LITIGATION UNLEASHED - Stikeman Elliott

stages of the proceeding, including at the application for leave to commence the
proceeding, a key evidentiary issue will be the subjective knowledge of the named
defendants. Individual defendants may need separate counsel, and may be able to
greatly enhance their positions on this key issue by the precautions of taking notes
and maintaining files with respect to their involvement with the issuer. In addition,
draft minutes for meetings attended should be reviewed in detail when circulated
and clarifications should be suggested in writing on a timely basis.
2.5 Oversight of statutory claims
In the United States, the availability of class proceedings on behalf of secondary market investors
has encouraged what are sometimes called strike suits. A strike suit typically takes the form of a
class proceeding commenced strategically at the drop of an issuer’s stock price with a view to
“economic intimidation”. It is intended to compel the issuer into a quick settlement.
The amendments have been drafted with a view to curtailing the risk of a proliferation of
strike suits in Ontario. The following provisions reflect this:
• The plaintiff can commence a proceeding only with leave of the court.
• The court will grant permission only if the plaintiff satisfies it that
– the action is being brought in good faith, and
– there is a reasonable possibility that the plaintiff will succeed.
• The leave hearing to commence a proceeding will thus involve the consideration of affidavit
evidence from both the plaintiffs and the defendants as part of a preliminary merits test.
• Parties who swear affidavits in support of their position on the motion for leave to commence a
proceeding may be cross-examined.
• The costs of bringing a motion for leave to commence a proceeding, including the
potentially burdensome costs of extensive cross-examinations, may act as a partial check
against frivolous claims.
• The court has the power to award costs against an unsuccessful plaintiff (although the amount
of these costs remains at the court’s discretion).
• The court must approve any settlement reached or discontinuance, as appropriate in the
circumstances.
• The plaintiff must notify the OSC at each stage and the OSC will have opportunities to
intervene. For example:
– a copy of the application for leave to proceed and any supporting affidavits must be
filed with the OSC at the time application is filed with court,
– if leave is granted to proceed, the plaintiff must issue a press release and file it with
the OSC, and
– the plaintiff must file the statement of claim with the OSC when it is filed with
the court.
STIKEMAN ELLIOTT LLP
LITIGATION UNLEASHED
25