 226, 227 et 228; (2) five years from the filing of the information document with the Authority, in the case of actions under sections 218, 219, 221, 223 and 225; 2° cinq ans à compter de la date du dépôt à l’Autorité du document d’information, dans le cas des actions prévues aux articles 218, 219, 221, 223 et 225;

(3) six months from the publication of the press release announcing that authorization has been granted by the court to bring an action under Division II of

Chapter II or comparable provisions of extra-provincial securities laws within the meaning of

section 305.1 regarding the same misrepresentation or failure to make timely disclosure, in the case of actions under that division. 3° six mois à compter de la publication du communiqué indiquant que le tribunal a accordé une autorisation pour intenter une action portant sur les mêmes informations fausses ou trompeuses ou le même manquement et intentée en vertu de la

section II du

chapitre II ou de dispositions comparables de la législation en valeurs mobilières d’une autre autorité au sens de l’article 305.1, dans le cas d’une action prévue à cette section. [ 5 ]

Article 2878 C.C.Q. defines the general proposition for the treatment of a term of forfeiture: 2878. The court may not, of its own motion, raise the plea of prescription. 2878. Le tribunal ne peut suppléer d’office le moyen résultant de la prescription. However, it shall, of its own motion, declare a remedy forfeit where so provided by law. Such forfeiture is never presumed; it results only where expressly provided for in a text. Toutefois, le tribunal doit déclarer d’office la déchéance du recours, lorsque celle-ci est prévue par la loi.

Cette déchéance ne se présume pas; elle résulte d’un texte exprès. [ 6 ] As the judge correctly pointed out, the Supreme Court reiterated in L’Oratoire Saint-Joseph [4] that a term of forfeiture cannot be presumed, [5] though the precise word “forfeiture” need not be used by the legislature in creating such a time limit. Nonetheless, pursuant to art. 2878 para. 2 C.C.Q. , a conclusion that the general scheme of prescription does not apply requires clear, precise and unambiguous language. Doubt in the

interpretation is to be resolved in favour of the conclusion that the provision in question establishes a prescriptive period and not one of forfeiture. [ 7 ] A term of forfeiture cannot be extended; not respecting the delay extinguishes the right. Nor can it be suspended or interrupted. As indicated in art. 2878 C.C.Q. , the court must raise it of its own motion. [6] [ 8 ] The judge did not err in holding that the wording of s. 236(3) QSA does not indicate a term of forfeiture. There is nothing in the express words to indicate forfeiture.

The words “however” and “subordinate to” do not per se indicate forfeiture as Appellants argue. The legislature could have provided that the right is “forfeited” or “extinguished” or that no action lies, [7] but it did not. [ 9 ] The judge’s remark that s. 236 is found under the

chapter entitled “Prescription and Miscellaneous Provisions” of the QSA is simply a mention of one indicator and is not stated as being conclusive in itself and, as such, is hardly erroneous, as Appellants contend. [ 10 ] Appellants have not identified any applicable jurisprudence holding that any of the subsections of s. 236 QSA create a term of forfeiture. [8] [ 11 ] As the judge stated, the prescriptive periods set forth in s. 235 QSA are all “subordinate” to the three time limits found in s. 236 QSA .

Accordingly, ss. 235 and 236 QSA should be read together, so that the six months in s. 236(3) QSA , when applicable, have the effect of limiting the three years provided for in s. 235 QSA . [9] The six-month period is not independent and free standing as Appellants would propose. [ 12 ] The case of Roussel , [10] where the Court found that art. 1742 C.C.Q. creates a term of forfeiture in the absence of the use of such word, is of no assistance to Appellants. The

interpretation there stands on its own and there is no parallel to be drawn with s. 236(3) QSA .

Notably, the judge observed nothing in the parliamentary debates regarding s. 236 QSA , which points to the legislature’s intent to create a term of forfeiture. [11] In Roussel , the parliamentary debates referred to a strict time limit (“ délai de rigueur ”). [12] Here, the intent of the legislature was clearly to harmonize the QSA with similar legislation in force in other parts of Canada. [13] [ 13 ] That the time limit in s. 236(3) QSA is short and starts from a fixed point in time is also not determinative in itself of a term of forfeiture.

Respondents rightly argue that the Supreme Court rejected the argument that a short time limit necessarily represents clear, precise and unambiguous language manifesting an intention on the legislature’s part to provide for a term of forfeiture. [14] This Court decided in Rolland that a six-month period was not, in itself, conclusive of the legislature’s intent to create a term of forfeiture, [15] albeit brevity of a time limit has sometimes been recognized as a criterion for characterizing a term as one of forfeiture. [16] [ 14 ] Moreover, there is no authority to support the proposition that a time limit running from a fixed date is indicative of a term of forfeiture.

Here, the time limit to sue is short because of the intervening event of other proceedings based on the same misrepresentation. The mere fact that prescription runs from an objective event (e.g. – the press release concerning a class action) and not the plaintiff’s knowledge of such event is not per se an indication of a term of forfeiture.

Indeed, other such instances of short time limits are prescriptive. [17] [ 15 ] The purpose and objective of s. 236(3) QSA may well be to protect public issuers, innocent shareholders, the market and the courts from serial actions, separated in time, concerning the same misrepresentations as an action already authorized under s. 225.4 QSA . [18] The judgment does not detract from that purpose, even though it does not accommodate Appellants’

interpretation of the provision.

Moreover, while the objective of s. 225.4 QSA is to protect public issuers of securities against frivolous and unmeritorious law suits, [19] the screening mechanism in the QSA should not be interpreted in such manner as to defeat the purpose of the provisions of the division in which s. 225.4 QSA is found as it relates to protecting investors against corporate wrongdoing. [20] Section 236(3) QSA applies in situations where, as here, a class action has already been authorized and, as such, passed the threshold test but Respondents wish to proceed on their own and so exercise their right to opt out of the class action. [ 16 ] Finally, the judge identified the purpose of the six-month limitation in s. 236(3) QSA flowing from its internal wording – i.e. to

harmonize the QSA with the Ontario Securities Act . [21] He concluded as follows: [78] Further support for the notion that the Quebec Legislator sought to harmonize the new provisions of the QSA with those of the OSA , can be found in the wording of s. 236 (3) itself. The six-month delay is not only triggered by the press release announcing that authorization has been granted under the QSA , but also under “comparable provisions of extra-provincial securities laws within the meaning

section 305.1”, which include those of the OSA. [79] It would be incongruous for the Legislator to have incorporated into s. 236 (3) QSA , a reference to extra-provincial securities laws, including the OSA , and yet have intended for that

section to create a strict delay not found in those laws. Such an

interpretation would create the possibility that an action that was time-barred under the QSA could nonetheless be instituted in Quebec because it had been authorized outside the Province. (References omitted) We agree. [ 17 ] In conclusion, s. 236(3) QSA simply reduces or shortens the three-year prescription period of s. 235 QSA where, for example, a class action based on the same alleged misrepresentations has been authorized (as is the case with the Catucci Class Action referred to in the judgment under appeal). (

b) Suspension of prescription pursuant to art. 2908 C.C.Q. [ 18 ] Appellants argue that the judge erred in concluding that Respondents benefited from the suspension of prescription arising from the Catucci Class Action. They base their argument on the Supreme Court decision in Canadian Imperial Bank of Commerce v. Green , [22] which interprets s. 138.14 of the Ontario’s Securities Act [23] and s. 28 of the Class Proceedings Act of Ontario. [24] Appellants are wrong.

The judge correctly stated that the decision in Green is based on the wording of s. 28 of the Class Proceedings Act , where suspension of the time limitation arises from the authorization of the class action. [25] The suspension under art. 2908 C.C.Q. arises from the filing of the application for authorization of the class action. The text is clear. [ 19 ] Appellants argue that just as the discovery process found in the C.C.P. does not apply to the preliminary filtering stage of the instant litigation (as the Court decided in Amaya inc. v.

Derome [26] ), then art. 2908 C.C.Q. should not apply to the provisions dealing with prescription in the QSA . The C.C.Q. has a suppletive vocation like the C.C.P. If that is not sufficient justification for the application of art. 2908 C.C.Q. , then Appellants’ argument leads to a legal dead end, as there is no provision dealing with the suspension of prescription in

Chapter IV of the QSA . Surely, Appellants would not have us rule that the prescriptive periods provided for in the QSA are not subject to suspension or interruption, or the other mechanisms provided for in the C.C.Q. ? This would be untenable. Appellants also incorrectly suggest that these provisions of the C.C.Q. are incompatible with the calculation of the time limits found in

Chapter IV of the QSA . Their position lacks consistency since they invoke the application of art. 2878 C.C.Q. (

c) The interruption of prescription pursuant to art. 2892 C.C.Q. [ 20 ] The issue here requires a determination of whether the filing of the application to institute proceedings pursuant to s. 225.4 QSA constitutes a “judicial demand” within the meaning of art. 2892 C.C.Q. and thus, interrupts prescription pursuant to that

article . [ 21 ] Again, Appellants rely on Green , which, as stated above, is an exercise in statutory

interpretation of another statute in another jurisdiction. In interpreting the term “judicial application” in a large and liberal manner, the judge applied the ruling of this Court in Mayrand : [27] [20] (…), [L]a jurisprudence [établit] plutôt que l'expression « demande en justice » utilisée à l'

article 2892 C.c.Q. doit recevoir une interprétation large et libérale. Voici à cet égard ce qu'enseignent les auteurs Jean-Louis Baudouin et Patrice Deslauriers: 1-1435 – Demande en justice – Le fait pour le créancier, avant l'expiration de la prescription, de se pourvoir en justice pour réclamer son dû interrompt la prescription à l'endroit du débiteur et des cautions.

