Theratechnologies Inc. et al. v. 121851 Canada Inc., (2015) 470 N.R. 123 (SCC)

• Judge: McLachlin, C.J.C., Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ.
• Court: Supreme Court (Canada)
• Case Date: December 01, 2014
• Jurisdiction: Canada (Federal)
• Citations: (2015), 470 N.R. 123 (SCC);2015 SCC 18;[2015] 2 SCR 106;382 DLR (4th) 600

Theratechnologies Inc. v. 121851 Can. Inc. (2015), 470 N.R. 123 (SCC)

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[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2015] N.R. TBEd. AP.013

Theratechnologies inc., Yves Rosconi and Paul Pommier (appellants) v. 121851 Canada inc. (respondent) and Mouvement d'éducation et de défense des actionnaires (intervener)

(35550; 2015 SCC 18; 2015 CSC 18)

Indexed As: Theratechnologies Inc. et al. v. 121851 Canada Inc.

Supreme Court of Canada

McLachlin, C.J.C., Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ.

April 17, 2015.

Summary:

Theratechnologies Inc. (Thera) was a pharmaceutical research and development company based in Montreal and listed on the Toronto Stock Exchange. 121851 Canada Inc. was a holding company which owned shares in Thera. Thera filed a new drug application with the U.S. Food and Drug Administration (FDA) for tesamorelin, a drug to reduce excess abdominal fat among HIV patients. As part of the approval process, the FDA referred a number of questions about the drug to an expert Advisory Committee, including questions about the drug's potential side effects. The FDA also made those questions public as part of a package of briefing materials on its website. When the questions were publicized by stock quotation enterprises, the price of Thera's shares dropped sharply. 121851 Canada Inc., which sold its shares during that period, sought authorization to bring a class action for damages under s. 225.4 of the Securities Act (Que.), alleging a breach of statutory disclosure obligations. Such an action could not be brought without the prior authorization of the court pursuant to s. 225.4 which provided that a court will grant 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".

The Quebec Superior Court (motions judge), in a decision with neutral citation 2012 QCCS 699, concluded that the authorization mechanism in s. 225.4 of the Securities Act imposed a higher threshold than the class action provisions of the Code of Civil Procedure (art. 1003), but found sufficient evidence to support the conclusion that 121851's action had a reasonable possibility of success. Thera appealed.

The Quebec Court of Appeal, in a decision with neutral citation 2013 QCCA 1256, dismissed the appeal. The Court of Appeal agreed with the motions judge that the screening mechanism under s. 225.4 was more stringent than for the authorization of a class action under art. 1003 of the Code of Civil Procedure and required more than a mere possibility of success. It noted that the legislative intention behind s. 225.4 was to make the provision a more robust screening mechanism. Based on the evidence, the Court of Appeal was of the view that there was a reasonable possibility that the action would be resolved in 121851's favour. As a result, it upheld the order authorizing an action for damages. Thera appealed again.

The Supreme Court of Canada allowed the appeal. The court agreed with the Court of Appeal that the threshold set out in s. 225.4 for authorization required more than a mere possibility of success, but disagreed with the conclusion that the threshold was met in this case.

Securities Regulation - Topic 5

General principles - Civil action for breach of statute (incl. authorization of class action) - In 2007, changes to the Securities Act (Que.) created a new statutory cause of action that enabled investors to bring claims against reporting issuers who breached their obligation to disclose material facts and changes to their shareholders - Such actions, however, needed prior authorization of the court pursuant to s. 225.4 of the Act - Section 225.4 provided that a court will grant 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" - The Supreme Court of Canada held that the "reasonable possibility" of success standard required under s. 225.4 set out a different or higher standard than the general threshold for the authorization of a class action under s. 1003 of the Code of Civil Procedure - Section 225.4 required that there be a reasonable or realistic chance that the action would succeed - A case with a reasonable possibility of success required the claimant to offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim - The court cautioned that the authorization stage under s. 225.4 should not be treated as mini-trial - A full analysis of the evidence was unnecessary - See paragraphs 21 to 39.

Securities Regulation - Topic 5

General principles - Civil action for breach of statute (incl. authorization of class action) - Theratechnologies Inc. (Thera), pharmaceutical company research and development company, filed a new drug application with the U.S. Food and Drug Administration (FDA) - As part of the approval process, the FDA referred questions about the drug (incl. side effects) to an expert Advisory Committee - The FDA also made those questions public as part of a package of briefing materials on its website - When the questions were publicized by stock quotation enterprises, the price of Thera's shares dropped sharply - An investor, which sold its shares during that period, sought authorization to bring a class action for damages under s. 225.4 of the Securities Act (Que.), alleging that Thera breached its obligation to provide timely disclosure of material changes to its investors as required by s. 73 - The Supreme Court of Canada held that the investor had not pointed to any evidence that could qualify as a material change in Thera's operations, capital or business as described in s. 5.3 of the Securities Act - Without some evidence of a material change that corresponded to the statutory requirements, there was no reasonable possibility that the investor's action could succeed - The threshold for granting authorization under s. 225.4 was not met - See paragraphs 40 to 56.

Cases Noticed:

Cartaway Resources Corp., Re, [2000] B.C.S.C.D. No. 92 (Sec. Comm.), refd to. [para. 25].

Cornish v. Ontario Securities Commission (2013), 306 O.A.C. 107 (Div. Ct.), refd to. [para. 25].

Infineon Technologies AG et al. v. Option consommateurs et al., [2013] 3 S.C.R. 600; 450 N.R. 355; 2013 SCC 59, refd to. [para. 35].

Guimond v. Québec (Procureur général), [1996] 3 S.C.R. 347; 201 N.R. 380, refd to. [para. 35].

Marcotte et al. v. Longueuil (Ville), [2009] 3 S.C.R. 65; 394 N.R. 1, refd to. [para. 35].

Dugal et al. v. Manulife Financial Corp. et al., [2013] O.T.C. Uned. 4083; 44 C.P.C.(7th) 80 (Sup. Ct.), refd to. [para. 36].

Ironworkers Ontario Pension Fund v. Manulife Financial Corp. - see Dugal et al. v. Manulife Financial Corp. et al.

Silver et al. v. IMAX Corp. et al., [2009] O.T.C. Uned. V72; 66 B.L.R.(4th) 222 (Sup. Ct.), leave to appeal refused [2011] O.T.C. Uned. 1035; 105 O.R.(3d) 212 (Sup. Ct.), refd to. [para. 37].

Dobbie et al. v. Arctic Glacier Income Fund et al., [2011] O.T.C. Uned. 25; 3 C.P.C.(7th) 261 (Sup. Ct.), refd to. [para. 37].

Round v. MacDonald, Dettwiler and Associates Ltd. et al., [2011] B.C.T.C. Uned. 1416; 2011 BCSC 1416, affd. (2012), 330 B.C.A.C. 30; 562 W.A.C. 30; 39 B.C.L.R.(5th) 44 (C.A.), refd to. [para. 37].

Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc. (2014), 49 C.P.C.(7th) 12 (Ont. Sup. Ct.), refd to. [para. 37].

Green et al. v. Canadian Imperial Bank of Commerce et al. (2014), 314 O.A.C. 315; 118 O.R.(3d) 641 (C.A.), refd to. [para. 37].

Millwright Regional Council of Ontario Pension Trust Fund. v. Celestica Inc. - see Green et al. v. Canadian Imperial Bank of Commerce et al.

Pezim v. British Columbia Securities Commission et al., [1994] 2 S.C.R. 557; 168 N.R. 321; 46 B.C.A.C. 1; 75 W.A.C. 1, dist. [para. 48].

Kerr et al. v. Danier Leather Inc. et al., [2007] 3 S.C.R. 331; 368 N.R. 204; 231 O.A.C. 348, refd to. [para. 49].

TSC Industries Inc. v. Northway Inc. (1976), 426 U.S. 438 (Sup. Ct.), refd to. [para. 55].

Statutes Noticed:

Code of Civil Procedure, C.Q.L.R., c. C-25, sect. 1003 [para. 18].

Securities Act (Que.), C.Q.L.R., c. V-1.1, sect. 73 [para. 17]; sect. 225.4 [para. 17].

Authors and Works Noticed:

Canadian Securities Administrators, National Policy 51-201 Disclosure Standards (2002), 25 O.S.C.B. 4492, Article 4.3 [para. 52].

Canadian Securities Administrators, Proposal for a Statutory Civil Remedy for Investors in the Secondary Market and Response to the Proposed Change to the Definitions of "Material Fact" and "Material Change", CSA Notice 53-302, (2000), 23 O.S.C.B. 7383, generally [para. 30].

Falutz, Julian et al., Effects of Tesamorelin, a Growth Hormone-Releasing Factor, in HIV-Infected Patients With Abdominal Fat Accumulation: A Randomized Placebo-Controlled Trial With a Safety Extension (2010), 53 J. Acquir. Immune Defic. Syndr. 311, generally [paras. 11, 46].

Gillen, Mark R., Securities Regulation in Canada (3rd Ed. 2007), p. 211 [para. 24].

Groia, Joseph, and Hardie, Pamela, Securities Litigation and Enforcement (2nd Ed. 2012), p. 352 [para. 27].

Johnston, David, Rockwell, Kathleen Doyle, and Ford, Cristie, Canadian Securities Regulation (5th Ed. 2014), p. 249 [paras. 24, 25, 26].

Pritchard, A.C., and Sarra, Janis P., Securities Class Actions Move North: A Doctrinal and Empirical Analysis of Securities Class Actions in Canada (2010), 47 Alta. L. Rev. 881, pp. 885 [para. 27]; 893 [para. 36].

Quebec, National Assembly, Committee on Public Finance, Etude détailée du projet de loi no. 19 - Loi modifiant la Loi sur les valeurs mobilières et d'autres dispositions législatives, vol. 40, No. 10, 1st Sess., 38th Legislature (October 25, 2007), pp. 1 [para. 32]; 2 [para. 28].

Toronto Stock Exchange, Committee on Corporate Disclosure, Final Report - Responsible Corporate Disclosure: A Search for Balance (1997), p. 5 [para. 29].

Counsel:

Pierre Y. Lefebvre and Philippe Charest-Beaudry, for the appellants;

Michel Savonitto and Vicky Berthiaume, for the respondent;

Éric Lemay and Dimitri Lascaris, for the intervener.

Solicitors of Record:

Fasken Martineau DuMoulin, Montreal, Quebec, for the appellants;

Savonitto & Ass. inc., Montreal, Quebec, for the respondent;

Siskinds, Desmeules, Quebec, Quebec; Siskinds, London, Ontario, for the intervener.

This appeal was heard on December 1, 2014, before McLachlin, C.J.C., Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ., of the Supreme Court of Canada. Abella, J., delivered the following decision, for the court, in both official languages on April 17, 2015.