On
What You Need to Know
In its judgment, the BCCA addresses some important concepts for shareholders alleging misrepresentation, and confirms that:
- where damage is suffered by all shareholders of a corporation, the rule in Foss v. Harbottle (1843), 67 E.R. 189 (U.K.H.L.) (Foss v. Harbottle) does not necessarily bar them from advancing a cause of action; and
- where misrepresentations have been made to all shareholders at the same time, investor-specific issues that predominate many misrepresentation cases should not stand as a bar to certification.
Background
The appellant, 0116064
The case was originally brought before the BCSC, where
Additionally,
6064 appealed this decision, asserting that the Court erred in its assessment of the rule in Foss v. Harbottle, and seeking an order certifying the class action.
The Applicability of Foss v. Harbottle
The BCCA overturned the earlier decision and held that Foss v. Harbottle was not applicable. In doing so, the Court observed that the rule is a consequence of the fact the corporation is a separate legal entity that acquires causes of action for damage the company suffers. In this case, however, Rye Patch tendered no shares to Alio, and the shareholders themselves dealt directly with Alio. As such, the BCCA rejected the lower Court's characterization of the facts and held that the individual shareholders suffered a loss, while Rye Patch did not.
Causation as an Obstacle to Certification
The BCSC originally dismissed the claim, finding that it would be impossible to determine the misrepresentation-induced specific purchases. In doing so, the Court observed that typical investor-specific issues predominate misrepresentation cases and stand as a bar to certification. Specifically, it is difficult to ascertain whether or not each class member was induced by the misrepresentation.
On appeal, the BCCA held otherwise and concluded that causation could, in fact, be determined. Specifically, the Court found that the facts of this case distinguish it from more common investor-specific misrepresentations, as here the misrepresentations were limited in number, made at the same time to all shareholders, and were considered in one proceeding (i.e., the plan of arrangement), which compelled all shareholders to transfer their shares at a fixed exchange rate. Due to the singular-nature of the misrepresentations, the Court concluded it would be preferable to advance the litigation by means of class action, rather than via numerous individual claims.
Conclusion
The BCCA set aside the order dismissing the plaintiff's claim and remitted the application to the BCSC, directing the Court to consider two issues which were raised by counsel but not addressed by the chambers judge:
- whether there are two or more individuals who have the same claim as the representative plaintiff to advance; and
- whether the appellant is a suitable class representative.
The BCCA directed that the appellant be permitted to renew the certification application founded upon a description of the common questions that is consistent with the claim it now seeks to advance.
Companies will want to take note of the decision of the BCCA, and keep an eye on the upcoming decision of the BCSC, as this case confirms that shareholders may successfully bring a class action against a company even where the rule in Foss v. Harbottle might be thought to typically apply, and in instances where an alleged limited number of specific representations were made at once to all shareholders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Cassels
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