Le terme « demande en justice » ne désigne pas seulement l'introduction d'une action devant le tribunal, mais aussi l'intervention, la demande reconventionnelle, la saisie et l'opposition, puisque toutes ces procédures montrent clairement la volonté du créancier de poursuivre l'exercice de son droit. Il en est de même de l'avis d'arbitrage à certaines conditions.

Le législateur, pour éviter certaines discussions jurisprudentielles passées touchant l'effet des amendements, interventions et demandes reconventionnelles, admet désormais que cette interruption vaut à l'endroit de toutes les parties et pour tout droit découlant de la même source. Cette expression doit d'ailleurs recevoir une interprétation libérale.

Ainsi, pour en prendre un exemple, le défendeur, voyant la prescription interrompue par le dépôt d'un recours fait par le demandeur, peut, procéder, dans la même action, par demande reconventionnelle, même si techniquement sa réclamation est alors prescrite. (References omitted) [ 22 ] In Mayrand , the application in question had been brought under s. 215 of the Bankruptcy and Insolvency Act , [28] where prior permission to sue, inter alia , a trustee is required.

The motion seeking such authorization was held to interrupt prescription of the recourse. [ 23 ] We agree with the judge that there is no reason not to read s. 225.4 QSA in the same manner. The authorization application, albeit a first prerequisite step to the law suit, [29] is nevertheless nothing less than a “judicial application” (“ demande en justice ”) within the meaning of art. 2892 C.C.Q. [ 24 ] We would add that any other

interpretation would be a potential invitation for defendants to engage in dilatory tactics to delay the obtaining of authorization beyond six months. This is not a reading of the law that the legislature could have intended nor one that the

Court might approve. FOR ALL THE FOREGOING REASONS, THE COURT: In case number 500-09-028886-208 [ 25 ] DISMISSES the appeal with legal costs; In case number 500-09-028887-206 [ 26 ] DISMISSES the appeal with legal costs. MARK SCHRAGER, J.A. CHRISTINE BAUDOUIN, J.A. FRÉDÉRIC BACHAND, J.A. Mtre Éric Préfontaine Mtre Allan Coleman Mtre François Laurin-Pratte OSLER, HOSKIN & HARCOURT For Bausch Health Companies Inc., Robert L. Rosiello, Robert A. Ingram, Ronald H. Farmer, Theo Melas-Kyriazi, G. Mason Morfit, Laurence Paul, Robert N. Power, Norma A. Provencio, Lloyd M. Segal, Katharine B.

Stevenson, Colleen Goggins, Jeffrey W. Ubben Mtre Robert Torralbo Mtre Simon Jun Seida BLAKE, CASSELS & GRAYDON For J. Michael Pearson Mtre Shaun E. Finn BCF For Howard B. Schiller Mtre Sébastien C. Caron Mtre Marie-Noël Rochon LCM AVOCATS INC.

For California State Teachers’ Retirement System Mtre Alain Riendeau FASKEN MARTINEAU DUMOULIN For Pricewaterhousecoopers LLP Mtre Lydia Amazouz INF For Allianz Global Risks US Insurance Company Mtre Alexandra Kallos GASTON & ASSOCIÉS For Everest Insurance Company of Canada, Royal & Sun Alliance Insurance Company of Canada, Chubb Insurance Company of Canada (formerly Ace INA Insurance), Liberty Mutual Insurance Company Mtre Trevor McCann CLYDE & CIE CANADA For Lloyd’s Underwriters Mtre Patrick Ouellet Mtre Carolan Villeneuve WOODS For Temple Insurance Company Mtre Nicholas Krnjevic ROBINSON SHEPPARD SHAPIRO For AIG Insurance Company of Canada Mtre Nicolas Plourde

SARRAZIN PLOURDE For XL Insurance Company SE Mtre François Marseille RATELLE, RATELLE & ASSOCIÉS For Ironshore Canada Ltd. Mtre Maxime Nasr Mtre Violette Leblanc Mtre Josée Cavalancia Mtre Émilie B. Kokmanian BELLEAU LAPOINTE For Blackrock Asset Management Canada, iShares Trust, iShares Inc., Blackrock Institutional Trust Company, N.A. Date of hearing: September 29, 2021