Directors and Officers Beyond Canadian Borders: Searching for the Right Venue for the Claim Or the Defence

AuthorThomas G. Heintzman, O.C., Q.C. and David Vaillancourt
Thomas G. Heintzman, O.C., Q.C. and
David Vaillancourt*
Publicly traded corporations in the twenty-first century operate in a global
economy. They have shareholders from around the world. Accordingly, the
directors and officers (D & Os) of those corporations are subject to potential
litigation complaining about their conduct in a variety of jurisdictions.
This paper compares the liability of corporate D & Os arising inside
Ontario with the liability arising outside Canada from material misrepresen-
tations in the secondary securities market. In particular, it focuses on the
liability regimes found in Ontario and under the federal law of the United
In order to put D & O liability inside and outside Canada in context,
this paper will compare the advantages and disadvantages between Ontario
and federal US law from a variety of perspectives, including the standard of
liability, the jurisdiction of courts in both countries, and the enforcement of
judgments against D & Os across the Canada–US border. In so doing, this
paper will try to provide some insight into the best jurisdiction in which to
assert or defend secondary market litigation against D & Os — the Ontario
courts or the US Federal Courts.
* Thomas G. Heintzman is counsel to McCarthy Tétrault LLP in its Toronto office.
David Vaillancourt is an associate at Affleck Greene McMurtry LLP and was for-Affleck Greene McMurtry LLP and was for-
merly an articling student at McCarthy Tétrault LLP in its Toronto office.
Both Ontario law and US federal law grant shareholders a civil right of
action against corporate D & Os if there has been a misrepresentation in the
secondary securities market.
1) Ontario Law: Part XXIII.1 of the Ontario Securities
Under Ontario securities law, secondary market liability is now governed
by Part XXIII.1 of the OSA. Part XXIII.1 was introduced into Ontario law in
2005 by a Bill known as Bill 198.2 Part XXIII.1 creates an express cause of
action in respect of misrepresentations in the secondary market.3
Broadly speaking, if a corporation issues a document or statement
that contains a misrepresentation, or fails to disclose information that
it is required to disclose, then under Part XXIII.1 any shareholder who
purchased or disposed of that corporation’s securities during the time the
misrepresentation was in the market has a cause of action.4 Shareholders
need not prove that they relied on the misrepresentation.5 Where the
misrepresentation is contained in a core document,6 the defendant will be
liable unless a due diligence defence can be established.7 Therefore, for core
documents, liability accrues on a negligence standard; a culpable mental
1 R.S.O. 1990, c. S.5 [OSA].
2 Bill 198, Keeping the Promise for a Strong Economy Act (Budget Measures), 2002, 3d.
Sess., 37th Leg., Ontario, 2002 (assented to 9 December 2002 [Bill 198].
3 OSA, above note 1, s. 138.3. Similar statutory provisions are found in the other
provinces and territories. See Securities Act, R.S.B.C. 1996, c. 418, s. 140.3;
Securities Act, R.S.A. 2000, c. S-4, s. 211.03; Securities Act, 1988, S.S. 1988–89,
c. S-42.2, s. 136.11; Securities Act, C.C.S.M. c. S50, s. 176; Securities Act, R.S.Q.
c. V-1.1, s. 225.8; Securities Act, S.N.B. 2004, c. S-5.5, s. 161.2; Securities Act,
R.S.N.S. 1989, c. 418, s. 146C; Securities Act, R.S.P.E.I. 1988, c. S-3.1, s. 124;
Securities Act, R.S.N.L. 1990, c. S-13, s. 138.3; Securities Act, R.S.Y. 2002, c. 201,
s. 124; Securities Act, S.N.W.T. 2008, c. 10, s. 124; Securities Act, S.Nu. 2008, c.
12, s. 124.
4 OSA, ibid., s. 138.3.
5 Ibid.
6 A prospectus, a take-over bid circular, an issuer bid circular, a directors’ circular,
a notice of change or variation in respect of a take-over bid circular, issuer bid
circular, or directors’ circular, a rights offering circular, management’s discus-
sion and analysis, an annual information form, an information circular, annual
financial statements, and interim financial statements of the responsible issuer. In
addition to this list, a material change report qualifies as a core document if the
defendant is an officer of the corporation (ibid., s. 138.1).
7 OSA, ibid., s. 138.4(6).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT